The Home Depot deftly navigated the pandemic disruption under former CEO Craig Menear, riding the home improvement boom to annual sales growth in the tens of billions of dollars. Before Menear, who stepped down last year, was Frank Blake, who successfully guided the retailer from 2007 to 2014 through the housing market crisis. In short, both CEOs are tough acts to follow.
Under CEO Ted Decker, appointed last year, sales have edged down after rising 43% to $157 billion between 2019 and 2022, as consumers shift spending back to leisure and away from home improvement. What's more, home remodels are projected to decline in 2024 after a decade of continuous growth, according to a report from the Joint Center for Housing Studies of Harvard University. But Decker says getting Home Depot through this slump is not by any means a turnaround story. Nor does he want to be a "caretaker" CEO.
Making his mark will rest on incremental but significant improvements like more deeply blending Home Depot's brick-and-mortar operations with its digital site. Other strategy moves include courting larger commercial contractors in its pro-business, which currently makes up half its sales. But smaller, independent contracts still dominate.
As Decker steers Home Depot into what he hopes will be a new golden era, the 60-year-old says he is cognizant that being a CEO is no longer just about running a company, certainly not in the top-down way favored by CEOs not too long ago. "It doesn't work anymore. You have to build alignment," the 23-year Home Depot veteran tells Fortune.
Such alignment is often easier to achieve with clear environmental, social, and governance (ESG) goals. But Decker doesn't foresee Home Depot becoming a company that screams these policies from the rooftops, preferring a "show, don't tell" approach.
"If you're real, genuine, and authentic, you don't need to toot your own horn," he says. Of course, companies don't always have a choice. Under Menear, Home Depot was drawn into the voting rights debate in its home state of Georgia in 2021, satisfying few with its milquetoast statement about the importance of allowing eligible people to vote rather than addressing the specific racial aspects like Coca-Cola had done.
As for the current backlash in some circles against ESG and diversity, equity, and inclusion (DEI), Decker says Home Depot views the frameworks as helpful guiding principles but hinted that he shares some critics' skepticism about reporting requirements for ESG investing. "Are they always helpful? They are something that adds bureaucracy," says Decker.
Fortune: Your two immediate predecessors had epic runs that put The Home Depot on a strong growth path. How will you make your mark, especially with a softer business now?
Home improvement is our business, and my job is to improve The Home Depot. This is certainly not a turnaround, but what we have to do is leverage our underlying strengths. I'm focused on interconnected retail, integrating physical retail and digital. We are not just competing with other retailers but any brand because customers are judging their experience with us against all brands, including the ability to use the Home Depot app to change the delivery date the same way you can change how many bags you'll check in on an airline's app.
What other untapped opportunities do you see for Home Depot?
We already get about half our sales from the pro (contractor) market. If you look at the $450 billion pro-market, we don't really play in about half of it, specifically the bigger pro who does bigger jobs and has more complex orders. Those pros may come to us for emergency fill-in orders, but we are not playing in large remodels in which big quantities of supplies are delivered and must be in a certain sequence. It's also one of the reasons we are building out larger supply chain capabilities.
Revenue rose about 47% between 2019 and 2022 as people gussied up their homes during the pandemic. But your sales are down a few percentage points this year. What does the state of the housing market mean for Home Depot's business?
The housing market is obviously a key component of our business. We don't rely on new home construction, but household valuations influence our sales more than other market aspects. What's different about this slowdown is we have a fundamental shortage of homes, whereas, in 2007-2008, we had an oversupply. That has supported housing prices, which are significantly correlated to our performance. Another important thing is our housing stock is getting older, so for a lot of 40-year-old homes, for instance, you're probably on your second replacement cycle of things like a new roof.
How is being a CEO different now versus a generation ago?
I've learned more than anything that if you think you're the boss because you're CEO and you just tell people what to do, and they do it, that doesn't work anymore. You have to build alignment, and you have to listen and be open to ideas from others and put your ego aside. Sometimes you have to just make a call, but you have to be careful. Command and control do not work, and it would exhaust a company of this size and be impossible with our complexity.
What's your philosophy on when to weigh in on social issues with public statements?
You have to ask yourself, 'Is it your place as a corporation?' At the same time, we are well positioned with ESG and stakeholder capitalism, our culture, values, mission, and our founders' principles of servant leadership. On one hand, it might not be our place to talk publicly about issues, but if you're real, genuine, and authentic, you don't need to toot your own horn.
There has also been a lot of criticism of ESG and pushback. Where do you land on this debate?
Investor interest in ESG has waned slightly. Some investment funds that were very vocal about ESG didn't mention it in their annual letters this year. I'd say it's helpful in the same way our values are helpful to us because it's good for business, right? For instance, we were early in promoting certified lumber. We don't want to be contributing to deforestation. As for the requirements for reporting, are they always helpful? They are something that adds bureaucracy.
There's also been a ton of pushback on diversity.
Diversity is good for business. We've always felt that our stores, merchandising, and associate (employee) base should reflect the communities we serve. We have a New York store where the pro desk staff collectively speaks 20 languages.
Get to know Decker:
- Decker's favorite home projects involve gardening and making new arrangements of shrubs and plans, an interest that goes back to his first job as a teen mowing lawns and landscaping.
- In the years leading up to becoming CEO, The Home Depot put him on a track that included time in finance, merchandising, pricing, supply chain, and store management.
- His top past-time after gardening is attending live music.
