What Is Home Depot’s Growth Strategy For the Future?

Amid a changing retail landscape, many companies have had to adapt in order to stay relevant in today’s day and age. The fact that Home Depot (NYSE:HD) has been able to continue to grow and thrive in this new environment is commendable. Towards the end of 2015, the company had set itself a target of reaching $101 billion in sales by the end of 2018, up from $88.5 billon that year. The company is well on its way of achieving, and, in fact, exceeding this target. The company’s seamless integration of its brick-and-mortar stores with its online channel has helped it immensely to remain popular with its customers and associates. Below we’ll highlight the main strategies the company is following, to achieve its new target of garnering revenues in the range of $115 billion to $120 billion by 2020, along with an operating margin of $14.4% to $15.0%.

We have a $172 price estimate for Home Depot, which is 5% below the current market price. The chart below has been made using our new, interactive platform:

1. Connecting Associates To Customer Needs

Home Depot has implemented a number of conveniences such as buy on-line pick up in-store, buy on-line ship to store, and buy on-line deliver from store, to serve the customers better. The company has also consolidated its outside sales force to better align it to the needs of the pro-customers, along with an increased investment in enhanced tools for the associates to address such needs. In the recently released third quarter earnings, the company stated that it is seeing positive results from its work of putting salespeople on the street to sell to contractors. This has been done making enhancements to its Pro MyView system, which gives its pro account sales associates (PASAs) better insights into the customer, and how to improve their engagement.

2. Connect Products And Services To Customer Needs

As a part of this strategy, Home Depot’s merchant teams have increased their collaboration with suppliers to improve innovation and efficiency, which will, in turn, result in better value for customers and its products. The company has realized that the customer will come to the store for as long as it is able to fulfill their needs. Hence, it has focused on bringing new and innovative products to the market that will save the customers’ time and money.

3. Connect Product To Shelf, Site, And Customer

Home Depot’s supply chain has been an immense source of value creation for its customers and shareholders, and can be considered one of the best in the industry. This has been achieved by making a considerable investment, in terms of time and resources, over the past several years. In order to ensure timely availability of its products, the company has implemented initiatives such as Project Sync, which has enabled Home Depot’s warehouse workers to more quickly receive inventory delivered to distribution centers and stores. The company intends to pass on the savings achieved through this to the customers in the form of lower prices, and is a key to achieving the operating margin target.

4. Connect Experience: Store To Online, Online To Store

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. In Q3 2017, Home Depot saw a 19% increase in online sales, which was another key driving factor for revenue growth. Online sales accounted for 6.2% of Home Depot’s total revenues, indicating that the company has made significant progress in its e-commerce initiatives. By focusing on an integrated channel strategy, Home Depot has been able to increase revenues per square foot, rather than generating revenues from new square footage. This has ensured that its existing store network is being effectively used to drive revenues.

An interesting point to note is that 45% of the company’s 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. An additional benefit to be derived from this strategy is that while picking up their orders the customers can see the offers and other products available in the store. As a result, approximately 20% of the time, the customer ends up buying more than just the original product.

See complete analysis for Home Depot’s stock

Have more questions about Home Depot? See the links below.

• Improving Housing Trends Bode Well For Home Improvement Companies
• Home Depot: Winning In The Multichannel Space
• Hurricanes Boost Home Depot’s Sales But Pressure Margins

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