News

Nine takeaways from Home Depot’s earnings

BY Ken Clark

There was a lot for Home Depot executives to like about the company’s third-quarter performance. The company reported sales growth of 6.1% and net earnings growth of 14.1%.

Beyond the numbers, here are some of the key takeaways form the company’s presentation to investors.

• Digital growth

Online sales grew more than 17% in the quarter, and now represent 5.6% of total sales. Of these sales, more than 40% are picked up in the store – “view as a positive sign of our physical store’s continued relevance with our customers,” said CEO Craig Menear.

The company also invested in its digital engine. Home Depot rolled out a an updated HomeDepot.com web site. It also redesigned its app. Both moves came without interruption said Ted Decker, executive VP of merchandising. “The update includes an expanded buy box, which now makes it easier for our customers to select their preferred fulfillment option at checkout, whether that be delivered to home or picked up in store,” Decker said. “These changes have already yielded positive results, as we have seen improvements in overall site performance.”

• Big tickets, double digits

Transactions over $900, the company’s big ticket sales, jumped 11.3% in the quarter. These sales were driven by appliances, flooring and roofing. Big ticket sales represent about 20% of U.S. sales.

• Strength with the pro

Sales to pros grew faster than sales to DIY customers. The categories leading the way were commercial and industrial lighting, fencing, plywood, pressure treated decking, and interior doors.

• Strong DIY sales, too

Special order carpet, tool storage, laminate flooring and vanities – a diverse mix of home-related projects – all generated strong comp-store sales, Decker said.

• Weather helped

The company said it took advantage of forecast analytics and favorable weather to extend the selling season for lawn mowers, seed, planters, fertilizers and soils and mulch. Executives also credited the retailer’s flexible supply chain for its ability to maximize sales in this regard.

• Inflation and the peso didn’t help

The total impact to ticket growth from commodity price inflation was approximately 35 basis points. Plus, average ticket growth was negatively impacted by approximately 33 basis points, primarily due to a weaker Mexican peso.

• A power play in the aisles

In a move described as a serious step forward in cordless technology, Home Depot in the fourth quarter will be launching a 9 amp-hour lithium battery from Milwaukee. This battery pack is said to deliver up to 5 times the run time and 35% more power than previous iterations. And it runs 60% cooler than standard lithium battery packs.

• Anniversary for Interline

The quarter brought with it the anniversary of the $1.6 billion acquisition of Interline Brands, a major player in the maintenance, repair and operations market. The Interline integration continues to progress as we work to execute against the business use cases to leverage Interline’s capabilities,” Menear said. “We are excited about the opportunity Interline provides us to expand our share of wallet with customers.”

• Expectations steady

For fiscal 2016, the expectation is for sales to grow by about 6.3%, with comps of about 4.9%.

keyboard_arrow_downCOMMENTS

Leave a Reply

No comments found

TRENDING STORIES

Polls

Are you hiring seasonal employees this year?

View Results

Loading ... Loading ...
News

Prince Georges Mall adds Ulta and DSW

BY Al Urbanski

The Mall at Prince Georges in suburban Washington, D.C. will welcome a 16,000-sq.-ft. DSW location and an 11,000-sq.-ft. ULTA in second quarter 2017. The signings are part of PREIT’s ongoing strategic plan to re-outfit its centers with “in-demand” retailers.

“The property has just begun its transformation into an elevated, vibrant shopping and dining destination commensurate with the development that has occurred in the surrounding area,” said Joseph F. Coradino, CEO of PREIT.

Upgrades to facades and entrances are planned for Prince Georges, and interior finishes will be updated to create a brighter atmosphere, PREIT reported. Three-quarters of non-anchor tenants are slated for new storefronts.

Renovations will begin next year and are scheduled for completion by Holiday 2017.


Connect with me on LinkedIn | Follow me on Twitter

keyboard_arrow_downCOMMENTS

Leave a Reply

No comments found

TRENDING STORIES

Polls

Are you hiring seasonal employees this year?

View Results

Loading ... Loading ...
News

Tips for Success in a ‘Free Shipping’ Environment

BY CSA STAFF

Here’s a daunting statistic: The value of merchandise ordered via same-day delivery is expected to exceed $4 billion by 2018 — it was $100 million in 2014. The big reason for this jump is the grueling pace set by Amazon Prime Now, which offers two-hour delivery for consumers in 27 US markets and counting.

As new standards emerge, retailers in all categories are rapidly investing in their omnichannel supply chain capabilities to serve customers who want seamless shopping across channels as well as fast — and, increasingly, free — delivery.

Retailers are dealing with mounting complexity as they offer flexible fulfillment options, adding shipping nodes and allowing product returns in stores. They are forced to change forecasting, planning and product deployment algorithms and processes, requiring them to boost data analytics capabilities. They are enabling real-time inventory visibility across channels by funneling sales information back to internal market groups and vendors. They are pressured to improve in-stock levels while reducing inventory and transportation costs.

Meanwhile, they have to adapt physical networks for warehousing and transportation and change operations up and down the supply chain — including within their stores.

These moves massively stress budgets. Some of the largest retailers are investing as much as $2 billion to cover capital costs for new systems and capabilities, and we see many retailers of all sizes watching their operating incomes drop significantly because of increased expenses for “pick and pack” operations. These types of shipping expenses, as well as other new costs, can’t be passed on to customers. For example, home-delivery shipping prices have risen nearly 5% annually since 1997. These strains have come at a time when retailers are dealing with a host of other price pressures.

Several retailers are making steady progress meeting these challenges. However, many are struggling to stay relevant, especially as they look for payback on their investments in capital and operating expenses.

Based on our research and experience with clients, we found four basic rules for success.

1. Go back to basics: Understand your business and customer strategy

All supply chain decisions should be grounded in a well-defined business strategy that involves clearly knowing where you want to play and how to win over time. That requires knowing everything possible about your customers: their segment, how they shop, where they may switch to, how they want to receive and return their goods, and what they will pay for and why. Some customers want fast delivery; others prefer a predictable arrival time. However many still value tactile store experiences. And much of this behavior will change in the future.

2. Build supply chain capabilities that support your unique strategy

Until now, speed was not a vital factor. But today’s retailers are finding it necessary to invest in more fulfillment centers near customers’ homes or workplaces and deliver more small packages quickly to either location. That’s why Myer department stores in Australia abandoned its third-party centralized-distribution center model in favor of opening its own fulfillment centers closer to customers. Now Myer can deliver products more quickly to online shoppers and offer click-and-collect shopping.

But as retailers make such choices, copying the best of what others are doing may not work. Customer service levels need to be customized to a retailer’s competitive set and its customers’ needs, now and in the future. Two-hour delivery in Fairfield, Idaho, may not make sense if no one else offers it and customers do not expect it or want to pay for it.

If two-hour shipping is a requirement, then local ship-from points — either stores or local fulfillment centers — become prerequisites. This advantage holds even for next-day deliveries, as our research suggests that for large retailers, shipping next day from stores can offer up to 30% cost advantage, on average, over shipping next day from warehouses. It will make sense to retrofit store layouts to serve as fulfillment centers.

If time is less of an issue for customers, shipping from a more centralized distribution center usually is much more economical, although the costs can vary significantly by geography and product.

Amid these choices, companies are making trade-offs, investing to selectively match or beat competitors and counting on those investments to deliver revenue gains. For example, the majority of retailers now offers the option to order online and pick up at the store or have the item shipped from the store. These deals are supported by different supply chain decisions. The best companies take a methodical approach to adapting their supply chains for new services. For example, Dick’s Sporting Goods started with a well-sequenced rollout of its ship-from-store capability. After gaining confidence, it systematically added the choice to order online or pick up at the store, and has continued to refine its omnichannel offerings and infrastructure.

Increasing costs of omnichannel retailing, Amazon’s influence and the need to swiftly develop competitive capabilities have led some retailers to find joint venture partners or third-party intermediaries to scale up fast and preserve margins. These actions have also benefited some companies in other ways, such as improving their ability to leverage customer data.

3. Adapt your operating model

Retail supply chains now start with the consumer and work backward, all the way to the vendor. This requires much more involvement across areas that were traditionally considered separate from the supply chain, such as store management, product allocation, buying and assortment architecture.

Key strategic and operational decisions now need to be made with participation from marketing, merchandising, e-commerce, distribution, transportation, store management and IT. Some forward-looking retailers are realigning their organizations and decision processes to be more cross-functional.

4. Use technology and analytics as a critical enabler

Technology has always been integral to retail supply chains, but the omnichannel ecosystem raises technology requirements exponentially in an industry that has historically underinvested in this area.

Retailers now need different and better algorithms for forecasting demand; figuring out delivery vs. pick-up requirements; establishing stocking points (location and size), stock levels, reorder quantities and rules; and determining whether or not to price for delivery options — and if so, when. Beyond these analytical capabilities, retailers also need to track a customer’s order along the entire supply chain. But too many retailers struggle with outmoded technology, high IT investment costs and a skills deficit that puts them at a disadvantage to deep-pocketed competitors with Agile development approaches or newer players with more flexible architectures.

The path forward

Most retailers are at the beginning of this long omnichannel journey, with requirements that will evolve over the years. Companies need to plan for multiple time periods, understanding what projects they must do now and what can be put off until later — it’s a multiyear P&L and balance sheet issue. We counsel retailers to look at their investments and returns over time and to ensure that all costs and benefits are understood, baked into long-term plans and stress-tested, given competitors’ moves and market changes.

These aren’t easy decisions for retailers to make. But as the industry evolves, they will determine which companies end up thriving in the unfolding omnichannel era and which ones just don’t make it.


Kimberly Borchert is a partner in Bain & Company’s Boston office. Pratap Mukharji is a partner, based in Atlanta. Both are members of Bain’s Retail practice.

keyboard_arrow_downCOMMENTS

Leave a Reply

No comments found

TRENDING STORIES

Polls

Are you hiring seasonal employees this year?

View Results

Loading ... Loading ...