Home Depot Goes Further Back To Basics In Focus On Stores
Facing what the chain now calls a saturated U.S. home-improvement market, Home Depot said Thursday it’s getting out of the business of installing irrigation and home security systems, among other services, as it evaluates which jobs make the most sense to offer.
“We’ll be less interested in growing the (installation) business than ensuring we get it right,” Chairman and Chief Executive Frank Blake said during a conference with analysts and investors. “If we can’t effectively execute, we’ll be interested in serving the pro that does it for our customer than providing the service ourselves.”
Home Depot pioneered the warehouse store selling to do-it-yourself home remodelers. But it and smaller rival Lowe’s Cos. (LOW) in recent years have considered “do-it-for-me” services a major growth opportunity as aging Baby Boomers demand more help.
At Home Depot, revenue from services grew from about $2 billion in 2000 to a peak of $3.8 billion in 2006 before dropping 8% last year to $3.5 billion. Former Chairman and Chief Executive Robert Nardelli had made growing home services a priority, saying in 2001 he didn’t see why Home Depot shouldn’t be the largest carpet installer in the world, given its leadership in selling carpet. The chain also explored pest control and lawn care services at one time.
Still, services represented only about 5% of companywide revenue last year, and Home Depot and Lowe’s have found that poor service has a big cost to future sales. Virtually all of Home Depot’s services are provided through third parties.
After years of pouring billions of dollars into new stores and business lines, Home Depot under Blake is refocusing on its core businesses.
His biggest move on that front to date was selling Home Depot’s wholesale- supply business, HD Supply, last year, but he also shut some landscape-supply and flooring stores.
This year, Home Depot continues to take a closer look at existing stores to improve profitability. It ratcheted down store-growth projections, saying it will add about 1.5% in square footage annually after this year and demand double-digit returns on those investments.
Executive Vice President Craig Menear also outlined plans to eliminate some products that have gotten pretty far from the scope of a home-improvement chain.
This year, that means no more Halloween decorations, pet food or automotive parts in the stores. Next year, Home Depot will eliminate apparel products.
“Our core customer is still the DIY and small repair/remodel professional,” Menear said. “We are refocusing on these customers and beginning to eliminate those product categories that divert our focus from them.”
Home Depot, which sold televisions and iPods in recent holiday seasons, will limit its involvement in consumers electronics to “very, very, very targeted” efforts, Blake said.
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