Home Depot looks for ways to boost sagging sales

Under pressure from Lowe's, chain tries new looks, formats

By Steve Matthews
Bloomberg News
June 24, 2003

The first thing a shopper notices upon entering Home Depot Inc.'s prototype store in Chicago's Lincoln Park is what's missing - riding lawnmowers, rolls of wall-to-wall carpeting and slabs of drywall stacked to the ceiling.

The glass-enclosed store operated by the world's biggest home-improvement chain devotes shelves near the entrance to household goods such as Pledge furniture polish, Downy fabric softener and Bounty paper towels. At 80,000 square feet, the two-level store is a third smaller than most Home Depots.

The urban store is the latest in Chief Executive Officer Robert Nardelli's search for new formats, ranging from garden-product to home-decor outlets, to try to boost revenue as sales growth stalls because of increased competition from Lowe's Cos.

Investors are concerned Home Depot's more than 1,500 warehouse- style stores may be close to saturating the U.S.

"Home Depot will have to be more successful at doing things outside the box," said Phil Larkins, who manages $330 million for Northern Trust Corp., including 250,000 Home Depot shares. "They have to be more successful in niches." The urban Home Depot is the Atlanta- based retailer's second attempt to scale back its home-improvement store plan. The company created Villager's Hardware stores in 1999, 45,000- to 55,000-square-foot stores selling products for minor remodeling projects.

The four Villager's Hardware stores near Elizabeth, N.J., were converted last year to the orange Home Depot logos after Nardelli decided the main brand would attract more customers. Some of the Villager's Hardware merchandise, including home products like Clorox bleach and Cascade dish detergent, have been included in the Chicago store.

"We go local, go specific," said Lincoln Park store manager Ellen Highbaugh, who says she spent weeks visiting local houses to help decide what merchandise to offer. "We have products you might buy in a grocery store."

The company's first multilevel outlet, which also has a parking deck, places more emphasis on household items, displaying cleaners near the front door rather than on harder-to- locate shelves. Gone are the sprawling stacks of lumber and supplies to support professional contractors, a big market for Home Depot's suburban stores.

The store's aisles contain broader selections of rugs, track lighting and art deco lamps to attract residents of the high-rise apartment buildings and row houses of Lincoln Park, a neighborhood north of Chicago's downtown along Lake Michigan.

Same-day delivery service is offered on all items, Highbaugh said. The service is limited to select merchandise at other Home Depots.

"A lot of people don't have cars in the neighborhood," she said. "They buy a grill and they have no way to get it home."

Sales at Home Depot stores open at least a year fell 6 percent in the fourth quarter and 1.6 percent in the first quarter. The first-quarter decline was less than analysts expected. Nardelli said last month that sales will improve this quarter, without being more specific.

Signs of a turnaround have helped Home Depot stock surge 35 percent this year, third among stocks in the Dow Jones industrial average. Shares fell 53 percent last year.