In the wake of the housing downturn that has severely impacted their store sales, The Home Depot is pouring millions of dollars into dramatic line extensions. So, in addition to picking up some grout, two-by-fours and a brand new electric drill, shoppers can now browse for new washers and dryers, buy gasoline and sip on a caffe latte.
CEO Bob Nardelli’s move underscores the Catch-22 that virtually every chief executive of a publicly-
traded company finds him/herself in today: balancing the short-terms needs of the Street with doing the right thing for the long-term, best interests of the organization.
In my mind, Nardelli blinked. By diversifying in such a bizarre, generic way, The Home Depot runs the risk of alienating its core constituency. Think about it: The Home Depot appeals to the guy’s guy. The dude who loves nothing more than to putter around in the garage all weekend long, gets off on re-grouting the bathroom tiles and is only too happy to put in a new dropped ceiling in the basement (note: I am the antithesis of the home fix-it guy). So, when these guys saunter into the local Depot and start running into all sorts of non guy’s guy stuff, I think it’s going to be a real turn-off.
I know that when I look for a guy’s guy experience, I chill with some buds at an ESPN Zone where I kick back with some wings, burgers and brews (ok, some chicken sandwiches and chards). But, the point is, I don’t want to see upscale, stylish and trendy things and people when I go to an ESPN Zone. I want to hang with my fellow Mets and Jets fans and watch either, or both, teams blow a late-game lead.
So, Mr. Nardelli, I think your short-term line extensions may prop up sales for the time being but, when the housing market improves, I think you’ll find a significant percentage of your core constituency finding somewhere else to buy their hammer and nails.
Paul:
Very interersting point. I’m sure there are plenty of cpg brands dying to get shelf space in thd. I still think they’ve been too cavalier in their line extension efforts and run the risk of alientaing their core consituent audience.
steve,
what’s interesting here is that there have been cpg brands clamoring to get into thd. i personally have been involved in a few products that would make sense for the thd customer and the approach has been to take an approach that tailors the packaging or product design to the home depot environment. whether using some flavor of orange packaging or incremental design that would give the product a “tougher” appearance. many brands feel the most valuable real estate for them is at the check out where an impulse cpg purchase might occur. it seems nardelli is finally listening to all those cpg pitches they’ve been getting over the years.
paul marobella
Good point/argument. I guess only time will tell if the new lines will work to HDC’s benefit in the long run.
We’ll see how Lowe’s makes out in the crowded home improvement market up here in Canada. They’re late in the game on this side of the border.
There are arguments to be made for such line extensions at Home Depot. Which is not the same thing as saying the new lines are going to work as well as Mr. Nardelli hopes.
Those arguments boil down to this: Give the people who often accompany the guy’s guys to Home Depot – read: spouses, kids – wares or services they might be interested in buying while the guy’s guy putters about.
But the reasons why these extensions may not do much for the bottom line are numerous. The main one Steve cites in his blog: The line extensions at least in part seem like an off-the-shelf solution for a company that really needs original thinking — not to mention some refreshers on good retailing practices.
Can appliance shoppers be enticed to favor Home Depot? Is the Home Depot mini-mart in the parking lot going to be top of mind for folks looking for a cup of Joe or a candy bar?
The answers to most questions along these lines: maybe – but only if Home Depot provides customers with an otherwise positive shopping experiences. Here the company has a lot of make-good work to do: Many do-it-yourselfers have come to regard Home Depot as a necessary evil – or an unnecessary evil if there’s a Lowe’s near by. They put up with erratic and sometimes just plain awful stock-keeping, a problem compounded by the fact that ordering is controlled back in Atlanta without proper regional input. (“No, we don’t have any snow salt for the blizzard. Atlanta didn’t send us any.”) And hit-or-miss employees – some know their stuff, others act as if they’ve never even turned on a light – apt to disappear from the poorly lit aisles when you need them.
These are not new problems. The solutions may need to be bigger than new lines that Home Depot probably will have a hard time properly stocking and displaying anyway. Indeed, the appliances already on sale are often cramped together in a way that makes browsing for a new fridge a distinctly unpleasant experience.
More effective, I think, is the company’s strategy of catering to professional contractors. These are big-ticket spenders whose customers spruce up their homes for resale when real-estate prices are climbing and also order up projects when the market dips and they decide to stay put and make that house a home. To the extent The Home Depot mini-mart will be a convenience to contractors, it’s a smart idea. (The gas it sells will be a loss leader, as it is at Wal-Mart. That’s fine, if the gas drives foot traffic into the stores.)
Wall Street does encourage short-term behavior by public-company executives. But sometimes investors really do see through such behavior. Home Depot shares have been underperforming the Standard & Poor’s 500-stock index almost without interruption since about the middle of 2002. Shares of competitor Lowe’s have consistently outperformed the S&P over that same period.
Hey rep,
Guy’s guys will always find their way to the lumber. The money is in the female consumer: those who make the decisions on appliances, decor etc. and are increasingly shopping at big box home improvement stores.
Second, it is not just about the DIYer, but the “do-it-for-me” type who are more than happy to pick up a latte, pick out their kitchen and hire a contractor through the big box stores’s services division to see it through – and those installers make up many of the “guys” buying the lumber anyway. It is not a negative diversification, but an adjusting to the future of home improvement.
Best,
Elissa