***On the Home Front

May 1, 2000
One day in the autumn of 1995, in Nashville, Tenn., someone strolled out of a Home Depot with a few tools but no sales receipt. The security staff wasn't

One day in the autumn of 1995, in Nashville, Tenn., someone strolled out of a Home Depot with a few tools but no sales receipt. The security staff wasn't sleeping. In fact, the event was closely monitored as far away as corporate headquarters in Atlanta. That's because it was the first tool rental at the world's largest home improvement retailer.

Four and a half years later, the Home Depot rental program is in more than 150 stores - and counting - and is growing at the astounding pace of about five new rental departments a week. By January 2001, the company expects that 400 of its by-then 1,100 North American locations will rent tools to contractors and do-it-yourselfers.

Publicly traded Home Depot does not break down rental revenue or even offer a ballpark figure. Based on conversations with store managers, customers and rental centers competing in its markets, RER estimates Home Depot grabbed about $38 million in 1999 rental revenue and easily could generate more than $100 million next year as the program expands.

Of course, that's still just a fraction of the billions of dollars the Big Orange Box rings up on its retail registers. As one analyst told RER, "Rental isn't even on the radar screen in terms of factors affecting the stock." But the program is on the rental industry's radar screen, and now it's on the RER 100, at 26.

The program's origins can be traced to Tom McCormick and Dan McAreavey, 20-year rental veterans who came to Home Depot with a business plan for a new rental company operated separately from Home Depot's retail stores. Home Depot saw so much synergy with its retail mix and customers, it hired both men to set up a program within its stores instead. Today, McCormick is director of tool rentals, and McAreavey is product manager.

In growing from the hushed-up Nashville experiment to more than 150 locations in a dozen U.S. markets and four Canadian provinces, Home Depot has stuck to a tried-and-true formula. Each rental department is incorporated within the store, occupying 2,000 square feet - less than 2 percent - of the average 110,000-square-foot location.

Typically, six full-timers - including a manager and service technician - are recruited from within the store's ranks to staff the department. "Everyone on the team knows basic maintenance issues - cleaning filters, cleaning the equipment - and is responsible for the tool before and after the rental," McCormick says.

Name brands are the name of the inventory game. "We wanted to avoid putting in tools that weren't recognized by the professional," McCormick says. "We went after the brands we knew could withstand the demands of rental - Honda, Husqvarna, Bosch, Clarke. We made sure these vendors could support us and would be with us as we pushed the program out.

"We wanted vendors who were in tune with rental. We're rolling out so many tool rental centers, we want to be able to train consistently and have a consistent parts base. We want the pros to walk in and say, 'This is a real rental center.' [The] No. 1 [priority] was recognized quality."

Spreading the word that Home Depot is open for rental business has not been as simple as stringing up a banner outside the store. "It's a bigger challenge than I expected," McCormick says. "Customers don't equate us with tool rental. We actually have better customer awareness [for rental] in a new store than an existing store where they're used to shopping and tend to go in the same areas. Customers would come in after two years in Nashville and say, 'When did you put this [rental department] in?'"

Lately, rental awareness is gaining momentum, and helping the retail side as well - as if Home Depot needed help. "The customer satisfaction is hard to measure. You can hear it and see it and feel it," McCormick says. "They love the extra service. It certainly increases related merchandise sales. And it encourages do-it-yourselfers to take on bigger and more projects."

For now, Home Depot's customer mix is about two DIYers to one contractor. "It takes some time to win the pro customer from the competition," McCormick says. "We have to establish the rapport. We want our associates to get more confidence. Then the pro customer will get greater confidence in us."

Home Depot's famous guarantee to beat the competition's price by 10 percent - a practice that extends to rental rates - won't hurt in trying to win customers. But don't accuse the mass merchandiser of automatically driving down rates. "We go into a market, and we do a survey, so we price properly from the outset," McCormick says.

Besides, Home Depot insists it views other home improvement retailers, namely Lowe's, as its main competition, not independent rental centers or national rental chains. But just last month Lowe's invited NationsRent, No. 4 on the RER 100, to set up rental departments within its stores.

The lines between retail and rental have been blurring for some time. Now they're just about disappearing.