Home Depot Sharpens Operations But Can Do More

Every crisis is an opportunity the saying goes, and while Home Depot is trying to turn its troubles into better operations, observers say it can do more.

During Home Depot’s Tuesday conference call on 2008 results, Frank Blake, the company’s chairman and ceo, laid out a series of steps the company will take to get it through a recession that has driven home construction, a critical source of revenue for the retailer, to record low levels:

• Boost the efficiency of regional distribution centers so that they serve 1,000 stores each by the end of 2009 versus 500 now.

• Hone merchandising tools through information technology improvements based on experienced gained from an enterprise-wide system reinstallation conducted in Canada last year.

• Improve customer service by enhancing employee training, an effort that could bolster Home Depot’s Aprons on the Floor initiative launched last year to make employees more accessible to customers shopping the stores.

Housing-related construction as a percent of gross domestic product – a benchmark that measures the goods and services the economy generates — is the lowest it has been over the past 60 years. Worse, even at an anemic 3.1%, it probably hasn’t hit bottom yet. Construction industry economists say home building probably won’t pick up significantly until 2010. Compounding the problem is the reluctance of consumers to reinvest in existing homes, which usually occurs in periods of slow home building and sales. So home centers that might make up from do-it-yourselfers what sales they miss to professional customers aren’t getting the trade off.

In a webinar today sponsored by consulting group Retail Forward, Steve Spiwak, vice president and manager of the firm’s home improvement program, and Nick McCoy, senior consultant, said that steps such as those planned by Home Depot are important – particularly in customer service, a function that has helped hardware stores and garden centers take customers away it and Lowe’s — but more can be done including:

• Bolstering eco-friendly products and services, which Home Depot offers but most customers haven’t discovered according to Retail Forward research.

• Enhance web sites with information, planning tools and other services to keep consumers who are putting off major projects engaged with the store.

• Make stores friendlier to women who are doing more home center purchasing by adding products such as floor cleaners and making stores less industrial.

• Emphasize projects — particularly inexpensive tasks penny-pinching consumers still might undertake — as a way to encourage multiple product purchases.

• Fine tune services to spotlight value in installation deals and focus them on critical demographics, such as aging baby boomers who might no longer want to do projects themselves.

Spiwak and McCoy noted that Home Depot is developing some such initiatives but made the point that it can do more and should, or it could lose out to smaller, more focused hardware and garden center stores, not to mention home center rival Lowe’s, at a critical juncture.