Monday, October 01, 2007

Home Depot Again: Stories from the Front Lines

This weekend, I had the pleasure of seeing old friends who are the parents of one of my daughter's friends. Having moved about an hour away, several years ago, my visits with Jon and his wife are now, though less frequent, longer and more involved.

Jon has had success in startup ventures in the past, and is currently busy with another one. An engineer by training, he fills a number of roles in the venture, including that of supply officer for the firm's various hardware, testing and building materials needs.

This was news to me. Jon related how he has become a regular at the Home Depot located within a few miles of his firm's offices in Northern New Jersey. Typically not that observant of details at stores, such as Home Depot, so Jon says, he has noticed a number of things this summer that corroborate my many posts describing the building supply chain's woes.

For example, he cited the many times he wanders the aisles, while knots of orange-aproned employees are busy talking among themselves, leaving him to fend for himself.

The aisles, he says, are far from presentable. I think he described them as cluttered and messy, when the shelves weren't empty.

But the best story he told involved product mix changes. Specifically, a ban saw.

His group does lots of research and experimentation, so they need power tools for building things on their test benches. Jon had recently bought a ban saw. Within a few weeks, they'd worn the blade out, and he returned to Home Depot for replacement blades.

No luck. It seems that the supply chain had switched product lines, and now markets, as Jon puts it, a decidedly cheaper ban saw.

Well, he was there for blades, not another saw, right? So, no problem.

Ooops! Home Depot told him they don't carry legacy parts for the old saws- meaning spare blades. None. Nada. Zippo.

So they sell him a fairly expensive power tool one month, only to drop support of the consumable blades the next month. No offers to search other stores, or order the blades, or even provide contact with the manufacturer.

My friend was both displeased, as well as bewildered as to how a major chain such as Home Depot could engage in such dysfunctional and unsupportive behavior.

At least when Apple dropped the price of its iPhones, the old ones still worked. In this case, Home Depot simply drops support for their customers who are foolish enough to buy a fairly expensive tool which requires spare parts support.

The nearby Yahoo-sourced chart displays prices for Home Depot, Lowes, and the S&P500 Index, for the past two years. While HD and LOW have moved very similarly over the period, there's no mistaking that HD has diverged very sharply from the index in 2007.

Lowes seems to have popped up a bit more from its recent bottom, coincident with the summer mortgage-based woes, than has Home Depot. Looking more closely, Lowes was back to a positive return when the housing finance crunch hit, whereas Home Depot was in the red. Then it appears that market forces hit Lowes, as well, from which it rebounded a bit better than Home Depot.

What really struck me, of course, was that my friend could instantly detect serious failings in Home Depot, from his perspective as a customer. It echoed what I have seen in the performance data for Home Depot for at least the past year.

I have a feeling that the firm's troubles now run deeper than simply an arrogant, overpaid, now-departed CEO. And that it may be a while before Home Depot is back on track, both with consumers, as well as investors.

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