OPERATIONS

Home Depot Fires Four Merchandising Associates

BY CSA STAFF

Chicago, Home Depot Inc. has fired four merchandising associates for violating its ethical standards, and the matter is under investigation by federal authorities, the company said on Wednesday. CBS News reported that four purchasing managers are alleged to have taken kickbacks totaling millions of dollars to make sure that certain flooring products got onto Home Depot’s shelves.

The company said in a statement, “The Home Depot has terminated four merchandising associates for infractions of our ethical standards. We’re cooperating with authorities and because this matter is under investigation, we can’t comment further on the specifics.”

It said the matter “does not have a material effect on our consolidated financial conditions or results of operations.”

A representative for Home Depot declined to elaborate beyond the company’s statement and would not disclose the names of the fired employees.

The company plans to hold its annual merchandising staff meeting on Thursday.

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OPERATIONS

Controlling the Bottom Line

BY Robert Gordman

Now that the meaningful portion of the first half of 2007 is over, it is interesting to see the differences in compstore sales between similar retailers. All of the retailers in the following chart are national. They faced the same economic conditions, fuel prices, consumer confidence and other perceived business challenges. They had access to comparable sources of supply, information technology and logistics. Yet, the outcomes are very different.

It is always interesting to read the releases of the companies with strong results and then the others. The strong performers continue to attribute their success to:

Having the merchandise their customers want;

Inventories full of fresh merchandise; and

Being in stock.

The weak performers attribute their challenges to external factors such as:

Pressure on discretionary spending;

Fuel prices; and

Weak consumer confidence.

Comp-Store Trends for First Half of 2007

Source: The Gordman Group
Superior     Lagging  
Saks +16.1% vs. Macy’s +2.9%
Kohl’s +4.9% vs. J.C. Penney +1.8%
Dollar General +4.7% vs. Family Dollar +0.9%
Costco +6.1% vs. BJ’s +2.3%
TJX +4.1% vs. Ross +1.1%
American Eagle +9.5% vs. Abercrombie –3.3%
Famous Footwear +3.2% vs. DSW –1.3%
Best Buy +4.8% vs. Circuit City –2.5%
Hibbett +6.4% vs. Dick’s +2.0%
Walgreens +8.5% vs. Longs +1.7%
Target +4.6% vs. Wal-Mart +0.7%

There is no question that the challenges identified by the lagging performers are genuine. The real question is how much do these factors actually affect the consumer’s willingness to spend? At some point the lagging performers need to consider why the companies with strong results are better able to deal with the perceived challenges. It is also interesting to note that the lagging performers attribute their lack of results to macro factors they cannot control. The strong performers have identified factors they totally control.

To view the total report go to www.gordmangroup.com.

Robert Gordman is the president of The Gordman Group, Denver, and is the author of “The Must-Have Customer—7 Steps to Winning the Customer You Haven’t Got.”

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OPERATIONS

Competition and Consolidation Leading Risk Factors

BY CSA STAFF

The vast majority of major retailers are concerned that adverse community reactions and market saturation are impeding their ability to expand in the United States, according to a recent report by BDO Seidman LLP. The study, The 2007 BDO Seidman RiskFactor Report for Retail Business, examined the risk factors listed in the most recent Securities and Exchange Commission filings of the largest 100 publicly traded U.S. retailers. The factors were analyzed and ranked by order of frequency cited.

“This initial study shows that market saturation and the ‘not-in-my-backyard’ reaction from various communities has resulted in a major impediment to U.S. market expansion for large retailers,” said Doug Hart, a partner in BDO Seidman’s retail and consumer-products practices.

Strong competition and general economic conditions were the most common risk factors, followed by impediments to further U.S. expansion; U.S. and foreign supplier/vendor concerns; and labor.

Other findings in the report:

Concerns with unions and the increasing pressure to provide health insurance were among the most frequently cited labor risks. Pension risks and high turnover were also cited;

Half of the top 100 retailers declared that changes in federal, state and local regulations may impact their bottom lines;

The easy access to capital over the past few years has created debt issues for businesses; and

The highly competitive retail environment has led to high turnover among C-level executives and put high-performing execs at a premium.

Top 10 Risk Factors

Source: 2007 BDO Seidman RiskFactor Report for Retail Business
Competition and consolidation in retail sector 91%
General economic conditions 86%
Impediments to further U.S. expansion 84%
U.S. and foreign supplier/vendor concerns 81%
Labor (health coverage, union concerns 56%
Changes to federal, state or local regulations 51%
Implementation of IT systems 50%
Dependency on consumer trends 49%
Indebtedness 44%
Natural disasters/terrorism 44%

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