Executive SummaryExecutive Summary

•Research MethodsResearch Methods•S&P ReportsS&P Reports•Site visitsSite visits•Census reportCensus report•Research InsightResearch Insight•Market GuideMarket Guide

•FindingsFindings•Currently employing their best alternativeCurrently employing their best alternative

Table of ContentsTable of Contents

Historical PerformanceHistorical PerformanceNew Marketing StrategyNew Marketing Strategy

Concept DesignConcept DesignImplementation IssuesImplementation Issues

ExpectationsExpectations

•Historical PerformanceHistorical PerformanceNew Marketing StrategyNew Marketing Strategy

Concept DesignConcept DesignImplementation IssuesImplementation Issues

ExpectationsExpectations

• Delivering value to customers–Low Price Sensitivity–Focus on

• Specialized Know-How• Broader line of products• Greater depth of products

Home Improvement MarketHome Improvement Market

Sales IncreaseSales Increase

-2.4%5.7%

-5%0%5%

10%15%20%25%30%

Incr

ease

in S

ales

1998 1999

Home Depot Lowes Homebase

Net IncomeNet Income

0%1%2%3%4%5%6%7%

% o

f Tot

al R

even

ue

1997 1998 1999

Home Depot Lowes Homebase

Operating IncomeOperating Income

0.3%

2.7% 1.4%

0%

2%

4%

6%

8%

10%

% o

f Tot

al R

even

ue

1997 1998 1999

Lowes Home Depot Homebase

Gross Profit MarginGross Profit Margin

05

1015202530

% o

f Tot

al

Rev

enue

Gross Profit SGA expense OperatingIncome

Home Depot Lowes Home Base

Sales per square footSales per square foot

$130

$384$279

$0

$100

$200

$300

$400

in D

olla

rs

Home Base Home Depot Lowes

1997 1998 1999

Revenue per EmployeeRevenue per Employee(TTM)(TTM)

$0$50,000

$100,000$150,000$200,000$250,000$300,000

in D

olla

rs

HomeDepot

Lowes HomeBase Industry

Inventory TurnoverInventory Turnover(TTM)(TTM)

0123456

Tim

es

HomeDepot

Lowes HomeBase Industry

•Closing HomeBaseClosing HomeBase•Enter New MarketEnter New Market

AlternativesAlternatives

Long-Term LeasesLong-Term Leases

• 65 Stores (January 1998)

• Leases from 4 to 20 years with average of 13

• $530M non-cancelable terms over one year

$73 $72 $66 $64 $62

340

$0

$100

$200

$300

$400

In M

illio

ns

2001 2002 2003 2004 2005 Thereafter

Operating Leases

Total Equity $395MTotal Equity $395M

PV $530MPV $530M

Historical PerformanceHistorical Performance•New Marketing StrategyNew Marketing Strategy

Concept DesignConcept DesignImplementation IssuesImplementation Issues

ExpectationsExpectations

Retail IndustryRetail Industry

0

5

10

15

20

25

& C

hang

e

Specialty HomeImprovement

Department &Discount

TechnologyRetail

Sales (TTM) vs TTM 1 Yr. Ago Sales - 5 Yr. Growth Rate

Specialty RetailSpecialty Retail

• Home Furnishing– Large Market– Strong Growth– Low Entrance Barrier– Knowledge of the Market

Home Furnishing RetailHome Furnishing Retail

0

5

10

15

20

25

30

35

% C

hang

e

Bed Bath &Beyond

Linens &Things

WlliamsSonoma

Pier 1 Imports

Sales (TTM) vs TTM 1 Yr. Ago Sales - 5 Yr. Growth Rate

Home Furnishing MarketHome Furnishing Market

• Features– Highly Fragmented and Competitive– Strong Growth– Number of stores equals strength– Store size expanding– Importance of Women

Home Furnishing MarketHome 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 PerformanceHistorical PerformanceNew Marketing StrategyNew Marketing Strategy

•Concept DesignConcept DesignImplementation IssuesImplementation Issues

ExpectationsExpectations

New Market SegmentNew Market Segment

• Baby Boom– (35 to 52 years)– 70 Million

• Women Buying Power

Store FormatStore Format

• Broad but limited selection in each category– 10 Departments

• High quality product/service– Designer brands

Product ScopeProduct Scope

• Change product offering to home furnishing

• Include outdoor home products– $33 Billion

Product MixProduct Mix

Home Furnishing

Other Home Accessories

Home Improvement The Incredible Decorating Superstore

Store ConceptStore Concept• Personalized

Attention– 45% more store

employees

• Focus on Kids– Play Areas– Kid´s Products

• Cafe

Historical PerformanceHistorical PerformanceNew Marketing StrategyNew Marketing Strategy

Concept DesignConcept Design•Implementation IssuesImplementation Issues

ExpectationsExpectations

Test StoresTest Stores

05

1015202530354045

% o

f Rev

enue

.

Bed Bath andBeyond

Linens'n Things William-Sonoma, Inc

House2Home

Gross Profit SGA Operating IncomeEstimated

Sales per square footSales per square foot$214 $184

$166$130

$0

$50

$100

$150

$200

$250

in D

olla

rs

Bed Bath &Beyond

Linens &Things

House2Home HomeBase(Expected)

Financial AnalysisFinancial Analysis

• Liquidity• Debt• Inventory management ratios

Quick RatioQuick Ratio

0.2

0.34

0.13 0.11

0.22

00.05

0.10.15

0.20.25

0.30.35

House2Home Bed bath &Beyond

Linens &Things

WilliamsSonoma

Industry

Current RatioCurrent Ratio

0

0.5

1

1.5

2

2.5

House2Home Bed bath &Beyond

Linens &Things

WilliamsSonoma

Industry

LT-Debt to EquityLT-Debt to Equity

00.05

0.1

0.15

0.20.25

0.3

0.35

0.4

House2Home Bed bath &Beyond

Linens &Things

WilliamsSonoma

Industry

Other IssuesOther Issues

• Hiring– Change from technical to service

oriented– Fitting the service with the new

target market

Historical PerformanceHistorical PerformanceNew Marketing StrategyNew Marketing Strategy

Concept DesignConcept DesignImplementation IssuesImplementation Issues

•ExpectationsExpectations

Retail IndustryRetail 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

BetaBeta

00.2

0.4

0.6

0.81

1.2

1.4

1.6

House2Home Bed bath &Beyond

Linens &Things

WilliamsSonoma

Industry

Retail IndustryRetail Industry

• Key Factors– Consumer

Confidence Index

134

128

114

100

105

110

115

120

125

130

135

(198

5 =

100)

November00

December00

January 01

Market TrendsMarket Trends

1,3001,300

1,8781,878

Revenue 1999*

6.46.422.022.0Linens´n Things

9.29.234.434.4Bed Bath & Beyond

SSS% Change

% Changefrom 1998

Company

1,3841,384 6.46.425.425.4Williams Sonoma

*$ Millions

Market TrendsMarket Trends

• Expected Rate of Growth of 10% for Home Furnishing Market

ThreatsThreats

• 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 We conclude that the strategy is an appropriate alternative to follow in appropriate alternative to follow in

this stage of life of HomeBase.this stage of life of HomeBase.The concept has a good format and The concept has a good format and has potential to become a growth has potential to become a growth

driver.driver.

The Incredible Home Decorating Superstore

Questions ?Questions ?

The Incredible Home Decorating Superstore