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Home Depot Still Trying its Luck

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Home improvement chain store Home Depot Inc. (HD) returns to San Francisco, after failing twice in a span of ten years, to get a foothold in the city. Home Depot recently filed an application with the city officials to construct a 120,000 square-feet store and a garden center on 7.9 acres industrial land in the Bayview District of San Francisco.

The Home Depot store, located at 1901 Cesar Chavez Street, adjoins the Marin Street, Interstate 280, and the Evans Street. Situated across the FedEx distribution center, the store site housed a printing press owned by the San Francisco Chronicle till 2009. Presently, the site is owned by the Hearst Corp. and is being used by Webcor, a construction firm, to complete work on the nearby San Francisco General Hospital.

Home Depot’s previous failed attempts in San Francisco include ventures to open stores on Bayshore Boulevard and in Visitacion Valley. Four years back, in 2008, the company retreated from its plans of constructing a store at the Goodman Lumber's site on Bayshore Boulevard. The store plan had received approval from officials despite deliberate oppositions that the store will hamper the business of local garden and hardware stores as well as raise traffic issues in the locality.

Meanwhile Home Depot migrated from the plan due to the economic slowdown and an expensive design. Home Depot’s major competitor, Lowe’s Companies Inc. (LOW), rose to the occasion and grabbed the opportunity and opened a store on the site.

Prior to this, Home Depot had embarked on a plan to open a store in the former Schlage Lock land in Visitacion Valley in 2001. The company’s plan was then turned down by the city officials, who restricted any mega-stores from opening stores in the region.

Home Depot is a leading player in the highly-fragmented home improvement industry. The company has reinvigorated itself with a shift in focus from new square footage growth to maximization of productivity through its existing store base. In addition, the company has implemented significant changes to its store operations to make them simpler and more customer-friendly. We believe these initiatives will induce more customer traffic to its stores, while boosting its top line.

However, the company’s business is highly competitive, primarily based on customer services, price, store location and assortment of merchandise.

Currently, Home Depot has a Zacks #2 Rank, implying a short-term ‘Buy’ rating on the stock. Besides, we retain our long-term ‘Neutral’ recommendation on the stock.

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