Someone for Everything

By Larry Dignan  |  Posted 2003-06-16 Print this article Print

Will a Home Depot technology overhaul fend off Lowe's?

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A couple mills about looking at kitchen fixtures. "Nobody's around," says the woman. "Let's see if I can find someone," says a man to placate his impatient wife. "We could go to the other Home Depot," she says. "It's the same thing," he says. Three aisles later, the couple finds a person in an orange vest to help them. At the "Pro Desk" on the other side of the store, forklifts are busy helping commercial customers move quickly through checkout. "I come here 90% of the time," says one plumber. "It's more convenient for the contractor."

When Nardelli joined Home Depot from General Electric, his mandate was to streamline a company that hit $50 billion in revenue faster than any other retailer. In short order, he initiated a program of Service Performance Improvement (SPI), which would take tasks such as stocking shelves and move them to the night shift. In theory, this would put more associates on the floor to help with sales.

Nardelli also pared inventory, a move that backfired in the first half of fiscal 2002 when the company was out of stock of items in the spring. That is the critical gardening and fix-it season, the equivalent of Christmas for home improvement retailers. Instead of getting a boost, same-store-sales went down 2% to 3% over the previous year, according to regulatory filings. In the summer, Home Depot pumped in an additional $500 million in inventory to remedy the problem.

Meanwhile, sales suffered as part-time staff proliferated. In fiscal 2002, Home Depot was shooting for an even 50-50 split between full-timers and part-timers, but backed off when it became clear that part-timers lacked knowledge about products. That has changed.

"We're well beyond 50-50 now," said Tom Taylor, Home Depot's Eastern Division President in April at an investment conference. "I tell managers just to hire the right person."

The company now says it's aiming for six or more out of ten to be full-time staff. According to filings with the Securities and Exchange Commission, 63% of Home Depot employees were full time as of Feb. 2003. Still, that's down from 74% in 2001.

This is an area where software should help. Six-month sales trends can help the company forecast the right number of associates to have on the floor; and the PeopleSoft suite can identify gaps in help.

Home Depot is still trying to reduce the number of persons that help a customer pay for their purchases, nonetheless. The company has installed automatic checkout systems at some stores, like supermarkets have tested.

"Home Depot was trying to kill a payroll problem with capital," says Paula Rosenblum, an analyst with AMR Research. "Payroll is the biggest expense.''

Now, Home Depot hopes to use technology to improve customer service.

Is a cashier performing so well that she should be training other cashiers? Now, Home Depot has metrics, like increases in hourly sales by register, to locate and quantify its best workers.

Technology also has to help Home Depot get more efficient. Currently, 84% of shipments arriving at a store have to be tracked manually. The company this year intends to double the percentage of shipments that are tracked by scanning bar codes on packages electronically. The ultimate goal? 100% scanned.

In a pilot of 100 stores, using electronic scanning and other new tools, Home Depot brought the percentage of goods that should be in stores to 98.2% actually in stock from 97.1%. In the first quarter, Home Depot's in-stock rate was 98% and inventory was up 24.9% from a year ago.

Business Editor
Larry formerly served as the East Coast news editor and Finance Editor at CNET News.com. Prior to that, he was editor of Ziff Davis Inter@ctive Investor, which was, according to Barron's, a Top-10 financial site in the late 1990s. Larry has covered the technology and financial services industry since 1995, publishing articles in WallStreetWeek.com, Inter@ctive Week, The New York Times, and Financial Planning magazine. He's a graduate of the Columbia School of Journalism.

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