External Environmental Analysis of Home Hardware: PESTLE and Porter's Five Forces

The report discusses the external environment factors of the company Home Hardware. The tools which have been used for the external environmental analysis are PESTLE and Michael Porter`s Five Forces. The United States Furniture and Hardware industry is highly competitive and for this reason, the company needs to take essential steps and realign its business strategy in order to ensure that it gains success in the long term.

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Executive Summary
The report discusses the external environment factors of the company Home Hardware. The tools
which have been used for the external environmental analysis are PESTLE and Michael Porter`s
Five Forces. The United States Furniture and Hardware industry is highly competitive and for
this reason, the company needs to take essential steps and realign its business strategy in order to
ensure that it gains success in the long term. The report discusses a brief history of the company
and scans its external environment using the stated tools.

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Table of Contents
Introduction......................................................................................................................................3
Brief Overview of the company......................................................................................................3
Capabilities and Compeitive Advantage.....................................................................................3
External environmental analysis......................................................................................................4
PESTLE Analysis........................................................................................................................4
Porters Five forces analysis.........................................................................................................6
Competitive Rivalry-HIGH.........................................................................................................7
Bargaining Power of Customers- HIGH......................................................................................7
Bargaining Power of Suppliers LOW..........................................................................................7
Threat of Substitutes or Substitution- HIGH...............................................................................8
Threat of New Entrants or New Entry.........................................................................................8
Strategic Approach as used by the company...................................................................................8
Conclusion.......................................................................................................................................9
References......................................................................................................................................10

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Introduction
Strategic Management is considered to be an essential aspect of the organization and it is
the duty of the firm to ensure that it makes effective strategies which will assist the firm in
gaining a successful competitive edge (Davis, 2018). For this, the firm is required to
continuously assess its external environment to understand the factors which may have an impact
on it in the long run. The objective of the report is to understand the external environment of the
chosen company, Home Hardware and understand whether the company is moving in the right
direction or not. The tools which will be used to analyze the external environment are PESTLE
Analysis and Michael Porter`s Five Forces Analysis.
Brief Overview of the company
The Home Hardware Stores Limited is a privately held organization based in Canada
which deals in home improvement, construction materials and furniture retailing. It was found by
Walter Hachbron in the year 1964 and has its headquarters in Ontario, specifically in St. Jacobs.
The chain is a cooperative and owned by 1100 independently owned stores. The company has
been performing considerably well despite the competition it faced from the Home Depot in the
year 1994. The chain store is a popular option for the growing numbers of the do it yourself
programs (Davis, 2018). The member owned cooperative has its collective strength and the
company has successfully competed against various giants like the RONA and other big box
operators.
The different stores under the same banner like Home Building Centre, Home Hardware
Building Centre and the Home Furniture banners tend to perform well.

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Capabilities and Competitive Advantage
The different capabilities of the company include the following:
 Ability to provide quality products
 Ability to adhere to competition
The competitive advantage of the store is as follows:
 It has been in the market since a long period of time.
 The company has large number of stores (Davis, 2018).
 It’s a cooperative business which makes it powerful.
External environmental analysis
The external environment analysis is a crucial step when the strategies are required to be
made. Hence, in order to conduct an external environmental analysis of Home Hardware, two
tools will be used. The first tool is the PESTLE Analysis and the next tool used will be the
Porter`s Five Forces Analysis.
PESTLE Analysis
The PESTLE Analysis comprises of the Political, Economic, Social, Technological,
Legal and Environmental factors which are present in the external environment of the firm and
tend to have a strong impact on the functioning of the company (Hill, Jones & Schilling, 2014).
Political Factors
The different customers of the Home Hardware in Canada comprise of governmental
contractors and hence, if any relevant changes are made then the company may get affected

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directly. The company is highly susceptible to the political stability of the organization. The
company is a cooperative and hence, in this scenario, there often exists various internal politics
that exist within the organization and tend to pose a threat or have a major impact on the
organization.
Economic Factors
The economic downturn and other crucial economic factors which existed in the
American environment had a huge impact on the business organizations and many of the
businesses were unable to survive in the given scenario, but this was not the case for Home
Hardware and it was able to survive through the turbulent times (Hill, Jones & Schilling, 2014).
This can be related to the rise in the Do it yourself era and the need that houses require
repairs and renovations. For this reason, houses often demand products, home repairs and
goods services. However, an increasing problem for the company may is the rise in the
millennials who are not purchasing houses currently and this may lead to issues with regard to
the business for Home Hardware as they may not have the ability to purchase the furniture’s
from these stores (Wheelen et al., 2017). However, for those families who have a high income,
the company is performing well.
Social Factors
The social factors generally refer to the demographic factors related to the external
environment of a company. In case of Home Hardware, these factors comprise of different
factors like the income of the purchasing audience, the choice of the different consumers and
their needs. The increasing population of the millennials will not be able to purchase the product
but in other cases, the middle class families serve as a good group of customers to the Home

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Hardware (Hoovers.com, 2018). Certain stores under the brand name provide high quality
products as well which assist the needs of the higher income group customers.
Technological Factors
The technological factors which tend to have an impact on the business are the
advancement of technology with respect to the manufacturing of the products. There have been
various technological advances with regard to the tools used for manufacturing and the furniture
industry in America has changed (Wheelen et al., 2017). This has had an impact on the supply
chain as well as the distribution network which would assist the different companies to make a
smooth transition. The social modes of technology with respect to the use of e-commerce can
also be used in order to reach out to a wider consumer base.
Legal factors
The company Home Hardware needs to abide by the different legislative regulations,
employee disputes, debt disputes, claims and compensations as well as the product liability.
The legislative requirements of the different workers in regard to the Health and safety
regulations must be abided by.
Environment factors
The Home Hardware Company also needs to abide by the different initiatives which are
taken in order to improve the environment. The company needs to reduce the use of energy made
by it and this shall contribute towards ensuring that the environment and the resources are
conserved (Hoovers.com, 2018). The use of wood in the furniture’s needs to be reduced and
replacement by other eco-friendly goods which will go a long way in make the environment a
better place.

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Porters Five forces analysis
The porter’s five forces analysis is an effective tool which is then used to analyze the
macro environmental factors with respect to the industry in which the company functions in. The
five industrial factors which are present in the industry of Home Hardware are as follows:
 Competitive Rivalry
 Bargaining Power of Customers
 Bargaining Power of Suppliers
 Threat of New Entrants or New Entry
 Threat of Substitutes or Substitution
Competitive Rivalry-HIGH
The competitive rivalry can be described as the effect of the competition on the business.
With respect to the industry of Home Hardware, the number of competitors are very high. There
are companies like Home Depot who recently made an entry in Canada which tends to contribute
losing out of customers. The switching cost of the customers are low which makes the
competition even fiercer.
Bargaining Power of Customers- HIGH
The Home Hardware Company faces a strong force from the buyers as well. This aspect
of the analysis concentrates on the impact of the different consumers on the business and as the
switching cost of the customers are comparatively quite low, the power of the consumers tends to

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increase (How Home Hardware survives in a tough retail landscape., 2018). Furthermore, the
high availability of substitutes tends to make their bargaining power even higher.
Bargaining Power of Suppliers LOW
The given factor is used to understand the manner in which the different suppliers tend to
impose their demands on the company. In the case of Home Hardware, the conditions which
make the buyer of the suppliers very weak are the large population of suppliers. Home Hardware
can easily switch from one user to another. There exists no exclusivity with the retailers which
tends to further weaken the power of the suppliers.
Threat of Substitutes or Substitution- HIGH
The given case of substitutes tends to pose a considerable threat on the Home Hardware
Company. This factor tends to reflect the power of substitutes to have an impact on the business
outputs (Hoovers.com, 2018). There are various factors which contribute to this high threat of
substitution like its high availability, low switching cost and high performance ratio of the
different substitutes which make the threat a strong force.
Threat of New Entrants or New Entry - HIGH
The threat of new entrants in the industry also tends to have a huge impact on the
business. This is because this factor acts as a representation of the impact of new firms on the
business. As the switching cost is low with the cost of business being moderate in nature, the
threat of new entrants is considerably high.

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Strategic Approach as used by the company
The business strategy which is followed by the Home Hardware was not up to the
competitive standards which was demanded by the business environment. However, in the past
year, the company has bought about a huge change in its business strategy and wants to compete
with the various companies as present in the business environment. Hence, the three given
strategic areas will be concentrated on by the chosen organization:
E-commerce- The Company is planning to engage itself into the e-commerce domain. Like its
competitors Home Depot and LOWE, Home Hardware plans to make its debut on the e-
commerce domain and through this, it plans to ensure that it will be able to increase its market
share and be able to increase its revenue (How Home Hardware is renovating its business
strategy., 2018).
Marketing and branding- The company wants to improve its brand image and revamp the
marketing strategy as well (Home Hardware debuts new brand positioning, 2018). It believes
that as competition has increased considerably and the customers have a wide option base to
choose from, it will be better for the company to portray their quality products so as to ensure
that their popularity increases.
Conclusion
Therefore, from the given analysis it can be stated that the external environment of Home
Hardware is highly competitive as there exists a presence of various players in the market.
Furthermore, there are various legal and environmental legislatives as well which tend to have an
impact on the business. For this reason, the management has prepared various strategic plans
which need to be implemented successfully in order to ensure Home Hardware achieves long
term success.

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References
Davis, B. (2018). Home Hardware “aggressively going after growth”. Retrieved from
https://www.therecord.com/news-story/6866654-home-hardware-aggressively-going-
after-growth-/
Hill, C. W., Jones, G. R., & Schilling, M. A. (2014). Strategic management: theory: an
integrated approach. Cengage Learning.
Home Hardware debuts new brand positioning. (2018). Retrieved from
http://strategyonline.ca/2017/04/12/home-hardware-debuts-new-brand-positioning/
Hoovers.com (2018). Retrieved from
http://www.hoovers.com/company-information/cs/company-
profile.home_hardware_stores_limited.c619e28df95b1343.html
How Home Hardware is renovating its business strategy. (2018). Retrieved from
https://www.theglobeandmail.com/report-on-business/how-home-hardware-is-
renovating-its-business-strategy/article33627798/
How Home Hardware survives in a tough retail landscape. (2018). Retrieved from
http://marketingmag.ca/brands/how-home-hardware-survives-in-a-tough-retail-
landscape-184351/
Wheelen, T. L., Hunger, J. D., Hoffman, A. N., & Bamford, C. E. (2017). Strategic management
and business policy. Pearson.

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