Craig MenearEVP - Merchandising

Merchandising

2008Investor & Analyst Conference

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Merchandising Roots of Leadership in Home Improvement

Built on National Brands

Exclusive and Proprietary Brands

Focus on Our Core Customers

Knowledge Transfer to the Customer

Aggressively Attacked the Market

Strong Every Day Value PropositionStrong Every Day Value Proposition

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The Foundation

Selection

Preference

Differentiate

Brand Strategy

Built on National BrandsBuilt on National Brands

Home Depot

National Brands

Exclusive Brands

Proprietary Brands

4

Merchandising Strategy Going Forward

Add Key National Brands

Exclusive and Proprietary Brands

Focus on Our Core Customers

Drive Knowledge Transfer to the Customer

Aggressively Attack the Market

The Best of Our Past with a Focused ApproachThe Best of Our Past with a Focused Approach

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Home Depot

National Brands

Exclusive Brands

Proprietary Brands

Brand Strategy: National Brands

#1 dollar market share

42% unaided faucet brand awareness

Most recognizable brand in garden

#1 preferred brand by DIY customers

Market share leader in overall power tool share

Pro choice for power tools

#1 brand in cooking products#1 appliance brand in mkt share among builders

Largest share of gypsum wallboard market in US

Most used wallboard brand by Pros

Built on National BrandsBuilt on National Brands

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Home Depot

National Brands

Exclusive Brands

Proprietary Brands

Brand Strategy: National Brands

Built on National BrandsBuilt on National Brands

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Brand Strategy: Exclusive Brands

Highest consumer brand recognition

Over a century of craftsmanship

Largest producer of tile & stone installation materials in N.A.

40% market share

Gaining consumer power tool share

Affordable price approach

#1 Consumer brand of paint

27% market share

#1 Window brand preferred by Pros & Consumers

12% market share

Innovation at a ValueInnovation at a Value

Home Depot

National Brands

Proprietary Brands

Exclusive Brands

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Home Depot

National Brands

Proprietary Brands

Exclusive Brands

Brand Strategy: Exclusive Brands

Innovation at a ValueInnovation at a Value

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Brand Strategy: Proprietary Brands

Meets or exceeds National Brand quality

>$1billion in annual sales

#1 selling brand of ceiling fans in the world

>$2 billion in brand sales Innovation: Over 200 new products since 2005

Fastest growing lawn & garden brand at HD

Innovation at a ValueInnovation at a Value

Home Depot

National Brands

Proprietary Brands

Exclusive Brands

10

Brand Strategy: Proprietary Brands

Innovation at a ValueInnovation at a Value

Home Depot

National Brands

Proprietary Brands

Exclusive Brands

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Merchandising TransformationRedefining How We Run Our Business Re-Establishing Product Authority Through Focused Bay Approach Building Tools to Enable Execution

Establishing the Focused Approach

Success = Profitable Sales + Share Gain

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Merchandising Transformation: People

Key Investments in PeopleNew Outside Talent− Gordy Erickson – SVP Décor− Dave Voss – Lumber MVP− Frank Bifulco – CMO

Field Talent− Divisional Sales Managers (DSMs)− Bruce Merino – SVP Merchandising Services− Dan Paris – MVP− Pete Capel – MVP− Jane Roten – VP Store Environment

Merchandising Execution Team (MET)

Building on an Experienced TeamBuilding on an Experienced Team

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Merchandising Transformation: Process

Driving Sales Productivity in the BoxDriving Sales Productivity in the Box

Focused merchants on what customers want and created better alignment with operations, supply chain teams.

Focused Bay Approach

Seasonal Planning

Merchandising Presentation

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Process: Focused Bay Approach

Destination

Traffic

Impulse

Core

Emerging

Assortment / Inventory

Deployment

Advertising / Marketing

In-Store Customer Sales Service

Awareness Building, Education, Store Preference & Conversion

Prominent, Visible

In-Store Space/ Visual Merchandising

Premium Service,

Solution Selling

Frequent & Dominant

Complementary & Competitive

Co-Locate with Destination

Consistent Svc., Solution

Selling

Consistent Mkt., Breadth

Focused, Target Highest

Freq.

Drive Desired Traffic Pattern

Minimal Service, Facilitate Sale

Prominent Marketing

Opportunistic, Minimal Breadth

Convenience, High Traffic

Minimal Service, Replen. & Display

Limited / No Marketing

Dominant, Exclusive

Roles Help Determine Appropriate Merchandising Tactics

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Identified assortment gapReallocated spaceReset in ~ 90 days60% more productive than under previous program

~ 800 Bays~ 85,000 Square FeetDrive more value out of every bay in the store

Process: Focused Bay Approach

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2008 Seasonal Productivity Improvement

Assort Closer to the CustomerFix Information Flow Improve In-StockFaster Response to DemandEnhance Inventory Productivity

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Merchandising Presentation

Field merchants partner with merchants in Atlanta to offer more localized products

Natural Stone Metro Set

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Merchandising Transformation: Systems

More Granular Data = Quicker Response Time More Granular Data = Quicker Response Time

Providing our merchants with the tools they need to more effectively do their jobs.

Better Merchandising Tools:Assortment PlanningForecastingMAP Event ToolNew MST Platform

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Merchandising Scorecard

Gaining/sustaining market share in half of our merchandised categories

Average comp store inventory down 7%

SAP Core Retail being piloted in Canada; new merchandising tools for U.S.Reduced promotional activity by 25%

More effective smaller resets

Website more integrated with the business

Then (Q1’07) Now (Q1’08)Gained/sustained market share in a quarter of our categories

Comp store inventory

Evaluated Core Retail and U.S. merchandising tools

Higher rate of promotional activity

Major store resets

Website disconnected from the business

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Merchandising Transformation: Results

Good Inventory Management = More Gross Margin $Good Inventory Management = More Gross Margin $

Q1’08 Garden Results

Sales GM % Inventory GMROI

DrivingMore Sales

DrivingMarket Share

Gains

ImprovingGross Margin

Dollars

UnderstandingCustomers’Preferences

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Building Tools to Drive Sustained ExecutionBuilding Tools to Drive Sustained Execution

Sustaining Sales & Margin

2008 2009 2010 2011+

Gro

ss M

argi

n

This Year• Seasonal

inventory flow

• Rationalize promotions

Short Term• Focused bay

approach

• Project business

• Line structure

Long Term• Refined merchandising

transformation – Price philosophy– Line structure– Marketing integration– Space allocation

• Supply Chain benefits• Better customer insight