When Home Depot chief executive Robert Nardelli met with Wall Street analysts in January, he said the best way to judge the company’s technology overhaul was to listen to the silence that surrounded it.
“In 2004 alone, we completed several significant infrastructure projects including HR PeopleSoft and the largest SAP platform in the world,” Nardelli said. “And the good news is, you heard nothing about it.”
Translation: No horror stories. No projects run amok. And nothing that hurt sales.
Indeed, since Home Depot announced its plans to increase capital spending 21% to $4 billion for fiscal 2003 in an effort to remodel stores and use technology to improve customer service, the home improvement giant has largely completed its laundry list of activities (“Data Depot,” June 2003, p. 60).
That list includes the creation of digital dashboards to monitor store operations, reengineering business processes to focus employees on floor sales, upgrading point-of-sale equipment, speeding up replenishment at stores and implementing SAP.
“Home Depot has utilized technology in a way that allows it to get more labor on the floor,” says Tom Moseman, senior vice president at Envirosell, a retail consulting firm. “A couple of years ago, Lowe’s was doing a better job. Home Depot paid attention and made it clear it’s not going to surrender.”
According to Moseman, Home Depot’s best move is using technology to up-sell goods and services. Self-checkout aisles allow Home Depot to deploy an average of two cashiers to the floor to restock shelves or sell big-ticket items like appliances and kitchen cabinets. Kiosks can handle special orders when products such as window treatments aren’t in store.
The result: a steady increase in average tickets at Home Depot. The retailer closed the fiscal year ended Jan. 30 with an average ticket of $54.89, up 7.3% from fiscal 2003’s tally of $51.15. That improvement translated into fiscal 2004 earnings of $5 billion on sales of $73.1 billion. Operating margin was a record 10.8%.
According to Nardelli, technology has played a big role in Home Depot’s ability to sell more goods and services and increase productivity. In presentations on Wall Street, the retailer is attributing at least some of its recent gains to self-checkout systems, which now reside in 1,029 stores. Home Depot began piloting the systems in 12 stores toward the end of 2002. In 2003, it rolled out NCR self-checkout terminals in 777 stores and integrated them with new point-of-sale systems.
The decision to redeploy labor instead of grabbing immediate savings comes from Nardelli’s initial experience when joining Home Depot in late 2000 from General Electric. Nardelli made wide use of part-timers and employees who weren’t as seasoned as their predecessors. The move backfired as customers fled to Lowe’s, which is Home Depot’s main competitor. Nardelli vowed to not let it happen again.
So far, he’s been true to his word. Home Depot plans to hire 20,000 workers in 2005. The self-checkout systems have also allowed Home Depot to reinvest more than 40 hours a week per store back to the sales floor. “Using technology as an enabler to eliminate tasks, we’ve been taking those task hours and reallocating our labor hours to the selling floor in our stores,” Nardelli told Wall Street analysts Jan. 13 in Atlanta.
For now, the math works for Nardelli’s bet. Four self-checkout systems take the space of three traditional checkout aisles and eliminate the need for two cashiers (one stays to help customers with the automated checkout terminals). If one of those cashiers goes to the floor and sells just one customer on a home installation in every Home Depot store, that equates to $1 billion in additional revenue a year, according to calculations that executive vice president Tom Taylor gave at a Raymond James investment conference on March 7.
So with much of Home Depot’s to-do list from 2003 done, what’s next?
Carl Liebert, senior vice president of operations at Home Depot, said in January that the company will continue to mine customer data to improve service and automate and simplify tasks such as inventory replenishment to give employees more “time spend” with customers.
Home Depot continually collects data from customers, who get a code on every receipt urging them to provide feedback through a Web site. Liebert says Home Depot gets 220 responses per store a week ranking the retailer on items such as store appearance and knowledge of the associate.
According to Liebert, the metrics allow Home Depot to determine why a customer is there and what’s important to him at the time. If a shopper is there for batteries and light bulbs, a fast checkout is required. If it’s a home improvement project, Home Depot needs the staff there to help. Ditto for a plumbing section that will require staffing to guide do-it-yourselfers.
That information is then connected to Home Depot’s work scheduling systems to make sure labor is allocated to sections such as appliances at peak times, Liebert says. Each section of a store may have different scheduling times based on when customers usually shop for, say, a washer and dryer.
On the back end of the store, Home Depot is rolling out an automated inventory replenishment system. In a pilot, Liebert says Home Depot was able to decrease out-of-stocks by 20% on the products tested. The goal for 2005 is to have auto-replenishment systems covering 20% of Home Depot’s stock-keeping units.
But Home Depot’s passion is checkout tweaking. Liebert says Home Depot is experimenting with new checkout formats including belts to move products, eight-lane self-checkouts, and redesigned checkout stands with improved ergonomics.
Home Depot is convinced fast checkouts matter. As Leibert puts it: “Checkout continues to be one of our customers’ most important drivers of satisfaction.”