Walk into a Home Depot (HD) and chances are you will be confronted by large displays showcasing new products from manufacturers such as Moen, Maytag, or Kohler. Vendors pay Home Depot and similar retailers for such prime promotional space, and it usually doesn't come cheap.
Now the Atlanta home-improvement retailer is trying to replicate that in-store experience, selling streaming video advertising on its Web site to manufacturers, promoting the fact that Home Depot's online store is visited by 4 million shoppers each week. "Our vendors can definitely do much more online than with their in-store displays," says Greg Foglesong, director of Web marketing and sales at Home Depot in Atlanta. "Vendors can communicate their stories of innovation, and new product selection via video."
Home Depot is certainly breaking some new ground—at least as far as major retailers are concerned. Web sites run by Scripps (SSP) siblings The Food Network and HGTV, and Martha Stewart Living Omnimedia (MSO) have often run streaming video from advertisers. And retailers such as Best Buy (BBY) have used rich video content, including running trailers for DVDs and video clips for its CDs, points out Emily Riley, advertising analyst with Jupiter Research in New York.
MOVE OVER, MARTHA. But most retailers haven't really tapped their Web sites as a revenue stream by selling ads online. Indeed, Home Depot even plans to sell advertising on its e-mail newsletters, which go out to more than 6 million subscribers. "In a sense, Home Depot will compete with Martha Stewart for such ads," says Riley (see BusinessWeek.com, 3/6/06, "Renovating Home Depot").
Vendors are clearly excited by the idea. "Advertising on homedepot.com gives us the opportunity to highlight features of our new faucets and finishes to Home Depot customers who are looking to remodel or replace their kitchen or bath fixtures," says Kelly Atkins, director of marketing at Moen, a product of Fortune Brands (FO).
Power-tools maker Ryobi, a division of Hong Kong-based Techtronic Industries, which sells more than 95% of its products via Home Depot, began running its online ads starting June 28. The ads provided details on its new pressure washers, which are used to clean decks, siding, porches, driveways, four-wheelers, and even trailers. "We were targeting 400,000 impressions and had achieved more than half of that in 15 days and have seen an uptick in sales," says Steve Moore, director of marketing for outdoor products at Ryobi in Anderson, S.C. Customers who clicked through the ad also found out about a 20% discount on the washers and were given extensive details on the product.
"VIDEO CULTURE." Certainly, many believe that this is only the beginning, and more retailers will join in. Already, online advertising is exploding and online search sites such as Google (GOOG) have seen their revenue soar from ads. After growing 27% in 2005, to $13 billion, online advertising is expected to grow 20%, in 2006, to $16 billion, projects Jupiter Research. Lauren Freedman, president of research firm The e-tailing Group, says that this is just the tip of the iceberg. "We live in a video culture and for the younger generation video is a natural expression of how they want to experience and buy today," says Freedman.
Of course, home improvement lends itself to such a medium. Jupiter says that home-improvement retailers have the highest potential of any retailer to benefit from in-store sales based on online tools and research. Research shows that people reach out for help much more at do-it-yourself stores than in other retail environments. Online ads and tools help customers find products and help the stores to operate more effectively by having the customer come in educated about products. "The trick for Home Depot is to become the de facto home-improvement site for customers," says Vikram Sehgal, research director at Jupiter Research.
TARGET AUDIENCES. And Home Depot has clearly identified e-commerce as a growth area of its business. In April, it spent an undisclosed amount to buy home furnishings seller Home Decorators Collection, a move that doubled Home Depot's online and catalog division. And last year, it launched 10 Crescent Lane and Paces Trading, catalogs aimed at affluent women—each of which has its own Web site (see BusinessWeek.com, 4/26/06, "Home Depot's Web Improvement").
It's not like Home Depot plans to make megabucks through its ads yet. Currently, it has signed up 12 vendors. "We hope to make defray the costs involved with running the ads and managing the Web site," says Home Depot's Foglesong. He declined to discuss specific rates. Still, if the online ads succeed in driving up sales of products such as Moen faucets and Ryobi pressure washers, premium spots on Home Depot and other retail sites may likely be subject to an online real estate boom.