The "One" Secret to Home Depot's Success

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Since its founding in 1978, Home Depot (NYSE: HD) has seen great success. It has grown from two home-improvement stores near Atlanta to an empire of nearly 2,300 locations stretching across North America. While investors have made plenty of money investing in Home Depot since it went public, they didn't have to get in early or time things particularly well to get it right. The stock price is up more than 40% year to date, and currently sits near all-time highs.

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Like all phenomenal business success stories, this one has had several catalysts driving it over the years, including exclusive and innovative products, successful acquisitions, and ever-increasing traffic from professionals. Yet one of the more underrated aspects of Home Depot's success has been the integration of its e-commerce business with its traditional brick-and-mortar business. Let's take a closer look at what Home Depot is doing to bring these two worlds of retail together.

One Home Depot

Home Depot refers to its efforts to integrate online and physical sales as "One Home Depot" -- as in, there is only one Home Depot shopping experience, and it frequently involves aspects of both the digital and physical retail worlds. At the company's recent investor and analyst conference, CEO Craig Menear said [transcript via S&P Global Market Intelligence]:

The front door of our store is no longer at the front door of our stores. It's in the customer's pocket. It's on the job site. It's in their home. Developing the One Home Depot experience by bringing the physical and digital worlds together, with ability to handle the scale of Home Depot, required us to complete a re-platform of our website. This re-platform gives us the ability to create differentiated experiences for the customers going forward.

This renovation of the company's website was necessary, said Menear, because the company was previously built in "silos," with each store serving as its own platform. Later, when an online retail component was first added, it was also done in "a siloed capacity." Menear further informed investors that, on top of what the company has already done, the work to integrate Home Depot's platforms into one seamless shopping experience is far from over; it will require further investment in both the digital and physical sides of the equation.

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The core of the One Home Depot experience

During the same conference, Home Depot's executive vice president of U.S. stores, Ann-Marie Campbell, said: "The store is still the hub, so we must invest to keep them relevant." To underline her point, she said that 45% of Home Depot's online orders are picked up in stores and 85% of online returns are completed in stores.

It works the other way as well. About 10% of all online sales start in a store, after a customer interacts with a sales associate. It helps that Home Depot's physical presence is such that 90% of the U.S. population lives within 10 miles of a Home Depot location.

One of the primary steps Home Depot has taken to invest in its store locations is making mobile store-specific maps available to customers. Each "allows customers to pinpoint the aisle and bay location of an item they are looking for in the store." Product search was the first pain point Home Depot found to negatively affect customers' experiences. Campbell stated that after these navigation tools were rolled out, the company's scores on customer surveys in the category of "easy to find" increased 30%.

The company also invested heavily in easing a second pain point customers encountered -- the checkout experience. To better deliver "speed and convenience" to customers, Home Depot is piloting a redesign of the front end of some stores. Another thing it is doing in select stores is introducing self-service lockers for online orders being picked up.

This is just One Home Depot success story

The proof that these measures are working is in the pudding: Online sales now represent about 6.4% of all Home Depot sales. In each of the last four years, the company has grown its online sales by about $1 billion. Management stated that 60% of all store traffic starts with a digital experience, and digital "visits" now almost equal in-store transactions. Home Depot's online operations are so massive that it is now the seventh-largest online retailer in the U.S.

As the line between brick-and-mortar merchants and e-commerce continues to blur, other traditional retailers would be well-served to note the steps Home Depot has taken. As long as the company continues to invest in cutting-edge technology, and leverage its scale to solve customers' points of pain and friction, it should continue to excel ... as one of the rare traditional retailers to evolve ahead of the times.

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Matthew Cochrane owns shares of Home Depot. The Motley Fool has the following options: short May 2018 $175 calls on Home Depot and long January 2020 $110 calls on Home Depot. The Motley Fool recommends Home Depot. The Motley Fool has a disclosure policy.