As a recognition of digital disruption in the retail sector, this from Craig Menear, CEO of Home Depot, is as good as any other:
The front door of our store is no longer at the front door of our stores. It’s in the customer’s pocket. It’s on the job site. It’s in their home.
It’s reflective of both the immediate need for Home Depot to re-think its business model to reflect omni-channel realities, but also of the wider changes in the retai landscape. This is happening at “unprecedented rates”, notes Menear:
Some say that it’s more change in the last three years than the last 10 years or 20 years. Clearly, the customer is engaging in an increasing way in the digital channel, but brick-and-mortar still matters. The way customers research product has changed. Instead of going to a store to browse in the aisles, the customer researches reviews and ratings online. The level of delivery and fulfilment options available to customers changed drastically. All of these changes have to be reflected and brought to life in the customer shopping experience.
Within the context of this changing retail environment, customer expectations are increasing. It's imperative that we address these evolving needs with increased speed. More customers now expect improved product delivery, personalized experiences tailored to their needs and a frictionless checkout when they visit a store or the website.
For Home Depot, the challenge is to implement what it calls the One Home Depot customer experience, bringing together the physical retail outlets with new digital channels. Menear explains:
Our customers no longer think of us in terms of separate channels. They don’t think of us as a brick-and-mortar channel and a digital channel separately. We want to enable the engagement with a seamlessness across channels, but candidly, that’s not how we were built.
That’s a problem that needs active attention, he adds:
We were built in silos, with stores serving as our original platform, and then adding the online component over the years but still in a siloed capacity. In order to continue the journey to create the One Home Depot experience, we have to de-silo ourselves, leverage our scale and invest in growth in the future.
That means spending budget wisely and in a focused manner to deliver an interconnected whole:
We will invest in our physical stores, our associates, product and innovation, our professional customers, our services business and our supply chain. And underlying all of these investments is our continued investment in IT to create the seamless One Home Depot interconnected experience.
When a customer comes to our physical store, it needs to be a great environment. Our stores must be completely interconnected for us to be able to leverage the scale that we have in our total asset base. So we will invest in the physical experience and capabilities necessary to provide the great One Home Depot interconnected shopping experience.
Store, meet digital
As indicated in Menear’s comments, Home Depot’s retail real estate remains a hugely important part of this interconnected vision. Around 45% of Home Depot’s online orders leverage the stores in some way for fulfillment, while 10% of online orders actually originate in the store while the vast majority of online returns leverage the stores for a convenient return destination. Ann-Marie Campbell. Executive Vice President, US Stores at Home Depot, points out that:
While data suggests that customers are actively leveraging our website, it also indicates that our website is often the beginning but not the end of their journey as the store is typically the next stop. Ninety percent of the US population lives within a 10-mile radius of a Home Depot store. Forty-five percent of online orders are picked up in the store, and over 85% of online returns are completed in our stores. Our stores are the hub of an interconnected One Home Depot experience, so we must invest to keep them relevant.
That means upgrading the in-store experience with tech innovations. For example, providing new ways to navigate around a giant Home Depot store. Campbell describes this as the “first customer pain point” and explains:
How customers navigate our stores is critical. Our Wayfinding initiative is aimed at improving the convenience of this experience through a new, more intuitive sign package and better lighting. We have invested in a better digital navigation experience through store specific maps on mobile, which allows customers to pinpoint the aisle and bay location of an item they are looking for in the store.
Millions of customers are exposed to our online and in-store navigation features on a daily basis. Customer feedback has told us that these new Wayfinding enhancements make it easy and simple for customers to find the products they are looking for without the help of a store associate if their need is to be in and out of the store quickly. Our customer service scores in the category of “easy to find” increased 30 percent with the implementation of our new navigation initiatives.
The fact that everyone has a mobile device about their person provides a useful platform here:
Digitizing Wayfinding, it's on your phone today, right? So before you get to the store, if you want to see the quantity of products, whether we have it in stock or not, that aisle where that product is located, you're able to pull it up on your phone and then when you enter the store, you can navigate quickly to the store. And you work with that, not only from a digital standpoint or new wayfinding signs also link that process and journey, so the customer is able to get to the product quicker and therefore, exit the store.
Getting customers to visit the store is part of the corporate priorities, adds Kevin Hofmann, Home Depot President of Online and Chief Marketing Officer:
We know that 60% of all of our sales in store or online are influenced by a digital visit, and we've continued to maintain our traffic advantage. We will surpass 1.8 billion visits [to the website] this year, and our digital visits now rival our physical store transactions. We've grown the online business by approximately $1 billion in each of the last four years, and our online sales penetration is about 6.4%, approximately double our nearest traditional competitor. Home Depot now has one of the largest e-commerce operations in the [US].
A priority for Hofmann with his dual remit of online and marketing is how best to create more personalized customer experiences and that in turn comes down to data and analytics:
Becoming more personal will all start with the power of our data. Through our size and our scale, we have a great deal of data on our customers, their homes, their businesses and their preferences and needs. We have most of the US in our database, and nearly 50 million households in the country have been active with us in the last 12 months. Through those interactions, we are now modeling 1.7 trillion data points a week just from our own data sets. Combined with third-party data sets, we have an enormous opportunity to understand communities, neighborhoods and businesses at scale. This is all in the quest to understand our customers better.
This matters, he argues, as customers today are not responsive to generic marketing:
Customers will expect retailers to speak to them at an individual level. The world of traditional one-size-fits-all messaging is quickly falling behind us.
He cites examples of Home Depot’s diverse customer base - an affluent Baby Boomer, a Professional or a Millennial who happens to be a new homeowner. Each needs to be connected with on their own level:
The reality is we're peppering them with too much, and sometimes we regress to a lowest common denominator approach. We try to find the one message that somewhat appeals to all of them. But each of these customers has different needs and a different level of expertise. As our ability to know the customer matures, we no longer have to hope that one message is sufficient for millions of different customers. We are building the capability and investing to tailor our messages and scale.
The affluent Baby Boomer will get a message which may be more aspirational in nature or a message about our turnkey solutions, our services business, for example. Our Pro can get messages that help them save time, save money, win more jobs. And the Millennial new homeowner, well, they'll receive messages about the content of what's possible, content on how to do a project, all rich in the images that actually fit their reality, the reality of the new fixer-upper they just bought.
For the future, Hofmann is looking at adding new tech-enabled capabilities to Home Depot’s offerings, often ahead of customer need:
We've had voice-enabled search and image search capabilities in our app. These experiences were probably one to two years ahead of the customer, but it provided us valuable lessons as the technology becomes more accepted and mainstream. We've dabbled in Augmented Reality, and we're positioned well once the technology becomes more accepted and mainstream. And we recently partnered with Google and are live on the Google Home devices, leaning in to voice-enabled shopping. Improved experiences are all about making it easier for our customers.
There are some objectives that Hofmann has in mind for new investments:
We will invest in capabilities that make us more location-aware. When the customers receive those tailored weather-triggered ads or those messages influenced by their location, the customer's going to expect to land on an experience that also understands their location, understanding if you're in your home, at your place of business or in a store or not.
We will also invest to build machinery to be more context aware, understanding if the customer is just looking for a simple $100 item or if they're contemplating a full re-model project or understanding if they've been engaged for the last few weeks, trying to get inspired, and maybe they just need some design help. These are all important contextual elements that are vital to creating a great and easy customer experience. We'll be investing to gather intelligence in real time to personalize the experience by the customers' context and provide the best products, content and services for their need and situation.
A savvy and well-thought through exemplar of omni-channel retail disruption in action.