Home Depot execs reveal why the retailer is doubling down on home decor, how it built billion-dollar brands, and what it got wrong about millennials

Courtesy of The Home DepotWe'd like to think about making a house a home, Home Depot EVP Ted Decker told Business Insider.Home Depot is seeking to become a one-stop shop by enhancing its online decor selection.Business Insider spoke with merchandising EVP Ted Decker and SVP Jeanine Huebner about the home-improvement giant's strategy regarding decor.The two Home Depot executives spoke to Business Insider about everything from mid-century modern styles to millennial buying habits.Visit Business Insider's homepage for more stories.In a bid to become a one-stop-shop for customers looking to spruce up their abodes, Home Depot is doubling down on decor.The home-improvement retailer has long been a major player in the business of carpeting, rugs, mats, tiles, and paint.But by expanding its online selection of bedding, furniture, and other decor products, Home Depot is looking to court an even larger market than before. Business Insider spoke with merchandising EVP Ted Decker and SVP Jeanine Huebner about this push into new territory.The following interview was edited for length and clarity.Business Insider: Tell me a bit more about how Home Depot decided to make this foray into home decor.Ted Decker: I'm glad Jeanine was here today. She actually runs it, and is much more versed than I am. I can definitely help on the background. I've worked in our business development group and our strategy group earlier at Home Depot. This all culminated in our December 2017 analyst meeting. Every three-ish years, we'll go in front of our investor base and explain a strategic horizon of what we're going to focus on and offer a view of what the financial results would be for that next three-year horizon. December 2017 is when we first publicly spoke about getting more into decor.You look at Home Depot, in home improvement, in decor-oriented products, we're already in the business to the tune of billions of dollars. I think our sales were $108 billion last year for what we call our decor categories.We break the business up into building materials, which is lumber and building materials, roofing, et cetera. Then we have hardlines, which is the core hardware department.Then we have decor. In decor, we have flooring. We're already in carpet, rugs, mats, tile, mosaics, and paint. We have the largest paint business outside of Sherwin-Williams. We get into fixtures and bathrooms - not just toilets and sinks, but faucets and in-lighting fixtures and ceiling fans, et cetera.Read more: Home Depot is swooping into new territory after realizing it underestimated millennialsSo, we're already in the business. We asked, Can we go broader and offer more products to our customers? taking the customer backview. It isn't just what we think we can do. It's about whether the customer gives us permission to play in decor beyond what we're already offering.Some of the thinking there is customers, shoppers, consumers are shopping fewer retailers a year. Where you used to shop 25 outlets a year or 20 outlets a year, I think the average consumer is shopping something like 10 retailers a year. We're all looking for convenience and simplicity in our lives.If you're at Home Depot and you're remodeling your bathroom, and you've got the flooring material, the paint, the toilet, the sink, the faucet, the ceiling fan, the exhaust fan, the sconces, the towel bar, and we've gone into bath accessories. It's like, If I could get my towels there too, I won't have to go to another website. I won't have to receive another package.Wwe did a lot of research in 2017 to see if this resonated with our customer base. In fact, not only did they give us permission, but they said, Boy, we'd sort of expect you to help us finish the project.We often say that Home Depot is a project retailer, not an item retailer.Alan Diaz/AP ImagesDecker said that the company has done a lot of work when it comes to researching millennials.People are coming to Home Depot because something's broken that they need to fix or they want to improve something in their house. It's a project. You're not going to Home Depot to buy milk. You're going because you're doing this project. So, when it comes to completing a project, we like to think about completing a room or making a house a home.We were given permission to do things that are adjacent in that decor space, so that they'd be interacting with Home Depot already. For example, the towel on the towel bar. We probably wouldn't get into - I mean, maybe we would online - but scents or atomizers or something. We're trying to draw the boundaries that are within our permission set. That's the broad background of it. Then, we went a little deeper, and we saw that this space is moving online. So, you've got an enormous space. Everything in home decor is about $275 billion and about $90 billion of that is home-improvement decor, so, things like faucets, paints, the things I was mentioning that were already in.But then home in terms of furniture, furnishings, table top, glasswares, and housewares and all that, that's about $180 billion. Textiles alone are $22 billion. So, you have this enormous space. It's being disrupted because the department stores generally service this space.Putting a strategic lens on it, you have an enormous space that the consumer gives us a right to play in that is shifting out of traditional department stores and toward new players. And then, the last piece of the puzzle is it's moving online. Of that $180-odd billion, about $25 billion is already online, and it's growing incredibly quickly.Read more: Home Depot is charging into Target's home-decor territory, but the home-improvement retailer refuses to copy one of its winning strategiesThen we say, Well, we have a top 10 e-commerce website in the United States. We get over 2 billion visits a year. We already do about $8 billion in sales on our website. Customers are coming to us. We looked at our search words. People were already searching for this product on our website. We put that whole thing together and said, You know what? We have a legitimate right to play in this space, and we believe we have the assets that we can win and delight our customers.That's the strategic background. The Company Store - which we bought in 2017, because we didn't know anything about textiles - that's a big piece. It's $22 billion of that $180 billion, in and of itself. We had bought the largest single online blinds company, Blinds.com. It's in Houston. We had purchased Blinds.com a few years ago, and we have by far the number one share of online blinds. We had a great strategic play there.They were a standalone e-commerce site with unbelievable capabilities. They, more or less, took over our blinds experience on the Home Depot website. So, we've got a reverse synergy there. They brought their expertise. That's what we think the Company Store is going to do. They're going to bring their textile expertise to the Home Depot.Then we had bought Home Decorators Collection, which was a more traditional catalog retailer in home furnishings, back in 2006. Home Decorators Collection is already well over a billion-dollar private brand for us in our stores and online. But you can go into a Home Depot store and you'll see ceiling fans, light fixtures, rugs, carpet, other flooring products, and mirrors that are branded Home Decorators Collection.So, we've been sort of piecing this together for some time. It all came together where we could go public with a bigger bang in 2017.Huebner: Ditto on all that. When we acquired the Company Store, we immediately started working with that team to better understand who their vendors were and what their process was. They're a 108 year-old brand, so, they're certainly well-positioned from being known as a quality, best-in-class brand. They've really developed some great relationships with factories and their manufacturing partners.We immediately jumped in to help leverage that, so that we could start to build some additional more value-related product lines in the textiles world that were probably a little more geared to our customer - utilizing, as Ted mentioned, Home Decorators Collection, positioning that as a better brand.MPI10 / MediaPunch/IPXA lot of people are looking for inspiration, Huebner told Business Insider.Then in July we will be launching a StyleWell brand, just an everyday great value that competes for that value-oriented price-point customer. We're excited that we were able to quickly leverage the Company Store to help us create those relationships, from a company standpoint.As Ted said, we do have the Company Store products uploaded on our website, but we will be, in a broader way, launching some additional brands in July to help us really make a big push against this important category for us.BI: Are you going to be stocking new decor options in your stores, or just online?Huebner: The categories that we've historically had in stores, whether it's blinds or lighting or flooring or paint, we'll continue to lean in there. There are different times of the year we may pop things in the stores, but the expectation would not be to stock these in the stores. We feel like we can really offer a great experience online and that will be our focus.BI: As you're expanding into the decor category, how do you think about the pro market versus the DIY-er market?Huebner: That's an interesting question. Right now, to be honest, our focus has been on the she customer - the female customer - because we found from all the research that Ted mentioned, from all of our history, when you look at the categories we play in, in decor, paints, rugs and all the other categories, that the she customer is making most of the decisions, even if they're utilizing that pro to help them with the renovation.If they're utilizing the pro, whether it's to install or do the painting, we've really had our focus on her, to help convert her with the sale. Then we do have a program through what we call pro referral, that allows people to purchase some items and often to have someone contact them to complete the work.Read more: Home Depot is countering Amazon and Walmart with its own plan for next-day deliveryAs of now, though, we are focused on really speaking to her. Granted, as we continue to gain momentum and build sales volume and awareness - because there are still so many customers that aren't aware of the breadth that we have in these businesses - we know that that pro customer will certainly want to tap into decor, even if it's from a customer standpoint, for their own home.BI: How does the millennial market feature into your expanding decor offerings? Decker: We've done a lot of work with millennials. One of our concerns was that there was a lot of conversation, going back five years ago, about the rental economy. We were still coming out of the recession. Homeownership rates were down. Going back to 2010, we weren't seeing that traditional path: finish high school or college, get married, start a family, move to the suburbs, and get your first starter home.We were concerned that, Wow, maybe this isn't going to happen. There was a lot of discussion about the rental economy, that people are just going to rent the same way we do Airbnbs and Ubers and Zipcars, that it's going to be the same in housing.We've watched a lot of research with the millennials. About five summers ago, we brought in a whole group of interns - millennial interns - that were in all sorts of different practices.We didn't just go get business school students. We got people from SCAD, the Savannah College of Art and Design, we got computer programmers, we got business majors, we got liberal arts majors. We brought them all together and we said, All right, you're the millennials. Your job this summer is to tell us what's relevant to you and what's not relevant to you in Home Depot, in-store and online.It was very encouraging because they said, No, you're actually very relevant. They gave us lots of feedback on how to become more relevant. We're in a whole store remodel program right now and we've incorporated a number of those kernels of insight from the millennial interns.Further research, now we're seeing as we've come out of this housing recession, shows that the older millennials now are entering that home ownership, maybe not as much as the baby boomers, but still much more on the norm than what we were seeing in 2010.Then, obviously, people are shopping online, but it still goes to that, I want convenience. I don't want to drive to a bunch of different retailers. I also don't want to have to necessarily hop to a bunch of retailers to do multiple orders.That was one of our thoughts for home, because why do you want to have them buy all these things, and then log off Home Depot and go to Bed Bath and Beyond or Wayfair or whomever else? The millennials are telling us that they'll buy this product from us. So again, it reinforced why we wanted to add convenience and more of a solution for what's the single biggest generation in the history of America.Huebner: When you think about the millennials, and, quite frankly, it probably expands into a broader female customer base, but a lot of people are looking for inspiration. They're looking for what's on-trend. We have a great relationship with Pinterest, as we think about, how do we help portray our great products in an environment that's familiar to them and that they're familiar with in order to quickly visualize the products? We've seen some great wins as we've been able to engage that relationship.As Ted said, for people who are renting, we might appeal to them in a broader way. You think of Home Depot's cleaning supplies or products that you could use not only in an owned home, but in a rental. If you start thinking about finishing out your home, it doesn't matter if you rent it or own it. We'll now be able to appeal to that customer. Not just that they're renovating it, but that they're kind of finishing it out to create a home wherever they're renting.An interesting fact, too, on the millennials: our kids' workshop just had its 20th year anniversary. A lot of millennials we're finding actually grew up with Home Depot through the kids' workshops that we have once a month. Those really help introduce us to very young associates who get to have hands-on touchpoints with building and becoming familiar with Home Depot.So, it's interesting that, as Ted mentioned, when we had all the millennial interns - and we still have over 250 interns here this year - but that they're familiar with Home Depot having gone to some other kids' workshop, which is really encouraging, if you think about just how that trend has helped us kind of grow up with this new customer base.Scott Olson/GettyAnthony Ross searches for an item for a customer at a Home Depot store on March 24, 2015 in Chicago, Illinois.Decker: We did further research about millennials, when you think about things like brand, and brand love, and affinity. Our highest scoring demographic was millennials when it comes to affinity to Home Depot. We do think the kids' workshop had something to do with it. I hope we're not just believing our own smoke, but, you know, we like to think of our brand as being very authentic and real. Those are two of the more powerful words that millennials are looking for in a brand. Home Depot has always been about doing and action. There's work to do with home improvement, and we've never sugar-coated that it's a project - it just doesn't magically happen.That's why we have sayings like, More saving, more doing - very action-oriented. You can do it, we can help. Our various taglines over the last 20 years are all about doing and sweat equity and how we're in it together, and that's resonated.One other thing to touch on with decor - and again, why we think we have the right to win in this space - is a lot of decor product is branded. We carry loads of brands in all these different product categories like rugs. Over the last several years, we've built up a tremendous capability in our own brands.In total about 20% of all Home Depot sales are with our private-label brands, and we have about 15 private-label brands. Eight of those brands are over $1 billion each. Now, you don't see us marketing like Proctor and Gamble, Clorox, or Kimberly Clark that much on television for those private-label brands. But we are still running very large brands.What we used to do when we got into private label is, as I like to say, we went shopping. We sent our merchants around the world, and we knew we were looking for an item in the assortment. We'd go see what was available, negotiate costs, and buy it.We've matured now, to where we have product development teams that actually do research with the customer. What is the customer looking for? At what price point? What value? How do we engineer the product and develop the specifications? Then we still go off-shore in most instances, but now, you're going with specifications and looking for someone to build what you want versus going shopping for what someone's already developed.We have global sourcing teams; we're in China, Vietnam, Taiwan, Turkey, and India, and Mexico, where we have sourcing offices, we have brand-building capabilities. We have marketing capabilities, packaging capabilities.All of that capability is what went into that new StyleWell brand that Jeanine referenced. Here, we're introducing a great value brand with sheets, duvet covers, and towels. We've got the right products. So, if you want a long, stable, absorbent towel, that cotton comes from Egypt. If you want a less expensive, maybe not as fluffy towel, that's an Indian cotton.These are the things that we understand now in our global sourcing. We have laid this product out against - you can imagine who the competition would be - and did independent testing on fiber attributes, softness, absorption, et cetera. We score higher in every measure and at lower price points than any ... can I mention names? BI: Go ahead.Decker: Than other retailers. I'll leave it at that.BI: You're not going to throw any shade for me?Decker: I don't want to diss anybody.Susan Walsh/AP ImagesDecker said the Home Depot is second only to Sherwin-Williams when it comes to the paint business.BI: How are you taking decor trends into consideration, to avoid missing or flubbing trends?Huebner: We actually do have a trend and design team that works here at Home Depot. We have some other people that work at the Company Store, specifically in textiles. They do look at what's trending: Is it bright colors? Is it more subdued? What's the influence?To be fair, there are categories that we're much more mature in because we've earned that customer. I look at patio furniture. We have been in patio furniture for years, and we'll specifically get into trends as it relates to the question of whether our customers are ready for this trend.We will not lead in trend and design, because we really have more of that kind of a general customer and we don't hit on either side of the larger spectrum. We'll work very closely with our trend and design team. Our merchants or buyers go to shows. And our vendors are a great resource for us, to help guide us. It's typically 12 to 18 months that you're making decisions on a lot of the product that we're working on before it will actually be buyable.We talked a lot about the new launch in July on textiles, so the rugs, the sheets. We didn't get trend-savvy one way or the other. We looked at more of that core general customer as we continue to become more aware. We will continue to take risks because we have to, to see where our customers are going to allow us to take them, but we do depend a lot on our trend and design team.And, my goodness, we know that we'll have mistakes along the way. I guess we wouldn't be doing our jobs if we didn't. But we really try to utilize that team across different businesses. For instance, you may see more of the color gray in flooring. Then you may see that translate into vanity. You may see some of that weathered look on shiplap, and now customers want it in their vinyl plank tiling. So, we do utilize the insights to more broadly look at the customer, as well as individual categories.BI: Do you guys ever envision yourselves pulling a Target and partnering up with brands or designers for limited offerings on your site?Decker: You know, probably not. We have had a history of different partnerships that have been very successful. We had a very strong relationship with Martha Stewart. She and her team had designed a lot of decor projects with us.People come to us all the time, but as our private-label capabilities have matured, we find we don't really need the expertise that a third party would bring.Because our brands are $1 billion brands now, we also don't necessarily need a brand name, because we have the brand. The watch-out in any of those relationships, is they all tend to have a shelf life, for one reason or another. Bad behavior. They get out of style. Mortality. The only two people that seem to keep it going are people like Coco Chanel and Ralph Lauren. You can count on one hand the multigenerational brands of the kind we're talking about.We'd rather spend our energy on our own capability and building our billion dollar brands than have a relatively flash-in-the-pan brand that lasts five or 10 years and then disappears.BI: If you had to sum it up, what does Home Depot offer in decor that the market doesn't offer already?Huebner: We are a trusted company for our customer that offers convenience, whether it's shopping in a store, shopping online, returning in a store, or returning from your home. We always, always want to provide the best value and quality. Value meaning not just the cheapest, but the best quality-cost relationship to our customers.Anything we get engaged in, we always have the customer in mind. We can really build your home at a great value with quality product, from studs to the finishing touches of candles on your dining room table, all at the Home Depot, whether you choose to shop online or in store.Got tips? Email acain@businessinsider.com. NOW WATCH: This new solar-powered home development store is coming after Home Depot function receiveMessage(event){ console.log(event.data.fullscreen); Android.fullscreen(event.data.fullscreen); }window.addEventListener(message, receiveMessage, false);

Home Depot execs reveal why the retailer is doubling down on home decor, how it built billion-dollar brands, and what it got wrong about millennials

Read Full story