Home Depot Has Been Operating Efficiently In The Last Few Years, And Here’s Why

by Trefis Team
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Home Depot (NYSE:HD) operates large stores, with an average store size as large as 104,000 square feet, to accommodate various home improvement products ranging from outdoor categories to kitchen appliances. The retailer is expected to have added close to 30 stores between 2012-2017, with 19 stores already added between 2012 and Q1 fiscal year 2016. What has been commendable is that Home Depot has added these extra stores into its vast network of operations smoothly, without any rise in the average total cost (SG&A costs + lease payments) per square feet in the last few years. In fact, the real value of total costs has declined, if the inflation rate is taken into consideration, implying how Home Depot has been operating efficiently.

HD Q&A 7-1

Just for comparison, retailers such as GAP Inc and Abercrombie & Fitch typically have store sizes less than 15,000 square feet. This is the reason why the average cost per square feet is lower for Home Depot, which has larger store spaces, as compared to the apparel companies. For example, as compared to GAP Inc and Abercrombie & Fitch’s estimated average cost per square feet of $94 and $243 respectively for 2016, Home Depot’s average cost per square feet stands at $71.

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Notes:

1) The purpose of these analyses is to help readers focus on a few important things. We hope such lean communication sparks thinking, and encourages readers to comment and ask questions on the comment section, or email content@trefis.com
2) Figures mentioned are approximate values to help our readers remember the key concepts more intuitively. For precise figures, please refer to our complete analysis for Home Depot

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