North Carolina State University Home Depot Article Questions

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Business Finance

North Carolina State University

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A minimum of three (3) resources, including scholarly journal articles are required for each report. The paper must be uploaded to Moodle. Prepare and assemble your paper as follows: • Cover sheet (Subject, Title, Course Number, Date and Name).

• Paper must be 750-word minimum, double-spaced (12-point font: Times New Roman). • The750 words do not include the cover sheet and references; only the body of the paper. • The paper must be written in “3rd person.” • No Abstract for this assignment. • Margins: Top & Left (1.0 inch); Bottom & Right (1.0 inch). • All references must be a combination of journal articles and internet sources. • Wikipedia is not considered to be a scholarly source by the academic community. • A Reference List is required. Writing Style: APA. • Plagiarism will result in a zero for the course

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Review Questions and Exercises 1 1. Visit the websites of several major restaurant chains. Identify the industry(s) in which each one operates. Would you categorize them in the same industry or in different industries (for example, fast food, family restaurants, etc.)? Why or why not? 2. Identify an industry that has low barriers to entry and one that has high barriers. Explain how the difference in entry barriers influences competitive behavior in these industries. 3. Identify some businesses whose sales have been adversely affected by substitute products, Why has this occurred? 4. Identify an industry in which the suppliers have strong bargaining g power and another industry in which the buyers have most of the bargaining power. How does this affect potential profitability in the industries? Chapter 2 Practice Quiz True or False 1. A firm always operates in a single, distinct industry, 2. All industries follow the stages of the industry life- cycle model. 3. The likelihood that new firms will enter an industry is contingent on the extent to which barriers to entry have been erected. 4. Higher capital requirements for entering an industry ultimately raise average profitability within that industry. 5. Substitute products are produced by competitors in the same industry 6. A key limitation of Porter's five forces model is its reliance on resource-based theory, Multiple Choice 7. Industry growth is no longer rapid enough to support a large number of competitors in which stage of industry growth? A. growth B. shakeout C. maturity D. decline 8. The intensity of rivalry among firms in an industry is dependent on which of the following? A. concentration of competitors B. high fixed or storage costs C. high exit barriers D. all of the above 9. The decline in unit costs of a product or service that occurs as the absolute volume of production increases is known as A. production effectiveness. B. effective operations management. C. economies of scale. D. technological analysis. 10. When switching costs are high, A. customers are less likely to try a new competitor, B. companies spend more on technology. C. companies seek new suppliers to reduce costs. D. none of the above 11. Which of the following is not a cost advantage independent of scale? A. proprietary technology B. favorable locations C. experience in the industry D. high volume of production 12. What is occurring when those who purchase an industry's goods and services exercise great control over pricing and other terms A. a high bargaining power of suppliers B. a low bargaining power of suppliers C. a balance of power among suppliers D. none of the above Case 2: Home Depot Bernard Marcus and Arthur Blank founded Home Depot after Home Depot expanded into California in 1985, and by losing their jobs in the home improvement industry in 1978. the following year, had amassed a total of sixty stores and Their vision was to focus on the needs of the do-it-yourself sales of $1 billion. Home Depot continued to grow and (DIY) market, specializing in building materials and lawn and entered the northeastern United States and Canada in sub- 5th garden equipment. Three stores were launched in the Atlanta sequent years, reaching 500 stores by 1997. Home Depot 1979, and four stores in south Florida were added in added a direct-mail interest by acquiring mail-order firm 1981. The firm posted sales of $50 million that year and went National Blind & Wallpaper Factory and direct-marketer public. By 1983, Home Depot had opened stores in Louisiana Maintenance Warehouse. and Arizona, with total sales exceeding $250 million. area in Chapter 2 Industry Competition 39 Jersey in 1999, 40,000-square-foot outlets designed to com- Home Deport launched Villager's Hardware stores in New workers throughout the Americas. Home Depot contin- add large appliances to many of its stores. In 2000, Marcus Depot promotes a community focus through the Home pete with traditional hardware stores. The firm also began to products stocked in a 130,000-square-foot facility. Home ues to focus on the DIY customer, with more than 40,000 and Blank became co-chairmen, and former General Electric Depot Foundation. executive Robert Nardelli was named president and CEO. Aggressive expansion continued in 2001 when Home Case Challenges Depot added another 200 stores and acquired Total Home, a small home-improvement chain in Mexico. Marcus and Blank stepped down as co-chairmen, and Nardelli assumed the role in addition to his CEO responsibilities. Having abandoned its Villager's Hardware concept the previous year, Home Depot opened its first small store about 60,000 square feet--in New York City in 2002. The firm continued its expansion into Mexico, acquiring Del Norte, a small chain in Juarez. Home Depot operates over 100 stores in Canada and has opened a business- development office in China. Competitive pressure from Lowe's has caused Home BGI Retail, Inc., "Home Depot—Retail Is Detail Merchan- Depot to aggressively upgrade its old stores, while con- tinuing its growth efforts, and contributed to CEO Robert Nardelli's ouster in 2007, when he was replaced by Frank Blake. Sales peaked in 2008 amidst the housing crisis, stagnated, and then rose again throughout the carly 2010s. Today, Home Depot is the world's largest home Home Depot Foundation, http://homedepotfoundation.org improvement chain and the second-largest retailer after Walmart, amassing $79 billion in annual revenues, operat- ing approximately 2,250 stores, and employing 371,000 1. Is it necessary for Home Depot to emphasize both the DIY and contractor segments of the market to build and maintain economies of scale? Is one segment tied more closely to the general state of the economy than the other? Explain. 2. Has competitive pressure from Lowe's caused Home Depot to modify its business strategy? If so, how? 3. Do international opportunities exist for Home Depot beyond North America? Suggested Sources dising Experts Team (MET)." Youtube, 10 August 2015, https://www.youtube.com/watch?v=Fa08L46vOQE. P. Goodfellow, "Lowe's Fails to Man Up Against Home Depot. Underestimates Menards," Forbes, 26 May 2015, http:/ www.forbes.com/sites/forbesinsights/2015/05/26/lowes-fails- to-man-up against-home-depor-underestimates-menards/ L. Lorenzetti, "Why Buy Online, Pickup in Store' Isn't Working for Retailers," Forbes, 5 November 2015. http:// fortune.com/2015/11/05/online-store-pickup. Simulation 101: Industry Fundamentals Industry definition is not required in a simulation. It has tial for profit for each firm. If rivalry is high, then it is already been defined for you, but there are two key con possible for most or all companies to lose money. This cepts in this chapter that you should consider when making usually occurs in a simulation when virtual companies strategy decisions. The first is the life-cycle stage of the end up in a price war to secure market share. There is no industry. Most simulations provide narratives and indus- way to resolve this dilemma until enough team managers try revenue growth data to aid in your decision making, decide that cutthroat competition is counterproductive If your industry is young and growing, it is worthwhile to and raise prices. This is easier said than done because consider expansions capacity, an emphasis on market- each player has an incentive to increase prices until doing ing for the long term, and developing new products aimed so has a strong negative effect on demand. The result is at meeting future needs. If your industry is mature, issues a guessing game because industry prices are not known such cost containment and product reliability might be until after a round has been completed. Be warned that some students might attempt to collude with others and more important. Of course, all of these issues should be considered to some extent, regardless of life-cycle stage. agree to raise prices in unison. This is both unethical and The second key concept from this chapter is the evalu- unlawful in the real world, and will invite the deserved ation of existing rivalry. The text identifies a number of wrath of the administrator-your professor – if (and usu- factors that increase rivalry, thereby reducing the poten- ally when) it is discovered. 40 Chapter 2 Industry Competition
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Running head: HOME DEPOT

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HOME DEPOT
Student’s name
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HOME DEPOT

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Question 1
Yes. Home Depot should focus on both contractor and DIY segments to reap maximum
benefits. Economies of scale refer to the cost benefits gained by a company when production is
optimal and running costs are lower. The company can spread costs over a large number of
goods, which enables it to attach lower prices to its products. In the home improvements market,
contractor segments and Do It Yourself segments are critical consumer groups that keep the
industry running. The DIY group involves consumers who do not seek professional help to
complete their activities using home improvement products (Redman, 2018). This group has
evolved as it can personalize products and, in turn, gain a great economic advantage. The
contractor segment, on the other hand, involves consumers employing the professional services
of contractors to get their home improvement activities done.
DIY customers are beneficial to Home Depot in many ways. First, these customers are
willing to pay more for quality products. This is because they are investing much time and effort
towards a particular project and want t...


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