The Home Depot Supply:
Leveraging Size To Grow Larger
The recent purchase of Orlando, Fla.-based Hughes Supply marks the largest acquisition ever by The Home Depot, more than doubling the size of Home Depot Supply. The newly combined organization has more than 20,000 employees in more than 900 locations with projected 2006 combined sales approaching $12 billion.
“We plan to repeat in the professional space the same type of market transformation The Home Depot pioneered and executed in the do-it-yourself retail space,” Bob Nardelli, chairman, president and CEO of The Home Depot, said in a statement.
The integration of Hughes Supply adds to Home Depot Supply's strong positions in waterworks, nonindustrial facility maintenance, professional construction supply and plumbing, while adding new platforms in electric utilities, industrial PVF, and electrical products distribution, the company said.
In an interview with sister publication, Supply House Times, Joe DeAngelo, executive vice president of Home Depot Supply, acknowledged that the company has an active acquisitions program that looks at prospects every week.
“We are constantly looking for partners who can help to fill out our value offering,” he said. “We have a 10-step process, starting with, do they fit strategically with us? For example, we just closed on Cox Lumber. We're always actively discussing and researching opportunities.”
Regarding the Hughes acquisition, The Home Depot explained on its Web site that it had been seeking opportunities to expand its reach to professional customers. The company said it only adds new lines of business when they are determined to be best in class and able to provide a platform for growth. Hughes Supply has what The Home Depot wants: a business that boasts strong customer relationships within this professional segment, and is expandable by scale, the company said.
The company also told visitors to its Web site that the Hughes name will continue to be used for now, but The Home Depot is in the process of conducting a branding study.
Here are DeAngelo's answers to our questions regarding Home Depot Supply's plans and programs:
DeAngelo: I'm taking over top management. We are consolidating Hughes directly into Home Depot Supply.
Strategically, we are very much aligned with Hughes. Both Hughes and Home Depot Supply had very nice businesses in maintenance, repair and operations (MRO). While Home Depot Supply had a smaller regional business in plumbing, Hughes was large in that segment, so that made it a great fit. Both are targeting multi-family housing, hospitality, healthcare and waterworks. Hughes was going where we are going.
Q: Are there any major operational changes ahead for the foreseeable future?
DeAngelo: Operationally, we are all about The Home Depot processes, including Six Sigma and digitalization. It's also about covering more geography.
We are in the process of consolidating in a vertical market. We want to offer vertical platforms that take the customer through every phase of construction. We want to be there through the entire life cycle of the project.
Q: How does Your Other Warehouse, a master distributor, fit into the Home Depot Supply picture?
DeAngelo: We have that mixed into our direct-to-consumer channel. It's a wonderful business model. We use it to do special orders for retail stores. We also can go direct to the consumer with those products, as well as use it as a support for the wholesale plumber.
Q: About five years passed between Home Depot's purchase of Apex Supply and its next foray into PHCP distribution. Why the long hiatus?
DeAngelo: I can't comment on the time frame. We saw Hughes as a must get. We wanted to be strong in every vertical, and Hughes was a great model. From going with a very small operation like Apex, we targeted the No. 2 wholesaler in the United States.
Q: What was behind the decision to return to the Apex name?
DeAngelo: We currently operate under the Apex name. We launched a branding study (in early March) and have completed focus groups. We are doing more research regarding what our overall branding should be for our wholesale business and the other businesses within The Home Depot. Our vision is to make sure we have a branding strategy, presenting a face to the professional marketplace that gives them what they are looking for. We want them to know we offer exceptional service and knowledgeable people.
We expect to be rolling out something definitive in the next couple of months.
Q: What did you learn from the Apex purchase?
DeAngelo: The Apex purchase enabled us to more deeply understand the professional market. Sid Strickland did a wonderful job leading Apex. As a former Hughes Supply leader, he was instrumental in helping us to understand Apex's position in the market. There is a good synergy between Home Depot retail and the professional segment. We will service the heck out of the professional segment.
We find that 30 percent of the sales from Home Depot retail stores are to the professional customer. That enables us to get a greater share of wallet by having multiple verticals. Apex was a vertical, and we also have great verticals in electrical and waterworks.
Q: In the past couple of years Home Depot Supply has purchased a variety of distributors in different industries and seems to be pursuing a horizontal distribution strategy. What synergies do you see between PHCP distribution and some of the other markets you bought into?
DeAngelo: Universally we have a very powerful supply chain. Our retail business ensures we can look at the aftermarket. It provides us with a nice synergy in the primary construction market.
We look at the PHCP business to see where we can have synergy with other Hughes businesses. For instance, there's a wonderful fit with the construction supply and waterworks businesses with good cross-selling synergies. We have a nice fit with the plumbing trade and all the other trades doing new construction.
Q: What value-added does Home Depot Supply bring to the companies under its wing?
DeAngelo: First and foremost, we have an operating philosophy that retains and cherishes customer relationships. We value the long-standing nature of those relationships, and we have the foresight not to change a model that works.
We have great teams. We want to maintain those teams and provide them with a broader offering. We can give them access to product adjacencies.
When the market gets tight, we offer a reliable source of supply. We are the largest combined buyer out there.
We want our people to focus on servicing the customer. They don't have to worry about how to pay payroll or vendor bills. They can concentrate on satisfying the customer, driving the business. We have a high level of sophistication with Six Sigma and digitized processes. The idea is to take great people and give them better tools so they can provide a much better customer experience.
Q: Please elaborate on The Home Depot's digitized processes.
DeAngelo: As an example, look at another business within Home Depot Supply: National Waterworks. What we liked about it was that its president, Terry Howell, used to be chief information officer. He had worked with all the field teams to lower the cost structure and enhance customer service. They digitized customer service. Every time we find an example like that, we try to apply it across all verticals.
If you are a customer of National Waterworks, such as an independent contractor who does waterworks business, you can go to the company's Web site and create your own quote to give to the municipality. If they accept it, we can convert it electronically to an order. It is configured off the Web site automatically for that specific location. There can be no transposition or keying errors.
The order will be shipped from one of our branches and an invoice will be e-mailed to the contractor. The contractor is assured that day he can go to the municipality and draw from his account. This removes many days from the cash cycle. Contractors used to have to wait to get their money if they missed a deadline for the cycle. This is a simple example of end-to-end automated service that allows our customer to do his job better.
Q: Who does Home Depot Supply identify as its main competition?
DeAngelo: We look down every vertical from waterworks, electrical, tools, building materials, plumbing, HVAC, and the top performers kind of push themselves out. We look at the largest and who are the leaders in the local market. You have to be the best in whatever geographical market you are in.
Q: What are the main challenges faced by Home Depot Supply in trying to attract trade customers?
DeAngelo: The challenge for Home Depot Supply is the same as for any other wholesaler: Being able to provide the right product every day and have people with expertise to sell and service. You need the ability to manage through cycles as things get tight in the market place. We have unique strengths vs. the competition because of the size of our supply chain vs. anyone else's. We can have the product available and at a better value equation. Because we are a very large global corporation, we are able to see trends as they occur in the market and be ahead of them.
Our retail stores give us an advantage. Professional customers visit our retail stores a couple times a week. We can get data from them and act accordingly to adjust our services.
Our whole strategy is about being No. 1 in whatever market we are operating.
Joe DeAngelo joined The Home Depot® in April 2004 as senior vice president of The Home Depot's PRO Business and Tool Rental. Previously he served as executive vice president of Stanley Works, where he was responsible for their tools group and corporate-wide functions, including marketing, technology, operations and distribution. Prior to Stanley Works, he served in a variety of executive roles at General Electric, Georgia Pacific and CL Marvin PLC.
About Home Depot Supply
Home Depot Supply has announced its intention to become the world's largest diversified wholesale distributor, with more than 1,500 locations, and to grow sales to $23 billion to $28 billion, or 18 percent to 19 percent of The Home Depot's overall sales by 2010.
The businesses of Home Depot Supply include:
About the author: Pat Lenius is managing editor of PM's sister publication, Supply House Times. This was originally published in the June 2006 issue of Supply House Times.