Bob Nardelli: Chairman, President and CEO, The Home Depot

A Right now, we have a picture of economic uncertainty in this country, and for our sector, we definitely see challenges in the second half of this year and into 2007. For our sector, the deceleration in housing starts and existing home sales occurred faster than many people expected. Further, the consumer is feeling pressure from the impact of rising interest rates, which, among other things, impact their spending decisions.

Q What are your economic predictions for the coming 12 months?

A Overall, the U.S. economy is expected to have moderate growth and grow at a slower pace over the next 18 months. Most economists expect less than 3 percent growth for the rest of 2006 and 2007 due to a weakening housing sector and a more cautious consumer.

Q How do you define the nature of your business? Do recent economic trends require you rethink that definition?

A In 2001, The Home Depot redefined its growth strategy to focus on enhancing our core retail stores, extending into adjacent businesses, and expanding into new markets and geographies. Since that time, we’ve worked hard to drive productivity and customer satisfaction in our existing stores, while also establishing additional platforms where we can extend and grow our business. While this strategy is our roadmap, it also has built-in flexibility so that we can adjust actions and activities in response to customer feedback, as well as changes in the economy. Recent economic trends have not caused us to rethink our definition at all. Instead, we are aggressively investing in our customers, our associates and our stores to gain market share in what appears to be a down market.

Q Consumer technology: How is your company integrating Internet-based new media in your marketing, employment and product development areas?

A The Home Depot uses technology on a number of fronts to enhance our customers’ experience both in our stores and online. To help our customers find what they need more easily and check out more quickly, we’ve deployed self-checkout in 1,555 stores, with plans to be in all U.S. and Canadian stores by the end of fiscal 2006. In addition, we are in the process of deploying customer care call box technology in 190 stores. Through homedepot.com and homedecorators.com, customers can choose from more than 100,000 home decor and improvement products and have them delivered directly to their front door.

With over 2.5 billion page views annually, homedepot.com receives more traffic than any other online destination in the home and garden category. In addition, we recently announced a unique program to sell advertising on our Web site, homedepot.com. With demand for online media soaring, homedepot.com will offer select vendor partners the chance to reach more than 4 million consumers each week with compelling content targeted to the home improvement customer.

Q What is the most important resolution you have made about your business as we go ahead into fall?

A In the second half of 2006, we are accelerating investment in our retail business. While most companies might cut back on initiatives during a soft economy, we are taking action and will increase our investment in our retail stores to gain market share. We are investing $350 million in the following key retail initiatives:

» Increasing Associate Availability: additional hours in our U.S. stores during the remainder of 2006.

» Rapid Refresh: a 100-bay reset to be completed by year-end in 540 stores.

» Big Hits: merchandising resets, including hand tools, special order ceramic tile and appliance mezzanines in selected stores.

» Store Modernization: the completion of self-checkout in all stores, and belted checkstands, customer service callboxes and enhanced store appearance in selected stores.

» Technology: the completion of the rollout of our special order service initiative to all flooring departments and the continued investment in core retail merchandising systems.

» Orange Juiced: a $30 million customer service incentive program for associates and stores who deliver improved customer service.

» Customer Service Hotline: the introduction of 800-Home Depot, an enhanced 24-hour customer service hotline.

Q Safe and reliable energy supply: Will the demands of your business sector lead to more energy requirements? How would you like our government to deal with this? What do we need to do to ensure energy independence or sovereignty for this country in the future?

A As the 2006 Energy Star Retailer of the Year, The Home Depot is committed to providing energy-efficient solutions for customers. According to the Alliance to Save Energy, the average U.S. household spent about $1,900 on home energy bills in 2005. As the first signs of winter appear, many consumers begin to winterize their homes to keep their energy bills from rising during the colder months. The Home Depot offers practical advice to stop hard-earned money from flying out windows or under doors. In our stores, on homedepot.com and through special in-store clinics, we offer advice about a few weekend fix-up projects that will make this winter more comfortable and help homeowners save up to 25 percent on heating costs. In our own operations, we are focused on reducing energy consumption per square foot in our stores. In fact, from 2000 through 2004, we reduced energy consumption per square foot in our stores by 12 percent. We accomplished this by integrating energy-efficient specifications into store design and construction.

Q What is your advice to the business community on how to survive and profit from the coming 12 months? Your advice for consumers?

A For the business community, I think it is important for leaders to keep their commitments to the communities in which they operate. During a slowing economy, we need to be especially vigilant about making sure that community organizations are able to help those in need. For instance, during September, The Home Depot, Hands On Network and KaBOOM! engaged more than 40,000 volunteers and 1,000 community partners in service projects to help over 1,000 communities across North America as part of Hands On Network’s Corporate Month of Service. Healthy communities mean healthy businesses, so it is important that our volunteer efforts and philanthropic giving remain as constant as possible. For consumers, I would suggest that they take advantage of opportunities to decrease energy consumption in their homes, which also translates into cost savings. There are some really great products and methods to help consumers create an energy-efficient home and as we head into the colder months of the year; this is an ideal time to take stock of your home.

Q Do you see evidence of a widespread enthusiasm for the do-it-yourself activities among the younger generations X and Y, or is this a trend mostly about baby boomers?

A Many consumers of all ages enjoy the do-it-yourself aspect of home improvement, as evidenced by the thousands of people who participate in our in-store clinics each year. However, there is no question that as the population changes and demographics shift as a result, there is a growing number of consumers who fall into the do-it-for-me category. Our Home Services division caters to these consumers with more than 30 service options, ranging from floors to roofs, windows to water heaters, and kitchen cabinets to vinyl siding. Home Services performs more than 15,000 installations each day.

My five tips for young people for success

1Commit to making each and every day better than the previous one. No matter who you are and what your position, you have the unique and powerful ability to improve everything you touch.

2 Challenge and push yourself to learn more, do more, experience more. People who do things make mistakes, but they never make the biggest mistake of all — doing nothing.

3 When you believe you have already done something the right way or reached a goal, go back — with a more critical, more focused, more strategic eye — and do it better. That includes completing an assignment for class or deciding how and where you will build a career, especially if it includes running one of The Home Depot’s stores someday.

4 Make decisions based on data, not emotions.

5 Volunteer — what you give pales in comparison to what you get back.

Part of Examiner's The American Economy series.