HD Home Depot Inc

By Jennifer Smith 

Home Depot Inc. plans to spend $1.2 billion over the next five years to speed up delivery of goods to homes and job sites as the rise of online shopping resets consumer expectations.

The home improvement retailer will add 170 distribution facilities across the U.S. so that it can reach 90% of the U.S. population in one day or less, said Mark Holifield, the company's executive vice president of supply chain and product development. The new sites will include dozens of direct fulfillment centers for next-day or same-day delivery of commonly ordered products, as well as 100 local hubs where bulky items like patio furniture and appliances will be consolidated for direct shipment to customers.

Mr. Holifield told a logistics industry conference last week that the retailer is realigning its supply chain to a changing retail landscape.

Customers "expect delivery to be free, they expect it to be timely," he said. "Sometimes they want it fast, and are willing to pay for that. Sometimes they want it free, and they're willing to wait for it. We need to have the right options there."

The push comes as Home Depot is trying to tamp down transportation costs and improve inventory management as it tries to more closely integrate its growing online business with its network of about 2,280 brick-and-mortar stores.

"This is part of an $11 billion overall plan to re-engineer our company to ensure that we are prepared for the future in retail," Mr. Holifield said.

Online orders accounted for 6.7% of the retailer's $100.9 billion in sales last year, but the digital revenues expanded 21% from the year before. About 45% of online orders are picked up inside stores, and the company is rolling out self-service lockers at the front of some stores to speed up order retrieval.

Shoppers accustomed to two-day delivery from online retailers like Amazon.com Inc. are increasingly making buying decisions based on convenience factors, experts say, such as speed of delivery or availability of a wide range of products.

That's pushing retailers to reshape distribution networks that were originally designed to ship pallet-loads of goods from warehouses to stores. They are turning to tactics such as drop-shipping, where suppliers ship online orders directly to customers, and opening warehouses closer to customers.

Over the next five years Home Depot plans to build around seven e-commerce fulfillment centers that stock hundreds of thousands of products for shipment to consumers' homes or job sites.

The company is also testing the use of cars and vans for lower-cost delivery of smaller orders in some markets, and expanding its network of flatbed trucks that can deliver loads of concrete and other building materials to professional customers, who account for about 40% of the retailer's sales.

"We expect to build 40 flatbed distribution centers in the 40 largest markets, so that we can bring those products to customers on a next-day, same-day basis," Mr. Holifield said.

Home Depot sales rose 4.2% in the first quarter, lower than analysts had expected. Gardening-supply sales took a hit from unseasonably cool weather in March and April, but the rest of the retailer's business performed ahead of expectations during the quarter and growth is "double-digit over last year," Carol Tomé, finance chief of the Atlanta-based company, said last month.

Higher freight costs also weighed on margins as Home Depot, like other retailers, grappled with tight trucking capacity.

Write to Jennifer Smith at jennifer.smith@wsj.com

(END) Dow Jones Newswires

June 11, 2018 13:59 ET (17:59 GMT)

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