Transcript Presentation File

Executive Summary
•Research Methods
•S&P Reports
•Site visits
•Census report
•Research Insight
•Market Guide
•Findings
•Currently employing their best alternative
Table of Contents
Historical Performance
New Marketing Strategy
Concept Design
Implementation Issues
Expectations
•Historical Performance
New Marketing Strategy
Concept Design
Implementation Issues
Expectations
Home Improvement Market
• Delivering value to customers
–Low Price Sensitivity
–Focus on
• Specialized Know-How
• Broader line of products
• Greater depth of products
Increase in Sales
Sales Increase
30%
25%
20%
15%
10%
5%
0%
-5%
5.7%
-2.4%
1998
Home Depot
1999
Lowes
Homebase
% of Total Revenue
Net Income
7%
6%
5%
4%
3%
2%
1%
0%
1997
Home Depot
1998
Lowes
1999
Homebase
Operating Income
% of Total Revenue
10%
8%
6%
4%
2.7%
2%
1.4%
0.3%
0%
1997
Lowes
1998
Home Depot
1999
Homebase
% of Total
Revenue
Gross Profit Margin
30
25
20
15
10
5
0
Gross Profit SGA expense
Home Depot
Lowes
Operating
Income
Home Base
Sales per square foot
$400
$384
in Dollars
$300
$200
$279
$130
$100
$0
Home Base
1997
Home Depot
1998
1999
Lowes
Revenue per Employee
in Dollars
(TTM)
$300,000
$250,000
$200,000
$150,000
$100,000
$50,000
$0
Home
Depot
Lowes
HomeBase Industry
Inventory Turnover
Times
(TTM)
6
5
4
3
2
1
0
Home
Depot
Lowes HomeBase Industry
Alternatives
•Closing HomeBase
•Enter New Market
Long-Term Leases
• 65 Stores
• Leases from 4 to
20 years with
average of 13
• $530M noncancelable terms
over one year
In Millions
(January 1998)
$400
$300
PV $530M
340
Total Equity $395M
$200
$100 $73
$0
2001
$72
$66
2002
2003
$64
2004
Operating Leases
$62
2005
Thereafter
Historical Performance
•New Marketing Strategy
Concept Design
Implementation Issues
Expectations
Retail Industry
25
& Change
20
15
10
5
0
Specialty
Department &
Home
Discount
Improvement
Sales (TTM) vs TTM 1 Yr. Ago
Technology
Retail
Sales - 5 Yr. Growth Rate
Specialty Retail
• Home Furnishing
– Large Market
– Strong Growth
– Low Entrance Barrier
– Knowledge of the Market
Home Furnishing Retail
35
% Change
30
25
20
15
10
5
0
Bed Bath &
Beyond
Linens &
Things
Sales (TTM) vs TTM 1 Yr. Ago
Wlliams
Sonoma
Pier 1 Imports
Sales - 5 Yr. Growth Rate
Home Furnishing Market
• Features
– Highly Fragmented and Competitive
– Strong Growth
– Number of stores equals strength
– Store size expanding
– Importance of Women
Home Furnishing Market
• Key Local Factors
– New housing growth in California of
13.7% vs. 7.4% in U.S.
– Women’s population growth of 2.5% in
California vs. 1.9% in the U.S.
Historical Performance
New Marketing Strategy
•Concept Design
Implementation Issues
Expectations
New Market Segment
• Baby Boom
– (35 to 52 years)
– 70 Million
• Women Buying Power
Store Format
• Broad but limited
selection in each
category
– 10 Departments
• High quality
product/service
– Designer brands
Product Scope
• Change product
offering to home
furnishing
• Include outdoor
home products
– $33 Billion
Product Mix
Home
Improvement
Home
Furnishing
The Incredible Decorating Superstore
Other Home
Accessories
Store Concept
• Personalized
Attention
– 45% more store
employees
• Focus on Kids
– Play Areas
– Kid´s Products
• Cafe
Historical Performance
New Marketing Strategy
Concept Design
•Implementation Issues
Expectations
% of Revenue
.
Test Stores
45
40
35
30
25
20
15
10
5
0
Bed Bath and
Beyond
Linens'n Things
Gross Profit
SGA
WilliamSonoma, Inc
House2Home
Estimated
Operating Income
Sales per square foot
$250
$214
$184
in Dollars
$200
$166
$130
$150
$100
$50
$0
Bed Bath &
Beyond
Linens &
Things
House2Home HomeBase
(Expected)
Financial Analysis
• Liquidity
• Debt
• Inventory management ratios
Quick Ratio
0.35
0.34
0.3
0.25
0.22
0.2
0.2
0.13
0.15
0.11
0.1
0.05
0
House2Home Bed bath &
Beyond
Linens &
Things
Williams
Sonoma
Industry
Current Ratio
2.5
2
1.5
1
0.5
0
House2Home
Bed bath &
Beyond
Linens &
Things
Williams
Sonoma
Industry
LT-Debt to Equity
0.4
0.35
0.3
0.25
0.2
0.15
0.1
0.05
0
House2Home
Bed bath &
Beyond
Linens &
Things
Williams
Sonoma
Industry
Other Issues
• Hiring
– Change from technical to service
oriented
– Fitting the service with the new
target market
Historical Performance
New Marketing Strategy
Concept Design
Implementation Issues
•Expectations
Retail Industry
• Key Factors
– GDP Growth
• Economy will slow with real GDP
rising 2.5%, after 5.1% in 2000
– Disposable Personal Income
• Estimated 5.3% in 2000, and
• 5.1% in 2001
Beta
1.6
1.4
1.2
1
0.8
0.6
0.4
0.2
0
House2Home
Bed bath &
Beyond
Linens &
Things
Williams
Sonoma
Industry
Retail Industry
134
135
• Key Factors
130
(1985 = 100)
– Consumer
Confidence
Index
128
125
120
114
115
110
105
100
November
00
December
00
January 01
Market Trends
*$ Millions
Company
Bed Bath &
Beyond
Linens´n
Things
Williams
Sonoma
Revenue % Change
SSS
1999*
from 1998 % Change
1,878
34.4
9.2
1,300
22.0
6.4
1,384
25.4
6.4
Market Trends
• Expected Rate of Growth of
10% for Home Furnishing
Market
Threats
• Home Depot´s EXPO Centers
• Competitor´s Expansion Rate
• Ability to transform the
organization toward service
• Lack of support due to
Analyst´s response to strategy
We conclude that the strategy is an
appropriate alternative to follow in this
stage of life of HomeBase.
The concept has a good format and has
potential to become a growth driver.
The Incredible Home Decorating Superstore
Questions ?
The Incredible Home Decorating Superstore