Contracting At Home Depot

Louis Uchitelle’s article, Home Depot Girds for Continued Weakness, is an interesting look at what the chief executives of the home improvement big box did when the economy tanked. Their first order of business – “Get the cash!”

Carol Tome, the chief financial officer literally ordered all Home Depot managers to send their spare cash to headquarters. The strategy was to avoid having to take any loans from banks for their short-term operating costs. In a sense, Tome and chairman and chief executive Frank Blake “did it themselves” when it came to keeping the company afloat. And like most Americans, they cut back by opening fewer new stores and closing their Expo outlets geared toward wealthier clientele.

Uchitelle writes that Blake “casts himself not as a tycoon and visionary – the proclaimed characteristics of chief executives in the expansion era – but as a well-educated storekeeper.” Blake is now focused on increasing sales in existing stores and getting revenue back to what it was three years ago.

I’m torn between really liking the humble, “aww, shucks” profile of Blake and feeling slightly manipulated by an article that fits perfectly into the Home Depot brand mythology of the capable, no-nonsense, it-might-be-rough but “You can do it. We can help.” Uchitelle writes a good story about a likable company run by a “lean New Englander.” I leave liking Blake, hoping he succeeds. And I keep seeing Jimmy Stewart in my head.

For me, what was missing a bit of the dark side of business. Of course, business articles don’t have to focus on the negatives but there was no talk of layoffs and most surprisingly, no talk of their stock prices. There was most definitely a tension in the sense that it leaves me wondering if they can make it – Will they live or will they die? But I’m left wondering how the employees and stock holders are faring.

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A Return to Value

More is not better.

That’s one lesson some companies are taking out of the recession. And consumers? More are returning to the “do-it-yourself” ethics of their grandparents’ generation, as Louis Uchitelle points out in his May 19th piece about home repair giant Home Depot.

Snow blowers, vegetable seeds and gardening supplies? In, as Americans think twice about hiring someone to clear snow off their driveways and plant their own gardens to shave off grocery expenses. Luxury patio furniture and top of the line kitchen equipment? Definitely out.

Hope Depot has responded to declining sales, tightened credit and jittery consumer confidence by returning to value. Contrary to the ideals of capitalism, its putting aside plans to expand by not building new stores, instead focusing on enticing customers to their existing locations and positioning necessary items they know customers will buy.

It seems the recession is making customers and companies both leaner when it comes to finances and more money-savvy. After years of consumption in the name of patriotism, 2009 is all about scaling back. For the first time in years, Home Depot is not borrowing money and paying all its expenses from revenue. Shoppers, too, are realizing that maybe they don’t need gilded door knobs for their bathrooms and $500 frying pans. Grandma would be proud.

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Home Depot Tightens Its Tool Belt

In the New York Times article, Home Depot Girds for Continued Weakness, reporter Louis Uchitelle, gives the reader a new perspective on the financial collapse.  Lehman Brothers collapsed, the markets went haywire, and no one is thinking about what Home Depot was going to do.  I’ll admit until I read this, I rarely gave Home Depot’s survival a passing thought.  I was drawn in with the tension of the lead.  I could picture that big warehouse store and the cashier’s in their orange aprons emptying the registers.

The problem for most companies has been it’s failure to secure short term loans and here’s this gigantic company combatting this by not needing to borrow any money.

“In his view, the hard times and the less generous credit are restricting consumption and undermining the corporate expansion that drove economic growth in recent years,” wrote Uchitelle about Home Depot CEO Robert Blake.

I think the contrast of Home Depot’s strategy of scaling back and closing down unprofitable side businesses with Lowe’s strategy of continued expansion really enhances the piece.

“Home Depot’s closest competitor, Lowe’s, is taking the opposite tack, continuing to open outlets at a brisk clip in hopes of closing the gap with its much bigger rival.”

The story fell a little short at the end.  I am not sure throwing in the anecdote all the way at the bottom about the people buying the foreclosed home works for this piece.  I think that mentioning where the growth is and what the customer will look like works, but this anecdote gets me wanting a little more.  It could have been a whole other story.  It could have led the reader into a story about the money people are spending on fixing up foreclosed homes and how that’s keeping companies like Home Depot afloat.  Not sure it really enhanced this piece so close to the end.

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Home Depot Fixes Itself

Home Depot has long been one of the most profitable American companies, specifically because of its rapid expansion rate. They faced a real challenge going forward in the recession because almost every industry vial to the company’s success was in a free fall. Home sales, retail sales, and consumer confidence. Still, the piece profiled how the company added by subtracting, basically closing areas that were bound to fail, halting its growth rate, and refusing to borrow any money. The company had enough foresight to know how much trouble the U.S. economy was in and  they made sure they weren’t borrowing any more money. 

Home Depot’s corporate strategy going forward in the recession is interesting for many reasons.  If anything, they’ll be paying for everything out of profit, something that most companies can’t do let alone want to. The story was a great example of how one company can say enough and still contend in the do-it-yourself retail market. 

Comparing the company to Lowe’s and Wal-Mat also did wonders for the story. It really conceptualized Home Depot’s standing in the market place and also showed readers two different strategy’s: Wal-Mart taking a step back to stay in the lead, and Lowe’s pulling all the stops to try and close the gap. 

The story didn’t do so well in explaining how they were going to increase sales at existing stores. It mentioned how they were going to cut areas that they anticipated were not going to do well but they did not say how exactly they would increase the sales.

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Critique of Uchitelle

The article, Home Deport Girds for Continued Weakness, by Louis Uchitelle brings you into the thinking and mindset of Home Depot executives. The lead anecdote allows one to visualize money being moved from all of the stores back to the companies head quarters. This is a very visual

While the author does a strong job of making an economic piece visual, he misses some key points about the company. I think explaining more in-depth about the financial state of Home Depot would have been helpful. He writes about revenue for Home Depot. I think it would have been good to explain the same for its rival, Lowes.

I think Uchtille’s use of quotes to illustrate his points are not particularly exciting, but they are clear and to the point.  I especially like the transition in this paragraph:

So he reversed, or halted, a decade of expansion. Starting in early 2007, he scaled back new store openings from one or two a week to just five all year. “When we were in our growth mode,” he said in an interview,” we would do like a heat map and we would say, ‘Look, southwest Cleveland, there is no store there.’ And we would put on there. That’s over.”

Uchitelle uses powerful verbs and moves the thought forward and personalizes the tone with the quote.

The one other thing I think the article is missing, is a clear transition from the use of loans to expanding a company. A stronger case could have been made to explain why loans are so vital to a companies expansion prospects and the relationship between loans and new stores or products.

Overall, I thought the piece was engaging and provided an interesting angle to the issues in the credit markets and housing. However, my main critizism is that it jumped around between different ideas, instead of sticking to a main theme.

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Critique of Uchitell's Story about Home Depot

Louis Uchitelle’s story about Home Depot’s turnaround during the downturn is well-written, and self-explanatory.

The story focused on Home Depot’s efforts to get rid of debt and keep the pace of its moderate growth during the recession, and compared Home Depot with Lowe’s, its biggest rival. Although Lowe’s expanded their stores, taking advantage of lower costs in the downturn, Home Depot’s strategy proved to be more appropriate for companies struggling and trying to survive not only for today, but also for the future.

The long-term strategy also match with the market trend that the era of operating easily on borrowed money is over. The writer used quotes from academic professors, corporate executives, and consumers to support his underlying conclusions.

Also, the story gives numbers showing Home Depot’s revenue, profits, and debt to prove the logic behind the facts makes sense.

The writer includes background information and some anecdotes to write about two key figures- Home Depot’s CEO Frank Blake and CFO Carol Tome. For instance, Mr. Blake called himself as a well-educated storekeeper. Those details add color and make the story more readable.

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Uchitelle: You Can Do It, We Can Help

Louis Uchitelle’s NY Times article “Home Depot Girds for Continued Weakness” (5/19/2009) discusses how the home-improvement retailer has chosen to deal with a suffering economy.

One thing Uchitelle fails to do is flesh out issues completely. For example, he compares Home Depot’s corporate strategy of improving existing outlets to that of its competitor Lowes, which is continued expansion. Uchitelle talks about the difference in quarterly earnings, motives, and risks. However, he does not provide enough detail about differences between their strategies. Uchitelle cites economists’ and experts’ thoughts on each company’s actions, but his sources about Lowes are much less specific and informative, and they leave obvious questions unanswered.

For example, this is how Uchitelle addresses Lowes’ expansion mentality:

Still, a significant number of holdouts stick to the expansion formula, including the Lowe’s chain, which has a third fewer stores than Home Depot. “We think there is tremendous opportunity longer term,” Larry Stone, president and chief operating officer, said recently. Lowe’s cites California, among other western states, as a particularly fertile market, postrecession.

And that’s it.

Umm, this is a post-recession. Consumers aren’t really buying, and the housing market is doing poorly. The fundamental question here is: Is expansion the way to make Lowes viable right now? Basically, if you forecast success in 2020, that’s great, but can you even make it to then?

And then there are the secondary, or follow-up, questions Utichelle should have asked: Are you seeing profits in these new stores? Why are California and other western states fertile? etc.

Second, Uchitelle doesn’t really provide a complete bigger picture for the corporate strategy that is his article’s focus. The strategy is, clearly, the decision to improve what you offer and how it’s offered rather than increasing its availability.

Uchitelle explains how such a move is helping Home Depot:

With the emphasis on increasing sales in existing stores, Home Depot no longer needs to borrow money to build new ones, Ms. Tome says. Instead, for the first time in years, it is paying all its expenses from revenue.

Earlier in the piece, Uchitelle provides the pros and cons of this move and its possible repercussions. What he doesn’t address is the context of such a move: How big a deal is it that Home Depot no longer depends on short-term loans and pays for its expenses from its revenue? How common is it? Have other companies done this, either recently or in response to the recession? Is it something that will have different behaviors in different industries?

These omissions are like glaring holes in Uchitelle’s article, and their presence is sorely missed.

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Selling Shovels After the Gold Rush

Frank Blake is vividly described as the steady shop keeper who, broom in hand, is ready to ride out the tough times, through old fashion belt tightening. Better still, he is not merely reacting to a stormy marketplace, he felt it in his old bones long before the other, friskier guys up the street.

Mr. Blake had an epiphany soon after he took over the top job at Home Depot in January 2007. The collapse of Lehman Brothers was still nearly two years away. So was the credit crisis and deep recession. But housing prices had peaked, and Home Depot’s revenue had begun to fall as the enthusiasm for building and furnishing homes waned.

By early spring of that year, Mr. Blake — frequently visiting the big box stores in his empire — had decided that the housing downturn was getting worse, and might bring down the economy, along with Home Depot’s revenues.”

But while Blake’s demand that Home Depot become a cash business might be the kind of good old fashion common sense that Uchitelle is ascribing to Home Depot’s sure handed chief, the writer is far too generous on his sense of prescience. By March of 2007 house prices had fallen the hardest in 20 years. It wouldn’t really take either a strong sense of conservatism or foresight to say that Spring of that year was not a time to be building lots of stores for people looking to do home construction.

The belt tightening sections of the story give a real sense of the type of strategy that Blake is bringing to Home Depot. But the article overlooks a much more important question: what is Lowe’s thinking? What kind of management wants to build the most home improvement stores during a historic collapse in home prices? Restricting expansion during a crisis is much more of a reaction than a forecast. It is the contender that is worth looking at. Either for vision, or more likely, foolishness.

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Writing About Writing: Home Depot and the Economy

A critique of Home Depot Girds for Continued Weakness by Louis Uchitelle, published May 18, 2009.

In this corporate strategy piece by Louis Uchitelle, the details of Home Depot’s efforts to streamline in order to cope with a recession economy are carefully laid out.

However, although Home Depot’s executives – like Carol Tome, the chief financial officer, and Frank Blake, the chairman and chief executive – are well-represented in the story, along with economists, who offer a critical look at the state of the company, there are a few crucial players who are conspicuously absent from the piece.

The first unrepresented party is the company’s shareholders. There is no mention of how the ceasing the expansion of Home Depot has affected the shareholders, or what their reaction has been. What’s more, there is no mention of how stocks in Home Depot have performed through the recession, leading up to the time the article was published.

The second unrepresented party is the public. Home Depot has a public image, and it would have been interesting to see how that image was affected by large-scale layoffs, or by scrapping plans to build stores in communities that were expecting them.

Finally, although the Lowe’s angle was an interesting one, it would have been interesting to hear from local hardware stores that were bracing themselves to compete with an incoming Home Depot outlet and now can relax a little.

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Borders Sees Earnings Drop Amid Flight to Online and Discount Retailers



To say that Borders had a bad year is putting it mildly. The Ann Arbor, Michigan-based book seller reported losses of $68 million for the first two quarters of 2009, a devastating slide from the previous year when Borders posted $210 million in profit. Among the reasons for the slide is the loss of business to online and discount book retailers. Another is the price war, recently launched by Wal-Mart, that put new best sellers at $10, in an effort to undercut competition.

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