In accompanying his company’s debut on this year’s Big 50 list, Home Depot Supply executive vice president Joe DeAngelo spent some time talking with INDUSTRIAL DISTRIBUTION for this year’s Big 50 Q&A. In this exclusive interview, DeAngelo answers questions about HD Supply’s business practices and chief competitors, and responds frankly about HD Supply’s aggressive growth strategy and what marketplace it may be entering next.

Industrial Distribution: Does HDS have separate locations? Is it an online-only company? Are HDS sites housed within the HD retail outlets?

Joe DeAngelo: We have more than 900 locations in the U.S. and Canada….Anything from stand-alone branches people can walk up to, to large yard facilities that we can distribute directly to a job site via our trucks, stand-alone retail locations, or distribution centers from which we ship directly to the customer. So we have any, and all of the above. If you look at all the industrial distributors, we have every mode of distribution available to us.

ID: If a contractor wants face-to-face service from HDS, how does he get it?

J.D.: He can go to any of our branch locations, which are [set up] typically by trade, so we have plumbing branches, electrical branches, or we have outside sales forces that are associated with each and every business. We have knowledgeable folks that go and call on the job site or planners for the developers. We do have feet on the street that go directly to the customer to sell to the customer.

ID: Who do you consider your chief competitors in the distribution space? Where do W.W. Grainger, Ferguson Enterprises and MSC Industrial fit in with your strategy?

J.D.: They all fit in as competitors. I think that they’re all wonderful competitors for us. What we do is we look at market segments, and we look at the products and services that we can bring to each market segment. As we look at who we compete against, it varies by market segment.

We are very diverse. We are in every phase of construction, and it doesn’t matter what type of facility it is,…a personal residence, a high-rise tower, or bridges or roads. We’re also in every phase of the lifetime maintenance for all types of facilities.

We like to own the structure, from its first concept all the way through its entire life cycle. And that’s the way we’ve built businesses, to be able to do that. We have a number of platforms, and in every one of those platforms, we have strong competitors.

ID: Along those lines, how do you view the small and mid-sized players that dominate the construction distribution landscape? What role do they play?

J.D.: I think they play a very unique role as we’re looking at the marketplace. We have a strategy that is highly acquisitive, so we like to encourage those small players to join our team. We think that we can take the small players—and we’ve proven this, as we’ve built on acquisitions—and allow them to do what they do very, very well, which is strong relationship selling, and ability to service the customer with an intense passion. We are able bring to them more sophisticated tools that are associated with an $80 billion corporation. They receive a much stronger supply chain, supply of cash for capital, expansion, the ability not to have to worry about making their payroll, or being able to pay their suppliers, and they can focus on their prime purpose, which is executing for the customer.

So we found that, as we’ve acquired companies in the space, particularly the small, local and regional, it’s been a great marriage. [Editor’s note: HD Supply acquired 18 companies last year, and almost half could be classified as small and mid-sized.] We’ve been able to take the great assets that they bring, which are, clearly their people and knowledge of industry and relationships, and augment them with the advanced tools that an $80 billion corporation can bring to bear.

ID: Most information we get is about the bigger companies you’ve acquired, such as White Cap and Hughes Supply. We haven’t heard that much about the smaller and mid-sized distributors that you’ve acquired as well.

J.D.: We made 18 acquisitions last year, and I would probably classify seven or eight of those as what you may call the smaller acquisitions that you may not have heard of. But they are all of the competitor class.

White Cap is a great example. In the industry that White Cap participates in, our professional construction supply business (Hughes went under the name of building materials), is a marketplace that is highly fragmented. They tend to be businesses that sell professional tools and fasteners, and applications for concrete-type construction. White Cap has a very, very nice process of being able to roll up businesses that are anywhere from $5 million in revenue to $50 million in revenue. So that’s a repeatable process, and White Cap is by far the largest consolidated player in the space, but there’s still plenty of room to grow.

ID: What can Home Depot Supply offer customers that traditional distributors cannot?

J.D.: In every one of our business models, we make sure that we have good growth relative to our geographies. We want to have the best geographic coverage, and with the best geographic overage, we can bring convenience and choice to the customers. The more outlets you have, the more reach you can have when you’re distributing out from those outlets, and the more touch you can have with contractors coming into your outlets.

So expanding geographies is very important, and certainly, the way to do that is either by acquiring companies or by growing from a green-field branch, build-out standpoint. And for both of those, you need access to capital, so we have the access to capital to be able to do that.

The other thing that we bring to every acquisition is the ability to expand product adjacencies. We have a $60 billion supply chain—it’s actually larger now with Hughes on board—and in that supply chain, we can bring to a specific business product adjacencies that they can sell to the same customer base.

Again, a great example is the White Cap business. Typically, White Cap has four different product lines they sell: residential fastening products; industrial commercial, which are just heavy tools; waterproofing and grading; and concrete applications. Normally, everyone that White Cap acquires has one or two of those categories. So the next day, the salespeople of the acquired corporation have two more categories to sell, all to the same customer base.

And then of course, because we have a powerful supply chain that is always flowing—because remember that [The Home Depot is] covering more than 2,000 stores in North America, and 900 locations relative to the professional market, which is the Home Depot Supply business—so, with a larger supply chain than anybody else, in times of shortage, we’re certainly the first ones to have the goods. So we can assure supply of product, where other, smaller competitors can’t. And in most cases, there is certainly no one as large as us as a combined entity basis when you take our retail and our wholesale business together.

So surety of supply; breadth and depth of the right products; combined with the great relationships and product knowledge of the existing people; and broader geographic coverage, is what we bring.

ID: How has the industry itself handled HD Supply’s move into the market? Do you get a sense of “bring it on,” or some intimidation to your strategy?

J.D.: That’s probably a better question to ask of them. I don’t want to speak for them. Look at our job, it’s very simple. In every market we enter, and in every product offering we enter, our job is to provide the goods and services in a manner that enhances the success of our customers. And that’s what we’re all about. Our model is all about making our customers more successful—by having the right product in the right place at right time, and never, ever, ever allowing them an opportunity to have a delay on a job, or to rework a job, or not have the right economics for being able to win their bid on the jobs.

From our standpoint, we don’t think too much about what the competition thinks. We think every minute about what our customers think, and what our customers need. Our whole job is to anticipate our customers’ needs and deliver them before they ask.

ID: We’ve talked to a few distributors, who may even be headquartered right around the corner from a Home Depot store, who relish that customers come to them for select services and more personal interaction. Is there such a thing as a “more personal” HD Supply?

J.D.: All of those people that you’re talking to are people that we are acquiring, and are joining our family. Our whole model is all about providing the convenience, the personalized service, the specialty products, and that’s not conflictive with Home Depot’s basic business model. The Home Depot’s basic business model is everyday value, incredible convenience relative to location, and having all the products required for doing construction and renovation type of activities.

Certainly, every business model, as you make them smaller and specialized and add their electrical, or plumbing, or utilities, they require more specific application expertise than it would make sense to have within every Home Depot store. But within every Home Depot store, certainly all the products are available, and they are convenient, and they are priced right. So the combination of the two is really the perfect combination.

For people that want to come to a retail store and can assist themselves, or with minimal assistance can get their products and goods, that’s terrific. If they need more advanced expertise in terms of servicing, in terms of knowledge of the products relative to their specific trade, then Home Depot Supply is a great choice.

But, we’re right around the corner from ourselves, and we like being right around the corner from ourselves because we’ll refer the customers back and forth based on what venue is best for them.

For a small, pro repair/remodeler, shopping 100 percent in a Home Depot retail store is the exact right place to be. If you’re a large production home builder, and having a Williams Brothers [HD’s lumber business] lumber consultant visit with you, making sure that all your layouts are correct and making sure your lumber is delivered direct…to your job site so you don’t have to go anywhere, [HD Supply] is the right way for that to be executed.

What we find is by having all of these outlets, and them all specializing in a little bit of different activity, but all being supplied by the same supply chain, we can bring the best of all worlds to everyone.

ID: And HD Supply’s growth strategy? Are more acquisitions on the horizon? What about organic growth?

J. D.: We want our organic growth to be very aggressive in the marketplace, so we typically target the growth three, four or five times faster than the organic market growth, or the market growth rates. We’re very aggressive with that, and we’re very good at executing that.

Last year, we were more than 20 percent growth rate in Home Depot Supply, and Hughes was 11 percent organic, so you can see those are growth rates much faster than GDP and the markets we’re participating in. Our firm belief is you have to be a great organic growth company. You have to be an absolutely great organic growth company because that means you’re doing everything right with your people, with your supply chain, and all-around servicing your customer.

We also believe that it is important to constantly be adding to your family, because every time you add to your family via acquisition, you learn more. You bring more talent in, so your talent grows, and you’ll always find more products and more services that you weren’t providing that you can excel in. You have to be a strong organic-growth company and a very acquisitive company if you’re really going to be number one.

ID: What percentage of sales comes from the professional side versus retail? How do you expect that to change in the future?

J.D.: Our business this year [2006], in Home Depot Supply, will be $12 billion, and all that is 100 percent professional customer. Within the retail store, about 30 percent of the store [sales] is coming from those same professional customers. Rough numbers: if the retail business is $80 billion, then there’s $25 billion of professional sales going through the retail store.

Over time, with Home Depot Supply, our commitment to Wall Street is to grow to be $25 billion by 2010. So we’ll be essentially the same size as the professional business is within the stores—but that’s our published external goal. Certainly, we’d love to be a lot bigger than that, and we’re working to do that.

ID: HD supply now has construction, janitorial/safety, building and maintenance and pipe valves and fittings. What type of additional product lines do you anticipate in the future, or do you expect to add to your product offering by acquiring companies that specialize in new areas?

J.D.: The one product line that we don’t have incredible depth in is the products that service industrial facilities. Since we don’t have a strong industrial facilities business, we’d love to have, or enter that, via a platform acquisition or in the process of organically growing it. Look at what those industrial companies utilize—they utilize a lot of cutting tools, if they’re doing metal work; they utilize a lot of shop floor kind of consumables, shop rags and things of that nature; and industrial solvents, anything that’s in a factory—is what we would look to add. They also use a lot of material handling—carts, conveyors, that sort of thing—and we’re not huge in that today.

So there’s plenty of opportunity. Most of our stuff for the maintenance, repair, operations is more residential or office-like facilities, so we’re certainly number one in multi-families, really anything to repair an apartment complex, or renovate it, or anything for commercial building—but more of the interior space where people live. So our next natural foray is into the places where people work, and that would be in the industrial factory floor.

Everyplace else, I think we’re pretty covered. We’ve got plenty of room to expand our geographies, and plenty of room for everybody, every outlet, to be able to enhance their product adjacencies, by just filling out their mix a little bit more. There’s also a lot of room in safety devices, things of that nature—a lot of big growing product lines.

ID: There are quite a few options available for customers via hdsupply.com. How do you foresee the world of distribution via the Internet?

J.D.: The Internet is a marvelous communication tool. One of the things that really enables us to reach our full potential is the Internet, because of the fact that we have multiple business platforms. It provides the ability for people to come and visit us on the Web and for us to get you to the right business platform, or for us to be able to simply educate Wall Street in terms of who we are, or educate the broader customer base in terms of how much we can offer.

The Internet is a very, very powerful tool, and the Internet’s an extremely powerful transactional tool. And it’s one that, if you look at being able to integrate into our customers’ workflows, it’s an essential tool.

Ultimately, our customers want to focus on doing their job. They don’t want to focus on getting the stuff to do their job. And the simpler we can make it so they can get their stuff on time, and in the right place, at the right price, is essential for them. The Internet is an enabling tool for that.

ID: Has HD Supply’s growth in the last few years proceeded as expected, exceeded expectations, or even fallen short in some way?

J.D.: I’d say we’ve exceeded expectations, but we always expect more. So even though we’ve exceeded expectations, we’re not happy where we are. There are always, always, always new opportunities to satisfy existing and new customers. We’re just very hungry for it. We’re all about everyday, waking up and saying, “We can do more for the customers. Let’s figure out how much more we can do.”

ID: Anything else you want to add?

J.D.: I’ve only been at The Home Depot for two years,…it’s just a marvelous culture. The one thing that really wakes us all up in the morning is how good it feels to be part of a corporate culture that, when something like a disaster strikes, [Hurricane] Katrina or whatever, we’re first on field, and we’re there to help. When you look at the support of the Olympic Games—we had 10 medal winners. We would be the eighth-largest country in terms of medal winners, and we support these young athletes to be able to do that. And support for the military: in the headquarters in Atlanta, we have freedom flags on the wall for every brave man and woman that is in Iraq today protecting our freedoms. Those flags don’t come down until they come home.

For me, it’s a wonderful family to be part of, and I think we take that same pride right to the customer. And now, having the retail and the wholesale together is something unique. No one else has it. It’s taking a culture of helping each other and extending it to helping all our customers. It’s just a natural winner.