Home Depot Expands Referral Service Redbeacon’s Footprint

Home improvement retailer Home Depot (NYSE:HD) is fast-tracking the national roll-out of its online services referral business, Redbeacon. This service seeks to connect consumers to service providers like carpenters, maids, plumbers and painters. This week, Home Depot, the owner of Redbeacon, has expanded the service’s footprint to the states of Oregon, Washington, Utah, Montana, Idaho and Alaska. Redbeacon is now present in 11 states and aims to be a nationwide service over the next two years.

While Home Depot also arranges projects for contractors to carry out jobs like installing roofs, building decks and remodeling kitchens, these are much more extensive tasks. Redbeacon typically arranges for lower value and quicker jobs like repairing leaky faucets and shorted light switches, pruning shrubs, and painting houses.

Although services account for just 4% of Home Depot’s revenues, the idea is to get more business from contractors who bid for customers’ jobs and need to purchase materials to carry out the same. ^[1]

Our complete analysis for Home Depot’s stock

How It Works

Home owners visit Redbeacon.com, enter the specifics of the job they want done and then they receive bids from professionals willing to do it. Redbeacon does background checks on contractors and helps schedule the work. It charges a fee of $29.95 per month from contractors to list themselves.

Similar services are offered by Angie’s List, which charges a subscription fee, and Kudzu.com, which is free to customers and lists service providers and customer reviews.

How It Benefits Home Depot

Contractors who use Redbeacon have no obligation to spend money at Home Depot in exchange for using its service. Home Depot, however, hopes that by providing contractors with their next job, it will be able to generate a sense of loyalty, encouraging professionals to buy more at its stores rather than a competitor’s like Lowe’s. While contractors make up just 3% of Home Depot customers, they are responsible for 35% of its sales. Thus, Redbeacon is an effective way of driving higher sales for Home Depot. By establishing long term relationships with bulk buyers, it can ensure repeat orders on a sustained basis. ((Home Depot Tries Home Improvement Matchmaking Business, HouseLogic))

The long-term potential is huge. When it bought Redbeacon, Home Depot also gained access to a lot of Silicon Valley talent as well as the infrastructure to expand the program nationwide. When customers at Home Depot stores inquire about projects, they are  introduced to the Redbeacon service and encouraged to download its mobile application. Other than that, Redbeacon has no physical presence at Home Depot’s stores.

With rising home prices, homeowners are willing to spend more on home improvement. Also, there is a whole new generation of “do-it-for-me” customers, typically in the 20-30 age bracket, who are willing to hire services of contractors even for simple jobs. As Redbeacon goes national, more customers will start using the site, and this will attract more professional contractors who would like access to a large customer base. We believe that Home Depot would be able to further leverage this registered customer base on Redbeacon to push online sales of its in-store products. In time, its e-commerce business would be able to generate a handsome portion of its overall revenues.

We have a Trefis price estimate of $71 for Home Depot’s stock.

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1. Home Depot Expands Redbeacon to Boost ‘Do-It-for-Me’ Services, Bloomberg [↩]