WHEN THE HOME DEPOT retained Lehman Brothers in February to evaluate the long-range future of its $12 billion HD Supply business unit, the home-improvement retail giant may have finally waved the white flag on its quest to gain a stronger foothold with professional and commercial customers.
HD Supply is the legacy of Depot's former chairman and CEO Bob Nardelli, who resigned on Jan. 2 after a tumultuous six years during which he spent more than $7 billion on acquisitions to expand HD Supply. His logic was to create a distribution and service network that appealed to builders, contractors, and commercial accounts, which its 2,159 retail outlets were not attracting in sufficient numbers. Nardelli's goal was to grow HD Supply to 20 percent of corporate sales by 2010, compared to 13 percent of sales in 2006.
At one point this plan seemed as if it would survive its architect. In a podcast with Home Channel News right before Nardelli exited, Joe DeAngelo—who ran HD Supply and is now Depot's COO—said the company still intended to grow HD Supply through acquisitions. But Nardelli's successor as chairman and CEO, Frank Blake, has since stated that the company's primary focus would be “retail, retail, retail,” especially now that it is expanding into China.
With Lehman Brothers, Depot is exploring several options for HD Supply, including its sale, its spin off, or an initial public offering. That division's fate, though, may have been sealed when The Home Depot agreed to add David Batchelder, a principal with Relationship Investors, to its board of directors. Relationship has been at the forefront of urging The Home Depot to sell off HD Supply and concentrate on its retail business to improve the value of its stock price.