Will the Do-It-Yourself Customer Bring Home the Bacon for HD?
The Home Depot: Potential and Prospects in 2016 and Beyond
The do-it-yourself customer
Sales of big-ticket items, particularly roofing, countertops, and appliances, accounted for a large part of The Home Depot’s (HD) strong performance in the first three quarters of fiscal 2016, as wealthier customers spent more .
The DIY (do-it-yourself) customer (FXD) (XRT) accounts for about 60% of Home Depot’s sales, according to Marc Powers, Home Depot’s executive vice president of U.S. Stores. A large part of sales growth in the segment has been brought about by HD’s seamless shopping model , which the retailer has been polishing for several years now. Recently, digital benchmarking site L2 ranked HD the number one web portal among big-box retailers. It also received the Internet Retailer of the Year award by Internet Retailer last year.
In contrast, sales to DIY customers account for about 30% of Lowe’s (LOW) sales. Other competitors such as Wayfair (W), Bed Bath & Beyond (BBBY), Williams-Sonoma (WSM), Ethan Allen (ETH), and Restoration Hardware (RH) typically derive most of their sales from customers buying for their own homes. HD accounts for 4.5% of the portfolio holdings in the iShares MSCI USA Momentum Factor ETF (MTUM).
The opportunity
Home Depot sees significant future opportunities in the DIY segment from:
sales to millennial customers who have delayed their home purchase decision but who are planning to buy a home sometime in the future
increasing installation and product sales to DIFM (do-it-for-me) customers, resulting from an aging baby-boomer population
The attractors
Home Depot markets to the DIY customer (RTH) segment via sales events, curated merchandise, product exclusives, superior customer service, customization options, and its omni-channel model. Home Depot opened its third direct fulfillment center in Ohio in 3Q16, which would enable the company to fulfill 90% of US orders within two business days. Home Depot also plans to add the buy-online-deliver-from-store fulfillment option to its interconnected retail model soon , which should provide the customer with additional options. The company also increased the benefits available to consumers on its private label credit card this year, including the facility of a 365-day return policy.
The outlook
The DIY customer has traditionally been the mainstay of home improvement retailers such as Home Depot and its rival Lowe’s (LOW), and makes up the bulk of HD’s customer population base. HD’s efforts to create a seamless shopping experience with an emphasis on products, home ownership, and home price trends are likely to benefit future sales from the segment.
Over the years, although sales to DIYers have increased, the contribution from this customer segment has been dropping as HD pulls out all the stops to attract the pro customer. This trend is likely to continue into the future. We’ll analyze how Home Depot is looking for an upside in profitability and its productivity and supply chain and inventory management initiatives in the coming articles.
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