Why Is Home Depot Escaping the Retail Collapse?

One company that does not behave like it’s scared of the big, bad wolf (aka Amazon) is Home Depot Inc. (NYSE: HD). The home improvement giant goes about its business and continues to post solid profits and sales.

Why isn’t Home Depot quaking at the prospect of Amazon disrupting its business? There are probably several reasons, not the least of which is the hands-on nature of buying the goods that Home Depot sells.

While it’s possible that a customer would visit a Home Depot store to look over a power tool purchase, how likely is it that the same customer would then search for a better deal from Amazon on, for example, a table saw? Both stores sell the same DeWalt 10-inch job-site table saw for $579 and both come with free shipping, although at Amazon customers must be Prime members to get free shipping. As long as Home Depot is willing to match Amazon pricing on items like this, there is no advantage to buying from the e-commerce giant, so why not just pay for it at the store and take it home that day?

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Would you buy 20 gallons of paint at around $40 a gallon from Amazon to paint your house without actually holding a chip in your hand? How about a new entry door? Or new flooring or new tiling for the bathroom? Or garden soil and plants? You want to see this sort of thing live and in person.

And then there’s shipping. None of the consumer package delivery companies will deliver eight-foot 2×4s. Customers would have to use a freight company, and those typically deliver only to business addresses and they’re not free.

Another contributing factor to Home Depot’s success is the high cost and relative scarcity of housing. For homeowners who may want to move up, choices can be expensive and remodeling or expanding their existing homes may do the trick. Local contractors likely will obtain their supplies from Home Depot and as long as they can get what they want when they want it at a price that allows them to make a profit, they are not going to fool around with online buying. That probably goes double for do-it-yourselfers.

Home Depot’s moat is not particularly wide, but it is deep: nearly everything the stores sell is available online somewhere if not at Amazon. Customers however, want to see and touch and look over the actual physical tools, paint, garden supplies and the myriad other products that Home Depot — and Amazon — sells.

It’s possible that new technologies like augmented reality and virtual reality could change this, but that is not a particularly immediate threat to Home Depot. And if it should become appear to be on the brink of becoming one, the home improvement store can easily make the same play. If Home Depot is smart, the company is already thinking about and experimenting with these technologies. Amazon is too big a threat to ignore and it moves quickly when it sees an opportunity.

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