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The Strong Links in Home Depot’s Fulfillment Chain

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Supply chain smarts

At the Goldman Sachs dotCommerce Conference 2015 on June 18, Kevin Hofmann, senior vice president and president of the online business for The Home Depot (HD), spoke about how the company is meeting customers’ needs. He said HD is leveraging its 2,000-store retail footprint, network of distribution centers, and vendor warehouses to fulfill customer orders.

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Higher online inventory

A key advantage of The Home Depot’s (HD) omnichannel strategy is that it allows the company to stock a limited number of products in its stores. A customer can view thousands more products online. HD stocks about 35,000 stockkeeping units (or SKUs) in stores. But the online assortment is about a million. Giving the customer more choices online is possible as the company leverages the inventories of vendors and its own distribution network.

High-end furnishings retailer Restoration Hardware (RH) stocks less than 10% of its inventory in stores. Consumers can view the rest either online or in its catalogs.

Differentiating on delivery

A key element of The Home Depot’s (HD) online strategy is providing various delivery options to its customers. These include the following:

  • curbside delivery
  • threshold delivery
  • white glove delivery

Bed, Bath & Beyond (BBBY) offers these same delivery options. BBBY has another option called Room of Choice. It will delivery an item to any room or outdoor space the customer specifies.

The Home Depot also provides two-hour home delivery, although this is a costly option. Leveraging scale for providing these customer-focused options will be critical in order for the company to ensure profitability for smaller items.

Supply chain differentiators

The much increased online assortment is an important differentiator for Home Depot against other home improvement (XHB) retailers like Lowe’s (LOW) and Menard’s. It allows for greater product customization, reduces space requirements at stores, and improves sales productivity metrics.

On the other hand, Home Depot stores provide a great way for customers to browse, meet store associates, and learn first-hand about products. This is a competitive advantage over online-only e-retailers like Wayfair (W).

The Home Depot (HD) makes up 4.3% of the portfolio holdings of the iShares U.S. Home Construction ETF (ITB).

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