HomeTrading NewsOne key to Home Depot’s growth strategy: Nabbing bigger orders from home professionals

One key to Home Depot’s growth strategy: Nabbing bigger orders from home professionals

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A customer wearing a protective mask loads lumber at a Home Depot store in Pleasanton, California, on Monday, Feb. 22, 2021.
David Paul Morris | Bloomberg | Getty Images

Home Depot‘s next CEO Ted Decker said he wants home professionals to think of the company as more than a convenience store.

The retailer wants to win contractors’ larger, planned orders, like thousands of feet of flooring — not just last-minute purchases when they scramble to find a tool or finish a job. That shift is part of Home Depot’s growth strategy as it tries to sustain momentum beyond the pandemic and reach $200 billion in annual sales.

“We’re sort of the 7-Eleven for pros — convenience, value, tremendous product and brands — but what we’re building now is something completely different and revolutionary to get the pro planned purchase,” said Decker, the company’s chief operating officer, Tuesday on the company’s earnings call.

Home Depot reported Tuesday that its sales grew 11% in the fiscal fourth quarter compared with the year ago period. The retailer gave a conservative outlook for the coming fiscal year, with sales trends “slightly positive” and earnings per share growing at a low single-digit pace.

Home Depot executives did not say when the retailer expects to hit that $200 billion goal, but it would mark a nearly $50 billion gain from its annual sales in fiscal 2021.

Pandemic-fueled home improvement projects have lifted Home Depot’s sales by more than $40 billion over the past two years. That’s roughly the same amount of total sales growth that Home Depot had from 2009 to 2018.

About half of Home Depot’s total sales come from home professionals, Chief Financial Officer Richard McPhail said. He estimated on the company’s earnings call that the retailer’s total addressable market in North American is more than $900 billion.

Its competitor, Lowe’s, is also trying to chase the more reliable and lucrative pro customers. It’s historically had a smaller share of pros, with nearly 75% to 80% of its business coming from do-it-yourself customers.

Over the past several years, Home Depot has been investing in supply chain hubs to help it better cater to pros. It’s in the middle of a five-year plan to invest $1.2 billion in its supply chain, including construction of large facilities, called flatbed distribution centers, that can store and deliver larger orders. It built the first one in Dallas and is opening a total of 40 across major U.S. markets. It previously fulfilled pros’ orders out of stores.

Decker said the giant hubs have allowed Home Depot to carry a wider merchandise mix and given pros more assurance that they can get quantities they need. For example, he said, a store in the past might only carry about 3,000 square feet of flooring, which is enough for three odd jobs.

With the flatbed distribution centers, he said, Home Depot is getting orders for 7,000 square feet of flooring and for counts of 150 doors.

Scot Ciccarelli, a retail analyst at Truist Securities, said Home Depot wants to change the thought process for pros.

In the past, a pro might run to the Home Depot store when a saw blade breaks.

“Now, what if they could actually start to convince that contractor ‘Don’t just get your broken saw blade here. Why don’t you get your doors and millwork here?'” he said. “If you can do a big multifamily project and you can start to gain traction with that, that becomes kind of a big deal.”

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