Today we report on Home Depot’s decision to abandon the opening of 50 new stores and close 15 stores. That might not seem like much considering that the chain has more than 2,200 stores, but we would image that few people would have predicted this a couple years ago.
It seems like every chain is pulling back from their ambitious expansion plans, from Starbucks to Kohl’s. We’re in an environment where store closures and bankruptcies are expected.
But since we are dealing with a housing slump it sure seems as though chains like Home Depot and competitor Lowe’s, which is also slowing is growth, are especially susceptible.
Is a pullback in expansion and a slight shedding of stores enough for Home Depot to keep its head above water, or will things get more extreme for the home-improvement giant? Could any of this be a result of overexpansion?
Counter Culture 
Closing stores because they always picked the B site.
I think there are two how the slowing economy affects stores like Home Depot and Lowes. Yes, big commercial accounts with homebuilders and rennovation companies may be dwindling…but those of us who have “pulled in the reigns,” so to speak, are finding ways to do much of those rennovation projects ourselves. Our Home Depot and our Lowes in town are both PACKED everytime we go, with do-it-yourself-ers. I think their overall profits are hurting, and closing non-productive stores and slowing expansion is a smart move. I just don’t see them going out of business any time soon. They’ll survive.
There is a time to grow …and [NOW] there is a time to bunker down and hold on to your hat…………time will tell…kind a out of there control ………
As a former real estate executive at a major national retailer there are times where you find yourself stuck between a rock and a hard place. You are committed to Wall St. for a certain level of growth every 3 months and you are committed internally that a certain amount of that growth will come from new stores so it’s a vicious cycle. Real estate is under pressure to continue to find “great” new locations while operations is under pressure to “open” these stores at or above “plan”. At some point this cycle become more difficult to continue at a certain growth level and one of two things happens; (a) you end up approving new stores that you aren’t as convinced of their potential than stores you approved in the past and you just hope for the best, or (b) you find a way to tell Wall St. that you are putting the breaks on….. and hope that your stock price doesn’t get penalized for being rational ! Given the housing slowdown, Home Depot is probably in a combination of (a) and (b). The good news (and there is good news) is that Home Depot’s moves don’t really surprise any of their analysts so the “ouch factor” will be minimal.
It seems to me that unless Home Depot follows the up and coming stock market in Mexico and start opening stores there, they won’t have anything to open in the US for a good 3-5 years. But I don’t think even Mexico can escape from the credit crunch as it has now turned global.
The housing boom and growth boom is done, done done in the US. The subprime crisis has led to the present credit crunch which is causing the lenders and Wall Street to clamp down on both the Tenants’ expansion plans as well as simultaneously clamping down on the Landlords’ Leasing Budgets and New Shopping Center Developments. Wall Street Mortgage Backed Securities have not only fueled housing, they’ve fueled the Go Go days of the last 5 years in Retail Real Estate. I knew it was coming to an end when in 2006 all of the Landlords were throwing the most outlandish parties at ICSC (International Council of Shopping Centers) just like it was 1929 before the Crash: Apple Martinis, caviar, large prawn shrimp for thousands of guests. It reminded me of the book “The Crash of ’29”. When I got up during one of the Q & A sessions of ICSC with a panel full of developers, they were all quite in disagreement with my pointing out that the storms were on the horizon: cash cramped consumers, poorly underwritten loans, revisionist broker/developers (a sure sign of a bloated market is when any half witted broker overnight remakes himself into a developer and can actually talk someone else into lending him the money).
So, in summary, this is just the beginning for Home Depot and pretty much all the other retailers, except for Tax Service entities, like Jackson Hewitt Tax Service. Anything related to Home, Apparel, or Restaurants, will all be hurting, especially. Stick to the meat and potatoes (non-discretionary) retailing for awhile, that’s my advice.
Home Depot does not solely depend on new home construction or home sales. However, same store sales will likely level off or decline for a period of time.
The real question is how long will the recession last and what regions will perform better than others? The US market is regional. This will determine the store expansion and store closure strategy.
The microeconomic question is how well retailers can lower their fixed costs and manage their variable costs, so they can retain their competitiveness and long-term profitability.
Those dominant retailers like Home Depot and Lowes, which make the right decisions will weather the storm and gain market share.