Last week on June 3, 2021, Craig Menear – Chairman and Chief Executive Officer, The Home Depot and Brandon Fletcher, Alliance Bernstein talked during the Alliance Bernstein 37th Annual Strategic Decisions Conference. During the conversation, the pair discussed the Home Improvement Retailers private brand program.
I don’t know that we would say that we have the expertise, if you will, within the organization to think about vertical integration at that kind of level. That again, when we set out to look at a longer-term plan for the Home Depot, back in 2015, we said, it’s just as important to define the things that we’re not going to do as the things that we are going to do. And part of what we said, we’re not going to do. And sorry, I know this goes against your comment earlier on Kingfisher. We’re not going to go international. There’s too much opportunity in North America. We’re not going to do vertical integration. We’re not doing small-format stores, until we actually capture all the opportunity that exists, that we believe exists in the business in North America.
And so we haven’t gone down that path. I’d say, the closest thing in a sense to that is what we do with our private label programs, where we design, develop, and then contract basically manufacturer of those products. And that’d probably be the closest thing that I could think of in Home Depot to what others might consider to be vertical integration. We have done that extremely well.
We have gotten all of our private label brands, which we have a number of two, four-plus star ratings or above. We have multiple brands that are in excess of $1 billion. We have brands in excess of $2 billion, and we have a couple of brands in excess of $3 billion. And so these are our ways for us to continue to bring value and innovation. And we’ve been very transparent with our supplier base on when we would go down the path of private label.
And we’ve done that for years. When we feel like brand isn’t relevant, so people have to keep brands relevant. If the innovation isn’t there or if we have a value construct that is we’re struggling to bring the right value to the customer. That’s when we’ll look to drive a private label program to supplement the brand house that we are.
Makes sense. Since you brought up private label, one of the things we’re curious about is, does that private label construct change as you get into broader professional categories? So, think about always how you guys say, of the professional wallet, we get 27% or whatever the number was in some years ago. And we see that expansion. Is that new private label invention? Is it – you take the same label and put it on the components. I just get curious because sometimes in the professional space, the private label process may be a little bit harder to replicate because there’s a quality badge to that, but maybe you pull it off because you’ve done it in tools already?
Right. I think what we do as it relates to product and whether this is private label or branded product, we always start with a professional in mind. And so this business was built on taking care of the professional customers, having the right brands that they value, having product that eliminates callbacks for the pro is hugely important. And as we built this business over the last 40 years, what our founders were so in tune with was the fact that the DIY customers would see the professionals buying the product in our stores that gave them confidence that they were buying the right products.
And we’ve carried that into the future here in the business, both in our branded products, but also in our private label program. I mean, to your point, we have focused on quality, focused on making sure that we get those kinds of ratings and reviews that we need to be able to satisfy the pro that they’re going to be buying product from the Home Depot that will help them complete their job, not cause callbacks because a callback destroys the first dollar of profit for the pro. So that is a real key focus of what we have going on in the business every single day.
Makes sense. Part of this private label element was also where you built your own supply chain. And one of the things we’ve been thinking about a lot of in terms of kind of long run, what’s really changed in retail. So five years ago, everybody told me I messed up by leaving my nice Walmart job, because there was going to be no reason for a Wall Street person to cover retail because it was all going to zero because Amazon was going to take that.
And I’m glad that it turned out to be wrong. But I do think about the next thing that’s scary or that’s a disruption. And the one for me is China. I worry that it’s really a cold war with China and that most of the conditions in the Trump administration have continued in the Biden administration in terms of that approach. And so I just love to hear you guys kind of think about how you think about globalization. There’s certainly kind of a North America manufacturing model, that’s gaining traction in some spaces. But I would just love to hear that context because globalization arguably had been such a driver of this incredible consumer growth for 20, 30 years. And now that it looks different, I’d love to hear Home Depot’s view on that.
Yes. Look, I mean, I would say that we don’t have any illusion that tomorrow everything is going to kind of stop from a globalization standpoint. That’s not the case. Our folks working to diversify, because what we’ve seen happen over the past several years, the answer to that is, yes. And lots of manufacturers have China operations, but they’re diversifying into other parts of the globe as well. Part of that was driven long before any of the activity that took place over the past several years because of what the natural evolution of rising costs are inside of China, which was the driver of the Asian product development, if you will.
But it’s fascinating because if you were walking factories, even maybe is the reason is five or six years ago, a lot of times you’d be in a factory and you would see good solid equipment that was brought in from other parts of the world that would be in a factory. And you would see still lots of manual labor in those factories. When you walk factories in today’s environment, you’re seeing more and more highly automated equipment, even in a Chinese factory because everybody understands that that’s where you ultimately have to gravitate to.
And I think that’s part of what’s driving the opportunity set, if you will, to bring more product back to North America, bring more product back to our country. As you combine the automation advancements that have taken place. And the ability to then begin to offset costs of transportation and other things, it becomes much more palatable to be able to drive value through product being produced here or in North America. And so you’re seeing more of that happen.