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Home Depot - a digital DIY use case in interconnected retail

Stuart Lauchlan Profile picture for user slauchlan March 10, 2016
Summary:
Home improvement store Home Depot is building its own interconnected retail experience, with President of Online Kevin Hoffman seeing tangible results.

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Getting set

When your digital visits start to come close to your physical transactions, it means that a lot of customers are shopping their journey online.

That’s the happy position that Kevin Hoffman, President of Online at Home Depot, finds himself in today, as he explained at the Raymond James 37th Annual Investor Conference this week.

We’ve looked at Home Depot’s digital transformation program a number of times in the past. It’s a story of steady progress. Only 5% of transactions at the Do-It-Yourself chain are actually conducted purely online, but that doesn’t mean that digital investment isn’t essential.

In any home improvement project, success depends on the preparation up-front. It’s appropriate then that Hoffman explains that Home Depot customers increasingly use digital platforms as prep for purchasing in-store, with some 50% of them stating that the next stop is a physical store.

That leads to the need for what Hoffman calls an “interconnected retail strategy”, AKA a ‘bricks-and-clicks’ business. He says:

It’s not one specific channel that will carry the day. You got to have great virtual assets. You have got to have great physical assets, because the customer does not respect and honor just one specific channel.

Hoffman argues that Home Depot has a brand reputation of being a product authority and for providing a great customer experience. The challenges associated with both of those have become more complicated:

The new world just requires us to do those things with a little bit of a different lens. Great convenience doesn’t just mean great real estate locations. It means having world-class digital properties, world-class app, world-class PC experience. And convenience means being able to deliver to the home, to the job-site, to your business, having convenient pick-up locations in the store.

Product authority isn’t just about brands and the value proposition and the price. Sometimes product authority is about fulfilment mode. Sometimes product authority is about knowing that you will be with the customer and they can trust on you for years, not just the moment that you’re in the transaction phase.

And the customer experience is not just about the customer experience in the store, it’s about the whole end-to-end journey. So that’s what we’re solving for, the customer experience, product authority, and again, just taking all the friction out of the process.

To that end, Home Depot borrows from Jim Collins book Good to Great with its three-legged stool imagery. That talks to what you’re the most passionate about as a company, what you’re trying to be best in the world at as a company and what drives your economic engine. Hoffman says:

Importantly, at the very top of the stool is the concept of interconnected or interconnecting retail and it’s how all of those dimensions come together to really satisfy three very, very important constituents - our customers, our supplier partners and, of course, our shareholders, and really trying to solve for an end-to-end value chain for all of those constituents.

He adds:

It’s about how all these assets come together. You got to have a great mobile property, great tablet experience, great PC experience, great virtual experiences coming together with 2,200 stores of full supply chain with multiple distribution centers across the whole country, over 350,000 associates, a tremendous assortment of goods and products that you can bring to bear in front of the customer and then centralized associates and contact centers.

Investment

To create this interconnected retail experience, Home Depot is investing in certain key areas, such as digital marketing. This is something that the firm began engaging with several years ago, says Hoffman:

Being leaders when it comes to natural search, page search, social advertising, very, very focused on making sure we are omni-present wherever the customer is looking, wherever the customer is starting their shopping journey. We’ve been very aggressive in digital marketing. We’ll actually spend more in digital marketing in 2016 than we do in traditional old school marketing.

Another area of investment has been around the digital customer experience, including what Hoffman calls:

subtle things that just seem kind of logical and common sense today - exposing our physical inventory, our store inventory, to the customer on their mobile device; making sure they’ve got a store-map, so they can locate the product in the right isle and the right bay; actually sensing, when you open up your mobile device, are you in a store or are you out of the store?; in paving an experience for you that caters to your proximity. Those are all experience improvements that we’ve invested in.

This also includes search capability improvements. At Home Depot, a lot of the things that are on sales can be difficult to describe in traditional search terms, says Hoffman, but there are ways around this:

So we give you the ability to do voice search. We give you the ability to actually snap a photo of a product and we’ll do an image recognition in visually trying to find the product for you and then give you that store-map on where you can locate it in the store.

There’s also a push to make sure that there’s enough information in accessible formats for customers to be able to find what they’re looking for at all times. This means drilling down on content, says Hoffman:

Lot of things that we sell are complicated and scary, and often times, just a one or two or three time purchase for a customer in their life-time. So ratings and reviews, videos, high-fidelity images to make sure that customer can buy with confidence, those are all investments that we’re making.

The typical Home Depot store will carry about 35,000 products. In online, we have well over a million. Some categories require great curation. Actually more choices is necessarily a great thing for the customer. With some categories the customer wants to see 10,000 pluses, 20,000 pluses, 30,000 pluses.

While Home Depot has over recent years introduced Buy Online, Return in Store, Buy Online, Pick Up in Store and Buy Online, Ship to Store options, the next development, aimed at the professional contractor customer base, will be Buy Online, Deliver from Store. Hoffman explains:

What that allows is a professional contractor to get as-soon-as-next-day delivery within a two-hour window, a scheduled window, with big bulky products that would be difficult, for example, for the UPS man or the FedEx man to deliver.

And all of this is paying off, he concludes:

About 40% of all of our online orders actually exercise one of those types of fulfillment activities in our store. So 40% of our online orders are actually fulfilled in the store locations. So that’s a great example of interconnected retail.

We’ve seen our investments pay off. Our visit growth is growing very, very nicely, outpacing the industry. We grew in 2015 to close to 1.5 billion visits in 2015, again outpacing the industry. That’s a gauge for us on the value of our online assets and the customers’ responsiveness to what we’re providing them.

My take

An increasingly impressive use case of the power of the ‘blicks-and-clicks’ model.

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