Home Depot is Giving its Supply Chain a $1.2 Billion Facelift

Home Depot is planning to invest $1.2 billion over the next five years to update its supply chain with the goal of speeding up delivery times to reach most of the U.S. population in one day or less.

The home improvement retailer will spend the money to build out its downstream network, sending goods from its distribution facilities and stores directly to shoppers' homes or job sites. The new supply chain network will consist of several different types of facilities to support numerous types of goods and when it's complete Home Depot will have a same-day, next-day delivery network for 90% of the U.S. population, according to CEO Craig Menear.

So how will the retailer reach this many consumers this fast? Home Depot plans to build 40 flatbed distribution centers to handle building material products that are delivered directly to job sites and around 100 market delivery operation centers, which will flow consumer products like patio furniture and appliances directly to the shopper through a delivery agent. The retailer also plans to add a few more "parcel plus big" direct fulfillment facilities that handle a lot of the retailer's smaller items, as well as some bulk. Finally, it will deploy local direct fulfillment centers that will handle a smaller subset of product that move direct to customers.

"I think we've built an advantage in terms of our supply chain upstream that moves the type of product that we sell incredibly efficiently," said Menear. "And we'll use that to actually build up capability in the downstream that will, we believe, provide significant value to the customer and to our shareholders."

The supply chain investment is part of a bigger $11.1 billion investment Home Depot is making. Menear noted the company is doubling the investment in the business over the next three years from what it historically would have done and 50% of the money will be invested into the stores for two purposes.

"Number one, as the customer is going to take the time to get their vehicle, drive to a physical store today, it needs to be a great experience," said Menear. "So we're investing in making that a great experience."

"And then we're also investing to make it an interconnected experience because the customer starts in the digital world, even if they finish in the physical world."

Home Depot is continuing to enhance its digital capabilities, including a B2B website experience. The retailer also invested $144 million in its recent quarter, putting the money into increased wages, increased advertising as it moves to a more marketing technology platform; and increases in display cost.