Drive into any Home Depot parking lot and you’ll find a collection of rag-tag pick-up and utility trucks parked near the store’s pro entrance. The owners of the vehicles represent almost one-third of Home Depot’s $66.2 billion in annual sales. Yet they only spend, on average, $5,000 a year apiece.
Home Depot is where they stop if they run short of something or to grab a few items on their way to a job.
This reality — that Home Depot serves as a convenience store for the pro customer — is readily acknowledged by the Atlanta-based home improvement giant. At the company’s 2010 Investor & Analyst Conference on Dec. 8, executives discussed how they have come to terms with this.
“The pros shop us for more convenience than what we had believed in the past,” Marvin Ellison, executive VP U.S. stores, told analysts. “I think we had a self-developed idea of what we were to the pro customers, but the more time we spent with them in focus groups and town halls, we started to understand it.”
Ellison went on to say that Home Depot — as a store of convenience — had the potential to expand its business with professional customers.
“We’re taking the things that worked on the retail side of the business — simplicity and service — and we’re transporting those things to the pro side of the business, but specific to the needs of the pro customer,” Ellison said.
The new initiative, called “First for Pros,” has already been piloted in Home Depot stores on the West Coast and in the southern and northern divisions. Although the company is protective of the details of the program, Ellison highlighted its main features on Dec. 8:
• Special store hours for pro customers
• Dedicated cashiers
• Loading assistance
• Simplified returns process
With a planned 2011 rollout, Ellison said he hoped to have the program up and running by spring, “[when] hopefully we [can] reap the benefits when our traffic picks up during that very busy season for us.”
Both Ellison and his boss, CEO Frank Blake, outlined modest goals when it came to “First for Pros.”
“Obviously, we have a very small share of the pro’s wallet,” Blake said, referring to the $5,000 average annual spend. “And while we will try to broaden that spend, our principal effort will be … to make that purchase of convenience the best possible experience.”
Satisfying the pro customer has always been a struggle for Home Depot. The retailer has made numerous attempts over the years to tailor its services, staff and store format to this diversified — and notoriously demanding — customer segment. In 1998, the company began testing a “pro-only” format in Colma, Calif., just south of San Francisco. The 89,000-sq.-ft. unit, located right across the street from a regular Home Depot store, carried no lawn and garden, home decor or paint, but offered a deep inventory of plumbing, electrical and building materials. Another Home Depot Pro store was opened in Phoenix in 2001, and then three more pilots were added in 2002 in the Dallas, Denver and San Jose, Calif., markets.
By this point, the name had changed to Home Depot Supply, and the design had changed. The stores were bigger (130,000 sq. ft.), and each department had its own pro desk. Meeting space was set aside for builders and their clients, and delivery vehicles were added. An expanded rental program was also tested at six stores in the Las Vegas market; scissor lifts, skid steers and other heavy equipment was brought in to attract members of the building trades.
Bob Nardelli, who served as Home Depot’s chairman, president and CEO in 2002, told an audience of builders and contractors at the International Builders’ Show that year that the retailer was happy to serve as a convenience store for their job sites.
“We want to be your 7-Eleven,” Nardelli said during a panel discussion in Atlanta.
But in 2004, Nardelli revealed much bigger ambitions when he purchased White Cap Construction Supply and Creative Touch Interiors, both aimed at the residential builder market. More acquisitions followed, and by 2005 the companies had been rolled into their own division, HD Supply, that targeted professional customers of every stripe, from municipal water line installers to school janitors. For home builders, HD Supply hoped to provide the whole package, starting with the sewer pipes and ending with the roofing tiles. Fast forward three years to 2007, and HD Supply had grown to nearly 1,000 locations and racked up annual sales of $12.1 billion.
But Home Depot has a new CEO, Frank Blake, and the construction industry has entered the doldrums. Blake announced that it was time to refocus on retail: fixing up the stores, retraining the sales associates, perking up the merchandise. HD Supply was sold to a group of private equity firms in August 2007.
Home Depot still needed to hold on to the small repairer and remodeler, who accounted for 30% of its sales on the retail side in 2007. So the company launched its “Own the Pro” initiative, which included a loyalty club program, expanded credit offerings, volume discounts and direct shipment to job sites for large orders, negotiated with vendors through Home Depot’s corporate office.
Home Depot executives were careful not to set any monetary goals with this latest pro initiative. Their philosophy seemed to be: Make the pro happy, and he or she will open his wallet wider.
“[Pros] got a big share of wallet outside Home Depot, which we know,” Blake told investors Dec. 8. “We do spend some time thinking about … how you gain that share of wallet. But we’ve got a lot more opportunities making sure that the folks that are in there now who are using us as a store of convenience have an even better experience as they shop.” e