In a notable shift, one of the most well-known big box stores seeks to open wider online channels, even as it slows its long-standing drive to open new physical outlets. Home Depot build a reputation on its huge, warehouse-like stores, where do-it-yourselfers could find everything they needed for their home improvement projects and contractors could source various critical inputs for their businesses.

But several recent trends have converged to challenge its business model, which was based largely on constantly opening new stores. First, competition in the home improvement retail market became increasingly fierce. Second, with the collapse of the housing bubble, the competitors in this industry were forced to chase a rapidly shrinking segment of homeowners—which fell from around 77,000 households before the collapse to approximately 30,000 afterward—with ever increasing more vigor. Third, consumers have continued to grow more comfortable with online buying, which also enables them to enjoy in-home delivery of bulky products such as sinks or patio sets, rather than having to find a way to lug the heavy items home on their own.

In response, Home Depot is simultaneously halting 50 planned new store openings, closing about a dozen existing stores, and investing $1.5 million in its e-commerce operations. Although online purchases account for just 3.5 percent of the chain’s total sales, Home Depot anticipates that an expanded online presence will have several positive repercussions. In particular, it should help satisfy customers who want access to a broader range of products, because whereas even its biggest stores can carry around 35,000 products, Home Depot will make more than 600,000 items available through its website. It also has set predictions for what it believes will be the fastest movers online: quick purchases such as light bulbs and extension cords, combined with big, heavy items such as appliances.

In these efforts, Home Depot also hopes to appeal to its business customers. Online ordering would enable a contractor to put together an e-commerce order for the project it has scheduled for the next day, then stop by the store to pick up the entire supply on the way to the project site. Such options are not without challenges though. For example, when the orders are particularly sizable, individual Home Depot stores struggle to find space to hold them until the customers are ready to retrieve the items. As one Manhattan store manager complained, “We had air conditioners stacking up and no place to put them” when customers failed to gather their online orders in timely fashion.

Discussion Questions:

1. Why is Home Depot expanding its e-commerce business?
2. What will be its supply chain challenges as it does so?

 

Source: Shelly Banjo, The Wall Street Journal, April 16, 2014