Home Depot Adds New Dimensions
Back in the 1990’s, Home Depot was thriving during its second decade of existence. At its creation, the company was designed to redefine retailing for this industry and by the 90’s it was obvious that the retailer had wildly succeeded in this goal. The company had reinvented the concept of the home center with its groundbreaking, huge box, home center warehouse format. Consumers seeking to prepare for home repair or remodeling projects seemed to gravitate to Home Depot’s enormous scope of offerings, as the company embarked on aggressive expansion plans.
The 90’s saw the company take its glowing popularity to Canada and then Mexico and were received almost like conquering heroes. As consumers in these countries quickly showed their enthusiasm for Depot stores, Home Depot quickly embarked on campaigns of foreign expansion. Home Depot was founded on the concept that as its giant locations became magnets for multitudes of consumers, manufacturers would feel the need to have their products entrenched in its stores. Thus the company was certain that their founding goal of purchasing almost exclusively, directly from manufactures, (a rarity when the company was founded) in order to purchase at costs far less than the competition was generally afforded, would be enhanced as manufacturers increasingly thought it an embarrassment not to have a considerable scope of its products seen in Depot stores.
Just a few years after the company’s inception, Home Depot surged to the top rank in Chain Store Guide’s Index of Leading Companies for this industry. Home Depot has never relinquished its place as number one in our industry since. From its outset Home Depot quickly redefined the state of the art of retailing in our industry. After seeing Home Depot’s early, stunning popularity and rapidly expanding industry dominance, several established home center chains decided to grow a store footprint to ape Home Depot’s formula for success.
However, the competition quickly found out that just graduating to a grand store footprint did not guarantee success. Most of these new home center warehouse projects failed. Few understood how to essentially control purchasing directly from manufacturers on the retailer’s terms. With the exception of Lowe’s and Menard the others quickly became extinct.
During the 90’s, despite the enormous expanse of space within its stores, Home Depot was very conservative in adding products to its mix. Thus getting product into Home Depot was no slam dunk. A good example of this can be seen in the retail giant’s reluctance to offer major appliances to its customer base. This reluctance derived in part from a belief that refrigerators were not really products to aid as tools in repair and remodeling projects.
By this time Lowe’s had grown from a hardware chain to a home center power and now had expanded its prototypes to the warehouse chain format we know today. However Lowe’s did not merely copy Home Depot. Its stores were slightly newer and cleaner, with more inviting, well lit sight lines. Lowe’s also was more eager to experiment with its product mix.
Back in the 80’s Lowe’s began offering personal computers and associated products. Though PCs didn’t exactly seem to be an obvious part of a home improvement project, especially in those relatively early days of consumer acceptance, Lowe’s saw offering computers at that time as an opportunity to gain a strong reputation for offering ancillary products at an early stage of popularity. Lowe’s hoped to enter this market, essentially from the ground floor.
By the early 90’s Lowe’s dropped computer products from their merchandising lineup. The thought was that perhaps computers were a bit too far afield for a shopping do it yourselfer. Also computers required considerable expertise from store personnel and had little tie-in to typical Lowe’s fare. By this time however, Lowe’s had decided to enter the world of major appliances and quickly became one of the top five appliance retailers in the country, eclipsing many long time specialty retailers.
Despite Lowe’s enormous success here, Home Depot annually turned down the opportunity to offer major appliances. Finally, only when Lowe’s was entrenched as one of the nation’s top appliance retailers and Home Depot was feeling the heat at shareholder meetings, did Home Depot relent and add major appliances to its merchandising mix. Home Depot quickly received acceptance from shoppers for its better-late than-never move and quickly became one of the top appliance retailers in the country. Today Home Depot is the number one retailer of major appliance in the nation.
Of course, during the first decade of this century, Home Depot, under its second generation of leadership embarked on a course to delve from its focused retail roots to experiment at being all things to all potential customers. The company also began to hype the bottom line to kowtow to Wall Street. This resulted in a shareholder war and the eventual ouster of CEO frank Nardelli with a shareholder inciting $121 million golden parachute.
The third generation of Home Depot management, under the strong guidance of company veteran Frank Blake, decided on an urgent need to return to the founder’s roots. Blake rapidly sold off what was seen as ancillary properties, including the previous administration’s pro dealer acquisitions, at a considerable but prudent early recession loss. He also shuttered all non- Home Depot retail units, many of which were in an early testing phase, prior to an eventual rollout. Blake also used the industry stifling recession to hire a better equipped store workforce, as many plumbers, carpenters and electricians found themselves unemployed as a result of the then dire, builder stifling, economic circumstances in which the industry found itself.
During the ensuing years, Home Depot management has skillfully returned the company to a blissful financial picture. During the past two years their merchandising acumen has trumped that of the competition, especially Lowe’s. Much of this acumen involved setting up in-store merchandising to meet the seasonal needs of local populations.
Here, management made sure that seasonally popular products, such as air conditioners, were readily accessible by consumers as the season approached. On this fundamental, but challenging tenet of merchandising, Lowe’s failed harshly as Home Depot thrived. Home Depot also took advantage of its now very well trained staff to provide training classes on a variety of relevant topics. Several classes focused on specific challenges for women. Others aimed to teach children. These gained the retailer an increasingly devoted following. However with all this Home Depot seemed cautious at adding groundbreaking products to its merchandising arsenal at this time.
As noted in previous CSG Insights this year, Home Depot is now investing heavily in transforming the company to better compete in a changing, challenging retail landscape. The company has upgraded its website considerably as it builds three new giant fulfillment centers which are intended to serve virtually the entire nation. These are expected to promote rapid consumer delivery times from the company website to local stores and to customer’s homes. In addition to speeding up delivery time considerably while reducing shipping costs, the new sites (Web and fulfillment) and systems will allow the company to greatly increase the number of products it can efficiently offer and deliver.
This brings us to the next frontier in Home Depot merchandising. First the company is expected to vastly expand the number of products it offers on the web, including a good number provided by third parties. This follows the lead, long ago provided by Amazon but virtually untouched by members of this industry. This could ultimately include products never previously considered by anyone in this industry, but at least some of which could be highly profitable and/or consumer drivers to the newly innovative company website.
Speaking of adding bold new product lines, almost in the tradition of the decision surrounding the addition of major appliances, Home Depot just announced it will be embarking on a partnership with MakerBot, a global leader in 3D printing technology, to offer customers 3D printers, along with 3D printing services. This project will commence in newly established kiosks in 12 stores in the California, Illinois, and New York markets. Initially, the focus will be on products for industry related projects, to quickly produce low cost replacement parts, architectural designs and product prototypes. Kiosks will offer interactive demos, instruction and classes.
This is similar to a project being employed Staples who last year became the first mainstream retailer to offer 3D printers. Earlier this year, Staples announced a partnership with 3D Systems, a long established service provider, to add 3D printer services and instruction to its offering of 3D printers, primarily to small business clientele. Staples is testing the enterprise at select stores in its New York and Los Angeles markets.
Not surprisingly, just over two weeks ago Amazon announced the debut of its online 3D printing store, inviting curious visitors to ‘shop the future’. Customers are invited to, ‘Create Your Own’ 3D printed_____. They can then choose from several category options: toys, including tiny bobble head dolls; jewelry, including rings and steel cuff links; Home & Kitchen, which includes colorful decorations. Amazon also offers design software and how-to books.
Though at the moment this site seems ambitious, here we see the advantages of operating through a brick and mortar location. Home Depot and Staples aren’t seeking customers who seek pleasing decorations. They offer professional instruction to aid business people and people with ideas for projects, personally designed solutions.
The move for Staples seemed like a natural in light of it’s the interest expressed by the company’s considerable base of small business clientele. However, a number of observers indicate they can only look forward to monitoring any success Home Depot might enjoy. These products are currently very cutting edge technologically and are at a very early stage of commercial development. At this early stage, 3D printers and services seem far more ancillary to this industry than major appliances did two decades ago. And who knows what products third parties may establish on the company’s enhanced website.