Installation services, or ‘do it for me’ is the new battleground for two of America’s home centre giants…
Home Depot and Lowes, which together own about one-third of America’s US$263 billion home improvement product market, are now looking to installed sales and services in order to continue their amazing growth.
Installation services is the next step from selling appliances
The “services” market is estimated to be another $200 billion, which gives both firms an additional – and substantial – target to fuel continued growth.
Depot in particular, has been opening big-box format stores for 25 years and must find new ways to keep increasing its same-store sales. Together, the two chains are operating more than 2,500 units, and risk fighting each other for market share, or cannibalizing existing stores as they open additional units in key markets.
Installed sales and services seem a sensible new avenue of growth. Under CEO, Bob Nardelli, Home Depot is making a serious effort to build installed sales. Depot has been dabbling with installed sales for a decade, but very much on a hit-and-miss basis. Through signs and brochures in its stores, it is now actively recruiting tradespeople to install products purchased in its stores, is teaching its employees how to solicit business, and is aggressively advertising its services.
Its offer to tradespeople includes the following:
- Eliminating credit risks by paying tradespeople even if the customer does not pay for work performed
- Prompt payment (something small business people don’t often enjoy)
- Steady work
- Depot does the preliminary work (and inspects the finished work)
- Providing general liability insurance, workmen’s compensation insurance where required, and auto insurance
Part of a pass-out folder promoting Home Depot’s installation services
Those key factors eliminate most of the reasons for business failures and eliminate many major obstacles for entrepreneurial tradespeople. However, each contractor is also scrutinized by Depot before becoming an accredited Depot service-provider, in order to assure professional work and satisfied consumers. It seems the times are right for both Depot and Lowes to focus on installed sales. With so many American families now consisting of two wage-earners, time is a precious commodity, and “Doing it Themselves” requires time that many families don’t have to spare – or don’t want to commit to DIY projects.
Also, both Home Depot and Lowes believe that customers willing to upgrade to bigger, better products and projects may be reluctant to tackle the work for fear of failure. Turning it over to a tradesperson saves their time and eliminates that fear of failure. And dealing with one of the two home centre giants eliminates the fear of a dissatisfied job. They can go back to the giant to complain instead of finding that a tradesman might have gone bankrupt, be out of business or be unable, financially, to redo the work.
Lowes is following Home Depot’s lead in ‘do it for me’ services
Depot notes that contractors provide 30% of their business, so finding ways to help these professional customers increase their own business is a smart strategy for Depot – and also for Lowes. In advertising its services, Depot breaks it down into interior and exterior services. Interior services include all kinds of flooring, kitchen remodelling – including selling new appliances – window treatments of all types, and even water heater installation. Exterior services include all kinds of door installations and erection of storage buildings, garages, gazebos and cabins.
To encourage more installations, Depot also offers no payments and no interest for six months. Such an offer also provides an additional incentive to consumers to upgrade the quality of products they are going to have installed. It hasn’t always been easy to sell the concept of installed sales and services to store managers, and getting qualified contractors isn’t always easy, either. However, Depot says that installation is its fastest growing sales segment, expanding at 40% annually. In 2003, the division took in nearly $3 billion, not quite 5% of total sales. An article in the September 2004 issue of Forbes magazine credits Joseph Izganics, head of the installation business, for making the program work, after Nardelli decided to expand the fledgling installation program that Depot offered here and there.
Just inside an entrance to a Depot store is this display promoting its installed sales and services
Izganics had bright, orange service desks erected at the front of each store and encouraged customers sign up for home consultations on the Depot web site. He also conducted training sessions around the country to teach staffers about installed products and how to sell the program. As Forbes reports, he also changed the method of how stores are compensated for installations. Bonuses are now based on how many customers order installations, instead of being based only on retail sales. Depot now has 6,000 contractors lined up to provide the different types of installations. To ensure satisfied customers, Depot inspects finished jobs and also surveys consumers regarding their satisfaction level with the job.
Not every customer is happy, of course, and the Forbes article quotes several disgruntled consumers, but Depot (and Lowes) do try to resolve problems so negative word-of-mouth comments do not impair future growth. To handle future growth in the division, Depot is in the process of developing software to automate quotes, scheduling and order-tracking. By the end of this year, the company expects every store to be using the new software, and to have at least one employee per store devoted to installations.
A Lowes circular advertising its installation services
Lowes has only recently begun advertising its installation services, but reports the activity growing as fast as at Home Depot. It also notes that 92% of its customers say they would use Lowes again for a future project. It sounds like a win-win concept: more business for existing contractor customers; bigger sales for the store; professionally finished jobs for the customer; and more business for suppliers to the two giants.
Bob Vereen, Hardware Journal’s US Correspondent