VALUE LINE PUBLISHING – OCTOBER 2012 Harvard Case Solution & Analysis


Case Analysis

A broad analysis has been performed of the strategic issues, the industry trends, the historical financial performance of both the firms and the future forecasted performance of both the firms and then a range of alternatives have been considered and finally recommendations have been made.

Strategic Issues, Industry Trends & Positioning of Firms

The strategic issues currently faced by both the companies are emerging from the head to head competition of Home Depot and Lowe’s. Due to this cutthroat competition in the industry, the price competition among the firms is intense and this is impacting upon the sales of Home Depot and Lowe’s. Lowe’s had captured a share of the market in the metropolitan areas from the rural areas where it was concentrated previously. In this way a portion of the market share of Home Depot had been captured by Lowe’s. The bargaining power of the buyers in the market is high and this is also contributing towards the competition in the market. The reason for this is that the nature of the industry is basically of retailing and the products which are sold across the customers from the different stores are same and as a result the consumers are seeking to buy the products with better prices in the market.
Furthermore, Home Depot has also adopted many initiatives such as establishing new retail formats in the market like one-stop shop and urban stores which are impacting upon the strategies of Lowe’s. The trend of the industry is changing rapidly and the competition as a result is becoming fiercer. Both the companies are now selling their products in the metropolitan areas and the time is not far away when the sales of Home Depot and Lowe’s would cannibalize with each other. Systematic expansion plans are being formulated by the management of Lowe’s and as a result of that it is highly expected that Home Depot would fight back with significantly promotions and also everyday aggressive pricing strategies.

The trend of the industry is changing and the competition based on price wars is becoming fiercer. The threat of the emergence of the new competitors in the market is quite low. The interest rates in the market are currently low and the housing market is strong. Lowe’s has been experiencing a positive sales growth over the past five years, which might be due to the rapid expansion strategies which had been implemented by the company.

The current industry trends suggest that Lowe’s is in a better position as compared to the Home Depot Company since the economic environment where Lowe is operating is positive. Customers in these areas are more willing to invest in the credit based purchases and they are more inclined towards getting the housing loans. On the other hand, the positioning of Home Depot is also good since the company has also entered the international markets and serving in the domestic metropolitan areas.

Assessment of the Macro Environment& Positioning of both Firms

Looking at the current and the forecasted economic performance of the country and the retailing market shows that the economic environment is significantly positive. The interest rates in the market are falling and if we look at the housing starts and the unit car sales growth then it could be seen that they are growing rapidly. However, the unemployment rate is expected to decline from 4.8% in 2001 to 5% in 2007. Nonetheless, the increase is not significant. The gross domestic product is increasing consistently and the total consumption is also expected to increase. The real GDP is also expected to increase over the next five to seven years in the market. The graph below depicts the economic outlook for the key economic variables..................

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