Home Depot Forced To Go On Orange Diet

Retailer Cancels or Shuts Down 65 Stores

Home Depot's pipeline of new stores has a hole in it -- and it's bleeding orange everywhere you look. Citizen opposition to Home Depot stores is partly to blame for this hemorrhaging.

On May 1st, Home Depot released a press statement from its headquarters in Atlanta, Georgia, with the innocuous title, "The Home Depot Updates Square Footage Growth Plans." The next sentence wasn't much help either: "Company Focuses on Free Cash Flow and Returns." It turns out that the source of its "free cash" was derived from its plan to remove "50 Future Openings from New Store Pipeline."

This year, Home Depot will open "only" 36 new stores in the United States, and 19 stores in other countries. The other foreign locations were not disclosed. In addition to canceling 50 new projects, the world's largest home improvement chain said it was shutting down 15 operating stores across America, bringing the total to 65 stores abandoned or closed.

As many as 1,300 Home Depot 'associates' could lose their jobs. The store managers and assistant store managers at these locations, however, will be offered other store management positions within the organization -- but the "rest of the associates" will only get work "where available." Home Depot CEO Frank Blake said closing stores "is always a difficult decision," but he added, "our decision to slow future store growth... is the right decision and will bring long-term benefits to our associates and to our shareholders."

Home Depot has 2,258 retail stores in all 50 states, the District of Columbia, Puerto Rico, U.S. Virgin Islands, Guam, 10 Canadian provinces, Mexico and China. In fiscal 2007, Home Depot had sales of $77.3 billion and earnings of $4.2 billion---which makes it a more profitable company than Wal-Mart, measured by earnings per dollars of sales. This store cutback was euphemistically called a "strategic plan," similar to Wal-Mart's startling announcement 11 months ago that it would sharply narrow its pipeline of new superstores. Home Depot says its decision to abandon 36 new projects in 2008 "centers on the Company's capital efficiency model to improve free cash flow, provide stronger returns for the Company and invest in its existing stores to continue improving the customer experience."

Because of citizen opposition to Home Depot stores, the lead time for getting approval for a store has stretched from 3 or 4 months, to two years---or much longer. The company admitted as much in its press release. "The Company has determined that it will no longer pursue the opening of approximately 50 U.S. stores that have been in its new store pipeline, in some cases for more than 10 years."

By cutting back on the roster of new stores, Home Depot can tell Wall Street that its capital spending on new stores will be constrained by $1 billion over the next three years. This, the company says, means "stronger returns and enhancing the Company's capital efficiency model." Those last three words in laymen's terms means the retailer has been wasting its money on projects that either don't come online, or that steal from other company stores when built---the term is cannibalization. This is a form of capital inefficiency.

Home Depot described its new store diet as a "disciplined approach" to how it invests in growth, and will allow the company to focus on "our core retail business, in this case our existing stores, which drive our most profitable sales." Rather than chase a prospective buck at a new store, they will try to improve the sales productivity at its current stores. That means more store maintenance, redoing the look of the store, and other strategies to "improve all elements of the customer's shopping experience."

All this is code language for the fact that Home Depot over-reached, was growing too fast, with stores that were located too close to one another. The souring housing market would not sustain the retailer's current level of growth, and consumers aren't spending as much on home improvement projects, as consumer confidence tanks, and discretionary income falls. As far as shutting down existing stores, Home Depot says it performed a thorough evaluation of its "store portfolio," and decided to shutter 15 underperforming U.S. stores that do not meet the Company's targeted returns.

Blake mentioned the retailer's over-saturation in his rationale for thinning out its stores: "We put our real estate projects through a tight capital efficiency model. This model prioritizes locations that make the most efficient use of capital, reduce cannibalization and drive higher returns. By building fewer stores, in the best locations, and making sure our existing stores are profitable, our company will be in a much stronger competitive position."

The 15 "loser" stores are located in: East Fort Wayne, Indiana; Marion, Indiana; Frankfort, Kentucky; Opelousas, Louisiana; Cottage Grove, Minnesota; East Brunswick, New Jersey; Saddle Brook, New Jersey; Rome, New York; Bismarck, North Dakota; Findlay, Ohio; Lima, Ohio; Brattleboro, Vermont; Beaver Dam, Wisconsin; Fond du Lac, Wisconsin; and Milwaukee, Wisconsin. Closing these 15 stores will cost the company $186 million. Cancellation of the 50 stores will cost the company another $400 million in "capitalized development costs and ongoing obligations" at those sites. The axed stores will go dark within the next two months.

In many of these locations, area residents will be thrilled that the orange logo is coming down. In Brattleboro, Vermont, for example, Home Depot opponents in 2003 encouraged their neighbors to stay away from the new Home Depot when it opened. Home Depot called that boycott "bizarre...at the least this is most undemocratic." A group called BrattPower created a three part campaign: (1) to convince Home Depot not to set up shop in Brattleboro through a vigorous petition and educational campaign; (2) failing that, to encourage the greater community to continue to buy local while boycotting Home Depot; and (3) to be working for changes in the regulations and laws of the town government so as to prevent box store development in the future. "We do not need, or want, nor do we intend to support a Home Depot in Brattleboro," the group said. That vigorous 'Boycott Home Depot' campaign paid off this week, creating one of the 'underperforming' stores on Home Depot's hit list.

It's not just the faltering economy that wounded Home Depot. It's bad management decisions at the grassroots level, where the color of opposition is green -- not orange.

Al Norman is the founder of Sprawl-Busters.

Comments

[JScott]

So I wonder if they are still battling the neighborhood in Sunland/Tujunga to put a store in a former K Mart. Which BTW isn't needed-like another commenter pointed out in some areas they have reached (unprofitable) market saturation-The San Fernando Valley has one just about every 2 or 3 miles on major streets.

[gonavy]

Haven't been to Home Depot in 3 years. I was tired of their horrible customer service, but it came to a head when I was 8 months pregnant and 2 customer service guys watched me as I was loading up a 5 gallon bucket of paint. When I looked at them to ask for help they turned around and walked away.

As much as I wanted to dump that paint out in the middle of the store, I just walked out and never went back.

[MajorKong]

I actually don't mind Home Depot, but there are three of them within a 10 minute drive of where I live, which sounds like they've hit market saturation. To put any more in my area they'd have to build them across the street from each other.

[TommyBobama]

Home Depot deserves whatever happens.

[dadw5boys]

Guys don't get your hopes up she will find some other place to get stuff to keep you busy and working at home.

[gonavy]

Do you mean husbands actually fix stuff? Where can I find one of these husbands?

[torrrep]

Amazing. People complain that there are no jobs and that the economy is bad. Yet when businesses try to open up shop to provide a service and to provide jobs, they get run out of town. Unbelievable.

[dadw5boys]

Shot where so you live? It happens all the time. Here one business was opening and was going to pay top dollar for good people. Then the local businessmen took them to lunch and suddenly they were only paying miniunm wage and working the people like slaves. Before long they had to hire a lot of security because people were taking stuff off the shelves.
If they had paid higher wages there would have been not theift.
The local business here are very old and comfortable on all the city commissions and boards that make sure no real competition comes in and takes away their good worker with better pay.

By the way do you miss the fact that many of the laws congress passes limit competition??
Even enviormental laws that grandfather in old established businesses create a BARRIER TO ENTRY for any new competition.

[wm1066]

Cheney's super secret energy plan to raise gas prices (for thier own greed) is having a bad effect on Home Depots bottom line. Home Depot was a huge supporter of bushcheney in both elections.
These guys couldn't think further than thier noses and now thier stores are in trouble, well boo hoo.
Hope they go the way of the dodo bird.

[PhillyQuaker]

I hate Home Depot. We ordered kitchen cabinets from them a few years ago. They were damaged, looked like factory rejects, actually.

We called and called Home Depot to get replacements. No one called back. Only when we put our charged bill in dispute did we receive any attention. The Dept. Manager came over to the house, with a big chip on his shoulder, and a wise-guy attitude as well. He looked at the cabinets and said they were fine. We said they were seconds. We had to argue with the guy to get decent replacements. Won't be buying anything else from Home Depot. They are horrible. This was no little purchase either, good grief.

[Ramirez]

I second.

Home Depot has the worst service in the industry. We were planning a full, top to bottom master bathroom remodel. Cabinets, tub, shower, countertops, the works. Went into HDepot to start the process. Hung around for over an hour trying to get service or to find someone with a clue.

Went to Lowe's. Spent 10 grand.

[nomoredead]

With the closing of this type of stores and the price of gas we might see a return of the neighborhood hardware store that you can walk to. Things could really change for the better.

[hank48188]

It seemed like Home Depot was doing better when it sponsered a CHEVY in NASCAR, but now it has a TOYOTA that is not AMERICAN. If you want AMERICANS to shop in your store you better get a CHEVY , DODGE or FORD. I think Lowes still has a CHEVY,Think I will go there.

[ShawnMichel]

Yeah, that's a good reason, Jed.

Isn't John Hagee about to give a sermon? Best turn on your b&w in your trailer to catch it.

[Ramirez]

Lighten up on the hate. What hank was saying is that a company needs to know and respect its customers. And he's right.

Marketing 101.

[gonavy]

I would love to buy another Dodge, if their transmission wasn't crap. As for all the "American" cars, just how much of an American car is produced in America? If I'm not mistaken, Toyota and Honda actually produce the vehicles in the US, providing US jobs. Perhaps 30 years ago your statement would have held up, but not today.

I was raised to buy American, and I always have, but our next car will be a Honda.

[ThoughtfulDavid]

What's amazing is that the person who is most responsible for Home Depot's problems is its former CEO, Robert Nardelli, who was fired about a year ago. Of course, poor guy, he's now out on the street and living in cardboard box, eating at soup kitchens.

Oops, that's right, I forgot. He got about $200,000,000 as a severance package, and was hired to run the new, private Chrysler. After all, he did such a good job at Home Depot.

And people wonder why the citizens might think Home Depot deserves what it gets?

[clr2]

Why are "citizens" against Home Depot? Could it be that they encourage the hiring of ILLEGAL ALIENS? Could it be that they have built areas for ILLEGAL ALIENS to hang out until they are picked up to work ILLEGALLY? Why didn't you mention why the "citizens" were against Home Depot?

[Marco]

I'm not one of those narrow-minded, reactionary, shrieking citizens all scared that some ILLEGAL ALIEN (oooooo!!!!) is going to take their job like clr2.

But this citizen is "against" Home Depot for their abysmal service, disorganized & messed-up stores, and abhorrent policies.

There's a Home Depot less than 1 mile from our house, but we constantly make the 5 mile trip to Lowe's because a visit to Home Depot leaves me cold - and usually without the items I came in for.

[WandaBooneshaft]

In our town, Home Depot and Lowe's are RIGHT NEXT TO EACH OTHER -- which is RIGHT NEXT TO A Wal-Mart. Literally. How's that for planning?

They all have the exact same stuff and the exact same shitty service.

It wouldn't bother me if they ALL went out of business.

[clr2]

I'm an educated person. An ILLEGAL ALIEN could never take my job. ILLEGAL ALIENS do take my tax payer money though. I am sick of paying for the health care and education for people who don't belong here.

[torrrep]

I do like Lowes better. Better customer service and brighter, cleaner, etc.

[lanshark]

clr2 writes: "Why are "citizens" against Home Depot?"

I don't know about illegal aliens, but many communities have or are facing off against Home Depot for many of the same reasons some communities have opposed Wal-Mart. One of the main causes is that the retail giant brings in money and lawyers to have land rezoned for their stores, in some cases displacing residents or forcing residents to live right next door to a store, and fear for their property values from the increased car and noise pollution.

Some communities fear that the big box store will force local businesses (usually hardware stores, specialty stores like flooring, nurseries) out of business, and this has largely been the case, as Home Depot doesn't really add anything to the community, but rather cannibalizes surrounding businesses by driving them out of business. In those communities there's no upside to getting a Home Depot store. Small locally owned stores tend to keep money in the community while large box stores send revenue out of the community.

Home Depot's treatment of workers, while not as egregious as Wal-Mart, is less than stellar, and the corporate culture is very similar to Wal-Mart's. Workers are often exploited with no overtime, low pay, and their employment agreement states that they can be fired anytime for no reason. Like Wal-Mart, Home Depot has also had to face massive class-action lawsuits with regards to not affording women the same opportunities and pay as men.

[dadw5boys]

Ever consider the old estiblished businesses don't want competition??