Transforming a world leader

Home Depot, the world's largest home centre chain, ended another very successful year in 2014 with sales of more than $ 83 bn and with comparable store sales up by 5.3 per cent. These figures reflect the results of the rededication to customer service instigated by Frank Blake, the now-retired CEO. Blake was succeeded recently by Craig Minear, a Home Depot veteran. Under Blake and now under Minear, the company is massively transforming the way it operates. When founded in the late 1970s, products were shipped directly from manufacturer to retail locations, bypassing the need for distribution centres, even though other retailing giants, like Walmart, used such facilities. Today, Home Depot is copying the Walmart system and owns or leases 162 warehouses and distribution centres, totalling 4.25 million square metres. Improvements in technology now enable the company to keep the stores in stock with fewer "outs" and thus assure better stock turns. In fact, turnover increased company-wide from 4.6 turns to 4.7 turns last year. With gross margins of 34.8 per cent, this gives the company a GMROI (Gross Margin Return on Inventory) of a most impressive 163.56.

But that isn't the only major change in Home Depot's strategy. It has made a major commitment to online sales in order to offer consumers access to a far wider range of products than can be found in its 10 000+ square-metre warehouse stores. Last year, online sales accounted for 4.5 per cent of all sales, amounting to nearly $ 4 bn. Online sales increased by 36 per cent in 2014, with 40 per cent of web sales items being picked up in local stores. There are 34 bulk distribution centres, 21 stocking distribution centres in the US, Canada and Mexico, and 10 speciality distribution centres in the US and Canada. The company is now also operating 18 rapid deployment centres in the US plus one in Canada. A second Canadian distribution centre will open in 2015. It also uses four transload facilities near ocean ports, operated by third parties, to handle imported merchandise. Home Depot opened no new stores in the US last year and only one in Canada, but six in Mexico. It ended 2014 with 1 977 stores in the US, 181 in Canada and 111 in Mexico. Financially, the company continues its…