September 2005 - Behind the Orange Apron

John Costello, former EVP of merchandising and marketing for The Home Depot, talks about the tools of retail success.

By Vitisia Paynich

“DIY” or do it yourself has become a natural part of Monday-morning conversation between co-workers and fellow homeowners who often swap stories about the trials and tribulations-not to mention the ultimate satisfaction-of tackling weekend projects around the house. From solving simple plumbing dilemmas to toiling with more ambitious jobs like building a sundeck, these weekend warriors have helped The Home Depot become the leading home improvement retailer in the United States.

For more than 26 years, Home Depot and its apron-clad associates have pride themselves on providing consumers with the right merchandise at the right value, combined with the right know-how to get the job done. It’s no wonder that this Atlanta-based retailer has reinforced its own distinctive brand positioning and summarized its goal of empowering customers with the tag line: “You can do it. We can help.” Over 20 million customers visit a Home Depot store each year to select from 40,000 different products stocked on the retailer’s shelves.

On August 19, John Costello announced that he was resigning as executive vice president of merchandising and marketing for The Home Depot. Stepping into the role is Tom Taylor, a 22-year company insider and executive vice president of Home Depot Stores. However, prior to Costello’s departure, Electronic Retailer spoke one-on-one with this industry veteran to discuss the importance of outfitting consumers with the right products along with the strategy behind the company’s “You-can-do-it” philosophy. A key figure at the company since November 2002, Costello was responsible for merchandising, marketing, branding, advertising, visual merchandising, e-business and global sourcing for China, Mexico and Europe.

Costello says the most important thing he did was work with the various functions of The Home Depot to create a shopping experience that met the customers’ needs and differentiated the retailer’s brand. “That’s critical because everything that touches the customer defines [the] brand,” he affirms.

In 2004, the National Association of the Remodeling Industry (NARI) conducted a survey among homeowners in which 44 percent of respondents were do-it-yourselfers. Further, the study found that respondents were more likely to tackle less taxing home projects that cost less than $5,000, while for jobs totaling $5,000 to $50,000, homeowners were likely to hire a contractor. However, Home Depot’s early beginnings targeted home improvement construction and building maintenance professionals long before it realized the potential for reaching the DIY customer base.

Founded in 1978 by Bernie Marcus and Arthur Blank, The Home Depot was the first home improvement warehouse. The first two stores opened on June 22, 1979 in Atlanta. By the end of the first year, the company had opened a third store and generated $7 million in sales. Today, the company is the largest home improvement retailer with 325,000 associates employed at 1,911 stores, which include locations in the U.S., Canada and Mexico. The company also operates Expo Design Centers, Home Depot Landscape Supply stores, Home Depot Floor stores and Home Depot Supply stores.

In 2004, Home Depot took in $73.1 billion in sales, ranking second among the top 100 retailers in America following behind Wal-Mart. What’s more, in February 2005, the retailer was named the “Most Admired Specialty Retailer in America” by Fortune magazine.

Top 25 Retailers for 2005
Rank Company Headquarters 2004 Revenues (in billions) No. of Stores
1 Wal-Mart Bentonville, Ark. $288,189,000 5,189
2 Home Depot Atlanta $73,094,000 1,900*
3 Kroger Cincinnati $56,434,400 3,763
4 Costco Issaquah, Wash. $47,145,712 442
5 Target Minneapolis, Minn. $46,839,000 1,308
6 Albertsons Boise, Idaho $39,897,000 2,488
7 Walgreen Deerfield, Ill. $37,508,200 4,582
8 Lowe’s Mooresville, N.C. $36,464,000 1,075
9 Sears Hoffman Estates, Ill. $36,099,000 1,970
10 Safeway Pleasanton, Calif. $35,822,900 1,802
11 CVS Woonsocket, R.I. $30,594,300 5,375
12 Ahold USA Quincy, Mass. $27,500,000 1,489
13 Best Buy Richfield, Mich. $27,433,000 830
14 Kmart Troy, Mich. $19,701,000 1,480
15 Publix Lakeland, Fla. $18,600,000 850
16 JCPenney Plano, Texas $18,424,000 1,079
17 Rite Aid Camp Hill, Pa. $16,816,439 3,356
18 Gap San Francisco $16,267,000 2,994
19 Delhaize America Salisbury, N.C. $15,839,882 1,523
20 Federated Dept. Stores Cincinnati $15,630,000 459
21 TJX Framingham, Mass. $14,913,483 2,224
22 Staples Framingham, Mass. $14,448,378 1,680
23 May Dept. Stores St. Louis, Mo. $14,441,000 1,190
24 Office Depot Delray Beach, Fla. $13,564,699 1,190
25 OfficeMax Itasca, Ill. $13,270,196 935

Source: 2005 Top 100 Retailers, Stores Magazine (*Note: store figure based on The Home Depot’s own data)

Aside from trying to maintain a foothold among the top big-box retailers, Home Depot confronts the same key issues affecting the rest of the industry. According to Costello, the company’s main objective is to take care of the customer. “Customers today have more choices than ever before. They have more choices in the products and services they buy, in how and where to purchase those products and services, and in the media they consume,” he notes. This choice has shifted more power than ever to consumers. Thus, Costello says, “the key to success is understanding consumers’ needs better than anyone else and then delivering on that promise.”

Today, customers have more product choices than ever before. Thus, Home Depot associates are trained regularly on the latest products.

Part of delivering on that promise means building strong relationships with its most valuable customers, and segmenting its marketing strategies to best reach those customers. Costello says, “It begins with the customer experience in the store,” which means how associates greet them and guide them to the right aisle and make certain shelves are stocked with the merchandise they want.

Costello, who has over 25 years’ experience in consumer goods, joined the big-box retailer from Yahoo!, where he served as chief global marketing officer. Prior to that, he was president and CEO of, an Internet sporting goods and e-commerce company.

As Home Depot’s former merchandising executive, Costello was always looking for breakthrough products.

“Differentiation is a key initiative… [the company] believes [its] mix of national, exclusive and proprietary brands provides a unique product assortment for The Home Depot as well as numerous opportunities for suppliers to be represented,” he says

With a wide assortment of products that line the store shelves, sustaining strong relationships with vendors and suppliers is a must for the company. “I think the key to maintaining a strong relationship with suppliers is to build a win-win partnership that enables them to achieve their goals, while also meeting Home Depot’s needs,” he says. Costello adds that the key to achieving that is to build an open relationship with the store’s suppliers characterized by trust, mutual respect and open communication.

Besides finding the best products that will attract consumers to its stores, The Home Depot as a brand name, looks for novel ways for reaching its customers and spreading its marketing message. That means making the company’s advertising dollars work harder through marketing channels such as print, television, radio, catalog and direct mail.

As the leading home improvement retailer in the U.S., Home Depot stocks its shelves with 40,000 products.

Thus, the retailer utilizes an integrated 360-degree marketing approach to accomplish that. The Home Depot continually tests new approaches. “We’ve tested DRTV, and have found that it can work well for the right products in the right situation,” notes Costello.

The Home Depot TV spots can be seen throughout the U.S., with varied offers that may include deferred payment promotions on specified product categories, special gift card promotions or installation service offerings. Recent innovative products that have benefited from these television ads include the Ryobi AIRgripâ„¢ Laser Level, Glidden EasyTrac paint and the new Ducane Gas Grilles.

As a supporter of multi-channel marketing and multi-channel retailing, Costello believed the Internet was an important part of that strategy. Today, The Home Depot continues to invest in an online experience by improving new site functionality, content and expanded product selection.

He adds that “one of the best examples is in appliances,” where the store implements a call, click or visit strategy. He says, “The Home Depot is growing its share of core appliances faster than any other major retailer.” The purpose of the site is to make products more accessible to customers beyond traditional store hours. What’s more, the retailer is also consistent with its call, click or visit strategy in its TV spots.

At, visitors can browse and compare the features of over 2,000 appliances. They can order these products directly online or bring the information into the store and implement their transaction there. In addition, under the site’s “Know-How” section, customers can access an online guide to tackling more than 150 various home improvement projects-from installing cabinet doors to planting a garden bed. The store also offers information about weekly in-stores clinics.

Home Improvement Comparison
Company 2004 Revenues (in billions) Comparable-Store Sales Sales per Store
$73,094,000 +5.3% $40,652,947
$36,464,000 +6.6% $33,920,000
Source: 2005 Top 100 Retailers, Stores Magazine

Building on its objective for providing customers with an expansive array of products and services, in-store clinics and professional installation services, Home Depot has also expressed its commitment to technology innovation.

The retailer offers a variety of in-store clinics, such as landscaping workshops, to help customers broaden their home improvement skills.

In 2003, the company installed self-checkout stations in 800-plus stores to alleviate long lines and to free up associates’ time behind the register in order to tend to customers on the sales floor. Today, there are 1,000 stores outfitted with the system. According to the big-box retailer, the self-service systems have reduced wait time by one-third across Home Depot stores.

In May 2005, the company announced a new partnership with SAP AG, a leading provider of business software solutions, to deploy an enterprise suite of software products, based on the SAP for Retail industry solution portfolio, to enhance the retailer’s merchandising and supply chain activities.
This latest partnership is part of the company’s overall initiative to improve its IT infrastructure. For example, Home Depot installed hundreds of thousands of new devices in its stores, including cordless scan guns and point-of-sale (POS) terminals, and completely revamped its store network and wireless capabilities.

As The Home Depot tries to widen the gap between itself and the competition, it continues to expand beyond U.S. borders. Recently, the retailer announced plans to open stores in China.

Costello says The Home Depot “will continue to aggressively pursue new customer segments, new categories and new geographies.” He adds that the company has three major growth initiatives by:

  • enhancing its core stores with distinctive merchandise and store modernization;
  • extending its business through installation and professional services; and
  • expanding into new professional customer channels and international markets.

So, how does Costello sum up the company’s overall business philosophy? He contends the goal is to build on the momentum of one of the strongest brands in the U.S. The challenge is to leverage the power of that brand leadership to drive value to its customers, associates and shareholders and differentiate its brand. He concludes, “The Home Depot is committed to offering the ultimate home improvement shopping experience.”

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