Home Depot (NYSE: HD) has had a successful 2020 as consumers spend more money on home improvement. Net sales increased by more than 20% compared to last year. Overall, 2020 revenues are $15 billion higher than in 2019. The surge in revenue has translated into stock price gains as well. The stock has increased from $219 at the start of the year to $269 on November 18.
Home Depot’s Key Business Metrics
With more than 2,200 stores in the United States and other countries, Home Depot sells home improvement products to consumers and contractors.
Same-Store Stores Growth. Same-store sales are up 24.1% in US stores. For all stores, which includes Canada and Mexico, the sales growth rate was 24.1%.
Digital Growth. The company has grown digital sales by 80% year over year. However, Home Depot’s digital sales still rely on stores. 60% of online stores are fulfilled through a location.
Balanced Growth. Home Depot's US stores grow sales by 24% compared to last year. Stores in Mexico and Canada also increased sales by more than 10%, with stores in Mexico reporting their best performance since the start of the pandemic.
Halloween Success. While the pandemic has changed Halloween behavior for many people, Home Depot ran a successful Halloween promotion in the fall of 2020.
Home Depot Takes Care of Employees
Like other retailers such as Loblaws, a 2,000-location grocery store chain in Canada, Home Depot offers more benefits to its employees. Earlier in the year, Home Depot showed a temporary pay increase to hourly employees. Based on its success, Home Depot is now increasing pay and paid time off for employees. With 400,000 employees, Home Depot’s example may exert pressure on other retailers to follow its example. So far, the company has spent approximately $1.7 billion on additional compensation in 2020.
Home Depot Expands Through Acquisition
Home Depot has signed an agreement to purchase HD Supply. HD Supply gives Home Depot more access to multi-family housing and hospitality markets; It also offers maintenance, repair, and operations (MRO) products. Home Depot estimates that the MRO market is worth $55 billion in total. The acquisition is expected to close in 2021, depending on regulatory approval.
Home Depot’s acquisition of HD Supply is estimated to be worth over $8 billion, and the deal represents a return to the company’s roots. In 1997, Home Depot bought the company and then sold it in 2007. After focusing on the consumer market for several years, Home Depot returned to the “Pro” market by spending $1.6 billion to acquire Interline. HD Supply (NASDAQ: HDS) has 44 distribution centers across 25 US states and two provinces in Canada, as well as more than 5,000 employees.
Unlike Home Depot, HD Supply has had a more challenging 2020. In the second quarter, the company's net sales declined by 4.4% to $1.6 billion. Furthermore, the company's net income in the second quarter also fell 3% compared to the same period of 2019.
Resuming Some Pre-Pandemic Customer Service
In the first half of 2020, Home Depot suspended some of its services in light of the COVID-19 pandemic. Gradually, the company has found ways to bring those services back. Home Depot is bringing back the express car and van delivery services. These services will cover more than two-thirds of the US population.
Offering a high level of customer service during the pandemic has been expensive. Home Depot has spent more than $60 million on COVID-19 related expenses such as personal protective equipment (PPE) for employees. The company’s increased revenue and profits are more than covering these expenses.
Home Depot has also changed its inventory strategy this year and reduced the variety of its products in its stores. As a result, the company has focused more inventory capacity on its most popular products. These changes have helped to minimize the impact of supply chain difficulties.
Commodity Inflation Challenges Home Depot
Lumber pricing has become a challenge for Home Depot in 2020. The typical price for framing lumber has increased by 130% compared to last year. Despite these increased lumber prices, the company has still seen high demand for its lumber products. Home Depot has also enhanced its website to make other products such as lighting more attractive to consumers to offset these challenges.
Consumers Are Spending More
Customers at Home Depot are opening their wallets to spend larger events. The company reports a 23% increase in the number of sales over $1,000. These higher-value purchases are concentrated in a few product categories: lumber, vinyl-plank flooring, and appliances. Overall, consumer spending increased faster than the Pro market (i.e., home improvement contractors), but both segments are growing.
Bruce Harpham is an author and marketing consultant based in Canada. His first book "Project Managers At Work" shared real-world success lessons from NASA, Google, and other organizations. His articles have been published in CIO.com, InfoWorld, Canadian Business, and other organizations. Visit BruceHarpham.com for articles, interviews with tech leaders, and updates on future books.