Atlanta, GA, Sept. 2--As Home Depot expands in Mexico and Canada, it's keeping an eye on Europe and Asia for future international opportunities, according to the Atlanta Journal-Constitution.
Expansion into Europe and Asia isn't imminent, but America's largest home improvement retailer could be forced to consider opportunities there as its growth potential in the U.S. shrinks.
In addition to offering another avenue for growth, successful international expansion would set Home Depot Chairman and Chief Executive Bob Nardelli apart from his predecessors. Co-founders Arthur Blank and Bernie Marcus led the company into Chile and Argentina, but Home Depot pulled out of the countries after failing to establish a successful business.
Nardelli said he has no plans to make international expansion his legacy at Home Depot, but it would accomplish the third part of his stated strategy of "enhancing the core, extending the business and expanding the market."
International expansion also offers Home Depot an advantage in its battle with Lowe's for dominance in retail's home improvement category.
While Home Depot builds stores in Mexico and Canada, Lowe's has no current plans to go international, said Robert Niblock, president of Lowe's. The firm must first expand in new markets such as Chicago and enter cities such as Milwaukee and Minneapolis, he said.
"We've just got such phenomenal opportunity here in the U.S. that we think from our shareholders' standpoint our best focus over the next several years is really to focus on continuing our proven expansion program and leave international and those other things off into the distance for the time being," Niblock said.
Home Depot, however, is talking of expanding beyond North America. Should Home Depot decide to establish a foothold on a second and third continent, it likely would do so by acquisition in Europe and by "green-field," or ground-up, development in Asia, Nardelli said.
"Just like the move into Mexico, whether it's in Europe or Asia, or more in Mexico, it is going to be a market-driven--it is going to be a financially evaluated decision," Nardelli said.
Home Depot entered Mexico via its 2001 acquisition of the four-store Total HOME chain. It now has 15 stores in Mexico.
In Canada, Home Depot has 96 stores. It entered the Canadian market in 1994, when it acquired 75 percent of Aikenhead's Home Improvement Warehouse for about $162 million.
It's the possibility of Home Depot buying a European home improvement chain that's created a buzz on Wall Street.
Several analysts believe Home Depot has had discussions with Britain's Kingfisher PLC about acquiring the do-it-yourself retailer, whose B&Q Warehouses were modeled on Home Depot stores. In July, Nardelli met with Kingfisher CEO Gerry Murphy in the U.S.
"We do not believe a deal is currently in the works between (Home Depot) and Kingfisher, but longer term we can see the rationale for a hookup between the two," said Michael Baker, an analyst at Deutsche Bank Securities.
Home Depot's alternative growth strategies, such as the Home Depot Expo format and Landscape Supply, either have struggled or are not large enough to have a major impact, he said.
"We believe the primary driver to a potential combination would be (Home Depot's) lack of compelling growth opportunities in the U.S. as the potential for additional `orange boxes' inevitably slows," Baker said.
Nardelli downplayed his meeting with Kingfisher's CEO. In fact, Nardelli said Kingfisher executives met with several other retailers during their recent trip.
"They were looking for best practices," Nardelli said. "This was not something unique to Home Depot."
Still, Europe's $100 billion home improvement market is hard to ignore.
