A CEO keeps things simple
In 1979, Frank Blake was a lawyer in the nation’s capital. Jimmy Carter was in the White House , and America was fixated on inflation, oil and hostages. A start-up home improvement retailer in Atlanta was the farthest thing from its future CEO’s mind.
It’s amazing how some things change.
The political and economic headlines continue to broadcast late-70s-style turmoil, only on a larger scale. But the Atlanta retailer, led by Blake now for almost three years, has grown into the biggest household name of home improvement. Sales have slipped, both on a total-sales and comparable-store basis, but Lowe’s remains a distant second.
On Blake’s mild-mannered shoulders rides a multi-billion-dollar question: How do you steer this massive ship through the shallows of a difficult housing market and low consumer confidence?
Warning: Blake doesn’t pretend to have a silver bullet, a game-changer or any other trick up his sleeve. His is a stick-to-the-plan approach to retail success. 1) Communicate your message 2) align your teams 3) execute 4) repeat.
The organization appears to be buying into the approach. “Frank Blake has made it very clear to us that good organizations are organizations that align themselves well, function to function to function,” said Marvin Ellison, Home Depot’s executive VP U.S. stores.
Beyond the basics, the company is looking to boost its distribution infrastructure and merchandising technologies to get the right product in the right place at the right time.
“In this environment, we’re focused on improving customer service and taking significant steps to improve our overall business,” Blake told investors during the company’s third-quarter conference call.
From economic recovery to national brands to the successful turn a round of the flooring department, Blake elaborated on the business during an interview with HomeChannelNews at the company’s Atlanta head quarters.
Home Channel News: Are you seeing signs of a recovery?
Frank Blake: I define a recovery as you actually start going up, and it’s still a ways off.
HCN: Residential spending as a percent of GDP is something you often point to as a key metric. It’s running well under the historic average for a long time. Have you started losing faith in reversion to the mean?
Blake: Nope. Not a bit. Just mathematically, we have a whole lot more pain behind us. Private fixed residential investment. Quarter over quarter it rose, but the third quarter of 2009 to the third quarter of 2008, it’s still down significantly as a percent of GDP. It’s down at 2.4%, where the 60-year low below that had been 3.2%, and the 60-year average is around 4.8%. So it’s way down there.
HCN: When asked for the 2010 strategy, a lot of the managers point to the same strategy from last year—no major shift. Is that stay-the-course approach coming from the top?
Blake: I hope it would always be consistent strategy and execution. You need time to develop momentum around what you’re trying to accomplish, and you can’t keep changing strategies. You just gotta keep to the same strategy—ours is pretty basic so we’re pretty confident that it’s a good one. So you just gotta keep putting the resources there.
Stat slice
Annual sales
2004: $71.1 billion
2005: $77.0 billion
2006: $79.0 billion
2007: $77.3 billion
2008: $71.3 billion
2009E: $65.0 billion
HCN: You’ve spelled out the risks of your business in the past, but does anything stand out? This is the what-keeps-you-awake-at-night question.
Blake: Lots of things keep me awake, but I think definitely the state of the larger economy. We’ll control what we can control, but you would like to see the larger economy start to turn. That’s going to be fundamental to our business. The unemployment rate is a worry at 10.2%. It’s a worry as a citizen. It’s a worry as a business person.
The state of inflationary or deflationary pressures on the economy. What the government does or doesn’t do to help or not help.
HCN: The expansion of the home buyers tax credit: a good sign?
Blake: Yes, I think that’s positive.
HCN: Do you think it’s positive when you see Stanley and Black & Decker merge?
Blake: Without commenting on that deal specifically, I’d say it will be interesting over the coming months and the next couple quarters to see whether M&A activity picks up, as companies see an opportunity to get together and drive synergies in anticipation of an upswing. You might well see more of that kind of activity in the next few months
HCN: Owens Corning and Martha Stewart, these are two other big brands you’ve cemented relationships with. Could that be the retail game in 2010—getting closer to key brands?
Blake: Brands always play an important role. Martha Stewart, in addition to the brand strength and iconic image she has, brings a lot of design strengths. Her company is very good at something that we’re not good at—which is the design element, particularly around decor products. So there’s a capability in addition to the brand that I think is really important.
I think that’s true for every company that has a great brand. They have a great brand because of something. Owens Corning is another great brand.
I don’t think anything has changed. This has always been something where brands are important, and HD is the place where you can get the best brands in this space.
HCN: How excited are you to grow internationally and have an empire in China, and how much focus is on that?
Blake: Those are two different questions—the excitement and the focus. The honest answer is I don’t spend a lot of time worrying about our 10 stores in China, and that’s pretty purposeful because if you do that, the expectation level rises. What tends to happen is you hire a ton of people to try to make something happen faster. And the very act of hiring all those people creates a lot of overhead, and with all that overhead you have to do even better.
But it’s an enormous market. If trend lines continue, China will be the world’s largest GDP in the 2020 decade. It’s a place that makes sense for us to be because we’re also there buying product. It’s exciting, but I don’t spend a lot of time on it.
HCN: Is “Made in the U.S.A.” coming up in more conversations with buyers or suppliers?
Blake: There are some advantages that U.S. manufacturers have that overseas manufacturers don’t have, and these become relevant particularly in toughtimes. So when you think about inventory or exposure to inventory, when you buy something from China, you bought it and it’s on the boat. But when you buy something from the U.S. manufacturers, then you can have more flexibility around the level of the buy and the ability to flex up and flex down. But it’s more an individualized issue: How does this product work? How does the sourcing work? How does the inventory exposure work?
HCN: One phrase we hear is “pocketbook patriotism.” Do you find people want to buy U.S.A.-made products, all else remaining the same?
Blake: Yes, I think most people would say, “all else remaining the same.” But the problem is the qualifier “all else being the same.” That’s always the issue. Is it truly the same price or same quality?
HCN: Are there certain categories that you’re hopeful for in 2010?
Blake: Paint was great in 2009. We’d like to sustain that through 2010. It’s been a great category. Outdoor garden had a great 2009. We’d like to sustain that. Our flooring business, which used to be our most troubled department, is now a real star.
HCN: What do you think led to that conversion?
Stat slice
Q3 store openings: 2
Total store count: 2,242
Blake: It’s a great question because we spent a lot of time thinking about it, and most of the things didn’t make a big difference. And in the end … it’s a bit like what makes a difference in the store, a great store manager and a great group of associates, and what makes a difference in a merchandise category, a great set of merchants who really understand the product and work effectively with the vendors and get the stores excited. When we rolled out the $99 whole-house install, that kind of changed the dynamic of that business, and the 23 team kind of kept building on that excitement.
HCN: What’s been the big story in the stores this year?
Blake: We’ve made progress in simplifying store operations, and that’s keeping us more focused on what’s important. And that allows for better customer service. You can see a difference, and I think our customers can see a difference. We still have a long way to go. It’s not like you can put the check mark there and move on to other things. There is still a long way to go, but you can see improvement.