Home Depot announces shift in merchandising strategy
Speaking before a group of Wall Street analysts this month, Home Depot’s top merchant outlined a new assortment planning strategy that may change the look—and the content—of the retailer’s shelves. The new “Focused Bay” approach, now underway in the company’s U.S. stores, could also usher in some major changes for the vendor community.
Craig Menear, Home Depot’s executive vp-merchandising, made his presentations before the Goldman Sachs Annual Global Retailing Conference on Sept. 5. Although he used broad strokes to describe the new strategy, Menear revealed that all product categories will be divided into four segments based on their pricing, in-store visibility, marketing value and assortment breadth, among other factors.
“Every category that we have within our merchandising structure has been defined with a role and intent for the business,” Menear said. Under the Focused Bay rubric, products will be classified as either “Leadership,” “Traffic/commodity,” “Core” or “Emerging.”
The Leadership category generally carries a wide assortment of brands and a visible profile, from a marketing standpoint. These items also tend to be new and innovative—the kind of products that can command an “aggressive” price. Power tools are a good example, Menear said, pointing to the new lithium ion battery powered tools being introduced at Home Depot under the Ryobi and Black & Decker labels.
Traffic/commodity: These are the “project starters,” items like fertilizer, lumber and drywall. They must be easy to find, priced competitively, frequently promoted and available in sufficient quantities for the professional customers.
Core items are basic, fundamental and necessary to complete a project. Whereas a bath vanity or a toilet might be a project starter, a decorative towel bar is necessary to finish the job. The core category will carry a competitive assortment with optimized pricing.
Emerging products will drive sales, margins and product excitement, according to Menear. A very focused assortment, in-store visibility and heavy marketing will drive further growth in categories like outdoor living, particularly patio.
“You only have to step back a few short years ago, we were basically selling resin furniture,” said Menear. “Today we’re selling occasional seating, we’re selling sets that are three and four times the price points that we used to carry just five years ago.”
Home Depot expanded its assortment in both casual seating and tabletop dining this spring, and the gambit paid off; the company gained “significant market share” in patio furniture during the second fiscal quarter, according to Menear. During an earnings conference call on Aug. 14, the Home Depot merchant talked about several ongoing merchandising initiatives. In carpeting, a flat market for many retailers, Menear’s team upgraded displays, added 40 new styles and heavily promoted installation services, gaining market share in both soft and hard flooring during the past quarter.
Exclusive offerings in appliances, including the Maytag Bravo washer and dryer and the GE Adora refrigerator, helped boost market share in this category as well, according to Menear. The third-quarter will bring more product introductions, including a new LG kitchen series, Arietta designer range hoods and Kwikset’s Smart Key door locks that make re-keying simple.
Home Depot wants to maintain its edge in power tools, a position it intends to keep by introducing new innovations. Lithium ion batteries, which offer long run times in a more compact format, have created an opportunity to sell professional performance to DIY customers, according to Menear. This fall, Home Depot will be launching Black & Decker’s new VPX line in a special display that allows shoppers to interact with the products. In addition to the lithium ion batteries, the VPX line features a highly stylized design that will appeal to Eco Boomers buying their first set of power tools, Menear said.
The new product introductions, accelerated line reviews and the new assortment planning strategy are all part of Home Depot’s effort to reinvigorate its merchandise assortment, one of CEO Frank Blake’s key priorities.
“We realize that we [have] tremendous opportunities to improve the excitement, the ‘wow factor’ as you walk into our stores,” Blake told investors at the Goldman Sachs conference. The Focused Bay approach is critical to that initiative, Menear later added, as well as to the effort to drive gross margins and create better value for Home Depot’s customers.
“It’s a very different approach than what we had in previous years,” Menear said. “In the past, we would ask each [Home Depot] merchant to optimize and maximize every business that they had. Today, we’re working through the budgeting process to line up the right metrics for their business to really go after the key segments, if you will, in terms of the role or the intent of the category.”
The return of a market
San Diego Two relatively optimistic housing market forecasts factored heavily in an active day of seminars and award presentations at the ProDealer Conference held here last week.
In the conference’s kickoff presentation, Joshua Rosenbaum, director of the UBS Global Industrial Group, explained that only a matter of time stood between the current housing problems and a return to normalcy. “It really is a question of when, not if,” he said.
Of the six key macroeconomic factors — described as “pillars” — of the housing industry, five remain solid: GDP growth, interest rates, unemployment, inflation and non-residential construction spending. Housing starts, the sixth pillar, lags dramatically from 2006.
The question of “when” the return would come was addressed in detail at a later presentation on commodity pricing given by Paul Jannke, senior vp-wood and timber information for RISI. He pointed to research that predicts housing starts will remain weak until late 2008. Pointing to underlying demand created by population growth and household formation, Jannke described the overbuilding of 2003, 2004 and 2005 as a key cause of the dramatic decline in housing starts in 2007. The good news, said Jannke, is that 2009 should see starts jump back to the 1.7 million to 1.8 million level, following a 2008 housing start figure in excess of 1.5 million.
“With the weaknesses forecast in 2007 and 2008, we will have completely made up for the overbuilding” of the previous four years, he said.
If housing starts fall further to the 1 million level, as some expect, the silver lining would be a faster correction and a faster return to housing starts more in line with the underlying demand, he added.
The 11th ProDealer Conference held here at the Loews Coronado Bay Resort wasn’t all about forecasting and finance. A “Custom Builder Panel” on Thursday morning focused on the needs of custom builders and their expectations from pro dealers.
The best way to build a relationship with the custom builder is to do the research and bring solutions to the table, said David Payne, vp-Payne & Payne Builders. Sometimes, the solutions for builders address problems that they didn’t know they had, he said. “The smartest thing for a dealer is to find the time to talk to us to identify our faults, then provide solutions.”
And the panel agreed that when the relationship between the dealer and the builder loses the qualities of a partnership, the relationship is in jeopardy.
In addition, Basketball star Bill Walton, who rose to fame playing for the Boston Celtics and the Portland Trail Blazers, gave some advice on what to do “when the ball bounces the wrong way” during his Sept. 19 talk. He also reminisced about his days at Dixieline Lumber in San Diego, where the 15-year-old freckled redhead unloaded lumber as a part-time job.
Also at the conference, the annual ProDealer of the Year Awards Dinner recognized two companies that represent innovation and success in the LBM market — Kent, Ohio-based Carter Lumber and Fairfax, Calif-based Fairfax Lumber & Hardware, the respective recipients of the ProDealer of the Year and Independent ProDealer of the Year awards.
The 11th Annual ProDealer Conference, sponsored by Home Channel News, kicked off with a City of Hope golf tournament. The first place team, winning with a score of 142, was Bruce Brushwood of Moulding & Millwork, Mark Donovan of Forest City Trading Group, Laura Dwyer of Dupont and Mike Fletcher of Moulding & Millwork.
The ProDealer Conference ran through Sept. 21.
Toro names new member to board of directors
Outdoor products company Toro has named Inge Thulin, vp-international operations for 3M, to its board of directors.
Thulin joined 3M in 1979 and served in various sales and marketing roles at its location in Stockholm, Sweden. He subsequently served as area vp for Europe, Asia and the Middle East and was named executive vp-international operations in 2003.
“As Toro’s revenue from non-U.S. markets continues to rise and we expand our manufacturing, design and distribution capabilities around the world, his perspectives will be invaluable in positioning the company for long-term growth and profitability,” said Michael Hoffman, chairman and CEO of Toro.
Thulin’s appointment brings the Toro board to 11 members.
Toro had sales of $1.8 billion in 2006 and is a leading provider of outdoor beautification products.