Home Depot finds its footing in online shopping
Home Depot is known for selling massive physical gear meant for your house and garden. These items aren’t exactly top of mind when one goes shopping online for the latest shirt or smartphone.
But the home-improvement retailer is seeing stellar growth online. Executives at Home Depot also say that consumers who are shopping on their website are coming into the brick-and-mortar stores and buying more gear.
“We’ve really leaned into interconnected retail,” Home Depot Chief Financial Officer Carol Tome told Fortune.
Tome explained that Home Depot’s first-quarter online sales jumped 30% from a year ago. Over 40% of those sales are picked up inside the store. And when a customer goes to a Home Depot to pick up an item they purchased online, they wind up buying more in the store 20% of the time.
“We sell a project,” Tome added. “We aren’t selling items, a sweater or a cookbook. We are solving home improvement problems.”
On Tuesday, Home Depot (HD) reported that total sales for the first quarter of fiscal 2015 jumped by 6.1% from a year ago, to $20.9 billion, with same-store sales for that period rising 7.1% in the U.S. Executives said that while U.S. GDP was weaker than anticipated for the first three months of the year, home price appreciation and other key housing data suggested an improvement that was even greater than what Home Depot had expected. That helped boost sales significantly.
Online sales is a clear source of potential growth for Home Depot. E-commerce quickly changed how books and electronics were sold, but it has taken longer for Internet shopping to find its footing in the pocket of retail dominated by Home Depot and its main rival Lowe’s (LOW). E-commerce makes up just 5% of Home Depot’s overall sales.
“We aren’t as penetrated as some other retailers may be online,” Tome said. “But we are going to continue to invest in it to serve our customers the way they want to be served.”
Another notable trend in Home Depot’s earnings results: sales growth was stronger for big-ticket items. Ted Decker, executive vice president of merchandising, told analysts that transactions for customer orders over $900 jumped 6.8% at U.S. stores. That was far greater than the 3.2% increase for transactions for orders under $50.
Lawnmowers, water heaters, windows, and sheds drove the increase in big-ticket purchases, Decker said.
Home Depot can thank the ongoing housing market recovery for that boost.
“When you see your home price appreciate 5% year-on-year, which is what we saw in the first quarter, you think to yourself, ‘Where else am I getting 5% appreciation? I’m certainly not getting [it] on the cash I’m holding in my bank account,'” Tome said. As a result, more homeowners are investing where they think they can create wealth. Their homes fit that bill.
That tailwind could continue to benefit Home Depot. Home prices are still not back to their peak before the global recession. In fact, prices are off 9% nationally and 16% below the peak in the largest cities, Tome said. Homeowners see that gap and are inspired to invest in their properties, she added.