Home Depot: Capitalism At Its Best

Kelly C. Gamble

[ad_1]

Home Depot is a role model for our times.

Let me illustrate. Not too long ago, a man lugged two automobile tires into his local store and asked for a refund. He was known as one of the store’s most loyal customers. For a second, the fellow in charge of refunds may have had the urge, understandably, to tell him to go find the actual store where he bought the tires. You see, Home Depot Inc. doesn’t sell tires. Never has, never will. But the customer insisted he had purchased the tires there. And at Home Depot, the customer is always right. The man in the orange apron said, “I’m so sorry you aren’t happy with them.” He issued a refund. The customer went home happy. He also went home no less likely to shop at Home Depot for years to come. His expectations were unreasonable. But Home Depot satisfied them anyway. The company’s formula for success is elementary: Nothing matters more than the customer.

Can you imagine this happening anywhere else?

My jaw dropped when Ken Langone, one of the four founders of Home Depot, told me that story in a recent phone conversation. But the more I thought about it, the more sense it made. It shows why Home Depot’s success represents the pinnacle of stakeholder capitalism. The focus is on helping the customer succeed in his or her endeavors. A happy, motivated, loyal and innovative employee, usually wearing an orange apron, makes a customer happy. That employee likely started by pushing shopping carts back into the store from the parking lot. Home Depot employees will put aside profit—equal to the price of a couple tires—in order to ensure long-term loyalty from the customer who doesn’t even know the gift Home Depot handed him.

Home Depot’s treats and trains employees so that they will be able and motivated to become a customer’s partner. So how it treats employees is crucial. It motivates them not to just answer questions or issue refunds. They stick with a customer until it’s clear the buyer has what’s needed to succeed in a project.

Listen to what Home Depot did when it was just starting out. According to Langone, “From day one we knew our market was a lot of amateurs, do it yourselfers. Our customers were more apt to take on projects if our people were in a position to help. From the start, we had a program for teaching our kids specialties: plumbing, electrical, carpentry, you name it,” Ken remembered. These days, having been in the business for four decades, they also hire contractors who have worked in the trades and know exactly what every product on the shelves can do.

But what’s essential is not just how they train but how they honor these employees.

Ken told me: “Part and parcel of that was rewarding our people as if they were owners by making them owners. We decided everyone had to have skin in the game. We made certain that each of the four founders, including myself, would never own more than 5 percent of the company. The remaining shares would be owned by the public or the employees. We now have more than 3,000 associates who started pushing carts back into the store from the parking lot who are now millionaires. If there’s a better example of how capitalism works, you’ll have to show me.”

At the moment, this huge retailer employees nearly half a million people: 490,600 to be exact. With so many stores, the opportunities to move up are plentiful, and people do, from parking lot, to the aisles, to checkout, assistant store manager, store manager, district manager, executive vice president, and so on. People are able to find their innate level and thrive there. They are given performance bonuses not just once but twice per year by the store where they work if they exceed their targets. They get profit-sharing as well, from incremental profits. And so they are paid fairly and generously. And they are treated as the company’s most valuable source of success: the closer you are to a customer, the more important you are to the company’s future. The last person a customer sees is that entry-level worker pushing carts back into the store: he or she matters as much or more than people much higher in the organization. And he or she is treated accordingly.

Once they start working there, they tend to stay. Ken calls it mileage. He recited the numbers for me: full-time workers stay with the company on average for 8.5 years. All retail hourly workers on average: 5.58 years. That’s double the average job longevity in retail at all levels of the organization. Assistant store manager: 13.07 years. Store manager 16.8 years. District manager: 21.55 years. Those employees represent years of valuable investment, in training, in capital, in care, and that investment is well spent. They are the source of the company’s success. And many of those who started at the bottom are in today’s management positions. It’s a career path that opens up in response to talent and hard work.

This is stakeholder capitalism in action. It’s capitalism as its best: the most highly profitable capitalism imaginable. The results are astonishing. Ken offered comparisons: “Apple
AAPL
went public in 1980 at 10 cents per share. IRR through May 31, 2022 with dividends: 19.7%. Home Depot went public in 1981 at four cents. Rate of return with dividends: 29.4%.” Its profitability tops Apple’s. Need I say more?

Ken pointed out that this not only works for shareholders, it also works for communities and the nation as well. “Home Depot paid the government $5.3 billon in taxes on its revenue last year. In addition, all of its shareholders paid their own taxes on the dividends they got from Home Depot stock. All in all, Home Depot provides one percent of the federal government’s entire annual revenue from businesses. One company.” It does its fair share: which is a big share indeed considering how large it has grown.

While we were talking, Ken opened and read to us a letter addressed to his home in Long Island from a woman in Decatur, Illinois who was unable to return some faucets that she had bought for three bathrooms she was redesigning. She was a week beyond the one-year window for returns. Ken made sure this woman was issued a refund—she had bought everything for those bathrooms at Home Depot. Nobody should nickel-and-dime her over faucets. Yet few CEOs would spend time over a personal letter from a woman who wanted such a small refund. Originally, the store wanted to give it to her, but the computer system wouldn’t allow it. Ken took care of it.

Langone summed it up in one word: kindness. Kindness toward employees, kindness toward customers, kindness as the core of doing business. The rewards for something that simple—putting kindness and consideration into everything a company does—are impossible to ignore or dismiss. This is true capitalism, the way it has always succeeded. The way business succeeded when it was only shopkeepers and tradespeople in a village. As Ken puts it: “Do well by doing good.”

This is today’s role model company where all its stakeholders are winners: proving that stakeholder capitalism is just capitalism at its absolute best.

[ad_2]

Source link

Next Post

Biophilic Office Design: How to Create the Perfect Home Office

[ad_1] Outdoor office designed and styled by Yellow Brick Road Design. Photography by JLM productions Biophilic office design is having a moment! With so many of us working from home now, it’s never been more important to ensure that we have a workspace or home office that is practical and […]