Sunday, March 18, 2012

Home Depot's Fix-It Lady Case Study

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Features January 13, 2011,

Home Depot's Fix-It Lady
Chief Financial Officer Carol Tomé has a shot at CEO, if she can solve the retailer's technology problems
Carol B. Tomé, the chief financial officer at Home Depot (HD) and a leading contender to be the retailer's next chief executive, has caught the technology bug. "I can't wait until the day when I have my credit card loaded up on my smartphone, and I don't even have to carry my wallet—just walk around with my phone," she says, gesturing toward the orange-and-beige Store No. 121, visible from her 22nd-floor conference room in Atlanta. "It's tap and go. It's going to happen. It's all ages, all generations."
It is September, and Home Depot is weeks away from unveiling a mobile app allowing consumers to order merchandise via their iPhone or iPad. "We're already there," Tomé says, visibly pleased that the home-improvement chain would beat its smaller but faster-growing rival, Lowe's, in the race to introduce such a feature.
Lowe's still hasn't introduced its iPhone app, yet Home Depot's small victory is misleading. The world's largest retailer of potting soil and two-by-fours has actually lagged in technology. Until last year, employees stocked shelves as they had for 15 years, using computers powered by motorboat batteries and rolled around stores on bulky carts. The retailer still doesn't offer customers the option to order online and pick up merchandise in stores, as Lowe's (LOW) does.
Technology was an afterthought as Home Depot for years emphasized opening new stores. When Frank Blake replaced Robert Nardelli as CEO in 2007, he shifted focus to increasing profits from existing outlets. "Inventory turns"—a measure of how well a retailer turns goods into sales—have risen for three straight quarters. Now, Tomé, 54, has the challenging assignment of leading a belated tech catch-up.
Above all, the company must attract younger consumers accustomed to shopping online, often with devices they carry in a pocket or handbag. During the company's fiscal 2010, which ends Jan. 30, Tomé oversaw tech spending of $350 million, or a third of all capital expenditures. Several former top Home Depot executives say Tomé would be the logical internal choice to succeed Blake, 61, when he retires. Her chances of becoming the fifth CEO in Home Depot's 33-year existence may depend on whether she succeeds at improving the chain's in-store technology as well as boosting online transactions, which amounted to less than $1 billion, or 1.5 percent of its estimated 2010 sales of $68 billion. "The way people shop in the future—Carol is going to craft that for Home Depot," says Carl Liebert III, who left as executive vice-president for stores in 2006 to become CEO of 24 Hour Fitness Worldwide. "It certainly puts her in the driver's seat for replacing Frank when that time comes."
Home Depot's tech troubles provide some sobering lessons for other brick-and-mortar retailers as they try to capture mobile-device sales. When processing special orders for customers, Home Depot employees are now forced to use "prehistoric" technology, hurting both service and sales, Marvin Ellison, the company's executive vice-president for U.S. stores, said at a Goldman Sachs (GS) conference in New York in September. Home Depot also needs to improve its website to lure the 7 in 10 customers who first browse online, Blake said at the conference.
For more than a decade, the company neglected the tech revolution, preferring to open stores—more than 100 a year through 2005. Today there are 2,244 in all. Tomé was in the thick of the real estate binge. She still heads the corporate committee that oversaw that expansion, though in 2008 it became clear that demand for big-box home-improvement stores had reached the saturation point. Now it is up to her to approve the big-ticket tech spending needed to move Home Depot online.
In 15 years at the company, Tomé is the only senior executive to work for all four of its CEOs. She has advanced, colleagues say, by combining sharp intelligence with a zeal to learn the business from the hammers and nails on up. Stepping off the elevator at Atlanta headquarters one morning, she is dressed in black with a pearl bracelet on her right wrist and fashionable glasses with black-and-burgundy frames, one of more than a dozen pairs she owns. She carries an ostrich-skin tote bag. A coat rack in her office bears more than 90 orange aprons decorated by employees of stores she has visited. Tomé tours at least one outlet a week, talking to customers and quizzing workers. "Carol can mix paint," says Cara Kinzey, a senior vice-president for information technology, recalling a particularly detailed grilling by the CFO over the 2009 purchase of new paint-blending equipment and other improvements. "We always have to pay for these projects with results."
The oldest of four children, Tomé first learned about finance in Jackson, Wyo., where her father ran the family-owned Jackson State Bank. She assumed that one day she would become Jackson State's first female CEO. When she was studying for an MBA at the University of Denver, however, her father called with news that upset her plans: He was divorcing her mother after 27 years of marriage and selling Jackson State.
"When I calmed down, I said to myself, 'Carol, you are going to be a banker. So be a banker,' " Tomé recalls. "As I sit here today, the best thing that ever happened to me, personally and professionally, was the fact that he sold the bank." Setting off on her own, she joined United Bank of Denver, and that led to a series of corporate finance jobs that landed her at Home Depot in 1995.
In 2000, Home Depot hired a new CEO: Nardelli, a cost-cutter who had been a runner-up in the contest to succeed Jack Welch as General Electric's (GE) CEO. Nardelli had a rocky time in the home-improvement business. During his tenure, customer satisfaction slipped and sales growth trailed that of Lowe's. His compensation of $225 million over six years also provoked grumbling. For Tomé, though, the Nardelli era proved fruitful. He promoted her from treasurer to CFO in 2001; when other executives left, her responsibilities expanded to include store operations and customer service. The board ousted Nardelli in 2007, but Tomé's status did not suffer. She was paid $5.2 million last year. Nardelli, now head of the operations and advisory unit of New York-based buyout firm Cerberus Capital Management, declined to comment.
"I've never run into [a CFO] who knew the business as well as Carol does," says Virginia A. Hepner, Wachovia's senior banker for Home Depot during Tomé's first seven years at the retailer. (Wachovia is now part of Wells Fargo (WFC).) "At work, she is all business, always focused, calm, and professional," says Hepner. She and Tomé and their husbands share interests in the arts, gardening, and cooking. "Carol makes a wicked chocolate mousse," Hepner says. They socialize at the Tomés' Italian Renaissance-style home in the Atlanta suburb of Buckhead. Tomé's husband, Ramon, is a chemist with the Georgia Natural Resources Dept.
The Home Depot executive, who has rounded out her résumé by serving as a director of United Parcel Service (UPS) and chairman of the Federal Reserve Bank of Atlanta, won't comment on whether she wants to run the retailer. She notes, though, that she demurred when a headhunter called last year about a possible lateral move to Bank of America (BAC). "I've got the best CFO job in the country, so why would I want to entertain another CFO position?" she says. Her boss, Blake, who doesn't face mandatory retirement as CEO, won't talk about succession, saying, "I want to avoid horse race discussions."
Getting Home Depot up to speed on technology became a key test for Tomé last March, when she and Blake attended an off-site on the company's mobility future. Executives heard presentations from vendors of video cameras tied to computers that guess shoppers' ages and suggest purchases on their smartphones, mobile devices for contractors to order work-site deliveries, and other gadgets. With so many possibilities, Blake asked Tomé to come up with a plan. The result was Home Depot's mobility committee. "The assignment for Carol was very logical," Blake says. "She has the breadth of view to coordinate that. She's a very bright woman with a good sense of the business."
Under her leadership in 2010 the company laid out $60 million to buy 40,000 handheld devices to replace the in-store computers from the early 1990s. In October it launched a blogging site at where employees answer customer questions on such matters as repairing a door damaged by direct sunlight. "Clean tools are happy tools," wrote a store expert who uses the handle TheHammer. He recommended glass cleaner to remove grease from pliers. As part of a broader upgrade of checkout systems, the company's U.S. stores have lately installed contact-less scanners for reading credit-card information on smartphones. They're not in use yet, says Dwaine Kimmet, treasurer and vice-president for financial services. "We did it for the future, to keep our options open."
Tomé's tech challenge will be complicated by the preference of most older contractors and do-it-yourselfers to buy in person at a store. "You have to serve customers the way they want to be served," Blake says. Tomé reinforces this point, stressing that the company's largest category of capital spending remains maintenance of stores, including bathrooms. "It's very much defensive spending," she says.
Colin McGranahan, an analyst at Sanford C. Bernstein (AB), says Tomé is headed in the right direction. "Over the long run, consumers are going to be a lot more comfortable using their smartphones on a real-time basis researching outside or inside the store." He rates Home Depot as "market perform," a prediction that its results will be similar to that of the overall market.
In 2009 the square footage of Home Depot stores declined by 1.3 percent, the retailer's first annual drop ever, and it was essentially unchanged in 2010. "We were very much like that Kevin Costner movie: Build a store, and they will come," Tomé explains. "That's no longer the case. We need to look at what we're doing inside the company to grow. Our economic engine will be driven by productivity and efficiency."

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