Photo: Home Depot
It’s good to be Home Depot
Home Depot’s shares are at an all-time high as the home improvement retailer has been buoyed by a continuing strong housing market and its investments in digital operations and elsewhere. Heck, even national disasters have worked to Home Depot’s advantage.
The chain recently reported a gain of 7.9 percent in third quarter same-store sales, well above the 5.9 percent expected by analysts, as hurricane-related sales added $282 million to the retailer’s top line.
Home Depot, as a Seeking Alpha article points out in detail, has made a significant effort in recent years to create a seamless shopping experience with investments in contact centers, content, customer experience, digital marketing, direct fulfillment centers, mobile, search, etc. Online sales have grown from 2.4 percent of Home Depot’s total in 2012 to 6.2 percent in the third quarter of this year.
The chain’s buy online options include delivery from stores, pick up in-store, ship to store and return to store. Nearly 45 percent of orders placed on homedepot.com are picked up in-store and roughly 85 percent of returns are made to the chain’s physical locations, as well. This means that Home Depot has been able to eliminate much of the added shipping cost that goes with e-commerce operations.
Prat Vemana, vice president online at Home Depot, told CNBC that the retailer redesigned its mobile app last year and is looking to add more augmented reality (AR) functions in the next generational upgrade.
“I think the (AR) experiences are much better these days,” Mr. Vemana said. “There are much more exciting apps to use, and they’re getting to the right devices.”
Home Depot’s success online can be attributed in large part to ongoing efforts to improve the customer experience. In his interview with CNBC, Mr. Vermana spoke about adding more personalization to Home Depot’s mobile app as one way the chain has become more responsive to customers.
The Seeking Alpha article pointed to the retailer’s introduction of “dynamic ETA,” which provides customers with better information on deliveries as another way Home Depot is improving interactions with customers.
Discussion Questions
DISCUSSION QUESTIONS: What do you see as the biggest improvements Home Depot has made to the way it operates in recent years? Do you see Home Depot as being ahead or behind the curve, relative to other retailers, when it comes to creating seamless shopping experiences for its customers?
Poll
BrainTrust
Dave Bruno
Director, Retail Market Insights, Aptos
Tom Dougherty
President and CEO, Stealing Share
Home Depot’s greatest improvements come as it becomes more cost competitive and consumer sensitive and starts to think and react more like a mass-market retailer and less like a DIY home hardware store. This includes becoming more customer-centric, although finding help at the local Home Depot is often difficult and should not be. Putting help locators at the end of each aisle (phones or lighted poles or something) would greatly improve this issue.
At this point I fear I may begin to sound like a broken record when I say it in this forum, but — experience really matters. Home Depot’s successes are another shining example of just how much experience matters. They have successfully integrated all their channels via informed and empowered experiences, and their stores (45 percent of online orders are BOPIS!) are as relevant as ever.
As of this morning, I am in the midst of a BORIS (Buy Online Return In-Store) fiasco (a mild word!) that initiated with a return that took the store 80 minutes to execute. Prat Vemana can say anything and the press can believe it, but despite their growth, they have a very, very flawed system. No integration between their e-commerce system and POS or at least a horrible one that MANY store associates have complained to me about. Part of the problem is two product numbering systems –one in-store, one online. Ridiculous! Additionally, their order history deletes pertinent information and alters receipt purchase prices after-the-fact, which if done by customers, would be classified as fraud. There is absolutely no excuse for less than seamless integration for a company doing $88 billion+ given the leverage they have over POS/e-commerce vendors.
AR is just lovely but if a company can’t get the basics right, it’s meaningless.
After buying a new house, I’ve experienced the Home Depot shopping experience almost every weekend and have to say it’s as smooth as butter. From looking up an item online and finding it in the correct bay/aisle in the store to returning the wrong paint type, it’s just easy. As mentioned above some items that are not in the store but can get shipped can take five to 10 days depending on the item but after looking around many of their competitors don’t even offer those items.
One area in which Home Depot needs to improve is smart home technology and educating their employees on this new tech. Right now Best Buy appears to own that space but the Depot could easily take a big chunk of that market share.
Home Depot has been a good retail example in terms of executing a leadership vision to leverage technology and manage data to improve the customer experience (for both sides of their business: consumer and contractor, etc.). Most specifically on the consumer side: concentrating on how to make the very large box, concrete floor, impersonal shopping experience more inviting to female consumers (who traditionally favored the home improvement shopping experience at the other big box competitor).
In a word, responsiveness is what makes Home Depot a winner. It’s not that they are being so innovative. It’s just that the rest of the category is blind.
All of these things should be a table stake in retail. Better customer experience? Better real-time communication on purchases? How sad is it that these are differentiating?
A great customer experience should be cost of entry these days. I agree with Tom that many long-time retailers are missing that mark and it is leaving a wide open space for Amazon and countless tech and new-format-retail companies to step into. That said, Home Depot is taking it a step further and has done a really great job in creating that customer experience. It’s a mountain with no top though — there are always more improvements to be made.
Speaking from personal experience, I have seen a tremendous improvement in Home Depot at the store level. This past September my wife and I needed a new washer and dryer. We happened to be near Sears and stopped there first. The sales associate couldn’t be bothered to assist us because he was more interested in speaking with another associate about a personal matter. We left. We visited Lowe’s and found there was NO sales associate, so we left. We then went to Home Depot, who not only had a sales associate willing to assist us, but the person knew everything about washers and dryers. She helped my wife pick out the perfect set, which was better because of her recommendations than what we were planning on buying when looking online. Everything went perfectly from the sale to the delivery to the setup. If this is the experience that happens when shopping Home Depot it’s no wonder they’re doing well.
Here are a few things I think Home Depot has done well: They have curtailed opening new stores and instead have leveraged the existing ones in a rethought supply chain management model building a very flexible network. They have focused on delivering a great experience for both the pro and the DIYer, with a particular focus on the former. Lastly, they have accepted the economics of online vs. offline, and have worked to optimize them individually rather than trying to get online’s economics to fit within offline’s.
I think now-retired Frank Blake brought Home Depot back from the dead. He put payroll back into the stores, which helped create a better customer experience. The floors were sealed, which made it a more attractive environment for women and male laymen. The store was de-cluttered. And most importantly, when the company did well he thanked his employees — not himself. This goes back five years now and the culture has taken hold. His tradition lives on.
Meanwhile, the company recognized it was behind the curve in its online experience (even though I really didn’t think it was that bad) and set about making improvements. While I do wish the company would stop sending me emails advertising snow blowers (I haven’t lived up north for more than 15 years and perhaps these personalization efforts will help stop that!), finding what I want on their site is easy and convenient.
The times SHOULD be good for home improvement retail, and this time (vs. the last retail boom under Nardelli), Home Depot is taking advantage of every opportunity and not resting on its laurels.
BOPIS makes all the sense in the world for both laymen and contractors. Instead of making lists of what they need, they can just click, and collect when they are ready. Great plan! Like all retailers, Home Depot has some work to do around inventory accuracy but, beyond that, I just can’t find fault with what they do at all.
We were in the market for a new dishwasher (ours died on Thanksgiving … *sigh*) and found essentially the same items, brands and prices at Home Depot, Lowe’s and Best Buy. (Sears is no longer in our consideration set.) Not sure I can explain why, but we gave our business to Best Buy. Our last shopping trip to compare models reminded me that Lowe’s is frankly a more appealing place to shop than Home Depot in terms of presentation, customer service and ease of navigation — at least in our backyard.
To some degree, all of the home improvement chains are benefiting from the strength in the housing market (including those putting money into existing homes’ remodeling projects). If I were in this segment of the business, I would be concerned about the new tax law and its deadening effect on real estate sales — by capping the home interest deduction and potentially eliminating the SALT deduction entirely. A smart retailer such as Home Depot needs to anticipate some headwinds and especially needs to work on its omnichannel and in-store experiences.
Part of this is just cyclical — but that’s the nature of retail. Lowe’s and Menards have been doing pretty well lately also. Props to Home Depot for being well prepared to meet the needs of their customers in their DIY specialty segment. What they have done well is understand what the critical elements of the customer experience are for key need types. For example, BORIS (credits to Ken Lonyai for that one) is particularly important if you had a new mitre saw delivered to your home and you need to return it. You do NOT want to repackage and ship that sucker. But as Paula points out, Frank Blake made sure Home Depot was just as inviting to the lay-person wanting to buy spray paint or cleaning supplies as it is to the hard-core DIYer or the pro. Well played all around Home Depot!
From personal experience, Home Depot’s location of the item in-store is the best help. This is especially helpful since Home Depot stores are so large, and it is difficult to imagine where some items might be located. After that, BOPIS is really convenient since I know if the store has the item I need before I go to the store. Home Depot is ahead of many retailers with the ability to find things and all of the pickup or delivery options they have. It seems like there are choices for every imaginable method that a consumer would want when thinking about a purchase and fulfillment — a very seamless shopping experience.
Home Depot’s ongoing attempt to streamline their in-store and online experiences has seen vast improvements over the recent years. This is allowing them to stay competitive in the market and relative to other retailers I think they are slightly ahead of the curve, but with ample room for improvement.
The biggest challenge for large retailers like Home Depot is providing a consistent consumer experience across stores. Store associates have to be adequately trained to understand how the tools they are given actually work and how they interact with the e-commerce side of things. We can’t forget that it is not just the right technology stack that shapes the consumer’s experience. Store associates play a large role. You can give them the latest and greatest technology that is meant to provide consumers with a “unified” or “omnichannel” experience, but if the store associates don’t know how to leverage the technology, it is useless.
Being in “semi-retirement” and getting to a lot of projects that have accumulated over the years, I am sometimes in Home Depot more than once a day. I also am a big fan of Amazon, as “the everything store.” However, Home Depot wins against Amazon often, based on the TWO fundamental advantages that brick-and-mortar has: immediacy (I need it RIGHT NOW!) and experiential. That second advantage, experiential, I have often described as the 360-degree shopping experience.
On that “experiential” advantage of brick-and-mortar retailing, there were some very important insights in an Aeon article yesterday: “Why you need to touch your keys to believe they’re in your bag.” Sometimes I don’t need the “experience” of the in-store purchase, and maybe “immediacy” is not an issue, and Amazon’s infinite long tail, “the everything store,” is needed to get some rare component, THEN Amazon beats Home Depot.
These are the reasons that Home Depot is elbowing its way to a position in the “$100 billion” club of global retailers. They can fix their obvious flaws, and I am pretty sure they will.
Where other retailers may have turned all attention towards one channel (usually online) and let others slide, Home Depot has invested heavily in the customer experience across all touch points from store entry to delivery fulfilment and online browsing.
I’ll be the first to admit I’m not a regular Home Depot customer (DIY, what’s that?!) and don’t have much first hand experience to go on, but their numbers speak for themselves.
Although many of the things Home Depot has done are excellent, I think the addition of more staff on the sales floor has been the biggest difference. You used to walk around their cavernous space like a zombie for what seemed like hours just to find some nails. But now it feels like at least you know where to find help, or they find you. That and the location elements both in-store and on their app are huge, in my opinion. No more zombies.
They still have a ways to go in terms of BOPIS in that there’s no drive up/pick up yet, but their delivery to site alleviates much of that angst.
Having shot all this praise out, let us not forget that Home Depot, at least thus far, has been impervious to the 900-pound Amazon gorilla. For a lot of reasons but, should Bezos inevitably set his forces on the home improvement sector, it’s essential for Home Depot to do at least what they’re doing now to offset it.
Home Depot’s in-store execution radically improved. And from Blake to Meneer, it has maintained that trajectory.From housekeeping, in-stock, signage, associate training, promotions and now digital channel integration; the full range of customer touchpoints.
Because Blake made the tough decisions at a time of severe depression in the industry, Home Depot emerged among the best of retail. Because the plan is so solidly built upon a foundation of deep customer knowledge, continuous improvement is maintained.
Walking their stores this holiday proves that not only will it drive top-line, it has intelligently build a promo plan to sell that will convert to drive bottom-line. No small feat.
During the recession, DIY spending remained high. And after the recession, DIY spending returned far faster than contractor/pro channel spending. Hence, Lowe’s did better in those years and was seen as a stronger player. Then, in the past few years, contractor/pro spending returned strong.
Home Depot’s current success is primarily due to strong contractor/pro spending. We must not read too much into an economic-driven strength.
Other factors also help Depot. Their organization is well stocked with experience built in the store. And they have a good online system.
Yet I worry about Home Depot because of their online obsession. Wall Street doesn’t recognize that online is only a good “buying” world, but a very bad shopping world. Yet home improvement is a place where a rich world of shopping is required. That means ecommerce can never take as large a role for home improvement as it will in other categories. Depot seems distracted by how much Wall Street likes their online pitch. Can they do that AND keep their store execution strong? We will see.
It’s not “buy-online-pickup-in-store” that wins my greatest praise for Home Depot. It’s “check-inventory-online-buy-in-store” (CIOBIS?). I don’t know how to emphasize this enough, but I’ll try:
When in the midst of a weekend project, Murphy’s DIY Corollary firmly states that the critical part or tool needed to complete the job today will NOT be on hand in your home workshop. One-click ordering won’t solve this dilemma unless you are willing to wait until the following weekend to complete the task. You need the item within the hour. The most efficient solution is to confirm it’s in stock at a nearby store, run out and pick it up.
Only a retailer with a firm handle on store-level perpetual inventory and a tight digital linkage between Web and stores can accommodate this type of urgent need. Home Depot has its act together in this regard.
Need a specific branded replacement part for a kitchen faucet? Check the website to determine if one’s available at your local store, or failing that, another across town. Holy crap — the site tells you how many are on hand and the aisle and bay number location! [FYI Ken, the web page shows both the store SKU# and the internet item #.]
When it comes to CIOBIS, Home Depot has very few peers — Lowe’s comes close and Best Buy is pretty decent too. How many other retailers can say they have mastered this essential capability for unified retailing?
” [FYI Ken, the web page shows both the store SKU# and the internet item #.]”
So? In-store MANY associates have told me that the two systems don’t match up. What the web page shows doesn’t help associates that are floundering trying to figure out what to do. And in my case, after lots of promises yesterday and this morning, the store manager has gone into hiding, which again means, the press hype and the corporate speak don’t help where it matters; customer experience at the store level.
Sounds like a disconnect persists between humans and machines. The web page seems to reveal that the right data table exists. (There may even be a method to the madness of assigning two separate numbers to each item.) But if customer-facing personnel are unable to leverage that to the shopper’s advantage during a product return, then there’s still work to do.
Certainly searching store inventories online has very little to do with the returns process. Eliminating problems like the one you encountered seems like a two-pronged effort involving better tools at the POS and better training for associates.
“…seems like a two-pronged effort involving better tools at the POS and better training for associates.”
Absolutely correct Jamie. In my first conversation w/the store manager, I told him that his employees needed better training (for multiple reasons). He disagreed and if my recollection is correct, commented about the online system. When that’s the feedback, there’s nowhere to go but down.
My own “curve” related experience with Home Depot, a BOPIS — the only one I’ve ever tried — was underwhelming. Two days to get it from the wherever to the distribution center, two weeks (the short distance) from there to the store. Small sample size? You bet, but it’s what I have to work with.
As for HD, in general, I think they’re positioned at the moment to do well. Most of the goods they sell are either so bulky or so urgently needed that they’ve largely escaped Amazon, et al., and as was the case of Macy’s benefitting from JCP’s missteps, they’ve benefitted from Sears’s continued implosion. The long-term threats are from Lowe’s and smaller regional players (OSH, etc.) that offer a nicer shopping environment.
Home Depot has transformed itself from just a normal retailer with home improvement products to a customer experience retailer. The recent digital transformation journey which Home Depot underwent has helped it to enable interconnected retail and a true omnichannel journey.
Going by the facts, its ecom sales have grown by 25%, customer satisfaction index up by 30+% and won many rewards like internet retailer of the year for 2015. It is also trying out latest technologies to enable customer shopping experience like VR technology to see products in the house. All these direct to only one fact: Home Depot is somewhat ahead of the curve for the digital journey and superior seamless customer experience.