HD Supply executives share insight on their organization and its future
BY MARY JO MARTIN
Editorial director
In 2000, when The Home Depot announced their acquisition of Atlanta-based Apex Supply Company, owned and operated by the Rodbell family, it generated a great deal of shock and speculation throughout the PHCP distribution channel. While the retail giant had previously tried to appeal to contractors through various means, it marked the first time they had actually entered the wholesale distribution arena. Acquiring such a well-respected, multi-generational firm as Apex gave The Home Depot the credibility and inroads with the trade that they had struggled with.
Their foothold in wholesale distribution grew even stronger in 2006 with the acquisition of Hughes Supply, which at the time was consistently ranked either #1 or #2 in annual sales volume each year. That same year, all of the wholesale operations that were part of The Home Depot portfolio became known as HD Supply.
The last five years have, at times, been rocky for HD Supply, including its divestment from The Home Depot in 2008 to three private equity firms — Carlyle Group; Clayton, Dubilier and Rice; and Bain Capital. Of course, the recession and continued struggles of the building and construction industry, have led CEO Joe DeAngelo to implement cost-cutting and efficiency measures across the entire organization. The company continues to be one of the most-talked-about entities within the PHCP/PVF industry today — and even greater interest was generated this spring when HD Supply appointed long-time Ferguson veteran John Stegeman to the newly created post of executive president.
Today, HD Supply is comprised of 10 businesses in the U.S. and one in Canada. These business units focus on three primary sectors/end markets:
• Infrastructure and Energy — Waterworks, Utilities, Electrical, Industrial PVF
• Maintenance and Repair — Facilities Maintenance, Repair & Remodel, Crown Bolt
• Specialty Construction — White Cap, Plumbing/HVAC, Creative Touch Interiors.
With more than 15,000 employees, nearly 5,000 fleet vehicles, 800 locations in three countries, 1 million product SKUs and 450,000 customers, HD Supply ranks #2 in this year’s Wholesaling 100.
Recently, CEO Joe DeAngelo and executive president John Stegeman graciously invited editorial director Mary Jo Martin to their Atlanta office for a candid interview. The Wholesaler will present this interview in a two-part series, with its conclusion in the August issue.
MJM: Give us a window into how HD Supply today is positioning itself for the future?
DeAngelo: In 2004, we were a $2-billion company and by 2007 we had sales of $12 billion. It has been our practice to acquire market-leading companies to bring into our business.
Probably the most exciting aspect of where we are today is that the team has been delivering very well and meeting all our commitments. We have brought new people on board to position the company for growth. The executive team looks at our jobs as providing the right tools to our 15,000+ associates so they can be successful serving our customers and building our various businesses.
One of our more exciting recent moves was bringing John Stegeman in to run our branch-based businesses serving the construction industry — HD Supply Canada, electrical, plumbing & HVAC, waterworks and White Cap. He has deep expertise in that segment of the market, having spent 24 years at Ferguson.
We’ve also been fortunate to gain the expertise of Joe Izganics. Joe is senior vice president for our Creative Interiors, Crown Bolt and HD Supply Repair & Remodel businesses. He has more than 25 years of experience in retail markets.
And the third upper-level executive to join HD Supply recently is Ron Domanico as our new CFO. It’s very important when you run a portfolio to show value creation. You must have working capital and pick the right investments in order to grow. The unique thing about Ron is that a very strategic business thinker in high-growth areas.
In addition to my duties as CEO, I work with the facilities maintenance, utilities and industrial PVF businesses.
One of most significant things we did over last few months is to restructure our debt so it’s not due until 2014. We believe that by then, the economy will be running at full strength and we’ll be operating at peak efficiency.
MJM: Is there anything you can share about your sale from The Home Depot, and why you chose to retain the name HD Supply?
DeAngelo: With the separation from The Home Depot, there were naturally concerns and uncertainty on the part of many of our customers and associates. We wanted to assure them that nothing was going to change. By keeping the name, it allowed our employees to spend their time completely and totally focusing on our professional customers; we saw re-branding as a distraction for them.
We tried to have some fun with the name, even having a contest where we asked our associates what they thought HD stands for. Some of the answers we got were “Heavy Duty,” “Hard work and Dedication,” “Highly Diversified,” “Helpful and Dependable,” “Honorable and Devoted,” and “Honest and Direct.” It means a lot that our associates believe so strongly in our company.
Stegeman: Both Ferguson and HD Supply have taken same approach when it comes to the transition following acquisitions. While we actually did keep the original names of a couple of the businesses we’ve acquired, like White cap, Crown Bolt and Creative Touch Interiors, it is very important for our people and locations to be recognized as part of the HD Supply family. It adds value to the people who come to us through these acquisitions. If you ask customers if the company’s name or people are more important, they’ll say people. So that’s what we concentrate on. It’s really the people who make the business.
MJM: How much input do the private investment firms have in your business?
DeAngelo: We have a very concentrated private ownership. Our board is made up of three individuals from each of the three private equity firms and myself. We look at how best to allocate capital, and what growth bets to take. At the end of the day, the HD Supply leadership team really drives the business. Everyone on leadership team is an owner/ shareholder and has personal money in the deal. As a result, our team has the all-around dedication and drive to create a long-term sustainable competitive advantage. Thanks to the capital available through these firms, we don’t have to be as worried specifically about quarterly earnings; rather, we can focus as a team on how to attract new customers, earn their business and keep them for life. We invested very heavily throughout the downturn in talent and technology.
MJM: Would you say that your operating companies function rather independently?
DeAngelo: We enable our companies to really focus on their markets and customers by supporting them through centralized functions that cut across the entire organization.
We also want each of our companies to learn from each other. We want to take the best practices each of them employ and then replicate it in our other businesses, if applicable. That saves them from having to waste time and money trying to come up with new ideas.
It’s very important not to overcomplicate things. All of the tasks that are centralized should add value. Our business leaders should not have to worry about making payroll. We would rather have them focus on being the best business they can be in their respective markets.
MJM: What types of functions are centralized through the corporate office?
DeAngelo: Our centralized functions include finance, human resources, information technology, strategic business development, marketing and legal. We try to centralize tasks that can be done best in one place and that require a high degree of expertise.
We also like to focus on those functions that can turbo charge change and then repeat those successful practices across all of our businesses. Each function leader makes sure their team is doing what needs to be done so that our associates can properly executive their responsibilities to serve their customers. The way we look at it at a corporate level is that our job is to serve our internal customers.
MJM: Is there much overlap or connectivity between the operating companies?
DeAngelo: It’s very important that all of our companies have great relationships in the field. There are many jobs that several of our companies will have involvement with, so we want them to be able to work together well and complement each other. We also encourage them to communicate and share leads.
We operate with a defined marketing structure. Every month the executive leadership team talks to the top leaders of every business and every corporate function. We want find out from each of our businesses if we at corporate did what we were supposed to do in the previous 30 days, and determine
what they need from us in the coming 30 days so they can have the best chance of success.
MJM: In total, what percentages of your total business are done through each of the companies?
DeAngelo: ?Four of our businesses make up about 70% of our total business — Waterworks, Facilities Maintenance, White Cap and Utilities. Industrial PVF and Plumbing/HVAC combined make up an additional 15%.
HD Supply has a very balanced portfolio, 28% in nonresidential construction, 18% in the residential market, 32% in infrastructure, and the remaining 22% claimed by the MRO segment.
MJM: What strategies are you employing to improve efficiencies and functionality?
DeAngelo: We continued to invest very heavily throughout the economic downturn in these processes. We have a best-in-class IT platform and have the best software for each of our businesses. All of our businesses are tied together with data warehouses, which looks at whether we are getting the appropriate synergies, leveraging our volume purchases, and using best-in-class practices. We put a lot of effort into our IT applications because when it comes down to it, they revolve around one central theme: Are we the best company to work with. These applications create an automated workflow between our company and our customers.
One of our key mottos is “One Team, Driving Customer Success and Value Creation.” It’s not about customer service; it’s about putting our feet in the shoes of our customers, getting to the root at what they are trying to achieve and how we can help them get there.
MJM: There is quite a spread in this industry between the handful of very large national firms, and the mid-sized and smaller independent wholesalers. What do you feel are the benefits of your position — both internally and for your customers?
DeAngelo: We’re rock solid financially. We always meet our commitments and carry the inventory required so it’s the right place at the right time for our customers. We’ve invested heavily in people, systems and processes. The largest investment we make is in our people. They always find a way to step up their game, which makes us shine as a company. I’m very impressed with our associates’ focus on offering a better solution on a local level.
HD Supply is an accumulation of local businesses and we will never lose that. Our focus is on providing a better solution for our customers than anyone else out there.
We want to be known as a community leader in every market we participate in. Our team is very visible in their communities and don’t hesitate to roll up their sleeves and get involved in charitable and civic activities. There is a real spirit of volunteerism throughout HD Supply. We want to give back to these communities.
When it comes to our vendors, we’ve worked with many of our vendors for decades and have very loyal relationship with them. That type of relationship grows from buying companies that have employed good people with good values and good reputations.
Stegeman: Having been in this business a long time, I am used to thinking about the competitive advantages of my company. Things like scale and sharing best practices are critical. We also gain great advantage from the fact that our people mentor each other.
Sometimes when you are smaller, it’s hard to see outside that tunnel. When you have some scale, there is so much learning that goes on across all lines within the company.
However, we know that scale can also be perceived to be a disadvantage. In reality, our toughest competition is the small competitor who stays very close to our customers. It’s very important that we don’t try to consolidate everything into a big corporate environment. We must find the balance to also be mobile and agile.
MJM: How do you respond to one of the key arguments of smaller organizations that say they are nimble, quick to react and more customer service and community oriented?
DeAngelo: I think you respond by winning the business every day. Everything they are saying is correct if that’s truly what they are doing. They have a singular business and have often been in their local market for generations.
But you can actually look at our business the same way. We have a singular business in each market. We wholeheartedly endorse being nimble and helping customers succeed. We do this by making sure there are no distractions for our people in field — which is made possible by providing them assistance through our corporate office functions.
We like to think that we’ve created something that may be larger than most in aggregate but we’re not going to lose the secret sauce that made each of our locations, our businesses and our organization what they are today. Our job is to enable our local people to continue to successfully do what they have done for generations.
Stegeman: It also comes down to trust. Customers do business with people they can trust. And it’s also about going beyond the usual and doing the unexpected for our customers. It’s easy to just do what customers expect, but it’s also nice surprise and delight them whenever possible.
MJM: John, you really “grew up” at Ferguson. Could you share with us your thoughts as that relationship came to an end, and how you chose to join HD Supply?
Stegeman: I spent a great 24 years with Ferguson and made lot of good friends. After I left Ferguson, I started looking at what was in my best interest professionally and personally. I still have a passion and love for dealing with customers and people in general.
Through a connection I had with one of the private equity firms, I was put in touch with Joe and we started talking about how we could make HD Supply an even better company. I took six months to make this decision. Overall, I thought this was by far the best opportunity for me and for my family. It’s very exciting to be surrounded by such a talented group of people here.
MJM: What are your goals in this new position?
Stegeman: In the first 30 days, I made it a goal to get settled in here and become familiar with the people and processes at the corporate level so I could really hit the ground running. It has also been very important in the short term that I get out in field and meet the leadership teams for each of the businesses Joe’s given me responsibility for. It’s critical to understand the needs of our associates out in the field as well as the needs of customers.
Certainly plumbing, HVAC and waterworks are very comfortable market segments to me. I’m learning some other new businesses now as well, which is a great new opportunity.
As we look more to the future, a key goal is making sure we have the passion for success and sustainable business models. We want to make sure HD Supply remains a strong company. We don’t care about being the biggest, but we are concerned with being the best. I want customers to think of HD Supply before they think of anyone else. We must put our best foot forward in every interaction we have with customers and vendors, and support our associates.
The last piece that I bring is a passion for success. I wake up every day looking for opportunity. The residential construction market is in a slow recovery and there is a lot of opportunity out there for us to grab. There is opportunity that we frankly miss every day. We don’t have the dominating market share in any segment we are in. So there continues to be great opportunity to improve in all of our markets. n
Editor’s Note: Stay tuned for the conclusion of this exclusive interview in the August issue of The Wholesaler. DeAngelo and Stegeman will share their thoughts on the state of the wholesale distribution channel today and HD Supply’s role in it; the push they’ve made toward improving productivity and cost-savings; private labeling; vendor relationships; the importance of communication and instilling a sense of teamwork throughout such a large organization; and what the future holds for HD Supply.