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Easy Profitability

Home Improvement Co.

#Retail
ProHub Comment

This case guides candidates through a structured profitability analysis, starting with identifying profit margin decline (20% to 10%) and progressively drilling into cost drivers, specifically COGS. The case emphasizes the importance of quantitative rigor—calculating absolute and percentage changes, and working backwards from margin targets to determine feasible COGS levels. The interviewer guidance signals that strong candidates should notice both the absolute profit erosion and the margin compression, then propose supplier renegotiation as the key strategic lever.

Estimated Time 16 minutes
Difficulty Easy
Source Duke
10 / 100

Home Improvement Co. is a major home improvement retailer in the U.S. that sells tools, construction products, appliances, and services. Since 2020, the company has struggled to hit their profitability targets and are looking for possible solutions.

Our client, the CFO of the company, has hired us to come up with a plan reverse this trajectory and return the company to its profitability level from 3 years ago.

Clarifying Information

  1. Client/Company: $50B in Revenue in 2021. 3 distribution channels: In-store, buy online pick-up in-store, deliver to home.
  2. Industry/Competition: The improvement retail industry has been experiencing growth the last few years as consumers are spending more time at home with the pandemic and focusing a bigger share of their budget on home projects.
  3. Value Chain: Home Improvement Co. has dozens of suppliers for each category they sell in. Due to world supply chain constraints and increased demand, the lead time for lower turnover products has increased dramatically.
  4. Goal: Reach the same level of profitability of 3 years ago (2019)
  5. Market: Only the U.S.
Mock Interview
Interviewer

Home Improvement Co. is a major home improvement retailer in the U.S. that sells tools, construction products, appliances, and services. Since 2020, the company has struggled to hit their profitability targets and are looking for possible solutions. Our client, the CFO of the company, has hired us to come up with a plan reverse this trajectory and return the company to its profitability level from 3 years ago.

You

Thanks. Before analyzing, I'd like to clarify a few key questions...

Interviewer

Good question. Let me provide some background information...

You

Based on this, I suggest analyzing from these dimensions...

AI Score
Structure Analysis Communication Business Sense Quantitative
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Home Improvement Co. faces a profitability crisis despite growing revenues ($35B to $50B, 2019-2021), with profit margins collapsing from 20% to 10%. Analysis reveals that COGS surged 75% ($12B to $21B), driven by supply chain constraints and internal labor challenges. To restore 20% margins in 2022, the company must cap COGS at $18B through aggressive supplier negotiations and internal efficiencies.

Key Insights:

  1. Profit margin compression is often more revealing than absolute profit decline—margins fell from 20% to 10% despite revenue growth, signaling structural cost pressures
  2. COGS accounted for 53% of total cost increases and 75% of its own category growth, making it the critical lever for profitability restoration
  3. Working backward from a margin target ($18B COGS cap for 20% margin in 2022) provides clear quantitative discipline and reveals the magnitude of change required
  4. The case emphasizes both external factors (supply chain, bargaining power) and internal factors (labor efficiency, production methods), suggesting multi-faceted solutions are needed