Before Home Depot, the world of home improvement was fragmented, the stores smaller, the businesses often owned locally and unlikely to have everything you might need to do a project.
Then along came Bernie and Arthur.
Bernard Marcus, who died last week at age 95, co-founded Home Depot in 1978 with Arthur Blank after both had been fired from a retailer and decided to start their own company. The first stores were in metro Atlanta.
They became billionaires and, in the process, reshaped the retail landscape.
“They completely changed the game,” said Rita McGrath, author and professor at the Columbia University Business School.
Credit: Hyosub Shin/AJC
Credit: Hyosub Shin/AJC
They weren’t the first to build a “big box” store. They weren’t even the first home improvement chain — Lowe’s, Ace Hardware and Menards started decades earlier. But Home Depot won ever-greater market share by aggressively marketing itself as a one-stop shop for sales and rentals to both do-it-yourselfers and pro contractors.
The goal was to have everything a customer needed for a project, McGrath said. “If a customer came in looking for something that wasn’t stocked, they would get the person’s contact information, buy the item from a rival store and personally deliver it — at a lower price than their competitors charged.”
Right strategy for the time.
The economy was changing, because America was changing, she said.
Credit: Hyosub Shin/AJC
Credit: Hyosub Shin/AJC
“Suburbanization led to a massive shift in consumption, with the increasing ability of Americans to own cars, alongside the increasing need for DIY (do-it-yourself) household projects,” McGrath said. “Instead of stores being concentrated in small, central, downtown areas, stores were spread out, with plentiful parking, allowing people to put huge amounts of stuff in their cars and drive them home.”
Home Depot (and Lowe’s, as well) now averages more than 100,000 square feet of store space compared to Ace Hardware and Harbor Freight, which have a fraction of that. Superior size has allowed Home Depot to buy materials in bulk, get better prices, undercut the competition and still make a good profit, said Anthony Miyazaki, a professor of marketing at Florida International University.
“Bernie and Arthur did some things differently than the other players at that time,” he said. “They calculated that they could make up for lower margins with higher sales volume, which is exactly what they achieved.”
The approach doesn’t necessarily succeed on its own, Miyazaki said. “Because of his background in sales, Marcus understood that great products and ideas need to be marketed and sold to be successful.”
The focus on projects actually led to success in two separate customer groups: do-it-yourselfers and contractors, targeting that was amplified by the marketing.
Credit: Hyosub Shin/AJC
Credit: Hyosub Shin/AJC
“It’s rare that a retailer can serve two very different audiences equally well, but Home Depot has succeeded in doing precisely this,” Miyazaki said. “Over the years, Home Depot’s marketing has created a brand image that resonates with both the contractor and do-it-yourself segments. Its story is unique.”
The project-centric, one-stop approach changed the way that consumers and contractors shopped, said Ari Lightman, professor of digital media and marketing at Carnegie Mellon University.
“I remember going with my Dad, first to the mill works, then to the paint stores, then to Sears to buy the tools we might need. But Home Depot had a project-based perspective. So, they had to have everything that a someone would want for the project.”
But one-stop shopping is not enough.
The older generation of small-town stores often had longtime employees who knew the business and the customers. To leapfrog the competition, Home Depot made a concerted effort to train its employees and to invest in technology that could underscore the relationship between customer and store workers, Lightman said.
“I know them, and I’ll talk to them about their expertise,” Lightman said. “Often, I’ll have a group of folks around me, a squad of people helping me with a project. They know that I painted my kid’s room, what colors I used, what brand of paint.”
Marcus talked a lot about the value of the company’s employees, how Home Depot’s success depended on their attitude.
At Marcus’ funeral last week, financial guru Ken Langone, who also helped launch the company, said that Marcus had essentially flipped the typical corporate structure at the retailing giant. Customers were at the top of the pyramid, he said, followed by the front-line workers who interacted with them.
It could be a tough love.
Marcus told stories about arriving unannounced at a Home Depot store, wandering the aisles to see how long it took for an employee to ask if he needed help. If it took too long, he’d check the store’s sales numbers.
Managers of stores with low sales and slow customer service might get a call — or a pink slip.
Marcus and Blank had two stores in 1979. The chain now has more than 2,300 stores.
To snag customers, the company was aggressive not only about opening new stores, but about selecting the best locations. Home Depot has outdone the competition, according to an analysis by Unacast, a company that provides location data to businesses. “The outcome is that The Home Depot takes all the good real estate and Lowe’s has to settle for what’s left.”
Ted Decker, now the company’s chief executive, said Tuesday during a quarterly conference call with analysts and reporters that an “immeasurable debt” was owed Marcus.
More than anything, he helped shape “our values and culture,” Decker said. “He was a marketing master and a retail visionary. The entire Home Depot family is deeply saddened by his passing.”
Home Depot now has nearly 475,000 employees and annual revenues of more than $152 billion, making it the largest Georgia-based company by sales and second only to UPS in workforce.
— Staff writer Matt Kempner contributed to this story.
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