Home Depot has Money for Buybacks, but not Service?
> Rant mode on:
As I mentioned previously, we moved a few months ago, selling one overpriced house and buying another. This means that I have spent an inordinate amount of my precious sparetime at Home Depot, Lowes, Sears, HD Expo, Fortunoffs, etc.
Missus Big Picture has long ago made her preferences known for Lowes over the Depot. Its brighter, cleaner, better organized, more accessible to the average non-professional/non-contractor shopper.
And while Lowes service is not bad, Home Depot is awful -- almost as bad as Sears, where tumbleweeds roll by in the Hicksville store, and staff -- and customers -- are non-existent.
I've been to the 3 different HD's within 15 minutes of the house (the cannabilization issue is best left for another discussion) -- all hours, days.
The Service isn't bad -- it is simply non-existent. No one in the aisles -- electrical, plumbing, lighting, etc. There's usually someone in paint, but thats only because someone has to mix the colors with the base paint. And a handful of souls watering the plants in outdoors/gardening.
Other than that, Nardelli's legacy -- other than the half a billion dollars he made off -- will have been to eviscerate the vaunted customer service of Home Depot, leaving it an orange, hollow shell.
But $22.5 billion for share buybacks? Here's a suggestion: Undo all of Nardelli's slash & burn firings, or you'll have nothing left -- in terms of revenue and income -- except for the buybacks.
Financial engineering is all well and good, but what about focusing on what made you the pre-eminent home improvement store in the first place?
>
>Rant over.
Wednesday, June 20, 2007 | 10:01 AM | Permalink
| Comments (45)
| TrackBack (0)
add to de.li.cious | 
digg this! | 
add to technorati | 
email this post
TrackBack
TrackBack URL for this entry:
http://www.typepad.com/services/trackback/6a00d8341c52a953ef00e008c8ad508834
Listed below are links to weblogs that reference Home Depot has Money for Buybacks, but not Service?:
Comments
I couldn't agree with you more. But what about selling HD Supply for $10b and buying back $22b of stock? Let's see, sell future earnings, then spend that money and more (probably borrowed) taking away from future earnings again.
The future does not look bright at home depot. HD Supply as the WSJ article today said, created a good amount of revenue and more importatnly sales growth.
Short term gain, long term loss.
Posted by: A-Mack | Jun 20, 2007 10:40:38 AM
I spend an inordinate amount of time and money at HD...only b/c HD is right around the corner and Lowe's is about 20 minutes away.
HD's service has always sucked. In the past couple of months, though, I have actually had employees ask me if I needed help...unheard of! Of course, I don't know if this turnaround is only store-specific, or is something more widespread.
BTW, I really really hate the stupid self-check lines at HD. The computers are way slow, and never work properly.
Posted by: LAWMAN | Jun 20, 2007 10:48:53 AM
If have a butt load of comp tied up in options and you are fixing to haul ass...you are gonna do whatever you can to boost the price of the stock(buybacks) before you cash in those options....no?
Greed is not exactly a fresh concept in the business or any other world!
The company IS and WILL continue to suffer for it however. I'm sure you are not the only dissatified customer.
Lots of corps are living life with extraordinarily short views which is no doubt going to mean REDUCED shareholder value in the long term. I blame the comp packages to execs. Lesson one in business school you get what you measure...in this case short term performance ONLY.
Posted by: KP | Jun 20, 2007 10:51:38 AM
Still waiting for a phone call back (after more than 25 have been placed) from Lowe's regarding a large purchase. I guess business is that good when you have an order that will be filled if only your salespeople would follow through and make the call. I guess they are too busy with "other customers".......
Ciao
MS
Posted by: michael schumacher | Jun 20, 2007 10:55:13 AM
Executive compensation in this country is a disaster. Why does compensation triple for oil co execs just because the price of crude rises on their watch? (Not saying there's anything wrong with the company's profits. If not for rising profits, additional capital wouldn't enter the sector.)
>> Lesson one in business school you get what you measure
Agree. Next step: who wants to measure properly? Apparently not the compensation committee! ;-)
Posted by: wunsacon | Jun 20, 2007 11:05:55 AM
I go to Ace mostly, even though Lowe's is closer. You walk in there and you pretty much have a personal shopper- it's almost annoying sometimes but very helpful. Could the difference be because it's a cooperative?
Posted by: Isaac | Jun 20, 2007 11:13:35 AM
Imagine: A company actually having to work for its earnings! The days of "easy money" for housing-related retail business are beginning to end now.
Posted by: The Financial Philosopher | Jun 20, 2007 11:14:45 AM
What made them the pre-eminent home improvement store in the first place, was a housing recession. In the early to mid 90's you could walk into an HD and talk to a skilled tradesman, who couldn't find any work, so took a job at HD. By the middle of the boom this time around HD was back to competing with Sears for employees. They weren't willing to pay the kind of wages that would have been requiredt to keep those skilled employees. Well looks like they'll be able to get those folks again shortly.
Posted by: barnaby33 | Jun 20, 2007 11:24:43 AM
I just discussed this with my wife yesterday. HD total cap is $80B, income about $6B/year.
Now, they are engaging in this financial cooking with $22B buyback. Not store expansion or improvement. You got to wonder what company is this.
Or an equally more important question --why is it doing this, and who is going to lend so much money $12B to JUST to buy back shares? Anyway you measure it by future profits, this company will probably be in deep financial trouble going forward except with its tons of useless bought-back shares.
The same thing go to IBM when it announced huge buybacks (2x yearly earnings, and get into debt to buyback shares) 2 months back.
The common traits among them is that, they are both Dow 30 stocks. Enquiring mind like mine is wondering are these all under then Blessing from Bernanke??
Remember, the only thing in Greenspan and Bernanke mind is NEVER NEVER NEVER allow 2 largest asset classes of Housing and Stock Market to go bust at the same time. Else, you would have Worse Depression than Japaneese for 15 years, for a debt laden America.
From a Big Picture perspective, I think that's the Grand Scheme they are working on, and their actions in the past years have priven it -- lower the borrowing standards to pump liquidity to housing, encourage patriotic house buying though they knew rampant speculation was going on with fake stated income. Now, the government and FED and Big bankers are trying to change the laws in the bonds to reduce ARM reset rate and sustain housing, screwing bond holders.
Posted by: shawn | Jun 20, 2007 11:43:46 AM
Barry this is about the most consensus thing you've written in the past two years. Wait, wait, HD service isn't any good? That's news... HD is reinvesting an incremental 2B into the stores this year and hopefully that will start to result in experiences like LAWMAN above. The stock price fully reflects the fact that service has sucked IN THE PAST. The opportunity to to change that in the future is the exciting part. The 22.5B buyback has no bearing on reinvestment in the stores. That's why Supply was sold, so that all of management's attention will be on the Retail division. The truth is that HD was rightly a conservatively capitalized company during its hyper growth mode, and as it has transitioned to a mature GDP grower, the cash generation is so substantial that the cap structure was becoming hugely inefficient.
Posted by: joe | Jun 20, 2007 12:10:49 PM
Luckily in Boston we still have an abundance of mom and pop hardware stores-it's worth it to me to pay a drop extra for service. And they have ALL the stuff HD has.
Posted by: babygal | Jun 20, 2007 12:11:17 PM
Just wondering in this chat if bankruptcy laws changed and new loans have a higher position in the stack for real estate property latch ons / leans?
Posted by: Greg0658 | Jun 20, 2007 12:17:04 PM
I've been to the 3 different HD's within 15 minutes of the house (the cannabilization issue is best left for another discussion)
You mean they STILL aren't stocking the equipment for growing marijuana in your basement?!
Ohhhh, waaaiit, I get it now maaannn... 8)
~~~
BR: Thats cannabis -- not cannabil -- besides, you can find all that stuff online: http://www.hydrofarm.com/
|
Posted by: Eric | Jun 20, 2007 12:26:15 PM
The HD closest to me (15 minutes) has always had excellent service. There is even a 24 hour HD 30 minutes away (for say - accidentally taking out that retaining wall at 4 in the morning).
My beef with HD has been selection of products. They went down dramatically under the prior CEOs watch. I walked into a Lowes for the first time (40 minutes away) a couple of years ago and when I got home - I bought stock.
Posted by: yoshi | Jun 20, 2007 12:28:31 PM
Share buybacks make great headlines, obviously they would'nt announce them if it did'nt, very few of them ever follow through with the actual repurchase of the shares. By the time someone actually looks at it (to see if it was ever done) it has dropped off the collective radar.
And if they are actually done...try not to forget that the year is half over at this point and those year end bonus' are tied to what???
Stock price
http://usmarket.seekingalpha.com/article/37995
Corporations are running out of tricks to prop this thing up....
Ciao
MS
Posted by: michael schumacher | Jun 20, 2007 12:31:51 PM
Here in northern Fairfield County, we have the benefit of using very fine local, independent hardware stores and lumber yards. Investigate your own local resources...the money saved at Home Depot is more than offset by the inferior quality of lumber, poor service, and time wasted wandering through vast acreage of parking lot/store.
Posted by: joe | Jun 20, 2007 12:33:57 PM
A few months ago I heard a story from a lawyer friend of mine that a guy went into HD, climbed a ladder to get to a item, and got electrocuted by a loose wire dangling from the ceiling--knocked him on his back. So he was suing. The talk amongst the lawyers was that HD would probably take the angle that he should have gotten an employee to climb the ladder for him-- but then, they had also better prevent anyone from getting on the jury who had actually BEEN to HD recently-- because anyone who's been to HD would know very well why the guy had to climb the ladder himself!
Posted by: Eric | Jun 20, 2007 12:34:35 PM
I bought my house a few years ago, so I was in Home Depot a lot in 2004-2005, and I noticed the service getting worse and worse as time went on.
I overheard a couple of employees talking about the fact that their hours were cut back so that they were no longer full time -- and therefore no longer entitled to full time health benefits.
All this in the middle of the housing boom in Los Angeles. Nice.
Posted by: Jason M | Jun 20, 2007 12:35:16 PM
Totally agree on HD, BR. I used to drive down there and consult somebody about what I needed to do. They'd provide specifics and help me choose what was right for the task.
Good luck doing that now.
Now, I have to research the project on the web and create a list. Then head down there and play the game of Treasure Hunt, hoping to find what I need. Also hoping I don't have to run down a scarce HD worker asking for directions.
Posted by: muckdog | Jun 20, 2007 12:37:42 PM
HomeDestructo also has poor customer service around where I live, but Lowe's is only slightly better from what I've seen. I swear there are times when HD only has 3 people on the floor. The store is big enough that you would never see them.
And the Ace Hardware that I used to live near *always* had someone there to help. They were crazy-helpful following me around the store.
Posted by: Camille | Jun 20, 2007 12:39:10 PM
Harley Davidson is a great example of share buybacks that are not good for the shareholder.
October 30 2006 to November 26, 2006 the company bought back 2,098,891 shares during this time period at an average price of $72/share. The range of share price was ~$64-$72/sh during this period. Insiders conveniently sold ~$29 million in HOG options in $70-$73 range during this same period.
The same incident occured Jan.1 - Feb 4 as company repurchased shares at an average of $70 when the range was $69-$72. Insiders unloaded $3,500,000 in options during this period. How much does HOG purchase during March 5-April 1 period, when the price is $64-$57/share? Zero shares.
extreme example it is however keep that in mind when you want to jump on the bandwagon of share buybacks. I'm sure the long term holders of HOG do not share the same "euphoria" that some express with the concept of share buybacks.
Ciao
MS
Posted by: michael schumacher | Jun 20, 2007 12:40:36 PM
Barry,
This is GREAT NEWS! The 300+ acqusitions that Nardelli did over his term really paid off.
Think of all the companies Home Depot bought that investment bankers will now be able to re-sell! This is sure to produce record investment banking revenue!
I remember going to an investment conference and asking him why Home Depot would pay billions for a janitorial supply company and billions for a pipe construction company and he told me they wanted to become less dependent on retail sales. Needless to say I thought that was pretty funny since Carol B. Tomé (CFO) was telling me they wouldn't be undersold in flooring.
Too bad I'll have to cover my HD short. I've had it since 2004. I'll miss it.
Posted by: Christopher Laudani | Jun 20, 2007 12:52:44 PM
I actually get great service at HD now. Seems some enterprising local contractors troll the store looking for bewildered, beleagured shoppers -- I've hired two of them over the past month, for work I would have done myself, but they were so attentive and helpful. So HD's horrid service has turned into opportunity for our local licensed handy-people/contractors looking for work.
Posted by: Claudia Belizen | Jun 20, 2007 12:56:19 PM
The problem is that Lowes and HD are pretty literally the only games in town (at least here in California) for major home improvement supplies. There are a handful of smaller hardware store like Ace and Osh, but their selection is very limited and their prices are high. Though we have three HD's and 2 Lowes in town, I invariably shop at HD, due to their prices being consistently better than Lowes.
As for lack of service; I couldn't care less. Since I have been building/renovating things since I was a kid, I rarely find it necessary to consult sales associates. When I actually do have a technical question, it is nearly always beyond the expertise of the typical sales associate (even when experienced contractors were employed by HD during the 90's).
Indeed, I would rather that they just left me alone and let me shop in peace. The only time I need a sales associate is to inquire on price or availability.
The average homeowner has become quite savvy in home improvement. In the coming housing crash, they will be looking for the cheapest price on building materials. Whoever gives them the lowest price (regardless of lack of service) will do just fine.
Posted by: Pool Shark | Jun 20, 2007 12:56:22 PM
It seems like HD has positioned itself for the housing slump and subsequent recession that has been slow to materialize or rolling in nature.
I live in Brooklyn and have 2 HD's within a 5 mile radius of my home. They are packed everyday of the week. The skeleton staff can barely handle the crush of customers. Lines exceed 45minutes for the most simple of purchases.
I spent Memorial Day in suburban Maryland visiting my Mom. As usual she had a list of chores(never too old), so i headed out to the HD. I was shocked. The stores were empty, even on a Memorial Day weekend. The store had the same skeleton staff as my Brooklyn HDs, but with a fraction of the customers. In just over 30minutes, I was able to order a custom patio door, had a gallon of paint mixed and bought myself the circular saw that i had tried in vain to purchase in Brooklyn.
As a result of its Bearish positioning, HD stores in hot RE markets like Brooklyn and LI are left to suffer. That is until the housing slump finally reaches NYC.
Posted by: BKinDaHouse | Jun 20, 2007 1:00:06 PM
