Sidebar: Opening the Box The Home Depot is making some apparent pro pushes, but dealers currently are not worried about an orange flood in the supply chain.
Last summer, The Building Source, a dealer network based in Grier, S.C., received a call from a salesperson working the Pro Desk at The Home Depot’s Huntsville, Ala., store, who asked if the network wanted to purchase some OSB. David Jackson, The Building Source’s president, recalled that the salesperson framed the offer as being part of Depot’s 25th anniversary sale, although Jackson noted that such offers have cropped up in the past.
The Building Source ended up buying 10 truckloads—9,600 sheets—of OSB from the store for $281 per 1,000 sheets, at a time when mills were charging $350 per 1,000 sheets. Jackson explained that The Home Depot and Lowe’s occasionally have overstock because they consign a certain amount of product from mills around the country that their respective stores can’t always absorb. As for the lower price, all Jackson could say was that if The Home Depot is willing to accept less margin from a sale to a competitor, “we’re willing to play along.”
But The Home Depot is no longer just interested in what could be described as “accidental” sales. Over the past year, the retailer has accelerated its efforts to capture more business from contractors and home builders, not only through its stores but also through a separate dedicated division, The Home Depot Supply, whose position in what the company calls a $400 billion–plus pro market has been bolstered by a series of recent acquisitions.
Ask most dealers about The Home Depot’s maneuvers to woo pro customers, and you’ll hear a litany of reasons why they think the warehouse giant is spinning its wheels. Critics scoff at the big box’s claim that 30 percent of its annual sales come from transactions with pros (about $22 billion in 2004) and are even more skeptical about the retailer’s stated “opportunity” to increase that total to 50 percent by 2010. They openly question The Home Depot’s pro-focused supply chain strategy as lacking basic elements—like sufficient outside sales-people, enough inventory to handle high-volume purchases, and goodies like sales incentives—that these dealers say are essential to any relationship with contractors. And most competitors dismiss The Home Depot as a nonentity with builders.
However, those who relegate The Home Depot to a bit player in the pro market should keep a closer eye on any evidence that suggests the company might be doing some things right. For example, revenue from its installation and home maintenance programs—which are executed by outside contractors—rose 30 percent to $2.6 billion through the nine months ended Nov. 2, 2004.
Additionally, the company’s Builder Solutions business segment—which provides turnkey solutions in flooring, countertops, window treatments, and design services, and is working with divisions of some of the country’s largest production builders in 25 markets in 14 states—generated an estimated $400 million in sales in 2004. And The Home Depot hasn’t been shy about “buying” market share, as it demonstrated last June with its acquisition of Costa Mesa, Calif.–based White Cap Construction Supply, which operates 77 contractor-oriented distribution centers in 17 states.
The Home Depot is also getting its brand in front of more pros through strategic alliances that include a cross-branding agreement with housewrap manufacturer DuPont Tyvek, and a cross-marketing agreement with Shea Homes, which distributes $1,000 The Home Depot gift cards to homeowners who are chosen in a sweepstakes from customers who respond to Shea’s post-sales questionnaires.
“To us, they are like a giant 7-Eleven,” says Mark Richardson, president of Bethesda, Md.–based Case Design/Remodeling, whose franchised partners have a rebate program with The Home Depot’s stores. The warehouse giant sponsors Case’s training and promotional events, and Case has leveraged the big box’s relationship with business partners, such as Chase Manhattan Bank, from which Case receives discounts for its credit-card business. “[The] Home Depot’s penetration into the pro side will depend on aligning itself with people like us,” Richardson says.
Some industry officials have suggested that The Home Depot will ultimately need to “align itself” with a large pro dealer through an acquisition if it’s really serious about becoming a major supply chain player with production builders. If and when that happens remains to be seen. But what’s not in dispute is that the pro market is in The Home Depot’s sights, and this retail giant has more ammunition than ever to shoot at that target.
