How Home Depot Became the World’s Largest Home-Improvement Retailer | WSJ The Economics Of

Summary

The Home Depot's theme song and expansive store offerings have solidified its cultural status as a go-to home improvement retailer, especially during the pandemic. As the world's largest home improvement retailer with over 2300 stores, Home Depot's sales in 2021 surpassed Lowe's and ACE Hardware combined. The company's success is attributed to its appeal to both DIY consumers and professional contractors, who account for 50% of sales despite being less than 10% of customers. Investments in supply chain and distribution, along with an effective e-commerce strategy, have bolstered sales growth and positioned Home Depot as a leader in the competitive home improvement market.

Takeaways

• 🎵 The Home Depot's theme song has become culturally significant, inspiring social media engagement and reflecting its status as a preferred home improvement destination during the pandemic.
• 🏠 Home Depot is the largest home improvement retailer globally, with a vast network of over 2300 stores across North America.
• 📈 The company has experienced unprecedented growth in sales, outpacing competitors like Lowe's and ACE Hardware combined, largely due to increased home value and homeowner spending.
• 🛠️ Home Depot's success is partly attributed to its strong presence in the professional customer segment, including electricians, remodelers, and plumbers who place more lucrative orders.
• 🛒 The store's large floor space and inventory of 30,000 to 40,000 items cater to both DIY customers and professionals, offering a one-stop shopping experience.
• 💡 The founders, Bernie Marcus and Arthur Blank, envisioned a significantly larger and cheaper home improvement store compared to competitors, which led to Home Depot's inception in 1979.
• 📊 Despite the pandemic's impact on various industries, Home Depot saw a continuous increase in revenue, with four straight quarters of over 20% sales growth year over year.
• 👷‍♂️ Home Depot has strategically positioned itself to attract more business from contractors and home professionals by focusing on their needs for large orders and quick delivery.
• 🚚 The company has invested $1.2 billion in expanding its supply chain and distribution network, building 150 new distribution centers to enhance inventory management and direct delivery to job sites.
• 🌐 Home Depot's online strategy complements its distribution network, offering flexible options for pro customers, which has led to a doubling of sales from e-commerce channels over the last two years.
• ⚠️ The home improvement retail market remains competitive and sensitive to economic fluctuations, with Home Depot being vigilant about pricing and responsive to market changes in the housing sector.

Q & A

What is the cultural significance of Home Depot's theme song as depicted in the script?

Home Depot's theme song has inspired a wave of videos on social media, indicating its cultural status as a popular home improvement store, especially during the pandemic.

How many stores does Home Depot operate across North America?

Home Depot operates over 2300 stores across North America, making it the world's largest home improvement retailer.

What impact has the increase in home value had on Home Depot's business?

As homes become more valuable, homeowners are more willing to spend on them, which has led to increased sales for Home Depot.

What is one of Home Depot's biggest advantages over its competitors?

One of Home Depot's biggest advantages is its strong foothold in the professional customer space, including electricians, remodelers, plumbers, and other home professionals who place more lucrative orders.

How has Home Depot managed to attract more professional customers?

Home Depot has attracted more professional customers by offering a wide range of products for home improvement projects, bulk buying options, and quick item pick-up.

What is the typical inventory range of a Home Depot store?

A typical Home Depot store stocks about 30,000 to 40,000 items throughout the year.

What was the vision of Home Depot's co-founders, Bernie Marcus and Arthur Blank?

The co-founders envisioned Home Depot as a one-stop shop for the DIY or do-it-yourself customer, offering significantly bigger and cheaper options than competitors.

How did the pandemic affect Home Depot's revenue?

During the pandemic, Home Depot's revenue continued to grow as the home improvement industry boomed with people spending more time and money on remodeling projects.

What percentage of Home Depot's sales came from professional customers in the 2021 fiscal year?

In the 2021 fiscal year, about 50% of Home Depot's sales came from professional customers.

How has Home Depot invested in its supply chain and distribution network to cater to professional customers?

Home Depot has invested $1.2 billion in expanding its supply chain and distribution network, building 150 new distribution centers to speed up the replenishment of store shelves and deliver purchases directly to customers' doors.

How has Home Depot's online strategy complemented its distribution network and benefited the company?

Home Depot's online strategy works in tandem with its distribution network, offering pro customers more flexible options that align with their busy schedules, and has helped the company's e-commerce sales double over the last two years.

What challenges does Home Depot face in the competitive home improvement retail space?

Home Depot faces challenges such as price sensitivity among customers, competition from both large chains and smaller mom-and-pop stores, and economic fluctuations tied to the housing market.

Outlines

00:00

🏠 Home Depot's Cultural Impact and Growth

The Home Depot has become a cultural icon and a go-to destination for home improvement during the pandemic, as evidenced by its theme song's popularity on social media. With over 2300 stores in North America, it is the world's largest home improvement retailer. The company has capitalized on increased home values, leading to higher spending by homeowners on improvements. Home Depot's sales in the 2021 fiscal year outperformed Lowe's and ACE Hardware combined, largely due to its strong presence among professional customers like electricians and remodelers who place more lucrative orders. The company's large store spaces, stocking 30,000 to 40,000 items, allow for bulk purchases and quick pick-ups, catering to both individual DIYers and professionals. Founded by Bernie Marcus and Arthur Blank after being fired from Handy Dan's, Home Depot aimed to be bigger and cheaper than its competitors, starting with two locations in Atlanta in 1979. The company has since grown into a multi-billion dollar business that serves both professional contractors and DIY consumers, with its revenue growing significantly during the pandemic as people invested more in home remodeling projects.

05:00

📈 Strategies Behind Home Depot's Success

Home Depot's strategy to attract professional customers has been a key factor in its success. Approximately 50% of its sales in the 2021 fiscal year came from professional customers, despite them making up less than 10% of the customer base. This is a higher percentage than Lowe's, which sees 20 to 25% of its sales from professionals. To better serve this segment, Home Depot has invested $1.2 billion in expanding its supply chain and distribution network, including building 150 new distribution centers to speed up inventory replenishment and direct delivery to project sites. These facilities, some as large as 14 professional football fields, can hold substantial inventory and are part of a network designed to deliver large and bulky items like lumber, doors, and windows to 90% of the market population within a day or two. Additionally, Home Depot's online strategy complements its physical presence, offering flexible options for pro customers and contributing to a significant growth in e-commerce sales, which have doubled over the last two years. However, the company operates in a competitive and fragmented market where price sensitivity and economic fluctuations, particularly related to the housing market, can impact its performance. The housing market's strength has been beneficial, but any downturn could pose challenges.

Keywords

💡Home Depot

Home Depot is the world's largest home improvement retailer, known for its extensive range of products and services catering to both professional contractors and DIY customers. The company's cultural status is highlighted in the video as a go-to store during the pandemic, reflecting its importance in the home improvement industry. The script mentions Home Depot's theme song and its impact on social media, further illustrating its brand recognition.

💡Pandemic

The pandemic refers to the global health crisis caused by COVID-19, which has had significant effects on various industries. In the context of the video, the pandemic has led to increased home price appreciation and housing activity, prompting homeowners to invest more in home improvement projects. This situation has contributed to Home Depot's growth in sales and its role as a key player in the home improvement market during this period.

💡Professional Customers

Professional customers, as mentioned in the script, include electricians, remodelers, plumbers, and other home professionals who place more lucrative orders at Home Depot. These customers are crucial to Home Depot's business strategy, as they contribute significantly to the company's sales. The video emphasizes that about 50% of Home Depot's sales come from these professional customers, despite making up less than 10% of its customer base.

💡DIY (Do It Yourself)

DIY, or 'Do It Yourself,' refers to the practice of individuals undertaking home improvement projects without the help of professionals. The video highlights Home Depot's vision to be a one-stop shop for DIY customers, offering a wide range of products to cater to their needs. This approach has helped Home Depot appeal to a broader customer base, including both DIY enthusiasts and professional contractors.

💡E-commerce

E-commerce represents the buying and selling of goods or services using the internet, which has become increasingly important for businesses like Home Depot. The video discusses how Home Depot has leveraged its online presence to offer flexible options for its professional customers, contributing to a significant growth in sales. E-commerce sales channels have doubled over the last two years, showcasing the company's adaptability to digital trends.

💡Supply Chain

The supply chain refers to the network of organizations, people, activities, information, and resources involved in manufacturing and delivering a product or service. In the video, Home Depot's investment of $1.2 billion in expanding its supply chain and distribution network is highlighted. This expansion includes building 150 new distribution centers to speed up the replenishment of store shelves and direct delivery to customers, emphasizing the company's commitment to efficient logistics.

💡Distribution Centers

Distribution centers are large facilities used for the storage and handling of goods before they are distributed to customers. The script mentions that Home Depot is building new distribution centers, some as large as 14 professional football fields, to hold a significant amount of inventory and facilitate direct delivery to project sites. This infrastructure supports Home Depot's strategy to serve professional customers more effectively.

💡Housing Market

The housing market refers to the economic sector involving the buying and selling of residential properties. The video discusses how the strength of the housing market has a direct impact on the home improvement retail industry, including Home Depot. A strong housing market leads to increased home values, which in turn encourages homeowners to spend more on home improvements, benefiting Home Depot's sales.

💡Economic Fluctuations

Economic fluctuations refer to changes in economic conditions, such as growth or recession, which can affect consumer spending and business performance. The script notes that the home improvement retail space, including Home Depot, is sensitive to these fluctuations, especially those tied to the housing market. The video reflects on the impact of the great recession on the industry and contrasts it with the recent strength of the housing market during the pandemic.

💡Revenue Growth

Revenue growth indicates an increase in the income generated by a company over time. The video script highlights Home Depot's consistent revenue growth, particularly during the pandemic, when many other industries suffered. The company's sales growth, driven by factors such as the boom in the home improvement industry and strategic investments in its supply chain and e-commerce, demonstrates its resilience and success in a challenging economic environment.

💡Competitive Market

A competitive market is characterized by the presence of many sellers offering similar products or services, leading to intense rivalry among them. The video script describes the home improvement retail space as competitive and fragmented, with customers being sensitive to prices. Home Depot's strategy to cater to both professional customers and DIY consumers, as well as its focus on efficient supply chain and e-commerce, positions it well in this competitive landscape.

Highlights

Home Depot's theme song has become culturally significant, inspiring a wave of social media videos during the pandemic.

Home Depot is the world's largest home improvement retailer with over 2300 stores in North America.

The company's sales in 2021 were larger than both Lowe's and ACE Hardware combined.

Home Depot's advantage lies in its strong foothold in the professional customer space, including electricians, remodelers, and plumbers.

The store's large floor space and wide range of products cater to both DIY consumers and professional contractors.

Home Depot began with a vision to be a one-stop shop for DIY customers and has since grown into a multi-billion dollar company.

During the pandemic, Home Depot's revenue continued to grow as people invested more in home improvement projects.

Home Depot reported four straight quarters of sales growth over 20% year over year between mid-2020 and mid-2021.

The company is seeing increased demand for professional projects as homeowners feel more comfortable with contractors.

In the 2021 fiscal year, about 50% of Home Depot's sales came from professional customers, despite making up less than 10% of its customer base.

Home Depot has invested $1.2 billion in expanding its supply chain and distribution network to better serve its professional customers.

The company is building 150 new distribution centers to speed up the replenishment of store shelves and direct delivery to customers.

Home Depot's distribution network and online strategy work together to offer flexible options for busy professional customers.

E-commerce sales from Home Depot have doubled over the last two years, contributing significantly to the company's growth.

Despite consistent revenue growth, the home improvement retail market remains competitive and sensitive to price and economic fluctuations.

Home Depot's success is tied to the housing market, and a downturn could significantly impact the company.

Transcripts

- [Narrator] If you've ever seen a commercial

for the Home Depot, you might be familiar with this tune.

- [Man] It's a good time to be a doer.

- [Narrator] Home Depot and its theme song

have inspired a wave of videos on social media,

revealing its cultural status

as the go-to home improvement store

for many during the pandemic.

Home Depot is the world's largest home improvement retailer

with over 2300 stores across North America.

- What we've seen is home price appreciation

and housing activity at unprecedented levels.

And what we know is that when homes become more valuable

those homeowners are more willing to spend on them.

- [Narrator] With its 2021 fiscal year sales

larger than both Lowe's and ACE Hardware combined,

one of Home Depot's biggest advantages

is its foothold in the professional customer space.

That is electricians, remodelers, plumbers,

and other home professionals

that place more lucrative orders.

So how exactly has Home Depot

attracted more professional customers

and what other strategies have helped it

become a leader in the home improvement retail industry?

This is the economics of Home Depot.

- Walking into a Home Depot

you'll see a huge floor space,

dozens of long aisles with everything from screws

and other hardware to tools, to major appliances,

garden supplies, doors, windows, toilets,

really any thing you'd need for a home improvement project.

- [Narrator] A typical Home Depot store stocks

about 30,000 to 40,000 items throughout the year.

Most locations are around 100, 4,000 square feet.

The scale of the store gives customers the opportunity

to buy raw materials in bulk and pick up items quickly.

- They try to be somewhere that you can go

if you're just an individual

trying to fix up something in your kitchen.

They also try to be a place that you can go

if you're a contractor trying to buy lumber

to help renovate somebody's home,

or if you're a plumber

that needs all kinds of pipe fittings.

So they really try to be a good source

on both sides of that equation.

- [Narrator] Home Depot began when co-founders

Bernie Marcus and Arthur Blank were fired

from a home improvement company called Handy Dan's.

They wanted to launch a store that would be

significantly bigger and cheaper than competitors.

In 1979, they opened their first two Home Depot locations

in Atlanta.

- [Man] The Home Depot.

- [Narrator] The founders had a vision

for a home improvement retailer

that could be a one stop shop for the DIY

or do it yourself customer.

- [Man] You've never seen anything like it.

- The home improvement customer to us is unique.

They're a doer.

That's where that word comes from.

- [Narrator] Since it's founding Home Depot has grown

into a multi-billion dollar company

that increasingly caters to the professional contractor,

as well as the DIY consumer.

While many industries like service and hospitality

took a hit during the pandemic,

Home Depot's revenue continued to grow.

The pandemic fueled a boom in the home improvement industry.

As people spent more time and money on remodeling projects.

- Between middle of 2020 and the middle of 2021

there were four straight quarters

where Home Depot grew its sales

by more than 20% year over year

which is a very fast pace for a large established company.

- [Narrator] Home Depot says they are seeing

increasing demand for professional projects

as people feel comfortable

inviting contractors back into their homes.

- There's been this buildup of projects

that require professionals that more recently

people have been willing to get to.

And that's sort of led to a second wind of sales growth.

- [Man] What kind of person would come here at 5:45 a.m.?

Well there's Carly, a carpenter.

- [Narrator] Home Depot has positioned itself

to attract more business from these contractors

and home professionals

particularly ones that place big orders.

- [Man] Everything we do, we do for them.

- [Narrator] In the 2021 fiscal year,

about 50% of its sales came from pro customers,

even though they made up less than 10% of its customer base.

In comparison about 20 to 25% of Lowe's total sales

come from pro customers according to the company.

As a key part of its pro customer strategy

Home Depot has invested $1.2 billion

in expanding its supply chain and distribution network.

The company says it is building 150 new distribution centers

to help speed up the replenishment of store shelves

and quickly deliver purchases to customers doors.

Each facility with some as large

as about 14 professional football fields

can hold a huge amount of inventory

and deliver orders directly to a project site.

- One thing we know that's important to our pros

is delivery of product to the job site.

We've shifted our model to a network

of nearly 150 distribution centers that are engineered

to deliver for those big and bulky products

that are unique to the Home Depot and unique to the pro.

Think lumber, think doors, think windows, think vanities.

We're designing a network that will deliver those goods

same day or next day to 90% of the population in our market.

- [Narrator] The home improvement giant's

distribution network works in tandem

with their online strategy,

giving pro customers more flexible options

that better align with busy schedules.

- We're one of the largest e-commerce retailers

in the country by volume.

When people come to pick up orders

from our lockers or from our service desk

they often shop for more products in the store.

And so that's an economic flywheel that our website creates

for our company.

- These possibilities have really helped the company

grow it sales quite a bit over the last two years,

sales from e-commerce channels have gone up by about 100%.

So basically doubled.

- [Narrator] Though Home Depot has seen a long period

of consistent revenue growth,

the home improvement retail space remains a competitive

and fragmented market.

- This is a space where customers

are very sensitive to prices.

So if one brand is charging a higher price

for a certain type of equipment

that's something that buyers could pick up on

and could easily shift to another retailer.

So Home Depot is definitely very sensitive

to other big chains to smaller mom and pop stores.

- [Narrator] The industry is also sensitive

to economic fluctuations especially with spending trends

tied to the housing market.

- Going back to the great recession

in the financial crisis 10 years ago

that was a very difficult time

for home improvement retailers,

a turbulent period for Home Depot.

In the last couple years to during the pandemic,

the housing market's been very strong, certainly a company

that would be in a very different position

if there was some kind of big downturn

in the housing market in general.

(upbeat music)