Tough as Nails or Merely ‘Bobaganda’?

Tough as Nails!

That’s the headline on the cover of the new Business Week, over a photograph of a crew-cut, orange-apron-wearing Home Depot employee, crisply saluting with his right hand while his left holds a shovel, rifle-style.

“Skip the touchy-feely stuff,” the text informs us: “The Big Box retailer is thriving under CEO Bob Nardelli’s military-style rule.” But what looks on the cover to be a glowing review of GE veteran Nardelli’s military-infused makeover of one of the most successful companies in American retailing history offers a cautionary tale about the downside to managing-by-numbers when it comes to the “touchy-feely” world of retail.

“Nardelli,” the article begins by telling us, “loves to hire soldiers.” And it’s not kidding: almost half the 1,100 store leadership trainees hired since 2002 have been “junior military officers.” One Home Depot manager actually describes Nardelli as “the general.”

Now, my nephew is a soldier. He just came back from Iraq. And I’d love to see him get into a training program like Home Depot’s when the time comes for him to transition to civilian life.

But if you’re wondering whether a military-style organization is the best way to run a home improvement retailer, the Business Week article will not entirely answer your question.

After starting out with the usual hoopla and glowing factoids of the Nardelli-inspired revival at the world’s largest home center, the article describes the Nardelli culture as paralyzed with fear; quotes an ex-manager who calls the company “a factory”; and reports that “Home Despot” is the nickname given by some insiders. My favorite, “Bobaganda,” is what others call the television programming in the break rooms owing to “its constant drone of tips, warnings, and executive messages.”

Me, I have no insider’s knowledge of whether such “Bobaganda” is in fact helping the company “thrive.” But I know at least one customer who’s seen the short-run impact of Nardelli’s “military-style rule” at the store level.

A friend called recently about a weird experience at the local Home Depot: he was looking for carpet, but when the sales lady pulled out those big rolling carpet-holders, there wasn’t much carpet on them.

“I’m sorry,” she told him. “We’ve been running low.” She blamed it on problems “with the trucking company,” and said new carpet inventory would be on its way.

I told my friend that knowing the problems truckers have been having holding onto drivers in this tight labor market, maybe that was in fact the problem—but just to make sure called a friend who used to run a Home Depot store and is now at a competitor.

Even before I finished telling the story, he began to laugh. “It’s not the trucks. It’s some bean-counter at corporate,” he said. The way he’d heard it, Home Depot’s fiscal year was coming up, and corporate had cut back store-level inventory—he supposed to show Wall Street’s Finest how well the company was managing inventory.

“There’s only one problem with that,” he said with deep irony. “You run out of what you sell.”

Interestingly, just last week Home Depot reported its fiscal year end, and Wall Street’s Finest did indeed take note of the company’s crisp inventory management. As Morgan Stanley wrote:

“Inventory levels…grew slower than sales…. We note that inventory growing slower than sales is consistent with comments from suppliers who cited strong sell-through but slower sell-in particularly towards the end of the quarter [emphasis added].” Now, I’ve walked Home Depot stores with its founders, Bernie Marcus and Art Blank. It was their baby: they lived and breathed Home Depot. Bernie especially wore his heart on his sleeve—he’d get choked up just talking about how a particular employee had gone out of his way to help a customer install a sink.

And to their credit, both founders knew the business had outgrown the highly decentralized way they had managed the business—hence, the GE-trained, Six-Sigma promoting Nardelli.

But retail is not just about computer-generated numbers. Home Depot stores sell GE light-bulbs—they don’t manufacture those light-bulbs…and if a nearby Lowes does at least as good a job selling the same light-bulbs, not to mention carpets, then the Home Depot customer has a choice.

How that customer chooses in the future will determine the success or failure of “Bobaganda,” not whether the CEO and the soldiers carrying out their marching orders are “tough as nails.”

Jeff Matthews I Am Not Making This Up

© 2005 Jeff Matthews

The content contained in this blog represents the opinions of Mr. Matthews. Mr. Matthews also acts as an advisor and clients advised by Mr. Matthews may hold either long or short positions in securities of various companies discussed in the blog based upon Mr. Matthews’ recommendations.