Home Depot does not have to look far to find the tools for weathering retail’s latest difficult environment. How it uses them, however, enabled it to cement a solid first-quarter performance and stand taller than many other retailers.
Consumer spending rose just 0.3 percent in the first quarter of 2017, the worst three-month period since 2009, according to U.S. News & World Report. The disappointment was led by major brands including Macy’s, which posted sales of $5.34 billion, short of the expected $5.47 billion, and Lowe’s, which reported $16.86 billion in sales when analysts projected $16.96 billion.
Home Depot, meanwhile, beat analyst estimates of $23.74 billion and posted sales of nearly $23.9 billion.
Following are six of the tactics that have helped pave Home Depot’s path, gleaned from its quarterly report filed with the Securities and Exchange Commission and its earnings call with analysts, as transcribed by Seeking Alpha.
- It’s nailing the online experience: Home Depot’s investment in simplifying its online checkout has resulted in a 20% reduction in the customer’s process time, on average. That led to a 15% increase in visits over the same period in 2016, leading to more purchases. Overall online sales in the quarter rose by roughly 23%, to represent 6.6% of total sales. Home Depot’s “buy online, pick up in-store” sales accounted for 45% of the total, executives told analysts.
“In addition, we are leveraging our digital assets and big data to better know our customers and in turn better meet their needs (through) targeted online offerings and localized online experiences,” said Ted Decker, executive vice president of merchandising.
- It leveled up its mobile app: In the fall of 2016 Home Depot upgraded its mobile app to personalize the user’s home page based on location, customer segment and shopping patterns. “We are pleased with the customer engagement in response to these enhancements and we are seeing increased conversion rates,” Decker told analysts.
Such investments are becoming necessary. U.S. app users are expected to generate $285 billion in sales on mobile devices by 2020, according to BI Intelligence, a research service of Business Insider. That would represent 45% of total U.S. e-commerce.
- It’s got a solid foundation: Home Depot, unlike many retailers, is not hanging its outlook on younger shoppers. Asked by an analyst if millennial customers represent a disproportionately large percentage of its online customer base, CEO Craig Menear said no. Traffic is evenly distributed across age groups, ensuring continued investment in home upgrades as well as new construction.
This is reflected in recently released figures that show consumers ages 25 to 34 are woefully unprepared, financially, for homeownership. Roughly 40% are saving nothing toward a down payment on a home, according to a survey by Apartment List, a rental listing company. Yet first-time homebuyers accounted for 42% of all buyers in 2017, reports The Wall Street Journal, citing Fannie Mae. That compares with 38% in 2015 and 31% in 2011. (Note that first-time homebuyers are not necessarily young buyers.)
- It’s insulated against supplier bankruptcies: Home Depot has intentionally expanded into competitive categories, such as appliances, hand tools and storage, to better position itself in the case of rival bankruptcies. As Menear put it to analysts: “We clearly have invested to disproportionately take share in categories that we overlap with key competitors who have been — having their challenges. And we’re going to continue to focus on trying to capture as much business as we can.”
In fact, when a competing appliance retailer recently announced store closings and liquidation, Home Depot experienced a sales bump, executives said.
- It’s drilling into innovation: From lightweight drywall to battery-powered tractors, Home Depot’s merchants and suppliers continued to collaborate “to introduce a wide range of innovative new products to our do-it-yourself, do-it-for-me and professional customers,” the company stated in its quarterly report. Among the products are Home Depot’s LifeProof and PetProof carpeting, with technology that offers lifetime stain guarantees, as well as LED lighting that has been integrated into ceiling fans and light fixtures, boosting Home Depot’s commercial and industrial lighting business.
- Its credit is no house of cards: Home Depot shoppers — both DIYers and professionals — are using its private label credit card more frequently. Year-over-year penetration rose by 20 basis points in the first quarter, to 22.6% of sales, Chief Financial Officer Carol Tomé told analysts in the first-quarter conference call. The growth of sales by professionals outpaced the company average. “Yes, we were very pleased with our performance in our private label credit card,” Tomé said.
We — consumers and retail observers — should give Home Depot credit where it’s due. When changes in consumer preferences and attitudes have many retailers across categories tearing up the floorboards or re-evaluating their foundation, Home Depot appears to have done neither. Rather, it is simply expanding upon the cornerstones of best retail practices.
