Home Depot is expanding its brick-and-mortar infrastructure to support growing online sales.
The $78.8 billion retailer, No. 3 in the JOC’s ranking of the Top 100 U.S. Importers, on Thursday opened the second of three massive distribution centers dedicated to e-commerce sales.
The 858,953-square-foot direct fulfillment center in Perris, California, follows a 1.1 million-square foot DFC Home Depot opened in Locust Grove, Georgia, this February. A third e-commerce DFC, a 1.6 million-square foot facility, will open in Troy, Ohio, next year. With the three DFCs, Home Depot will be able to 90 percent of goods ordered online to almost any U.S. location, whether a store or home delivery, within two days.
That will cut Home Depot’s standard shipping time by one to three days. Centralized e-commerce fulfillment also will help the retailer improve supply chain utilization, reducing overall transportation costs.
E-commerce still represents a small percentage of Home Depot’s total sales, about 4 percent in the second quarter, but the retailer’s online business is growing fast. Online sales rose more than 38 percent in the second quarter, and 40 percent in the first quarter. In 2013, online sales rose 50 percent to $2.3 billion, about 2.9 percent of total revenue.
Home Depot’s total sales were up 5.7 percent in the second quarter at $23.8 billion, and rose 4.4 percent for the first six months of 2014 to $43.5 billion.
The new fulfillment network is part of a broader interconnected retail and supply chain strategy the home improvement retailer is hammering together. Home Depot will spend $300 million this year on the fulfillment centers, mobile technology used by employees in stores to help customers, facility enhancements and a warehouse management system.
Each of the e-commerce DFCs will stock more than 100,000 individual products or stock keeping units, far more SKUs than are stocked in Home Depot stores.
“We want to be able to serve our customers wherever they shop,” whether online or in one of Home Depot’s 2,264 retail stores, Mark Holifield, senior vice president of supply chain, told JOC.com at the opening of the Locust Grove DFC. “That entails leveraging all of our inventory, leveraging all our transportation and distribution assets,” he said.
“Our transformation in supply chain has been one of the great drivers of value in our business,” Chairman and CEO Frank Blake said at the Goldman Sachs Global Retailing Conference Sept. 4. “we are transferring product that had been delivered by our vendors to product that we will deliver,” Blake said, according to a Seeking Alpha transcript.
Growing online sales are already changing the mix of products offered in stores, Blake said. Home Depot is reducing the amount of floor space dedicated to patio sets, for example, which customers are customizing and buying online. “That allows for greater productivity in the space in the store and actually less of an overall inventory commitment,” Blake said.
The online and in-store retail channels are increasingly interconnected in other ways. Half the retailer’s customers go to HomeDepot.com to research products before heading to a store, and one-third of online orders are picked up at a physical store, Holifield said.