Home improvement store follows Sears, Best Buy and CompUSA in failing to succeed in the home systems installation business.
06.10.2008 — So many big-box retailers have tried to do "smart home" installations, and so many have failed. Add Home Depot to that list, which includes Sears and Best Buy.
The Wall Street Journal reports that Home Depot Inc. is abandoning installation initiatives in many categories, including home security, previously offered by ADT.
Home Depot's Smart Home installation business was abolished before it even got off the ground. In 2005, the company hired Best Buy veteran Nancy Kielty as senior merchant for the Smart Home category.
Kielty left the company for Wal-Mart in December 2007 (and now Wal-Mart is getting into the install business.)
According to Kielty's bio, her responsibility at Home Depot was:
Responsible for $1B plus core business categories along with development of new market opportunity, Smart Home. Smart Home is a $50B marketplace opportunity focused on technology solutions for home communications, safety, control, entertainment, and connections.
As she did with Best Buy in 2000 to 2005, Kielty and her team were going to launch a home systems installation business for Home Depot, which would be handled by third-party contractors.
In theory, you would go to Home Depot, stumble across the home-automation aisle, decide you want the stuff, and then arrange for a Home Depot contractor to install it for you.
Professional home systems installers would apparently line up to participate, what with all the business that would come their way from swarms of Home Depot shoppers.
That might work for garage doors, but not for home automation.
People come to Home Depot for garage doors, but not for home control. And the latter category hardly sells at the point-of-purchase.
According to the WSJ, virtually all of Home Depot's services are provided through third parties. The company's revenue from services grew from about $2 billion in 2000 to a peak of $3.8 billion in 2006 before dropping 8% last year to $3.5 billion, according to the newspaper.
The WSJ also reports that former chairman and CEO Robert Nardelli had made growing home services a priority, indicating in 2001 that Home Depot could be the largest carpet installer in the world, given its leadership in the product category. Pest control and lawn care were also considered as service opportunities.
Home Depot now plans to stick with its core audience (do it yourselfers) and its core product categories (traditional home improvement). That means the retailer will "limit its involvement in consumer electronics to 'very, very, very targeted' efforts," according to CEO Frank Blake, as quoted in the WSJ.
It Hasn't Worked Yet
So, Home Depot couldn't pull off the Smart Home installation thing. Welcome to the club.
Sears was a colossal failure in the business, trying first to get into home security with ADT, and then home automation through the Sears Connected Home program in partnership with structured-wiring vendor Home Director.
In 2005, Home Director CEO Michael Liddle blamed the company's demise, in part, on its misplaced faith in the Sears liaison. (Home Director is now back in business.)
…The Sears Connected Home program was meant to yield a national network of Sears-affiliated independent dealers who would sell and install vast amounts of Home Director products through deals with homebuilders and developers.
Home Director did manage to recruit a handful of integrators into the program -- some of whom enjoyed moderate success. But in the end, the partnership was a detriment to Home Director, which relied too heavily on it. Sears and Home Director eventually parted ways.
Like Sears, Best Buy has repeatedly failed to implement a smart-house installation practice, despite trying virtually every business model -- doing installations in-house, farming the service out to national providers, and enlisting armies of local integrators (see, "Best Buy: A Brief History of Integration").
The most recent initiative, ConnectedHome.Life, quietly went away after Best Buy tried to install cookie-cutter systems based on Media Center and Lifeware automation.
After it acquired high-end integrator Audiovision in 2006, the retailer was expected to buy other integrators throughout the country, but that hasn't happened yet. Many integrators have been approached, but it seems that no transactions have transpired.
And then there was the big flop at CompUSA in early 2000. First, the PC retailer planned to sell installation services like warranties. When customers bought automation-systems-in-a-box, the retail sales clerk would offer installation when the customer checked out.
Yeah, right. Minimum-wage cashiers.
Later, CompUSA made a bigger commitment to the cause, setting up elaborate Digital Living Centers in several CompUSA stores.
When customers strolled into the store to buy a computer, they were supposed to stumble across the Digital Living Center, and become enamored of the possibilities, which would lead to the sale of a whole-house system.
CompUSA was training its enterprise networking group to cross over into the residential home systems installation business, as we wrote in August 2002:
Needless to say, it never worked. Not even close.
CompUSA doesn't just sell the products, though; its own technicians install the gear as well. Starting with Dallas, members of CompUSA's Global Service Solutions (GSS) group are being trained by manufacturers to install and configure home systems. It's no stretch for GSS technicians, who have been installing and troubleshooting computer networks for years.
Even Radio Shack took a stab at home technology installation, when it teamed up with ADT in the mid-1990s to sell security systems. ADT had displays in hundreds of Radio Shack outlets around the country. Given the Radio Shack footprint, even one sale per store per week would have delivered decent returns, but sales were paltry and the program died.
Costco has offered TV installs for a couple of years through national contractor Installsinc., but the company hasn't moved beyond that. And Wal-Mart now plans to start installing TVs, but I'm pretty sure they won't be programming remote controls or doing whole-house integration.
Can Big Box Retailers Pull it Off?
Home automation products have never had success at retail. The bulk of the DIY business goes through niche online distributors.
As for custom installation, I wouldn't say it's impossible for a big-box retailer to pull it off.
It just hasn't happened yet.
There are several problems:
- Smart home systems are not impulse buys. People don't wander into a home-improvement, consumer electronics or PC store and just stumble across this grand idea of whole-house control.
- Just because they're reputable big-box brands, doesn't mean builders will trust them to be around in a few years, as all the big boxes have claimed. Here are some famous last words from one homebuilder who put his faith in CompUSA:
Indeed, trust is a huge factor when it comes to a product category as new and confusing as home systems integration -- especially if you're talking to homebuilders, which is CompUSA's next customer base to conquer. "If I'm going to pick someone new, I'd rather pick someone that I know will be there tomorrow," says Jake Madrid, vice president of purchasing for Morrison Homes, an Atlanta-based group that sells about 2,700 homes per year.
Morrison is one of the first homebuilders to try CompUSA, which will equip a Morrison model home in Dallas with a 15-inch touchscreen from VIP Systems, loaded with home-control software from Premise Systems.
True, VIP is a new product, and CompUSA is a new integrator, "but in dealing with the CompUSA people, it's clear they're working out the product and service issues," says Madrid. - Big box retailers are not nimble enough, and not fluent enough when it comes to integrated systems. There are too many games they play when picking vendors that they fail to bank on the right products. Many of the failures had to do with the retailers simply not understanding the product lines and trends. As mentioned above, CompUSA went with a slew of start-up vendors that never made it. Best Buy's ConnectedLife.Home initiative failed in large part due to problems with HP's original DEC Media Center.
- It's tough to train home-technology installers, and big box retailers lack the appropriate culture to retain good technicians.
- And so much more…
Is there hope for Best Buy? All of the retailer's installs -- home theater and computers alike -- now go under the Geek Squad banner, which will help the company gain some mindshare in the home systems installation business.
But can Geek Squad migrate from home theater/PCs to more serious integration? Doubtful.
I know that some independent home systems integrators get minor home theater work through Circuit City's Firedog installation unit, and go on to sell the customers on automation and other home systems.
But I don't see Firedog pulling it off en masse.
Home improvement stores? No way.
My advice to big retailers: follow the strategy of Home Depot CEO Frank Blake, and stick to your core business.
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