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Rebuilding the Home Depot
CEO Frank Blake Tells How Improved Customer Service Put the Retail Giant Back on Track
by Gary W. McKillips
Walking the aisles of a Home Depot store in Winchester, Tenn., wearing a
baseball cap and a shirt with the sleeves rolled up, Frank Blake looks like
any other customer rather than CEO of the nation’s fifth largest retailer and
Georgia’s highest ranked Fortune 500 company. “I have an advantage. I’m
an old, bald guy,” says Blake with his usual self-deprecating humor. “I can
disappear.” But that recent walk through the Winchester store - or any of the
2,200+ Home Depot stores under his leadership - gives him candid feedback
from customers.
On one recent walk around, Blake got an unexpected response to a new
program for greeting shoppers. “I’m sick and tired of people saying hello to
me,” one customer told him. “That’s all well and good, but do you think you
could put some of these people on the register?” Lesson learned: Speed to
checkout is more important than meet and greet. “Most of the time, customer
service comes down to if we have the product in stock and we’ve got someone
on the register to get the customer in and out,” he says.
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Blake was promoted from The Home Depot’s executive team to CEO in
2007. His charge, in part, was to put customer service front and center at the
company that had lost ground under Robert Nardelli. Although Nardelli had
led Home Depot to soaring profits and expansive growth at the beginning of
the decade, he had drawn criticism for his inflated pay package of $245 million
and actions that alienated top executive talent and board members.
However, when the board picked the relatively unknown and milder
mannered Blake to take charge, some industry analysts questioned the
decision. One reason? He had no experience in retail.
For most of his career, Blake has
worked as a practicing attorney. After
finishing studies at Harvard and taking
a law degree at Columbia, he clerked
for Supreme Court Justice John Paul
Stevens and later served as deputy
counsel to Vice President George
H.W. Bush. He was general counsel
to the EPA, followed by a stint at the
Department of Energy, where he
managed a budget of $19 billion.
Blake first worked for Nardelli at
General Electric, where Nardelli was
CEO and he was general counsel.
Then he made an unusual move to
the business side of GE, stepping into
corporate business development and
assuming leadership of its worldwide
mergers and acquisitions. He joined
the executive team at The Home Depot
in 2001 as executive vice president of
business development and corporate
operations.
But whether he’d had zero or 40
years in retail, the story would be the
same, Blake says. “In retail, you are
always educating yourself. Regardless
of experience, there is a value to
connecting to the business, and in retail,
fortunately there are no barriers to
making that connection to customers. I
can always help load a cart.”
Blake’s actions to steer The Home Depot
back to the top in customer service have
come during an economic recession that
hit industries related to construction
particularly hard and in the face of
strong competition from rival Lowe’s.
But he didn’t have to start from scratch.
Instead, he turned back to the guiding
principal of founders Arthur Blank and
Bernie Marcus: Take care of associates
and customers, and the other things will
take care of themselves.
At the top of his to-do list, “let the
associates know that we will provide
well for them. Let the customer know
that the company wants to provide
great service.”
Easier said than done. The Home
Depot Blake inherited came with some
big challenges. “Some areas worked
better when the company was smaller,”
Blake says. So he took the painful step
of cutting loose specialty divisions,
closing concept stores such as Expo
and the landscape centers, and laying
off 10,000 employees.
With the idea that the corporate
managers need to know what is
happening in the stores to effectively
support them, he started a program
to put the executive leadership to
work in stores one full day per week
each quarter. A regular participant
in the program, Blake says he works
particularly hard when visiting one of
the stores managed by his son, who
oversees the Home Depot district
based in Richmond, Va. Whereas some
associates might be intimidated about
giving feedback to the big boss, Blake
says his son is not. “I am lucky to have
someone who will tell me how badly I’m
doing,” he says.
Blake believes that working in
the stores gives him the right level of
humility in terms of the difficulties
the associates face. He’s learned, for
example, that if he adds something
to the associate’s load, he has to take
something away. “Simplicity is key in
implementing new policies or operations
because the associates don’t have time
to absorb complexity on the floor,”
he says.
When Blake started as CEO,
associates’ responsibilities were divvied
up in a ratio of 40 percent customer
service to 60 percent tasks. He wants
those ratios to flip by 2013, and the
company is making progress with
customer service now tipping in at
occupying 51 percent of an associate’s
time.
Another necessary fix involved
the supply chain. Home Depot was
at a competitive disadvantage, with
approximately 80 percent of its
merchandise being shipped directly to
stores. That system resulted at times
with the arrival of an overwhelming
number of merchandise on the store
floor for an associate to handle. Blake’s
team addressed that issue by rebuilding
the supply chain in a record three years to include 19 rapid
deployment centers that cover all of the United States. One
center can order and deploy for 100 stores.
The store support team also took a step back to look at
merchandising. “We have to have the right amount of product
on the shelves at the right time,” Blake says. “For us, that’s
interesting because we have 30,000 or more SKUs (stockkeeping
units) in each store.” Demand for products spikes
and wanes, driven by seasonality, requiring forecasting,
replenishing, and the supply chain to work hand in hand.
In another area, The Home Depot was lagging in retail
technology. It has since made a large investment in information
technology, including a way for associates to look up SKUs and
locate products with a handheld device. Blake’s goal is to come
from behind on IT to set best in class standards.
And in looking ahead, he also is placing an emphasis on
online sales. “Online is hugely important for every retailer,”
he says. The company is investing heavily in its website and
mobile apps, and rolling out a program where customers can
buy online and pick up at the store.
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The Home Depot has a new look these days. Literally. Many of
its stores have new lighting, new coats of paint, and parking lots
with new paving and striping.
It has a new feel too, starting with the associate ranks. The
company has reinstituted the Homer awards program that
recognizes associates’ contributions that reflect Home Depot
values, and Blake regularly meets with employees who’ve
attained platinum status—the highest milestone level. During
the recession, the company gave salary increases to hourly
employees, increased bonuses for some, and maintained 401k
contributions.
In the core business, indicators are showing that customers
are happier. Feedback on internal customer surveys is
improving, says Blake, and over the busy Memorial Day
weekend, The Home Depot received more words of praise than
complaint. Blake says he would know. “It seems that every
customer who has a problem finds the way to my inbox,”
he says.
Overseas, The Home Depot also is experiencing success. In
Mexico, where Blake was in charge of opening the first stores,
Home Depot now has 87 stores in the country. Its stores have
achieved positive sales growth for the last 30 quarters. Besides
helping with the overall bottom line, the stores there are
helping the corporate office learn about the needs of Hispanic
customers who live in the States. The Home Depot runs
another 180 stores in Canada, and Blake led the company’s
acquisition of the Chinese home improvement retailer Home
Way to enter the Chinese market.
While he is excited about the possibility of further overseas
expansions, Blake says The Home Depot’s main focus for now
is at home. He and his board are pleased that transactions
are on the rise - up to $1.25 billion - as are dollar amounts of
individual sales. From a low of $66.2 billion in 2009, sales in
2010 climbed to $68 billion, and in the first quarter of this year,
earnings of $812 million continued to outperform numbers
from the same period in 2010. Blake knows there’s more to
do. The market is far from normal in home improvement
retailing, and he is watching what he calls that “other publicly
owned home improvement retailer.” But he is steady at the job
in rebuilding The Home Depot to support the associates and
please the customers. After that, according to the Blake-ology,
the rest will take care of itself.
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Copyright © 2011 J. Mack Robinson College of Business/Georgia State University
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