Home Depot buys a big roofing company; is that good or bad for you?

Last month's column addressed the phenomenon of little mom-‘n-pop stores successfully competing against famous giant chains in a variety of retail businesses ranging from sandwich shops to pet supplies to bookstores. The subject hits closer to home with the recent news that Home Depot has agreed to acquire Installed Products USA (IPUSA), an installer of residential replacement roofing. IPUSA will become part of Big Orange's At-Home Services group, which provides installation services for "buy-it-yourself-but-do-it-for-me" customers.

Gulp. It's one thing to wax philosophical about competition by pointing to businesses that have nothing to do with roofing. It's quite another to confront a real-world situation. Do I still abide by the title of last month's article and continue to say, "Competition is good for you"?

You bet. Or, at least it's not going to make much difference. IPUSA had been doing business with Home Depot since 1997 as an independent contractor. I'm not familiar with the firm. Those of you who bump into IPUSA in the marketplace are in a better position to say whether this company is a formidable competitor, or just one of the bunch that chases your type of work.

However, I do know enough about the installation services marketplace to hazard an educated guess that this acquisition won't make a bit of difference in the business fortunes of most of you reading this. For years Home Depot has been acquiring installation firms in a variety of construction sectors, but this is as much a defensive move as part of any grand strategy. Some background is in order.

Home Depot, archrival Lowe's, and a few other big box warehouse home centers have thrived over the last several decades thanks to favorable baby boom demographics that have boosted home remodeling to record levels. Key to their business growth has been the do-it-yourself (DIY) crowd that tackled home improvement projects partly for economic reasons and partly because they simply liked doing it. This audience of craftsmen surely can appreciate more than most the personal satisfaction one gets from building something beneficial with one's own hands and sweat equity.

Now, that same demographic bulge is turning against the big boxes. Baby boomers are aging and ever less inclined to spend their weekends in physical toil At the same time their income levels are at a peak, so they have money to hire others to do their dirty work. The DIY market has evolved into BIY, for "buy" it yourself. For years Home Depot and the other big boxes have attempted to adapt to this changing marketplace by aiming for more trade business, and boosting installation services for the evolving BIY customer base.

Installation services always have been problematic for the big boxes. They started simply with referrals to local independent contractors, but quality control has been lacking for reasons most of you surely can identify with. The vast majority of contracting firms out there, in any trade, are not very reliable or businesslike. Customer complaints about contractor performance would reverberate to Home Depot, etc., whose own reputations got soiled but who in reality had little control over the local independents they referred people to.

This led to a new tactic of partnering with larger, reputable contractors in a variety of trades. For instance, in November 2001, Home Depot and ServiceMaster teamed up on a pilot program in Orlando, Memphis and Sacramento to provide a wide range of co-branded maintenance and repair services. That program lasted less than a year, although the two companies still cooperate on an informal basis in some local markets. I don't know in detail why their alliance didn't work, but it's probably safe to say interests didn't always coincide between one firm whose main interest lay in providing materials and the other service.

Now it appears that Home Depot's management has decided in certain cases it's better to have the control that comes with owning the service firm. There is no more mistaking where the buck stops when conflict arises between the materials and service side of the customer purchase.

There's no guarantee, however, that Home Depot will operate IPUSA better than it performed as an independently owned business. In fact, it's probably better than an even bet that they'll do worse. Home Depot's skill lay in mass merchandising. That's a far different business than construction work.

I don't believe IPUSA is present in all Home Depot markets. So independent local contractors are still in the ballgame in those markets where IPUSA is absent. In fact, even where IPUSA exists, I suspect local contractors may get a piece of the action when there is more business than they can handle.

But it means paying attention to marketing themselves. This is a subject unto itself, one that has been dealt with in various articles in this space over the last several years. The main idea, however, is that companies large and small must understand what they have to offer to their marketplace that is different or offers better value than competitors. Once they gain understanding, they must toot their horn getting the message across to prospective customers.

"Tooting one's horn" doesn't necessarily mean advertising to a mass audience. Yours is a business where most work - at least most profitable work - comes from relationships and referrals. Nonetheless, there are ways to toot your horn to remind people you have done business with in the past, that there are certain advantages to doing business with you.

What are those advantages? Only you can answer this question. It should include a track record of successful jobs completed on time, within budget, and with minimal hassles. It may include creative solutions to problems that arose on previous jobs. Perhaps it also entails a few skills or services not offered by most competitors.

The major problem faced by most roofing firms is not competition, but themselves. Some are tremendous companies to do business with, but they don't have the introspection to define why that is. If this seems to describe your company, take a moment to visit this magazine's online archives (www.roofingcontractor.com) and read my article, "What's Your USP?" from the August 2002 edition.

Meantime, keep repeating the mantra - competition is good for me ... competition is good for me .... Then just make it happen.