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Home Depot Supply - Don't Be Scared

The plumbing industry's second largest national supply house chain, Hughes Supply, is now owned by Home Depot - or soon will be, depending on when they wrap up all the legalities of the takeover. This was Home Depot's largest acquisition ever, costing around $3.5 billion. Hughes operates some 500 branches in 40 states with $4.4 billion in annual sales. Hughes is now part of Home Depot Supply, whose revenues are projected to shoot past $12 billion this year.

What's it mean for PHC contractors?

My guess is it probably won't have much impact at all. Home Depot has been in the plumbing supplies business ever since 2000, when it purchased Atlanta-based Apex Supply, a sizable regional chain in the Southeast. Plus, the following year they bought Your Other Warehouse (YOW), the industry's largest master distributor of plumbing supplies.

Under Home Depot's ownership, Apex and YOW have continued operating more or less as before. Apex may have suffered some initial pull-back of trade customers who didn't like giving business to “the enemy,” but I don't hear much talk like that anymore. Likewise, many wholesalers threatened to stop doing business with YOW immediately after its purchase by Home Depot. It's hard to say how many followed through, although I suspect very few plumbing distributors continue their boycott now that five years have passed since the initial shock. YOW runs a unique business renowned for great customer service. When wholesalers need something in a hurry, ideology tends to take a back seat to business interests. In any case, I suspect that both Apex and YOW have made up any shortfall in trade business with orders from parent company stores.

Home Depot Supply's Empire: The Hughes deal comes on the heels of an energetic year and a half in which Home Depot purchased nine large distribution firms in a variety of fields ranging from municipal water systems to commercial lighting to industrial supplies to hardware. Hughes Supply itself is a diversified distributor with a significant presence in the electrical, building materials, industrial PVF and utilities markets. Plumbing and HVAC account for only around a quarter of its revenues. These acquisitions are all about acquiring trade customers as a hedge against an expected downturn in the saturated building supplies market and, longer term, to compensate for Home Depot's demographically challenged DIY customer base.

Home Depot and Lowe's both have been trying for years to diversify their business toward the contractor market with various trade sales initiatives - segregated counters, expanded hours, credit terms, loss leader specials and various other incentives. Results have been disappointing. You know why. It's because traditional PHC wholesalers generally have deeper and broader inventories, better services and better pricing across the board. Plus, they don't compete as much against the trade for merchandise sales.

At any given time you can spot a handful of plumbing trucks in most Home Depot parking lots, but the vast majority of them belong to small contractors buying fill-in materials. Mostly they end up there because of convenient location.

Business As Usual: Home Depot Supply's $12 billion revenue stream amounts to a lot of money, but it's spread across an array of building products. My best guess is that plumbing and HVAC account for between 25-30 percent of the unit's sales, or between $3-4 billion. That's substantial but still amounts to less than 10 percent of the total nationwide PHC wholesale supplies market. Ferguson claims around 15 percent of the market. Small and not-so-small independent distributors still sell more than 75 percent of our industry's goods.

Whatever your take on this acquisition, don't think that it has any significant impact on your ability to sell PHC merchandise. It doesn't matter that Home Depot can now buy directly from its wholesale subsidiary at prices surely better than you can obtain from your distributors. Long ago, PHC contractors lost the ability to make any sales pitch based on price. Those who are still players in the merchandising arena thrive because of their product knowledge, the convenience of making house calls, and willingness to stand behind their products and installations.

That's a powerful competitive edge. Hang in there.