Home Depot to Open 61 New Stores--7 in O.C.
In a bid to overwhelm its competitors, hardware giant Home Depot Inc. today will announce a massive expansion in California, spending about $850 million to build 61 new stores over the next three years.
The buildup, which will add 10,000 jobs, will boost the Atlanta-based chain’s presence to 156 stores in the Golden State, making it one of the largest retail expansions in state history.
Analysts said the move will put increased pressure on smaller regional competitors such as HomeBase Inc. of Irvine and San Diego-based Dixieline, and will probably force some smaller independent hardware stores out of business.
Company officials say the move is prompted by the resurgent California economy and consumers’ increasing willingness to spend money on home repair and remodeling projects.
Fueling Home Depot’s growth are strong sales at its 95 California stores. Sales at stores open at least a year--a key measure of growth--are rising at an annual rate of more than 10%. Last month, locations in Marina del Rey and Hollywood began operating 24 hours a day.
“There’s not a single area [of California] where we’re not having a great year,” said Lynn Martineau, president of Home Depot’s western region headquarters in Fullerton.
Thirty-three of the new stores will be built in Southern California, including seven in Orange County, Martineau said. An additional 24 will be added in the Bay Area and Sacramento and two each will open in the San Joaquin Valley and on the Central Coast.
In Orange County, Home Depot will build stores in Brea, Costa Mesa, Irvine, Lake Forest, La Habra, Rancho Santa Margarita and San Juan Capistrano. It now has 11 stores in the county, while competitor HomeBase has seven.
In retailing, Home Depot is known as a “category killer” because it dominates its industry with big warehouse stores and low prices. It has won millions of customers at the expense of smaller competitors largely through a strategy that emphasizes customer service, broad selection and discount prices.
Since Home Depot entered California in 1985, a number of regional chains and independent operators--Builders Emporium, National Lumber and Clark Dye Hardware--have gone out of business.
But the hardware industry is a fragmented business because no single large chain has managed to dominate nationally. Home Depot claims a 14% market share overall in an industry whose annual sales total about $140 billion.
Home Depot’s expansion could be particularly troublesome for HomeBase, which operates 85 stores in 10 Western states--including 48 in California. For years the chain has been trying to grow in Home Depot’s shadow.
“This is not good news for HomeBase,” said Asma Usmani, who follows the hardware industry for Edward Jones & Co., a St. Louis investment firm. HomeBase “will have to become more service-oriented, and really beef up its image and competitive presence.”
With $100 million from a bond offering last month, HomeBase plans to remodel 17 stores and open as many as 14 new stores over the next two years.
“More than 90% of our stores have a Home Depot nearby and we’ve successfully competed against them in a lagging Southern California economy,” said HomeBase spokeswoman Suki Shattuck. “With the housing market turning around, we feel there’s room for both of us to be successful.”
“The big question is whether or not anybody can give customers a compelling reason not to shop at Home Depot,” said John Caulfield, executive editor of National Home Center News, a trade publication. “Because if there’s one on every corner, it becomes almost a fait accompli. Because of their size, they have the financial wherewithal to simply just wear people down.”
Other chains likely to feel the effects of Home Depot’s expansion include San Jose-based Orchard Supply Hardware and Eagle Building & Garden of Renton, Wash.
Orchard, which has 68 stores in California, was acquired by retail giant Sears, Roebuck & Co. last year. At the time, it announced plans to eventually build 60 to 90 more stores in California.
Orchard President Gary Crittenden could not be reached for comment Tuesday.
Eagle, a 30-store chain, will be opening its first Southern California store in La Quinta soon. Eagle officials did not return phone calls Tuesday.
A key challenge to Home Depot’s expansion will be finding enough qualified people to hire. California’s unemployment rate was 6.3% in October.
“Their people are friendly, but there aren’t enough of them,” Caulfield said. “They’re overwhelmed by the sheer number of customers who come in the door. It doesn’t allow for the one-on-one interaction that the company has been famous for.”
Martineau said Home Depot “has become a magnet for people in the building trades who want stability.” During the early 1990s recession, the company hired thousands of out-of-work contractors and specialists such as plumbers, electricians and carpenters.
“We pay higher wages than our competition and we have a great benefits package,” he said.
In addition to the 61 new stores, the company will be opening four stores--in Anaheim, Huntington Beach, Fremont and Milpitas--to replace smaller, older locations.
The California expansion is a major component of Home Depot’s plan to double in size, to 1,100 stores, by the end of 2000. The company recently announced plans to build 32 stores in Florida over the next three years.
At present, California is home to 16% of Home Depot’s 590 stores. The company is paying for the expansion from cash flow and proceeds from a $1-billion bond offering completed earlier this year.
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Home Depot At a Glance
Headquarters: Atlanta
Business: Sells building materials and home improvement products
Chairman/CEO/co-founder: Bernard Marcus
President/COO/co-founder: Arthur M. Blank
Stores: 590, including 95 in Southern California
New stores opening by Feb. 28: 40
Status: Public
Exchange: NYSE
Tuesday’s stock close: $58.75
Growing Chain
The number of Home Depot stores has more than doubled in five years:
1993: 264
1997: 590
Land of the Giants
Home Depot’s sales last year were more than double those of its largest competitor. Top home improvement retailers in 1996 ranked by sales, in millions of dollars:
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Rank Chain Stores Sales 1. Home Depot 512 $19,535* Atlanta 2. Lowe’s Cos. 402 8,600 Wilkesboro, N.C. 3. Menard 128 3,100 Eau Claire, Wis. 4. Payless Cashways 192 2,643 Kansas City 5. Builders Square** 164 2,550 San Antonio 6. Hechinger Co.** 117 2,199 Largo, Md. (Hechinger Stores, HQ Warehouse) 7. 84 Lumber 386 1,500 Eighty-four, Pa. 8. HomeBase 84 1,453 Irvine 9. Sears Hardware Division 231 1,190 San Jose 10. Carolina Holdings 82 972 Raleigh, N.C. (Carolina Builders, Erb Lumber)
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* For fiscal year ended Jan. 31, 1997
Note: Builders Square and Hechinger Co. merged this year
Sources: National Home Center News, Bloomberg News, Home Depot; Researched by JANICE L. JONES / Los Angeles Times
