Dive Brief:

• A newly retrofitted Hagerstown, Maryland, warehouse coming online by the end of this quarter will enable Home Depot to ship next-day or same-day to half of the U.S. population, according to executives on the retailer's first-quarter earnings call Tuesday.The home improvement retailer can currently reach 90% of the U.S. population with parcel shipping in 2 days or fewer — for next day parcel shipping that number is 36%.
• Faster delivery options are leading to more sales for Home Depot. "Every time we take time out of the delivery lead time, we increase conversion," CEO Craig Menear said on the call.
• Home Depot uses crowdsourced delivery providers like Roadie and Deliv​, to execute same-day delivery. Through these providers, the retailer can reach 40% of the U.S. population by car and 70% by van.

Dive Insight:

Home Depot and main competitor Lowe's have come to realize the nature of home improvement products and projects lend themselves to fast delivery. The challenge is offering the fastest delivery possible while preserving profitability in a space made fairly volatile by outside forces like the weather.

Home Depot and Lowe's compete for the professional customer, who orders raw materials, tools and other supplies in large quantities, but still demands the same delivery convenience for the layman. For these deliveries, Home Depot has some dedicated facilities and its own fleet. It will open a new flatbed delivery center in the Dallas area later in 2019.

"And as you grow with the Pro that actually uses delivery it gives us an opportunity to much more effectively compete against the distribution houses and the lumber and building material yards that provide the service," explained Menear.

Retailers from across the spectrum — Walmart, Kohl's and Nordstrom to name a few — have expressed or posted numbers to suggest competing for market share by making e-commerce fulfillment as fast and as convenient as possible can eat into margins, despite consistent revenue growth.

Gross margin for Home Depot was down slightly (34.2%) in the first quarter based on unfavorable product mix, higher shrink and higher supply chain and fulfillment expense, said CFO Carol Tomé. Home Depot projects 34% gross margin for the whole of 2019.

Mark Holifield, Home Depot's executive vice president for supply chain and product development, said the various sales and delivery channels, and customers, are managed as portfolios and not individual lines of business. As with civilian customers, professionals who employ Home Depot's delivery options are more likely to shop at the chain in other ways — like in-store purchases or standard e-commerce orders — adding value to lower margin orders.

Holifield described digital tools the retailer employs to determine which product categories will drive the most sales from the addition of faster delivery options and then adjusts the inventory available for same-day shipping accordingly.