The ‘next frontier’ of retailing

For the past couple of years, Home Depot’s top executives have been talking about the forecasting, assortment management and other IT “tools” being given to its merchants and store managers so they can make better decisions about what goes on the shelf. But while the Atlanta retailer has been vague about some of its new technology initiatives, it’s made no secret of the fact that it fell behind in the IT sector while expanding on the retail front.

“Given The Home Depot’s tremendous growth, and the overall operational credit over the last 30 years, we were able to expand without the heavy use of technology,” explained chief operational officer Matt Carey at the Home Depot Investor & Analyst Conference in June 2009. The former eBay chief technology officer pegged his new employer’s IT know-how somewhere in the “1991 time frame.” Relying on an appropriate metaphor, Carey added: “Right now, every room in our house has room for improvement.”

Carey went on to say that his team, using in-house expertise or outsourcing alternatives like grid technology or cloud computing, planned to catch up—in a hurry.

“It is our plan to compress the time frame by delivering the capabilities of an advanced retailer over the next five to six years,” he said.

Approximately $200 million later, Home Depot is starting to peel back the covers on some of its initiatives. Home Depot has committed at least $350 million in IT spending on more than 100 inventory-based projects, according to executive VP and CFO Carol Tomé. “So it’s not a big hit. It’s a lot of incremental hits that are driving the business,” she told investors at the Citi Retail Conference last March. One example she gave was bay sequencing, which allows store managers to look up a SKU by bay location.

“We have never had bay sequencing before in our company. Imagine that. We carry between 30,000 and 40,000 products in our stores, and we didn’t know where they were inside the store, and now we will be able to know where it is digitally.”

Home Depot also rolled out a forecasting tool for centrally replenished items. Using a “pull-through” strategy based on previous consumer demand, this Teradata solution predicts the daily and weekly inventory needs for each item by store location based on historical sales data. These forecasts, which can respond to changing seasons and trends, are combined with inventory and replenishment strategies to pull inventory through the supply chain based on expected sales at each store location.

Perhaps the biggest launch this year is a wireless, hand-held piece of equipment that can track stock, order out-of-stock items or look for them at other stores. Officially dubbed Store Walk Mobility (SWM), the device has been rolled out to 1,800 orange boxes. By the end of the year, Home Depot expects to have SWMs in all of its U.S. stores. The devices and their IT platform represent a $60 million investment for Home Depot.

Claybourne Barrineau, who is overseeing the rollout at Home Depot, described the SWM in his PowerPoint presentation at the 2010 Teradata Partners user group conference on Oct. 26, but he didn’t show and tell. “Legal reasons,” he explained, clicking past the image on the screen. Barrineau’s audience at the San Diego Convention Center didn’t care; they were more interested in hearing about the possibility of CPU overloads.

Barrineau explained how store managers could use the SWM units to scan a bar code on a particular item and receive back-sales history, inventory turns, stock on hand, arrival dates for the next shipment and lots of other data—a total of 30 metrics. Home Depot refers to this as “tactical reporting”—information that store managers and merchants can use to make better decisions about promotions, markdowns, replenishment and overall assortment planning.

The initiative was rolled out in stages, with each store receiving 15 to 20 devices. Barrineau’s worst nightmare was that everyone would decide to use them at the same time, bombarding Home Depot’s servers with queries while the system was busy doing other things. “It’s a CPU intensive process. We had to protect the rest of the system from this workload,” he said.

SWM Armageddon never arrived, and by the end of October, the system was running 500,000 queries a day from 12,000 Home Depot associates. Now that the system is up and humming, “I want to do more tactical reporting at The Home Depot,” Barrineau said.

Barrineau’s team would have been unable to implement the mobile store walk devices without a larger overhaul of Home Depot’s data warehousing. The Atlanta retailer decided to retire its legacy enterprise data warehouse and switch to a Teradata solution in less than six months; a very ambitious timeline, given the number of end users—30,000 store associates, logistics personnel and corporate staff.

The migration started in June 2009 and finished by Black Friday. Now the company is rolling out various business intelligence applications. Inventory planning and replenishment, along with tools for better management of everything from purchase orders to shipping notices and employee scheduling, is already in play. New releases include transportation, distribution and supply chain visibility, enhanced financial and cost information, merchandising business intelligence and better analysis tools for expense and payroll.

A bird’s eye view of Home Depot’s IT evolution was provided by Cynthia Czabala, director of enterprise data warehouse for The Home Depot, who also spoke at the Teradata conference in San Diego. A 12-year veteran of the company, Czabala talked about some of the retailer’s failed attempts at standardizing item data before it ultimately succeeded. “

Home Depot is now attempting to do the same—cleanse the data—for its customer database. One major accomplishment so far: integrating customer accounts into its data warehouse from all the different ways of collecting customer data—point of sale transactions, rentals, special orders, credit card applications and so on.

“For the first time, I can tell you how valuable you are to me based on how much business we’ve done,” Czabala said. Capturing, and understanding, customer sales transaction data is “the next frontier,” she said. By analyzing these interactions, Home Depot can better target its marketing outreach and learn more about the needs of customer segments like pros, HD Direct and installed services.

“We want to increase marketing to smaller groups,” Czabala said.