Home Depot cuts jobs, stores

Housing slump has damaged sales

May 02, 2008

ATLANTA - Home Depot Inc., the world's biggest home-improvement retailer, said yesterday that it will eliminate 1,300 jobs, close 15 of its flagship stores and scrap plans for 50 more as the U.S. housing slump cripples sales.

It is the first time the world's largest home improvement store chain has ever closed a flagship store for performance reasons. The move is to be completed within the next two months.

The company reiterated its intention to open 55 new stores in the 2009 fiscal year, though it will no longer pursue the opening of roughly 50 U.S. stores that have been in its new store pipeline, in some cases for more than 10 years.

"By building fewer stores, in the best locations, and making sure our existing stores are profitable, our company will be in a much stronger competitive position," said Chief Executive Officer Frank Blake, who took over for Robert Nardelli in January 2007.

Home Depot shares rose $1.07, or 3.72 percent, to $29.87.

"Given the slower economic environment, it's probably an appropriate action to cut their expansion and reduce their expenses," Walter Todd, a principal at Greenwood Capital Inc. in Greenwood, S.C., said yesterday.

The moves will cost Home Depot $586 million, mostly in the first quarter, the company said.

Nardelli, now the chief at automaker Chrysler LLC, said in November 2003 that Home Depot Inc.'s robust new store growth would continue unabated and suggested the retailer may one day expand into Europe and Asia.

The company has added about 600 stores since then but has scaled back new store growth in the past few years. Its only stores outside North America are a dozen in China, and those were obtained through an acquisition.

Some analysts and large investors have worried in the past that as Home Depot gets bigger, it would invariably put stores in direct competition with existing stores, a practice known in the industry as cannibalization.

Home Depot in the past has justified cannibalization by saying it increases the company's overall market share. Yesterday, Blake said Home Depot's goal now is to "reduce cannibalization and drive higher returns."

On Sept. 21, 2007, Blake said that the company had no plans to make any broad-based job cuts or reduce the number of its core retail stores in the face of a persistent housing slump that wasn't expected to improve any time soon.

But since then, the economy and the housing market woes have grown worse, and Home Depot has announced several rounds of job cuts.

In December, Home Depot said it would cut 950 jobs and close three call centers that handle orders for home installation. The next month, Home Depot said it would cut 500 jobs at its headquarters. Home Depot has sought over the past year to focus more attention on its core stores. In August 2007, it sold its wholesale distribution business, HD Supply, to a group of private equity firms for $8.5 billion.

The stores that Home Depot said yesterday it plans to close are three in Wisconsin, two in Ohio, two in New Jersey, two in Indiana and one each in Kentucky, Louisiana, Minnesota, North Dakota, New York and Vermont.

A company spokesman said some of the affected employees will be relocated, while others could lose their jobs.

Home Depot operates 2,258 stores in the United States, Canada, Mexico and China.

The Associated Press and Bloomberg News contributed to this article.

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