A Lab In A Secure, Undisclosed Spot

In a bland office park not far from Home Depot Inc.'s (HD ) Atlanta headquarters lies a squat, unmarked building. It could easily be mistaken for the uninspiring home of an insurance firm. That's fine by the steady stream of spit-and-polish Home Depot executives who file through the entrance, many of whom don orange aprons once safely inside. What they don't want you to know is that behind this unassuming facade is Home Depot's secret weapon: an 88,000-square-foot Innovation Center, where the chain tests everything from riding lawn mowers to displays for patio furniture sets before they hit stores.

Since it opened quietly in September, 2004, the Innovation Center has become a key command center in Chief Executive Robert L. Nardelli's push to overhaul the giant retailer. "This is our working laboratory," says Thomas V. Taylor Jr., Home Depot's executive vice-president for marketing and merchandising. Bringing new and better products to its 2,048 stores is critical for Home Depot, in its battle to out-innovate rchrival Lowe's Cos. ((LOW) ), which has its own product testing center on its Mooresville (N.C.) campus, and voracious juggernaut Wal-Mart Stores Inc. (WMT )

So sensitive is this Home Depot-owned site that reporters are requested not to disclose its address. Hard-nosed Nardelli boasts about how outsiders must pass through a metal detector that scans for camera phones. Once you get past a burly guard stationed at the front door, the Innovation Center emerges as a kind of ersatz, unfinished Home Depot store. Amid soft lighting and wide aisles, 16-ft. racks display vacuum cleaners, power tools, and oven hoods in an effort to learn how they'll look in the real stores. Super-secret projects, in which Home Depot is testing radically new product categories with scant relation to hammers and nails, are watched separately by security personnel and covered with huge tarpaulins.

When Nardelli arrived in 2000, Home Depot had precious little elbow room to experiment. It was risky for executives to tinker with new tools or test-run different types of displays in existing stores, lest they tip their hand to spies from competitors, who are constantly walking the aisles. As a result, they would do demos in the bottom level of a parking garage at Home Depot's headquarters -- but the cramped, nine-ft. ceilings made it hard to duplicate the cavernous space of the actual stores.

Now, Taylor and his team have a full-blown Home Depot mock-up to explore new product segments, frequently at blitzkrieg speed. Company officials say they can go from an Innovation Center product test to an in-store pilot project in as little as 30 days. One of the projects soon to make its way out of the Innovation Center: In late March, Home Depot will roll out a special section in 10 stores in Jacksonville, Fla., targeting car buffs with a diverse selection of new products such as Rain-X wiper blades in seven sizes, Master Lock EZ mount towing kits, and Castrol motor oil.

The Innovation Center is also a venue for experimentation. In his relentless drive for "laser execution" at Home Depot, Nardelli has pushed executives to come up with new ways to beat competitors on price, displays, and product assortment. That's why a wall in one aisle at the center is covered, floor to ceiling, with boring white lightbulbs. Each horizontal row of bulbs is set off with tape and labeled with names and price tags: Home Depot, Target, (TGT ) Wal-Mart, Sam's Club, (WMT ) Menard's, and Costco. It's Taylor's marketwide view of what Home Depot is up against -- and how, down to the tiniest detail, he can innovate for an advantage.

By Brian Grow in Atlanta

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