- [Narrator] If you've ever seen a commercial
for the Home Depot, you might be familiar with this tune.
- [Man] It's a good time to be a doer.
- [Narrator] Home Depot and its theme song
have inspired a wave of videos on social media,
revealing its cultural status
as the go-to home improvement store
for many during the pandemic.
Home Depot is the world's largest home improvement retailer
with over 2300 stores across North America.
- What we've seen is home price appreciation
and housing activity at unprecedented levels.
And what we know is that when homes become more valuable
those homeowners are more willing to spend on them.
- [Narrator] With its 2021 fiscal year sales
larger than both Lowe's and ACE Hardware combined,
one of Home Depot's biggest advantages
is its foothold in the professional customer space.
That is electricians, remodelers, plumbers,
and other home professionals
that place more lucrative orders.
So how exactly has Home Depot
attracted more professional customers
and what other strategies have helped it
become a leader in the home improvement retail industry?
This is the economics of Home Depot.
- Walking into a Home Depot
you'll see a huge floor space,
dozens of long aisles with everything from screws
and other hardware to tools, to major appliances,
garden supplies, doors, windows, toilets,
really any thing you'd need for a home improvement project.
- [Narrator] A typical Home Depot store stocks
about 30,000 to 40,000 items throughout the year.
Most locations are around 100, 4,000 square feet.
The scale of the store gives customers the opportunity
to buy raw materials in bulk and pick up items quickly.
- They try to be somewhere that you can go
if you're just an individual
trying to fix up something in your kitchen.
They also try to be a place that you can go
if you're a contractor trying to buy lumber
to help renovate somebody's home,
or if you're a plumber
that needs all kinds of pipe fittings.
So they really try to be a good source
on both sides of that equation.
- [Narrator] Home Depot began when co-founders
Bernie Marcus and Arthur Blank were fired
from a home improvement company called Handy Dan's.
They wanted to launch a store that would be
significantly bigger and cheaper than competitors.
In 1979, they opened their first two Home Depot locations
in Atlanta.
- [Man] The Home Depot.
- [Narrator] The founders had a vision
for a home improvement retailer
that could be a one stop shop for the DIY
or do it yourself customer.
- [Man] You've never seen anything like it.
- The home improvement customer to us is unique.
They're a doer.
That's where that word comes from.
- [Narrator] Since it's founding Home Depot has grown
into a multi-billion dollar company
that increasingly caters to the professional contractor,
as well as the DIY consumer.
While many industries like service and hospitality
took a hit during the pandemic,
Home Depot's revenue continued to grow.
The pandemic fueled a boom in the home improvement industry.
As people spent more time and money on remodeling projects.
- Between middle of 2020 and the middle of 2021
there were four straight quarters
where Home Depot grew its sales
by more than 20% year over year
which is a very fast pace for a large established company.
- [Narrator] Home Depot says they are seeing
increasing demand for professional projects
as people feel comfortable
inviting contractors back into their homes.
- There's been this buildup of projects
that require professionals that more recently
people have been willing to get to.
And that's sort of led to a second wind of sales growth.
- [Man] What kind of person would come here at 5:45 a.m.?
Well there's Carly, a carpenter.
- [Narrator] Home Depot has positioned itself
to attract more business from these contractors
and home professionals
particularly ones that place big orders.
- [Man] Everything we do, we do for them.
- [Narrator] In the 2021 fiscal year,
about 50% of its sales came from pro customers,
even though they made up less than 10% of its customer base.
In comparison about 20 to 25% of Lowe's total sales
come from pro customers according to the company.
As a key part of its pro customer strategy
Home Depot has invested $1.2 billion
in expanding its supply chain and distribution network.
The company says it is building 150 new distribution centers
to help speed up the replenishment of store shelves
and quickly deliver purchases to customers doors.
Each facility with some as large
as about 14 professional football fields
can hold a huge amount of inventory
and deliver orders directly to a project site.
- One thing we know that's important to our pros
is delivery of product to the job site.
We've shifted our model to a network
of nearly 150 distribution centers that are engineered
to deliver for those big and bulky products
that are unique to the Home Depot and unique to the pro.
Think lumber, think doors, think windows, think vanities.
We're designing a network that will deliver those goods
same day or next day to 90% of the population in our market.
- [Narrator] The home improvement giant's
distribution network works in tandem
with their online strategy,
giving pro customers more flexible options
that better align with busy schedules.
- We're one of the largest e-commerce retailers
in the country by volume.
When people come to pick up orders
from our lockers or from our service desk
they often shop for more products in the store.
And so that's an economic flywheel that our website creates
for our company.
- These possibilities have really helped the company
grow it sales quite a bit over the last two years,
sales from e-commerce channels have gone up by about 100%.
So basically doubled.
- [Narrator] Though Home Depot has seen a long period
of consistent revenue growth,
the home improvement retail space remains a competitive
and fragmented market.
- This is a space where customers
are very sensitive to prices.
So if one brand is charging a higher price
for a certain type of equipment
that's something that buyers could pick up on
and could easily shift to another retailer.
So Home Depot is definitely very sensitive
to other big chains to smaller mom and pop stores.
- [Narrator] The industry is also sensitive
to economic fluctuations especially with spending trends
tied to the housing market.
- Going back to the great recession
in the financial crisis 10 years ago
that was a very difficult time
for home improvement retailers,
a turbulent period for Home Depot.
In the last couple years to during the pandemic,
the housing market's been very strong, certainly a company
that would be in a very different position
if there was some kind of big downturn
in the housing market in general.
(upbeat music)