Weather, Housing Hammer Home Depot

George Whalin, president and CEO of Retail Management Consultants, says the move away from customer service was one of Home Depot's key missteps last year, since the company was founded on the concept of filling the stores with experts in various fields so consumers could come in for advice.

"Nardelli came in and didn't understand that," he says. "Essentially in a period of about a year and a half, they culled out these people and replaced with a bunch of hourly workers. They didn't realize the folly of that until last year."

Smaller Store Salvation?

Both Whalin and Hastings pointed out that Home Depot and other retailers are considering smaller stores instead of the big box outlets, which could help bring back shoppers.

Last month, Home Depot opened stores in California measuring 28,600 to 50,000 square feet, down from the average 105,000-square-foot store, according to published reports.

Wal-Mart(WMT), the world's biggest retailer, also is rolling out smaller stores. Best Buy(BBY) and Circuit City(CC) also plan on opening small versions of their big-box stores.

"Almost every big retailer is looking at smaller stores," Whalin says. "As they look at more urban environments, they're looking at smaller formats."

Hastings says small stores have problems of their own, including increased distribution costs. But, he notes, the smaller stores also require less capital investment.

"I think we've reached the zenith of the super big box," Hastings says.

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