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Retail
Home Depot Finds The World A Small Place NEW YORK - There is still a lot of room left in America for sprawling, boxy hardware stores. But as big and rich as the place is, there will be a limit to the number of discounted hammers Americans can buy. That's why industry leader Home Depot is casting its sights abroad. Unfortunately, the Atlanta-based goliath has found that the world is a small place.
Del Norte stores, which average 79,000 square feet, will continue to be run by the same management. The units will operate initially as Del Norte and then be re-branded as Home Depot after Del Norte's staff receives training. Even though Mexico has seen--and will continue to see--healthy economic expansion thanks to the North American Free Trade Agreement, it is not a particularly lucrative market now. "The way I think of Mexico under NAFTA is that it's like a poor New Jersey," says Bernstein analyst Colin McGranahan. "It has the same spending power." Though that's nothing to scoff at, Home Depot would need many more such markets to make global sales a significant segment in the $53.6 billion in sales in registered in 2001. The only problem is that there is not a lot out there that is easy to colonize. Last fall, Chief Executive Bob Nardelli said that though the chain was interested in making an acquisition in the highly competitive European market, business conditions there were "slow and challenging." The firm made a push in South America, but ended up selling off nine of its stores in Chile and Argentina last October. Home Depot has made some initial moves in China, McGranahan says, but the market there is still too green for a major expansion. Home Depot has room to grow in the United States, though that may be at a slower pace than in years past. McGranahan notes that in the Southern California market alone, there is room for 63 more big-box discount stores, despite there already being 40 Home Depots and five Lowe's (nyse: LOW - news - people ) in the area. The store also argues that it has plenty of growth from within to exploit, such as introducing home services like lawn care and pest control. The chain is already seeing the amount of square footage it adds each year shrink, however. Its square-foot growth rate--historically 25%--slipped to 18% last year, and McGranahan expects it to be trimmed to 12% in 2004. Meanwhile, the much-smaller Lowe's will see annual growth rates of about 25%. More From ForbesThe Sturdy Shape Of Home Furnishings 01.23.02The recession's big bad wolf has huffed and puffed, but still can't blow down the home furnishing business. Home Depot Remodels Its Growth Plans 11.30.01 The home improvement retailer has high hopes, but is it building on solid ground?
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