Home Depot Inc.’s next refurbishment project: building out the capability to offer same-day delivery.
The retailer plans to spend at least $300 million on supply chain, technology and online improvements, including building new fulfillment centers and overhauling its warehouse technology systems. It plans to open three new fulfillment centers in California, Atlanta and Ohio over the next two years.
The moves are aimed at boosting online sales, including a same-day delivery service aimed at customers and professional contractors who might be in the midst of a home improvement product and want lumber, tiles or screws in a matter of hours.
“It’s a big investment,” Chief Financial Officer Carol Tome said during the retailer’s investor conference on Wednesday.
Retail heavyweights Wal-Mart Stores Inc. WMT +0.22% and Amazon.com Inc.AMZN -0.09% have both been testing same-day delivery in certain markets, but neither has rolled out the option to customers nationwide. Wal-Mart, which offers same-day delivery service in five markets, said customers have until noon to place orders on about 10,000 top-selling items and can choose a four-hour window to receive delivery.
Home Depot wants to allow shoppers to place orders by 5 p.m. and choose a one-hour delivery window. Customers will be able to receive real-time delivery updates via their mobile phones and choose from 100,000 items, said Mark Holifield, Home Depot’s senior vice president of supply chain.
Home Depot has all but halted its construction of new brick and mortar stores in the U.S. and is turning its focus to building out its online business. One key factor will be setting up a delivery and supply chain system that will enable same-day delivery. The big-box retailer also plans to begin fulfilling online orders from within its stores, rather than a warehouse or distribution center, to enable it to deliver 90% of orders to customers within two days. Currently, it takes between two and seven days for customers to get most orders, the chain said.
Home Depot said it expects its sales to hit $79 billion this fiscal year, returning to its 2006 peak sales levels. While a large part of that sales growth has come from the burgeoning housing recovery, online sales are also helping.
“In 2008, upon reaching what we believed to be market saturation, we slowed new store openings,” Ms. Tome said. “Now we believe our sales growth will be driven by a continued recovery in the housing market, as well as interconnected retail.”
In 2012, online sales represented 2.4% of the company’s $74.8 billion in 2012 net sales. Home Depot’s web sales are expected to increase by 50% this year to $2.7 billion.
The company also said it is looking at expanding in-home assembly and installation programs from appliances to patio furniture, grills and other items.
Earlier Wednesday, Home Depot for the year ending in January 2015 projected growth of about 17% in per-share earnings, while analysts polled by Thomson Reuters expected an 18% increase. It also sees sales rising about 5%, matching the consensus view, and operating margins to widen by 0.7 percentage points.
Meanwhile, the company expects to buy back about $5 billion in stock in the new year, up from this year’s target of about $4.5 billion, and projected capital spending of about $1.5 billion, matching the goal for the current year.
Read full article here