During the pandemic, the home retail category had a field day. It was a heady time during a maddening and confusing time in most people’s lives. So, opportunity knocks even under the worst of circumstances and business suddenly looks better than ever. CEO Ted Decker explains, “I’m incredibly impressed and thankful for the way our associates rose to the challenge posed by the Covid environment. Not only did they effectively support our customers and communities during the height of the pandemic, but they rallied during the ensuing growth we experienced, as customers focused on home improvement projects while spending more time at home. In fact, we’ve grown over $47B over the past three years, and we could not have done that without the dedication and hard work of our associates.”
But what happens when the crisis is over? If you are Home Depot, you do what you do best as part of your DNA. CEO Ted Decker leads a trusted team of 490,600 employees in 2300 stores in the U.S., Canada and Mexico who focus on customer experience and building a loyal, engaged workforce. In his words, “Our core values are not just something we post in our lobby. They define who we are and how we operate. Our associates, who live by them each day, are what set us apart as a truly special place to work and build a career.” He adds, “When you think about the past few years, it’s remarkable to step back and think about how much has changed and continues to change. Through all of that, our associates have continued to create a great experience for our customers. They create the buzz and energy that’s unique to The Home Depot.”
Anyone who has shopped at Home Depot experiences its strong employee culture. The distinctive orange-apron uniformed sales staff is knowledgeable, which is essential for home decorators, do-it-yourselfers, and contractors alike. For do-it-yourselfers, Home Depot is where you go to get power tools, kitchen faucets and assorted essentials but the retailer’s real sweet spot behind all those orange aprons are the professional builders and contractors who account for more than half of its overall revenue (versus only 25 percent at arch-rival Lowe’s). It’s why last year the company bought back HD Supply, a B2B wholesaler it had spun off a decade before and why next year it will open a flagship Home Depot PRO store in its Atlanta hometown catering just to that customer.
But Home Depot is about much more than hammers and drainpipes. It does more than $1 billion a year in home décor products, a sum it expanded with its purchase of soft home retailer Company Store in 2017. It has publicly talked about significantly upping its play in home furnishings so don’t be surprised to see more acquisitions and/or internal growth.
The other unexpected piece of Depot’s business comes in ecommerce. Its online business increased 10 percent in the last quarter and some 50 percent of its orders placed on the website are picked up in store, making it far above the omnichannel curve compared to other big-box operations.
How do they stay steps ahead of their customers? Decker says, “We have a team of highly skilled merchants who blend the art and science of retail to bring the most innovative products to our shelves at a value that fits the lives of our customers. Our merchants are true experts. They partner with our suppliers to anticipate and solve for our customers’ needs with new and helpful innovation, whether it’s a larger-than-life skeleton for Halloween, cordless power equipment that has similar power to gas alternatives, or products that help save professional contractors time.”
Systems Strength
Home Depot focuses on making operating processes more efficient including reducing repetitive store tasks which allows associates to focus on the customer and improve productivity. And high worker engagement pays off allowing for the company to deliver on its financial and strategic goals.
Decker is committed to Home Depot’s ESG (environmental, social, and corporate governance) initiatives, and the results are impressive. It plans to have 100% renewable electricity in all Home Deport facilities by end of 2030 and have its emissions reduction targets in line with the Paris Agreement goals by 2023. The stores offer in-store recycling programs and sustainable packing materials along with many other sustainable initiatives.
The company listens and responds to the customer. It delivers a hybrid shopping environment integrating its various channels to provide customer access to products and services when and how they want to interact with the company.
One more thing about Home Depot: Like most of the biggest Big Boxes in the retailing world like Walmart, Target, Kmart, Meijer’s, Bed Bath & Beyond and so many others that were founded in the 1950s, 60s and 70s, Home Depot stands alone in being able to transition from its entrepreneurial founders to multiple generations of subsequent insider and outsider managers barely missing a step. So many others lost much in the translation over the years, some to the point of collapse. But the company has endured with a business model, a market positioning and perhaps most of all with a culture that has served it well and allowed it to become the second largest retailer in America. Ant that’s what makes a retail radical.
Decker adds, “What customers want from retailers is not defined by the retail industry. It’s much broader than that, and we look at companies across industries, including technology, fast food, delivery, and hospitality to better understand how customer expectations are changing. At every touch point in any business, customers intuitively expect a frictionless experience. Retailers who can provide that will win.”
Money Matters
For fiscal 2021 the company reported over $150 billion in sales, which have grown over $40 billion over the past two years. The company has exceptionally strong relationships with its supplier and transportation partners giving it a long-term competitive advantage. The investments in supply chain have allowed the company to efficiently move products throughout the system which has plagued other major retailers. Home Depot operates a flexible and agile supply chain, building a supply chain ecosystem that is highly integrated with the stores and fulfillment centers allowing for an efficient process that delivers exceptional customer experience.
Home Depot’s locations are another long-term advantage for the company with a real estate footprint that serves its local and urban markets. Home Depot continues to leverage its data analytics to drive process improvements, merchandise assortments, customer services, and deeper collaboration with its suppliers. The company continues to expand its services offerings such as DIY classes, demonstrations, equipment rentals, and installation services.
Financial results for 2021 include a three-year CAGR of almost 12 percent with a profit margin last year at 10.8 percent. The return of assets in 2021 was 22.9 percent. Home Depot outperformed the industry standards across the financial indicators.
So, looking forward, what’s Decker’s prediction for the future? “Last quarter, 50 percent of our online orders were picked up in our stores. The quarter before that, we saw record downloads, traffic, and sales through The Home Depot mobile app. There’s no such thing as strictly offline or online retail. We’re running an interconnected retail business that blends the physical and virtual world, which makes retail more complex than ever. The secret will be hiding that complexity from the customer and delivering a simple and seamless experience, particularly as expectations continue to evolve.” And he adds, “As I look to the future, I’m particularly excited about the improvements we continue to make to give our customers a frictionless experience when they shop with us – online, in our stores, or (most often) both. We’re especially pleased with our improved customer checkout experience, both in-store and online. We are also focused on the expansion of our supply chain network, which will eventually reach 90 percent of our customers with same day or next day delivery for virtually everything we sell, including big and bulky products. We started these investments in 2017, and the work we did proved especially valuable by supporting the unprecedented growth in the business. And we are working on how we serve our professional customers through the ecosystem we’re building to make their jobs easier. We’re rolling out new digital tools and personalized experiences, all while expanding our product assortment with job-lot quantities and our service capabilities with a larger field sales force to support this important customer. Whether they’re planning ahead for what they’ll need for future jobs or stopping at The Home Depot on the way to a current project, we want to be the destination for Pros of all sizes.”
