One small example of Home Depot Inc.'s retailing success is its Wedding Registry. Where engaged couples once listed their gift preferences only with upscale department stores or specialty shops, today they often register at Home Depot warehouse centers as well, letting friends and family know they would welcome such non-traditional presents as step-ladders and electric drills.
This telling example demonstrates how Home Depot has capitalized on an explosion in the home-improvement market, propelling the company from a couple of stores in Atlanta two decades ago to a still-growing roster of 632 centers today. Catering to both do-it-yourselfers and contractors, Home Depot plans to have more than 1,100 stores in the U.S., Canada and Latin America by the end of the decade. It will open its first store outside North America later this year in Chile.
The Home Depot formula for success is a simple one: warehouse stores that feature everyday low pricing, extraordinary customer service, quality products and a very large assortment of items - each store typically carries 50,000 SKUs, and there are more than 100,000 SKUs company-wide.
With that many products, and with price a critical factor, sourcing, procurement and inventory management play vitally important roles in the company's overall strategy.
|"Our appetite as a company is just so huge for product that it often is very difficult for one manufacturer to supply us with all we need."|
- Don Paul of Home Depot
|Growth, Profits and Customer Respect: |
A Retailing Hat Trick
|Being laid off by Handy Dan Home Improvement Centers was probably the best thing that ever happened to Home Depot founders Bernard Marcus and Arthur Blank. After losing their executive jobs in 1978 in a corporate buyout, the two joined Handy Dan co-worker Ronald Brill to launch a new and improved home center for the do-it-yourselfer. The Home Depot was born.|
They opened three stores in Atlanta in 1979 and the next year added another. In 1981, the company went public, raising more than $4m in capital, which it partially used to open four stores in South Florida. Sales of $50m that year doubled to $100m in 1982 according to Hoover's Company Profiles. Just four years later, in 1986, sales surpassed $1bn in 60 stores. Since then new stores have opened at a blistering pace. At the end of last year, the company operated 587 Home Depot stores and five EXPO Design Centers in the United States, and 32 Home Depot stores in Canada, with an aggregate of approximately 66 million square feet of selling space.
Earnings have been equally meteoric. In 1997, Home Depot posted record earnings for the 12th consecutive year. Net profit, excluding a $104m pretax non-recurring charge, totaled $1.2bn, a 30 percent increase over 1996. Sales for the 52 weeks of fiscal 1997 totaled $24.2bn, an increase of 24 percent from the prior year. Comparable store sales rose 7 percent.
Last year Home Depot acquired Maintenance Warehouse/America, a direct-mail marketing company. Home Depot is expanding distribution of MWA's 1,000-page catalog aimed at builders and maintenance supervisors of hotels, hospitals, grocery stores and other businesses and is offering free, next-day delivery of all orders.
Later this year, The Home Depot will open its first store outside North America, in Santiago, Chile, which it plans to use as a jumping-off point for wider international expansion.
These opportunities are being developed against a very positive economic outlook in Home Depot's domestic market. U.S. home ownership rates are rising at a pace not seen since the 1950s. Moreover, homeowners are spending more money on larger homes, buying more second residences, and investing more to maintain or improve existing homes.
If that weren't enough, Home Depot recently was named America's most admired retailer by Fortune magazine for the fifth consecutive year.
It's no wonder a company statement described Home Depot's future as "bright orange."
|RockBlocks: Software Designed for Global Sourcing and Supply|
|The ideas behind RockPort Trade Systems' RockBlocks software had their germination in the years that CEO Susan Welch spent in the trenches as a buyer, traffic manager and auditor for such retail firms as Zayre Corp. "I saw operations from the transportation side, the purchasing side and the finance side and I just thought, 'there has got to be a better way,'" said Welch.|
The better way that eventually emerged as RockBlocks is a modular multi-function system focused around the demands of global sourcing and supply. RockBlocks is designed so that companies can implement the entire system or choose from a variety of modular components or "BaseBlocks" to meet specific needs.
"When we first started looking at this, everything was import and the U.S. was the center of the universe," said Welch. "But when we focused on what was really happening in the retail industry, companies were becoming pseudo manufacturers because of private labeling and were moving outside the U.S., opening up stores in Canada, Mexico and Europe. So all of a sudden we realized that the only difference between an import and an export is a moment in time and where you are standing relative to that moment.
"When we started RockPort we wanted to make sure we could handle different countries, different industries and different directions and not be constrained by which way product is moving or where it is sourced."
In addition to handling such tasks as documentation, billing and payments, multi-country consolidation, shipment/load planning, and event tracking, the system also provides robust decision support in the sourcing area.
"We realized that at the beginning [of a sourcing decision] what is really being sourced are concepts," said Welch. "All the buyer may know initially is that he wants to purchase a certain product and to sell it in these stores for $25. Using our planning system, he can determine what price he needs to negotiate in various countries. The system will look at the traits of the product and of suppliers and at different countries of origin and take into consideration things like transit time, ocean freight costs, duty rates, which supplier has the right kind of machines, which has capacity - all of those factors - and then tell him, if you go to Turkey, you negotiate a price of $11; if you go to Hong Kong, negotiate a price of $12.50 and so forth. When they go into these various countries - or if they are sourcing across the Worldwide Web or across their own vendor base - they know they need to get prices in a certain range based on the country being quoted."
As buyers start to solidify information about a particular product, the data gets more and more detailed. "At any point in the process," said Welch, "event tracking can begin: If you want to have a sample for review you have to get prototypes out to various suppliers by this date, have the first review here, go to testing on this date, and so on. And again the only thing the buyer knows is that the sample has got to be available by a certain date. The system sets up all the different events or milestones that need to occur to meet that date."
RockBlocks also has modules to handle the actual purchasing transactions. Here, said Welch, all kinds of approval issues and security issues come into play. "We wanted to have a block that would handle each of those things, from the buying to the approvals and all of the edits that happen. Our goal was to make global purchasing as easy as domestic purchasing."
A new BaseBlock due out this year will add a "virtual inventory" function. "A lot of our customers want to allocate inventory before it exists," said Welch. "For example, say a customer makes all different kinds of apparel - women's shirts, men's shirts, children's' clothes - that are all made of cotton. They can see, based on our forecast with RockPort we will need 1 million yards of cotton within the next six months. Then they have two choices: They can order the goods and depend on each manufacturer to source the cotton, which means they will have lots of issues of quality and price and delivery; or they can decide to negotiate with a supplier of cotton for 1 million yards. Now they can either place that order and take on the financial responsibility and delivery responsibility, or the system will be able to issue a virtual order to that supplier of cotton that will be drawn down by the individual vendors, who will be instructed to buy their cotton from this supplier. Now, the buyer controls the price, quality and delivery and yet there is no financial impact on the bottom line."
RockBlocks is targeted at companies with complex sourcing and supply requirements, said Welch, such as those in retail, apparel and electronics. The company has more than 30 clients located in 20 countries. Major clients include Disney, Federated Department Stores, Timberland, Stride-Rite, J.C. Penney and Liz Claiborne. With headquarters in Gloucester, Mass., the company recently opened its first international office outside the U.S. in Hong Kong and has plans to establish an office in London by mid-year.
More information about the company can be obtained at its web site: www.rockport-trade-systems.com.
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