When two employees of Handy Dan hardware store gave this idea to management, they got fired! So, they started Home Depot. Someone’s kicking themselves now!

Dave Young:

Welcome to the Empire Builders Podcast, teaching business owners the not so secret techniques that took famous businesses from mom-and-pop to major brands. Stephen Semple is a marketing consultant, story collector, and storyteller. I’m Stephen’s sidekick and business partner, Dave Young. Before we get into today’s episode, a word from our sponsor, which is… well, it’s us. But we’re highlighting ads we’ve written and produced for our clients. So here’s one of those.

[No Bull RV Ad]

Dave Young:

Welcome back to the Empire Builders Podcast. I’m Dave Young. That’s Steve Semple whispering in your other ear. And on today’s episode of the Empire Builders-

Stephen Semple:

[inaudible 00:01:44] your live stereo.

Dave Young:

We knew that it would only be a matter of time having so recently discussed the Lowe’s Empire that we would be discussing Home Depot, and today is that day.

Stephen Semple:

Today is that day because really, there’s a pretty shared DNA there.

Dave Young:

Sure. And again, I always think, “Well, okay, start as a little hardware store and then somebody grew into a big hardware store and then they made a bunch more.”

Stephen Semple:

It’s a little bit like that.

Dave Young:

A little bit?

Stephen Semple:

Except this is a little different. It’s a little bit different.

Dave Young:

Okay. I always like a good twist.

Stephen Semple:

There’s a little bit of a twist in this. So it was founded in February 6th, 1978, Marietta, Georgia by Bernard Marcus, Arthur Blank, Ron Brill, Pat Farrah, and Ken Langone. So these guys basically got it started.

Dave Young:

So it doesn’t go near as far back as Lowe’s.

Stephen Semple:

Yeah. Lowe’s is a little bit earlier, but not much. And today they have over 2,300 locations. They do 160 billion in revenue with over 450,000 employees. So it’s a big deal. And we all know who the Home Depot is, right? We’ve all pretty much heard of it. Now, a couple of the guys got basically fired from a hardware store in the West Coast called Handy Dan.

Dave Young:

Handy Dan. Okay.

Stephen Semple:

And it wasn’t really all that big and it was one-stop. But here’s why they got fired. They kept pestering management saying, “You need to go larger, then you need to go national.” And basically, management got tired of listening to that and fired them. So I told you there was a little twist. So when they left, they called one of Handy Dan’s investors, Ken Langone, and said, “Here’s what we want to do. We want to make 100,000 square foot hardware store, stock everything, make it cheaper, and make it more like a wholesaler. That’s what we want to do.”

And they drew their inspiration from Walmart. They’re looking at what Walmart was doing. They said, “We want to do the Walmart thing for hardware and building.” And Ken was like, “Great, let’s do it.” And they drew up a plan that basically said they needed $25 million to get going, and they had to settle on raising three and a half million. So this is important to keep in mind because it shapes a couple of things that they do. And so the first thing that they needed to do… And they had a guy, Pat Farrah join them for merchandising. The first thing that they needed to do was create a name for the company. Now, I don’t know if you remember Crazy Eddie’s, the guy in New York City?

Dave Young:

Yeah.

Stephen Semple:

New York City. And he was selling electronics and all this other stuff.

Dave Young:

But he’s no Handy Dan.

Stephen Semple:

He’s no Handy Dan, but they were inspired by Crazy Eddie’s. And what I found interesting is in Toronto around the same time, there was a furniture company that started that also was inspired from it because it was Bad Boys. They would dress in the black and white retro, “I’m a prisoner” uniforms. And they’d be like, “Bad Boys. Does anybody have a better price? Nobody.” That was their slogan. But what these guys decided was they were going to call it Bad Bernie’s Buildall.

Dave Young:

Bad Bernie’s Buildall?

Stephen Semple:

Bad Bernie’s Buildall. Yes. The investors didn’t like it. That name did not go forth.

Dave Young:

Of course they didn’t like it.

Stephen Semple:

Well, because it didn’t have the name Home and all those other things. So they said, “Okay. Well, let’s call it the Home Depot.”

Dave Young:

Look, Lowe’s doesn’t have the name Home in it either, but it’s not Bad Bernie’s. What was it? Builders?

Stephen Semple:

Buildall.

Dave Young:

Buildall?

Stephen Semple:

Yes.

Dave Young:

It doesn’t roll off the tongue. It blurts out of your mouth in a not great way. Yeah. I have to side with the investors on this one.

Stephen Semple:

I have to say, I think even on this one, the investors, they’re often not right, but I think on this one they were right. So they opened in Atlanta, 60,000 square feet. Remember that little bit of a difference in terms of the money that they wanted to raise?

Dave Young:

Yeah.

Stephen Semple:

They wanted to raise the 25 million and only had three and a half million. So it made a couple of things difficult, such as stocking 60,000 square feet full of merchandise.

Dave Young:

Sure. That’s a lot of merchandise.

Stephen Semple:

So to make it look full, they went out and they bought empty paint cans, thousands of empty paint cans and thousands of empty boxes and basically put them on the shelves.

Dave Young:

Oh, boy.

Stephen Semple:

And they wanted to make it feel like a working warehouse so they threw sawdust on the floor. So it’s sawdust on the floor, empty boxes, empty paint cans.

Dave Young:

Just have one guy driving around with a forklift randomly just…

Stephen Semple:

They couldn’t afford a lit sign, so they had to make it bright to stand out. So that’s why they went with the orange. Now here’s what’s really interesting.

Dave Young:

Okay. That makes sense.

Stephen Semple:

Our client in Edmonton who sells used RVs has a location that’s relatively close to the airport, so you can’t do a lit sign. Jay Mistry Art Design. We picked a very specific shade of orange because what we knew is the setting sun would hit it. And when the setting sun hits that sign, it looks like it’s glowing. And then we got Rick to buy a spotlight and Jay even said to him, “Spotlight has to have this specific criteria to it.” And we put the spotlight onto it and it looks like it’s glowing. There’s cheap ways to make a sign look lit without lighting it. But anyway, that’s why it was orange.

Dave Young:

Shining the light on it is fine.

Stephen Semple:

Right. But that’s why they went with the orange, is like, “We can’t light it. It’s got to stand out.” So they do launch day. Launch day does not go well. Literally, they had a newspaper ad that was supposed to run that didn’t run. Nobody showed up. They literally sent kids and family into the parking lot, literally to hand out dollar bills, come to the store. First year’s a disaster. They lose a million dollars in the first year.

Dave Young:

Here’s what we know about hardware. When do we buy hardware? When we need it.

Stephen Semple:

Yes, when we’re fixing something. Yep.

Dave Young:

When we’re fixing something, when we need it. I don’t need it today, but I don’t know if I need it tomorrow because nothing’s broken yet and I don’t have a project I’m working on. So you got to be patient in the hardware business, don’t you?

Stephen Semple:

Well, they also did something interesting to stimulate sales. So the first year they lose a million dollars and then they get this chance to buy fireplace accessories really cheap. Now think about this. It’s the summertime, they’re in the South and there’s these cheap fireplace accessories. They buy 4,000 of them and they plan to sell them at just above the price and advertise it like crazy. They’re selling these things for 37 bucks. And here’s what’s crazy. People travel from miles away to buy this stuff. And when they’re there, they’re walking around and they buy other things. So the original history-

Dave Young:

Get an empty can of paint.

Stephen Semple:

Yeah. And to get some paint.

Dave Young:

A big box.

Stephen Semple:

So the original history of Home Depot is they did all these flash sales. Flash sale, flash sale, flash sale. Okay. So in 1980, they do more sales. But one of the things they also do is they start hiring professional contractors and start running these clinics inside the store. This whole idea is we’re going to do a flash sale.

Dave Young:

I remember that. Yeah.

Stephen Semple:

Right. We’re going to do a flash sale to bring people in and then people will maybe watch the clinic and then they’ll buy other stuff.

Dave Young:

They’ll learn how to do tiling or all that stuff.

Stephen Semple:

So it’s 1985, they have 50 stores. Lowe’s has 300 stores and Lowe’s secret shops them. They start copying each other at this point. Now, Sam Walton, founder of Walmart, ends up becoming important in all this because Sam Walton calls them and you’re going to love Sam’s advice.

Dave Young:

Stay tuned. We’re going to wrap up this story and tell you how to apply this lesson to your business right after this.

[Using Stories To Sell Ad]

Dave Young:

Let’s pick up our story where we left off and trust me, you haven’t missed a thing.

Stephen Semple:

Sam Walton calls them and says, “Guys, love what you’re doing, but you need to shift your model.” And you’re going to love Sam’s advice because it speaks to what we do from the standpoint of running these sales, there’s a downside to running all these sales. And he said, “Get rid of the flash sales, buy in bulk, keep everything as cheap as possible.” If that’s your dealio, low prices, don’t do flash sales, just do low prices, advertise that you got low prices on everything, go that way, and sales soar.

So remember, Home Depot was 50 stores and Lowe’s was 300 stores. So that was ’85. So 1992, seven years later after implementing Sam Walton’s advice, Home Depot was doing seven billion in sales and Lowe’s is doing four billion. They blow past Lowe’s. Blow past them and even started opening locations in the same location. Lowe’s basically never catches up. There was one point where every 53 hours there was a Home Depot open.

Dave Young:

That’s a lot of cans of empty paint. Empty cans of paint.

Stephen Semple:

That’s a lot of cans of empty paint.

Dave Young:

Do you know what I miss about Home Depot? I remember when they did the little seminars and things, I thought it was cool. I didn’t ever take one. From where I lived at the time, you had to drive 100 miles to get to Home Depot. But when you got there, you could always get a sausage. They always had somebody out front cooking-

Stephen Semple:

Oh, doing food.

Dave Young:

… smoked sausage or something, right?

Stephen Semple:

Yeah. I think it’s a mistake that Home Depot has gotten away from that. But I do find interesting that what they recognized was when you do a flash sale, you’re not making money on the flash sale. The flash sale is a loss-leader to get people into the store. Now that I’ve got you in the store, I need to do something. And so running those clinics and those things was a great way to get people further engaged, see them as being professional and buy other things. What I do like was Home Depot wasn’t just flash sale, bring people in. There was a further leg to that stool. But what I also love was Sam Walton saying, “Forget the flash sales. Just do everyday low prices.”

Dave Young:

Well, it’s an interesting distinction between having a flash sale and a loss-leader that you don’t advertise as a sale. You just say, “Hey, screwdrivers are $1.99.”

Stephen Semple:

Correct.

Dave Young:

It’s not a sale price. That’s the price of a screwdriver today.

Stephen Semple:

Correct. Correct.

Dave Young:

And then people go, “Oh, well.” And maybe the screwdrivers cost you $4. But you advertise that screwdrivers are $1.99, and people that need screwdrivers also need screws and other size screwdrivers and all kinds of other things. But it gives the impression that everything you buy in there is going to be that kind of a price. But like you said, it’s not a flash sale.

Stephen Semple:

It’s not a flash sale.

Dave Young:

It’s just the price of a screwdriver. And that was what Walton was so good at, right?

Stephen Semple:

Yes. Right.

Dave Young:

He made Walmart become known for low prices, even though they weren’t always the lowest price.

Stephen Semple:

Well, that’s exactly it. And that’s what Sam’s advice was. Sam’s advice was the place that you want to occupy in somebody’s mind is, “You’ve got it, you’ve probably got a couple and they’re all a good price for your category,” because then when you do that, you own the mind in that category.

Dave Young:

Now here’s what’s interesting too. Did Sam Walton just call them up?

Stephen Semple:

Yeah, he did.

Dave Young:

And he wasn’t an investor.

Stephen Semple:

No.

Dave Young:

He was just like, “Hey guys, here’s how you’re screwing this up.”

Stephen Semple:

Hey guys, here’s how you-

Dave Young:

That’s pretty amazing.

Stephen Semple:

It might be a myth, but that’s the story floating out there according to the folks from Home Depot, is one day, Sam called and said, “Hey guys.”

Dave Young:

And here’s the other amazing thing is they took his advice because what I’ve found, you’ve found, all of us that do ad consulting work is the advice you give somebody that you don’t charge them for-

Stephen Semple:

They often don’t take it.

Dave Young:

… they often don’t do anything with it.

Stephen Semple:

It’s true.

Dave Young:

If they do, then you’re like, “Okay, well, I’ve got somebody I can work with.” Because often people look at it and go, “Well, shoot, you didn’t charge me anything for that. So how valuable could that be?” I remember our friend, Jeffrey Eisenberg. This is, shoot, 20 years ago, when someone would contact him for website consulting, he would get on the phone with them and they’d look at the site together and he’d make them two or three recommendations, “Here’s what you need to fix right now and this other thing. These are easy fixes. Just have your web guy do this, this and this, and your website will convert a lot better. And then let me know if you want to talk again.”

And if they called him back a few weeks later and are like, “I want to talk again,” he’s like, “Well, have you done the things I told you?” “No. Because we’re not…” And like, “No, dude, I’m not even talking to you if you don’t do those things. Not even doing it, not having another conversation with you.” So I love that Sam just called him up.

Stephen Semple:

And the other part about taking advice, because look, in marketing and business, everybody wants to give their advice. But when a guy like Sam Walton is giving you advice, you should listen.

Dave Young:

You should.

Stephen Semple:

I was joking the other day with a client of mine who’s in Western Canada, one of the self-made billionaires is a guy by the name of Jimmy Pattison. We were talking about advice and I was like, “Yeah, if Jimmy Pattison ever calls and gives you some advice, take it.” Now, if the guy who’s just read a lot of books gives you some advice, maybe not. If Sam Walton calls, take it.

Dave Young:

This is terrible, but the most frustrating thing is when a business owner takes the advice of their veterinarian’s nephew.

Stephen Semple:

Well, exactly.

Dave Young:

Or, “My cousin says that we shouldn’t do it that way.”

Stephen Semple:

Yeah.

Dave Young:

And I’m like, “Well, you should just hire your cousin.”

Stephen Semple:

Right. And it happens a lot, as we know, in marketing because we all feel like we have an opinion in it because we’re all exposed to the messages all the time. But here’s the interesting thing, I’ve grown up my entire life with homes with indoor plumbing. Does not make me a plumber.

Dave Young:

No.

Stephen Semple:

Right. Miraculously. So to me, the part that I really loved with Home Depot was this audacity of, “Okay, how do we make it look big? How do we make it look real?” And even that first flash sale being this weird thing because it was fireplace accessories in the South in the summer. Even though we’re not big fans of flash sales, they saw something that worked and replicated it and it worked for a period of time.

But then we’re still willing to pivot off of that, and so to go, “Okay, you know what? There is limitations to that. Let’s pivot off of that and do this thing.” And not everybody can be successful being low price. You can be successful being low price when you are giving a depot feeling, because let’s face it, you go in there, and the stores are bare bones, they’re buying in high volume. You can win at that game when you do it that way.

Dave Young:

Yeah. It could have been that the fireplace accessories is when Walton first noticed them. If I was writing this legend-

Stephen Semple:

Maybe.

Dave Young:

Because that’s really the tactic that he used, that’s what got started with his story, is buying [inaudible 00:18:53].

Stephen Semple:

That’s his origin as well. Yes.

Dave Young:

There were a whole bunch of lawnmowers. I could get them real cheap and the staff was like, “Okay, so we’re going to store them till next summer,” because this is the end of the summer, right? Somebody else was overstocked. And he’s like, “No, we’re going to line them all up by the road and put a low price on them.”

Stephen Semple:

Yeah. And just move them.

Dave Young:

We just move them out, just blow them out. It’s not a lawnmower sale. It’s lawnmowers cost this much right here, right now, and there they are and that’s all there are.

Stephen Semple:

Right. So that’s a great observation. So their origin is very similar to his, except he didn’t make it a flash sale. He just sold them at a low price. Yeah.

Dave Young:

Yeah, just like, “No, I got these lawnmowers. Here’s what they cost and there they are. There’s that many of them.”

Stephen Semple:

That’s probably where it came from. I hadn’t connected those dots. That’s a great observation, Dave.

Dave Young:

That’s just part of the same DNA.

Stephen Semple:

It is.

Dave Young:

I love the story of Home Depot. I wish I could drive over there right now and get a smoked sausage, but alas. That ship has sailed, my friend.

Stephen Semple:

Yeah. Well, they still got hot dogs at Costco, so there’s still hope.

Dave Young:

Oh, there is that. All right. I’ll go to Costco instead. Thank you, Stephen.

Stephen Semple:

All right, thanks.

Dave Young: Thanks for listening to the podcast. Please share us, subscribe on your favorite podcast app and leave us a big, fat, juicy five star rating and review at Apple Podcasts. And if you’d like to schedule your own 90-minute Empire Building session, you can do it at empirebuildingprogram.com.