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Home Depot can still offer one thing Amazon can't

Melody Hahm
Senior Writer

Home Depot (HD) had a blowout second quarter, reporting the highest quarterly revenue in its history.

The world’s largest home improvement retailer handily beat Wall Street’s expectations on both the top and bottom lines. The company also updated its forward guidance for the second time this year, projecting 5.3% growth this year.

The macro housing environment has buoyed the company’s bottom line as owners are choosing to renovate and expand rather than move. Since 2008, the average time homeowners have stayed in their houses before selling has doubled to nearly eight years, according to Attom Data Solutions.

Home Depot has artfully weaved together the in-store experience with the convenience of shopping online. Consumers find such upside in the in-person Home Depot experience that over 43% of all online transactions are picked up in store.

Even as Amazon.com (AMZN) has dominated every thinkable retail category — whether it’s books, electronics, apparel, groceries or live ticketing — Home Depot has maintained consistently robust growth. The e-commerce titan is trying to get in on the in-store experience with its physical bookstores, but they’re far less ubiquitous and accessible than Home Depots.  

The ‘one Home Depot’ strategy

During the earnings conference call on Tuesday morning, CEO Craig Menear repeatedly mentioned Home Depot’s interconnected retail approach, which utilizes both online sales and an in-store retail experience.

Home Depot has dubbed its interconnected retail strategy as “Buy Online, Ship to Store” (BOSS), which provides customers with access to over 300,000 items available for pickup in the stores. The program was fully rolled out by the first quarter of 2013 and gives customers access to over 10 times the number of products stocked in a typical Home Depot store.

Home Depot’s website represented 6.4% of all sales and grew approximately 23% in the quarter.

While one might think of the home improvement retailer as a purely in-store play, Home Depot (HD) showed 23% growth in online sales this quarter. This growth has been consistent, experiencing 19% in the fourth and 23% in the first quarter of this year.

“Our customers are blending the physical and digital world together. And we look at share in totality as it relates to Home Depot’s gain in the market against what the market is growing,” Menear said.

Home Depot is not just about e-commerce, though; it has proven its mastery in melding the offline and online shopping experiences for consumers. Home Depot has made a significant push to add more customer-facing employees — making up 60% of the company’s total employees from approximately 40% a decade ago. Year-to-date, Home Depot has hired 90,000 seasonal employees.

Rather than blindly throwing its efforts behind a straightforward e-commerce strategy, Home Depot has seen the utility of enhancing the in-store experience with experts who can help shoppers navigate the vast, cavernous stores. This hands-on, friendly engagement that consumers enjoy at Home Depot’s brick-and-mortar locations is something they simply can’t get from browsing on Amazon.com.

This is one Home Depot, not an online or in-store business, but it’s one Home Depot,” CFO Carol Tomé added.

The intersection of in-store and online

“It is truly a blended experience today where the front door of our store is no longer at the front door of our physical store for many, many product categories,” Menear said.

“The customer starts digitally looking at product, doing research, and then in many cases, particularly in large ticket, they come in and they actually want to talk to one of our associates before they make a purchase.”

Just as many shoppers browse or “showroom” electronic devices at Best Buy (BBY) or sofas at West Elm (WSM), Home Depot’s physical locations are a great place for customers to get advice or demo a product.

But the home improvement retailer pushes it one step forward, making the expertise from the sales associates a key part of the experience.

Sales associates can help place your order in-store or you can go home and peruse products at greater length. Home Depot data indicates that departments like flooring, lumber, appliances, plumbing, outdoor and indoor gardens and lighting fixtures sold more than the company’s other departments, on average. Those products often require a very intensive, tactile shopping experience that e-commerce-exclusive companies like Amazon (AMZN) can’t replicate.

Catering to the professional crowd

Rather than focusing on expansion, Home Depot has bolstered its existing store experience. Part of expanding on the customer experience involves the company’s “Pro” business, which grew twice as fast as the do-it-yourself (DIY) segment.

“Pro” offers volume pricing discounts for professionals who build and renovate homes for a living. Home Depot’s Pro program caters to a niche audience that actually makes up 40% of the company’s total revenue. Home Depot competitor Lowe’s (LOW) “Pro” model makes up 30% of the company’s total revenue.

“We are focused on being a valued partner for our pros by offering solutions both in store and at the jobsite that help them to more effectively manage their business,” Menear said.

Beyond catering to the woodworking hobbyists or homemakers looking to make a quick fix to their homes, Home Depot has developed a loyal customer base, incentivized by cheaper prices when they buy in bulk. For contractors and homebuilders, this makes Home Depot a destination.

For the rest of us, it’s clear that home improvement often requires an in-store shopping experience, even as the rest of our habits make the leap online.

Melody Hahm is a writer at Yahoo Finance, covering entrepreneurship, technology and real estate. Follow her on Twitter @melodyhahm.