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Home Depot will open four distribution centers as it looks to home pros to drive sales growth

2 months ago 42

A customer wearing a protective mask loads lumber onto a cart at a Home Depot store in Pleasanton, California, on Monday, Feb. 22, 2021.

David Paul Morris | Bloomberg | Getty Images

Home Depot said Thursday that it will open four new distribution centers as it chases more sales from remodelers, contractors and other home professionals. 

The new distribution centers are expected to open in the first half of the year in Detroit, Los Angeles, San Antonio and Toronto. The facilities make room for the bulky size, wider variety and larger orders of products that pros need, such as lumber, shingles and insulation, which then can be delivered directly to a job site. 

Each facility averages approximately 500,000 square feet — about five times the size of the average Home Depot store.

The expansion of the distribution centers is part of a yearslong company strategy to attract pros who handle bigger and more extensive projects, such as a major renovation or kitchen remodel. Home Depot has opened 14 similar distribution hubs to serve pros in major metropolitan areas, starting with the first that it opened in Dallas in 2020.

Home Depot draws roughly half of its total sales from pros and the other half from do-it-yourself customers, such as homeowners tackling a painting project.

Yet winning more of pros' business has become critical as Home Depot tries to return to growth and navigates a higher interest rate environment that has slowed housing turnover and chilled demand for home improvement projects.

Home Depot's sales declined by 3% in the last fiscal year as customers took on fewer projects after the pandemic. The company said it expects total sales to grow about 1% this fiscal year, including the lift from an additional week. It anticipates comparable sales, which take out the impact of store openings and closures, to fall about 1%, not including the extra week.

Beating those lackluster expectations could depend on pro customers, who are usually steadier and bigger spenders compared with DIY customers, said Chip Devine, Home Depot's senior vice president of outside sales, who oversees the company's pro business. They also need more specialized salespeople and services, which means they're less likely to jump between retailers or switch to a competitor. 

"We interact with them five times a week," he told CNBC. "That relationship over time, you become a partner to their business, and that is easier than capturing the elusive consumer." 

Plus, he said, pros who handle more complex projects have historically used Home Depot like a convenience store where they buy just a few items. That gives Home Depot a lot of room to grow as it adds capabilities to handle pros' entire orders, Devine said.

On the other hand, do-it-yourself customers have become a tougher sell. They have made fewer discretionary purchases and tackled smaller home projects in recent quarters. Big-ticket transactions, or those with a price tag of more than $1,000, fell by nearly 7% in the fourth quarter compared with the year-ago period, the company said on its earnings call last month.

Home Depot is changing other aspects of its business to support pros who handle complex and pricey projects. It is piloting a program that offers trade credit to pros, which means that Home Depot underwrites a large order and does not charge the pro customer until it is delivered — a standard that's common in the industry, Devine said.

The retailer also expanded its dedicated sales force for pros. And it has added digital and personalized features for pros, such as tools that help manage complicated orders and a loyalty program that offers perks. 

In a CNBC interview, CEO Ted Decker described expanding the pro business as one of three key priorities for the year, along with building new stores and creating a more seamless experience for customers.

He said Home Depot is trying to bring to the pro business what it once did to DIY  — turn itself into a one-stop shop.

"Before Home Depot came along, a consumer doing a project was running to all these different stores," he said. "You've got a hardware store. You've got a paint store. You've got a flooring store. The pro's doing the same thing."

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