Home Depot's Nardelli unveils blueprint for the future - president and CEO Robert Nardelli - Brief Article

DSN Retailing Today, Sept 3, 2001 by Debbie Howell

CHICAGO -- The Home Depot could become a $100 billion company within five years, growing into a retailing force second only to Wal-Mart in revenue. This is the ambitious sales target president and ceo Robert Nardelli laid out last month during his keynote speech at the National Hardware Show in Chicago. He said, among other things, Home Depot would get there by doubling last year's $45.7 billion revenue in the near future.

"This business has a wonderful heritage. It has an extremely proud past that has more than doubled [sales] in the last four years, and we're committed to staying on that same track," Nardelli said.

The packed audience that came to hear Nardelli's speech Aug. 13 learned of his optimistic outlook for home improvement retailing and how Home Depot in particular is confronting soft economic trends. Less than a year at the job, the chief executive who hails from General Electric told show attendees the retailer plans to reach the $100 billion mark through a combination of three strategies: increasing comparable store sales, opening new stores and developing adjacencies such as the pro initiative and Expo Design Centers.

Even with the $400 billion home improvement market now at the height of maturity, Nardelli said he still saw plenty of room for opportunity for all players. "There is a huge challenge for all of us to improve upon things we do every day, to continue to make the shopping experience one that is enjoyable," he said.

This is especially important given the current retail environment and consumer confidence, which Nardelli described as "pretty stubborn." He said while interest rate cuts have helped, with more homeowners refinancing their mortages, consumers aren't spending as much on home improvement projects as they did during the last economic downturn. On a positive note, he said home sales remained strong and lumber prices were stabilizing.

Staying abreast of changes in customer demographics will be key to success, he added. The so-called Echo Boom generation has been primed to be self-sufficient and will be an important customer group for DIY projects, while the interests of the Baby Boomers may be shifting but not their spending power. "This group has the financial capability and is becoming much more discerning in their quality of life. They are electing to move from do-it-yourself to do-it-for-me," Nardelli said.

To appease this discriminating group, Nardelli said The Home Depot will expand its at-home services program, which he pegged at a $180 billion market opportunity. Installation will play a larger role in stores going forward, helping the chain grow its current revenue from services beyond $2 billion.

Besides services, other programs that will drive The Home Depot's comps are the pro initiative and the Service Performance Initiative (SPI).

By the end of this year, the pro initiative will be expanded from 167 to 500 stores, while SPI is being rolled out chain-wide. SPI entails increased stocking at night to permit associates more customer interaction during peak business hours. Nardelli said both programs have yielded positive results, as well as a separate test of the chain's second pro-only store that recently opened in the Phoenix market.

The Home Depot will add 200 new stores this year, Nardelli said, and the retailer is rolling out these units earlier and faster than at any time in its past. "We're not looking only at the quantity of stores, but we're trying to do a much better job in the quality of the stores, really looking to make sure it is neighborhood family friendly," he added.

Next year, The Home Depot will open its first urban store concept in Chicago and Brooklyn, N.Y These smaller stores will range in size from 50,000 to 80,000 sq. ft. and operate as a hub and spoke system to complement The Home Depot's larger warehouse centers. This experiment seems to be the next stage in learning from the company's four-store Villager's Hardware test in New Jersey, which now appears less likely slated for rollout.

Nardelli also spoke about expanding through adjacencies, or ancillary formats such as Expo Design Centers and new markets. Home Depot's recent entry into Mexico through the acquisition of four-store Total Home will give the company access to a $12.5 billion market opportunity in that country. Expo Design Centers, meanwhile, have been scaled back to now target the top 100 metropolitan U.S. markets rather than spread out nationwide. At 44 stores now, the company still is on track with its original plan to have 200 units by 2005.

Finally, Nardelli highlighted the recent realignment of The Home Depot's merchandising team to focus on a centralized buying structure for core assortments, which make up about half of the chain's estimated 100,000 skus. He said this process would enhance efficiency, streamline vendor contacts and enable the company to take a closer look at the performance of categories.

More importantly, he said, working closely with vendors is critical during turbulent economic times. Nardelli said The Home Depot was interested in products that would differentiate the chain, as well as quality, fulfillment, price, innovation and terms and conditions. Through a true partnership, he said, the 36% of vendors that now are growing faster than The Home Depot's 24% compound annual growth rate could easily expand to include the full range of suppliers.