The Home Depot Inc. is spending billions of dollars to ensure it gets its omnichannel strategy right.
“The front door of our store is no longer the front door of our stores,” CEO Craig Menear said during a Dec. 6 investor conference webcast. “It’s in the customer’s pocket, it’s on the job site, it’s in their homes.”
Home Depot plans to spend $5.4 billion over the next three years on strategic investments related to its “One Home Depot” vision—which is what the retailer calls its quest for the ideal omnichannel experience. That spending will come on top of Home Depot’s $5.7 billion “business as usual” investments and brings its three-year investment plan to $11.1 billion overall.
The strategic plan includes improved e-commerce capabilities, improvements to stores, a revamped distribution system and added delivery options. Those investments are necessary, Menear said, because consumers don’t distinguish between the retailer’s online and offline operations.
As recently as 2012 Home Depot, No. 8 in the Internet 2017 Retailer Top 500, considered some product categories to be “far removed” from the growth of e-commerce and unlikely to be affected by it, Menear said. But that has changed.
“No categories are excluded from an interconnected world,” Menear said, because many in-store purchases start on the web, which has largely replaced in-store browsing as the primary means by which consumers research products and compare prices.
During the investor webcast, Kevin Hofmann, president of online and chief marketing officer, provided details on Home Depot’s progress toward its omnichannel goals and hints about its plans for 2018 and beyond.
Home Depot expects that its digital visits will exceed 1.8 billion in 2017 and 60% of the retailer’s sales—online and in stores—are influenced by those visits, Hofmann said. In addition, the retailer has grown its online sales by about $1 billion per year for the past four years. Those online sales now represent 6.4% of total sales and account for 20% of Home Depot’s total growth, he said.
The home improvement chain’s advertising budget for digital channels is “well north of 50%” of its total ad spending. Hofmann said, and Home Depot’s marketing is growing increasingly sophisticated thanks to its ability to draw on roughly 1.7 trillion data points from its own data collection efforts, along with much more from third-party data providers.
Home Depot continues to invest in ways that better integrate its data, Hofmann said. That will include continued and improved use of weather-triggered ads (with messages relevant to the local weather conditions), ads highlighting inventory at local stores and such strategies as geo-fencing, which creates create virtual geographic boundaries and enables software to trigger responses when a mobile device enters or leaves an area.
New technology also makes it easier to use data in more traditional advertising, Hofmann said. For example, it claims to be able to target ads so specifically that two homes in the same neighborhood, watching the same television show, can see different Home Depot ads, based on the consumer’s profile, he said.
Ann-Marie Campbell, executive vice president U.S. stores, said that Home Depot’s in-store investments have included improved digital navigation—also called wayfinding—via its mobile app.
“Our customer service scores in the category of ‘easy to find’ improved 30% with the implementation of our new navigation initiative,” Campbell said.
In addition, she said, Home Depot has been redesigning the front-end of its stores, including the installation of self-service lockers in some stores. The lockers allow customers who buy and pay online to pick up their orders without having to go to a checkout line.
Mark Holifield, executive vice president, supply chain and product development, said that Home Depot is working to improve its delivery services to provide more options, including next-day and same-day, time-definite options, and quick, low-cost options for individual consumers and business customers.
Holifield said the company plans to add 72 direct fulfillment centers over the next five years that will supplant much of the store-delivery in Home Depot’s top 40 markets. It also plans to open stockless, market-delivery operations in about 100 places. Those locations will serve as hubs for last-mile deliveries for things like appliances and business-to-business orders. These plans will require a capital investment of about $1.2 billion, Holifield said.
Next year Home Depot will expand buy-online ship to store and buy-online deliver from store options—already available in the United States—to Canada. Home Depot also has been rolling out home delivery service in partnership with app-based, third-party services, Holifield said.
During Home Depot’s fiscal third-quarter earnings call on Nov. 14, Menear said online sales accounted for 6.2% of sales during the quarter ended Oct. 29, or $1.6 billion, up 19.7% from $1.3 billion during the same time last year, when online accounted for 5.6% of overall revenue. At the end of the third quarter, the retailer operated 2,283 retail stores.
Earlier this year, Home Depot ramped up its service offerings to its commercial customers by acquiring Compact Power Equipment, a provider of equipment rental and maintenance services, for $265 million.