Home Depot, the popular home improvement store, has announced plans to open four new distribution centers in an effort to boost sales growth from professional customers. These distribution centers, set to open in Detroit, Los Angeles, San Antonio, and Toronto, will cater to the needs of professionals, such as remodelers and contractors, who require larger orders and a wider variety of products. The centers will be able to handle bulky items like lumber, shingles, and insulation, which can then be delivered directly to job sites.
Each of the four new distribution centers will have an average size of 500,000 square feet, making them five times larger than the average Home Depot store. This expansion is part of Home Depot’s long-term strategy to attract professionals who handle more extensive and complex projects. Previously, the company opened 14 similar distribution hubs in major metropolitan areas, with the first opening in Dallas in 2020.
Home Depot currently derives approximately half of its total sales from professional customers and the other half from do-it-yourself (DIY) customers. However, winning over more professional customers has become vital for Home Depot as it aims to return to growth. The company experienced a 3% decline in sales during the last fiscal year due to fewer projects being undertaken by customers during the pandemic. Home Depot expects total sales to grow around 1% this fiscal year, including the boost from an additional week. However, comparable sales are projected to fall by about 1%, excluding the extra week.
To beat these lackluster expectations, Home Depot is relying on professional customers who tend to be steadier and make larger purchases compared to DIY customers. Chip Devine, Home Depot’s senior vice president of outside sales, explains that professional customers require specialized salespeople and services, making them less likely to switch between retailers or opt for a competitor. Devine believes that cultivating long-term relationships with professional customers is easier than capturing the elusive loyalty of the general consumer.
On the other hand, convincing DIY customers to make purchases has become more challenging. These customers have been making fewer discretionary purchases and tackling smaller home projects in recent quarters. Big-ticket transactions, defined as those with a price tag exceeding $1,000, fell by nearly 7% in the fourth quarter compared to the same period a year ago.
Home Depot is adapting its business to support professional customers by piloting a program that offers trade credit, allowing professionals to place large orders without immediate payment. The retailer has also expanded its sales force dedicated to professionals and introduced digital tools and personalized features to assist them in managing complex orders. Additionally, Home Depot has implemented a loyalty program that offers perks to professional customers.
CEO Ted Decker considers building up the professional customer base as one of the company’s key priorities for the year. He aims to transform Home Depot into a one-stop-shop for professionals, much like it did for DIY customers in the past. Decker emphasizes that before Home Depot existed, consumers had to visit multiple stores for different project needs, and professionals face the same challenge.
Overall, Home Depot’s expansion plan to open four new distribution centers targeting professional customers is a strategic move to drive sales growth. By catering to the specific needs of professionals and offering specialized services, the company aims to strengthen its relationship with this customer segment, which is more likely to be loyal and make significant purchases. With these initiatives, Home Depot hopes to overcome its sales decline from the past year and navigate the challenges posed by a slower housing turnover and reduced demand for home improvement projects in a higher interest rate environment.
