A New Strategy For Home Depot

American retailing giant, Home Depot, recently announced plans to double its business before 2010. Crucial to its strategy is a move into small-town USA.

For more than two decades, Home Depot concentrated on dominating big-city markets, blanketing America’s metropolitan areas with hundreds of orange-painted big boxes, and in the process, eliminating thousands of independent retailers and dozens of smaller home centre chains as it became the world’s largest home centre chain and America’s second largest retailer.

Slot-wall fixtures and photo murals are used effectively to showcase a huge selection of drapery hardware.

However, with virtually every major metro area heavily populated with its stores, where can the company look for significant future growth? It became a Wall Street darling, racking up 20+% annual sales and earning gains as it penetrated and then dominated market after market. To keep its stocks up, it must continue strong growth and find new markets to conquer.

For the 2003 fiscal year, the company’s sales increased 11.3% to $64.8 billion, however this is not equal to its glory years – nor equal to #1 competitor, Lowes.

Design Place signing emphasizes broad selections, installation services and even special-orders.

Based on changes being made in the company’s merchandise mix, as well as its merchandising presentations over the past two years, there are definite signs that the company is seeking to dominate hardlines retailing in any, and all, trading areas with attractive consumer income. This change in merchandising direction could have a devastating impact on smaller towns and local merchants in the future.

The recent additions of major appliances, expansion of lines such as carpets, rugs and home décor, heavier emphasis on garden centres and even tool rentals, now provide Depot stores with much more diversified avenues of income in less densely populated areas.

The newer Home Depots feature improved signing, aisle numbers, product listings for each aisle and brighter lighting and improved floors.

Therefore, instead of relying primarily on contractors, tradesmen and active DIY customers to generate sales, Depot stores can now target active gardeners, housewives wanting to replace carpeting or drapes, or families in need of new major appliances.

In short, they can mount massive assaults on local merchants in a wide variety of fields, taking business away from several types of competitive stores instead of just a couple. Thus, it makes the company’s move into smaller towns much less risky.

In one way, this is a reversal of the way its main competitor, Lowes, evolved. Lowes began in smaller towns with lumber/building materials, a limited hardlines assortment, and major appliances, before broadening its inventory and becoming more consumer-oriented.

Both chains continue aggressive store-openings for the coming year, Lowes with 150 new units planned, primarily in metro areas, while Depot plans 175 stores, not all of which are in metro markets.

Accent rugs are displayed attractively in these special fixtures, a far cry from traditional warehouse racking.

Executives aren’t talking, but it is known that Depot has opened stores in municipalities with as little as 4,500 people – if the trade area comprising neighboring communities includes about 60,000 people – sustainable when selling not just hardware, but major appliances, home décor, carpets and garden needs.

Home Depot also is now becoming more flexible in regard to store size, which permits it to tailor store size and investments to market potential. It is now running a few stores in the 60-68,000 sq. ft. size and others just above or below the 110,000 sq. ft. size, thus making it easier to target smaller trading areas for its continued expansion.

Home Depot’s effect could be devastating
Think of the potential impact on those local merchants when a new Home Depot opens up:

 

  • Its major appliance department is stocked with the biggest brand names, is beautifully signed with eye-catching graphics. Free delivery is offered and everyday prices are competitive.
  • If you are a local furniture store or carpet retailer, your new competitor is offering a much broader selection than you might offer; has the advantage of $64 billion in buying power, and national name recognition – and agrees to meet any price and give an extra 10% off.
  • If you are a local garden or hardware retailer selling such products, the new competitor offers exclusively branded tractors bearing the powerful John Deere name and other top brands such as Ridgid and Ryobi in power tools, 30-35,000 sq. ft. of space for equipment, green goods, etc.
  • If you are a local kitchen or cabinet shop, your new competitor benefits from high everyday traffic, offers computerized planning, showcases several model kitchens and/or baths, plus some exclusive designs under famous names like Kohler.
  • If you are a local paint retailer, you now have a national competitor with immense buying power, an alignment with Ralph Lauren and the Disney name; a handsome Colour Centre featuring king-size color swatches for consumers to take home and a computer program that enables consumers to preview their colour ideas in room-size settings.
  • Plus, its presentation of basic merchandise – lumber/building materials, hardware, hand and power tools etc – is much more appealing and consumer-friendly than earlier Home Depot formats.There are other significant operational advantages to Depot’s smaller-market strategy. It should cost them considerably less to open stores in these markets, land will be cheaper and there should be an available and affordable labour pool which may provide more service-oriented employees than big city markets.

    And, of course, in most cases, they will be facing less sophisticated competitors.

    So, to continue its remarkable growth story, Home Depot apparently will be trying to blanket all of America in a blaze of orange – though even that is now softened by some off-white shelving, better graphics and smarter merchandise presentations!

    Where Depot is Expanding
    Here are some of the smaller US markets in which Home Depot recently opened its giant warehouse stores in the last two months—all beyond regular commuting distance of major metro areas:

    Scottsboro, Alabama
    Conway, Arkansas
    Crawfordsville, Indiana
    Bettendorf, Iowa
    Owensboro, Kentucky
    Topsham, Maine
    Mansfield, Massachusetts
    Willmar, Minnesota
    Oxford, Mississippi
    Osage Beach, Missouri
    Shirley, New York
    Uniontown, Pennsylvania
    Bloomsburg, Pennsylvania
    Lebanon, Tennessee
    Morristown, Tennessee
    Victoria, Texas

    By Bob Vereen, Hardware Journal’s US Correspondent