Will Home Depot buy larger wholesaler?

BY BOB MIODONSKI Of CONTRACTORs staff TUCSON, ARIZ. Unless The Home Depot buys a giant wholesaler such as Ferguson Enterprises, the retailer may not increase substantially its sales to professional plumbing contractors, a consultant told members of the Plumbing Manufacturers Institute March 18 at their spring meeting here. If youre banking on Home Depot getting the pros, you may be disappointed, said

BY BOB MIODONSKI Of CONTRACTOR’s staff

TUCSON, ARIZ. — Unless The Home Depot buys a giant wholesaler such as Ferguson Enterprises, the retailer may not increase substantially its sales to professional plumbing contractors, a consultant told members of the Plumbing Manufacturers Institute March 18 at their spring meeting here.

“If you’re banking on Home Depot getting the pros, you may be disappointed,” said Carl Cullotta, vice president and senior partner of Chicago-based Frank Lynn & Associates.

Mentioning Ferguson by name, Cullotta rated it a “moderate probability” that Home Depot would acquire a large distributor. At the same time, he ranked it as a “low probability” that Home Depot would be able to build its Pro Store network enough to compete with established channels of distribution.

“Pro Stores do not offer the services to the pro contractor that a traditional plumbing supply house does,” Cullotta told PMI members.

In his remarks, he did not mention Home Depot Supply, which is the retailer’s latest effort to reach professional contractors (March, pg. 1). The first Home Depot Supply store, which opened Feb. 28 in the Dallas area, is an evolution of the Pro Store concept, a Home Depot executive had told CONTRACTOR.

Cullotta did acknowledge, however, that Home Depot would have to go head-to-head with wholesalers to increase its share of contractor sales.

“The only way to close the gap is to take on traditional distributors,” he said. “Going forward, Home Depot will have to get into the traditional distribution side. Very likely, Home Depot could enter your business in a big way by purchasing one of the top wholesalers. That means they could be halfway there to closing the gap.”

Home Depot’s problem is not that it doesn’t sell to plumbing contractors. Other factors are keeping Home Depot from generating more revenue from pro customers, Cullotta said.

“Every pro will say they buy from Home Depot; the issue is what they will buy,” he said.

“Home Depot wants the large contractor but gets the small contractor that gets overlooked by the traditional supply house.”

The Pro Stores, he noted, tend to appeal to remodeling contractors because they can buy a variety of products there. These outlets – one each in Arizona and California – have not been as successful in appealing to large-volume plumbing contractors, he said.

Similarly, the retailer’s installed sales program tends to do smaller, simpler jobs rather than lucrative, more complex work, he said. Home Depot began its installed sales program in 1992, using local contractors to do home-improvement jobs such as installing garage door openers, garbage disposals and floor covering.

“The problem is getting contractors to do large jobs because they’re already at capacity,” Cullotta said. “Home Depot hasn’t cracked the code in the last 10 years to installing complicated kitchen-and-bath projects.”

Despite recent acquisitions of Atlanta-based Apex Supply and Baton Rouge, La.-based Your Other Warehouse, Home Depot may decide not to go after another plumbing wholesaler after all, Cullotta told the plumbing manufacturers. The retailer has been active in other markets as well.

“The only question is whether they will muck up the electrical market -– by buying an electrical wholesaler – instead of your industry,” he said.