Founders · Sol Price: The Founder Who Taught Jim Sinegal, Sam Walton, Jeff Bezos, and Bernie Marcus
Acquired · Sep 13The Home Depot: How America's aging houses built the best stock of the last 45 years
Compounded near 25% a year for 45 years, turning $1,000 at the 1981 IPO into about $17 million. It paired warehouse prices of 10 to 25% below rivals with ex-tradespeople staff who teach customers, and grew sales per store from $30 million to $65 million under Blake without new stores.
Tips
- Bernie Marcus and Arthur Blank built Home Depot on a specialty retailer's service, not just low prices▶ 1:26:00Builder Square, Home Club, Homequarters Warehouse and Mr. How Warehouse all copied the format in the 1980s and none exist today.
- Home Depot hired tradespeople as retail staff, because a stable job beat the hardships of contracting▶ 1:29:4575% of store managers at Home Depot have no college degree because the company promotes from within.
- Home Depot gave floor associates equity so the stock price tied directly to their service▶ 1:44:30Home Depot stock has compounded at nearly 25% a year for 45 years, and thousands of early associates became multi-millionaires.
- Bob Nardelli applied GE-style systems to Home Depot and gutted the service culture that made it special▶ 2:09:50He doubled revenue by doubling stores, while the stock fell 12% over five years against Lowe's up 173%.
- Nardelli refused to tie his pay to the stock price, breaking the company's equity compact▶ 2:19:10He authorized $20 billion in buybacks and dividends and the stock still did not move during his tenure.
- Frank Blake repaired Home Depot by calling Bernie Marcus first and restoring the founding culture▶ 3:10:50Marcus's reaction to Blake's appointment was "I can't believe you brought in another goddamn GE guy to run my company."
- Frank Blake took 90% of his pay in stock options to realign the CEO with shareholders and associates▶ 3:24:00
- Frank Blake stopped opening stores for over a decade and grew through store productivity▶ 3:34:10Revenue grew from $70 billion to $130 billion and net income from $4 billion to $11 billion with a flat store count.
- Frank Blake sold HD Supply and put $8.3 billion into buybacks as housing collapsed▶ 3:41:20From 2008 to 2012 the stock rose 132%, followed by 33% in 2013 including dividends, 27% in 2014 and 26% in 2015.
- Frank Blake built e-commerce around heavy goods and store pickup, not Amazon-style delivery▶ 4:15:00Today 90% of US homes can get a million SKUs from Home Depot within 2 to 24 hours, and the setup paid off when COVID hit.
- Marcus, Blank and Farah faked inventory to make a thin 1979 store look legitimate and persuaded suppliers to bet on the future▶ 1:19:10About half of Home Depot's inventory is still financed by suppliers, and the first full year was profitable at about $1 million.
- Home Depot saturated one city at a time to amortize advertising and build density▶ 1:06:50California alone has 250 Home Depots and Washington state has 48.
- Ken Langone took Home Depot public in 1981 at 20% interest rates and let early investors ride▶ 1:15:50Those early investors would be well north of a 50,000x return today.
- Marcus and Blank brought Pat Farah onto the founding team after his insolvent rival store failed due diligence▶ 55:00Farah later gave Homeco's lost investors Home Depot shares to make them whole.
- Ken Langone's loyalty and patience made him hold Home Depot through 66% to 70% drawdowns▶ 3:08:20A 5% founding stake compounded at about 25% for nearly half a century.
- Home Depot stayed neither decentralized nor centralized, as Nardelli's buying consolidation showed▶ 2:06:20
- Home Depot grew into a giant market with aging housing stock and 51% share▶ 3:20:00US consumers spent $28 billion on home improvements in 1975 and spend about $600 billion today.
Lenny's Podcast · Aug 28
