Home Depot Goes Into Deep: Explores Blue Ocean Waters With Localization Strategy

Purchasing Strategy Problem
Home Depot had a problem in early 2007 – one riding mower was sold in two years in an Arizona store, and West Coast stores couldn’t keep Makita power tools in stock, according to the October 7th, 2008 edition of the Wall Street Journal. Their purchasing system was out of whack, and did not take into account regional and local customer buying preferences and patterns. This stemmed from a decision in 2001 by then-CEO Robert Nardelli to consolidate nine regional purchasing offices into a centralized buying operation at its Atlanta headquarters. This led to increased inventory for a variety of items less favored or unused by local customers, and an under-stocking of items popular with local customers.

Change To Localization Orientation Is Key
The new CEO, Frank Blake, tackled this problem, and changed Home Depot’s purchasing system which favored national uniformity at the expense of local preferences to a less centralized system. His new system balanced local demand with national efficiency. Localization of purchasing for retailers is critical for two reasons. First, it can lead directly the development of blue oceans in products and services. Secondly, from a shorter-term, more quarterly perspective, it enables a retailer’s stores to own marketspace geographically. Wal-Mart’s meteoric rise is based in creating local monopolies in “small town” America. The real explosion for retailers occurs when geography is linked to demographics and usage habits.

Wal-Mart Example: Link Geography To Demographics And Usage
Wal-Mart is beginning to understand this linkage – they created a group of 350 people around the country to better respond to local preferences. Wal-Mart also hired experts to produce more detailed demographic information about each store’s customer base. By linking demographics and customer usage to a locale or region, a retailer becomes more responsive and speedier in spotting buying trends and habits which affect an individual store’s profitability and margins. These twin metrics are even more important now during our current challenging economy as consumer sentiment and buying habits are shifting more toward value. Even Target’s usual value proposition and communication to its customers of “Expect More, Pay Less” is being skewed by them to the “Pay Less” side – truly a sign of the current tough times.

Home Depot Blue Ocean Strategy Localization Wal-Mart Robert Nardelli Frank Blake Turbo Tagger