Some thoughts on Home Depot, which is up 1,250,450% since going public in 1981, or 27,4% CAGR.
$HD

Home Depot is the world’s largest home improvement retailer. They offer customers a wide variety of building materials, home improvement products, lawn and garden products, & décor products as well as services like home building installation services and tool & equipment rental.

They have 2,291 stores throughout North America and also have a network of distribution and fulfillment centers + e-commerce sites. They have 2 primary customer groups and have different approaches to meet their separate needs.

-DIY customers (55% of sales): these are homeowners who purchase products and complete their own projects and installations. HD’s associates assist these customers both in stores and through online resources to provide product and project knowledge.

They also have clinics and workshops to share this knowledge and build an ‘’emotional’’ connection with these DIY customers.

-professional customers (45% of sales): professional renovators/remodelers, general contractors, handymen, property managers, etc. HD has an entire Pro ecosystem to appeal to these customers,

with programs for inventory management, custom product offerings, a specialized salesforce, direct to job site delivery, etc. (a supply chain strength similar to $DPZ).

Home Depot’s massive size allows it to have bargaining power with vendors when it comes to products, advertisements, and rents, which give it a low-cost advantage. HD gives the big equipment manufacturers massive distribution/reach as well.

Being the customer-oriented company it is, HD passes savings on to consumers with lower pricing. Home Depot’s offering is also highly specialized, which provides it great protection from mass merchants and online retailers, meaning home improvement is one of the best-insulated

sectors from e-commerce. Also helps that many of these products are expensive to ship and the employee base has specialized knowledge which is difficult to replicate.

But I think HD’s great strengths are intangible. The biz was built on a culture obsessed with customer service, knowledge and innovation. Given the long history of superior knowledge HD’s staff has with clients, it’s not likely that they will shift to a competitor.

The familiarity of the brand and knowledge of the employee base has bought considerable mind share for Home Depot as the top pick for home improvement needs across North America.

HD has been heavily investing in its delivery centers for the past few years because they’re aiming for the fastest and most efficient delivery offering to help elevate their customers’ experience & facilitate higher digital volume. They’re adding over 100 more facilities which

facilitate same/next-day delivery (Prime vibes) in their top 40 markets. Stores will still continue to play a large role in secondary markets, but they’re consolidating delivery into fewer locations to drive greater efficiency.

So a startup would have to build vendor relationships which would undermine HD’s low pricing, an insane supply chain infrastructure and most importantly, massive customer goodwill.

Runway for growth: the US home improvement market is quite fragmented, and Home Depot has less than 20% market share. 55% of sales come from maintenance projects, so even a slowdown in the real estate market would not be a huge deal.

Home Depot also has a strong ROIC principle: they aim to maintain a high ROIC, which benchmarks all excess liquidity against value created for shareholders through share repurchases.

In sum, Home Depot offers customers superior know-how which has bought them mindshare and goodwill from all home improvement aficionados, the widest and cheapest product offerings in the space and has superior supply chain capabilities, making delivery to customers even easier.

An additional insight: Home Depot owns most of their real estate and it is usually in prime locations in cities that are not replicable, so they have 1st mover advantage in surburban locations. The cost to build a competing store near them is not economic

so they dominate several geographic niches and they are much less susceptible to online disruption as a result. Competitors would need to build in sub-optimal locations, which is a key competitive advantage for HD in most markets. Lowe’s will never have HD’s real estate locations

barring some major shift in population demographics, so there’s a good argument they should keep on trading at a discount because of inferior real estate.