After a tumultuous year, when it was sold to investors and made significant reductions in its manpower and business portfolio, HD Supply is poised to expand its operations again, both organically and through acquisition. The Atlanta-based distributor, with $10 billion in annual revenue, is also leaving the door open to a public offering, although no timetable for such a move has been set.
"2008 is a good year not to be in the headlines for anything that's not customer-service related," says Joe DeAngelo, HD Supply's CEO, who along with five other officials met with BUILDER on Tuesday to discuss the company's current strategy and growth objectives.
Its 500,000 customers and 28,000 suppliers, builders, and manufacturers that provide products to all of them "are very important to us," says DeAngelo. And among HD Supply's 11 business units, the one with the most direct contact with builders remains Creative Touch Interiors (CTI), which provides design center services to builders in 25 states through more than 100 branches. HD Supply is rolling out a new operating system, supplied by SAP, that places CTI's eight divisions onto one digital platform. Tom Lazzaro, CTI's president, says this platform "basically allows us to go wherever our customers need us," and provides the flexibility for CTI to expand into a market within 45 days.
The company recently expanded CTI into Dallas and plans to add a branch in Atlanta. It is also looking at opening branches in the Northwest and in Chicago. In fact, HD Supply is in a growth mode again. "We're going to turn the acquisition engine back on," says DeAngelo. The company has $1.7 billion to play with, which represents the difference between the price The Home Depot, its former parent, initially sold HD Supply for and the lower renegotiated price to consummate the deal. DeAngelo expects any acquisition his company makes in the immediate future to be a "bolt-on" to one of its existing businesses. He also says that his company has no interest in getting into home building, primarily because "we would be competing with our customers."
DeAngelo also points out that several of HD Supply's divisions, including CTI, have grown large enough so that they can grow organically, without needing to acquire any other companies. Over the past 18 to 24 months, CTI has expanded its product mix beyond flooring to include countertops (its network includes six fabrication plants), window treatments, and kitchen cabinets.
The company is about 90 days into its launch of two proprietary brands-Seasons for consumer products, Brigade for commercial-that will fill "value gaps" that might exist with the national brands offers. The company has also devised a new program it calls "Total Choice Advantage," which according to Steven Spade, HD Supply's Eastern regional vice president, addresses specific needs of different customers. "Some might need price protection, others a rewards system in order to sell upgraded products, or [a program] to service existing customers' warranty problems," he explains.
Because CTI isn't locked into any one manufacturer, Lazzaro says that it is able to service multiple builders out of each of its design centers, which he says might be working with 20 to 30 builders, large and small.
Both he and HD Supply's other officials agree that 2008 will be "the year of the customer" for their company, especially now that the dust has settled in terms of its ownership. DeAngelo says that he and HD Supply's four ownership groups (three private equity firms and an individual investor) are satisfied with its portfolio of companies, and with the "tough choices" the company has made to right-size, which included selling several of its businesses (including its lumber and building materials unit), and trimming its workforce, which currently stands at around 22,000.
DeAngelo says that HD Supply would eventually become a public company, but its owners aren't in any rush to offer stock in the business. "Going public is a good open discussion" within HD Supply's board, says DeAngelo. "But this is not going to be a quick strip and flip." Going public, he says, could happen within five years, although "it possibly could be longer."