Home Improvement

Home Depot is betting its $1 billion investment in IT infrastrucutre will boost growth and earnings, while fending off rival Lowe's. Can a strategy designed to improve efficiency also increase customer satisfaction?

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High-Tech Vs. High-Touch

Along with the IT group, the notion of what constitutes good service has also changed. For years, good service at Home Depot meant high-touch service—employees interacting with customers. Now it means self-service. In the old days (as Home Depot employees refer to the pre-Nardelli days), if a customer entered a store and wanted to know where to find drain pipe fittings, an employee would walk him to the aisle and shelf. This is part of the reason why Home Depot had few signs in its stores, says Simley. But Nardelli decreed that a thousand signs should bloom. Better signs, he believed, would be a cheap, non-labor-intensive way for the company to move customers in and out quickly and to make those cavernous spaces seem less bewildering, especially for the female customer who Home Depot was trying to attract in response to Lowe's successful appeal to women.

Today, Ray Allen says Home Depot gets high marks if customers can find things on their own (thanks to signs) and scan them on their own (thanks to self-checkout), without having to interact with a salesperson. "Service used to mean whether I can get an associate to help me. Now service means I can do it myself," he says.

But is self-service the same thing as good service? Retail Management Consultants' Whalin begs to differ. If Home Depot's goal is to get customers in and out of their stores without ever having to speak with a clerk, says Whalin, "then Lowe's is going to continue to hand them their head."

With the possible exception of the two-way wireless scan guns that allow employees to cross-sell merchandise to customers, the technologies Home Depot is installing in its stores are not high on the personal touch. Lowe's is currently trying to differentiate itself from Home Depot on high touch. A big sign above the entrance to the Lowe's store in Saratoga Springs, N.Y., reads, "Lots of stuff by yourself? We'll load it." Another sign reads: "More than three in line? We'll open another checkout."

Which is not to suggest that Lowe's isn't increasingly using technology as well. At an investor conference in September 2003, Lowe's announced it would begin installing self-checkout this year. And during 2003, Lowe's created an electronic product catalog and links to its vendors through EDI interfaces. By automating the order taking process, the company says it has reduced errors and the length of time customers have to wait to receive their orders.

Striking the Right Balance

The surest way for Home Depot to improve its earnings growth, market share and stock price is to move more products more quickly through more stores with fewer associates and lower overhead than in the past. The ability to do that hinges on increased efficiency—but also a better shopping experience for customers. Better store layouts, more signs and brighter lighting will help, and technology can too. While Home Depot is using more packaged software, the IT department still does plenty of application development in house, particularly for customer-facing technologies like Online UPC and receipt lookup. "Every time we help a customer, satisfaction goes up and so do sales," says DeRodes.

Conversely, every time a customer even thinks he or she needs to talk to a knowledgeable person and can't find one, satisfaction plummets. The most critical thing Home Depot needs to get right is to drive efficiency while enhancing the customer experience—and these two things don't always go together. With Lowe's hot on its heels, Home Depot's home improvement effort has got to be a home run.

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Copyright © 2004 IDG Communications, Inc.

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