Home Depot's tech bets paying off as retailers struggle vs. Amazon

Home Depot's focus on supply chain, online improvements, and overall customer experience are enhancing its built-in big-ticket moat against the likes of Amazon, which has rattled retail overall.

Home Depot is seen as largely Amazon proof via sales of appliances, home improvement items, and tools. For instance, tickets over $900 represent more than 20 percent of Home Depot's US sales, which were up 6.6 percent to $26.5 billion in the second quarter.

But don't confuse Home Depot's defensible retail position as a low-tech endeavor.

On Home Depot's earnings conference call, executives outlined a bevy of tech projects that are starting to deliver returns. The company in December outlined its projects to revamp its supply chain, improve the customer experience and make online and brick-and-mortar sales seamless. Here's what Home Depot sees as the customer touch point and buying cycle.

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Every retailer is chasing omnichannel sales, but Home Depot appears to be delivering as the likes of Macy's, JCPenney, and a bevy of others struggle.

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Here are some of Home Depot's tech projects at a high level:

  • Features such as Dynamic ETA, which is an online feature that provides a delivery data based on a customer's location.
  • Supply chain investments to improve inventory turns, cut logistic costs, and provide better service. The project, called Sync, is a multiyear effort that revolves around coordinating Home Depot's three types of distribution centers. "We're seeing mainly improved transportation costs and smoother demand flow and we're working with our suppliers to continue to improve those benefits for all in the supply chain," said Mark Holifield, Home Depot's executive vice president of supply chain and product development.
  • A customer order management system called COM is deployed in all US stores and Home Depot has been tweaking algorithms to drive sales and balance store and online inventory.
  • COM will be attached to a buy online, deliver from store (BOFDS) effort. BOFDS is designed to enable a customer to order online and pick a shorter delivery time from a store. About 700 stores are now equipped and professional contractors are repeat users of BOFDS.
  • On the front end, Home Depot continues to enhance its web presence to convert sales as well as be a stronger research tool. Ted Decker, Home Depot's executive vice president of merchandising, said:

Our online business had strong growth in the quarter with double-digit traffic growth and improvement in conversion. Our interconnected retail initiatives continued to evolve to meet the changing demands of our customers. Mobile and tablet are over 50 percent of our traffic and are important tools that our customers use to engage with our products, our stores and our associates.

We are enhancing the functionality and mobile with features like larger and clearer product images, live mobile chat, and a simplified checkout experience.

Approximately 42 percent of our online orders are now leveraging our store footprint for fulfillment and nearly 90 percent of our online product returns are processed through the convenience of our stores.

Now it's possible that Home Depot could be disrupted by Amazon, but for now the retailer considers Prime Day an ally. Decker was asked about Prime Day and said "it draws a lot of shoppers online and our customers respond. We have a good day drafting off Prime Day."

Home Depot's return on investment case for these tech projects is pretty simple.

  • Online shipping from store dramatically cuts shipping costs since goods would be headed to the store anyway.
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  • Supply chain improvements bolster profit margins overall.
  • Improving various online and research tools drives sales and lands a customer in store.
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  • And the better first party data Home Depot collects from the front end the more efficient marketing becomes.
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