Home Depot, the world’s largest home improvement retailer was founded in 1978. Back then, the founders had no idea that this purely a hardware store would become a leader in the home improvement and retail industry.
Today, Home Depot serves North America with about 2,200 stores with a wide array of products and outstanding customer service. The company recently reported that its sales soared to 23% in Q3 2020 as people stuck at home due to Coronavirus lockdown. This would surely raise the doubt of how the company makes money, right? Well, the business model of Home Depot is quite interesting; it made the company the leading and most reputable retailer in the home improvement industry.
So, let’s see how Home Depot makes money with its brilliant business strategies. Before that let’s quickly jump into what Home Depot is. Shall we?
Page Contents
What is Home Depot?
Home Depot is the leading home improvement retailer in the United States that is headquartered in Atlanta, GA. The company sells a wide range of products of home improvement products such as home decor, furniture, kitchenware, DIY projects, and also offers installation and services at its retail outlets and online.
Bernard Marcus, Ron Brill, Arthur Blank, and Pat Farrah co-founded Home Depot in 1978. The company went public in September 1981 and raised $4.093 million after it built its first two stores. The company made sales of over $256 million operating 19 stores by 1984.
Not only was the company built larger than any of its competitors, but it also became the leading home improvement retailer within a short time.
In 1989, Home Depot surpassed Lowe’s and became the leading home improvement retailer in the US.
The best part is in the recent Fortune 500 ranking, Home Depot is ranked #26 for reporting the highest revenue in the United States.
Read: Amazon Business Model – How Amazon Makes Money
Okay, enough said, now let us see the business model of Home Depot understand how it makes money and stands as one of the highest revenue-generating companies in the world.
Home Depot Business Model
The world’s largest home improvement retailer has a total of 2,295 stores in the US, its territories, Canada, and Mexico. Thus it makes a huge business in North America with thousands of stores and an extensive collection of home improvement products and services. The company sells a wide range of home improvement products, building materials, garden, and outdoor products, and related customer services for both individual and professional customers.
The business model of Home Depot is organized into three key elements to clearly understand its business strategies to keep up its position as a leading retailer in the industry.
1. Home improvement products & services
2. Individual & Professional Customer Segments
3. Product Revenues
Home improvement products & services
Having said that, Home Depot is the world’s largest home improvement retailer with around 2,295 stores across the US, Canada, and Mexico. It offers a huge assortment of products like no other company and even surpassed Lowe’s, a popular home improvement retailer that serves over 18 million customers every week.
Read: Alibaba Business Model – How Alibaba Makes Money
Moreover, not only does Home Depot offer home improvement for its customers, but also it serves them in-store and online with its expert staff. It introduced kids’ workshops, pre-installations, and instant services for customers to provide utmost customer satisfaction. Also, the company always comes up with discounts and interesting deals both in-stores and online to captivate customers.
Furthermore, it manages to provide the best customer service by taking great care of maintenance, repair, and operations. Home Depot’s recent acquisition, Interline (now known as Home Depot Pro) bought 5% of the $50 billion markets in the MRO segment. The company is thus able to deliver the same day and the next day with the help of around 93 distribution points and nearly 1500 extra associates.
Read: Postmates Business Model – How Postmates Makes Money
Individual & Professional Customer Segments
The company divides its customers into two groups: 1. Individual consumers and 2. Professionals
1. Individual consumers
Individual consumers are further divided into Do-It-Yourself (DIY) and Do-It-For-Me (DIFM) customers. With the changing customer’s behavior, the company also updated its strategies. It introduced in-store mobile technology to help customers with home improvement projects. It also offers meaningful workshops, tutorials to educate its customers and build a strong relationship.
Home Depot offers some additional services such as installation for DIFM customers.
2. Professionals
Home improvement service providers such as contractors, repairmen, remodelers, small business owners, tradesmen, etc come under the professional customers of Home Depot.
The company provides multiple programs such as dedicated staff, delivery, credit programs, bulk pricing, loyalty programs etc., to professional customers.
Read: Visa Business Model – How Visa Makes Money
Home Depot grows its customer base (both DIY, DIFM, and professional customers) by helping them finance their projects. It offers private label credit products through third-party credit providers which in FY14, it recorded 1.4 billion transactions.
Product Revenues
Home Depot has over 2,295 stores across North America and also it sells a huge collection of products online on its website. Moreover, it introduced a few services such as Buy Online, Pick-up-In-Store, Buy Online, Deliver-From-Store, Buy Online, Ship-to-Store, and Return In Store. These services are helping the company to boost its customer experience; they promote convenience to shop the same high-quality from anywhere.
Read: eBay Business Model – How eBay Makes Money
How Home Depot Makes Money?
So, as you can see the segments of the Home Depot business model, it is pretty clear that the company serves its customers in every way possible to keep them as well as its leading position in the market.
Okay, now let’s analyze how Home Depot makes money.
The satisfied Do-It-Yourself and Do-It-For-Me customers and professional customers make the company generate huge profits. With a very wide assortment of products from all home improvement categories and related services, the company boosts customer engagement to 238% in 2020. Moreover, as per its recent Q3, FY 2020 report, the company’s digital sales growth rose to 80% YOY, and online orders through fulfilled stores rose to 60%. In the same way, the company has seen double digit growth with DIY and professional customers. Thus it made a total of $33.5 billion in revenue in sales. The best part is Home Depot sales soar 23% during the pandemic as people that stuck at home involved in home improvement.
The company also makes money from transactions, deliveries, and services. Apart from these, Home Depot boosts its revenue and profits through its acquisitions. For instance, in its most profitable acquisition, Interline bought a significant revenue to the company. Not just that, it made Home Depot acquire 5% of the MRO market.
Home Depot Acquisitions
- Home Depot acquired Bowater Home Center in October 1984 to enter the Dallas market, the acquisition led to debts. It recovered the losses through stock offerings though.
- In 1999, the company acquired Apex Supply, a whole distributor of HVAC, plumbing, industrial pipe, and fittings. It was rebranded as The Home Depot Supply in 2004.
- It acquired Del Norte and entered the Mexican market in 2002.
- The company acquired Hughes Supply, the largest home retailer in the US in 2006 for $3.2 billion.
- In July 2015, this largest home improvement retailer bought Interline Brands for $1.6 billion.
- Later in 2017, the company acquired the online presence of The Company Store from Hanover Direct.
Bottom Line
As you can see Home Depot’s key resources are its enormous range of products, distribution and storage, infrastructure, suppliers, supply chain, online channel, customer relationships, partners, and finally its brand reputation. Most importantly, the company is keeping its position as the largest retailer and a leader in the home improvement and retail industry by coming up with new ways to serve its customers. Hence, we can conclude its business strategies are so powerful that it became a powerful retailer in its industry.
