Texas Pool Supply, a company owned by SRS Distribution, maintains a warehouse that stocks pool parts such as filters and heaters, as well as large drums of pool chemicals. This is an example of Home Depot incorporating specialized business after acquiring SRS.
Melissa Repko | CNBC
PLANO, Texas — In a suburban warehouse, large buckets of pool disinfectant water, boxed heaters and water pumps line the shelves.
this is not a home depot stores, but those aisles and the companies behind them will determine the home improvement retailer’s success over the next decade.
Earlier this year, Home Depot made its biggest bet on expanding its business when it acquired SRS Distribution, a Texas-based company that sells products to roofing, pool and landscaping industry majors. People selling supplies. The company has more than 11,000 employees and more than 780 stores in 47 states, including the Dallas area.
With the $18.25 billion deal closing in June, Home Depot is signaling to investors that its growth will come from more than just its big-box stores. It will also rely on a flood of online orders from home professionals who need a long list of specific supplies to install swimming pools, repair roofs and handle complex remodels.
The deal boosted Home Depot’s business in the early months when consumers were taking on fewer home improvement projects themselves. Earlier this week, the retailer said the acquisition boosted Sales increased more than 6% in the fiscal third quarter, even though shoppers were visiting stores less often and spending less per transaction than they were a year earlier.
Excluding SRS sales, Home Depot’s revenue would have declined annually in each of the past two quarters.
CEO Ted Decker said in an interview with CNBC that Home Depot acquired the company not to offset the impact of the weak DIY market; It fits into its strategy of selling more products to professionals.
Home Depot has long served as a convenience store for professionals who might stop by to pick up tools or last-minute items. Over the past four years, it has built a nationwide distribution network with hubs in metropolitan areas such as Dallas, Atlanta and Los Angeles so it can ship larger truck orders directly to contractors or other professionals. Work site.
However, SRS caught the attention of retailers because it offered a different area of expertise: specialized services for home improvement professionals, Decker said.
Dan Tinker, chief executive of SRS, said the specialist dealers bring an expanded catalog, a dedicated sales team and a vast network that supplies approximately 15,000 jobsites daily. It also offers trade credit, a financing arrangement that allows customers to receive large orders and pay later. Home Depot, for its part, is just starting to offer the option to a small group of specialty customers.
“What we bring to them is an accelerator for their career strategies,” he said.
At the time of the deal, Home Depot estimated that the acquisition would expand the company’s total addressable market to about $1 trillion, adding about $50 billion.
Joe Feldman, senior research analyst at Telsey Advisory Group, said SRS’ price is high but could provide rocket fuel for Home Depot’s rapid growth. He compared the deal to Walmart’s $3.3 billion acquisition of e-commerce company Jet.com. Some industry observers and Walmart’s own CEO credited the move with accelerating Walmart’s online business, even as it ultimately shuttered the standalone Jet.com.
“They saw this as an opportunity to enter a completely new market with a very established player,” he said. “It will take a few years to see if it pays off.”
Home Depot acquired SRS Distribution in March for $18.25 billion. The Texas-based company sells pool, landscaping and roofing supplies to professionals.
Melissa Repko | CNBC
Impact on businesses
The expansion into specialty business comes at a challenging time for Home Depot. With home closings approaching their lowest levels in decades, the specialty industry is also feeling the pinch.
Waiting for lower mortgage and borrowing rates, customers are delaying home sales and purchases or rushing into higher-priced projects.
Home Depot’s “biggest challenge — and really their only challenge — is when are we going to see the great retail vertical of the last few years return to what it was?” Gordon Haskett said Chuck Grom, senior analyst covering retail.
Home Depot’s stock has lagged the S&P 500.
Yet investors expressed some optimism. Telsey Advisory Group’s Feldman recently upgraded Home Depot stock. While he said he expects comparable sales to be negative next quarter and even in the first quarter of next year, he expects growth to return next spring.
He said that in other interest rate easing cycles, housing demand typically takes about six to nine months to pick up. The Fed began cutting interest rates in September and has made another cut since then, with more cuts expected.
Grohm said Home Depot’s growing specialty business helps attract investors and differentiate it from its main business. competitor, Lowe’s. About half of its business comes from home professionals, compared with about 20% to 25% at Lowe’s.
Professionals are generally more consistent and larger spenders, and some of the businesses they work for are better able to handle the ups and downs of the economy.
For example, about 80 percent of roofing business comes from repair or re-roofing projects rather than new homes, Decker said. He believes this is one of the attractive factors of SRS.
Tinker said SRS is more insulated from changes in the economy than Home Depot. As families put off moving, SRS has gained business from investment firms, which have been buying properties to renovate and rent out, he said.
“There’s a huge need for people to rent until they can afford to buy a home,” he said.
SRS is expected to contribute approximately $6.4 billion in incremental sales this year, according to Home Depot. These sales only include the period after trading closed in mid-June.
The SRS deal and focus on specialty products don’t mean Home Depot is giving up on efforts to shake up the rest of its business. Decker said the retailer is still trying to attract more DIY sales. The company has opened 10 new stores in the United States since the end of January and plans to open two more stores by early February.
combined forces
Home Depot is already starting to see synergies from the deal.
SRS brings a larger and more mature logistics network that can speed up delivery and reduce costs. The company has a delivery fleet of approximately 4,000 trucks. Home Depot, on the other hand, relies heavily on third-party delivery and is just starting to use its own drivers, Decker said.
Tinker said SRS is also selling more products for professionals to use to meet different customer needs, such as ocean wave blue roofs or deeper outdoor fire pit options.
Tinker said the newly acquired business also offers other advantages, including a dedicated sales team with expertise in specific verticals and deep relationships with professionals who buy frequently. Tinker said the company has about 2,500 sales professionals, hundreds more than Home Depot has. Home Depot does not disclose the size of its sales force.
In Los Angeles, Home Depot and SRS are in the early stages of testing how to bring their existing businesses together. As part of a pilot program, SRS will use space in Home Depot distribution centers to expand sales in areas of the country with a smaller footprint, Tinker said.
“It’s a huge opportunity, but it doesn’t even touch or integrate with them,” he said. “It’s just using some of their assets.”
SRS gains other business advantages by joining the home improvement giant. Home Depot’s larger stores feature professional service desks where contractors can seek professional support or place orders. Decker said these professional service desks are now promoting and selling SRS’s deeper product catalog.
Meanwhile, SRS, which has made more than 100 acquisitions, continues to acquire small, often family-owned businesses in the pool, landscaping and roofing businesses. Tinker said the company has made an average of 15 acquisitions per year over the past four or five years.
Decker said Home Depot took a more hands-off approach, allowing SRS to operate more independently after the deal.
“We let them focus on their growth formula, but also start looking at where their obvious synergies are without interfering with what they’re doing,” he said.
SRS-owned Texas Pool Supply in Plano caters only to home professionals, and its aisles are filled with many items you won’t find at your local Home Depot. Contractors can purchase a wider range of pool bottom tiles, or bulk items such as 100-pound drums of pool disinfectant.
When Home Depot acquired SRS, Texas Pool Supply branch manager Jeff Cabell said he received a lot of questions from customers. Some people have asked if Home Depot will soon launch the same product, fearing it would change the business. Some employees asked if their uniforms would be replaced by Home Depot’s signature orange aprons.
In both cases, the answer is no, Cabell said.
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