If there was a Frank Blake School of Management, it would be founded on a handful of principles: listen to customers; respect your associates; be humble; don’t be afraid to make hard decisions.
When Blake stepped into the CEO role at The Home Depot in January 2007, he felt overwhelmed by the project. The Harvard- and Columbia-educated lawyer who has dubbed himself the “accidental CEO” was battling stagnant sales, a slumping housing market, flagging customer service and an antiquated supply chain.
His renovation blueprint called for re-focusing on customers and associates, jettisoning portions of the business that weren’t clicking and putting the brakes on plans to open dozens of new stores. He took his inspiration from Built From Scratch, a memoir penned by company founders Bernie Marcus and Arthur Blank, and reinstated the inverted pyramid leadership model — which places customers at the top, associates just below and the CEO on the bottom.
It took some time for the plans for come together, but by 2009, it was clear Blake’s vision was taking shape. Today, there’s no question: Company stock has returned 145 percent (as of June 2014, with dividends reinvested) since he stepped into the corner office. And last year, same-store sales were the best they’ve been since the late 1990s.
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The Home Depot reported $23.8 billion in second-quarter revenue, a 5.7 percent increase over the same quarter a year ago. Comp-store sales increased 5.8 percent worldwide; in the United States, same-store sales grew 6.4 percent. Customer transactions are up; so is the average ticket size, which grew nearly 2 percent to $58.43.
In celebration of Blake’s contributions to retail, he received NRF’s Gold Medal Award — the most coveted in the industry — at Retail’s BIG Show 2015.
“Frank Blake epitomizes the inspirational leader. He has led The Home Depot humbly, earning the respect and admiration of those privileged to work with him,” says Matthew Shay, president and CEO of NRF. “The Home Depot’s growth and success since he took the reins is astounding — as are his candor, humor and devotion to the industry.”
Blake recently stepped down as CEO, turning the keys over to his hand-picked successor Craig Menear. Blake plans to stay on as chairman for several months before retiring. Still, his legacy will shape the handyman haven for decades to come. STORES Editor Susan Reda spoke with Blake about his seven years at the helm and the revitalization he led.
As you prepare to close out your time with the company, what do you hope is your legacy?
First, we’ve built a great leadership team that’s going to sustain the company for the long haul. Second, we restored Home Depot to a preeminent position in retail, which is where we belong. And third, we reinforced our culture of taking care of our associates and taking care of our customers. I’d be thrilled to have that as a legacy.
You’ve succeeded in creating a renaissance for The Home Depot after some difficult years for the company. What do you recall about the earliest days of your CEO tenure?
Those days are pretty vivid in my memory. The very first priority was getting focused as a retail business. The first decision was to sell HD Supply, which really was a significant statement. Beyond that we had five priorities that we set out right at the start of 2007: effective customer service; excitement around product; supply chain product availability; and store environment, because we needed to invest a lot in the stores to upgrade their appearance.
The final one was around our professional customer — we wanted to own the professional customer experience. While we’ve formatted our strategy differently over time, those five things have remained at the top of the list for us over the last eight years.
I understand you’re a believer in investing in store associates and have spent a fair amount of time in an orange apron. Why is being close to the associates so important and what special initiatives have you’ve put in place to support them?
In retail, and particularly in Home Depot because we’re such a high-touch retailer, [a shopper knows] whether an associate’s having a good day or a bad day when [they’re] interacting with them. And that associate drives an enormous amount of discretionary spend with our customer — whether he or she is polite, whether they know what they’re talking about, whether they’re helpful. Our associates are really at the core of our business.
Working in the stores alongside our associates is just a way of understanding better the challenges and frustrations they feel … One of the things we did right from the start, even in the really tough times, was to focus on making sure that our associates knew that we were investing in them. We returned a lot of straight financial programs to them, in terms of recognition awards. We maintained salary increases and 401(k) matches when a lot of the industry was cutting back on that. We increased our success sharing tenfold between 2006 and 2013.
The Home Depot has announced that there won’t be a lot of store growth in the next few years, instead emphasizing building e-commerce. What are the most pivotal pieces to lifting e-commerce growth?
The first thing is that we understand that dot-com is not just [an avenue] for the sales — it’s a great vehicle for marketing. Not so long ago, a shopper interested in buying a faucet might check the circular. If we were lucky we had something there that week that was roughly what he was looking for.
Now shoppers go to HomeDepot.com and are immediately able to see the whole range of products we sell both in the store and online. That shopper may decide to go to the store to check it out and buy it there, but their engagement on dot-com made a huge difference to that experience.
For the most part, our conversion rates are in the low single digits … but that doesn’t mean that the experience for the other 96 percent wasn’t hugely important in terms of driving that sale in the store. No question, dot-com has been a successful sales vehicle — it grew over 50 percent in 2013 and it’s been growing at roughly a 40 percent clip in 2014. Still, the value extends beyond the sales numbers because it enables a lot of other activity that ultimately takes place in the stores.
Our stores are a huge convenience for our customers. We have over 2,000 warehouses located across the country. Still, some of our fastest-growing parts of dot-com are “buy online, pick-up in store” and “buy online, ship to store.” There’s also the convenience of being able to return items in the store.
Since you’ve been CEO, what changes are most apparent in the way customers approach DIY projects? What are some of the most industry-changing new products you’ve seen come up on your watch?
Customers really put a value on our simplifying things for them. Do-it-yourself projects can be pretty complicated, so the more we simplify the more receptive they are.
One of the most exciting things about the home improvement space is the revolution in products. Years ago when I worked at GE, we’d talk about the wired home — it’s an idea that’s been around for decades. Today, it’s finally hit a tipping point.
If you’d asked me eight years ago, “Is anybody going to be spending over $200 for a thermostat?” I’d say, “Not a chance.” Today, there’s the Nest product that is so intuitive, so simple and adds such value for the customers that it’s one of our best-selling products.
There’s been similar innovation in lighting. Who would have thought that light bulbs would be one of our best-selling products? With [the switch] to LEDs that’s what’s happened.
We’re also seeing the rise of items embedded with sensors … appliances talking to each other, for example. We’re getting to a point where people are going to expect more and more communication among the things they have in their home — hot water heaters that notify you when they’re leaking. We’ll have windows that give different tints based on where the sun is.
The next area ripe for change is keys. So many people are accustomed to opening their car with a click — not a key. Think about it: We still have a lot of keys opening up doors in homes. That’s going to change and people will be able to reset key locks and change passwords.
What’s the most recent DIY project you’ve undertaken and how did it go? Do you consider yourself handy?
I really like a simplified project, but the most recent “serious” DIY project was replacing a P-trap (a plumbing project). I don’t hold myself out as a DIYer. I like to learn a lot about it, I love the projects and I can appreciate the value that simplicity brings, because they can be really intimidating.
Who was your mentor in this business and what’s the most important lesson you learned from that person?
My mentor is definitely Bernie Marcus. Bernie spent a lot of time with me early on and I truly mean it when I say Bernie has forgotten more about retail than I’m going to learn. Whenever I would spend a day with him he was very gracious of his time — and I ended up with lots of to-do items.
What’s so obvious with Bernie is his dedication and passion around the customers. Walking a store with Bernie, you not only see the passion he has for our associates and making sure that they know that we care about them, but also the passion he has for our customers. He talks with them, and he wants to understand what’s on their mind and what they want.
Retail is a complicated business, but first and foremost you have to be passionate about meeting the customer needs and recognizing their needs over time.
he Home Depot experienced a data breach a few months back. What advice would you offer to others who may face a breach down the road? What frustrates you most about the issues surrounding cybersecurity?
My advice, first and foremost, is take care of your customers. You’ve got to be customer-focused and not defensive.
The frustration is there’s been more press about how sophisticated and how pervasive the cyber attacks are, but we need to have better ways of sharing information and working partnerships with the folks in government, the banking industry and elsewhere, because we’re under attack.
It’s important to band together and circle our own wagons as we launch a counterattack.
If you were speaking to a group of young people about to enter the retail industry, what advice would you offer?
The great thing about retail is the accessibility of the business model to everyone. When I was working at GE and we did industrial and utility gas turbines, it wasn’t as if I could walk through the engineering department and give suggestions on how to make the gas engine parts more efficient. I had no idea.
Everybody in retail — no matter what their job is — has a valid point of view because everyone is a customer. What I say to everybody here and especially to the new hires is “Spend time in the store.”
Get to understand the store, because it may not be obvious to you, but this is an enormous benefit that you have — you work in a business that has an accessible business model. Take advantage of that, understand it, understand what the customers are saying, what the associates are saying.
I’d say the same thing to people who are thinking about whether to make retail a career or not. Not only is retail a great career because it’s so fast-changing and so interesting, but also because of how you can immerse yourself in the business.
Date: June 18, 2015