Image: Home Depot
Home Depot to make same- or next-day deliveries virtually everywhere
Home Depot revealed plans to spend $1.2 billion adding distribution sites and shipping hubs over the next five years to speed delivery to most of the U.S. market within a day.
Beyond speed, the move is expected to reduce transportation costs, improve inventory alignment and further integrate its expanding online business.
Home Depot will add 170 distribution facilities, including 40 flatbed distribution centers to handle the delivery of building materials directly to job sites. Professional customers account for 40 percent of its sales.
The retailer will open another 100 market delivery operation centers to deliver bulky items like patio furniture, grills and appliances directly to homes through a delivery agent. A few “parcel plus big” direct fulfillment facilities will handle both smaller items and some bulk. Finally, local direct fulfillment centers will be added to deliver a smaller subset of products direct to homes or offices.
At Bernstein’s Annual Strategic Decisions Conference on May 31, Home Depot chairman and CEO Craig Menear said, “And when we’re done with that, we’ll basically end up with the same-day, next-day network for 90 percent of the population.”
Further, ninety percent of the U.S. population “lives, give or take” within 10 miles of a Home Depot store, according to Mr. Menear.
At the 3PL & Supply Chain Summit in early June, Mark Holifield, Home Depot’s EVP of supply chain and product development, also detailed the program and emphasized the importance of timely delivery.
“Sometimes they want it fast and are willing to pay for that. Sometimes they want it free, and they’re willing to wait for it,” he said, according to The Wall Street Journal. “We need to have the options right there.”
Fast delivery is also critical to its MRO (maintenance, repair and operations) segment that supports multifamily residential, hospitality and institutional complexes. Home Depot re-entered MRO with its 2015 acquisition of Interline Brands. At Bernstein’s conference, Mr. Menear said Home Depot’s “orange box” couldn’t address MRO effectively because “delivery is an important element of that in terms of same-day, next-day.”
The company’s supply chain investment is part of the $11 billion “One Home Depot” program announced in December designed in part to merge online and offline.
- The Home Depot Updates Strategic Priorities; Confirms Fiscal Year 2017 Sales And Diluted Earnings-Per-Share Guidance; Outlines Long-Term Financial Targets; Announces Accelerated Business Investment Plan And $15 Billion Share Repurchase Authorization – Home Depot
- Home Depot Invests $1.2B To Speed Up Deliveries – PYMNTS.com
- Home Depot, Inc. (HD) CEO Craig Menear Presents at Bernstein 34th Annual Strategic Decisions Brokers Conference – Seeking Alpha
- Home Depot To Spend $1.2B On 170 Distribution Facilities By 2023 – Industrial Distribution
- Home Depot Sets $1.2 Billion Supply-Chain Overhaul – The Wall Street Journal
Discussion Questions
DISCUSSION QUESTIONS: What will achieving its goal of offering same- or next-day delivery to 90 percent of the U.S. population mean for Home Depot and its rivals? Will Home Depot benefit more from supporting its professional or home/office customers with same- and next-day deliveries?
Poll
BrainTrust
Lyle Bunn (Ph.D. Hon)
Strategy Architect – Digital Place-based Media
Ron Margulis
Managing Director, RAM Communications
A smart, strategic move by a smart, successful retailer. Same-day/next-day delivery is becoming a consumer expectation, but this is significantly more complicated to do with big, bulky building supplies and outdoor stuff. This will create a competitive advantage for Home Depot as Lowe’s tries to play catch-up — it will take time to close this gap. The new distribution and delivery options will be tremendously valuable to the professional market and highly convenient for home/office customers. This will be a big win for Home Depot.
Very likely this strategy will push Home Depot significantly further ahead of the competition. Commercial building accounts and contractors expect to receive staple materials same day or next day and traditional suppliers like lumber yards and plumbing supplies have been able to meet that need. Home Depot will be more competitive in those markets while bringing a similar grade of service to consumer purchases. Upping their game in MRO will be a big boost as well. I believe the hardest hit will be independent home centers, many of which will likely disappear once this service is established in consumer minds.
This is exactly what Home Depot should be doing to extend the great progress they have made with their One Home Depot initiative. Speed is often a critical part of many improvement projects, and making it easy/fast for people to access the parts they need will only deepen their reliance on/loyalty to Home Depot. And while the $1.2 billion investment is certainly significant, it is a relative drop in the bucket compared to the money Amazon has been (and continues to) spending to expand their reach for same day/next day delivery. When Home Depot combines these new capabilities with their already very strong store fulfillment offerings, they will be in a very strong competitive position. And they are streamlining logistics and reducing costs as well! Kudos to them for a well-constructed and well-implemented strategy.
And this is what it takes to win at retail today! It’s all about ecosystem that gives customers choice. It is also about creating the infrastructure to be able to compete with Amazon, Wayfair and Walmart. It is a bit surprising that Home Depot can pull off this infrastructure so rapidly. It is real differentiation that creates real customer value, and will have competitors scrambling.
Getting building products onto a project site when needed is a key to construction contracting success. So this Home Depot promise has lots of merit. I would expect to see satellite sales centers staffed by knowledgable people at major project sites as a natural next step for Home Depot. Travel time is wasted time for contractors and most service professionals.
Home Depot is smart to invest in same- or next-day delivery to 90 percent of the U.S. population as costly as it may be. Every time we keep the customer out of the store we run the risk of losing out on impulse buying. However, what Home Depot realizes is if they can provide speedy delivery along with the right price and selection, they can compete with any company and that’s what is most important. Home Depot has a reputation of being a leading home center with an enormous selection and competitive prices, so adding speedy delivery is the last piece of the puzzle. I would expect Lowe’s and other retailers to follow.
Now what this does is change the dynamic of what Amazon has to offer. If the customer can shop online and get it for the same price and as quickly, it levels the playing field making the retailer even more competitive. Let’s see who introduces something new next and what that will be to stay ahead of the competition
At some point in the not-too-distant future, several retailers will band together to jointly offer daily home delivery. I suspect Home Depot, one or more major supermarkets, a drug store chain, a series of restaurants and a few specialty stores will be in one group. Lowe’s, one or more major supermarkets, the other drug store chain, a series of restaurants and a few specialty stores will be in the other group. This is a definite step in that direction.
Fast delivery is particularly important in home improvement, especially for professional customers. It will be hard for non-DIY specialists to replicate this as the bulky and heavy products are not easily transported and distributed. In this regard, Home Depot’s existing store infrastructure is a real strategic advantage.
Brilliant. “Stay home with Home Depot.” Most customers buying bulky items that will not fit in the SUV or car, and items they cannot easily unload at home after a Home Depot associate has loaded the item, will truly love this. No more renting a truck to get a grill home … incredible. I know the professional customers will take advantage of this program as well. We wont see as many professional contractor trucks and vans in the lots, but they will still come for quick needs while on a job. Sounds to me like a big win for the customers!
Delivery is not optional for companies like Home Depot. It’s necessary for them to survive and thrive. The stakes are higher than ever. Customer service, which includes delivery, is also not optional for a retailer like Home Depot. They compete with Amazon and others who will deliver. Customers will benefit through a better CX. Delivery is convenience, and customers want convenience. The companies that are most convenient for their customers will win.
As every DIY fanatic knows all too well, the most time-consuming part of any home project is locating the materials and hauling them home. You can blow half a Saturday picking up a few sticks of lumber or a dozen sacks of landscape mulch.
Home Depot already has outstanding store-level inventory and online ordering systems in place. Adding a few special-purpose distribution centers to the mix will permit consumer and contractor shipments of building supplies to originate more rapidly and arrive quicker, when warranted by the job schedule.
The future of retail means serving customers in the ways they want to be served in each and every interaction. “Do you want it Fast or Free?” is a question every retailer needs to be prepared to ask.
Have thought about this all morning. I don’t think Home Depot is revealing the truth … because buried in this has to be “IF the product is that these local DCs.”
Home Depot has pushed hard to get vendors to put huge volumes of product on the website without store carriage. There’s no way HD is going to stock all that.
So what seems to be more true statements are:
I would caution all retailers to make more measured remarks.
Same or next day delivery brings Home Depot into alignment with the “Amazon Age” of retailing. HD needs to adapt or perish when it comes to their business model, since the other DIY hardware stores are rapidly doing so and HD knows this. Recognizing its pro customers only allows HD to better balance these 2 market segments as it adapts its model to the ever changing retail landscape. Best of all, HD already is established as a pseudo warehouse where products can easily be stored, managed, and shipped from.
Home Depot will have a competitive advantage if it can successfully make same-day/next-day deliveries within the next few years. Fast deliveries are difficult with the merchandise Home Depot offers. However, quick delivery is becoming the expectation of today’s customer. This is especially the case for professional home improvement customers who don’t have room in their car to pick-up what they need in-store. Home Depot will have the strategic advantage over its competitors because it’s bulky products are not easily transported. Customers who immediately need items for their DIY at-home projects will turn to Home Depot over other brands.