The Home Depot – Arthur Blank and Bernie Marcus’ Success Factors
July 11, 2017
“We believed from the start that if we brought the customer quality merchandise at the right price and offered excellent service, we could change retailing in the United States. Today, we are the model of what retailing should be.”
Starting The Business
In the late 1970s, Bernie Marcus and Arthur Blank were both working at a home centre chain in Southern California called Handy Dan when Siegfried S. Sigoloff, known for disposing of senior management in the companies he purchased, bought the struggling Daylin Inc., Handy Dan’s parent company. Since Handy Dan was profitable, Marcus and Blank were certain their jobs were secure. But they were wrong. False charges were brought against the two that alleged they had allowed a subordinate to open an account and use funds to fight against a union at Handy Dan stores in San Jose.
Before they were fired, however, Marcus and Blank had been working to find profitable ways of discounting at one of their Handy Dan locations. They noted that by marking items down, volume rose and costs, as a percentage of sales, dropped. At the time when they lost their jobs they had been planning to implement their discovery at other outlets, but now they were free to begin building a nationwide home-centre chain of their own. They planned to develop a store where product selection was great and prices were kept as low as possible, and where trained, knowledgeable, and helpful customer service representatives provided the best service available.
The venture began in suburban Atlanta with money from a New York investment firm. They stocked the shelves of their first two stores with 18,000 different products, everything from paint supplies to specialized tools for repairs, cut prices as far as they could, and hired and trained staff themselves. On opening day, they gave their kids a stack of $1 bills to hand out to customers to say thank you for shopping at the store, but by the end of the day, there was still money left and the kids were out in the parking lot using the money to try to convince people to go in and have a look.
Both were dejected and despondent. Marcus remembers that “[his] wife wouldn’t let [him] shave for days. She didn’t want [him] to have a razor in [his] hands.”
Building an Empire
A few days after the grand opening, a customer returned with a token of her gratitude – a bag of okra for Marcus – for the positive experience of shopping at The Home Depot. Though he did not like the okra, it was a turning point, and word of mouth began to spread.
Money was still tight (employees stacked empty cardboard boxes and paint cans on top shelves so that the stores appeared more packed with goods than they actually were), but since the first two stores were doing well, Blank and Marcus decided to open two more, this time in the Miami area. Two more Miami stores followed two months later. On November 22, 1981, the company went public and investments and profits exploded. The chain expanded and profitability far exceeded expectations. Originally projected at $9 million worth in sales per store, average sales went beyond $17 million. Before 1990, 118 Home Depots were pulling in $2.7 billion in sales.
In less than two decades, by 1999, The Home Depot had become the world’s largest dealer of home improvement goods. Additionally, it has become an international retailer with stores in Canada and South America and will continue to expand. Blank insists that the foundational principles of his company, though it has grown so vast, “were cemented in those early years and have never changed. Our prices were low then, and they are still low today. And our service was excellent then and still is today.”
Core Values and Company Secrets
Marcus and Blank, as stated in their book “Built From Scratch”, attribute their success to eight core values:
– Give excellent customer service.
– Take care of your people
– Develop entrepreneurial spirit.
– Respect all people.
– Do the right thing; don’t just do things right.
– Give back to the community as an integral part of doing business.
– Take care of your shareholders.
– Build strong relationships with associates, customers, vendors and communities.
The success of Home Depot can also be seen in how it has encouraged its customers to do it themselves. The salespeople at Home Depot are hired for their knowledge and understanding of home repairs and can direct customers to the equipment they may need for a given project. Short hands-on training classes are also offered at their stores to teach various aspects of repair and remodeling.
Blank and Marcus take “road trips” and show up unannounced at their stores. They say the experience is good for them because they are continually learning from their associates – that marketing strategies have changed because of these opportunities to learn from those on the floor who know more about the products and deal with the customers directly.
Additionally, Blank and Marcus operate according to the “running scared” method of management, where 90% of their meetings deal with problems, how to outdo competitors’ approaches, products that are in demand and what customers are not finding at their stores. Their longstanding objective is to continually work to improve today’s standards. And it certainly has worked for them so far.