Online sales are increasingly crucial to Home Depot's (NYSE:HD) growth strategy, and it's focused on adding convenience at its stores for online customers.
Following a trend popularized by Amazon (NASDAQ:AMZN), and increasingly used by other retailers, the home improvement warehouse is installing lockers in its stores for customers to pick up items they've ordered online. Lockers may quickly become a must-have for retailers interested in boosting their online growth, closing the digital convenience gap with the competition.
Under lock and key
Amazon started partnering with brick-and-mortar retailers to install lockers years ago, effectively giving customers who couldn't (or wouldn't) receive their online purchases at home a convenient means to retrieve their packages.
Meanwhile, the retailers themselves hoped to benefit from increased foot traffic. Consumers might make additional purchases while in the store, or -- particularly with grocery stores -- combine what would have been two separate trips into one. But retailers like Staples and Radio Shack discovered the lockers simply gave Amazon a way to steal more of their customers, and they quickly ended their partnerships.
Still, shopping malls are now installing Amazon's lockers in hopes of driving up mall traffic, and other retailers are installing their own lockers. Walmart, for example, has begun placing 16-foot tall "pickup towers" in hundreds of stores with hundreds more on the way.
The digital depot
Market researcher eMarketer identifies Home Depot as the fourth largest e-commerce site -- the DIY center had about $6.7 billion in online sales in 2017, a 21.5% increase over the prior year. Perhaps more important, the retailer says 60% of all of its sales, whether made in-store or online, are influenced by a digital visit, while some 46% of all Home Depot's online orders are picked up in its stores, suggesting lockers would be a smart addition.
Online orders of items like bath and lighting fixtures would be a good fit for a locker. But as the second largest retailer of appliances with over $8.1 billion in sales last year (8.1% of net sales), Home Depot deals with a lot of big-ticket items that don't make sense for lockers (and who would want to pick up the big, bulky items anyway).
On the other hand, the lockers will dovetail nicely with its recent acquisition of The Company Store, an online bedding, bath, and home goods retailer. Home furnishings have not been a major part of Home Depot's business to date (decor is only 3% of total sales, the smallest category). But those sales should increase with the deal, particularly if customers now have a convenient way to pick up purchases.
One piece of a multi-billion dollar investment
Home Depot is spending heavily to improve the customer experience, with plans to invest $11 billion over the next three years in its stores, online and IT platforms, and in unifying its supply chain. The company will build 170 distribution facilities, 40 flatbed distribution centers for contractor deliveries, and 100 new market delivery hubs for home delivery of larger products.
Because a Home Depot is situated within 10 miles of 90% of the U.S. population, being able to make same-day or overnight deliveries to customers is essential. But so is making it easy to receive packages ordered online. In-store order pickup is another tool for the company to employ as it maximizes speed and convenience for customers, regardless of how they shop with Home Depot.
John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Rich Duprey has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Amazon. The Motley Fool has the following options: short September 2018 $180 calls on Home Depot and long January 2020 $110 calls on Home Depot. The Motley Fool recommends Home Depot. The Motley Fool has a disclosure policy.