Instead, the home improvement giant is squeezing value from existing stores.
At the peak of the retail boom, before recession set in late in 2007, The Home Depot was opening about 200 home improvement stores per year, or roughly one store every 41 hours. Not anymore. This year, the retailer is opening just a single store in the U.S., in Bethesda, Md., and five in Mexico.
“We were extremely busy driving growth,” before the recession hit, says Mike LaFerle, vice president of real estate at Atlanta-based retail giant Home Depot. But like other retailers, the company shifted its strategy as consumer demand waned. Home Depot's total sales declined in 2009 by 7.2%.
“Though our sales have dropped from a high of about $80 billion in 2006, primarily because we divested a couple of non-core businesses, we're still the largest home improvement retailer in the world,” says LaFerle. “We've really been transitioning from a growth company to a value company.” That means shifting from expanding in new markets to squeezing profits from existing properties.
Home Depot's experience serves as a case study in retooling corporate real estate strategy at a time when other national retailers, such as JCPenney, also have trimmed growth plans. Four years ago, Plano, Texas-based JCPenney's strategy was to open 50 new stores per year for five years, says spokesman Tim Lyons. But the recession knocked the wind out of those plans. In 2008, the retailer opened 36 stores. In 2009 it opened 17, and this year it has opened two, bringing the chain's total to 1,110 stores.
After closing its struggling EXPO Design Center stores, Home Depot now operates 2,245 stores, mainly in the U.S.
The chain's retail properties occupy a vast 235 million sq. ft. across the country, 89% of it owned by Home Depot and the rest leased. To wring more revenue from the stores, the company has offered unused parking space to other merchants. “We had parking fields of 700 spaces. Today we can generally get by with about 400 spaces,” per store, says LaFerle.
Many local officials embraced the plan, since it would eliminate barren lots and generate tax revenue. “We currently have about 175 properties under contract,” says LaFerle.
The company found gold in reconfiguring the way it transports and stores goods, rolling out 21 new distribution centers in the last two years. In 2009, it added 5.2 million sq. ft. of distribution space, creating rapid deployment centers so products can reach stores faster.
The retailer shuttered older warehouses occupying 2.4 million sq. ft. By early 2010, about 65% of Home Depot's U.S. stores were using rapid deployment centers.
After years of high-octane store growth, scaling back hasn't been easy. “It's been a new learning experience for our team,” says LaFerle. “Everything we taught them in the past, since the inception of the company — ‘Go fast, get the stores open, pay a little extra money if you need to pay extra money to get the deals done’ — we had to completely turn them around.”
Now he tells the real estate team, “Go much slower. It's all about productivity. Don't pay the extra dollars. Make sure we're extracting every potential profit dollar out of those stores.”
NAMES IN THE NEWS
Scott Marshall has joined Colliers Bennett & Kahnweiler as executive managing director in the firm's Rosemont, Ill. office. Marshall previously spent six years with Duke Realty Corp., first as a senior leasing representative and later as vice president of its Chicago industrial group, managing a combined portfolio of more than 10 million sq. ft.
Sinclair Cooper has joined Hunt Development Group, an affiliate of Hunt Cos., as co-president of its public-private division in Washington, D.C. Cooper previously served as owner of Falcon Properties, a self-managed, full-service real estate development and construction management firm.
Brad Sheppard has been promoted to vice president of Berger Special Assets, a division of Berger Commercial Realty Corp. in Fort Lauderdale, Fla. Sheppard previously served as senior property manager and has been with Berger since 2007. He is a member of ICSC.
Anne Rahm has joined Grubb & Ellis Co. as vice president of corporate finance in Grosse Pointe, Mich. Previously, Rahm served as a commercial lending officer with Community Central Bank, responsible for managing a $20 million commercial loan portfolio.