Home Depot announces shift in merchandising strategy
Speaking before a group of Wall Street analysts this month, Home Depot’s top merchant outlined a new assortment planning strategy that may change the look—and the content—of the retailer’s shelves. The new “Focused Bay” approach, now underway in the company’s U.S. stores, could also usher in some major changes for the vendor community.
Craig Menear, Home Depot’s executive vp-merchandising, made his presentations before the Goldman Sachs Annual Global Retailing Conference on Sept. 5. Although he used broad strokes to describe the new strategy, Menear revealed that all product categories will be divided into four segments based on their pricing, in-store visibility, marketing value and assortment breadth, among other factors.
“Every category that we have within our merchandising structure has been defined with a role and intent for the business,” Menear said. Under the Focused Bay rubric, products will be classified as either “Leadership,” “Traffic/commodity,” “Core” or “Emerging.”
The Leadership category generally carries a wide assortment of brands and a visible profile, from a marketing standpoint. These items also tend to be new and innovative—the kind of products that can command an “aggressive” price. Power tools are a good example, Menear said, pointing to the new lithium ion battery powered tools being introduced at Home Depot under the Ryobi and Black & Decker labels.
Traffic/commodity: These are the “project starters,” items like fertilizer, lumber and drywall. They must be easy to find, priced competitively, frequently promoted and available in sufficient quantities for the professional customers.
Core items are basic, fundamental and necessary to complete a project. Whereas a bath vanity or a toilet might be a project starter, a decorative towel bar is necessary to finish the job. The core category will carry a competitive assortment with optimized pricing.
Emerging products will drive sales, margins and product excitement, according to Menear. A very focused assortment, in-store visibility and heavy marketing will drive further growth in categories like outdoor living, particularly patio.
“You only have to step back a few short years ago, we were basically selling resin furniture,” said Menear. “Today we’re selling occasional seating, we’re selling sets that are three and four times the price points that we used to carry just five years ago.”
Home Depot expanded its assortment in both casual seating and tabletop dining this spring, and the gambit paid off; the company gained “significant market share” in patio furniture during the second fiscal quarter, according to Menear. During an earnings conference call on Aug. 14, the Home Depot merchant talked about several ongoing merchandising initiatives. In carpeting, a flat market for many retailers, Menear’s team upgraded displays, added 40 new styles and heavily promoted installation services, gaining market share in both soft and hard flooring during the past quarter.
Exclusive offerings in appliances, including the Maytag Bravo washer and dryer and the GE Adora refrigerator, helped boost market share in this category as well, according to Menear. The third-quarter will bring more product introductions, including a new LG kitchen series, Arietta designer range hoods and Kwikset’s Smart Key door locks that make re-keying simple.
Home Depot wants to maintain its edge in power tools, a position it intends to keep by introducing new innovations. Lithium ion batteries, which offer long run times in a more compact format, have created an opportunity to sell professional performance to DIY customers, according to Menear. This fall, Home Depot will be launching Black & Decker’s new VPX line in a special display that allows shoppers to interact with the products. In addition to the lithium ion batteries, the VPX line features a highly stylized design that will appeal to Eco Boomers buying their first set of power tools, Menear said.
The new product introductions, accelerated line reviews and the new assortment planning strategy are all part of Home Depot’s effort to reinvigorate its merchandise assortment, one of CEO Frank Blake’s key priorities.
“We realize that we [have] tremendous opportunities to improve the excitement, the ‘wow factor’ as you walk into our stores,” Blake told investors at the Goldman Sachs conference. The Focused Bay approach is critical to that initiative, Menear later added, as well as to the effort to drive gross margins and create better value for Home Depot’s customers.
“It’s a very different approach than what we had in previous years,” Menear said. “In the past, we would ask each [Home Depot] merchant to optimize and maximize every business that they had. Today, we’re working through the budgeting process to line up the right metrics for their business to really go after the key segments, if you will, in terms of the role or the intent of the category.”