Home Depot Localizes Assortment

Large retailers today face a unique challenge in trying to operate hundreds of locations but still personally know what each store’s shoppers want. The question is how can retailers take advantage of scale but also reap the benefits of localized assortment?“When I joined Home Depot in 1993 we were opening up a store every 48 hours. Do you think we could possibly have had the same kind of localized assortment then as we had in the very first store in the suburbs of Atlanta, GA in 1979? It would have been impossible,” said Home Depot’s senior director of assortment planning and analysis Aaron Surasky during a presentation with Atlanta-based retail tech firm Predictix’s executive vice president of marketing Kevin Sterneckert at the National Retail Federation’s 2016 Retail’s BIG Show.“Our challenge today — my passion — is how do I take 1975 stores and turn them into 1975 neighborhood stores? How do I go from growing sales by growing square feet to growing sales per square foot?”The Home Depot has been working to make its assortment as localized as possible by utilizing the help of modern planning tools from Predictix while retaining the human touch by listening to shoppers and employees. “Our chief merchandising officer has made this a cornerstone of what he’s going to stand for at The Home Depot: understanding the customer, localizing products and price and space to meet that customer’s needs, and then going back and optimizing them after you’ve done the first round,” Surasky said.The average Home Depot store has some 50,000 products across about 500 different categories, and the average category has more than 1,000 assortments. Clustering is one of the retailer’s keys to success, helping to group stores in ways that create a framework that allows merchants and buyers to make sense of the business. Another key is substitutable item groups that ensure incremental sales from a new product are not transferring from existing assortment that had already solved a shopper’s need. Yet most important to success are attributes and traits.“The Home Depot is obsessed with attributing SKUs so that we can understand the performance of our business down to the SKU store level and make assortment decisions that reflect the needs of the local customer,” Surasky said.When analyzing water heaters, for example, the first thing the retailer did was to attribute them as gas, electric, tall, short, high-warranty, expensive, wifi-connected, etc. Then it grouped its stores based on customer buying behaviors to understand which stores need gas, electric, expensive or less expensive models, and analyzed all that data using its assortment planning tools. In rural areas where there is no gas line established, shoppers prefer electric water heaters. In cities, they prefer gas water heaters. In areas where there is a mix of older town homes and newer high rises, there is a mix of needs that warrants hybrid stores that stock both types. Following that, the retailer looked at the space in each store — how many bays of water heaters they have versus what they need — and only then did they execute.“Notice how this is different than clustering and localization in years past. This is not an urban strategy versus a suburban strategy. This is not a high-income strategy and a low-income strategy. Demographics no longer drive the assortments; Customer buying behavior drives the assortment,” Surasky said.Home Depot’s water heater reset resulted in double-digit comparable sales growth. Despite the apparent success, the chief marketing officer was certain there was more that could be optimized and called for a second round, which again doubled comps. Now he wants the team to go in for round three.“The future for us is all about driving a competitive advantage,” Surasky said. “I believe that most retailers can replicate and copy individual aspects of other retailers … Competitive advantage comes when you fit these different sciences [of clustering, price optimization, space optimization, etc.] together in a process that’s internal to the organization. That unleashes the power of these individual silos and makes it very difficult for the competition to replicate.”

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