Unsubstantiated Rumor About HD

[Rick Hubbard]

A fairly reliable source provided me with some intriguing information today: Home Depot plans to establish some regional “Surplus Centers” where they will sell stale merchandise, certain returned goods and “special buys”. This caught my attention primarily because the local HD is closing and a new store is opening in its place. The old store is supposed to be one of the regional surplus centers.

Has anyone heard the same thing? Have other borgs implemented similar strategies?

Thanks.

Rick

[Lee Koepke]

This will be interesting.

I see several "building surplus" stores around town. usu run by one or two guys. They sell doors / window / cabinets .. etc that have been returned by a local builder. I guess these big boxes are starting to figure out they can retail what they darn near give to these other surplus places.

It would be a good use of 'dead' property for them.

[Matt Meiser]

It wouldn't make a lot of sense to me with the two they are closing in Ohio. Both are smaller cities, pretty far out from any major cities. Findlay is close to an hour from Toledo and Lima is well over an hour from Dayton. And Findlay and Lima are pretty close together. Both had all three chains -- Menards, Home Depot and Lowes. In fact 9 of the 15 are in Menards territory.

Now it wouldn't surprise me to see a second announcement where they close a store in Toledo and convert it to an outlet store. Toledo will soon have 11 big box home improvement stores. In a city where they closed the Builders Square and Handy Andy stores long before those chains went belly up.

[Ben Cadotte]

They have built a new store about 1/2 mile from an existing one near me. They have been trying to sell off all the merchandise in the old store at discounts. Don't want to move the merchandise. But even at 30% off there is still alot of items in the old store. I could see them needing to surplus the items that are left over. If they do do it where ever it is would be good for the locals. Kinda like Grizzly and their tent sales. The locals useually get the best deals first.

[Clint Schlosser]

Financially I am not sure this makes sense for Home Depot. I am speaking from personal experience coming from inside retail corporate offices I have worked in. Generally the cost/benefit ratio of shipping already below cost merchandise to a central location is worse than just placing it into a dumpster. I know this goes against conventional wisdom but the math just works out that way.

I would not be surprised however if they designated larger floor space in a few existing stores for financially viable merchandise from other stores to be shipped in. In this situation you can break even on the clearance, drive traffic with the supposed good deals and still sell some regular priced merchandise. This is the general model most retailers employ given they are not specifically a retailer that only sells discount items such as Tuesday Morning or the like.

[Greg Heppeard]

The Tulsa area has 5 Home Depots and 7 Lowes. It would be great if they made at least a couple of them Surplus stores

[Rick Hubbard]

They have built a new store about 1/2 mile from an existing one near me.

Yeah, Ben. That is the very one I was talking about. The old Springer Drive store is supposed to be the Northern NE "outlet".

Rick

[Rick Hubbard]

Financially I am not sure this makes sense for Home Depot. I am speaking from personal experience coming from inside retail corporate offices I have worked in. Generally the cost/benefit ratio of shipping already below cost merchandise to a central location is worse than just placing it into a dumpster. I know this goes against conventional wisdom but the math just works out that way.


You’re right Clint. In most cases, the strategy you describe makes good financial sense. There is one scenario, however, where it does not. If HD, Inc. sells returned goods, dog-eared inventory or other undesirable inventory to a wholly owned, but independent subsidiary HD Outlet, Inc. they free up their inventory dollars for re-investment in faster turning merchandise and get the write down. The wholly owned subsidiary looks like a giant profit machine since their merchandise is purchased at ridiculously low cost. Overall, it looks very good on the books (after all, even the HD Outlet Inc. money eventually finds its way back to the corporate P&L).

Rick

[Pat Germain]

I would also be surprised if HD, or any other home center, actually started selling deeply discounted merchandise, "surplus" or otherwise.

I'm reminded of the "Factory Outlet" craze of years ago. Initially, consumers could get some actual good deals on high-end merchandise from these outlets. Although these outlets were few and far between, people would drive for many miles to shop there. Retailers had a cow and demanded this direct competition to their full retail prices cease and desist. Thus, so called Outlet Malls of today actually carry unique, lower end "Outlet Versions" of the name brands giving the illusion of being a good deal.

More and more American consumers are refusing to pay retail for anything. We all expect deep discounts or we're not buying. This has led some retailers, furniture stores especially, to constantly present the illusion of a sale every single week. Some people fall for it, I guess. It has also led to clubs where people can supposedly buy merchandise at steep discounts because they're in the club. Directbuy.com would be an example of this. Unlike Costco and Sam's, I don't think there's any real savings there. Again, there's the illusion of savings.

Since most of the merchandise at home centers has very little markup, there's no room for markdowns without losing money. If one home center decides to start dumping merchandise at a surplus store, it would really upset the market and that retailer would end up hurting themselves as well as other retailers.

Thus, if some kind of HD surplus store does actually happen, I expect to see what I see at other surplus stores and outlet stores; the illusion of discounted merchandise. There will be a bunch of junk with only a few dollars off retail price. There will likely be a few good deals on high-end merchandise. That stuff goes to employees and their friends and contractors who have arrangements to get first crack. It's gone before it even hits the shelves where we could see it. So we shouldn't get our hopes up about scoring killer deals at a Home Depot surplus store.

[Brian J Holmes]

We had an HD close down here a year or two ago to move to a new location and they did the massive discount thing. I spent a little while talking to the guy running the clearance and he explained how it worked. When HD closes a store they basically turn over the inventory to the vendors, the vendors stock the new location with new inventory and they get the inventory from the old store. stuff that is in sellable condition gets moved back to wharehouses for restocking and the rest is sold in the clearance sale. HD pays for the employees and overhead to run the store during the clearance and the proceeds go to the vendors.

Seems to me like the vendors get screwed there but then again it is the borg. Also take all this with a grain of salt I'm just repeating what this sale manager told me, he could have been completely full of it.

But based on that I agree it just wouldnt make any sense to ship stuff to surplus centers especially with the high cost of transportation today. Much simpler to simply put items in a clearance section and blow them out at a discount.

[Brian Elfert]

There is a company locally that gets $100 million or more in returns and other clearance stuff from Walmart every year.

Most of the stuff they sell wholesale, but they have a outlet store locally. The stuff is total crap sold at high prices. They take no care with anything and most of the electronics stuff looked like rejects from a pawn shop. Most stuff didn't have boxes. They had open flat panel TVs, but only discounted like $100. Who would risk a bunch of money on a TV someone returned for a $100 discount.

A Home Depot surplus store would probably look similiar after a while.

[Pat Germain]

^^ Brian, I'm laughing out loud because you described the very same scenes I've witnessed at "discount surplus stores". :p

I do admit there is a store in Stillwater, Oklahoma which sometimes actually gets high-end merchandise and sells it quite cheap. They had a lot of stuff from New Orleans stores after hurrican Katrina hit. One time they had designer purses, not knock-offs, selling for less than 1/4 retail. The local college girls had a field day. However, such killer deals are pretty rare. Typically, the merchandise is OK stuff at an OK price (in an OK state!). Everywhere else it's the proverbial stuff pulled from the dumpster behind Goodwill.

[Joe Pelonio]

The Tulsa area has 5 Home Depots and 7 Lowes. It would be great if they made at least a couple of them Surplus stores
Here we have 12 HD and 10 Lowe's, I've heard no talk of closing any but the last few times I've been in Lowe's it's been 1-2 cashiers open and no lines. There's still a lot of building going on here but few new projects being started, so as these are completed I'd expect some serious concern.

[Mark Hulette]

Along the same lines as this thread, our HD was one of 15 announced to be closed- bummer. This store isn't in a great location but they did seem to keep Lowe's in check at least a little bit.

I'm bummed because our Lowe's doesn't carry MDF or maple so my WWing life just got more difficult.

[Dennis Peacock]

the last few times I've been in Lowe's it's been 1-2 cashiers open and no lines.

I guess it's really location specific. Here it's right the opposite. HD has cashiers waiting while you stand in line at Lowes to even check out. I guess that's what makes "the world go around". :)

[Justin Leiwig]

We have a local operation that already buys home depot's banged up merchandise. I bought two steel entry doors one a 9 light and one a solid 6 panel door from this place for $88 bucks each. They even had home depot tracking stickers still on the side of them. The price of the 9 light door at home depot was $169 bucks on sale! I got two doors for the price of one. Since they were in primer and would need painted anyway I didn't mind the scratches or places where the primer had rubbed off.

I think Home Depot around here will eventually go out of business. They only have those self checkout computers and no one available to help you at all. Lowes on the other hand doesn't have a single self check out line and there are always tons of people to help. Home Depot is also consistently $3-5 more for the exact same item then Lowes! I really can't stand to shop at Home Depot anymore..except for their garden center. It's the only thing going for it.