Depot advances its omnichannel agenda
The opening of Home Depot’s first direct fulfillment center marks a major step forward for the company’s omnichannel efforts.
The approximately 1 million-sq.-ft. facility less than an hour south of Atlanta in the community of Locust Growth is the first of three new direct fulfillment centers (DFCs) Home Depot plans to build in the next two years. The other two facilities, strategically located in Perris, Calif., and Troy, Ohio, will stock more than 100,000 items, which are capable of being shipped to 90% of zip codes in the United States within 48 hours.
“We tried to look at it from the customer’s perspective of how they want to be supported instead of designing a facility based on how we want to support customers,” said Scott Spata, Home Depot’s VP distribution. “These facilities are designed for same-day order picking and they will also allow us to experience out of stocks less often.”
In addition to accelerating shipments to customers and more reliable in-stock levels, Spata said the DFCs combined with a network of more than 2,000 stores will help the company more effectively satisfy shoppers’ expectations for a seamless experience. Currently, about one-third of Home Depot’s e-commerce volume results from shoppers who buy online and have their goods shipped from DFCs to stores, or shoppers who buy online and pick up goods that are already stocked at the stores.
An even more extensive assortment of more than 500,000 items is available from what Spata called the long tail of Home Depot’s product offering. While the company can satisfy the majority of shoppers’ needs between the 35,000 items in stores and the 100,000 items in DFCs, a more extensive assortment is available from the company’s vendor-direct program.
“It is a seamless experience for the customer,” Spata said, referring to orders placed on HomeDepot.com that are fulfilled directly by suppliers.
To further develop its omnichannel capabilities, Home Depot expects to pilot this year ship-from-store capabilities and refine the processes on how products ordered online and returned to stores are returned to distribution centers or made available for sale.
“Buy online, return in stores has been an absolute homerun for customers,” Spata said.
However, those items are then accumulated in stores for shipment back to the DFC since Home Depot doesn’t allow non-store SKUs returned to stores to be sold in stores. That may change over time as the company’s e-commerce volume builds, but for now the approach involves leveraging back-haul capabilities and the creation of regional reclamation centers to more efficiently process returns.
While Home Depot has considerable work ahead to execute its omnichannel vision, the company has enjoyed tremendous e-commerce growth. About the time the DFC opened last month, Home Depot CEO Frank Blake reported the company’s U.S. stores produced a 4.9% comp increase and e-commerce sales grew by 50%.
“Our online customer satisfaction scores improved as we continued to enhance the experience across our full site, mobile and tablet, and we’re seeing accelerated improvement in our conversion rates,” Blake said.
Those metrics are poised to improve going forward as the company integrates its new DFC into the supply chain and takes the locations in California and Ohio online.
(A version of this article first appeared on RetailingToday.com.)
Eight things to know about TSCO
Coming off its 75th anniversary, Tractor Supply is the only publicly traded farm-and-ranch retailer. Here are eight other things you should know about the Brentwood, Tenn.-based retailer, as gathered by reporters listening in on the company’s recent fourth-quarter earnings call.
1. Double-digit momentum: For the fourth quarter, sales were up 10% and net income grew 20.6%. Meanwhile, quarterly comps increased for the 17th straight quarter, and comp transactions increased 5.1%. “We are very pleased with our ability to continue driving increased foot traffic through our doors,” said CEO Greg Sandfort.
2. Focus: Sandfort described his focus this way: “We are driven to be the most dependable supplier of basic maintenance needs to recreational farmers, ranchers and rural consumers.”
3. Heating products and cat litter: Companies often resist broadcasting in-aisle success stories, but Tractor Supply let slip a couple. The retailer said it refined its heating products assortment in the fall, gaining positive results. Also, the retailer is expanding its assortment of cat littler in certain areas of the country.
4. Customer retention: Sandfort said the company was “progressing thoughtfully” with the development of a customer affinity program. He added that the company has made improvements in Customer Relationship Management. “There is still a lot more to learn and do,” he said.
5. Fewer big tickets: While sales and traffic were up, average comp ticket decreased by 1.5%. Two reasons for this were cited: deflation and unfavorable comparisons with last year’s run of major purchases induced by Hurricane Sandy.
6. Exclusivity: Fourth-quarter sales of exclusive branded products were up 19% compared with the same quarter last year. Exclusive brand products represent about 30% of the chain’s sales.
7. Expansion: Thirty-one stores opened in the fourth quarter of 2013, compared with 25 in the prior-year period. Tractor opened 102 stores last year — including stores in new states Arizona, Nevada and Wyoming. It expects to open 102 to 106 in 2013.
8. Capital expenditures: Capital expenditures are growing from $153 million in 2012 to $218 million last year. Tractor estimates $250 million in capital expenditures in each of the next several years.