In-store key to Home Depot's $1B e-commerce growth

Home Depot's (NYSE:HD) $1 billion growth in online sales last year—totaling $3.5 billion on the Web—was largely due to the home improvement chain's effective use of its stores.

Over one-third of the retailer's e-commerce transactions involved picking up an order in-store after buying it online, said Kevin Hofmann, senior VP and president of online, Home Depot, at a recent Goldman Sachs conference. "About 40% of our orders leverage our existing physical assets," Hofmann said, according to Internet Retailer and Seeking Alpha. "We want that customer and to help them get in and out fast, but what we always say at Home Depot is 'You come into Home Depot for what you thought you wanted, but you leave Home Depot with what you really needed.'"

Home Depot's online inventory is about 1 million stock keeping units, compared to a typical 35,000 SKUs in one of its over 2,000 stores. "Our 1 million online items come from a combination of vendor direct, from our vendors, or from our house distribution centers," Hofmann said.

The retailer provides a variety of ways to ship e-commerce orders, but Home Depot also spends significant time and resources enabling in-store staff to help shoppers research and purchase from "You're not here to just buy items from us, you're going to buy things that are going to live with you figuratively for 10 years or 20 years. We bring that to the table with over 300,000 associates in our stores," he said.

It's a priority for Home Depot to develop multiple ways to help customers—whether do-it-yourself hopefuls or professional contractors—shop online. "We have built out and augmented those associates in the store with centralized associates in our contact centers: thousands and thousands of chat sessions and email sessions a day with our customers in very specific categories like bath, flooring and appliances," Hofmann said.

Home Depot has invested about $300 million in recent years to upgrade its e-commerce distribution capability, improve its integration of online and store inventory, and supply chain operations.

Home Depot is seeing strong online growth because those integration efforts are paying off. "The information technology investment we are making is really to optimize that whole supply chain offering that Home Depot has. If someone wants to buy a patio set from us, we have choices because we can ship that patio set from a store, vendor direct from a warehouse from one of our suppliers, or we could ship that patio set from one of our house facilities," Hofmann said.

In explaining the biggest benefit Home Depot will get from its integrated e-commerce and store initiative, Hofmann said it starts with the customer experience, and understanding what the customer wants and how they want it. "Do they want it dropped off at the curb side, do they want it brought into their house, do they want white glove delivery, do they want it in one day, two days or are they willing to wait five to seven days? So if we start first solving around what the customer wants and then we'll figure out optimal inventory deployment, optimal inventory flow and cost of transport," he said.

"We think there's certainly inventory opportunity there. We think there is absolutely cost of delivery, cost of transportation benefits, but those are only after we solve for the customer experience," Hofmann said.

For more:
-See this Internet Retailer article
-See this Seeking Alpha transcript

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