Home Depot Tests Auto Supply Department
By George Anderson
Home Depot has built its business on helping consumers fix up their homes and gardens, and now it is taking its DIY approach to the garage with a 10 store pilot test of automotive supplies.
The chain decided to test the sale of products such as motor oil, fuel additives, spark plugs, floor mats and other items in stores in the Jacksonville, Fla. area.
A spokesperson for Home Depot, Jerry Shields, said the company decided to test the departments because, “We’ve noticed customer interest in this area.”
This is not the first time Home Depot has expanded beyond its building supplies retailing profile. The chain is looking at adding convenience stores and gas pumps at a number of store locations, with as many as 300 projected to be in operation by 2010.
Matt Nemer, an analyst with Thomas Weisel Partners LLC, said Home Depot is selling its auto supplies at up to a 22 percent discount on similar items sold at auto-parts chains such as AutoZone, Pep Boys and others.
While analysts such as Mr. Nemer do not see Home Depot making an immediate impact on other businesses that sell auto supplies, the potential does exist for that to happen.
“We are somewhat concerned for auto-parts retailers given that Home Depot already targets the appropriate customer base, the male do-it-yourselfer,” wrote Mr. Nemer in a letter to investors.
Moderator’s Comment: What is your reaction to Home Depot testing auto supply sales? Do you see this as a concept that can be rolled out chain-wide? Should
there be concerns that the chain is taking its eye off its core business with tests of convenience stores, gas pumps, auto supplies and other products and services?
– George Anderson – Moderator
Automobile supplies might appear to be a logical extension; I am not so sure how successful Home-Depot will be. AutoZone was created and built off the grocery model, which means they are a good operator. Basic auto supplies are available in auto parts stores, mass merchant/discount, hardware, membership clubs, convenience and gas stations. Offering oil, spark plugs, filters, etc. may result in impulse purchases. The auto parts business is completely different. This requires stocking a wide range of products for immediate delivery. No one wants a car that is pulled apart waiting on parts for any amount of time. Even tires are no simple task. When the consumer decides to replace tires, it must be done then. Requiring a return trip to get tires is not competitive in today’s marketplace. Yes, Home Depot will get cross-over shoppers. Those in the store for a light fixture will buy oil and filters. The question is, will a consumer drive a long distance to a big box store for something they can get close by?
It seems almost everyone thinks this is a good idea. To quote Randy Owens and Alabama — I’m sure it “feels so right.” But it could well be “oh so wrong.” Do the target demos match? Of course. Do the target interests match? Maybe. Does the retailer positioning match? NO. HD may pick up the occasional motor oil or spark plug sale, but the guy who is rebuilding his 1965 Mustang is not going to HD for a rebuilt starter motor. The credibility isn’t there — never mind the selection. This is a marginal move that will force HD to sacrifice space and inventory that would be better devoted to reinforcing their core position as the place I can find absolutely everything I need for home DIY projects. That’s why I’m there once a weekend.
This move is long overdue and, if I have my facts straight, was actually delayed from HD’s original plans. Working on an automotive client project a while back, I learned of HD’s plans to incorporate automotive into their assortments. Several district managers confirmed this to me (“Should be any day”) yet it never came.
In any case, once HD makes a mark with no-brainer (and yes, low margin) fluids and such, they will have primed the pump for tests in higher margin impulse items such as accessories and tuner trick-outs . . . not to mention appearance items that will appeal to women. (No one in home improvement makes a move these days without thinking of the chicks, too.)
Totally incremental. It makes a lot of sense for them to capitalize on the real estate they already have and to find as many ways as they can to increase volume. The Home Depot has already come to realize it’s hard to maintain same store sales growth with the number of outlets they have, so another way to grow sales is by moving into new categories. AutoZone and others have nothing to worry about; the ones that will lose will be in the grocery channel that have for years merchandised automotive in a 8 – 16 ft. section.
Seems everyone is missing a key point. Who is your customer? HD understands that it is the DIYer. DIYers also like to tinker with their autos (to different extents). Why get hung up on the complex parts? I want oil, filters, wiper blades, etc. with the occasional hose, vacuum line, spark plug, etc. This is a GREAT extension of the HD brand and experience. It is directly in line with their customer and a great way to maximize footsteps.
Anyone who can quote Randy Owen of Alabama and mention a 1965 Mustang in the same comment is alright with me! I have to agree with Ben Ball on this one, if for no other reason than his taste in music and cars (even if I did grow up a Pontiac kid). Seriously, he is right. It would seem to me that expansion and pursuit of excellence in what you could do well is their best direction. I have even less confidence now than I had previously that they are a retailer deserving of my dollars. And, I received my first flyer for their new offering in the mail today as a matter of fact.
Now, if we could fit a truck, a dog, Mom, prison, whiskey, and a train into the subject, we’d have a perfect country song.
‘Roadster’ has it right. Not only are the “behind the counter” parts items the most profitable for autoparts stores, but repair shops are their best customers. Additionally, to serve these customers, autoparts stores have close relationships with manufacturers with huge warehouses located in Memphis, the prime hub for FedEx and UPS overnight deliveries. That’s how this business works best, but only when coupled with knowledgeable folks behind the counter to tell shade-tree mechanics how to install the parts. HD can’t even properly service their traditional customers as they once did. How are they going to do this?
This is a natural expansion of product offerings. HD already sells many of the hand and power tools used by DIYers. Another consideration is the depth of the items offered. I would expect they will limit products to what is “front end” merchandise at the current auto supply stores and not get involved with new or rebuilt engine parts – alternators, radiators, etc. The result of this type of marketing could hurt the auto supply retailers much the same way as “front end” merchandise in the grocery and drug class of trades has been affected by the large mass discounter.
Currently a large percentage of their business is with professional contractors. If they want to extend that model to professional mechanics, they may need to offer the back end items.
I think it is a great idea.
A lot of guys get the green light to spend money at HD because of projects that their wives want done. And I think the wives grudgingly accept that, once their guys get in the HD door, they can look and play with all the toys. It’s just part of the deal.
So I’m thinking that by selling auto supplies and tools at HD, more auto supplies will be sold. And that the current market demand for full service auto supply stores will not be effected much. The HD strategy will appeal to a group of guys that aren’t currently shopping at auto supply stores.
Finally! It makes absolute sense for HD to add auto parts to their mix. If I am an indication of their target demographic (and judging by my consistent weekend visits, I think I am!), DIYers will enjoy not having to make 2 trips on the weekend to get basic supplies for their list of projects. I expect they’ll keep the assortment relatively narrow (oil, filters, headlamps, etc) so as not to divert from the self service model, but that should satisfy most consumers…and, give AutoZone and others a run for their money. I expect (hope!) that HD will roll this to additional cities and then nationwide.
Thomas is exactly right – it does make perfect sense. As a transplanted Canadian, I’m still going through severe withdrawal from lack of access to auto/home stores called Canadian Tire. It’s been 8 years and I’m still suffering. It’s very similar to my addiction to Home Depot. If HD moves ahead with an auto section, maybe I can drop some of my medication!
I had previously written directly to HD Corporate about adding a section for auto parts. I am glad they listened. As a D-I-Y, I need to work on the yard, house, and car. I can get supplies for 2 out of 3 at HD, why not auto parts as well? Look at the demographics entering their doors and you can see it makes perfect sense.
Trying to grab a piece of the 15 billion dollar pie from AutoZone, Genuine, and Advance will be a challenge but it is a strategic move that makes sense. It almost seems too easy; the do-it-yourself customer is already in the store. This is yet another example of industry channel blurring. Respond to your customer’s needs.
Home Depot, like any well-run retailer, should test all sorts of categories. But the auto supplies listed generally aren’t high margin. Often, they’re the loss leaders, so it’s hard to understand what the strategic thinking would be. There are other unexplored home improvement related categories that might provide higher margins than auto supplies. Any expansion category that’s closer to the core (home improvement) is structurally superior than any category further away from the core. For example, home maintenance services, home warranties, and handyperson services (Home Depot’s version of the “Geek Squad”) are closer to the core positioning than auto parts.
Home Depot, regardless of their success, obviously has one or two under-performing traditional categories in their stores. If an automotive section has the potential to outperform one such poor category, then it makes sense to go ahead. As a retailer, you should always try to replace the worst performer with one that might be better.
With the increasing number of vehicles in the age range of 6 – 10 years, the auto parts market is growing. But so is the parts proliferation. The barrier to entry into the market lies in the fact that the inventory is slow moving and capital intensive. Home Depot could be widely successful in the D-I-Y segment if they adopt a few tricks such as “pay on scan” from the existing auto parts retailers. AutoZone has implemented such strategy successfully and have a very low net inventory. Home Depot may be able to leverage its size to negotiate similar deals from the vendors. Although, I believe, it will have lesser impact on the professional installer market where speed to get a particular part is critical.