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Home Depot, Inc. is the world’s largest home improvement retailer. Home Depot offers a wide assortment of building materials, home improvement products, lawn and garden products, décor products, and facilities maintenance, repair, and operations products. It provides several services, including home improvement installation services and tool and equipment rental.
At the end of fiscal 2021, Home Depot operated 2,317 stores throughout the U.S. (including the Commonwealth of Puerto Rico and the territories of the U.S. Virgin Islands and Guam), Canada, and Mexico. The Home Depot stores average approximately 104,000 square feet of enclosed space, with about 24,000 additional square feet of outside garden area.
Through this strategy story, we will understand the business model and supply chain strategy of Home Depot in detail.
Home Depot Business Model
Home Depot serves two primary customer groups — consumers (including both DIY and DIFM customers) and professional customers — and has developed varying approaches to meet their diverse needs:
DIY Customers: These customers are typically homeowners who purchase products and complete their projects and installations. Home Depot also offers various clinics and workshops to share this knowledge and build an emotional connection with DIY customers.
Professional Customers (or “Pros”): These customers are primarily professional renovators/remodelers, general contractors, maintenance professionals, handymen, property managers, building service contractors, and specialty tradesmen, such as electricians, plumbers, and painters. These customers build, renovate, remodel, repair, and maintain residential properties, multifamily properties, hospitality properties, and commercial facilities, including education, healthcare, government, institutional, and office buildings.
DIFM Customers: Intersecting the DIY customers and the Pros are DIFM customers. These customers are typically homeowners who use Pros to complete their projects or installation. Home Depot offers installation services in various categories, such as flooring, cabinets and cabinet makeovers, countertops, furnaces and central air systems, and windows.
Products and Services
The Home Depot store typically stocks approximately 30,000 to 40,000 items annually, including national brand names and proprietary products. Home Depot’s online product offerings complement the stores by serving as an extended aisle. The merchandising organization is a crucial competitive advantage for Home Depot, delivering product innovation, assortment, and value, reinforcing its position as the product authority in home improvement.
To help the merchandising organization keep pace with changing customer expectations and increasing desire for innovation, localization, and personalization, Home Depot invests in tools to leverage data better and drive a deeper level of collaboration with supplier partners.
Interconnected Shopping Experience- Marketing Strategy of Home Depot
Digital Experience: Home Depot understands that it has interconnected customers who research products online and check available inventory before going into one of the stores to view the products in person or talk to an associate and then make their purchase in-store or online. While in the store, customers may also go online to access ratings and reviews, compare prices, view the extended assortment, and purchase additional products.
Home Depot has enhanced the “shopability” of an online product by including more information on the product’s landing page, including related products and parts of a collection and a multitude of fulfillment options. To enhance the digital experience, Home Depot focuses on improving search capabilities, site functionality, category presentation, product content, speed to checkout, and enhanced fulfillment options, which has yielded higher traffic, better conversion, and continued sales growth.
Store Experience: Home Depot’s stores remain the hub of its business, and it is improving the customer shopping experience through more straightforward navigation and increasing the convenience and speed of checkout. Home Depot has also empowered customers with additional self-help tools, including mobile app-enabled store navigation.
Home Depot has made strategic investments in areas like wayfinding signs and store refresh packages in all of U.S. stores; self-service lockers, online order storage areas at front entrances, and curbside pickup, which offer convenient pickup options for online orders; electronic shelf label capabilities; and the re-design of the front-end area, including reconfigured service desks, improved layouts in all checkout areas, and expanded and enhanced self-checkout options.
Home Depot made $151.2 billion in 2021. The business model of Home Depot makes money by selling merchandise or by performing services like installation, home maintenance, and professional service programs. In these programs, the customer selects and purchases material for a project, and Home Depot provides or arranges for professional installation. 97% of Home Depot’s revenue in 2021 was generated through merchandising and 3% from Services.
The following table presents significant product lines and the related merchandising departments (and related services):
Net sales for fiscal 2021 increased $19.0 billion, or 14.4%, to $151.2 billion. The increase in net sales for fiscal 2021 primarily reflected the impact of positive comparable sales driven by an increase in comparable average tickets and sales from HD Supply, which was acquired in the fourth quarter of fiscal 2020.
Online sales, which consist of sales generated online through its websites for products picked up in stores or delivered to customer locations, represented 13.7% of net sales and grew by 9.4% during fiscal 2021 compared to fiscal 2020. The increase in online sales in fiscal 2021 was driven by customers continuing to leverage digital platforms for their shopping needs.
Supply Chain Strategy of Home Depot
To enhance the interconnected shopping experience, Home Depot continues to invest in expanding the supply chain network to achieve the fastest, most efficient, and most reliable delivery capabilities in home improvement, while managing the costs.
Despite the challenges faced by the global supply chain in fiscal 2021, Home Depot’s supply chain investments permitted it to continue to operate effectively and meet customers’ needs. Home Depot centrally forecasts and replenishes the vast majority of its store products through sophisticated inventory management systems and utilizes its distribution centers to serve both stores’ and customers’ needs.
Home Depot’s supply chain includes multiple distribution center platforms in the U.S., Canada, and Mexico tailored to meet the needs of its stores and customers based on types of products, location, transportation, and delivery requirements. These platforms include rapid deployment centers, stocking distribution centers, bulk distribution centers, and direct fulfillment centers.
As part of its supply chain expansion, Home Depot has further automated its deployment center network to drive efficiency and faster movement of products. Home Depot is also expanding its fulfillment network, investing in a significant number of new fulfillment facilities to drive speed and reliability of delivery for its customers and to meet the goal of reaching 90% of the U.S. population with same or next-day delivery for extended home improvement product offerings, including big and bulky products.
These facilities include omnichannel fulfillment centers, which deliver the product directly to customers, and market delivery operations, which function as local hubs to consolidate freight for dispatch to customers for the final mile of delivery, focusing on appliances. Home Depot also has flatbed distribution centers, which handle large items like lumber transported on flatbed trucks.
In addition to its distribution and fulfillment centers, Home Depot leverages its stores as a network of convenient customer pickup, return, and delivery fulfillment locations. Home Depot’s premium real estate footprint provides a distinct structural and competitive advantage.