Earlier today Home Depot presented at the Raymond James 39th Annual Institutional Investors Conference. While, overall, Home Depot is not a significant competitor to electrical distributors, if you serve the residential electrical contractor / builder market or the small contractor market, they are a significant competitor (and our eCommerce Contractor Insights survey showed residential contractors are moving online with Home Depot the #1 \”non-electrical distributor\” beneficiary.)
From reading their presentation, there are a number of areas where they are investing that can be replicated, albeit on a smaller scale, by distributors. Below are direct comments from the transcript and some thoughts:
- We’ll actually accelerate the development of a new interconnected decor experience on homedepot.com. That will allow the customer to shop in a different way than they’re accustomed to with us; so it will allow them to shop by room; it will allow them to shop by look; it will include the latest enhanced photography; and it’s all designed to provide more inspirational experience to our customer when they are shopping with us. (Consider how you can have application areas to highlight the interaction of products. If you are an industrial distributor, could you show expertise in arc flash? In IIoT / Connected Enterprise (Rockwell distributors)? Can \”training rooms / content used in lunch \’n learns go online? Can it start with short video series and migrate based upon marketing technology? Could manufacturers provided hosted pages on distributor websites that are updated based upon distributor focus (and the answer is yes through marketing enablement tools … give us a call to discuss.)
- We know that our customer increasingly demand and expect personalized experiences when they interact with us. And when you think about points of interaction with Home Depot, the front door of our store has increasingly become homedepot.com, where our customer begins their purchase journey with us. We know that 60% of all store sales are influenced by digital visit. And so we’re going to put a great deal of emphasis on improving and enhancing these personalized experiences. (From our eCommerce Voice of Customer study we know contractors and industrial buyers are first searching for product online … via Google, Amazon Business, manufacturer sites and potentially distributor sites. Distributors, while you aggregate product in warehouses, you can also be aggregators of product information and product knowledge / expertise. The information can be aggregated on your site, marketed locally and you can market your staff\’s expertise.)
- I want to give you a few examples of what I mean by personalized experiences. So let’s take three customers that you see on the screen; to the left you see a fluent baby boomer; in the middle, you see one of our professional customers; and then on the right, you see a millennial who also happens to be a first time home owner. When these three go on to homedepot.com to look for a hot water heater, today we provide an experience that’s relatively consistent across all three and yet all three have very different meanings. In the future, we will know these customers. We’ll have targeted them with specific marketing for their needs. (this is the concept of customer personas and can be expanded to focus \”business persona\” or \”application persona).
- And then once they begin to engage with us, we’ll tailor this experience. For the baby boomer, based on what we know about him, we may bring him immediately to an experience that allows him to quickly shop because we know that his intent is actually to purchase and have a hot water heater installed the same week if not the same day. And so we’ll get hit to that point of installation purchase as fast as we can.
- For the pro, we may know that this pro has bought the same exact water heater 500 times this year. And so we\’re going to bring him to a point in our experience that’s really focused more on price on inventory availability and on delivery windows. And then for our millennial customer, she needs help. She\’s never done this before. And so we’re going to give her an experience that begins higher up in the funnel with more content around how to think about selecting hot water heater, what size you need, do you need gas or electric, should you select tank or tankless. And so we’ll provide her with the confidence that she needs to make a purchase. (and this highlights the potential of analytics!)
All three of these customers demand differentiated experiences and we intend to build those for them. We will lean into our Pro and services businesses. Our pro-business, our sales to our pro customers, make up 40% of our revenues. Revenues from pro customers have grown consistently above the company average and yet we still only sell an average of about $6,000 in product for pro. We think there is an enormous opportunity to increase the level of engagement with our pro and drive that spend higher. We know that the more points of engagement we have, the more they will spend with us. (notice the focus on account penetration using product gap analyses … at salespeople\’s fingertips! The capability exist and if Home Depot can train its hourly employees and drive adoption, why can\’t distributors? Why can\’t manufacturers put the same knowledge into the hands of reps utilizing the POS information that distributors provide to the manufacturer?)
- Now our investment program really every element of it touches the pro in some way. But I’ll give you a couple examples of how we’re increasing our ability to engage and be relevant with the pro. First, we are increasing our associates’ ability to interact in a more targeted fashion with that pro-customer in the store. On the screen, you see shot of a tool we call my view. Historically, nothing like this existed. But over the past — the recent past, we have enabled our store associates with this tool; they can look at an individual customer; they can look at their historical spend; they can look at trims in spending; they can also see opportunities and have opportunities brought to them by the tool that seem to be missed opportunities.
- For instance, a pro that might be buying paintbrushes and tarps from us, but buying no liquid paint, would actually show-up to our associate and allow that associate to talk to the pro about what we\’re missing. It also allows us to view how engaged the pro is in our other offerings; are they engaged in our credit programs; do they utilize delivery; do they rent tools from us. The more opportunities we can identify, the more we can increase our engagement level with the pro.
- The second example is what we call our B2B Web site. So as part of our investment program, we will build out a user authenticated experience, leveraging the platform of Home Depot.com, which will essentially consolidate all of those capabilities that we will light-up for the pro in one place. You can think of a pro through that portal as having workflow management tools, quoting tools, approval tools, order histories, dynamic order lists, and a repository for all outstanding puts among many, many other capabilities that we’ll provide for that pro. And so we are excited about where we\’re investing for the pro. (Moving the pro account management and quotation experience online … especially for those customers who want to be self-sufficient. Granted Home Depot has the financial resources to develop this themselves, however, there are SaaS solutions that offer some of these and you can \”slowly\” add new features … plus a customer eBusiness advisory group can help you design what will work for them.)
- For services, we work with over 100,000 installation partners across the country, installing over 2 million jobs per-year, making us the largest business of that kind in the United States. What our customers have told us is they’re beginning the journey online. Not only do they want to research online, but they want to purchase and book installation online, and we will be investing to light-up that capability.
- Finally, supply-chain. One of the core elements of our productivity cycle. We‘ll see $1.2 billion of investment over the next five years as we create what we call one supply-chain. Our goal that we\’ve committed to is to become the fastest most efficient delivery experience in home improvement, and we’re going to do that with a two-sided approach. We think of our supply chain in two pieces; the upstream piece, which flows product to our stores and our direct fulfillment centers; and a downstream piece, which deliver product from our stores or our fulfillment centers to our customers’ homes or jobsite.
- With respect to upstream, we\’ve been investing in this platform for over 10 years, optimizing the flow of products and optimizing our cost and our supply chain. We have a true competitive advantage with respect to upstream operations. There is still a tremendous amount of room for improvement as we continue to mechanize and automate our upstream activities. We will further position ourselves as cost advantage in our space. We’ll take that competitive advantage and leverage it into the development of downstream operations. So currently we have four independent disparate downstream delivery operations. Through our investment program, we’re going to build one integrated downstream supply chain with five components and there are really two goals here. The first goal is that we will be able to reach 90% of the U.S. with next day or same day capability. The second goal is to remove a lot of the operational burden of delivery from our stores. In fact, we expect to remove the majority of delivery operations from stores in our top 40 markets.
- And if you think about it, stores are really not the most efficient means of picking, staging and then executing a delivery. When we remove that activity from the stores and put it in the lowest-cost environment possible that freeze up labor and other resources that we can shift the customer service in the store. And so we are excited about the investment program with one supply-chain. We believe that we will bring a differentiated delivery capability that will be the fastest and most efficient in home improvement. (How can you continuously optimize your delivery model? It may not be as efficient as Home Depot, but can it be more efficient than it is today while helping you retain your delivery levels and culture?)
- Finally, we\’re going to continue our focus on productivity. Productivity drives the economic engine of the Home Depot. And it’s a discipline that we are going to stay true to throughout our investment program. We have two virtuous cycles. The first is the virtuous cycle of productivity and cost of goods sold. The second is the productivity cycle of operating expenses. These cycles allow us to reinvest in the form of value to our customer. And we believe they are essential to our market leadership as these into future. (How can you automate routine activities and streamline interactions with suppliers to squeeze out costs and increase throughput? Do you have people thinking about this? A process to evaluate, decide and act … quickly?)
Home Depot may not have the right solutions for you, however, there are kernels of ideas here. They are focusing on customers be envisioning the future while continuing to enhance the \”blocking and tackling\” of the business (delivery and purchasing). Continuous improvement in sales and operations solidifies growth plans, pushes the envelope and drives accelerated profitability.
Perhaps an envisioning exercise for your team? (and manufacturers … how can you bring tools to the channel as you know that Home Depot has expectations of you … so should the electrical channel)