Home Depot Lays a Foundation for Online Growth

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Over the last few years, Home Depot (HD) has expanded its retail stores aggressively, adding more than 200 outlets annually. However, the firm has recently embarked on a $1.1 billion program aimed at improving its Web presence while planning to dramatically reduce the number of new store openings to around 10 in 2011. Home Depot is the world's largest retailer in the home improvement products space with over to 2,240 stores in the U.S., Canada, Mexico and China, and it hopes that by beefing up its online sales, it can distance itself from competitors like Lowe's (LOW) and Sears (SHLD) as well as fend off competition from pure play online retailers like Amazon (AMZN).

We have a price estimate of near $36.50
, which is about 5% ahead of the current market price.

Home Improvement Shopping Goes Online

Home Depot expects the investments in technology to help deliver 4% to 7% of its overall sales through the online channel. Currently, Internet retail sales comprise less than 1% of its revenues, and the company sees the Web as becoming increasingly important in influencing customer purchasing decisions. As customers are looking for more home improvement products and ideas online vs. relying on in-store professionals, Home Depot can better cater to these customers. Citing Forrester Research, an article in industry magazine Internet Retailer, expects that around 48% of retail sales will be influenced by the Internet in 2011 and projects this to rise to 53% by 2014.

Home Depot aims to build on this trend through an online sales service and an "order online and pick up in store" service. So, in effect, instead of substituting for in-store sales, these online services will complement Home Depot's ability to drive customers to its 2,244 retail stores. The launch of its inventory-check feature in January 2011 allows shoppers to check for the availability of their products in local stores and underlines the concept of using online services to boost the in-store customer experience.

Pick-up Services Help Fend Off Amazon

The pick-up service enables buyers to order online and collect their purchases from the stores. This service caters to those who shop mostly online and helps Home Depot save shipping costs and compete against other pure online retailers like Amazon, which do not operate retail outlets.

Many retail chains find that multichannel shoppers who alternate between online and in-store purchases are more profitable than single channel shoppers. Efforts to tap into these tech-savvy consumers have led retail chains to provide several additional services such as online inventory checks and bar-code reading apps on iPads and mobile phones, and appear likely to usher in more technology to home improvement shopping.

See our full analysis for Home Depot

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