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Home Depot makes big gains in appliance sales
Feb 3, 2003
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Three years ago, Home Depot made an assertion that it one day would dethrone Sears as the appliance king.

While it's still far from that goal, it appears to be moving closer.

In 2002, Home Depot moved up the list, replacing Best Buy as the country's No. 3 appliance seller. Home Depot captured a 6.4-percent share of the industry last year, according to a report prepared by Stevenson Co.

The U.S. $21 billion appliance industry provided a spark for Home Depot, whose overall sales slumped in 2002.

"The opportunity for us is huge," said Bob Baird, global product merchant at Home Depot. "It would be really difficult for us to double our 2-by-4 [lumber] business."

In the late 1990s, sales of washers, dryers, ovens and refrigerators were an afterthought at the home improvement chain.

Home Depot Chairman and Chief Executive Bob Nardelli says he looks forward to the day appliance sales have "a significant impact" on sales at stores open more than a year. Wall Street views that statistic as a key indicator of a retailer's health.

Last month, Home Depot said same-store sales would be down 10 percent in its fiscal fourth quarter. Appliance sales, in comparison, are expected to increase more than 70 percent during Home Depot's fiscal year 2002, which ends Sunday.

Despite its increasing sales, it will be hard for Home Depot to become the top seller of appliances in the U.S.

Sears is entrenched as the leader with a market share of 38.5 percent. Home Depot's main competitor, Lowe's, increased its share to 13.7 percent in 2002. Volume is critical in selling appliances because margins are smaller than usual.

Moreover, Home Depot carries only two major brands of washers and dryers: General Electric and Maytag. Sears and Lowe's sell several brands.

Mr. believes, that by 2005 Home Depot and Lowe's combined will account for 30 percent of all appliance sales. They will syphon market share from Sears and smaller shops, he said.

Home Depot and Lowe's already have benefited from Circuit City's decision to stop selling appliances. Best Buy recently acknowledged that "sales of appliances continued to decline in the mix."

Home Depot first sold appliances in regular aisles with display models on the floor and the boxed units on racks above.

The chain started its appliance upgrade about 18 months ago, under the secret name "Project X." By the end of this year, appliance showrooms should be in all of its 1,500 stores.

About half of Home Depot's 45 Atlanta-area locations, including the stores on Ponce de Leon Avenue in Midtown and Dallas Highway in west Cobb County, already have the new showrooms.

Improving product presentation and selection is one of three keys to growing market share, Mr. Baird said. The others are advertising and hiring a competent sales staff.

"Right now, Sears is best in class in all three," he said.

Sears is vulnerable, though, because Home Depot has nearly twice as many stores, Sears locations usually are in regional malls, and customers prefer big-box stores, Mr. Baird said.

Home Depot is increasing its appliance sales floors by retrofitting older stores with new showrooms and including them in newly built stores. The showrooms will be 1,300 to 1,800 square feet, still much smaller than Sears', which often cover 5,000 square feet or more.

Mr. Baird said Home Depot plans to complete its retrofit this year.

The upgrades are part of the $250 million Home Depot plans to spend this year on remodeling stores in order to increase sales and improve customer service. The remodeling Home Depot already has completed has impressed analysts, who often credit Lowe's stores for appearing brighter.

"While the jury is still out on Home Depot, certainly at this early stage, we did visit some of the new and remodeled stores and agree that we saw an improved format," Merrill Lynch analyst Douglas Neviera wrote in a Jan. 21 report.

The appliance showrooms also made an impression.

"Appliances and kitchen cabinet areas have much more 'at-home' feel so you can better envision how the products would appear in your own home," Neviera said.

On Feb. 3, Home Depot will begin offering free delivery on major appliances in an attempt to win more of the market, Mr. Baird said.

Mr. Baird, who joined Home Depot about 18 months ago, said "it's almost scary" how quickly Home Depot appliance sales have grown.

"It's a big bump, and it ramps us up from there," he said. (Atlanta Journal Constitution)

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