Home Depot Balances Two Markets

Atlanta, GA, Jun. 15--Walk into a Home Depot and you're likely to see a couple of do-it-yourselfers perusing Berber rug samples and claw-footed bathtubs. You're also likely to bump into a contractor picking up 2-by-4s and steel reinforcing bars, and maybe some coffee and Dunkin' Donuts, according to the Atlanta Journal-Constitution. These shoppers come into the store with very different goals; they even have separate entrances. But they usually end up meeting somewhere--over the paint bar or in the lighting aisle. How to serve both well is a balancing act for Home Depot as it looks to lure the broadest possible range of shoppers to increase sales. Home Depot says it will spend $1 billion this year to remodel stores with wider aisles, brighter lights, shiny concrete floors and a "main street" aisle with new directional signs. In the past year, the chain has also launched do-it-herself seminars as it seeks loyal women customers. Some experts question whether the chain's push to soften the look of its stores could come at the expense of its appeal to contractors and tradesmen, who care less about buffed floors and more about service. "They're juggling a lot and have a lot of balls in the air," said Daniel Poole, a Cleveland-based analyst with National City Corp., which owns 4.7 million Home Depot shares. "If you want to satisfy the needs of existing customers, have a softer side with women and go after the pro market, these would seem to be at odds." Frank Blake, Home Depot's executive vice president of business development, said the chain has put an emphasis on the pro side in the past several years. Home Depot has installed 1,409 "pro desks," up from 165 in early 2000. Pro desks are set up to handle credit programs, will-call and delivery services, plus phone-in or fax-ahead orders. The chain also is adding more tool rental centers inside its stores, with 900 centers now, up from 150 in 1999. A move to add Dunkin' Donuts franchises in some stores also was aimed at the pro set. "We are making significant improvements on the pro side," Blake said. "We have a dedicated pro desk to help on the speed of checkout." Home Depot's contractor customer base accounts for about 30 percent of the chain's business today, and the number has been constant since at least 1999, the company says. By comparison, Lowe's contractor base makes up about 25 percent of its business at the end of last year. "Home Depot is my second home," said Ralph Freeman, of Atlanta-based J&J Contracting. "If I'm at a dead end in a job, I'll ask one of the guys here and they steer me in the right direction. On a scale of one to ten, I give them an 11." But homeowners working on weekend projects are a different audience, and both Home Depot and Lowe's have stepped up efforts to woo them amid the homeownership boom of recent years. Home Depot's store renovations range from total makeovers to minor cosmetic improvements, depending on the location. The changes were built into newer stores. Last year Home Depot added 650 kitchen showroom vignettes, in which countertops, cabinets and fixtures are arranged together in a homelike setting. It continues to tweak its bath suites section, seasonal merchandise and kitchen accessories, including blenders and mixers. The chain also is blending more Home Depot Expo products with high-end hardware, lighting and other products inside its stores. Home Depot stores now stock about 20 percent of the same items as Expo locations, according to the company. And it's testing Disney accessories, such as bedding, stencils and other items. Home Depot originally played up the scuffed-up, hardware warehouse look that appeals to many pros. In "Built from Scratch," a book by chain founders Bernie Marcus and Arthur Blank with Bob Andelman, floors at the store were scuffed on purpose with forklifts and pallet jacks after an employee inadvertently waxed the concrete. Home Depot was meant to look like a warehouse. But under Bob Nardelli, the chain's chairman, president and chief executive, Home Depot is polishing its image. Home Depot, whose sales last year were $64.8 billion, operates 1,766 stores in the United States, Canada and Mexico, and has plans to open or buy stores in China. Analyst Aram Rubinson of Banc of America Securities thinks Home Depot is doing a good job of balancing customers. But as the chain has focused on acquisitions of flooring and construction supply companies outside of the orange box store, he believes the chain still has work to do on the inside of its retail stores to keep pros happy. "Anytime you go and try to upscale your product, you have to make sure you don't lose your existing base," said Rubinson. "Home Depot needs to balance those two slices of those equations because you're only going to sell to that couple a few times a week, not 500 times."

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