Home Depot (HD 2.12%) has added a head-turning $15 billion to its sales footprint so far this year as shoppers prioritized home upgrades during the pandemic. That volume spike caused major supply challenges while attracting more competition in the niche, both through online and in-store retailing spots.
Yet Home Depot found ways to raise its game in the third quarter (which ended Nov. 1). While attracting double-digit growth in customer traffic and in average spending per visit, the chain logged a significant increase in shopper satisfaction as compared to the prior quarter.
In a conference call with investors last week, CEO Craig Menear and his team explained the key factors supporting that win, which should make it easier for Home Depot to withstand market-share challenges from the likes of Lowe's (LOW 2.73%) and Wayfair (W 4.45%).
Pressing the multi-channel advantage
"We continue to invest in our digital assets, introducing new capabilities and different ways to engage with The Home Depot." – Menear
Home Depot's digital sales platform is a major competitive asset, and shoppers especially like the flexibility they have to pair online ordering with in-store pickups. The retailer found ways to improve this process in recent months, including by refreshing the digital shopping experience in the home lighting niche to make it more engaging.
Home Depot also drove a sales spike by marketing its Halloween sales event through its digital presence. That success helped push order volume through the online segment up 80% in Q3, with most of those purchases involving a physical trip to a store. "The distinct competitive advantage of our [multi-channel retailing strategy]," Menear said, "has never been more relevant."
Paying employees more
"Through the end of the third quarter, we have spent approximately $1.7 billion on temporary pay and benefits in response to COVID-19." – Menear
Home Depot paid out $355 million of extra employee benefits in Q3 to push that total to $1.7 billion so far in 2020. Those expenses mainly involve pay for frontline employees who are taking on more health risks by showing up to work. The chain's employees are also handling unprecedented spikes in demand and customer traffic.
The payouts are pressuring earnings this year, but Home Depot says that's an easy trade-off to make for the health of the company. "Our associates are the heartbeat of [the business] and supporting them through this time of uncertainty and beyond continues to be a key priority," Menear said.
Boosting in-stock levels
"The strong demand has pressured supply chains, and we partnered with our supplier partners to make various improvements." – COO Ted Decker
Home Depot has notched comparable-store sales growth of over 20% in 25 of the last 26 weeks, which has made it harder to keep the shelves fully stocked. Executives put out dozens of improvements aimed at fixing this problem in Q3, including by cutting out slower-selling products to focus on popular merchandise. Home Depot worked closely with its national supply partners to get these hit products, which ran from lumber to home decor, into the stores that most needed them.
The result was improving in-stock levels during each week of the quarter. That success resonated with shoppers but also put the chain in a strong inventory position heading into the holiday shopping season.
Why it matters
Sure, peers like Lowe's can make similar tweaks to their retailing businesses. And Wayfair is busy elevating its online shopping experience and pushing into new areas, like vanities. But Home Depot has the industry's largest selling platform. Its success at improving that offering under the stress of the past nine months shows why it's likely to maintain its leading position despite surging competitive threats.