At HD, checking out is in focus
Debbyn Milligan began her career at The Home Depot as a cashier 23 years ago in Oceanside, Calif. The front end of the store continues to be a major focus of her attention, but in some very different ways.
Today, Milligan is the VP operations for the world’s largest home improvement retailer. She describes her mission as taking responsibility for the nearly 2,000 U.S. stores from the front end to receiving to the back office. It’s a complex operation, but her team is charged to make it simple, or at least, as simple as possible.
“We want to make sure there is not a large amount of complexity that exists, and we want to make sure that the process is very simple, that anybody could follow it so they can focus all their energy on the customer,” Milligan said.
Coincidentally or not, some of the big advances in this regard are taking place at the checkout. Talking to a reporter on the floor of an Atlanta store, Milligan described a process recently initiated called register accountability. The new process replaced the old system of till assignments, switching out and logging back on when cashiers took a break, for instance.
“Register accountability allows any cashier, any time to jump in at any till,” she said. “That is a huge simplification.”
The company also revamped the interface on its self-checkout lanes, providing more intuitive directions on the screen to guide customers. And it just completed a cashier appreciation event that rallied around First for checkout (The word “First” is built on the first letters of the behaviors: find, inquire, respect, solve and thank.)
But perhaps the most significant front-end initiative is a small handheld device that was designed for use throughout the store: the First Phone. It functions as a walkie-talkie, a phone, a product lookup database and for checkout purposes, a line-busting tool or outright mobile point-of-sale system (for credit or debit card purchases.)
“We strive for no more than two or three customers per line,” she said. Employees armed with the First Phone can approach customers in line and either make the transaction (if the card reader is attached) or ring up the items and suspend the transaction to make the checkout quicker when it’s time to pay.
In its development stages, the First Phone was called “Project Unicorn.” VP IT Mike Guhl explained: “It’s integrated with everything in the store — that’s the interesting thing. We used to call it Project Unicorn because it was this mythical convergence device integrated with voice system, data system and POS system.”
One measure of its success, he said, is the demand from the user for the device. (Currently, there are about 15 to 20 First Phones per store.) Another is usage in transactions. In the fourth quarter last year, the device was involved in 1 million transactions. That number has grown in each successive quarter, according to a spokesman.
“It’s a customer service solution that also does tasking,” Guhl said. “It can answer customer service questions, and then also allow associates to do their tasking when they’re not with a customer. So I think that was a huge change for us culturally.”
Another initiative that received high praise during the company’s third-quarter earnings conference is a post-checkout process of returns handling. Today, for the first time, it’s centralized.
“We used to handle all of our returns individually in each store,” Milligan said. “We had 2,000 stores possibly doing it 2,000 different ways.” Not only that, the process was tying up 40 man hours a week in a back room. As of mid-December, that all changed with the creation of three facilities that handle the returns with the vendors for all the stores.
Overall, the checkout is a term that is losing its original meaning as the fixed location by the door that includes a cash register, a cashier, a surface for customers to place the merchandise and — sometimes — a line of customers. Thinking differently about throughput is going to continue. And Milligan has a pretty good idea where those new ideas will come from.
“We’re all the time getting feedback from the stores. That’s where a lot of ideas comes from.”
Executive briefing: Marvin Ellison
Ask Marvin Ellison any question about Home Depot’s business, and the answer will probably circle around, gravitate toward or — probably most likely — hammer squarely on the concept of customer service.
That’s one of the takeaways from an interview with the Home Depot executive VP U.S. stores. And there were many others, such as his company’s belief in the theory that grabbing market share from competitors is the surest way to growth in a struggling economy. Of course, there’s a service angle to that mission, too.
Here are some highlight bullet points from our briefing with Ellison, which took place during a recent visit to the Home Depot’s “Store Support Center” in Atlanta.
On customer service
“We first made a decision when Frank Blake became chairman and CEO that we wanted to once again regain our customer appreciation and be viewed as a customer service-leading retailer. So we asked, ‘How do you get there?’ It was very basic. You get there by doing some of the old-fashioned things really well. That’s training and staffing and making sure that we create an environment in the stores where customer service is viewed as the most important role of any associate. The second thing you do is to go out and try to find the technology that enables the associate in the store to have time to spend on customer service versus chasing all the other operational and task-driven things that happen in any given store.”
On the 60-40 split
“We did an analysis and realized almost 60% of all hourly payroll was spent on non-customer-facing parts of the business — unloading trucks, auditing the back end, counting cash in the cash room, stocking shelves. And so we were astonished, as a customer-centric company, that most of our money was not spent on customers. What we had to do was pull a 180-degree turn; we’ll have 60% spent on service, not on tasks. We have a plan to do that by 2014, but we’ll be there before 2014. At the beginning of this year we got to 50%, and we’ll end this year at 55%.”
On the First Phone
“The First Phone was a huge initiative toward [getting to 60%]. We put this in the hands of anywhere between 15 to 20 associates in a store. They have it on their hip, and they can do everything. All the key reports are on the phone. Real-time sales so you know exactly what’s going on. More importantly, it gives you the ability to solve a problem with the customer without ever losing connectivity.
“As a mobile POS device, it allows us to address any long lines on busy days. Anyone who has the device is allowed to use it as a mobile POS. For customer service at checkout, it’s a huge deal. The First Phone is part of a location tool. I can type in hammers, and it tells me the aisle and the bay location. It shrinks the amount of time it takes to answer customer questions.
“It also helps us with our in-stock position because this device is used as our in-stock tool. It gives us the ability to put right products on the shelf and allows us to manage our inventory without having to go to extreme steps of stickers on products. From an in-stock standpoint, customer checkout standpoint, locating the product, all those things are very positive.”
On the competition
“We think we’re in one of the most competitive retail spaces in the market place right now. And we also know that our smaller competitors are very formidable because they have product knowledge and they lean on service. But what we believe and what we have proven is that because we have a dominance in product assortment and because of our scale, we have a great advantage on price. And when we layer outstanding service on top of that, then we have a winning proposition. And that’s even more reason why we spend so much time talking about service.”
On the pro customer
“Just like DIY customers, pro customers come from different demographics, different spending patterns. It’s our responsibility to provide them the service they require. Painters or electricians all have different ways they spend and different expectations. We’re seeing all the above, but it doesn’t matter. For us, we strive to create the best shopping environment for our customers, period.”
On growth strategy
“In the U.S. we have a very simple philosophy. When you look at the last five years and look at the impact of the economy on our overall sales, we think that our growth strategy falls within our existing stores. So you’re not going to see a big plan from The Home Depot to open a lot of stores or create unique store formats as a way to create new-store growth. Instead, you’re going to hear us talk about how we’re going to take market share and the steps we’re putting in place to grow sales per square foot in our own stores.”
On the next big thing
“The biggest thing is continuing to make customer service the priority as it relates to how customers shop. You’re going to hear us talk a lot about interconnected retail; creating a seamless connection between dot-com and store; and addressing the needs of how, when and where our customer wants to shop. We call our strategy interconnected retail, because we believe that our responsibility is to make sure however the customer wants to buy that we have the ability to service their needs whether they want to buy in the store or online. But don’t be confused by that. This is nothing but an extension of our focus on customer service.”
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Strength in the core
Stormy weather around the country had something to do with Home Depot’s third-quarter sales gain of 2.9%. So did strength in core categories.
The world’s largest home improvement retailer posted a 4.2% comp-store sales gain for the quarter ended Oct. 30. Total sales increased 2.9% to $17.326 billion. And even bigger growth came in the net earnings column, where Home Depot reported a 13.0% increase and net earnings of $934 million.
“Our third quarter was driven by strength in our core categories and storm-related sales, as well as strong operating performance,” said Frank Blake, chairman and CEO. “We will continue to invest in our core initiatives to provide customers with exceptional customer service and great product values.”
At the end of the third quarter, the company operated a total of 2,246 retail stores in the United States and abroad.
The report followed closely the third-quarter report of rival Lowe’s, which posted comp-store sales of positive 0.7% and an earnings decline.
Home Depot also announced that its board of directors declared a 16% increase in its quarterly dividend to 29 cents per share.
Atlanta-based Home Depot’s wind-and-storm-aided sales effort in the third quarter presented several category highlights, according to executive VP merchandising Craig Menear.
The company’s strong third-quarter performance included strength “in the core of the store” and growth in average ticket and transactions.
“The maintenance and repair categories that make up the core of our store continue to perform well,” Menear said during the company’s third-quarter earnings call. “Project basics such as pipes and fittings, fasteners, air circulation, hand tools, chemicals, caulks and appliance parts were positive. And, as customers prepared for winter, small maintenance projects like insulation and waterproofing also sold well.”
In addition to storm-related sales strength, the company saw higher-than-company-average comps in tools, electrical, indoor garden, building materials, plumbing and hardware.
Ten departments in all posted positive comps, with paint, flooring, lighting and kitchens rounding out the list.
Negative comps for the third quarter occurred in the following categories: lumber, outdoor garden, bath and millwork.
Brands and product innovation played a role in sales growth, he said. “We offered outstanding values in power tools from brands like Ryobi, Milwaukee, Makita, Ridgid and DeWalt, and we are seeing consistent response to these brands from our customers,” he said. Pro customers are responding well to exclusive-to-Home Depot hand tools from Milwaukee and DeWalt, he added
LED lighting continues to advance on the shelves, with the first commercially available 75-watt equivalent LED A-Line replacement, he said.
The Home Depot’s chief merchant also shared the following third-quarter trends with investors:
• Total transactions grew by 1.2%;
• Average ticket increased 3.0%;
• Transactions for tickets under $50 — about 20% of the company’s U.S. sales — were flat in the quarter; and
• Transactions for tickets more than $900 — also representing some 20% of U.S. sales — were up 3.6% in the quarter.
As far as the possible return of the housing market to lift home improvement sales, Blake wasn’t optimistic for a quick turnaround. “In the U.S., we still don’t see and we don’t expect to see in the near term any meaningful tailwind from the housing market,” he said. “Inventories remain high, pricing is under pressure and credit is still difficult.”
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