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HOME DEPOT: BEYOND DO-IT-YOURSELFERS

Can its new CEO crack the contractor market?

When longtime Home Depot President and Chief Operating Officer Arthur M. Blank was named CEO on May 28, the tightly wound executive took pains to downplay his promotion. ''If you like the package of the last 19 years, you can count on more of the same,'' Blank promised, noting that co-founder Bernard Marcus would remain an active chairman.

Business as usual would thrill just about everyone. Atlanta-based Home Depot Inc. now dominates the nation's $140 billion do-it-yourself retail business with a 14% market share. It has mushroomed into a 543-store monolith that earned $938 million on $19.5 billion in 1996 sales.

SATURATION. Yet while Home Depot's foundation is solid, Blank, 54, has quite a task ahead of him. For starters, keeping up the stellar earnings growth, which has averaged 28% annually since 1990. Some on Wall Street worry that Home Depot's core markets could soon be saturated, while new growth strategies remain largely unproven. Famous for its congenial culture, Home Depot also faces three gender discrimination lawsuits (page 89). And some fret that the successful balance between the freewheeling Marcus, 68, and the stricter, more memo-driven Blank may be changing. ''I'm very concerned about [Home Depot's] stage in life,'' says analyst Aram H. Rubinson of PaineWebber Inc.

If what Home Depot needs to keep growth humming is zeal, then it has it in spades with the hard-driving Blank. Says Jeffrey Feinberg, managing director of New York-based Soros Fund Management, which owns over 3 million shares: ''He's a kick-ass guy with something to prove. He's on a mission.'' This year, Feinberg thinks that Home Depot will earn $1.2 billion on $24.3 billion in sales.

Blank is not afraid of ambitious goals. Dismissing fears that saturation is nigh, the CEO plans to more than double Home Depot's stores, to 1,100, by 2000. That should keep sales and earnings growing at a 23% annual clip, he predicts. Adds Chief Administrative Officer Ronald M. Brill: ''People have been warning us about our growth since the 1980s, but we continue to grow the market.''

SPECIAL SERVICE. Still, Blank is looking for new ways to keep Home Depot's engines from sputtering, starting with a move into the professional contractor market. It's a giant opportunity: While the do-it-yourself home improvement market is worth $140 billion, professionals spend $220 billion. That's why Blank spearheaded an estimated $100 million deal in March to buy Maintenance Warehouse/America Corp., a catalog company that targets repair and remodeling pros. And to get more contractors to visit Home Depot, he is outfitting stores with a separate checkout area and special products. But Home Depot isn't the first in the door. Rival Lowe's Cos. gets about 20% of its $8.6 billion in sales from professionals and operates 25 ''contractor yards.'' Says Lowe's CEO Robert L. Tillman: ''We wrote the book on new homebuilders.''

Some contractors don't think Home Depot will give them the attention they need. Says V. Michael Rossetti, president of Atlanta-based Ravin Homes: ''It will be tough for them to service me the way I need to be serviced, and I wouldn't want to deal with the crowded stores.'' Analysts fret that this market is more vulnerable to interest rates and fluctuating lumber prices, but Home Depot says its do-it-yourself business can offset cyclical worries.

With an eye on affluent customers, Blank is tinkering with Home Depot's somewhat disappointing Expo concept. In 1991, the retailer opened its first Expo store, targeted at shoppers doing major home renovations. To redo the bathroom, for example, it featured everything from the tub to the towels. Smaller and glitzier than regular stores, Expo was to offer a more intimate experience. But merchandise-clogged aisles and crowded stores turned off upscale customers.

Now Blank is overseeing a makeover. New stores will start at about 80,000 square feet, down from 125,000, and items must be ordered in advance with the help of design experts. Although sales are up at the Miami Expo--the first to get rid of cash-and-carry--there's more to do. ''They don't have all the answers yet,'' says Prudential Securities Inc.'s Wayne Hood. Home Depot says Expo is still ''experimental.''

Blank is also taking Home Depot's orange apron overseas via a joint venture with Chilean store chain S.A.C.I. Fallabella. The first store outside of North America will open in Santiago in 1998. And if the new ideas don't work, Brill and Blank say they'll just move on. ''We don't believe in our own B.S.,'' says Brill. ''If something is not working, we get out.''

Still, some former employees think Blank may move a bit too quickly. Inside the company, Marcus is seen as the ideas man with the creative yin to Blank's operational yang. But as Marcus steps back, some fear Blank's focus on the numbers--and his quick temper--could stifle innovation. Take Crossroads, a trial store concept for farm dwellers that was axed in less than a year because it confused Home Depot customers, Brill says. Some former execs believe it was killed off too soon. ''Arthur had strong feelings against any changes to the norm,'' says one former executive. Says another: ''With [Marcus], it's easy to provoke meaningful discourse. But Blank hasn't learned that you can attract more flies with honey than vinegar.''

''UNMADE BED.'' Blank admits he's ''more reserved, structured, and more precise'' than Marcus, ''a bit of an unmade bed.'' But he stresses that they work as a team. ''In terms of our decision processes,'' he says, ''we're the same.'' The company says all decisions on Crossroads were jointly made.

For now, outsiders, at least, are cutting Blank some slack--thanks in part to a stock that has soared more than 700% in the 1990s. This year alone, it's up 37%, to about 68 1/2. Even rivals are awed. ''I would rather see someone else in that job,'' says Lowe's Tillman, ''because he's so good.'' Now Blank must show that he's as good a renovator as he is a builder.

By Nicole Harris in Atlanta



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Updated June 23, 1997 by bwwebmaster
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