The Supply Chain Matters blog calls reader attention to home improvement retailer Home Depot whom this week reported record quarterly sales growth and operational performance while managing the impacts of the COVID-19 pandemic.

The leading global home improvement retailer reported revenues of $38.1 billion for the second quarter of fiscal 2020, a 23.4 percent increase from the second quarter of fiscal 2019. Comparable sales reflected a positive 23.4 percent globally, with comparable sales in the U.S. increasing a healthy 25 percent. Net earnings for the second quarter were reported as $4.3 billion, compared with net earnings of $3.5 billion in the year-earlier quarter.

Home Depot

According to the financial performance announcement, the retailer invested upwards of  $480 million in additional benefits for associates, including weekly bonuses for hourly associates in stores and distribution centers. Selling and general administrative costs reportedly rose 26 percent in the latest quarter.

Year-to-date, approximately $1.3 billion has been spent on enhanced pay and benefits in response to COVID-19. Additionally, the Company’s first half performance resulted in a record payout for Success Sharing, the retailer’s profit-sharing program for hourly associates.

According to a Bloomberg published report, this home improvement retailer’s revenue gain was driven by higher customer checks and more transactions, with the meaning being that more shoppers visited stores or online during the quarter and they spent more each time.

A published report by The Wall Street Journal this week (Paid subscription or metered view) profiled Home Depot and its efforts to respond to COVID-19 focused demand.

The report begins: “This year, as the coronavirus pandemic started to spread through the U.S., Home Depot canceled its spring sale events. Staff cleared aisles of discounted goods to make room for social distancing, abandoning the linchpin of the retailer’s peak season.

That was a bold move for many retailers.

The commentary goes on to report that since April, daily foot traffic to this retailer’s home improvement stores has been running at least 35 percent ahead of year-ago levels according to cited data. While the pandemic continues to force many retailers into bankruptcy, the report indicates that consumer’s confined to home decided to undertake long overdue improvement projects.

We would add, most likely for relief of stress.

The one report aspect we wanted our readers to especially focus on was the observation that businesses have had to quickly abandon pre-pandemic business models and instincts. That would include supply chain and sales and operations planning teams.

A cited quote from this retailer’s CEO Craig Menear states:

All of the historical benchmarks that we’ve used to think about the business and what the growth in the business would be, like GDP and housing…none of that has a correlation anymore” Instead, “were watching consumer demand very, very, carefully. This is our number one thing.

In other words, traditional forecasting practices are no longer good indicators of what to expect in a global pandemic and instead, a laser focus on customer buying indicators and trending are the current emphasis.

The WSJ report makes note that while this retailer never previously offered curbside pickup, the service was rolled-out over a period of 48 hours in March. Executives cited indicated that local store retail associates literally crafted hand made signs and in-store processes to initiate this service.

Speaking as one witness, this author had the opportunity to initially become frustrated with our local store outlet’s curbside pickup process, but over a period of a few weeks stretching into late May, the process noticeably improved with added online support capabilities and more store associates dedicated to delivering goods to curbside consumers. It was fairly obvious that at the time, there were too many customers queued to enter a store mandated to monitor crowd limits, and thus elected online ordering and curb-side pick-up as an alternative.

Like other retailers, including Walmart and Amazon, supply shortages were initially encountered on in demand products including lumber and cleaning products. Home Depot has since been working with suppliers to increase inventory levels.

 

Final Thoughts

As readers should be able to decipher from our prior highlights of Amazon, Walmart and other online providers including Home Depot, retailers who have thrived during the COVID-19 disruption are those that have demonstrated prudent boldness and agility.  Adapting online customer fulfillment capabilities, quickly shifting away from prior forecasting in favor of more fully understanding consumer demand and fulfillment needs, and not being shy in making the necessary investments in employee safety, added headcount resources and capacity and logistics requirements needed to be able to respond to customer needs were manifested.

Not all retailers have the financial resources or clout of these retailers, and thus smaller retailers have to rely on added innovation in leveraging technology and the dedication of employees and suppliers to determine their COVID-19 response plan.

The one clear takeaway is that traditional retail sales, marketing, promotional and supply chain management practices no longer apply to the exiting COVID-19 and post coronavirus retail environment.

 

Bob Ferrari

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