Renting at the Depot

March 1, 2002
Home Depot began preparing to enter the tool rental business in 1995 and opened its first rental locations in 1998. Since then it has enjoyed a fast rate

Home Depot began preparing to enter the tool rental business in 1995 and opened its first rental locations in 1998. Since then it has enjoyed a fast rate of growth, becoming the leading player in the rental-department-within-a-retail-store format with 457 tool rental center locations, with ambitious plans to grow to 1,300 rental locations by 2004.

Heading the Home Depot tool rental program is director of tool rental Tom McCormick, who, prior to joining Home Depot, played a major role in the growth of Mississauga, Ontario-based Stephenson's Rent-All, which has been successful with retail type rental centers in strip malls in the Toronto area. RER last month spoke with McCormick about his vision for Home Depot rentals.

RER: How would you assess the progress of the Home Depot rental program over the past year?

McCormick: We have been very successful in executing our strategy as evidenced by our high customer approval ratings, our tenfold increase in the number of TRC's (tool rental centers) in just three years, and very positive sales and profit contributions.

You are now up to 457 stores, with the goal of 1,300 by the end of 2004, which would mean expansion at the rate of almost 300 per year. Roughly how many of those will be new Home Depot stores and how many will be fit into existing Home Depot stores?

We will continue to add TRC's to a percentage of both new and existing stores but, since we are currently in only approximately 35 percent of our stores, the majority of our future growth will be from adding TRC's to our existing stores.

Such ambitious expansion will require a lot of staff. What kind of training is provided to the staff of Home Depot rental departments? Is there a customized training program different from the rest of the Home Depot staff?

We deliver a lot of training to our TRC associates. In addition to our normal store training, our tool rental associates receive three weeks of tool rental specific training. We know that successful customer service in this business is founded on knowledgeable associates renting customers the right tools for the job, with the proper accessories and correct merchandise items.

A prerequisite to any successful rental transaction is obviously a properly functioning, well-maintained tool. Consequently, we concentrate on delivering both strong product knowledge and strong technical knowledge — the ability to service and maintain the tools — to our associates.

How big are the rental departments typically in terms of square footage and number of machines or tools in the inventory?

Our current TRC's are 2000 square feet with more than 150 different types of tools available for rent.

Home Depot has primarily specialized in tools and small equipment. Do you intend to grow into larger items?

Our business model will evolve as we strengthen our core competencies and develop a pool of knowledgeable rental associates. This will enable us to extend our product offerings in a manner consistent with our core Home Depot store layout and operations.

The consensus seems to be that Home Depot has become the dominant rental player in home-improvement centers. Can you give me your assessment of your market share?

Our store managers are responsible for managing a very high volume business as our average store does approximately $45 million a year in sales with over 1 million customer transactions a year. In order to successfully layer in a relatively complex and different business into this high volume operation we needed to develop an operation that was integrated as seamlessly as possible into our core business. Our tool rental operation is tied in well into our core store operations.

What percentage of your rental customer base are homeowners versus construction contractors?

In general, tool rental's percentage of pro customers is higher than the store's. Our typical store customer mix is approximately 70 percent DIY and 30 percent pro.

Are you doing maintenance at each HD facility or at regional service centers? How are you able to maintain equipment and tools?

We have a dedicated space in each of our TRC's where we service and maintain all our tools. We have dedicated service technicians who work in each of our TRC's who receive specialized training. We focus a high degree of attention on the training of our service technicians to ensure our tools are well maintained and rental ready.

Owners and managers of traditional rental companies have been slow to accept Home Depot as legitimate rental competition, claiming that your staff lacks training and the ability to instruct customers, recommend applications, perform maintenance, respond quickly to breakdowns and deliver equipment in a timely manner. How do you respond to such criticism?

As I have outlined above, we have a strong focus on training and expend significant time and resources in providing a high level of training to our associates to ensure our customers receive excellent customer service. As you know, successful customer service in the tool rental business is very challenging and dependent upon many variables. There are many keys to a successful rental such as clear communication between customer and associate, an understanding of the customer's project, the customer's ability to use the tool and then a rental rate that is tied into the time the customer takes to complete their project.

We have a high transactional environment with a high percentage of DIY customers who hold Home Depot accountable to deliver a very high level of customer service. Our success in this regard is reflected in both direct customer feedback as well as independent customer surveys. A recently completed customer survey indicated very high customer service ratings for our tool rental operation and that well over 90 percent of our customers would rent from us again. While we have achieved high customer approval ratings, we are not content with our results. Our goal is to achieve 100 percent customer satisfaction, 100 percent of the time and we will continue to relentlessly pursue this goal.

What kind of impact has Home Depot Rentals had on other rental businesses? Are there some areas where you work cooperatively with other rental programs — for example in referrals and service agreements?

We have had a long-standing partnership with Hertz Equipment Rental Corp., like ourselves a company with strong brand recognition and a reputation for providing superior customer service. We are evaluating the further expansion of this relationship while, at the same time, exploring partnerships with other quality partners who could add significant value to our operation and expand our share of the pro market.

Any other points you'd like to share with RER readers?

I am excited about the future of tool rental at Home Depot. We are now a $50+ billion a year retailer who intends to build upon and extend this legacy. Our tool rental business now has significant scale and good visibility within our company. We plan to continue our aggressive growth of tool rental and have strong support from all the leaders in our company. Just as we have expanded the market in the home improvement industry, we believe we are expanding the overall market for tool rental, and we are very confident that our best performance is yet to come!

Michael Roth may be reached at [email protected].