Home Sweet Home Depot

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\"RRIt’s good to be the king of the castle. It’s even better to be the king of the castle improvement business these days.

Home Depot – let’s not forget they are the second largest retailing company in the country – has pretty much been a house on fire recently, putting up impressive financial results, doing all sorts of innovative things within its stores and setting the stage for what could be a major expansion of its playing space.

Much of that success has been all about being the right store in the right place at the right time. The resurgence of the housing market in the past several years has created a twin maelstrom of business for Depot. First, contractors who have always a core audience for the store accounting for about 40 percent of total sales are building new homes at numbers we haven’t seen in a decade. Second, do-it-yourselfers finally have the cash (and the confidence) to make improvements in their existing homes.

For its last fiscal year, Depot said revenues were up 6.7 percent, breaking through the $100 billion mark in annual sales. The increase came on an increase in U.S. same-store sales of 6.9 percent. Nobody in retailing – at least the retailing that depends on physical stores for most of its revenue – is putting up those kind of numbers.

Those results were no doubt boosted by Mother Nature, an unexpected force of nature in the sales department. Major hurricanes in Texas and Florida created significant upsides for the home rebuilding and repair market, something Depot was well prepared to take advantage of. It’s the dirty little secret of the home improvement industry that bad weather is good for business. It also hasn’t hurt that the company’s biggest competitor, Lowe’s, has had its own challenges, culminating in the announcement earlier this month that its CEO Robert Niblock would be retiring as soon as a successor could be found. The fact that Lowe’s stock got a nice little spike the day of the announcement showed that Wall Street wants to see some changes there.

Depot executives certainly are keeping an eye on their rearview mirror to see what happens with Lowe’s. Let’s face it, doesn’t every retailer watch their competition? But most of Depot’s attention is focused dead-set ahead as they continue to ramp up their game in oh so many ways. Consider some of the following:

  • The company announced earlier this month it is committing $50 million in a program to train as many as 20,000 people in the construction trades. In addition to being altruistic, Depot is being self-serving. With a serious shortage of tradespeople, it is making sure there will be a steady supply of new customers for its goods and services.
  • A new Home Depot Solutions Center program is creating a centralized location where customers can get answers to the projects they are trying to undertake. Developed under Depot director of strategy insights and visual merchandising Albert Vita, the program address the customer experience in the stores, “the new buzzword,” he says. He argued, in a recent presentation, that these customer satisfaction efforts are ultimately as important as more traditional matrices such as ROI and sales per square-foot.
  • Tesla is expanding its test program of solar power products to some 800 Home Depot stores this year, showcasing Tesla’s solar panels and batteries. Eventually Tesla’s $52,000 Solar Roof may be included in the department as well. The partnership amounts to the largest solar merchandising effort in the country.
  • After a slow start online, Home Depot is aggressively addressing digital sales with some good success. The company says it has grown its online business by $1 billion in each of the past four quarters and added that 46 pecent of its online orders are now picked up in its stores. It doesn’t get much more Omnichannel than that. That comes as the store says online now represents 6.4 percent of total sales, which it says is double that of its closest competitor…obviously Lowe’s.
  • And while plumbing and lumber still pay most of the bills, Home Depot on its most recent quarterly call said its holiday home décor and accessories business picked up nicely this past December, the result the company said, of better marketing and in-store execution.

Whether that was a factor it’s hard to say, but Home Depot made a surprise announcement late last year when it said it had purchased The Company Store, a direct-to-consumer online and catalog seller of soft home furnishings products like bedding, bath and decorative accessories.

While the volume it picks up will largely be a rounding error for Depot, much more important is that it gives the company a foothold in the home décor market, a category it has never been a major player in, though one industry observer recently noted sheet sets for sale in a Depot store in Manhattan. While it is believed to be the country’s largest retailer of floor coverings – carpet, rugs and, most importantly, hard flooring like tile, laminate and wood – it has never done much in other soft home categories other than a small curtain department and the occasional decorative pillow.

Company Store could change all of that if, as expected, departments are rolled out in Depot stores. They could follow the kiosk model with goods on display and orders drop shipped to customer homes, or the stores could carry inventory for take-with sales. There’s certainly enough room in the typical 100,000-200,000-square-foot Depot location.

Either way, this could be a real game-changer for the store as it hedges its bets against the inevitable slowdown in the home improvement category. While hard numbers are difficult to chart, it is generally believed that the home improvement and home decorating markets are on different buying cycles, thus giving Depot a nice balance whatever happens to the housing market.

The timing is no accident. Online players like Wayfair and Overstock are aggressively staking out positions in the soft home business while on the physical store side, the major big box in the space, Bed Bath & Beyond, has been struggling and is believed to be losing market share.

There’s no announced timetable yet on how Depot will integrate Company Store into its existing operations but you can bet the boys at company headquarters in Atlanta are on it right now.

Home Depot has a new tool and you can be sure they’re going to be putting it to work as soon as possible.

Warren Shoulberg is all for home improvement but he likes to have somebody else it do-it-themselves.

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