January 22, 2017

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The Home Depot

Bernie Marcus and Arthur Blank both worked for a Southern California home-improvement chain called “Handy Dan” in the 1970’s.

While there, they experimented with heavily discounting products in one of Handy Dan’s locations. The experiment was a success in every sense of the word, and it was their intention to expand it to more stores. But they never got the chance.

Sanford Sigoloff, a “turn-around artist,” took over Daylin Inc., the parent company of Handy Dan. Sigoloff had a reputation for gutting the upper-level management of companies he took over, and Handy Dan was no exception. Bernie Marcus and Arthur Blank got the boot, and their days in home improvement stores came to an end. Or so it seemed.

Fortunately, Marcus and Blank weren’t quite ready to throw the towel in altogether. In fact, quite the opposite- their little “discount experiment” had inspired them. They wanted to create a new, nationwide chain of home-improvement stores that would sell a wide array of home-improvement and construction goods for as cheap as possible. Moreover, they wanted to provide the best customer service in the industry. Their employees would all be thoroughly trained, ready to give customers the kind of specialized information they needed at the drop of a hat.

To enact their vision, Marcus and Blank used money from a New York City investment firm to prep and stock their first stores. There were over 18,000 products on their shelves, ranging from painting products to building and plumbing supplies, their prices marked down as low as they could be. To fill even more space, empty boxes were piled to the ceilings, creating the illusion of an even larger inventory.

The inventory was in place, the sales staff was trained and ready, and their name was picked out. So, in 1979, the first two Home Depots opened their doors.

As a promotional stunt, Marcus and Blank had their children hand out $1 bills at the door to shoppers. They assumed the money wouldn’t last to lunch. But come sunset, the kids were still out there, now in the parking lot trying to wave down potential customers, offering them money to come into the store. Blank recalls the moment as “a crushing disappointment.”

Of course, anyone familiar with the Home Depot–which is probably everyone reading this–knows that Marcus and Blank’s crushing disappointment was unfounded.

Word of mouth quickly spread about this new low-cost, customer-friendly, home-improvement chain. Furthermore, Marcus and Blank were determined not to let their customer base stop at professionals. To attract more “inexperienced” homeowners and the like, the Home Depot began offering classes to their customers–similar to the training Home Depot’s employees went through– to teach them all the “handy” skills they would need to fix their own plumbing, do their own carpentry, and tackle all of the home improvement needs that people usually passed along to trained professionals. In so doing, Marcus and Blank hoped to create a whole new set of customers for their growing chain.

Within several years, Home Depot had expanded to the Miami market. In 1981, the company went public. Sales, originally projected at $9 million, were coming in well over $17 million. Growth seemed inevitable for the Home Depot. And grow it did. Within a decade, there were 118 locations in the US. Sales were at almost $3 billion. Things were looking good, and they were only going to get better.

To put the amount of money that Home Depot makes a year–and it’s an awful lot–into perspective: I recently spoke about the chain with a friend of mine who buys, fixes, and sells realty properties for a living. He does much of the handiwork himself, and frequents Home Depot probably more than he’d like to. He recently totaled his receipts from a year’s worth of expenses and determined that he annually spends about $100,000 at Home Depot alone, to say nothing of the other hardware and supply stores he goes to.

So think about all the people like my friend Matt, people who utilize one or more of Home Depot’s 2000 US locations on a weekly basis. Then think about all the average folks who go to Home Depot, just to pick up a new door knob, or a can of paint, or a house plant. All those patrons, all those dollars, and all those door knobs add up. They add up quite a bit. Despite the recession, Home Depot’s recent sales exceeded $71 billion dollars.

So there you have it. A low-cost home-improvement chain, made to fit the needs of specialists and laypeople alike. Now why didn’t I think of that?

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