Bernie Marcus & Arthur Blank
Bernie Marcus & Arthur Blank
Co-founders of The Home Depot
"We believed from the start that if we brought the customer quality merchandise at the right price and offered excellent service, we could change retailing in the United States. Today, we are the model of what retailing should be."-Bernie Marcus
In 1978, when co-founders Bernie Marcus and Arthur Blank stated that they wanted to make The Home Depot the Sears Roebuck of the home-improvement industry, a lot of people laughed at them. But no one's laughing anymore. By combining the convenience and service of mom-and-pop hardware stores with the low prices and huge product selection of warehouse outlets, this dynamic do-it-yourself duo transformed a few ragtag stores into the largest home-improvement retailer in the United States.
The tale of how Marcus and Blank created their hardware empire ranks as one of the greatest entrepreneurial comeback stories of all time. In the late 1970s, they were both officers in a Southern California home-center chain called Handy Dan when turnaround artist Sanford S. Sigoloff took over Handy Dan's ailing parent company, Daylin Inc. The corporate raider was notorious for gutting senior management, but as Marcus writes in the duo's autobiography, Built From Scratch, "Handy Dan made so much money that we thought Sigoloff would be stupid to get rid of us."
They thought wrong. In 1978, citing trumped up charges that they had allowed an underling to create a fund that was improperly used to fight a union at Handy Dan stores in San Jose, California, Sigoloff did indeed fire Marcus and Blank.
Before they were let go, Marcus and Blank had begun experimenting with discounting in one Handy Dan outlet. They observed that when they marked down items, volume increased and costs as a percentage of sales decreased. They had planned to expand the experiment to other Handy Dan stores. But now they decided to use that plan to strike out on their own. Envisioning a nationwide chain of warehouse stores filled with a wide assortment of products at the lowest possible prices and staffed with trained associates giving absolutely the best customer service in the industry, Blank and Marcus set up shop in two defunct Treasure Island discount stores in suburban Atlanta. With an infusion of cash from a New York City investment firm, they stocked the shelves with 18,000 different items-from paint to plumbing fixtures-slashed prices to the bone, and personally hired and trained the staff.
On opening day, they gave their kids a wad of $1 bills and stationed them by the entrance to hand out the money as a thank-you gift for the shoppers. They expected the money to run out before noon. "But by 5 or 6 in the evening, our kids were out in the parking lot stopping people and giving them money to come in the store," Blank recalls. "It was a crushing disappointment."
When Marcus and Blank met for lunch the next day, "We just sat there in stunned silence," Marcus remembers. "It looked like curtains for us. My wife wouldn't let me shave for days. She didn't want me to have a razor in my hands."
Fortunately, day three brought a glimmer of hope, when a satisfied customer returned to the store with a bag of okra for Marcus-her way of saying thank you for the positive shopping experience she'd had at The Home Depot. While the transplanted New Yorker admits he really didn't appreciate the okra on a culinary level, he did see it as a sign that the fledgling enterprise was on the right track. And it was. Word of mouth began to pull more and more first-time customers into the stores, and before long, the days of paying suppliers straight from the cash register drawer were over.
Inspired by the success of their first two stores, Marcus and Blank decided to open two more stores. Cash was still a little short in those early days, so they had employees stack empty cardboard boxes and paint cans on top shelves to make the stores look more full.
The partner's next venture was into the Miami market, opening two stores in September and two more in November 1981. On November 22, they took the company public, and both investments and profits soared. Originally projecting sales of $9 million per store, the founders and investors were delighted to see average sales exceed $17 million. Over the next few years, the company exploded with growth, and in less than a decade, there were 118 Home Depot outlets ringing up $2.7 billion in sales.
One of the main reasons for Home Depot's phenomenal success, and what has separated it from other discounters is the company's mission to make a Mr. or Ms. Fixit out of someone who thinks about calling the plumber to change the bath water. From the very beginning, Marcus and Blank's aim was to demystify the mechanics of plumbing, electrical wiring and construction. To this end, the founders staffed their stores with knowledgeable salespeople who could answer shoppers' questions and guide them to the proper equipment. They also began offering free clinics on all aspects of home remodeling and repair.
Another secret of Marcus and Blank's success is their "running scared" management philosophy. "If you attend any of our meetings, you would never believe that this company is the size it is or doing as well as it is." Blank explains. "We spend very little time talking about the things we are doing well. We spend 80 to 90 percent of our time focusing on the issues and problems, what the competition is doing, what our customers are looking for, what they are not finding in our stores, which stores are having problems. The whole focus of the company is to take today's standards and accept them for what they are but to say we have to improve upon them for the future."
The strategy seems to work. By 1999, only two decades after the less than spectacular grand opening of its first two stores in Atlanta, The Home Depot has grown to become the world's largest home-improvement retailer, with more than 800 stores operating in 44 states, five Canadian provinces, and Chile and Puerto Rico. What's more, they plan to open an addition 800 stores by 2002.
Even though The Home Depot has grown into an international chain, Arthur Blank insists that the basic guiding principles of the company "were cemented in those early years and have never changed. Our prices were low then, and they are still low today. And our service was excellent then and still is today."
On The Road Again
While The Home Depot may be huge, Bernie Marcus and Arthur Blank still do their best work where the little things count¬-out on the store floors. On a regular basis, they embark on "road shows," during which they make unscheduled visits to Home Depot stores across the country. "Over the years, these road shows have changed the way we merchandise products, because Bernie and I re-learn our business firsthand from the people on the store floor," Blank writes in the partners' autobiography, Built From Scratch. "Associates know more about the products and what the customers are looking for than we do. It is a learning experience and an opportunity to change."
Tools For Success
In their book, Built From Scratch, Bernie Marcus and Arthur Blank outline the universal core values they believe apply to every business:
- Give excellent customer service.
- Take care of your people.
- Develop entrepreneurial spirit.
- Respect all people.
- Build strong relationships with associates, customers, vendors and communities.
- Do the right thing, don't just do things right.
- Give back to the community as an integral part of doing business.
- Take care of your shareholders.