Home Depot’s Message For Bunnings

By Glenn Dyer | More Articles by Glenn Dyer

There’s message for all retailers from Home Depot, America’s Bunnings, which this week revealed plans to double its investment in improving its stores and staff to try and hit a $US120 billion annual sales target in the next three years.

The catalyst – the gathering pace of online competitors and existing rivals and the tougher times in retailing.

Like Walmart, Home Depot has long been on the list of Amazon targets/victims, but like Walmart, it has fought back successfully, growing sales and earnings in the face of intense competition.

In fact it is into its sixth year of long growth expansion that started in the wake of the GFC as it invested in store revamps, more training and pay for staff. That has paid off with average annual sales growth in each of the past six years of 6% or more.

Now it has told investors (https://corporate.homedepot.com/newsroom/home-depot-announces-strategic-priorities) there will more of the same strategy over the next three years to continue driving sales.

Three years go Walmart announced a similar strategy and its shares took hammering.The payoff has appeared in the last three quarterly reports, with the most recent revealing higher sales growth and earnings that helped convince investors to send its shares to all time highs.

And like Walmart Home Depot has managed to do this and generate enough surplus cash to run a rewarding (for shareholders) buyback plan.

But the announced boost to investment over the next three years will limit its share buybacks – a move that has already upset some greedy investors who sold the shares down 1.4% on Wednesday.

But that only clipped the 30% plus rise in the shares this year (in fact close to 36%) which is double the near 17% rise in the S&P 500.

Clearly that stock market performance means Home Depot is not being lumped among the VOA group in US retailing (or the Victims Of Amazon).

Based on guidance and is third quarter report, Home Depot’s sales will top the $US100 billion mark for the first time this year (they were up more than 6% in the nine months to the end of October to just over $US77 billion with the 4th quarter to come).

It’s sales guidance for the year to next January is $US100.6 billion and the extra investment over the next three years is aimed a getting sales growth of up 20% in that time – or maintaining the current growth rate of more than 6% a year until 2020.

It said its target is for sales by January 2021 of between $US114.7 billion and $US119.8 billion

America’s largest home improvement store chain said it expects to buy back $US12.5 billion over the next three years, compared with the $US8 billion it plans to buy for the year ending January 2018. It plans to buy $US2.1 billion of shares in the current quarter.

At the investor day this week, management made it clear they were investing to meet he challenges from rivals such as Lowes, but also online. So it plans to spending to improve its stores, pay more to employees, quicken deliveries and grow its online business.

“The retail landscape is changing at unprecedented rates and we plan to invest for the future to address the evolving needs of our customers,” Chief Executive Officer Craig Menear said in a statement to analysts and investors.

He said the company said it would invest in making check-out faster for customers as well as improving wages and scheduling (shifts) for employees.

It says it will change its merchandise more frequently and make it easier for customers to navigate its giant stores by adding digital signs.

And for Bunnings and Metcash’s Mitre 1/Home Hardware division (one and two in the local market), the message from Home Depot is that Amazon is not going to be a threat, but they will have to be prepared to continue investing heavily in their businesses to maintain momentum – not so much opening more stores, but freshening existing outlets and product ranges, and not forgetting to keep and pay employees more.

And in another sign of the times, Walmart is dropping the word “stores” from its title, as it moves further into ecommerce.

Starting in February 2018, the company will shorten its name from “Wal-mart Stores, Inc.” to “Walmart Inc.” in what will be one of the biggest changes in is appearance in is 55 years.

The change is a “symbol of how customers are shopping us today and how they’ll increasingly shop us in the future,” said CEO Doug McMillon said in a statement. “Changing our corporate name to Walmart is a way of better reflecting our company’s path to win the future of retail,” he added.

Walmart has more than 11,700 physical stores around the world, has been investing heavily to catch up with Amazon online. The company expects online sales to grow 40% to $US11.5 billion for the fiscal year to January — although this remains a relatively small portion of its total sales, which were $US486 billion last year. Online sales jumped 50% in the latest quarter for Walmart.

Glenn Dyer

About Glenn Dyer

Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.

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