A Closer Look At Home Depot’s Growth Strategy

Home Depot (NYSE:HD) had a stellar Q1 2017. The company witnessed a 5% year on year growth in revenues and a 16% year on year growth in EPS (earnings per share), beating analyst expectations. This growth is significant at a time when brick and mortar stores are losing to e-commerce sites such as Amazon.  Home Depot’s fully integrated retail channel is a key pillar of its growth. Through options such as “buy online, pick up in store” the company is creating frictionless shopping across its retail channels, driving traffic both online and in its stores.  As home spending increases with the growing economy, Home Depot is well poised to capture the growth in the industry through its strategic initiatives which are discussed in this note.

See complete analysis for Home Depot’s stock

Innovative Products

Home Depot is collaborating with supplier partners to bring innovative and exclusive products to its stores, which is impacting the ticket size at its stores positively.  It introduced tools powered with lithium-ion battery for outdoor use and has seen an extremely positive response from customers for this convenient product.  The company is focused on products which can save time and money for its customers and this strategy is a contributor towards ticket size growth.

Support Services For Pro-Customers

The company’s Pro-segment is a key driver of its growth with Pro-sales outpacing the sales of the DIY (do it yourself segment). However Home Depot focuses on needs of its Pro customers beyond the traditional store offerings, which drives growth. It is focused on helping Pro-customers to manage and grow their business and connect them with DIY customers through its Pro-referral program. With better sales support and other related initiatives, Home Depot is building a relationship with its Pro-customers which helps them increase their business and drives sales for the company.

Integrated Retail

One of the key achievements of Home Depot in the past few years has been to grow its sales without investing in additional physical assets. Its integrated retail strategy, which seamlessly connects online and offline channels, is making its stores more efficient leading to higher revenues and profitability. (Read Here’s How Home Depot’s E-Commerce Strategy Is Driving Growth).  The company has also observed improved customer satisfaction scores as it continues to invest in this initiative. In Q1 2017, Home Depot saw a 23% increase in online sales, which was a key driving factor for revenue growth. Online sales now account for nearly 7% of Home Depot’s total revenues, indicating that the company has made significant progress in its e-commerce initiatives. However, 45% of online orders are picked up by customers at the store, indicating that the company’s integrated retail strategy which allows customers to shop online but pick up from a store is a driving factor of its e-commerce growth.

As the housing market continues its recovery, Home Depot is likely to capture this growth and drive revenues in the future. The company has a clear growth strategy in place and is focused on building a strong relationship with its Pro-customers who are likely to spend more at its stores, as construction activity continues its strong momentum. 2017 is likely to be a strong year for Home Depot.

View Interactive Institutional Research (Powered by Trefis):
Global Large Cap | U.S. Mid & Small Cap | European Large & Mid Cap
More Trefis Research