(Note: This is the last post in a four-part series on competing successfully with larger competitors by "punching up." Read previous articles on Under Armour, Ben & Jerry's, and tips for PR underdogs.)
The shopping experience for every Home Depot customer is remarkably similar. You have a project at your house. Maybe you want to install a new sink, or you want to hang lights across your backyard, or you want to build a small horse trough pool, or you want to fix a section of your front porch — and you have no clue how to do it. You walk around searching for someone in an orange apron. You ramble about your problem. Then they connect you with the horse-trough-pool expert at the store. You and that person walk to the right aisle. They show you what tools you need and explain how to use them. Good luck with your horse trough pool.
The success of Home Depot is neither dramatic nor overly controversial. If there were a gold medal given to the business that consistently makes the right decisions, hires the right people, and pursues the right long-term investments, Home Depot would certainly win that award. Their approach should be a good reminder that getting it right is more important than being innovative, and consistently meeting a customer’s needs is most important of all.
Life after Handy Dan
We like to believe success can come from the most unlikely places, and that disappointments and setbacks can be opportunities for better things in our future. This narrative is particularly true when it comes to the origins of the Home Depot. Bernie Marcus and Arthur Blank founded The Home Depot after they were fired from Handy Dan, a home improvement company in southern California, where they were executives. Handy Dan was one of the first home improvement chains in the country. It had grown while Marcus and Blank were there, so they believed their jobs were secure, even after Sanford Sigoloff bought the company. Sigoloff was notorious for firing executives from the companies he bought. This time was no exception. Sigoloff fired both Marcus and Blank.
After being fired, Marcus and Blank decided it was a good time to be entrepreneurs, and to further explore an idea that had been discussed between them.
They had tested a discounting strategy at one of the Handy Dan locations. It was working, and they wanted to expand it to the other Handy Dan stores. Now, they were in a position to fully commit and do it on their own. They, along with another Handy Dan casualty Ron Brill and merchandising expert Pat Farrah, purchased two Treasure Island retail stores in suburban Atlanta and began the Home Depot.
The plan was clear from the beginning. The Home Depot would focus on achieving the lowest possible prices and build a reputation for great service. Obviously, most companies would strive for similar objectives, but it is easier said than done. And few have done it better than the Home Depot.
Bernie and I founded the Home Depot with a special vision — to create a company that would keep alive the values that were important to us. Values like respect among all people, excellent customer service and giving back to communities and society.
On opening day, Marcus and Blank gave their kids stacks of dollar bills to hand out to customers. They expected to be out of money by lunchtime, but the opening day gimmick was a disaster. By the end of the day, they still had money in hand.
Handing out “free money” might seem like a no-nonsense tactic for getting customers to walk in the door -- but the dollar bills failed to tell a story or communicate your company’s value proposition. A strong consumer-focused message is worth far more, when it can be backed by action.
Despite this first day blunder, by day three, they did see a positive sign of things to come. A customer came back with homegrown okra as a “thank you” for the great service they received. This, and not the “free money,” was the proof of concept that quality service would build the business.
Consequently, Handy Dan went out of business in May 1989.
The Battle for Home Improvement Supremacy
Home Depot hasn’t been around as long as Lowe’s, which began in 1921 by Lucius Lowe. While the Home Depot started with the “big box” model, Lowe’s began as a traditional neighborhood hardware store. The success of Lowe’s came from a simple but strong formula. When the economy is good, target the professional contractors, and when the economy is bad, target the average consumer. And over the years, the formula worked well for them.
However, as the “big box” business model grew in popularity, it benefited Home Depot. For Lowe’s to follow suit, the company had to relocate, rebuild, and ramp up. This shift set them back financially, placing them second to the Home Depot. It also might have saved their company in the long run while smaller hardware stores went out of business.
For Home Depot and Lowe’s, it’s always been a close race between similar companies with now similar models. Yet the Home Depot seems to stay in the lead. Why? One theory is that Lowe’s model of “focus on the average consumer during a bad economy,” while safe, is flawed.
Lowe’s stores tend to be slightly larger than Home Depot's (104,000 sq. ft. vs. 112,000 sq. ft.). They also tend to have higher average sales ($63.06 vs. $72). But Home Depot has more transactions in its stores (1.58 billion vs. 953 million). The reason? They focus on both the professionals and the average consumer — with the layout being more user-friendly to the contractors, and then relying on the employees to help the average consumer get where they need to go.
Home Depot’s ongoing success is due to many factors. But by increasing transactions, they’ve been able to stay in front.
Four Lessons on Punching Up
The competition between Home Depot and Lowe’s is hardly a David and Goliath story. Lowe’s has been around for a long time, and the Home Depot, from day one, has been managed by executives and investors with a proven track record in the home improvement industry. At the same time, lessons can be learned from the Home Depot’s entrepreneurial success story.
Lesson 1: Audacity is a virtue
Bernie Marcus and Arthur Blank did not start the Home Depot for it to be just another home improvement chain. Their ambitions went beyond profitability and a few stores in the region. Marcus and Blank set their sights on being the “Sears of the home improvement industry.” Today, they are more than twice the size of Sears.
Does your company have an audacious goal? Set a goal that is more than dollars and percentages on a spreadsheet. Those numbers are useful for executives with a profit share, but those numbers don’t motivate a team. Yes, goals should be specific, measurable, attainable, relevant, and time-based, but goals should also fit within a narrative. Audacious goals can rally a company in ways that a month-to-month line graph cannot.
Lesson 2: Excel at the essentials
Home Depot’s laser-like focus on low prices and great service is well-known. These objectives aren’t too profound. The commitment to excel at those essentials is what makes this company a success, but it can be easy to get distracted by trends and business fads that exist outside your core competency. Business schools love to talk about companies that collapsed because they failed to innovate. However, the other extreme may be just as lethal, if not more common: companies that veer off course from their original strengths.
Does your company know what the essentials of your business are? Is there a plan in place for how stay on task with what matters most? Go beyond mission statement posters plastered throughout the building. Create systems and KPIs that help you maintain your alignment.
Lesson 3: Empower people
Customers understand it’s cheaper for them to do the home improvement project themselves. And yet, that’s only true if they possess the ability to do it—and preferably within a single weekend. Home Depot understands their success depends on helping customers feel comfortable doing the project. As a result, Home Depot regularly offers workshops and clinics. They hire experts who can explain projects to customers. They sell do-it-yourself guides at the front of the store. When you are viewed as an organization that can empower its customers, you have a customer for life.
Does your company empower its customers? Are you giving them a fish or teaching them how to fish? The more you can engage your customers, the better. That means sometimes we have to not do everything for them and leave just enough space for them to be part of the solution. Whether it’s test-driving a car or customizing a website, most customers want to be in the proverbial (or literal) driver’s seat.
Lesson 4: Evolving the online experience
Unlike many retailers that have struggled with the transition to an online market, Home Depot has been able to evolve over time — integrating its e-commerce business with the physical stores. The company created “One Home Depot,” which is a rallying cry for how they think of their efforts to merge the online and in-store experiences.
To make this happen, they had to completely rework their website platform and move away from the previous approach where each store microsite was in a “silo” separate from the main site. With the new approach, they understood that often the online experience will end at a brick-and-mortar store, and sometimes the in-person experience will transition to the website. They aren’t always separate. For example, a person may order online and pick up in person. Conversely, after a customer interacts with a sales associate, they may make the final purchase on HomeDepot.com.
Does your website work seamlessly with the larger objective of your company—or is it separate and sometimes operating at odds with the main goal? Home Depot's example illustrates that creating a digital strategy that meets customers wherever they are will support your business best for the long haul.