Q: Please bring us up-to-date on HD Supply's current status.Joe DeAngelo, CEO, HD Supply:We made some changes in our portfolio but the only major change is that we sold our lumber and building materials business. It was wholly residential. We were No. 6 in the market, but No. 1 only in two states. We like to be in the No. 1 or 2 position, so we elected to divest ourselves of that business. This transaction occurred in early 2008 but we were working on it through 2007.
Regarding our operations: I still lead the business and Frank Garcia oversees the plumbing and HVAC business. Those are the positions we had while part of The Home Depot.
What I like about private equity ownership is the long-term value creation. Now, every decision we make is in terms of how do we create long-term competitive advantage. We want to get customers for life, nurture those relationships and continually get new customers.
Q: In what ways does your relationship with The Home Depot differ today vs. when you were a wholly owned subsidiary?DeAngelo:The Home Depot owns 12 percent of the equity shares. Their shares are noncontrolling and it is a silent equity position. Now we are back where we were. In all of the businesses that we acquire, 100 percent focus is on the professional customer. Our job is to make sure they get the job done better with us than with someone else. We build our business models based on what will make our customers successful. We are a more relationship-focused business.
We are no longer a relatively small subsidiary of a retail giant. Now we are one of the two big fish in the industrial wholesale space, a big industry player.
Q: HD Supply was built through acquisitions of diverse distributors. What synergies exist between the sectors and, for the long-term, will HD Supply continue diversifying in product?DeAngelo:We want to create brother and sister relationships between those businesses, share best practices and best processes. For example, if Frank Garcia, as president of plumbing/HVAC, takes a leadership role in a certain process, he can share his knowledge and the other units can invest in it faster, with less of a learning curve.
Anesa Chaibi, president of HD Supply’s facilities maintenance group, has taken the lead in green/environmental issues. The presidents of each sector can select what they want from the best practices of others.
Our portfolio is divided into three major sectors:
- Infrastructure and energy;
- Maintenance and repair, and
- Specialty construction.
The maintenance and repair business works on supporting existing facilities. If something breaks, it gets fixed. It’s important that we have everything always available that the repair/remodel professional contractor needs.
The specialty construction sector includes three businesses: White Cap; Creative Touch Interiors; and Plumbing/HVAC.
White Cap distributes specialty hardware, tools and heavy construction materials for large- and medium-sized contractors.
Creative Touch Interiors offers full interior service for builders, including turnkey supply and installation services for flooring, cabinets, countertops and window coverings. It provides showroom services via design centers located in 19 states.
Plumbing/HVAC is a strong No. 2 in the United States. Our job is to bring added value to plumbing and HVAC contractors. Garcia shifted a lot of resources over to commercial to fill the volume gap as residential business declined. That is the strength of diversity.
We beat our profit and cash flow operating plan for the first half of the year. We all work toward a common equity and the businesses help each other.
Q: How is HD Supply weathering the housing slump?DeAngelo:We are doing a great job, but 2007 was a very tough year for us - we did some personnel reductions and consolidations. When we learned we were for sale, we had to answer lots of questions about the business. Through this period, our team focused on the customer and put in extra overtime. We ended with the right buying partners - each brings unique aspects to the business.
Q: What are the biggest challenges facing your plumbing/HVAC sector?Frank Garcia, president, HD Supply Plumbing/HVAC:The housing crisis is one. The lack of liquidity available to fund new construction projects hurts our future and the economy in general. There is the potential impact of inflation on certain projects. We try to focus on what we can control as a business. We always try to drive performance for all of our customers.
Q: What are HD Supply's competitive advantages?DeAngelo:HD Supply has three major competitive advantages:
- 1. We have been in all of our industries a long time, and
we have local and global experience. Relevant experience is important in a
2. We have leadership positions in various businesses and are recognized as an industry leader.
3. We have scale and scalability. Suppliers know we are important to them. Customers know we are not going anywhere. Scalability can add new business by penetrating further into existing customers or adding new ones without having to retool or build a new warehouse.
Garcia:We can take the size, strength and scale of our business in plumbing and HVAC and use it to benefit our customers, delivering value-added goods and services to the market. That strength allows us to continually invest in our business, even during a severe economic downturn. We have opened new branches and a new showroom, and continue to make significant advancements in some of our proprietary brands and some customer-facing technology.