Home Depot's Dilemma: How Much Can A CMO Fix?

Home Depot's CMO Roger Adams, who has been in the position for just one year, is leaving. John Ross, vice president/advertising, "has been named interim lead of the company's marketing organization," a spokesperson says.

But replacing Adams--who joined the company from General Motors in 2005 as senior vice president/marketing--with a CMO who might actually help solve some of the company's problems won't be easy. For several years now, the company's same-store sales results have been in an ugly downward slide. Some of the problems, to be sure, can be traced to lousy timing: The protracted slump in the U.S. has soured consumers' appetite for home improvement. But bad calls in terms of format, merchandising and customer service have also hurt the retail giant.

In a recent speech at the Association of National Advertisers' annual meeting, Adams talked about the reinvention of Home Depot as being "our home improvement project. The magic behind the brand is the emotional connection, the power of 'I did it.' Home Depot's overall strategy is to deliver empowerment to people." Adams oversaw ads that let all kinds of consumers--Hispanics, African-Americans, and single moms--show off what they were able to accomplish with the Home Depot's help.



The trouble is, according to a new report from TNS Retail Forward, the store's market share continues to decline, and even its former fans are shopping there less often. "Compared with the performance during the past quarter century, the outlook for The Home Depot is downright grim," the report says. "The housing slump, stiff competition and its own strategic missteps in recent years will combine to drag growth sharply lower in the next five years."

TNS Retail Forward predicts its market share, which peaked at 22.8% in 2003, has fallen to 20.3% in 2006 and will fall to 19.3% in 2011--perhaps more if competitor Lowe's continues to expand at its rapid rate.

Not only are fewer people shopping The Home Depot overall, it's lost a significant amount of traction with its fan base, with fewer people saying they shop there monthly. Only 15% of primary household shoppers say they visit Home Depot on a monthly basis--down from 18% for all of last year, and seven percentage points below 2004 level.

Improving performance, the report concludes, will depend on how skillfully the company can reinvent its format, as other big-box stores continue to cannibalize its sales.

And there are potential winners in the works. Some of the newer formats include downsizing to smaller stores, adding two-story showroom concepts, and creating design "store within a store" concepts, like the Home Decorators Collection now being tested in a store near Toronto. In addition to expanding its Eco Options, a classification within stores to identify green alternatives, the company is also testing an initiative called Smart Homes, which combines all aspects of home communication, connectivity, safety and entertainment. A 6,000-square-foot Smart Home prototype is expected to be finished this fall, it says.

"The Home Depot's checkered past with regard to new formats notwithstanding," the report concludes, "it will be crucial to penetrate untapped growth opportunities with smaller formats that can be plugged into smaller markets. New management can afford no letup as it weathers the housing recession while attempting to win back once-loyal customers."

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