How Home Depot Is Mastering the Multichannel Sell Strategy

By Stephanie Taylor Christensen  NOV 13, 2013 11:35 AM

The home improvement warehouse's growth may not hinge quite as much on the housing market as it appears. Here's why.

 


Though the latest National Housing Trend Report from realtor.com hints of a greater balance of supply and demand in the housing market based on September 2013 data, opportunity remains for the housing recovery to continue well into next year, to the benefit of retailers like Home Depot (NYSE:HD). But, the home improvement warehouse’s growth may not hinge quite as much on the housing market as it appears. Here’s why.
 
Though Ellen Haberle, real estate economist for the technology-powered real estate brokerage Redfin, predicts that next year's home price appreciation is unlikely to see the double-digit gains of 2013, she says the situation is “ripe for growth” for home-improvement retailers. “Home sellers are becoming savvier about how to fetch the highest price; home upgrades are a key part of that strategy. As more homeowners finally escape negative equity, more will list their homes for sale. As more Americans purchase a home, they’re likely to take on do-it-yourself projects to make their new home their own,” says Haberle.
 
Though home-improvement competitor Lowe’s (NYSE:LOW) has also benefitted from the housing market this year (shares reached record highs this fall, and the company announced plans to open/acquire more than 80 new stores this fiscal year), Home Depot is the clear leader in the space. But is it all thanks to the housing recovery, or does is it have more to do with Home Depot’s focus on multichannel retailing?
 
Home Improvement Warehouse, or Tech Company?

Regardless of what type of products they're looking to buy, customers have become multichannel (also called omnichannel) shoppers. A customer may browse online using a tablet device, but open promotional emails from retailers on a smartphone. Consumers may visit brick-and-mortar stores to see a product in person, but buy it from home on a desktop computer from whatever retailer offers it at the best price and with the fastest and most affordable shipping option. Multichannel customers also expect that e-commerce shopping carts created in the browsing process are saved and updated according to pricing and inventory changes for possible future use.
 
Recent research by GfK reveals that 57% of consumers use a multichannel approach when shopping for home appliances; 64% of those surveyed said that they visit a brick-and-mortar retailer to “see and feel products” and to “get product sooner.” Home Depot has successfully met these customers where they are by acting more like a multichannel retailer and less like a home-improvement warehouse.
 
When Wal-Mart (NYSE:WMT) announced its "Pick Up Today" service -- the branded name for its "buy online, pick up in store" business model -- nationwide in March 2011, it was one of the first major retailers to bridge the gap between online and in-store shopping. Home Depot followed suit in August 2011, rolling out its own "buy online, pick up -- and return -- in store" policy. According to Home Depot’s CEO and Chairman Frank Blake, the strategy has worked. At the Goldman Sachs Twentieth Annual Global Retailing Conference held in September (transcript provided courtesy of Seeking Alpha), he shared that “one out of every three of Home Depot’s online transactions is actually fulfilled in the store.” He went on to explain that the benefit isn’t just leveraging it’s online presence and customer convenience; "buy online, pick up in store" customers tend to buy more items once they’re in the store. Home Depot’s multichannel focus doesn’t end at the weekend DIY-er. It recently launched a mobile app for “pro” customers (contractors) that allows them to create, save, and share personalized supply lists, check stock of items at Home Depot locations nearby, create e-receipts, and arrange for early morning pickup. According to the transcript, Blake said Home Depot plans to strategically boost adoption of the app, but that it “has been very well received” to date. Of Home Depot’s focus on the pro segment and its impact on investors, Greg Rand, founder and CEO of residential real estate investment provider OwnAmerica.com says it has also established a strong position in the institutional investor market as it relates to foreclosed properties. “Home Depot is partnering with large investors and providing mobile technology to enable rapid estimation of rehab projects, and connecting the investors with their contractor network,” says Rand.

Additionally, Home Depot is following in the footsteps of Apple (NASDAQ:AAPL) in its approach to securing a technology foothold. To form what is now called the “Innovation Lab,” Home Depot purchased BlackLocus, a start-up that designs algorithms to accommodate ever-changing Web pricing in 2012. Additionally, it purchased online handyman service RedBeacon, which connects homeowners with installers and home-improvement professionals to perform both larger scale installations and basic maintenance like painting, hanging pictures, unclogging a drain, and even house cleaning. The customer order, project details, and pricing are all captured and coordinated online, catering not just to DIY-ers, but to those who’d rather outsource most (or all) of their home projects entirely. Though the service is currently available in just 11 states, Bloomberg reports it will be offered nationally in the next two years.

The 2012 holiday season alone accounted for $43 billion in gift card sales. Guess who was ranked the top gift card retailer in the latest RSR Research benchmarking report? Home Depot. (See: What the Resale Values of Gift Cards Reveal About Retailers' Popularity) Closely on its heels were Sephora, Starbucks (NASDAQ:SBUX), Dunkin’ Donuts (NASQAQ:DNKN), and The Cheesecake Factory (NASDAQ: CAKE).

Why is Home Depot so darn good at pushing gift cards? Steve Rowen of RSR says it’s a simple matter of giving customers what they want. “At least as it relates to gift cards -- they do something we continually advise retailers to do: Think about the customer while designing the solution,” including making the offer easy to find online, and streamlining the purchase process. Thanks to its customized gift-card imagery, combined with its emphasis on creating opportunities for customers to purchase, send, and check gift-card balances from a variety of channels (in-store, online, or via social media, apps, or third-party sellers), Home Depot has found a way to be every place where customers purchase.

Twitter: @WellnessOnLess
No positions in stocks mentioned.

The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.

Copyright 2011 Minyanville Media, Inc. All Rights Reserved.