Home Depot's transformation into a fully connected retailer shows record-breaking results (2023)

In the $380 billion U.S. building and gardening supplies retail sector, which grew just 0.6% from 2018 to 2019, Home Depot reported that its overall revenue rose 1.8% to $110.2 billion US$ compared to US$108.2 billion in 2018.

Net income for fiscal 2019 was $11.2 billion, or $10.25 per diluted share, which prompted the company to approve a 10% increase in its quarterly dividend to $1.50 per share, the eleventh consecutive year that it increased the dividend.

President and CEO Craig Menear noted that year-over-year comparatives are skewed by an additional week of operations in 2018, which resulted in approximately $1.7 billion of revenue growth in the fourth quarter, said President and CEO Craig Menearyesterday's winning callthat fiscal 2019 sales were up 3.5% excluding that extra week.

"Fiscal 2019 was another record year for our company as we achieved the highest revenue in the company's history," Menear said. “While we define our sales growth as a percentage, we measure it in dollars. We increased sales by over $9 billion, growth unmatched in our market.”

Market leader across the board

Most impressive is Home Depot's dominance in terms of market share. Home Depot holds a 29% share of the total building materials and gardening supplies retail sector in 2019, compared to Lowe's 19% market share based onRevenue in fiscal 2019 of $72.2 billion.


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For US retail e-commerce sales, Home Depot ranks fifth among all e-commerce retailersThe latest move from eMarketer. It holds a 1.7% market share, behind only Amazon (38.7%), Walmart (5.3%), eBay (4.7%) and Apple (3.7%). And it's ahead of Wayfair (1.5%), Best Buy (1.3%), Target (1.2%), Costco (1.2%) and Macy's (1.1%).

In terms of walk-in retail customers, Home Depot held 43.7% of the walk-in share of six home improvement retailers measured in the fourth quarterPlacer.ai. Lowe's lagged behind with a 31.6% share of foot traffic, followed by Menards (9%), Tractor Supply (6.4%), Ace Hardware (5.5%) and Harbor Frieght Tools (3%).

Home Deport does more

Last December, Home Depot launched a new advertising campaign and tagline, "How Doers Get More Done," replacing the previous "More Saving. More Doing” slogan launched in 2009 in the midst of the recession.

With this change, Home Depot recognizes that today's do-it-yourself consumer is not primarily motivated to make repairs at home because it's cheaper than hiring a professional. Instead, the modern do-it-yourselfer finds the do-it-yourself experience emotionally satisfying. Your rewards come from learning new skills, testing your limits, and expressing creativity.

And do-it-yourselfers increasingly share pride in a job well donesocial media. The Internet has become an indispensable partner for the do-it-yourselfer. They look in it for instructions and for tools and materials to get the job done.

Home Depot recognizes that the cell phone and computer have become as essential in a home improvement toolbox as a hammer or screwdriver. And even the professionals depend on technology.

So in 2017, the company launched a multi-year, $11 billion strategy called One Home Depot to "unlock a frictionless, connected shopping experience."Menar described, "to seamlessly merge the digital and physical worlds."

One Home Depot is intended ascomplete transformationacross the culture and operations of the company. The One Home Depot strategy consists of six pillars:

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1. people

Developing skills and talents among its employees is a top priority as they are responsible for providing superior service to both the DIY and professional customers. Through the One Home Depot strategy, the company will invest more than 1 million hours annually in employee training and development for the next five years.

As a thank you to the employees, everyone will receive a profit-sharing bonus for company performance in the second half of the year. In addition, the company will hire 80,000 new employees to support the spring sales season.

2. Memory upgrade

Stores are getting a refresh, with around 60% of the 2,291 stores getting a new look. The store front-end gets special treatment, with faster checkout, improvements to the returns and online pickup service desk, and convenient pickup lockers.

In the earnings call, Menear reported that these investments have both improved customer satisfaction and increased employee productivity. He also boasted that the average customer experience is 35% faster while doing soHome Depot 2019 Investor and Analyst Conferencetook place on December 11, 2019.

3. Product innovation

The One Home Depot strategy also includes investments in visual merchandising and product ranges. For DIY consumers, the color department in around 1,900 stores is now being transformed into a Color Solution Center. For the more advanced DIY and professional customers, the Pipe & Fittings aisle has been rolled back to add more SKUs across 1,300+ stores.

By investing in its people and improving shopping experiences, Home Depot also encourages its customers to switch to higher-quality products.

EVP of Merchandising, Ted Decker, noted in the earnings call that "big-ticket categories," including appliances, vinyl plank flooring, and installation services, grew in the fourth quarter. Also growing were more stylish, design-sensitive categories such as kitchen and bath, specialty window coverings, and sales in the online-only home decor category called HD Home.

Reporting on double-digit comps in appliances, Decker said, "It's not always just a broken fridge that gets replaced. It's increasingly discretionary buying.” Enabling these higher ticket appliance sales is a chain-wide rollout of new digitally-enhanced store labels that connect reviews in the “digital world to the physical world.”

And perhaps even more important for a high-end device customer is the delivery experience. To date, Home Depot has transitioned 20% of its customer shipments from an outsourced model to a company-controlled and managed model. "This has resulted in significant improvements in our customer satisfaction ratings for equipment shipments," Menear said in the earnings call.

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For the spring season, Home Depot's merchandising team is gearing up for more discretionary, higher-priced purchases in the outdoor department. Consumers are migrating from outdoor gas and electric powered devices to wireless battery technology. Decker found that once customers adopt wireless technology, they tend to stick with it.

Featuring premium outdoor brands such as EGO, Toro, Milwaukee, Ryobi, Dewalt and Makita, Decker currently carries over 1,000 cordless power tools, and the number is expected to grow, according to Decker.

"Our comprehensive and unique range of outdoor power equipment drove double-digit sales in fiscal 2019," he said, adding that consumers are drawn to the enhanced value proposition of wireless platforms as being greener, safer and easier to use. The latest models now also have more "power and runtime to get the job done".

4. Supply Chain and Delivery

The supply chain and delivery operations will be revamped, and 150 new facilities will be added to its network. The new facilities will speed up home delivery, allow for fewer "product touches" and faster movement of goods throughout the chain.

The impact of investment in supply chain and delivery is expected to be more felt in 2021 and 2022 when most of the new facilities open.

5. Connected and digital experience

Thecompany realizedits goal for a fully connected business and digital experience. Although the company doesn't report e-commerce sales, its position as the #5 leader in e-commerce sales is a testament to its digital reach. It's also recognized by L2 Gartner, which has given Home Depot a best-in-class rating for the digital IQ index for the past six years, and Forrester ranked its mobile app #1 in retail in 2019.

"We are excited about our e-commerce business as part of a holistic connected retail strategy," Menear said in the earnings call. “We believe that the doorstep of our business is now in the customer's pocket. In fact, most of our customers' shopping experiences begin in the digital world, even if they end in the physical world.”

And the company is set to see increased mobile app usage this year after its new "How Doers Get More Done" advertising campaign ended in December. "In response to our campaign, we saw one of our biggest single days of downloads of our award-winning mobile app and double-digit growth in usage of mobile tools like product finder and image search," Decker shared.

Overall, the company reported that online sales increased 21.4% in fiscal 2019 and that more than half of the time, customers are picking up orders in-store rather than waiting for delivery.

"Homedepot.com continues to be a growth engine for our entire business, increasing online traffic and driving additional steps into our stores," Menear said in the earnings call. "That's the power of the connected retail strategy."

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Even more connected shopping experiences will be available in the near future, including the ability to combine an in-store item with an online item on the same ticket, and greater personalization of marketing and search results.

"This is a development. We offer personalization today, but there remains an opportunity to have a broader view of customers that will allow us to offer a deeper level of personalization going forward," he said during the investor and analyst conference.

6. Per ecosystem

Enhanced services for professional customers is the sixth pillar of the One Home Depot strategy. Viewed as its B2B service, it tailors offerings to the more complex needs of the construction professional.

"The value proposition we create for our professionals is a comprehensive ecosystem that includes products, exclusive brands, delivery, credit, service, digital capabilities, tool rentals and more," Menear outlined in his conference presentation for investors and analysts.

This program is paying off, as Menear reported in the earnings call that it has attracted more than 1 million professional members to its programPro Xtra-Programm.

2020 and beyond

While Menear acknowledged at the investor and analyst conference that the One Home Depot strategy's transformative goals were "perhaps a bit ambitious in terms of the speed at which these benefits will become apparent in 2019," he added, "We are more confident than making the right long-term investments in the business and expanding our leadership position in the market.”

With everything the company has accomplished over the past 42 years to achieve the #1 position in home improvement retail, he sees the company pushing the limits.

"We represent a relatively small portion of a large, fragmented, addressable market," he said. “Home Depot competes in hundreds of different categories, and in many of these, the independent, regional, or specialty companies command the majority of the market share. As a result, the competition set varies significantly by category.”

Menear concludes: “What was true in December 2017 is still true today: retail is changing fast and customer expectations are higher than ever. Every initiative in our investment strategy has been formulated with a customer-back approach that will drive results not just over the next few years, but over the long term.”


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