You Can Do it, We Used to Help

By Jon Quast - August 14, 2012 | Tickers: HD, LOW | 0 Comments

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In 1978, after having lost their jobs, Arthur Blank and Bernie Marcus started the Home Depot (NYSE: HD).  “Bernie and I founded The Home Depot with a special vision – to create a company that would keep alive the values that were important to us. Values like respect among all people, excellent customer service and giving back to communities and society.”  Those are good words coming from a founder and CEO.  By practicing what they preached, they grew the company in a few short years, into a chain of over 2,000 locations and an $80 billion market cap.

After Blank and Marcus retired from the company back early in the new millennium, the company went through some growing pains.  Sales were stagnating.  The stock price was going nowhere.  The CEO was trying to cut out a lot of waste to boost profits.  The board got the CEO to resign.  In short, it was a mess.  They have come out the other side now, and have grown into a more mature version of what it once was.  But have all their choices been good ones?

The Competition

Ok, this paragraph has nothing to do with investment advice or possible stock value, but I just want to say that I don’t like shopping at Lowe's (NYSE: LOW).  In my neck of the woods, we are probably the only place that doesn’t have a Lowe's and Home Depot across the street from each other.  In reality we have a Lowe's, and I lived across the street.  The locals in my town didn’t like how fast our city was growing, and after the city said yes to Lowe's, Home Depot was looking to move in.  But the city listened to the outraged citizens and has kept Home Depot out for now.  All that means is that I am out of options.  I can go to Mom and Pops during regular 9-5, but when I need a socket wrench at 6:30, I have to go to Lowe's.

Here was the last straw for me.  I go into Lowe's to buy heater duct for my dryer.  My ducting had got a hole, and lint was getting everywhere.  I went to Lowe's and began searching, but to no avail.  So, I see this button that said “press if you need help.”  So I pressed it.  After 10 minutes a guy came up and asked if he could help.  I asked him where the heater duct was.  He told me to press the red button, and someone would come help me find it.

The Advantage

The advantage that Home Depot has always had over Lowe's was professional assistance.  I’m not just talking about better customer service, although I’d say they have better customer service as well.  I’m talking about people who know what they are talking about.  CEO Francis Blake started a program for “master trade specialists.”  He lured them with the promise of $30/hour.  A good friend of mine was a licensed plumber at Home Depot.  His job was to work the plumbing department and give professional advice as to what to buy, and tips on how to do the job.

The whole point of Home Depot or Lowes is people doing home improvement projects themselves.  Many of us (like yours truly) have a lot of zeal to do these projects like remodeling the bathroom and installing an in ground fountain for the koi pond etc.  But this zeal is normally without knowledge.  I can’t tell you the amount of times I have gotten in over my head doing things myself (ask my wife about the steering knuckle and the “broken” torque wrench, and she’ll verify).

What a novel concept of having professionals on the floor to give helpless people like me the advice we need and the tools to do it.  Home Depot paid these professionals considerably higher than what may be considered the normal rate for a person working the floor.  But in Home Depot’s eyes, it was money well spent, and I agree.

Leveling the Playing Field

I wish I could say that Lowes took a play out of Home Depot’s book, but I can’t.  It is in fact Home Depot that has decided to cut these licensed pros.  They are not being fired, just phased out.  No new licensed pros are being brought in so as to cut cost.  (Feel free to call me on that claim.  I have gone over the annual reports, and can’t find anything official as to the discontinuation of the program.  My info comes from the people I know who worked as master trade specialists.  But notably, I have also not found anything that refers to the ongoing program either.)

This is a terrible mistake.  You don’t give away your competitive advantage.  No one is going to choose one over the other for merchandise; they get the exact same stuff.  No one is going to choose one over the other for location; they are normally across the street from each other.  After the red button episode I started shopping in the Home Depot the next town over.  I needed the advantage Home Depot offered called professionalism.

This has seemed to have little effect on the company’s earnings as earnings last year were up for the 4^th straight year.  Lowe’s has been pretty much stagnant over that same amount of time.

My Thought

If Lowe’s announced the hiring of specialized professionals to fill the void that Home Depot has left, I would expect you would begin to see that reflected in earnings.  I doubt people would say that it has led to a better shopping experience.  In 2011, Home Depot was ranked very low in customer satisfaction, even lower than Lowe’s (ha, that’s funny right there).  In my thinking, it may not be that it was actually worse; Home Depot customers just expect more, and who can blame them?  

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