Home Depot to Concentrate on Retail Biz
The sale of its HD Supply business to a group of private equity firms for $10.3 billion means that Home Depot can now focus its efforts entirely on building its retailing empire.
The company, which plans to take the cash from the transaction to use towards a $22.5 billion cash buyback program, issued a statement from CEO Frank Blake.
“Today’s decision reflects our continued commitment to enhancing shareholder value through an exclusive focus on our retail business and the return of cash to our shareholders. This year alone we will spend over $2 billion in support of our top five retail priorities. We are confident in the ability to improve productivity in our retail business through investment in these priorities, which will further enhance returns on invested capital as the investments take hold,” said Mr. Blake.
The five priorities that Mr. Blake referred to include: associate engagement, product excitement, product availability, shopping environment, and own the pro (Home Depot’s program for attracting professional customers). The company has said it intends to spend $2.2 billion this year against those priorities.
Adam Fein, president of Pembroke Consulting, an advisory firm to wholesale distributors, told The Atlanta Journal-Constitution that former Home Depot CEO Robert Nardelli bought a lot of companies to grab share of the wholesale market.
“Home Depot was desperately trying to diversify its customer base and was unsuccessful,” Mr. Fein said. “They lost sight of their core business, chasing this other market.”
Carol Tome, Home Depot’s chief financial officer, said the company was aware of where it needs to work to improve its retailing operations.
“We know we have opportunities there (staffing and customer service), and we’ve been investing in those opportunities,” she said.
Discussion Question: Has Home Depot made a wise move by getting out of the wholesale business? What will an “exclusive focus” on its retail business mean for Home Depot’s associates, customers and suppliers?
- Home Depot puts focus back on retail – The Atlanta Journal-Constitution
- The Home Depot Announces Agreement to Sell HD Supply to Private Equity Group for $10.3 Billion and $22.5 Billion Increase in Share Repurchase Authorization – The Home Depot/PRNewswire-FirstCall via COMTEX News Network
- Five Key Priorities – The Home Depot
In the past, Home Depot has taken some criticism for putting longtime military and/or GE people into key positions within the organization. The criticism being they didn’t have a clue about retailing. Can’t help wondering if merchants have been put back in charge or if this is simply window dressing from another former GE guy–Frank Blake.
“It is not the Big who eat the Small or the Fast who eat the Slow it is the Focused and the Flexible who eat the Unfocused and the Inflexible.”
This is the right move for Home Depot. They had taken their eye off the target and it cost them dearly. Now if they really focus on what they know best–the retail side of the business–they can come out a real winner for their employees, customers and stockholders.
This is a huge move for Home Depot as it signals a return to their retail roots. The problem will be in how to placate shareholder expectations. Home Depot is in a spot where it must either find a new retail format they can grow with or be willing to accept a much slower growth rate and the problems Wall Street will place on them if they go down the path of a slower growth rate.
Of course it’s healthy! They demonstrated they couldn’t manage both businesses (which some of us had argued in the first place!). As to what it means, I’d say the future looks better already.
Home Depot’s divesting of its wholesale initiatives is a positive move for a retailer who has taken its focus off its core business and allowed Lowe’s and others to gain important market share. HD has the potential to regain customer confidence in its brand, provided the once leading retailer can execute on consistently delivering a genuine customer experience backed by knowledgeable, engaged associates. I’m crossing my fingers Frank Blake can impart an inspired vision for the entire organization to rally around.
Ok, we all seem to think this is a good idea.
But I have one nagging question that won’t go away. Just who is going to start focusing on the retail business now who wasn’t (at least supposed to be) before?
Presumably there was already a division of management along lines of business below the C-level. So, will the ex-wholesale exec’s add their voices to the (apparently ineffective?) retail exec’s? But didn’t the wholesale folk go with the wholesale sale?
Will top management’s “exclusive focus” on retail mean they are going to get further down in the weeds to “help” their existing retail management? Seems to me some restructuring (and probably flattening) of the HD organization will need to be the next move if this is really going to change things any.
The “flagship” brand business of any corporation or other business entity should never be depleted in any type of support, to include service, marketing and educational activities.
Business and marketing principles in any industry always direct the need to protect and replenish the “flagship” brand’s needs. The ex CEO, in a very poor strategic business decision, left the anchor to HD’s initial competitive advantage and reason for being. He wanted to further the cost and operational efficiencies; and forgot the HD shoppers’ needs. Not even operationally oriented executives should ever forget what anchored the growth of the “flagship” brand business.
In HD’s case, it was the sales associate’s knowledge, service, and ideas that brought a comfortable and a successful, focused shopping experience to its consumers. Hence, loyalty to HD was the growth driver….
Lowe’s saw the strategic blooper of HD, and as we have seen, in our industry, captured many past HD shoppers.
Specifically, Lowe’s strengthened its sales associates’ expertise and, importantly, its marketing to the target audience of this home improvement industry.
It’s a Big Mad Marketing example of utilizing both sides of the business Equation to succeed! Hmmmmmmmmmm
A colleague pointed out to me that when the sale was announced in the New York Times “Deal Book,” the comments section was filled in by almost a hundred dissatisfied HD customers within an hour.
This is the “curse” of the internet. It has given voice and reach to dissatisfied consumers.
Eliminating distractions is good, as long as HD uses its renewed focus to improve the in-store experience. So far, very few improvements have been noted. The customer is voting. LOUDLY.
This is a very long road, and HD has barely begun to walk it. Of course we wish the company well. We also encourage management to truly walk the walk.
This will be a wise move if Home Depot couples it with a return to customer service. If they continue as they have been going, it will necessitate other moves to right the ship. Can the new CEO do it? Only time will tell.
What will an “exclusive focus” on its retail business mean for Home Depot’s associates, customers and suppliers? It allows them to become consumer-centric, which will be necessary to thrive and profit in the current and future retail environment.
What does being consumer-centric mean? It means structuring operations around the consumer experience and consumer satisfaction. It means knowing your consumers and providing what they want, need and will spend on. It means CMR and loyalty and referrals. And it of course it means (and you knew I was going to get to this) the integration of in-store and online environments, a unified view of markets, merchandise and logistics both for consumer interaction and back-office productivity.
Perhaps I am missing something, but isn’t it time to think about what the customer wants in a more meaningful and strategic manner? While it seems to make sense for Home Depot to shed a division destined to deliver less margin and more headaches, I believe there is something more fundamental going on here. We all know that the consumer has more choice, both in terms of competition and channel, and less time to shop. The basic notion of an impersonal warehouse environment, poor lighting, dirty stores, disengaged employees and more may simply be past the peak of its retail life cycle. Every retail concept has a lifecycle. Consumers needs are always evolving. Give me a local independent who is part of my community, understands and has passion for the products and the projects I need and I will shop there every time. Ask yourself or any of your friends if they REALLY like to shop at Home Depot. I suspect that many are looking for a better alternative.
This is definitely a big step in the right direction. However, as Paula points out above, HD needs to prove that enhancing the customer experience is priority #1 for this retailer.
Home Depot should follow up this move by getting rid of other distractions as well, and yell as loud as it can about its intention to refocus on the customer’s needs and wants. It has a long way to go before consumers as a whole will reevaluate HD’s reputation. This is crucial for the long-term success of the retailer–as the naysayers can yell and scream very loudly these days.
Even though I’m a former GE employee and also now a former HD employee, both at the HQ/SSC levels, I agree that this is a good step for Depot. Regardless of “retail” experience or not, it’s hard to excuse the lack of focus over the last 5-6 years of simple customer service at the store level. Whether you have a specific retail background or not, everyone has shopped in a store at one time or another and realizes the importance of walking into an establishment that does something for a living and not being able to find the someone that does that something.
Given I’m also still a believer in both companies, I’m also still a stockholder of both. There are times to move forward and times to look in the mirror to remember where you came from. Hopefully this move will help Depot to balance out those two.