The Home Depot - using digital to travel the last mile

Home Depot is one of the US's best known home improvement brands. For Middle America it's one of the first stop go-to outlets if you're renovating your kitchen or building a new deck for the barbeceue.

In recent years, the firm has been embarked on some serious investment in digitizing its retail experience with some considerable success. Last year, the firm's online business chalked up over $4 billion in revenues and looks set to surpass that this year.

In charge of this push is Kevin Hofmann, President of Home Depot’s Online business, who last week gave the Goldman Sach's dotCommerce conference an insight into the firm's well-considered, but still evolving ecommerce strategy, including its flagship Customer Order Management platform, the biggest IT project in the firm's history.

Hofmann positioned that as a single order maagement and inventory-visibility platform. COM allows Home Depot to leverage its assets in more sophisticated ways as well as helping the firm to understand what he referred to as the “customers demand signal. Thus, if a customer wants to buy a new patio set, the optimal “flow path” can be created to fulfil that order:

We can ship that patio set from a store. We can ship that patio set direct from a warehouse from one of our suppliers, we could ship that patio set from one of our house facilities. There's many, many options we have. So the IT investments we are making is really to optimize that whole supply chain offering that Home Depot has.

That's a major endeavor in its own right, as Hoffman noted:

We have fulfilment options for our customers in our 2,000 stores and then the full complement of omnichannel, or what we call interconnected, fulfilment options by online, pick up in store, by online ship from store and of course very free and convenient easy returns by online return in store.

We also do deliveries from our store every single day. Millions and millions of deliveries a year, two guys in the truck to deliver big bulky items, building materials, appliances. We continue to build out that buffet of fulfilment offerings, in the build out of direct fulfilment distribution centers that help cater to the more parcel shippable items that typically you think of when you're thinking of an ecommerce opportunity. Those direct fulfilment distribution centers also complement our existing 50-plus distribution centers that we have to run our core supply chain as a company.

The last mile

An overwhelming concern for Home Depot, like rivals in this space, is the challenge of the last-mile delivery, particularly given the nature of the goods that are being shipped in many instances:

An overwhelming amount of product that we ship is not a five pound thing that’s going to fit in a parcel box. We do millions and millions of last mile deliveries today coming out of our stores, using our stores as those delivery hubs, in addition to our partnerships with the traditional players and UPS and they help us with parcel delivery.

The evolution of those delivery options we’re rolling out right now are delivery from store, new systems and new architecture that will streamline that experience for all of our customers. We’re giving our customers a very specific time window if they want it, a two hour time window in which they can expect delivery to their home, with options that will include kerbside delivery, threshold delivery, White Glove delivery.

If you think about it, we’re one of the largest appliance retailers in the country. We do that every day with appliances. But exposing that to the customer online is a challenge and giving them all the knowledge that they need and the full project-completers that they need to get it delivered to their doorstep, is a big challenge and an economic burden that we have to deal with.

But having those fulfilment options is essential to meeting customer expectations and those customers are willing to pay more to have them met, suggested Hoffman:

When you’re talking about 3,000 pounds of cement and mulch and soil and plywood and landscape timbers to your backyard within the two hour window on a Saturday morning at 6 AM to 8 AM, customers generally are saying yes that’s worth paying a little bit for that.

As it happens, a sizeable part of Home Depot's ecommerce – 40% - ends up being fulfilled by the customer coming to the store to pick up goods ordered online, which makes Home Depot's network of 2,200 US stores a major asset. It also presents opportunities for up-sell and cross-sell, observed Hoffman:

We always talk about at Home Depot that you know you come into Home Depot for what you thought you wanted but you leave Home Depot with what you really needed. So as you come into pick up that order, how can we remind you of the other great values and the other great offers we've got in our store? That's another area of focus for us - how we leverage and monetize those footsteps. Whether it's a Pick Up In Store order, whether it's a Return in Store order, those are footsteps and increasingly those footsteps are something that we're looking to take advantage of.

What is interesting, suggested Hoffman, is where the divide comes between online and offline. Home Depot takes a clear line on this:

We deliberately think of it as interconnected and increasingly it's hard to dissect exactly what is an ecommerce transaction versus physical store transaction. The example we give people is to think about that customer that’s researching an appliance purchase online. Ninety percent of the customers that are interested in buying appliances do heavy research online. But then a significant number of those customers walk into the store, they want to open and close the door of the refrigerator, they want to measure it for themselves that one last time. Then they actually may go home and then transact online again or they may transact in the store.

So being able to talk about what is an online transaction versus an offline transactions and the economic equation that flows through a specific P&L is very, very difficult. We look at the business as a whole portfolio and we think that’s the best way to look at it.

In part two of this article, Hoffman discusses Home Depot's customer experience strategy.