Home Depot Orange Coming to Your Customer

July 12, 2019

By David Gordon

The colour orange signifies joy, happiness and creativity. However, it also represents fire and, given that the colour is between yellow and red on the colour spectrum, it is from a business perspective between caution (yellow) and “bad” (red). And it’s the colour of Home Depot and many distributors may be seeing Home Depot trucks visiting their contractors in the near future.

It could also represent an opportunity for construction-oriented contractors, especially small-mid-sized companies as well as a significant challenger to construction-oriented distributors… much more so than Amazon Business.

According to an article in Retail Information Systems, RIS, Home Depot is making significant headway in connecting electronically with customers… and pro customers… while making major investments into more warehouses that will enable local deliveries.

Key elements of the article include:

• Online sales are growing (while to all segments, it highlights their investments as well as the ease of use of their site. Homedepot.com also carries a broader inventory than stores as manufacturers can post more SKUs than they are authorized for in a store. The inventory? Shipped from Home Depot warehouses or drop shipped from the manufacturer. Key here for distributor … don’t limit your online store to the confines of your brick and mortar warehouse.)

• Working on providing next day delivery to 50% of US by end of June, 2019. Much is via “next-day parcel delivery.” The longer-term goal is localized warehouses with local truck delivery.

• Expects to onboard 1 million customers (Pros) to its new B2B site (means more contractors getting used to ordering online. Our 2018 State of eCommerce, End-user Perspective report revealed Homedepot.com was the #1 online ordering platform for residentially-oriented contractors. “If they make it easy, they will come” (and product cost is not a differentiator as small contractors know they are paying more at Home Depot, but they know what they will pay). If Home Depot rolls out integration to estimating systems, this could be a game changer for small to mid-sized contractors for smaller projects also as well as “next day” planners. They already have integration to Quickbooks to link purchases and enable uploading of purchasing history – which eCommerce platforms that distributors role out offer this functionality?) Combine 1 million online Pros with next day delivery to 50% of the country and “that’s much opportunity to grow Pro sales. Where will the business come from?

Home Depot also recognizes that it needs to promote itself to contractors which it accomplishes through its consumer brand, direct marketing to Pros, special events (and Lowes does these also and, in their case is starting to do some radio / tv advertising tied to sports – recently with the NFL Draft – and more specialty events) and, depending upon the trade, offers its Pro Xtra program.

Home Depot is also the official electrical retailer of electrical tools and supplies for the IEC (Independent Electrical Contractor association), so yes, they are focused on the electrical space!

And click here if you want to see what benefits Home Depot currently promotes to contractors.

How could Home Depot impact you?

Home Depot, and Lowes for that matter, have always wanted to increase their Pro business. Many distributors have dismissed much of these efforts saying, “It’s only the small, and very small, customers who go there” or “tTey are buying on price,” and distributors blame manufacturers for selling low to those companies. While all may be true, Home Depot and Lowes are seeking to migrate up and become a consistent source.

And electrical and lighting, while not all “Pro-appropriate” represented 9.3% of Home Depot’s 2018 sales (5.2% for electrical and 4.1% for lighting.)

Let’s play “what if” for the electrical industry

Home Depot sales:

• 5.2% of 2018 sales is US$5.576 billion
• 4.1% of 2018 sales is US$4.436 billion
• A total of US$10.012 billion

If 10% of the total electrical / lighting business is “Pro”, that is US$1 billion in electrical contractor sales.

If 20% of electrical and 10% of lighting is / becomes Pro, that is US$1.558 billion. And at a good profit margin.

This would be about 2-3% of what is currently defined as the electrical distribution contractor market (and higher if only the construction contractor market is considered!) And if they have a higher percent of business with Pros, the impact on electrical distributors would be higher!

Many distributors serve a significant number of contractors who have less than 20 employees. If a reasonable percent of this “everyday/small project” business migrates to Home Depot, what would it do to sales? Profitability? Resources?

Home Depot’s major advantage is their ability to invest and scale. And they will be local, especially in suburbia.

How to compete?

For many distributors these customers, who may be vulnerable, do business with your company due to branch level relationships. No salespeople are assigned (nor, in many cases, should be assigned). The question then becomes, how to engage with them and show them that their business is valued? With more distributors launching better eCommerce solutions with quality content, integrated marketing tools and sales and marketing models that could optimize outreach, losing these customers doesn’t have to be a given. Retaining and growing this base cost-effectively is feasible. Showing this audience that their business is valued is the key component… otherwise you may get the remainder of the business… which will be lower margin project business.

David Gordon is President of Channel Marketing Group. Channel Marketing Group develops market share and growth strategies for manufacturers and distributors and develops market research. CMG’s specialty is the electrical industry. He also authors an electrical industry blog, www.electricaltrends.com. He can be reached at 919-488-8635 or dgordon@channelmkt.com.