Home Depot: Ongoing reno

When Annette Verschuren first landed in Canada as the newly minted president of Home Depot Canada in 1996, her first stop was the chain's south Brampton, Ont. location. For four hours, she camped at the store's entrance. To her surprise the customer base was rather homogenous.

When Annette Verschuren first landed in Canada as the newly minted president of Home Depot Canada in 1996, her first stop was the chain’s south Brampton, Ont. location. For four hours, she camped at the store’s entrance. To her surprise the customer base was rather homogenous.

‘There wasn’t a woman who came through that door,’ she recalls.

What a difference a decade makes. When Verschuren, former president and co-owner of the arts and crafts retailer Michael’s of Canada, took the reins, Home Depot served 19 locations. Today, the Atlanta-based company, which rang up $5.5 billion worth of sales in Canada last year, is running neck-and-neck with Canadian Tire and Rona as this country’s leader in home renovation. The reason: Verschuren added 158 stores, and embraced the company’s new mantra to diversify its product categories. The chain that once targeted the weekend warrior now boasts a hefty female clientele thanks to an eclectic mix of plants, lighting and furniture.

But Verschuren is not resting on her laurels. In addition to managing change in Canada, she was appointed Home Depot’s head of Asian operations, after the company announced in December that it would buy Home Way, a chain of 12

big-box stores in large Chinese cities including Tianjin, Beijing and Zhengzhou.

Verschuren’s juggling act is going to be a tough one. In addition to growing business in China – one of the fastest-growing economies where she will spend 25% of her time – she must continue to innovate on her home turf.

While Home Depot has secured the top spot here, its rivals continue to up the ante. Canada is more competitive than the U.S., says Verschuren. In the U.S., the company’s nearest rival is Lowe’s with Menards a distant third.

Now, its U.S. archrival is poised to open a store in Hamilton – the company’s debut in the Canadian market. Lowe’s has confirmed it will also open branches in Brantford, Ont., south Brampton, Ont. and Toronto, as well as nine other locations across the country, according to Doug Robinson, president of Lowe’s Canada.

Lowe’s has long been a thorn in the side for Home Depot in the U.S. With its bright, clean stores that have long catered to women, the 1,325-outlet chain was once dubbed ‘Wall Street’s home-improvement darling’ because for years it led the industry in total sales gains, on a percentage basis.

But while Lowe’s imminent arrival has garnered much press, Home Depot Canada must still keep its eye on its closest competitors here – Quebec-based Rona, which saw over $5.6 billion in sales for 2005 among its network of 640 stores and dealer-owner operations, and Canadian Tire which pegs sales for the retail portion of its company at $6.9 billion.

These companies are all in aggressive expansion mode. Rona recently acquired Mountain Building Centers in British Columbia, recruited 23 new dealers in 2006, and recently opened two big box stores, a Reno-Depot in Rimouski, Que. and a Rona L’Entrepôt in Charlemagne, Que.

Canadian Tire continues its push to convert 20% of its warehouse space to home décor categories such as lighting, floor coverings, textiles and ready-to-assemble furniture. In addition, the company plans to build 24 new stores, revamp 76 old stores and retrofit an additional 175 stores by the end of 2009, according to Lisa Gibson, manager, media and public relations, Canadian Tire.

Home Depot has parried with an aggressive strategy of its own. Earlier the company announced its plan to invest $450 million by adding 18 new stores by the end of 2006 – a growth of two million square feet of retail space.

Now more than ever, the success of the home renovation market depends less on hawking hammers from big box spaces,and more on developing new niches in the home-improvement market. Whereas Home Depot once boasted 125 types of measuring tapes, it now sells only 36. These days, one area of rapid growth is new services such as home security installation which was added in September, and its service features. Installation services have grown 25% each year for the past two years, according to Verschuren, and the company added 60 more service suppliers to its network in 2006.

In home appliances alone, the company has announced it will triple its square footage from 880 square feet to 2,500 in over 70 stores across the country. ‘The reason is that five years ago we tiptoed into the appliance business, and since then the consumer continues to tell us they want more,’ says Karol Allen, division merchandising manager, Home Depot Canada.

But while growing the consumer base, Home Depot is trying to hold on to the professional contractor – a group that accounts for about 15% percent of the market. Last year, the company made major acquisitions that Verschuren says will grow its wholesale division, Home Depot Supply.

Retail analyst, Maureen Sullivan, senior partner at J.C. Williams Group, says that while the industry has experienced double-digit growth in recent years, the market is slowing, but that Home Depot is making the right tweaks. ‘Home Depot is experimenting with different versions of their box by going into a lot of smaller centres, and adding new product,’ she says. Sullivan, however, believes the company could still do more to attract women: ‘Although everyone says that they are out there trying to appeal to women, these big warehouses are still not as women-friendly as they might be.’ In fact, analysts have opined that Home Depot’s inability to make their stores more attractive to women was a factor in the departure of Robert Nardelli, former chairman/president/CEO of Home Depot in the U.S.

To be sure, Home Depot is still very guy-focused when it comes to sponsorship. Not only does it sponsor CBC’s Hockey Night in Canada and the new ‘Think Hockey’ spots on CBC, it also sponsors 25 junior hockey teams, and inked deals with both the Maple Leaf Sports and Entertainment Group and the Calgary Flames which include signage on rink boards as well as time on the JumboTRONs. In the U.S., it signed a multi-year deal with The National Football League which includes marketing rights to the Superbowl and NFL Network-related programming.

On the marketing front, Home Depot relies heavily on its Dallas-based creative agency, The Richards Group, for most of its campaigns. The Richards Group has two account executives based in Home Depot’s Toronto office to localize campaigns working closely with the media agency Initiative Media. For example, last summer Home Depot U.S. developed TV spots focusing on indoor projects including paint and lighting which was not the seasonal focus for Canada. Instead, the Canadian in-house marketers decided to develop their own campaign to promote outdoor products, running three TV spots entitled ‘Tongs,’ ‘Runaway’ and ‘Light Switch’ that ran on both conventional and specialty stations.

The in-house account directors also developed a magazine and ad campaign for its Eco Options program, a Canadian initiative that was launched in consultation with Toronto’s Summerhill Group to promote eco-friendly products. Summerhill certifies the green products, liaises with vendors and develops eco programs with business and government. Toronto-based Green Living Enterprises, which also publishes Green Living magazine, produces the Eco Options magazine. TV spots and print ads are run sporadically thoughout the year, including Earth Day. The Eco Options brand is going to be launched in the U.S. later this year, according to Gaye Mandel, Home Depot’s senior advertising manager.

Cossette in Montreal handles the French-language adaptations because the company doesn’t want to produce dubbed ads for Quebec. Home Depot also works with Toronto-based Que-Net Media for all of its flyers, direct mail and consumer print promotions including the Win a $20,000 Dream Kitchen Contest which ran between October and November 2006.

While its prime-time TV focus is on developing brand equity, the co’s more segmented marketing campaigns in the past have been aimed at its growing female audience. For several years, Home Depot worked with women’s mags like Chatelaine, developing campaigns such as 2005′s ‘Domestic Divas’ – aimed at attracting decorating wannabes to the store through two 16-page ad supplements in Chatelaine, contests on the Chatelaine website, and gift cards. But while the company pulled back from women’s mags last year and focused on shelter media such as Homes and Gardens, Mark Wilson, VP group account director at Initiative Media, says women remain a priority.

‘Our strategy is that we do a good job on men…men like Home Depot…but we want to make it a destination for people interested in home décor,’ says Wilson. ‘Urban, female, upscale home owners are one of our key demos.’

Verschuren recognizes that the real competitive edge will be monitoring subtle demographic changes. While Home Depot, following Lowe’s lead, finally broke the gender barrier, Verschuren says it’s important – particularly in Canada – to appeal to multiculturally. Hiring strategies are critical, she says. ‘In a typical store here there are 17 languages being spoken. I like to say: ‘I’m running the United Nations here.”

Design and product choice are important, and overall, she says Canadians are more discriminating. ‘When you have 20% less disposable income than your neighbour across the border, you are going to be fussier about what you buy,’ she says.

What is the biggest single change you’ve seen since your arrival?

The customer has changed dramatically. She has come into our store. Women spent more on fashion years ago, but fashion translated very quickly to the home. The whole cocooning thing has transferred. When I see colours on the runways of Paris, I know what the colours of soft window coverings will be in our stores, and what colour of countertops are coming, and what the colour finishes will be. That wasn’t there 10 years ago.

Did the strategy come from the consumer requesting new product or Home Depot saying: ‘We aren’t getting enough women in our stores and what will it take to attract them?’

A combination. Women are taking their rightful place of being seen and being served. In the past, even though she was controlling the purchasing in the household, (women) weren’t recognized and catered to. The change of the family also had an impact. Twenty percent of purchasers of new homes today in our country are single women. We continue to see how the change of the family unit changes products and services (offered).

What demographic is having the greatest impact?

The baby boomer. The do-it-yourself has become a ‘do-it-for me.’ [They say] ‘I’ve done it myself until now, and now I’m going to get someone else to do it for me because I can afford to.’ As they become empty nesters…they say: ‘I’ll take my trip to the Caribbean and I’ll get an installer to do it for me.’ I think that shift is very real – there’s an enormous amount of money in that group in Canada.

What departments have you changed over the years?

There was hardly a kitchen department 10 years ago. You saw very little furniture. Today you see furniture in our stores. Our appliances are the newest. There was a lot more low-end wallpaper. We exited cheap wallpaper five years ago; now it’s a high-end selection. I think our lighting department is the strongest in the world. When I arrived it was very traditional, nondescript. The garden centre has changed. We got more colourful. We had no indoor house plants. Today it’s a big part of our selection.

And the biggest area we’ve developed is the services business – installation. Diversification is the name of the game.

That said, I don’t believe in looking for a home run. I believe in making sure that every one of our departments and categories are upgraded constantly. That’s what keeps you as a mass merchant, getting people to come back. You can’t say: ‘Hey, I’m going to leave this department and go after this one.’ It doesn’t work. Because we are 11 shops within one store in Home Depot and you can’t ignore one of them.

How are you tweaking?

If we had 25 hammers, now only 15. We haven’t lost categories. The assortment out there is what you need for the project. If you miss that dimmer in the electrical department, you are in trouble. But we’ve brought (numbers) down to make it easier for our customers.

What is your strategy for another big player in the market?

We will continue to offer innovative product, grow our appliance business, and grow our kitchen, bath and floor business.

Will you up spending on advertising?

Will we make adjustments, yes.

How can you grow departments without upping the footprint?

We extended our stores by getting into the special order area. (The company introduced Web-based kiosks in stores to enable customers to link to special-order items.)

We have product that is not so much visible to the person’s eye until they become connected with our associates and vendors.

And this relates to the growth in the services industry?

It’s really taken off in the last three to four years in a very big way. We do sunroom installation, and we just got security installation. We have a book A-Z of 50 or so services. In the last couple of years we’ve grown from 25%-30% a year, and that’s everything from installing a fridge to very sophisticated kitchens, carpets, basements. Bathrooms have become spas, and our spa business has gone through the roof.

The extension of the inside of the home has been a big part of our business. It’s the next room of a house, which happens to be outside. We continue to grow it aggressively and we’re extending our lines of patio furniture and lawn decoration. Canadians, as long as our winters are, put as much, if not more (into outdoor) as somebody who can live outside their home year round.

How did you recruit service providers?

Because our business is so good, they come to us. And quite frankly, we grow them. There are some companies that started in small communities that are now national or are in two or three provinces. We have 800 service providers…and it’s all independent.

How important is your contractor consumer in your overall strategy?

We are gaining enormous contractor business. There are 6,000 contractors (who buy from us.) There are a lot who come to our stores who we call stick and ladder guys. That is our sweet spot. (Under) Home Depot Supply, which is the wholesale arm of our company, we made five acquisitions, Brafasco, Litemor, as well as Grafton Utility Supply, Sesco/Quesco and CTF Supply. The advantage of our retail (strategy) is not only can you buy all the material at the store, but at Brafasco you can have any fastener in the world, at Litemore or Cesco you can have any lighting or have a design and we’ll build it for you. It’s having the buffet for the contractor.

How does the Canadian market differ from the U.S. market?

The biggest difference is Quebec. Our multicultural mosaic is really about adapting more within specific markets. Canadians have 20% less disposal income than your average American so we’re fussier about what we buy. I often say, we look for higher quality. I see that as a great strength of a Canadian customer. They look for longevity.

What sells differently?

We sell more colour. Particularly in Quebec. In that province we sell four times more paint colour than the U.S. We actually have a Quebec colour palette. (Both paint lines developed colours. They are CIL: Le Festival de couleurs and De Behr: Collection Couleurs du Quèbec). Natural products are considered very important to Canadians. Canadians (prefer) marble over Corian; hardwood is very strong. And we are much more aggressive in the window side of the business.

What else have you innovated here?

We love introducing Canadian companies (to the U.S. market). We’re good at taking a basic product and innovating. Whether it’s CE Cabinets, or Alexandria Crown Moulding and new crown moulding designs. Drycore is another great example. It’s a Canadian company that designs a sub-floor for basements. It’s in every store in the U.S. Another company is Peak Products that designed a fencepost insert. It’s on every end cap in 2000 stores around North America.

What’s your exclusive product strategy?

We have the number-one product line, called Hampton Bay. It’s our private label in lighting, ceiling fans. Pegasus (faucets) is a great new line that we are introducing which is exclusive to Home Depot. It (features) mid- to higher-end bathroom accessories, everything from vanities to faucets to bath towel (holders). Ryobi and Ridgid Tools are hardware lines exclusive to us. These are propriety brands. We only do this when we feel it’s a need. We love the brands we carry. We are the brand house, but if there’s a weakness, and the light industry was an example where we felt there was a weakness, then we develop our own proprietary brands.

How else is Home Depot staying relevant to its consumers?

Five years ago we started really pushing (environmental) solutions. (It started) when one of my assistants in the Kitchener, Ont. store said: ‘Why are we throwing all this product into landfill? Why can’t we do something to recycle this?’ I got on the board of Habitat for Humanity later that year, and product we’d normally be throwing into landfill was now being (donated to the Habitat for Humanity ReStores, and the proceeds are used) to build and upgrade homes (for low-income families). And that is worth $3 million per year. That was driven by our customer saying companies need to give back.