Home Depot to Offer Customized Pro Pricing

Home Depot’s retiring CFO’s interview last night with Jim Cramer on CNBC shared a glimpse of why electrical distributors who serve small to mid-sized residential and commercial distributors should be concerned. And it\’s all about pricing.

The home improvement (perhaps better described as a “construction”) behemoth is the leader in serving the DIY market.  And yes, we’ve all visited them for weekend duties.

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In this interview, Carol Tome, the CFO shared that Home Depot recently conducted research regarding millennial home buyers.  The research showed that:

  • Millennials want to buy homes; the age of the largest group of new homebuyers is 33 and they say “we want to work on our house because it is a good investment”.

This means that the residential home improvement market should continue to grow. The challenge for distributors is how to compete in this space … if they can other than serving small remodeling-oriented contractors.

This is great news for companies that sell “smart” products.  It also represents an opportunity for lighting control companies (Leviton, Lutron), their lighting-related private label brands and other lighting lines.

Unfortunately, electrical upgrades in home is a relatively nominal investment compared to monies put into kitchens and bathrooms.

Pro Opportunity

But, of more concern to distributors should be her comments that:

  • They did research to ask their B2B / pro customers about their needs! (A clear indication that they want to focus on this customer segment.)
  • Professionals want eCommerce, per their research, so Home Depot is investing into delivering a “B2B experience”.
  • They will be personalizing their website for their B2B customers based upon customer specialization. This means an “electrical pro” will first see an electrical material experience and then navigate to more products in other categories if they need.
    • And it was interesting that “electrical” was the first pro segment she mentioned.
  • These pro customers will be able to view inventory by store and at warehouses.
  • They can pick up material … or have it delivered to their job site.
  • Mobile device helpful – sort inventory, have orders shipped
  • She also mentioned that “personalized pricing will be on the B2B experience, in time” that will be “competitive secret sauce” (No timeline was mentioned, but better to assume sooner than later. Their bigger challenge will be determining \”the right price\” and then appropriately advising analysts of the potential impact on margins … unless they learn SPAs and are supported by manufacturers!)

What it could mean?

This should concern distributors who serve the small to medium contractor market as Home Depot’s will become a much more significant competitor for this segment of the market. The contractor audience that serves this market is predominately the small to mid-sized distributors for marketing groups and national chains such as City Electric, selected CED locations and some of the Rexel regions. Distributors will need to consider their own customer segmentation strategies with different initiatives and experiences based upon customer needs … which also means capturing this information in customer profiles / CRM / sales / marketing databases.

When you consider that there are 60,000-80,000 electrical contractors in the market … a vast majority of these companies are Home Depot prospects.

While Home Depot, at least currently, doesn’t have personal relationships with these companies, they do have a strong brand, relationships with name manufacturers, inventory, can offer convenience and can delivery material … all with ease. And they can invest monies if they so desire.

Home Depot is projected to sell $1 – 1.5 billion in electrical material to electrical pros.  They are a known quantity … to contractors (as pros and consumers) as well as to manufacturers.

Time is Running Out

Consolidation will continue, hence increasing revenues for the largest of distributors, enabling them to invest.

The historical strength of independent distributors, small and mid-sized customers, could be threatened by Home Depot as well as surviving independents and national chains such as City, CED and Rexel.  It will be a battle for share and won by those who best can anticipate customer needs and serve them. Understanding your customers’ decision-drivers will be critical.  Is it relationship? Is it specialized service? Is it convenience? Is it their desire to support local business? Do they want to be more than a anonymous “number”?

And, what it also comes down to is “what do you want to be?”  eCommerce will be an expected service once Home Depot is in the game. Whether it is used extensively or not by a specific customer isn’t the issue. Offering customers a choice of how they can be served will be paramount … and they’ll continue to expect competitive pricing … especially when Home Depot is able to offer customer-specific pricing.

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3 thoughts on “Home Depot to Offer Customized Pro Pricing”

  1. With their investment into warehouses, delivery and pricing, they may finally become a significant competitor to EDs

  2. This move will hurt more than just the distributors, since HD/Lowes/WalMart are considered National Accounts by most of their manufacturers. Ridiculously cheap pricing is negotiated at the corporate level, taking into consideration that they won’t need to pay commissions to any of our local Reps. This will hurt our margins immediately AND over time we’ll see some Rep Agencies close or cut the resources that help us. Why are we supporting manufacturers that are not invested with our future business and serving our distributor business model?

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