Home Depot innovates with bold e-commerce strategy

Article taken from Investopedia. You can read the original article online here

Screen Shot 2019-02-18 at 1.21.11 pmThe Home Depot Inc. (HD) is one of the world’s most innovative companies of 2017 according to Fast Company. The big box retailer landed the 43rd position on the Top 50 company list. (See also: (Are Comps Slower at Home Depot & Lowe’s)

The business publication appreciates the fact that Home Depot generated an “estimated $90 billion in annual revenue in 2016…without opening a new big-box store” in three years.

Home Depot moved away from relying on new square footage for growth to a bold e-commerce strategy, which integrates digital and in-store shopping with specific attention to products that aren’t well-suited for e-commerce.

More Efficient Stores are Better Than New Stores

In the wake of the last recession, Home Depot saw its net income dip from $5.8 billion in 2006 to $2.26 billion in 2009. Lowe’s Companies Inc.’s (LOW) results during that period spell out just how poorly Home Depot was performing.

In 2009, LOW generated net income of roughly $2.2 billion on revenue of $48.23 billion. HD’s 2009 net income of $2.26 billion was on a revenue of $71.29 billion.

As part of its recovery initiative, HD dialed back on new store openings. In fact, it ended fiscal year 2015 with the same store count it had at the end of 2015 (2,274 stores). Instead of committing huge capital to new stores, the company decided to make its existing stores more efficient. It started integrating e-commerce into in-store operations, going after professional contractors, as well as improving its supply chain. It has also tried to empower non-professional customers by offering more content that is educational. For instance, it has a basement guides section on its website to give customers more ideas of getting the best out of their basements.

Marc Powers, executive vice president for U.S. Stores at HD, had once admitted that professional contractors account for about 40% of the company’s sales, although they make up only 3% of HD’s customer populace.

As for its e-commerce and store operations integration, HD allows customers to shop online and pick up in-store – and vice versa. This strategy seems to help sell more items that aren’t e-commerce-friendly. In addition, the company said about 40% of its online orders are picked up at its stores, giving the big box retailer further marketing opportunities.

HD generated $7.01 billion in net income in 2015, over $1 billion above pre-recession levels.

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