Determining When More Is NOT Better

Earning more money is great, so is having more customers, and making more product sales.  However, there can be situations when more is not better.  Home Depot has made a big switch in their retail model to focus on adding distribution centers instead of opening more stores.     

Not too long ago one of the more favored growth models was to simply open more stores.  Nearly every major retailer was searching for fertile ground to open a new brick-and-mortar store in order to serve more customers and sell more products.  As noted in “Home Depot Lumbers Into E-Commerce,” posted on Finance.Yahoo.com by Shelly Banjo, Home Depot excelled at opening new stores across the country.  They followed this model until 2008 when the most recent financial crisis hit, causing customers and businesses to close their checkbooks and halt construction projects.  Home Depot closed 15 stores and put a hold on their plans for building 50 additional stores.  These tough economic conditions, as well as a change in customer buying habits, had resulted in weak returns in new store openings.  Suddenly, more wasn’t better.

Home Depot analyzed their business data and noted that although foot traffic was down in their stores online sales were increasing.  Instead of returning to the ‘more is better’ growth model, Home Depot chose to open two distribution centers and only one store this year.  Instead of investing in brick-and-mortar stores, Home Depot invested in technology to connect their stores with their ecommerce business and a new online fulfillment center.  Home Depot expects to ship more products from the distribution centers to customer homes, job sites, and to their stores for in-store pickups.  They also anticipate that the contractors and builders that make up nearly 35% of sales will also turn to online shopping for job site deliveries or store pickup.

The economy is always changing and so are customer interests and buying habits.  Home Depot found that more stores was a detriment to growth instead of fostering it.  Keeping an eye on trending business data within your enterprise resource planning (ERP) solution can highlight these and other changes that could cause you to rethink your growth model and strategic goals.  Contact Premier Computing, Inc. for more information about monitoring your business data to determine when more isn’t better.

By Premier Computing, Inc., a Microsoft ERP and CRM Partner out of Utah