Home Depot’s Q1 Profits: A Houdini-esque Act? Or Just Good Business

The well-known Home Depot logo, now seen in Mexico and Canada

Home improvement retailer Home Depot recently posted Q1 numbers that would baffle most in the current dismal housing market:  net profits are up 12%, despite a drop in sales.  Today a Forbes blogger likened the growth to pulling a “Houdini.”  Home Depot also made news recently for committing itself to disaster relief after the recent storms across the Midwest and Southeast, and we touted its social responsibility commitment to sustainable products in a past blog.

Let’s look closer.

Atlanta-headquartered Home Depot nips at Wal-Mart’s heels as the U.S.’s second largest retailer (founded in 1979, it can boast faster growth than Wal-Mart).  Like its competitor Lowe’s, Home Depot offers home improvement products in good times and in bad – notably the huge housing downturn we are seeing today.  With its brand now present in countries like Mexico and China, the company has made several distinct changes over the last few years.

With a marked changing of the guard – CEO Bob Nardelli stepped down in 2006 and was replaced by Frank Blake – Home Depot has moved back towards its roots.  Nardelli, who left in 2007 as part of a “mutual agreement” with the company, had come under fire for his skyrocketing compensation and the company’s reputation for poor customer service.  Although Home Depot’s revenue was up under Nardelli, he broke with the company’s culture to get it there.

As head of stores, Marvin Ellison is helping rebuild HD's customer service reputation (Photo via Mark Anderson, Bloomberg Businessweek)

His replacement, Blake, has aligned himself with the company’s ethos: focus on the fact that all employees are associates and that all employees are available.  Blake has made attracting and retaining a top-notch sales force a top priority as well as improving employee morale, rewarding “Product Knowledge” or PK badges to employees for great service, and providing opportunity for bonuses.  This means retaining and promoting personnel like Marvin Ellison, the current Executive Vice President of Stores, who was named by Businessweek as Home Depot’s “Mr. Fixit.”  As Chairman and CEO, Blake himself took a pay cut (Nardelli had controversially proven one of the nation’s highest paid CEO). He is apparently fond of saying that he is the least important employee at Home Depot, because he has the least contact with the end customer.

Re-branded logo seen on an HD smock as part of the company's April Fools this year

Home Depot is solid on the social media front as well, which helps it connect further with its customers by offering coupons, free tutorial videos on home project ideas (via iPhone as well) and a way to lodge complaints and compliments via Twitter. The brand itself is widely recognizable: the cheery orange background and stencil-y font of its logo gives off a strong “DIY” feeling (though they had some fun “re-branding” on April 1st).

Finally, it doesn’t hurt that Home Depot has been active in the communities impacted by the recent severe weather in the Southeast and Midwest by creating a fund for victims and having its volunteer force of employees help with local relief and recovery.  In the midst of devastation, Home Depot has found a way to keep up its image of building and re-construction.

How did the Home Depot accomplish this?  Some point to magic, but this is the type of steady effort that leads to sound business and a strong reputation.

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