The Home Depot may be an e-commerce model for the retail industry
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The National Association of Realtors reported the number of existing home sales spiked last month, growing at the fastest rate in more than 10 years. Acknowledging that, yes, the NAR has a vested interest in this number being high, it’s potentially good news for home improvement companies like The Home Depot.
Craig Menear is the CEO of The Home Depot (and yes, it is The Home Depot). Menear spoke with Marketplace host Kai Ryssdal about what makes a boom time for home improvement retail and how The Home Depot has managed to stay on top of a the e-commerce retail scene. The following is an edited transcript of their conversation.
Kai Ryssdal: When you walk into one of your stores, what do you see? I mean, as you walk in there, as the guy running the place, what are you looking for? What do you see?
Craig Menear: Really, two things: looking for product, and is product presented as a hero, if you will, in the business? And then, looking always for our associates, to connect with our associates.
Ryssdal: What does it mean for the product to be the hero? I’ve interviewed a gazillion CEOs, and not one has ever said that.
Menear: Well, in the retail business, the reason customers come to us is to buy product. So, you know, product helps solve problems in our business, product helps to create, you know, aspirational dreams in our business. And so is the product presented in such a way that creates excitement for the customer, and, you know, likewise, candidly, for our associates? Because we want to get them fired up to sell it.
Ryssdal: OK. So when I go into a Home Depot, and maybe this is just me, but I’ll bet you it’s no small portion of your shoppers, it’s not dreams we’re looking for, man, it’s that 3-by-5 piece of plywood that we can fit in the back of the van to fix that thing we need. I mean, you know where I’m going, right? How do you translate the mundane and rudimentary into, and I get what you’re saying, dreams, right, but how do you do that?
Menear: Well, there’s lots of different customers that we serve in our business. Obviously the customer who’s coming in and looking for that piece of plywood to fix that problem, but then we also have the customers coming in to transform a room, and they’re looking for a new paint color, or looking for the latest in flooring that will transform how their bedroom looks, or how their living room looks. And that’s what I’m talking about when we help the customer create new dreams in their home.
Ryssdal: What is your, I guess, worst nightmare, right? But what’s the thing that keeps you up at night?
Menear: Actually, the thing that keeps me up right now is the amount of change that’s happening in our business and being able to continue to make the change that we need to have happen, to stay ahead of where the customer is taking us and be able to continue to execute at the level we’ve been executing at.
Ryssdal: You know, it’s interesting you mentioned change, because I was doing some research, obviously, before we sat down. Home Depot was, like, the fourth-largest e-commerce vendor out there, right? You guys do billions and billions of dollars online, which it doesn’t seem like, you know, plywood online would be a thing. Now I know you guys sell more than plywood, I just using that as a good example.
Menear: We do, we have a large e-commerce business that candidly is connected to our physical stores. It’s what we call interconnected retail. The front door of our store is no longer at the front door of our store, it’s truly in the customer’s pocket, it’s on the job site, it’s, you know, when they’re sitting on their couch. The shopping experience in most categories starts in the digital world even if it finishes in the physical world now.
Ryssdal: How sensitive are you to fluctuations in the economy? I mean, if consumers aren’t feeling, you know, hopeful about things, they’re not going to redo their bathrooms.
Menear: Sure, there’s no doubt about that. And, you know, when we think about our business, we start with GDP as the foundation, and then for us, we layer in on top the tail wind that we’ve had from housing for the past several years. And that gives us a foundational base for what we think is going to happen in the business, and then all growth above those two things are really what we’re taking in terms of share.
Ryssdal: So how you feeling now, with the tax bill happening and the economy, you know, reasonably strong.
Menear: So we feel good about the environment. We’re very fortunate that customers are willing to spend in our space. We’ve been, give or take 200 basis points, a comp generated from the tailwind in housing that’s really been around household formation.
Ryssdal: In layman’s terms, it’s 2 percent, right?
Menear: Yeah, 2 percent. Yes. Thank you. So 2 percent growth really from household formation, home values. And if you think about home values, when home values are increasing, customers feel good about investing in their home. When the downturn happened in late 2007, 2008, home values were declining. And so that kitchen countertop was no longer considered an investment. It became an expense, and they stopped doing it.
Ryssdal: You’re looking at a big cut in the corporate tax rate. What are you going to do with that money?
Menear: Well, we just announced that we’re basically doubling the investment in our business to roughly $11 billion in the next three years, to continue to make sure that we’re relevant for our customers, that we’re driving to this interconnected retail space that we think wins in the long run. And so that will be certainly spent in the business, driving that kind of investment.
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Ryssdal: Who’s your competition? Lowe’s, I imagine, and who else?
Menear: Our competition is multiple players. We compete against, you know, home improvement retailers, we compete against, you know, building materials suppliers, we compete against digital competitors. So we have over 220 categories of goods that we sell in our stores, and there are different competitors in each of those categories.
Ryssdal: You know, it’s funny, so 220 categories, each of which have probably, it seems to me every time I go in that store, like, a thousand items in them, right? So there’s more product there than you can shake a stick at.
Menear: We carry, on average, about 30 to 35,000 stocked items in the store.
Ryssdal: And I feel every one of them.
Listen to the rest of this interview on our podcast, Corner Office from Marketplace.
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