The outcome of quarterly retail earnings season has once again certified the Home Depot’s marketing and sales success in the overly competitive field of the American home improvement industry. It has continued its dream run for the successive fifth year. The following graph will tell this story in a much clearer way.
Lowe’s stock gains have nearly kept pace with Home Depot’s, but Home Depot’s profit growth has more than doubled that of its arch rival. Skeptics may say that macroeconomics has authored this success story of Home Depot. But if that is the case, all the players in the home improvement segment should have thrived. But that’s not the case. The fact is, lots of strategic decisions in every perceivable business activity have been the reason why it is experiencing this hard-to-earn taste of success. Home Depot’s marketing, sales, business development, and e-com teams have all played a huge role. We will examine those decisions one-by-one.
A) Better Stores > More Stores: The company finished 2015 with the same store count it had in 2008: 2,274. What is interesting to note here is despite not increasing the number of stores, its sales didn’t stop to grow. It saw 30% growth in its bottom line. Clearly, the avoidance of heavy expenditure and investment that come up with new stores has helped Home Depot.
Besides, the somewhat lackluster performance of Lowe’s in terms of profit, which opened 191 new stores between 2008 and 2014, also suggests that Home Depot was right in its belief that higher number of stores doesn’t necessarily mean a higher number of sales.
Instead of spending on establishing new stores, Home Depot’s marketing, business development, and operations teams invested strategically in opportunities like targeting professional contractors – the source of 40% of its sales — and improving its supply chain. The most notable thing is, Home Depot smelled the value and worth of e-commerce much earlier than most of his competitors. That’s why it invested heavily in e-commerce. It guessed rightly that by enhancing the web of physical stores, it will compete only with other physical stores. Amazon, who is steadily making inroads in home décor and home improvement industry, will remain out of its radar and there’s no question that buying online is only going to get more convenient over the coming years.
B) Better Supply Chain And Inventory Management: From past few years, Home Depot has been reviving its supply chain and inventory management. Each Home Depot store stocks about 30,000 to 40,000 different products. Almost 700,000 products are available on the company’s websites, www.homedepot.com and www.homedecorators.com. This massive collection is not just acting as a prime differentiator between Home Depot and its competitors, but it is also assisting in product customization and reduction in the space requirement at stores. And anyone with a fair understating of how floor space matters will realize how it improves sales productivity metrics.
You will see that sales per square foot at Home Depot has been always higher than its competitors.
Similarly, to improve the inventory turnover, Home Depot came up with two programs to speed up order pickup time and save on storage and costs: Buy Online Ship-to-Store and Buy Online Pickup-In-Store. Not just that. It started conducting stock-taking on days the stores are closed, so the customer’s shopping is uninterrupted. Of course, many people will think that it was a small or insignificant change. But such things matter. All these efforts proved extremely fruitful, as inventory turnover improved from 4.2x in fiscal 2010 to 4.9x in fiscal 2015.
C) Thoughtful Acquisitions: Home Depot has never been an aggressive or impulsive decision maker when it comes to acquisition. It has always tried to strengthen its market leadership via customer service, product authority, and disciplined capital allocation as well as productivity and efficiency. And thus its decision last year to buy Interline was the talk of the town. It was the first large acquisition for Home Depot in nine years. But in hindsight, we are realizing that it was a pure and cold business wisdom based on pure numbers and logic. The acquisition of Interline helped Home Depot to fortify its maintenance, repair and operations solution and it catapulted it way ahead of its competitors in the home improvement sector.
Speaking in terms of numbers, the deal allowed Home Depot to immediately capture 5% of a $50 billion market in maintenance, repair, and operations solutions. Indisputably, the acquisition of Interline substantially advanced its market position among professional customers.
D) Apt Use Of Mobile: Everyone knows that mobile is a pivotal part of the modern customer journey. But it’s just not enough to use it as a mere shopping destination or a discovery tool. It should become an inherent part of the customer’s buying process by assisting him in all possible ways. Home Depot captured this need with a surgical precision.
Home Depot’s marketing team realized that the indecision while selecting color has been the biggest hindrance from the customer’s point of view. 41% of customers delay a purchase due to the indecision of which color to purchase, while 31% delay projects as a result of not knowing which products are right for them. So, the challenge was to approach this color problem in a nontraditional way and digitally replicate the store experience. And thus, their marketing pros came up with a Color Project app. It allows customers to the right shade of the color by visualizing how it will look in their dining room or bedroom areas.
Similarly, app users were in a position to use the app to match shades to furniture items.
Needless to say, the app has helped solve many shoppers’ color woes. It also enabled Home Depot to further its seamless omnichannel experience, which is like a currency of today’s marketing efforts.
E) Groundswell: The definition of groundswell is when people use technologies to get the things they need from each other. It can be in the form of audio, video, or by just talking. Home Depot’s marketing team knew how important it is to be there whenever customers need you. It’s not possible in-person, 24/7, but you can always be there virtually for your customers.
That’s why Home Depot’s marketing and customer support divisions teamed up to make YouTube how-to videos. They’ve answered many questions about how to do many things around the house, for which people would generally come to the store. Now, customers were able to see the solution in an elaborate way without moving from their places.
Additionally, consumers who hadn’t shopped at Home Depot but were searching for home improvement tips would be much more likely to come across the brand and learn to trust them.
They made clever use of comment section as well. While a video is a great way to visually show a solution, Home Depot constantly provided more information by just adding some comments. The better and enhanced customer engagement and interaction were organic outputs of this wonderful activity.
F) Connecting to a Noble Cause: People like to be associated with a brand that believes in caring about the world in which we live. Therefore, corporate social responsibility programs are very helpful in building an ideological and emotional kinship with consumers.
The Home Depot associated itself with a theme which is close to its domain: homelessness. They came into an alliance with social responsibility agency Impakt to eradicate the glaring reality of homeless youths. It launched The Orange Door, an initiative and $10-million commitment to embark on repair projects, develop programs and fund research. What stood out in this program was its base, which was developed with the skills and expertise of those who know their work inside and out, including academics, organizations that work with homeless youth and young people themselves.
Just recently, they came up with a 60-second video as an effort to support the Orange Door Project. Directed by Duane Crichton, it begins with a young and lonely homeless man looking at his empty bag. Through flashbacks, we get to know that after leaving the house, which gave him abuse all the time, he was robbed on the streets. The spot ends the same way it began – by suggesting that the homeless youngster has the past and the reason why he is in this situation.
Indeed, it has enough to stir the hearts and minds of customers and make people believe that Home Depot is contributing greatly to ease the pain of less fortunate.
To Conclude… If one analyzes rationally, he will understand that what Home Depot did was not completely revolutionary. The use of videos and mobile is not that unusual in the current scenario. What stands out here is what the Home Depot’s marketing team did with those ploys. They were innovative in the sense of the way they used the various channels rather than the use of innovative channels. In short, they proved that how you do is as important as what you do!
Note: Home Depot is not the only major retailer whose success stories we have chronicled. You can read here what made Williams-Sonoma a smashing success. Don’t forget to read about Michael Kors’ or Uber’s successful marketing strategies either!