Home Depot Drops the “E” Off of E-Commerce

At a Home Depot Investor Conference, Hal Lawton, President of Home Depot’s Online Business, said “approximately 50 percent of our sales involve online research at some point in the shopping process. And another key fact is that almost one in every four store shoppers have previously been on homedepot.com before purchasing in our store. It’s for this reason that we have dropped the ‘e’ off of e-commerce.”

Home Depot, the world’s largest home improvement retailer, is using its online strategy to support “the endless aisle,” make its relationships with customers stickier by using online capabilities to improve service, and to support “interconnected retail.” There are supply chain implications to all of these things.

Home Depot offers over 500,000 stock keeping units (SKUs) online, compared to approximately 35,000 SKUs at most stores. For example, in-store the retailer offers 200 faucets, but online it sells an additional 11,000.

Key to a sticky relationship is selling projects, not just products. Because of this, Home Depot views project management as a major opportunity to building deeper relationships with customers. For example, the retailer has a product category it calls “online know-how/in-store expertise.” These products include kitchens, HVAC, and doors and windows. These are complex projects that prospective buyers research online, but these projects almost always require professional assistance. Online, Home Depot is focused on providing know-how (project videos, guides, forums and so forth) and then, after doing online research, customers can schedule an appointment to meet with an in-store product expert.

Interconnected retail is the ability to provide a seamless shopping experience across multiple channels. This means being able to tell an online customer that a product is in stock at a store before the customer comes to the store to buy it. It means presenting the exact in-store aisle location of products to online shoppers. And it includes supporting buy online, return in store; buy items online that are stocked in the local store and then pick them up at the store; and buy items online that are not carried in stores and have them shipped to a nearby store.

What are the logistics implications associated with improved multi-channel capabilities?

To support the endless aisle, Home Depot is building new distribution centers dedicated to e-commerce. Although the company didn’t talk about it, I suspect Home Depot needs a strategy to determine which SKUs should be drop-shipped from a supplier to a customer or store. Only suppliers with reliable service and the ability to package a product so that it looks like it comes from Home Depot should be allowed to drop-ship.

Key to building stickier relationships based on service is supporting professional carpenters and home builders. Home Depot has a Pro Delivery program that allows professionals to buy goods and then have Home Depot deliver them to the job site. These deliveries might necessitate a flat bed with a forklift, a box truck, or a truck with a crane for rooftop deliveries. In short, arranging transportation is integral to Home Depot saving its pro customers time and money. I anticipate that Home Depot will extend this service to homeowners in the future if their purchases are large enough (e.g., a large mulch and fertilizer purchase in the spring).

Finally, interconnected retail requires that a store’s logistics capabilities mirror the robust inventory accuracy capabilities of a DC using a warehouse management system (WMS). With a WMS, floor-level workers use a RF gun to insure they are picking the right items and for cycle counting.

Home Depot uses a device it calls “First Phones” that is an integrated phone, walkie-talkie, and handheld computer. This application manages the in-store process for pulling product purchased by a customer online to be picked up in the store. Home Depot also uses the device for cycle counting. Every morning, some store associates use their First Phone to scan every shelf out of stock. If the store system says the product is available in the building somewhere, the system will create a list for other associates to locate that product and put it on the shelf.

It was clear from this presentation that Home Depot understands that multichannel capabilities will be a defining competence in the years ahead. But supporting multichannel requires new and expanded logistics capabilities. It also requires embedding logistics know-how into store operations.

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