Bob The Builder

Monday, Jun. 14, 2004 By JYOTI THOTTAM/ATLANTA

MR. FIX-IT: To boost sales, Nardelli centralized control and moved the product line upmarket

JOHN CHIASSON FOR TIME

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Nardelli found a company that made decisions based on emotion rather than data and that desperately needed direction. He centralized management and introduced some Jack Welch — style discipline. Before he arrived, stores were not even connected by email. One resulting inefficiency: individual stores had tried myriad ways to keep plants in the garden sections watered properly, but "no one could tell you what worked and what didn't work," Blake says. Now several outlets are methodically testing solutions.

Nardelli's moves to introduce elements of GE's numbers-oriented processes, along with a new slate of top executives, ruffled feathers in Atlanta's clubby business community. "No question about it," says ex-CEO Blank, who is still active with Home Depot's charitable work in Atlanta. "There was a shift in orientation and culture. Some felt comfortable with that, some didn't." Blank says Nardelli's appointment was the first real management change in a company that was still essentially run like a family business. Taylor says Nardelli's appointment was "as if my mother had come home and said my parents were getting divorced." Yet Nardelli's tireless work and willingness to immerse himself in the business eventually won over many skeptics.

Nardelli rode out the transitional bumps by defining a strategy and sticking with it: promote higher-end products and services in cleaner, better-organized stores. Nardelli has a laboratory for these ideas in the Home Depot across the street from his 22nd-floor office. (He often drives in on weekends — sometimes on his Harley-Davidson motorcycle.) Floor displays explain big-ticket items like lawn mowers and washing machines. Instead of paint cans lined up on shelves, a "color-solutions center" showcases Home Depot's color-matching technology.

None of the improvements are breakthrough retailing ideas, but by sprucing up displays and introducing higher-end products, Home Depot can get each shopper to spend a little more. Home Depot's best-selling ceiling fan used to be a $19 model; now it's a $199 model. In the first quarter, the average ticket rose 7.4%, to $55.11, a record for Home Depot, although still below the $59 average ticket of Lowe's.

Nardelli, who loves digging into the details of running a business, admits that the vision thing is more of a struggle. "I feel like I got to work at it sometimes," he says. "There are people who are blessed — things just come to them. I think I'm conscious of it, and I really try to apply myself." So far, his approach is working. Comparable-store sales rose 7.7% in the first quarter, the biggest jump in five years, while profits rose 26%, to $1.1 billion. Overall sales increased 16%, to $17.6 billion.

Yet investors still have their doubts. While Home Depot's stock has recovered 46% over the past 18 months, to about $35, it is nowhere near the $60 highs of 2000. Some analysts say fears that higher interest rates will deter home-improvement spending are hurting the stock. Nardelli doesn't think interest rates can derail Home Depot, nor is he looking for radical ideas. Wal-Mart made the risky move into selling groceries when it went through a period of sagging sales in the mid-1990s and built a wildly successful new business. Instead, Nardelli is stretching the company's existing businesses. He is expanding its services to capture retiring baby boomers who prefer "do it for me" to "do it yourself," and the company will soon start selling in China, having had success with its outposts in Mexico and Canada.