The news: Home Depot launched three-hour delivery nationwide on Tuesday, the same morning it reported second-quarter results. Customers pay a small flat fee on homedepot.com, with no membership, and the order ships from one of more than 2,000 stores working as fulfillment hubs, according to the release.
Most of those orders are arriving in under an hour, faster than the three-hour promise, Jordan Broggi, who runs Home Depot’s online business, said on the earnings call.
The service ran in some markets for several months before the rollout, Broggi said. The fee is $7 in most major markets, and $10 in Los Angeles, a company spokesperson told Supply Chain Dive. Home Depot has not said who drives the orders.
Sales rose 5.7% to $47.9 billion in the quarter, and comparable sales grew 1.7%. Online sales grew 11%, per the call, which CFO Richard McPhail led while CEO Ted Decker is on medical leave.
A $730 million tariff refund arrived at the end of June. The $685 million of it that reduced the cost of goods sold lifted gross margin by about 145 basis points. But the company said it is using that money to cover higher fuel, energy, resin and metal costs, an offset McPhail said mostly runs through the second and third quarters.
Home Depot added a new speed tier without announcing a new building. First-half capital spending was $1.72 billion, flat with a year ago, and no one on the call mentioned a distribution center.
What changed: Home Depot put numbers on its delivery speed for the first time. A year ago, the company said only that it had the fastest delivery speeds in its history.
Now, it says more than 65% of in-stock parcel orders arrive the same day or the next day. About 55% of in-stock big and bulky orders, the lumber and water heaters that need a truck, arrive within two days.
US delivery lead times fell about 45% over the past 18 months, said Billy Bastek, the merchandising chief, and faster delivery is turning more shoppers into buyers.
The company also changed how it handles appliances. Home Depot normally does not hold appliances in its own buildings and ships them from suppliers, according to its annual report. Instead, it now stocks a small range of appliances for next-day delivery in some markets, and next-day coverage on key models reaches nearly 60% of the US population.
How it works: Express Delivery sits on top of a network Home Depot spent about eight years building. The company opened roughly 200 buildings in that time, including large parcel centers, flatbed centers for lumber and building materials, and market delivery operations for bulky goods. Last year, it told Supply Chain Dive the buildout was “essentially completed.”
Every store also holds inventory. So software the company calls Ship from Best Location picks the building closest to the customer that has the item in stock and can get it there fastest. That software is what lets the stores act as hubs for the three-hour orders, Broggi said.
The stores got a second tool this quarter. Magic Apron, Home Depot's AI assistant, now works in the aisles and knows which store a shopper is in, so it answers with that store's inventory first, Broggi said. It handles millions of questions a month.
The pattern: Home Depot is the latest large retailer to make its stores the front line of fast delivery instead of building new warehouses for it.
Target ships online orders out of its stores and is adding sortation centers that gather those orders from 30 to 40 stores each.
Tractor Supply added same-day delivery from more than 2,400 stores through Instacart this year.
Dollar General offers same-day delivery at 18,000 stores.
Smaller companies are making the same move. Omaha Steaks cut its average delivery time from 6.2 days to 1.24 days by shipping from 44 stores instead of one plant.
The counter: Inventory rose 8.1% to $26.8 billion in the quarter, faster than sales grew, and turns slipped to 4.5 times from 4.6, McPhail said on the call.
Part of that build is bought inventory, because GMS and Mingledorff’s, two distributors Home Depot acquired in the past year, were not on last year's balance sheet. The company did not say how much of the increase is its own stock or how much came from the new appliance assortment.
Amazon, which has no store base to lean on, is planning a $1 billion automated fulfillment center on Long Island while it closes smaller ones in Florida.
The stores did not produce the speed on their own. Most of the gains came from the 200-building network, so the three-hour promise rests on the delivery centers as much as on the stores.
What’s next: Broggi said the company will keep shortening the three-hour promise in the months ahead, and the release says faster speeds are coming.
Because the tariff refund covers the higher costs only through the third quarter, Home Depot expects fourth-quarter gross margin to be about flat with last year. Third-quarter results, the first full quarter of nationwide Express Delivery, come in November.
