Mr. Fix-It STEPS IN - Home Depot Inc.'s Bob Nardelli - Company Profile - Statistical Data Included

Chief Executive, The, Oct, 2001 by Jennifer Pellet

He's off to a fast start, but can Bob Nardelli make his General Electric experience stick at The Home Depot?

Bob Nardelli's early career as a do-it-yourselfer got off to bumpy start. He and his wife Susan, newlyweds, teamed up to take on their first home improvement project: applying stucco--a fashion must in the '70s--to a wall. "I brought the stuff in from the porch and Susan, who was mixing it, said, 'I think it's too cold; maybe it should be room temperature,"' he recounts. "Well, I insisted on putting it up, and, of course, when it dried there were cracks everywhere. I spent the next day scraping it off so we could start over.

By all accounts, Nardelli has made few missteps since. During nearly three decades at General Electric, he racked up a string of successes in its appliance, lighting, and transportation systems businesses, then topped them all with a visionary overhaul of the mammoth company's 100-year-old power systems arm. Tripling revenues and logging annual operating profit growth of 39 percent at a division once dismissed as a "yesterday" business with low-to-no growth potential placed him among the three favorites in the race for Jack Welch's job.

When one of the most-watched corporate succession races in business history ended, and Nardelli was a runner-up, the founders of The Home Depot, Bernard Marcus and Arthur M. Blank, were waiting on the sidelines. Even as Jeff Immelt took his bows in the winner's circle the Monday after last Thanksgiving, Marcus and Blank were plotting to throw one of their signature orange aprons around Nardelli's neck and claim him as their CEO. "I met with him on Wednesday, that weekend we called a special meeting of the board and he was hired on Dec. 4," says Marcus, who describes the rapid pairing--breakup to remarriage took Nardelli precisely one week--as the happy ending to a three-year talent search. "We were really after him. We had several candidates, but he looked like the best one out there. So it was not hard. When two people want to fall in love, they fall in love."

"It's a perfect match," adds Welch, who played matchmaker. "I told Bernie he would be the luckiest guy in the world to get Bob Nardelli."

But the marriage came with a mission. While Atlanta-based The Home Depot was hardly in dire straits, the founders of the $16 billion home improvement chain knew it had problems. The economic boom that had fueled years of 30 to 40 percent earnings gains--and allowed climbing operating expenses to go unchecked--was on the wane. The company's entrepreneurial structure, the decentralized model on which its successful warehouse-style store format was founded, was proving a hindrance as emphasis shifted from expansion to cost control. Meanwhile, Lowe's, a fast-moving home-improvement chain based in Wilkes-boro, NC, had begun infiltrating Home Depot markets. In October 2000, after Home Depot issued its first profit warning in five years, the signs of impending trouble sent its share price tumbling to a 52-week low of $3.4.

"What the market discovered about the time Nardelli came on is that there are a lot of flaws at this company," says Gary Baiter, a managing director at Credit Suisse First Boston. "He walked into a company that everybody at the outset thought was great-and it's a superior company- but that turned out to need a lot of internal fixings."

Charged with making the necessary repairs and setting Home Depot back on a growth track, the 66-year-old Nardelli lost no time. The honeymoon was a three-day session with company officers followed by a whirlwind meet-the-CEO store tour: eight cities in eight days, then on to Argentina and Chile, with daily back-to-back meetings with employees, vendors, and the chain's professional contractor customers at each stop.

"The challenge coming in is to not cause the company to pace your learning curve," says Nardelli, who spent the downtime on his tour poring over old data "to understand the thinking behind decisions" and quizzing Marcus and Blank. "It's your responsibility to accelerate your learning curve so that the company is not waiting on you.

Waiting was not an issue. Six weeks into the job found Nardelli chopping a layer of management and reassigning five group presidents so that divisions reported directly to him. Next he cut new store openings planned for 2001, signaling a shift away from traditional retail growth strategy that put 1,134 dots on the Home Depot store map, including locations in Canada, Argentina, and Chile.

"People have always looked at new store growth based on square footage," he explains. "I'm looking at new store growth relative to top-line revenue. The fact that we will open 200 versus 225 stores this year is a change in square footage, not a change in top-line growth, because I'm opening more stores sooner and they will be more efficient, so we'll get the equivalent amount of top-line growth anyway.

Reaching into his General Electric toolbox to deliver on the promise of greater efficiency, Nardelli is taking a hard look at the "vitality" of the products on Home De pot's shelves, seeking to oust low-turn items and tailor the assortment in individual stores. Efforts to boost same store sales include installing "pro desks" that cater to professional contractors, who spend $3 for every $1 spent by do-it-yourselfers Nardelli is also reconfiguring Home Depot's distribution system, shifting from decentralized ordering and vendors delivering direct to stores to a central system where merchandise can be routed through transfer centers.