Good morning, welcome to our 2015 Investor and Analyst Conference. This morning, you'll be hearing from Craig Menear, our Chairman, CEO, and President, Mark Holifield, Executive Vice President of U.S. Stores, Ted Decker, Executive Vice President of Merchandising, Kevin Hofmann, President of Online, then we'll take a 15-minute break. After the break, our speakers will be Bill Lennie, Executive Vice President, Outside Sales and Services, Mark Holifield, Executive Vice President, Supply Chain and Product Development, Carol Tomé, our CFO, Executive Vice President, Corporate Services. At the conclusion of our second session, we will open the mic for questions and answers. I would like to remind everyone that today's presentations made by our executives include forward-looking statements as defined by the Private Securities Litigation Reform Act of 1995.
These statements are subject to risks and uncertainties that could cause actual results to differ materially from our expectations and projections. These risks and uncertainties include, but are not limited to, the factors identified on this slide and in our filings with the Securities and Exchange Commission. Today's presentations also include certain non-GAAP measures. Reconciliation of these measures can be found on our website at ir.homedepot.com. It is now my pleasure to introduce our Chairman, CEO, and President, Craig Menear.
Thank you, Diane. Thank you all for taking the time to join us for our 2015 Investor and Analyst Conference. We're going to review some of the progress that we've made over the past few years, we'll discuss some of the challenges and opportunities for our business going forward. As you know, we've produced good results over the past few years, we're not taking that for granted. This year, we restructured our strategic planning process. We challenged ourselves on three main work streams. First, we identified potential disruptors to our business. We refer to this as our war games. Second, we held discussions on ideas that would expand our sales growth over the next three to eight years. Third, we spent a considerable amount of time on productivity ideas.
Now, some of our ideas were definitely outside of the box, this process solidified our focus on growth and productivity, as well as expanded our thoughts on what's possible. In addition, we identified various actions to reduce the effects of potential disruptor activities. All in all, we see significant opportunity in front of us to grow sales and to continue to be more productive and efficient. By doing this, we expect to reach $101 billion in sales by 2018. Today, we're going to take you through the framework on how we expect to achieve this target, as well as other financial metrics for 2018. For the past eight years, we've had a tremendous amount of work to do in order to reposition ourselves competitively. We accomplished an enormous amount, mainly within functional silos. Our merchandising organization needed to fix the competitive position in the marketplace.
Within our stores, we needed to become less tasking and more customer-facing. We needed to build out a supply chain. Over those years, we accomplished a lot, but within each function. As we move forward, we'll pivot to meet the changing expectations of our customers. To do this, we'll have to work cross-functionally on the customer experience. It's a very different way of working than what we've done in the past. Not only are we connecting our internal teams, we are extending beyond the four walls of The Home Depot. Working more collaboratively with our vendors, we will create value for our customers, our business partners, and our shareholders. I'm going to focus my remarks now in three key areas: strategy, growth, and productivity. Our strategy will continue to evolve around our three-legged stool. This is the stool that we showed you in 2009.
It's the core foundation of our strategy, it reflects what our customers and our shareholders expect from us. The first leg of the stool shows what we're passionate about, customer service. The second leg defines what we're best at, and we believe we're best in the world at product authority. The third leg declares productivity and efficiency driven by effective capital allocation drives our economic engine. Now we tie the legs of the stool together at the seat, the seat represents interconnected retail. For 2015, our strategy hasn't fundamentally changed, it's that way because it continues to be driven by what our customers and our shareholders expect from The Home Depot. However, our strategy has begun to evolve. It's evolving to reflect the changing needs of our customers and of our business. The first leg of the stool is moving from customer service to customer experience.
Customer experience is much more than just customer service. It's about providing seamless and frictionless experience, no matter where our customers shop, be it in the digital world, in our brick-and-mortar stores, at home, or at the job site. We think of this as one Home Depot. We have to continue to connect our stores to our website and our website to our stores. For example, the front door of our stores changed significantly. It's now not just in the store, it's in the home, and it's in the customer's pocket. For the past seven years, we've been laser focused on improving service in our stores, removing tasking and investing in selling hours. Our buy online, deliver from store, and buy online, pickup in-store customer offerings are forcing us to operate part of our stores like a true warehouse.
Our labor model will have to continue to evolve, connecting service to our customers' needs. Parts of the store will need to operate as efficiently as a DC without sacrificing service when needed. Moving to the second leg of our stool, we have been and will continue to strive to be the leader in product authority for all of our customers, professional, do it for me, and do it yourself. Our merchants work to curate the right assortments for our customers, will continue to do so going forward. As Ted will discuss, our teams are bringing more science to the art of merchandising, enabling us to better understand our customer preferences and localize assortments more effectively. Previously, our stores gave us an advantage due to their size, today's digital world somewhat takes away store size advantage.
It does allow for a level of product customization that's just not efficient in a store setting. We will continue to work towards offering our customers the products that they want through the most effective channels. We are also working to not only provide assortments connected to the local needs, but we're focused on becoming more efficient in moving product from our suppliers to our shelves to our customers. Mark Holifield will speak about this and how we're partnering with our suppliers in new ways to drive productivity. The third leg of our stool, capital allocation, is firmly in place. We will continue to invest to make sure that we're driving productivity and efficiency. We'll push ourselves to be the low-cost providers in the marketplace.
That's hard work because it means much deeper cross-functional internal work, as well as a completely different approach with our external suppliers, one that requires deeper, more integrated, and longer-term planning. Our strategy of collaborating more closely internally and externally is what we call our end-to-end approach, which creates interconnecting retail. It's gonna help us drive growth and a lot of value, and you're gonna hear more about it over the course this morning. Now let's talk about growth. This morning, we're primarily talking about growth and productivity efforts in the U.S. This chart represents our addressable market in the United States. It's a $550 billion market, and as you can see, we continue to have opportunity for growth. The home improvement market is estimated to be a $300 billion market. This includes pro as well as consumer purchases, with pros representing approximately 40% of this market.
You're gonna hear more about each of these customer groups. Next, the services market, where a pro comes into the home to install or build a project, is a $200 billion market. Approximately 70% of this market is estimated to be labor cost, and the remaining 30% is product pull-through. Finally, our addressable maintenance, repair, and operations, or MRO market, is estimated to be $50 billion. This market includes residential, multifamily, hospitality, and institutional customers. In the past, we used to say that we owned about 27% of the addressable home improvement market. With the addition of services and MRO, we now believe that our market share in the U.S. is about 15%, so there's plenty of opportunity for growth. While our remarks today are U.S.-centric, we continue to see strength and opportunity in our Canadian and Mexican businesses.
In both of these markets, we are the number one home improvement retailer. A lot of what we're doing and what we're gonna discuss today with respect to the U.S. can be applied in our Canadian and Mexican operations. The reverse is true. Our Canadian and Mexican businesses are great sources of idea for the U.S. We collaborate with the teams in several areas to drive productivity and efficiency. We're working together on merchandising projects, including undertaking a research study on our private label brands. We're working together on product line reviews and leveraging the buying power of the entire Home Depot entity. When you talk about growth, it's just as important to talk about what we're not going to do as it is to talk about what we are going to do. For today, we're not going to invest in international expansion.
We believe that we have a greater opportunity to grow sales in North America, namely Canada, the U.S., and Mexico. We are not going to invest in new store formats. Frankly, we've gone down that road before, and many of you have been on that journey with us, and we have not succeeded in that space. We are not going to invest in acquisitions to buy sales. We do believe in adding capabilities to our company that we either cannot build effectively or when it is cheaper and easier to acquire than build. Examples of this are the acquisitions of Crown Bolt, Interline Brands, Blinds.com, and BlackLocus. Looking ahead, we see significant growth opportunity in two areas, pro and interconnected retail. For us, pro means professional contractors and services. Our organization has been leaning into pro because of the size of the addressable market and because of the changing demographics.
With an aging population, there are a number of customers who no longer want to do it themselves but have somebody do it for them. Earlier this year, we recognized that in order to capture this demand, we needed to readjust our organization to have one group completely focused on solving our pro needs. We stood up an outside sales and service group that is responsible for managing our pro customers, our MRO, and installation services business. One of our key initiatives is leaning into MRO, and this housing chart shows why we are so excited about this space. There are approximately 135 million housing units broken down by 15 million vacant units and 120 million households. Of the 120 million households, 63% are owned and 37% are rented. Rental households include both multi-family and single-family housing units.
We expect over the next five years that multi-family housing is going to grow faster than single-family housing, and we want to be well-positioned to capture the MRO demand stemming from property managers, as well as other institutional and hospitality markets. To do so, we purchased Interline Brands, a leading national distributor and direct marketer of broad line MRO products. Interline provides increased capabilities to this fast-growing multi-family segment. Collectively, Home Depot and Interline own less than 5% of the MRO market, so we believe there is lots of room for growth. Bill will give you some more color on some of the initiatives that we have here. Now, let us talk about growth within the interconnected retail. Our digital business is going to grow nearly $1 billion in 2015. This has been, and we believe will continue to be, a significant growth vehicle.
To support that growth, we're making significant investments. For example, you've recently heard us talk about the opening of our third new direct fulfillment center in Troy Township, Ohio. Now, with our three new DFCs, we can ship to 90% of our U.S. customers with parcel shipment within two business days or less. Our digital presence is driving business to our stores, and our stores is driving business to our digital site. Over 40% of all digital transactions are picked up inside of our stores, and 10% of all digital orders take place from a device within our stores. Our customers are changing the way they shop with us and how they're engaging with us. We'll be deepening our curated online and in-store assortments using data and customer behavior to guide our assortment planning decisions at a localized level.
You'll hear from Kevin about key investments in several initiatives focused on connecting with our customers and how they're changing and driving interconnected strategy. What's not changing is the importance of product innovation. Innovation continues to be a driver of growth in our business, and as you'll hear from Ted, our merchants are searching out new products and ideas that our customers will love. We've seen an amazing adoption rate of lithium battery technology. We've impressed our customers with our LED light bulb offering. We've even made contractors' jobs easier by offering lightweight wallboard products. People are also changing the way they're using their homes. More and more people are telecommuting. People are staying in their homes longer as they age. The Home Depot has an opportunity to provide our customers with innovative products that make their homes smarter.
We think about smarter home in three key pillars: protection, convenience, and conservation. Now, let's turn to productivity. Increasing productivity allows us to continue to give value to our customers, at the same time creating shareholder value. We have a number of productivity initiatives. We know that we can drive productivity in merchandising by better localized assortments and improving speed to market. Further, we know, we must drive productivity in how we move product from supplier to shelf to customer. Finally, we're in the process of rolling out several productivity initiatives in store that will also improve the customer experience as well. Our customers always have been and always will be the heart of our business. Our founders based the company on the inverted pyramid and our values wheel.
Our customers are on the top of our inverted pyramid, and our frontline associates are positioned right below them for a reason. We're committed to serving our customers first. We're also committed to making The Home Depot a great family for our associates to be part of. We strive to make all of our decisions based on our values and live by our inverted pyramid. Today, you'll hear about initiatives to create a better experience for our customers. You'll also hear from Mark Holifield how we're changing processes to make working at The Home Depot a better experience for our associates. It's our desire for our associates to be as excited about being part of a values-based business, excited about being on a winning team, where they're recognized for their contributions, where they're given a chance to grow, and where we work to improve their experience.
We recognize our hourly associates through our success-sharing bonuses. In the first half of 2015, we paid out $106 million in success-sharing payments. We are also the only major retailer in the country that provides stock grants over and above salary and cash bonuses to our assistant store managers. We also recognize our associates for great customer service through our Homer Awards. We have handed out over 5 million awards, equating to $107 million in individual customer service Homer recognition awards. Now, let me end by talking about our financial targets. We intend to grow our business to $101 billion in sales. That's approximately $13 billion over the next three years. One way of looking at that number is that $13 billion in sales is larger than these five companies' sales combined. It's also the equivalent of adding 357 The Home Depot stores, but we're not going to do that.
We're going to stay focused on becoming much more productive. We continue to see opportunities. This year, we will achieve and exceed our prior financial targets of 13% operating margin and 27% return on invested capital. With a 2018 revenue goal of $101 billion, we have new three-year targets. In the past, these targets have been challenging, as they are now. They are achievable. Our operating margin target is 14.5%. Our return on invested capital target is 35% by 2018. Carol will provide further financial details. As you will hear this morning, The Home Depot has plenty of opportunities ahead. We believe that connecting end to end will drive growth and productivity. The end game is more than growth and productivity.
Connecting end to end means that our customers will be more satisfied, our associates will have better career opportunities, our vendor partners will have higher growth, and our shareholders will have higher returns. As Peter Drucker said, "Culture eats strategy for breakfast." We will deliver this staying true to our values. That's the best strategy of all. With that, I'd like to introduce Mark Holifield, our Executive Vice President of U.S. Stores. Thank you.
Good morning. This morning, I'd like to start where Craig left off, with the culture of The Home Depot. The Home Depot culture is represented by these two diagrams. The inverted pyramid, putting customers and associates first in all our decisions, and the values wheel, the eight values which state who we are. Customer expectations of us are changing and getting higher. This is causing us to have to be even more productive than we've been in the past. It's also bringing change to our associates in the form of what we are asking them to do. Our culture, our historic focus on the customer and our associates, and our grounding of who we are and our values is not changing. In fact, our culture is an enabler to the success of our strategy.
It should be no surprise that our passion for the customer experience and our passion for our associates' experience is the first leg of our strategic stool. In the past, customer service was defined solely as cash-and-carry activity within the four walls of our brick-and-mortar environment. As you are well aware, societal, technological, and economic factors are causing our customers' behaviors to change, as well as changing their expectations of us. The customer's expectations of service are transitioning to their desire to have a seamless, frictionless experience with The Home Depot in our stores, online, on the job site, or even in their homes. The blurring of boundaries between the location of the customer's perception of the experience is focusing us on improving every contact point with the customer. Today, I'll talk to you about our customers, who they are, and their changing expectations.
Second, I will talk to you about how those changing expectations are causing us to relentlessly focus on driving our productivity cycle through process simplification and new process implementation. Finally, I'll talk to you about how we continuously keep our associates and their Home Depot experience in mind. First, let's talk about the customer, who they are, and their changing expectations. The majority of our customer population comes in the form of do-it-yourself consumers. These consumers interact with us approximately 5 times a year for a total annual spend of approximately $330. This customer, the DIYer, accounts for about 60% of our total sales. The other major portion of our customer base is the professional. While a small percentage of our customer base, approximately 3%, the pro accounts for about 40% of our sales.
The professional customer interacts with us on average 66 times per year for a total annual spend of about $6,500. As you might imagine, not all consumers have the same expectations of experience, and not all pros are created equal. Let's take a little deeper look at those customer groups. First, our DIYer. The majority of our DIY consumer customer base are people like me, one of the 75 million American children born between 1946 and 1964. They call us the Baby Boomers. We're a group that, through societal and economical factors, have achieved a significant amount of wealth through our lifetime. The majority of our customers own their own home, and our research shows approximately 25% of them earn over $100,000 annually.
As home values continue to appreciate, the Baby Boomers view their home as an investment, not an expense, positioning us well to continue to serve the Baby Boomers. In addition, the Baby Boomer grew up with The Home Depot as an active, hands-on do-it-yourselfer. Now, their expectations of The Home Depot are changing. Now, people like me have less time and less energy to do it myself like The Home Depot taught us to do. Now, I want someone to do it for me. The Home Depot currently performs more than 2 million installs a year, and those installs are done by over 100,000 pros that work with us. Bill Lennie will explain later in his presentation how this relationship with both the Baby Boomer and the pros positions us well for future growth. Now, let's take a look at the next generation of our customers, the Millennials.
This generation of customers is widely accepted as those born between 1982 and 2004. The latest housing numbers show that first-time home ownership is growing. While growing, these numbers are still not back to the historic average. The average age of those first-time homeowners is just at the high end of the Millennial generation. This aligns with our research that shows Millennials indeed want to own their own home. For multiple societal and economic factors, they have delayed the typical life cycle through adulthood compared to generations before them. Our research also shows that the Millennial generation wants to learn how to do projects themselves, and they want a place to go where they can have an experience of engaging with a company that truly cares about their well-being as well as the well-being of the communities in which they operate and the associates which they employ.
Sounds like a natural fit with our culture and our values. There are the pros. We service pros with varying levels of expectations, needs, and complexity. At a high level, you can break the professional customer into three groups. First, the transactional pro. The transactional pro accounts for the majority of our pro customer population, but comes in second as far as a % of total pro sales. The transactional pro is usually a handyman or a small property manager. They tend to shop with us because of convenience of location, and they shop across multiple product lines. Next, the complex pro. Although the complex pro makes up a much smaller grouping of our total pro population, they account for over half of our pro sales. The complex pro is a medium-spend remodeler or renovator and potential installer for our services business.
This pro usually has a crew or multiple crews, and these pros have a high volume of transactions with us across multiple stores and markets. Finally, the B2B pro, who currently accounts for a very small part of our pro business. The B2B pro is by far the most complex customer for our stores to try to satisfy. This pro wants to transact through multiple mediums, including in-store and customized e-commerce. Bill will tell you later in his presentation today about how we intend to enhance all of our pro customers' experiences and meet their needs in the future. We realize all of our customers, Boomers, Millennials, and pros, are becoming more and more interconnected. Their expectations of us are now higher. Meeting those expectations and putting the customer first is at the heart of The Home Depot culture. Interconnected experiences are no longer becoming a new thing.
They now are expected, a given. That means we need to continuously experiment with our assortments, our space allocations, and ways to build the bridge, the interconnection between our customers and our online presence. Ted and Kevin will expound on this in their presentations. What does that mean for in-store operations? Well, in many ways, our customers are looking for old things done a new way. For example, customers are used to doing a thing called will call, where they come into our stores with a list of items they need and pull these items off the shelf. We store them, then the customer picks them up later. Now, we call this same activity BOPUS, buy online, pick up in store. Instead of the customer doing the labor, we pick the items off the shelf.
We pull them, we store them, later release them to the customer. Another example. Currently, pros and their crews come into our stores, pull their orders, and take them to the job site. Soon, the same activity will be done a different way. BODFS, buy online, deliver from store. Instead of our customers performing the activities, we will go into the aisle, we will pull, we will load on the truck, and we will deliver. You can see the activity in our stores is changing, this causes labor to transition from our customers to our associates. Now new requirements are being placed on our associates. An example where we are actually transitioning labor from our associates to our customers while providing a better experience for both the customer and our associates is COM, our new customer order management platform.
If you have ever placed a special order with us, you know it isn't a great experience. We aren't good in our stores at quickly giving you the status of your order, and only the store you placed the order with can see the status in their system. This is very frustrating for our customers and our associates, and it's especially frustrating for those complex pros who shop across multiple stores and markets. In 2016, with the rollout of COM, all stores, all vendors, and the customer will be able to access relevant order information online. This takes a great deal of friction out of the experience and actually generates productivity that can be reallocated inside the store. That brings me to my second point.
Changing customer expectations are requiring us to continue to relentlessly simplify our operations in order to generate productivity so we can reinvest in the customer experience. This is our productivity cycle. We must connect our labor to meet and exceed our customers' expectations. We also want to simplify operations to make working at The Home Depot a better experience for our associates. That is our culture. Mark Holifield will talk to you today about a project called Sync. As you will hear, Project Sync will provide a more predictable freight flow into our stores, which will not only generate productivity. It will also take pressure off of our associates who currently never know exactly how much freight they will be receiving on any given day. Freight handling inside our stores is still one of our most inefficient processes we have.
Over the next couple of slides, I would like to show you just some examples of the many projects we are working on to drive our productivity cycle in regards to store freight handling. Currently, across all our stores, there is still not a defined efficient process to move freight off of the trucks into receiving areas, from our receiving areas to shelves, and if need be, from our overhead stocking shelves down to the customer-facing shelves. We are currently in the process of rolling out several documented processes to all stores to start driving operational excellence concerning freight handling in 2016. We will implement Smart Sort. Smart Sort is software that can be accessed by the store associate which defines exactly what is on every inbound rapid deployment center load.
Not only does it show the carton counts of the load, it tells the store how many freight moving carts they will need for small cartons and how many pallets they will need for larger products. Combined with Smart Sort, we will implement Engineered Unload. Engineered Unload is a diagram delivered through the same system, showing the stores how to stage the carts and the pallets in the most efficient way designed to reduce product touches and footsteps to stage product. These two systems and processes have proven in pilot to reduce 90 miles of walking for each receiving associate a year. A third element which will be implemented is called Directed Packout. This software tells the associate the exact order in which they should put the product on the shelves. This process has shown to eliminate one to two feet of walking per carton per night.
Let me remind you, our stores receive on average over 4,500 cartons of freight per week. That's a lot of footsteps taken out of the process. Next, we are addressing the efficiency of moving products from our overhead shelves to our selling shelves with Bay Directed Packdown and Smart List. Both projects will also be implemented in 2016. Currently, our associates are asked to pack down any visible shelf outs, as well as executing a rotating schedule of predetermined areas to pack down throughout the store. With Bay Directed Packdown, our associates will only focus on the areas that matter. We will leverage our new First Phone 2 to deliver data that will identify heavily shopped areas from the previous day. The list will be store specific. Additionally, the areas will be sorted by department and aisle to minimize travel and drive productivity.
The second project will be implemented, we call Smart List. Once again, we will leverage the First Phone to deliver to our associates pictures and attributes of a limited amount of products that are exceptions, meaning their selling patterns have changed over the last several days and should be investigated. With the productivity we are generating through projects like the ones I just discussed, we are reallocating our labor to align with the new customer experience expectation. An example of this would be our fulfillment teams we just rolled out in the third quarter for BOPUS, BOSS, and deliveries. Initially, when we rolled out BOPUS and BOSS, we tried to provide a frictionless interconnected experience by designating associates in different departments across the store to pull, stage, and release our BOPUS and BOSS orders to our customers.
Without having a consistent process, picking orders during the week typically fell to our pro associates in the morning hours, and activities during the weekend were assigned by management to random associates. This actually created a bad customer and associate experience. Even though our internal BOPUS and BOSS customer service scores are consistently rising, our customers are still telling us that speed of fulfillment is a pain point. By looking at our customer's order and pickup patterns, we found that a major majority of our customers' pickup online orders were picked up between Monday through Friday from 12:00 P.M. to 7:00 P.M., and on the weekend from 10:00 A.M. to 7:00 P.M. We have reallocated labor to form a dedicated service team that is scheduled based on customer service patterns to pick, pull, stage, and release all special handling product.
This is an example of how we are driving the productivity cycle, where we free up labor to reinvest in solving customer pain points while positioning ourselves for future interconnected growth, such as buy online, deliver from store. As we continue to drive productivity through projects like the ones I just discussed, we will continue to ensure we are positively impacting the customer experience. As you can see, our Net Promoter Scores continue to increase year-over-year, as well as our internal Voice of the Customer scores continue to increase year-over-year as well. That brings me to my third and final point. We cannot sustain this kind of customer experience improvement without our store associates who wear the orange apron every single day. This is at the heart of The Home Depot culture.
We want the associates' experience at The Home Depot to be just as rewarding as our customer experience. We want to attract and retain the best talent in retail. Let me share with you a few ways we are improving the associate experience. First, although work schedules in retail tend to generally be more demanding compared to other industries, we are taking actions to help support a better work-life balance. Two examples of this are improved forecasting and consistent schedules. Our labor system allocates our payroll dollars by analyzing how much activity or hours are required to be worked to achieve a forecasted sales target on any given day or hour of the day. This forecast of hours is input into our scheduling system, which schedules associates when we forecast the activity is going to occur.
Historically, we asked our store managers in each store to forecast what their sales by day were going to be in order to kick off this important process. Unfortunately, most of our store managers are just like me when I was a store manager, meaning not very good at guessing future sales by day. In fact, store manager forecast accuracy rate was ±5%, a 10% variance. We had more associates in the store when we didn't need them and less associates when we did need them 10% of the time. This resulted in either sending associates home when we had too many or calling associates in when we had too few, which did not create a great experience for the associate or our customers. Now we have implemented a centralized forecasting team that utilizes sophisticated software to produce a forecast for each individual store.
This forecast has a variance of less than 2%, ensuring we have the right amount of associates in the store to meet sales demand, improving the customer and associate experience. Additionally, we are currently piloting in 177 stores the concept of consistent schedules. Consistent schedules provides associates with three shift schedule options: early in the morning, midday, or late in the evening, in which they will be consistently scheduled, again, improving the associate experience and allowing a better work-life balance. As we attract and retain associates, we are also focused on nurturing their growth. In fact, this past year, out of the total hourly associate population of over approximately 350,000 associates, about 15% of those associates received a promotion. That 15% does not include any role changes that were made to provide developmental opportunities.
Our commitment to our associates' growth can clearly be seen in our store leadership roles. 94% of our department supervisors started as a sales associate. 89% of our assistant store managers and almost 80% of our store managers began their careers as hourly associates. The average tenure of our store managers is actually over 14 years with The Home Depot. Through our training and developmental programs, anything is possible for our associates. Our president of the Southern Division, Ann-Marie Campbell, started as a cashier. Our president of the Northern Division, Crystal Hanlon, started as a cashier. Aaron Flowe, the president of the Western Division, started as an hourly associate 21 years ago. I too have experienced growth through The Home Depot, starting my career as an hourly plumbing associate in Hollywood, Florida, over 29 years ago. In closing, the customer's expectations of service are transitioning.
They expect to have a seamless, frictionless, great customer experience with The Home Depot, no matter where they come in contact with us, in our stores, online, on the job site, or even in their homes. We will continue to relentlessly simplify operations, generate productivity, and improve the customer and associate experience. It's what we do. It's who we are. Thank you. Now I would like to introduce our Executive Vice President of Merchandising, Ted Decker, to talk about the balance of art and science of retail.
Thank you, Mark. Good morning, everyone. As Craig referenced, product authority is a key leg of our three-legged stool. Today, I will cover how we will maintain our position as the number one retailer in product authority for home improvement. We are focused on three main objectives in the merchandising organization. First, we want to keep our momentum going. We'll maintain our momentum by driving innovation, growing our pro business, and creating excitement in our stores. Second, we'll balance the art and science of retail. We'll do this by consistently delivering the best products at the best values to our customers. Our merchants will also leverage data to better understand our customers, localize our assortments, and optimize space. Third, we'll drive end-to-end collaboration. We'll drive deeper collaboration with internal and external partners to foster a win-win approach to the business.
Let me review in a bit more detail what I mean by each of these objectives. First, The Home Depot has been winning in the marketplace, and we plan to keep that momentum going. We have been taking share in key categories, and we will keep driving the top line with an emphasis on products that deliver innovation and value. Our merchants are partnering with our suppliers to bring innovative and exclusive items to market that deliver value to our customers by saving them time and money. For instance, in our flooring category, we recently launched an exclusive line of carpet called LifeProof. This innovative product has lifetime stain protection and withstands common household spills while offering softness and exceptional durability. We also continue to introduce new styles of hard surface floorings like wood-like tiles.
Our merchants are constantly looking to be the first to market with these types of innovative products. We also focus on another important customer segment, the pro. We offer the most comprehensive assortment of pro brands like Milwaukee Power Tools, Werner Ladders, Owens Corning Insulation, and Klein Tools. We price the products competitively, carry the inventory depth to meet the needs of our pros, and offer convenient shopping hours at our over 2,200 locations. We hold regular pro appreciation events throughout the year to thank our pros for their business. To drive excitement, we hold events throughout the year on key holidays and shopping seasons like spring. During the events, we often introduce new innovative products and always offer special values to our customers. For example, our gift centers are set now for the holiday season, and they offer tremendous values on new hardware and tool products.
In addition, we'll maintain our momentum by helping our customers create a smarter home. A smarter home is connected, but it is also safer, more energy efficient, and more convenient. We are introducing products that help our customers protect their families, save money, and improve their homes. We've introduced new products like intelligent smoke detectors, motion sensors, cameras, and door locks to help make homes safer. Products like LED lighting, thermostats that learn patterns, and fixtures that save water help save money. Our customers can also choose to purchase products like wireless speakers and color-changing lights to make their homes more enjoyable. We anticipate the demand for smarter products in the home will continue to grow. An industry study estimates that there will be over 500 smart home products in a typical family home by 2020.
Therefore, we offer open platforms and related products our customers can select the best solution that meet their needs rather than be locked into one protocol. Today, we offer hundreds of products in our stores with a continuous stream of product launches in the works. To maintain our momentum and win with our pros, we leverage our strategic relationships with our supplier partners to deliver leading technology and take share. The change to battery-powered power tools is an excellent example. For years, pros have been looking for an alternative to heavy corded product. The holy grail in power tools is to give the pros a lightweight cordless option with the power of corded and with enough runtime to complete a day's work. Lithium-ion battery technology, which was introduced about 10 years ago, is now making this vision real.
A combination of better batteries, higher amps, more powerful brushless motors, and advanced integrated electronics produces the power of corded with a much longer runtime. This new technology has changed the game for the pros, The Home Depot has the deepest assortment of the leading brands in the marketplace. As pros switch out of their corded product, The Home Depot is the best place to purchase cordless power tools. The technology is equally beneficial to our DIY customers and is also gaining traction in other categories. Now the motors are so powerful, pros and consumers alike can exchange gas engines for cordless product. Cordless alternatives are available in string trimmers, blowers, chainsaws, and even lawnmowers. Newer categories include lighting and even nailers, which are now largely powered by compressors. We continue to partner with our suppliers to develop the next applications and solve customer pain points as the technology evolves.
Each phase has delivered enhanced performance, provides more efficiency for the pros, and more affordable products for the consumer. The journey is ongoing, each phase gives The Home Depot an opportunity to capture more market share from traditional channels. As you can see, the market shift has been good for The Home Depot. As we collaborate with our supplier partners to offer the top brands, technology, and innovation to the market, we have taken some 500 basis points of share in power tools. We are the product authority in power tools. We expect to maintain our momentum and accelerate share gains in other categories like outdoor power tools and nailers. We'll leverage an end-to-end collaboration with our suppliers, from product development to marketing campaigns like Ryobi Days to drive foot traffic into our stores. Events and special buys have always helped drive traffic, transactions, and customer delight.
We leverage our open swing areas to create excitement for our customers and our associates. We seek to create a buzz in our store that translates into sales. We often introduce new products during these off-shelf events, and winning products earn permanent placement within their respective categories. Our Merchandising Execution Team, or MET, is a key competitive advantage that allows us to execute these events and other merchandising strategies. MET executes with speed and efficiency, shortening cycle times and lowering costs. For example, our holiday decor displays used to take two weeks to set. Today, MET executes the set in two days. MET also executed our Black Friday event this year, and we were very pleased with our results.
MET is also driving significant productivity, and our merchants know their programs will be set correctly and quickly, which gives them the confidence to drive even more innovation into the store. We recognize that our online business complements our in-store business. We purposely refer to online as interconnected retail. Together, our stores enhance our online business, and our online business enhances our stores. From a merchant's point of view, online provides three distinct advantages. First, customers can research product information online to increase their knowledge of a category and specific product alternatives. We know that nearly 60% of customers start their purchase journey online before entering a Home Depot store. Second, our online catalog of over 1 million SKUs offers an endless aisle for our customers, as we offer many more choices than the typical 35,000 SKUs in a store.
The endless aisle is particularly attractive for decor categories, where we can offer an expanded assortment of what would be slower-moving SKUs in any one store. Third, our online capabilities offer the customer the ability to get truly customized solutions. As an example, our acquisition of blinds.com provides unrivaled blind customization in an easy-to-use online solution. In fact, the program is so easy to use, blinds.com error rates are well below those seen in our stores. Customers can now order custom blinds with confidence and have them shipped directly to their homes. In the spirit of internal collaboration, the blinds.com team completely updated The Home Depot online experience in addition to their own blinds.com site. The next objective for our merchandising organization is balancing the art and science of retail. When I say this, I'm always careful to emphasize that we start with the art.
As referenced earlier, the art of merchandising is delivering the best products at the best values to our customers. Product is king, and we need to continue to drive innovation that will save our customers time and money. The competitive landscape, however, is changing and becoming more intense. Customer awareness of alternative choices is growing, and consumers' appetite for localized and customized product offering is only increasing. To respond, we are building capabilities and investing in people, process, and technology to leverage our data to better serve our customers and optimize our business. Leveraging data and tools, we seek to better understand our customers, provide more localized assortments to fit customer demand, and optimize space to dedicate the right square footage to the right products in the right location. Let's take water heaters as an example to demonstrate the capabilities we're developing.
The work started with the basic blocking and tackling of attributing SKUs with the right product information and features. Think gas or electric size or quality. We then overlaid demographic insights and analyzed sales performance, including demand signals from online. Our BlackLocus subsidiary of data scientists then developed clusters of stores that sell similar penetrations of various water heaters. Once the clusters were defined, we built assortments for each cluster with our new proprietary assortment planning tool to develop the appropriate line structure. We also looked at macrospace considerations to see if we should increase or decrease the number of bays in each store, while considering channel profitability to determine if we should ship certain products online. Next, we built planograms with an emphasis on microspace productivity to ensure we had the correct facings of each SKU.
This ensures the right quantities on shelf and also drives labor productivity in the store. Finally, we activated replenishment and launched a MET project to reset the store. After following this process, we grew the water heater category by double digits. There's always opportunity to improve, so we refreshed the work a year after the initial reset and accelerated growth yet again. We want to make these types of improvements an ongoing process rather than an outcome of formal business reviews. We'll always have product line reviews, but we're building analytics now to facilitate ongoing optimization. Even with the best plans, we'll have outliers where certain stores are not performing as they should. Using regression models, we've established performance expectations for each category in each store. We then compare actual performance against expectations and bounce outliers to our merchants.
Once an opportunity is surfaced, we help the merchant with another set of analytics to help uncover possible reasons for underperformance, such as potential inventory, assortment, or price issues. Our field merchants also help our Atlanta-based merchants identify solutions which our MET team then executes at the store level. These efforts require strong coordination between our merchant, assortment planning, inventory pricing, and field merchandising teams, but the performance improvement is well worth the effort. Our final objective for merchandising is to increase our end-to-end collaboration. As Craig said, we need to work more collaboratively within our organization and with our supplier partners. If we understand our customers better, reduce complexity, plan collaboratively, and increase speed, we create more value for The Home Depot and our business partners, as well as better serving the customer. We are seeking a win-win approach to collaboration. Our goal is to drive volume.
Our model is built on volume, and we appreciate that our supplier partners are more productive and more profitable with volume. That's why we will stay focused on driving traffic, transactions, and unit productivity. Over the past year, our suppliers have been incredibly responsive. We've always worked well together, but this deeper collaboration is newer. We've shared data, participated in joint planning sessions, worked more upstream, and connected the right teams within our organizations. Together, we'll introduce more new, innovative products, increase the speed to get those products to the shelf while reducing costs, and drive sales with targeted marketing efforts. An example of collaborative planning is the work we did with ECHO and TTI, two of our key strategic partners. As we've discussed, more and more product categories are migrating from corded or gas-powered to cordless technology.
Outdoor power is no exception but offers unique challenges in power and runtime requirements. Recognizing the market opportunity, we worked with ECHO, a global leader in professional-grade outdoor power equipment, and TTI, a global leader in lithium-ion battery technology, to develop a new cordless platform. The two companies leveraged their respective strengths to deliver revolutionary innovation. The ECHO 58-volt platform offers performance expected by our pros through the power of gas and the convenience of cordless. The platform is a channel exclusive to The Home Depot and demonstrates the power of collaboration. One of the key things we've learned in working more closely with our supplier partners is there is tremendous opportunity in optimizing our supply chains. Years ago, we largely shipped product directly from our vendors to our stores, which caused inefficiencies in lumpy inventory. About eight years ago, we introduced our rapid deployment centers.
Our vendors now ship full truckloads to our RDCs, and we consolidate product and ship mixed freight to our stores, which reduces costs and improves in-stock rates. As you heard from Mark Holifield, and as you will hear from Mark Holifield, we are introducing an exciting new initiative called Supply Chain Synchronization. This initiative will revolutionize the way we order and flow products into our stores. Mark will give you an overview of the program and some of the outstanding results we have seen so far for our suppliers, our customers, and The Home Depot. The last piece of our end-to-end collaboration strategy is marketing. Our goals in marketing are to know, respond, and connect with our customers. Leveraging data, we seek to better understand our customers, respond with the right message, and connect through the right channel and technology at the right time.
Our supplier partners are trying to do the same thing to understand and reach their ultimate end consumer. As we move away from print and mass marketing to more targeted digital marketing, the need for collaboration increases. Co-funding a national mass advertising piece used to be straightforward. Leveraging data to determine an individual's purchase intent becomes much more complex. Therefore, we need to collaborate with our supplier partners so we are sending appropriate messages at appropriate times. We don't want to compete with each other for things like search terms, nor confuse our customers with different messages. We are working more closely with our partners to share data, coordinate messages, and optimize channels. We're truly in the early days of this level of collaboration, but the interest and engagement from our supplier partners is encouraging.
We're increasingly sharing data sets, establishing cross-functional working groups, and joint-funding development projects as we seek a win-win approach in the new landscape of interconnected retail. In terms of marketing productivity, our focus on leveraging customer data and building the right message at the right time to the right customer has paid off. We're receiving more value for each dollar spent. Since 2010, our return on advertising spend has nearly doubled, and we are reducing overall marketing spend by achieving cost out in non-working media. We achieved our productivity by making a significant pivot to digital marketing while building our capabilities in CRM. Optimizing our marketing productivity is an ongoing effort, and we will continue to deliver higher returns. As I outlined in the beginning, we are focused on three main objectives in merchandising. We need to maintain the momentum, balance the art and science of retail, and increase collaboration.
With hard work, we hope to maintain our position as the number one retailer and product authority for home improvement. Now, let me introduce Kevin Hofmann, who's going to dive into our continued focus on interconnected retail.
Good morning, everyone. Today it's my pleasure to speak with you about the status of our interconnected efforts inside The Home Depot. There are really just a couple of key points that I hope you'll take away today. First, that we've made a ton of progress in leveraging all the tremendous assets and capabilities that we have. Second, I'm going to show you where we'll be investing for the future. Ultimately, I think you'll find the strategy is very simple. In fact, really doing old things, just in new ways. Let's get right into it. First, we're going to talk about how far we've come with interconnected retail, in fact, we need to start with what we mean by interconnected retail. It's the changing way that customers and retailers are interacting.
It's been one of the main points of our company strategy for going on five years now. It speaks to the harnessing of the physical assets and the digital assets all coming together in a seamless way to solve for the end-to-end customer experience. The digital assets include our online properties. It also includes an expansive assortment, and it includes best-in-class content and finding ways to creatively expose to the customer all the capabilities we have as a retailer. The physical assets include over 2,200 stores, a full supply chain, and 350,000-plus associates in the stores and in our central locations. We believe interconnected retail and the blending of the physical and the digital into a seamless customer experience provides us a great opportunity to expose the power of The Home Depot. We've been seeing this play out over the last few years, we've made a ton of progress.
As Ted mentioned, we've built new muscle in digital marketing, we will spend more in digital marketing than we do in traditional print and TV in 2016. We've leveraged the digital world to help our customers engage the physical world. Things like online inventory visibility, pricing information, and even an item location on a store map. From your mobile device, we'll sense whether you're in or out of a store and determine the right experience for you based on your location. We've enabled a much more expansive assortment, stretching a typical Home Depot store from 35,000 items to well over a million. We've made massive experiential improvements, getting the customer to a place of confidence. For example, improvements to our core site capabilities, things like voice-enabled search or being able to snap a picture of something and having us locate it for you.
We've also invested heavily into content improvements, videos, ratings and reviews, and deep product information, all assets to help customers wade through sometimes complicated purchases. We've enabled free and simple returns of all online product into our convenience store locations. We've enabled buy online pickup in store. We've enabled buy online ship to store, which allows the customer a convenient pickup location and allows us to leverage our supply chain. We've successfully piloted buy online, deliver from store, and we're rolling this out now, providing the customer very specific delivery windows as soon as next day. We've completely retooled our direct-to-consumer supply chain with three new direct fulfillment centers, enabling much better coverage of the U.S. in improving our ability to scale and deliver on the customer promise. Our most recent facility, with 1.6 million sq ft, is the largest building our company has ever opened.
Lastly, we've invested in customer service. Our centralized associates in our contact centers service thousands of customer interactions on a daily basis, helping the customer with whatever they need. As we track our progress along our interconnected strategy, we're pleased with our results. Our visit growth to our online properties has nicely outpaced the traffic growth in the rest of the industry, we'll approach 1.5 billion visits this year. We've also seen nice growth in the percentage of that traffic being mobile, with nearly 50% of our traffic coming from mobile and tablet, certainly being the fastest-growing part of our digital traffic. We've also seen online sales take off. Our online sales grew by $1 billion in 2013. It grew by another $1 billion in 2014. Approximately that level of growth is embedded in our guidance in 2015, we're doing it profitably.
The business has tripled in size over the last few years, while being a big part of our focus is helping our customers connect to our stores, when they do want to transact online, we're pleased with our progress there as well. Our online sales now represent a little over 5% of the company's total sales. At the end of the third quarter, our 2015 year-to-date growth rate stood at about 26% year-over-year. What's also very exciting about that sales growth, as we've mentioned, a significant portion of the sales growth is leveraging the physical assets that we have. With buy online, pickup in store, and buy online, ship to store being some of the fastest-growing parts of our operation. Over 40% of all of our online orders leverage our physical stores. That's interconnected retail.
While we're pleased with our visit growth and our sales growth, we look to our customers as the real gauge of our progress. Over the last few years, we've seen notable improvement in our key operating metrics related to overall customer satisfaction The ease of use, less friction in our processes, and delivering on our promises. We use a combination of internal tools and external benchmarks, collecting literally thousands of customer data points per day. Here are some examples. Our in-stock rates online are over 100 basis points better than they were last year. The efficacy of our internal site search has shown over 15% improvement year-over-year. Our site conversion rates have shown double-digit improvement, our on-time, as-promised delivery rates have improved.
Our mobile apps enjoy a four-plus star rating, our customer service operation, our contact centers, have had double-digit improvements in their Net Promoter Scores. In the end, this is how we'll gauge our progress on the interconnected journey, through the feedback from our customers. There have also been some industry benchmarks that point to our progress. The team was very proud to be recognized as the overall Internet Retailer of the Year in 2015. We also scored at the very top of the rankings provided by L2 in both 2014 and 2015 amongst their Digital IQ Index. While customer feedback will be our guide, external feedback is also nice to hear. Looking forward, we will continue to focus on the changing world of retail. Probably the most important variable undergoing dramatic change is the customer.
Their expectations are changing, whether it's the baby boomers or the new Millennial homeowner or the needs of the contractor or the small business owner. The demographics and the personas of our customers are broad. However, we see a set of topics that we must struggle with and conquer. Really, a group of expectations that are universally desired across all those customers. Customers want to shop and engage us on their own terms, in their own way. They expect seamless and easy experiences, they'll no longer tolerate a one-size-fits-all experience with tons of friction. Generally, their expectations are just higher. Things that were unimaginable five years ago are now viewed as almost basic necessities. Let me illustrate for you through the lenses of a customer the experience that we're solving for and why our company just has a fantastic opportunity to deliver in this interconnected space.
I'll introduce you to Maria, who's looking for some blinds to outfit her new townhouse. The reason I'm sharing Maria's story with you is I want to show you all the ways that The Home Depot interacts with customers along the shopping journey. In the past, we'd really talk about the transaction, the fulfillment, or perhaps how helpful we were while she was in our store. Maria's expectations as a customer have changed, requiring us to think more holistically about her journey. The journey I'm talking about is where she starts her shopping, what inspires her to act, how she engages and researches products and solutions. What she expects from a product standpoint is not just brand and price, but there are other levers of custom products versus stock products, or value levers that don't just include the price, but ways to save her time.
Her journey, and the part we get to play in it, is changing. Let's take a deeper look. Maria gets her start by moving into her new townhouse. Her inspiration is mostly coming from the bare windows that she just inherited. She's browsing websites from her townhouse and while out with her friends. She's looking for the right look, the style, and the function that suits her needs. As Maria begins to research products and solutions, she may find her way to sites like Pinterest or YouTube and homedepot.com. She's digesting styles and trends, and as we see her navigate content associated with simple decor, and specifically blinds and window coverings, a couple things have happened. Maria's change of address has already triggered our digital marketing engines. She's been placed into a new mover cohort group. She's started to receive targeted messages based off that piece of data.
Her browsing activity has further refined our models and has begun to sharpen our messages. Everything from the commercials she hears on Pandora to the ads she sees while she surfs, they're all starting to morph based on the context we've gleaned about Maria. The messages we're sending her now cater to things like blinds, paint, and simple decor. When it comes to inspiration, we don't believe we need to be Maria's hub and creator of all things inspirational. Our customers will find their inspiration in so many places. We do believe there are some simple tools which are helpful in making inspiration easier. We want to help Maria see her projects come to life. Maria can visualize the blinds in her window. She can actually see the blinds with the different paint colors that she's contemplating.
Both things we have today to help customers bring their ideas to life. As Maria engages deeper into the shopping process, passing through the research phase, and now has settled into some specific product categories, we have great ways to show her the products and the brands. Value comes not only through our great prices, but also in our content, our ratings and reviews, the videos and imagery, and the many fulfillment options that we have. We hope to reinforce with Maria that she is at the right spot to make her purchase, and now she's aligned on what she's going to do. Pulling the trigger on what can be a sizable purchase, Maria wants to know she's spending her money with confidence. We are here to help her, being with her to give her both know-how and help.
Our in-store associates and our central associates. The free samples that we can send her, the SureFit Guarantee, and knowing that she has a free and simple return option. Maria knows that she has someone standing by her side. Lastly, we even have a full turnkey solution for Maria. We will come to her, and we will do the whole project for her. In the end, we want to get the sale, where she buys with confidence in a simple and seamless way, and we deliver on our promises. Maria's journey doesn't quite end there. There are the items she needs to complete the project, the accessories, the coordinating items, helping her finish off her room. Once again, our targeted marketing engine takes over, looking for what's next on Maria's list. We believe this is a pretty compelling story for Maria.
Very few retailers can help her in this way and be this relevant across this broad of a journey, not just for blinds, but for so many diverse projects. Across this whole journey, we've identified some key capabilities that must be focused on and invested in. Our investment and activity will concentrate here, and what you'll find is it's not a trick play, nor is it something dramatically different than what we have been focused on. In many respects, the changing needs of our shoppers and our desire to focus end-to-end on the experience is really about us doing old things, just in new ways. Old things in new ways. Creating that experience for Maria will require us to solve for convenience, just with a different lens on what convenience means. We'll also have to solve for product authority, just in a new way.
We have to solve for the end-to-end customer experience, because it's no longer confined to just a store. Let's take a look at the capabilities that we're investing into in each area. On convenience, real estate used to be the ultimate answer, across the new journey our customers are on, convenience is way more than that. Maria's example makes it clear. We'll continue to invest into digital marketing, ensuring that we are everywhere the customer is looking for us. We will also invest in better understanding the customer context, who are they, and where are they in their journey. We will invest in making sure the customer can engage on their terms at home, on the job site, or on their mobile device. We'll never be more than just a thought away from engaging our company.
We will invest in fulfillment options, making sure that we can get the right products wherever they are needed. We will invest to offer precise delivery windows, improved home delivery options, and other white glove capabilities. As a part of this, we're excited to be rolling out our Buy Online, Deliver From Store system in 2016. Lastly, convenience means being easy to shop and transact with. We'll invest to make Maria's journey friction-free and easy. Across the whole journey, we see product authority as an area of significant importance. In the old world, having the right curated assortment in the store was enough. Increasingly, though, the customer is judging product authority with what you have online and how you balance curation with choice. We'll continue to expand our assortment and reach into under-penetrated categories for us. Areas like simple decor, where a fragmented market still exists.
We'll continue to invest in category-specific experiences where a customer needs extra help to make a buying decision. We'll do about 40-50 digital category resets each year using data to optimize the customer journey and leveraging that data to better inform our physical footprint. Product authority is also about having great content. We'll continue to invest into the right level of curation, having ratings and reviews, videos, room scenes and buying guides and how-to information. Product authority can also be about showing them a purchase option, also a rental option. Since we have more rental locations than anyone else, we'll continue to integrate our rental options into our online offerings. Since we can even do the project for the customer, we'll continue to integrate our multibillion-dollar services business into our online offerings as well.
Lastly, our product authority can be amplified by our fulfillment choices and being able to fulfill on the customer's terms. The third area, again, the theme here is doing old things in new ways, is the overall customer experience throughout the journey. We're going to continue to supplement both our physical and digital experiences with our orange aprons. Wherever the customer is shopping, we believe our associates are an advantage to the journey and the experience. We are also focused on improving how our digital assets can be a better tool for our stores and our store associates, not only as a customer service tool in the aisle, as a means to get productivity for our stores. We'll also continue to make investments which allow us to live up to our promises.
Technologies and new capabilities which will improve our on-time delivery rates and improve our damage rates. These aren't new concepts for us. Again, doing old things, just in new ways. The last area of investment and focus is about the enabling infrastructure of interconnected retail. It requires investment in the digital infrastructure. We're working on a new web platform that will grow with us. We are also rolling out our COM system in 2016, which includes harmonizing our in-store and online order management capabilities. Both are key investments which will enable us to scale interconnected retail. We will also continue to invest in our core site capabilities. It includes mobile investments, search, and navigation investments, looking to take the friction out wherever possible. These are the basic underpinnings of an interconnected business. Lastly, the physical infrastructure is needed to support this growing business.
Our direct fulfillment centers, three new and maturing nicely. Our contact centers, three fully live and maturing nicely. We'll continue to optimize these operations. These three areas are all about scaling with the customer. Our interconnected strategy carries forward. Our focus is on solving for the changing way that customers like Maria shop and thinking about her whole journey. Our customers have led us to three specific areas that required continued focus and investment. They are convenience, product authority, and the end-to-end customer experience. Along with those areas of investment, we'll also be investing into the foundational elements which will enable interconnected retail, making sure that we can scale. All of this is so we can create best-in-class interconnected experiences. In other words, doing old things in new ways. Thanks for the opportunity to give you an update on our interconnected retail journey.
Now, I believe we go to a break.
That's correct, ladies and gentlemen. We will take a 15-minute break. Our conference and webcast will resume at 10:45 A.M. Ladies and gentlemen, our conference will begin in five minutes. Again, our conference will resume in five minutes. Ladies and gentlemen, if you don't mind, if you'd go ahead and take your seats back, we're going to get started back with our second half of our conference today. Again, if you'll go ahead and get seated, we'll get started back. Thank you very much. Ladies and gentlemen, please welcome back Diane Dayhoff.
Welcome back, and as a reminder, please silence your phones. I would like to now welcome and introduce you to Bill Lennie, Executive Vice President, Outside Sales and Service.
Thank you and good morning. It's a great pleasure to be here this morning. Today, I'd like to spend some time talking to you about our strategy to service the professional customer. Historically, we've provided great service to our transactional contractors that allowed us to develop a successful pro business. As you heard from Mark, we serve all kinds of pros, but generally acted more like a 7-Eleven to many of the larger ones. As we'll discuss, we're taking steps to move beyond the 7-Eleven approach and become the primary source for our pro customers' needs. Truly, a one-stop shop. Further, in many ways, we've ignored the professional who installs projects for our do-it-for-me customers. We believe we can better serve this customer and drive higher product pull-through. By combining our outside sales, installation services, and Interline together, we are developing one unified approach for the pro.
We will be able to provide a unique competitive offering that is difficult to replicate. Let me give you an example of what that means. Imagine you're a large-scale property manager with assets across the country. Today, you rely on a national provider, such as Interline, for reoccurring MRO product deliveries. However, your properties also require core building materials for renovations and remodels, which an MRO provider can't effectively provide. You also have needs around installation services, such as kitchen and countertop refreshes, and have to solve those needs through disparate providers with varying degrees of price and professionalism. Managing all of these different product and service providers is time-consuming, expensive, and there's no guarantee you're getting consistent results. Our objective is to provide all of these needs. You will have one provider that can do it all. You can buy on one open account with consistent sales support.
You have all of this through one provider, one The Home Depot, that can be the source for all of your product and service needs. As you can tell from our example of the large property manager, there's an overarching theme of one approach, one The Home Depot that can provide a wide spectrum of solutions. Our strategy focuses on three key pro customers, renovators and remodelers, installation providers, and the MRO pro. Now, let me tell you why we're so excited about the opportunity in front of us. As Craig alluded to earlier, The Home Depot competes not only in the traditional home improvement retail space, but also in the installation services market, and now, with our acquisition of Interline Brands, in a portion of the MRO market. We estimate the total size of these combined markets at $550 billion.
This is our addressable market, which does not include the industrial and manufacturing end markets. With approximately $80 billion in U.S. sales, The Home Depot has about 15% share across these markets, so plenty of room for growth. The professional customer groups we seek to address are highlighted in orange, namely the Pro portion of home improvement retail, the professional services market, and the MRO market. We recognize that these customers have needs that go beyond our traditional in-store offering. By strengthening our sales support, assortment, and fulfillment capabilities, we think we can provide the professional customer with a unique offering that will allow us to win in the marketplace and capture significant share. This diagram provides an expanded view of how we see the Pro market. The left-hand side outlines the different customer groups by purchase activity.
As Mark mentioned earlier, we serve a variety of Pros from the small transactional customer to the large B2B MRO account. Across the top, we've shown a breakout by business category defining exactly what type of work these Pros do. While the customer landscape is wide, we've highlighted in dark orange the key areas that are our primary focus. The renovator/remodeler category is core to The Home Depot and the foundation of our Pro business. These medium-spend complex Pros shop our stores frequently and are recognized at the Pro desks as top customers. These customers may also function as install providers for our Do It For Me service business. Bringing Interline into the fold helps expand our capabilities in the property management and specialty trade groups.
We've already served these customers to some extent through our stores, now have the B2B MRO capabilities required to offer a complete solution for all of their product and service needs, not just the convenient access to fill-in items. All of these customers listed on the slide here have different needs, our goal will be to serve them through one integrated approach. It's important to separate our target customers by spend and type, the easiest way to think about our area of focus is this. We serve a lot of Pros, today we are going to focus on three main Pro customers. First, the renovator/remodeler who is shopping our stores or online today. Second, our service installers, those Pros who install product for our Do It For Me customers. Third, the MRO customer who wants to shop at both The Home Depot and Interline.
We still have opportunities, over the past several years, we've made good progress in our efforts to serve Pros. Looking at this chart, you can see some of the steps we've taken along the way, as well as initiatives that are currently in flight. There are a few specific wins I'd like to highlight. First are the operational improvements we've made, including speed of checkout and providing loading assistance. We know time is important to our Pros and have worked to provide a faster in-and-out experience. Second is the traction we're seeing with our Pro Xtra program, which I will discuss in greater detail in a moment. Lastly, I'd like to call out the great success we're having with our Pro Account Representatives or PARs. Currently numbering over 200, these sales reps cover our largest in-store Pro customers and ensure their product and service needs are met.
This level of engagement pays for itself rather quickly through increased purchase volume from our managed accounts. We are always striving to improve our offering both from a product and service perspective. As Ted spoke to earlier, we stock a deep assortment of trusted brands and are constantly working with our vendor partners to provide exceptional value to our Pro customers. Delivery is another important aspect of the Pro equation, and Mark Holifield will talk about some advancements we're making in that area. Credit is a huge opportunity for us, and Carol will walk through some measures we're taking to extend credit to our Pro customers. I'd like to take a few moments to highlight the wins we're seeing from Pro Xtra, our Pro-focused rewards program.
Pro Xtra has over 3.4 million members. It allows us to build loyalty with our best customers by providing valuable products and services that help Pros save time and money every day. These include purchase tracking, exclusive offers, and several business tools. These benefits help Pro Xtra deliver on its intended purpose, which is to strengthen bonds between The Home Depot and its Pro customers. We see the returns of this enriched relationship in the data, and I'd like to highlight just a few metrics. Pro Xtra members with registered tender, on average, spend 18% more in the first year after sign-up. Pro Xtra members tend to be highly active, transacting more than two times the average Pro. Finally, sales to managed accounts who are at the top echelon of Pro Xtra and covered by our PARs continue to outpace the company average.
The second aspect of our Pro growth strategy relates to our installation services business. To give you some perspective, we manage over 2 million installs per year through a network of over 100,000 badged third-party Pros. These Pros serve as an extension of The Home Depot brand, taking us inside the customer's home for their do-it-for-me needs. From a financial perspective, this business is attractive not only due to the install revenue, but also for the additional products typically sold to the do-it-for-me customer as they complete their project. Beyond the financials, we see installation services as a way to strengthen our do-it-for-me customer relationship. When we deliver a first-class installation experience, it reinforces the bond between the customer and The Home Depot, creating a more loyal shopper than he or she was before their project. Our opportunity with our installer Pro is clear. Today, we serve them sales leads.
Our focus going forward will be to supply our installers with all of their product needs as well. As we've evolved our approach to our services business, we've determined that in some instances, we should do the install with our installer Pros, and in other instances, we should refer our customers to an outside Pro through Redbeacon. This chart shows the basis we use to determine what install programs we want to grow and what installer programs we want to outsource. For those categories that fall outside of our core, we're still able to say yes to those customers who come to us seeking assistance by using Redbeacon. You will recall we acquired Redbeacon several years ago.
We're gaining great traction with this asset by matching consumers with pros, and the best part of this is that we don't have to charge a fee for the service, and we have the opportunity to get the product sales, something no other referral company can claim. The third aspect of our pro growth strategy is expanding further into the MRO market. I'd like to discuss our recent acquisition of Interline Brands. Interline provides an established platform in the attractive MRO market and a strong set of B2B competencies that augment our large pro strategy. From a capability standpoint, there are a few key areas we feel Interline really helps us on going forward. Account management is the lifeblood of Interline's organization, with over 1,600 associates dedicated outside or inside sales and support functions. Additionally, Interline provides an expanded assortment beyond what's typically found in The Home Depot store.
Due to their role as a one-stop shop for repair and maintenance, Interline stocks over 100,000 break-fix products that fit their customers' needs. Lastly, Interline brings an expansive distribution network to ensure products are delivered on the next day or even a same-day basis. With over 90 points of distribution, an owned fleet of trucks, and directly employed drivers, Interline truly owns the last mile of delivery, which we believe is a distinct competitive advantage in the marketplace. While it's still early days, our vision is to serve our targeted pro customer group the way that they want to be served, in the box or out of the box. We envision a blending of capabilities that will create a unique customer experience.
Our focus going forward is to create a frictionless relationship where a professional customer is recognized across all offerings under a single account, enabling that professional customer to transact either in store, online, or via sales support, and to have those transactions fulfilled in the manner best suited for that professional customer, either inside or to any desired location outside the store. It will support that with a single expert inside and outside sales organization to deliver the optimal professional customer experience. We start actualizing this vision of a frictionless professional customer experience through the Interline integration. We closed on Interline, the acquisition, in late August, and we're just now completing the functional integration tasks like eliminating redundant activities and identifying opportunities to harmonize common purchases. As this stage 1 wraps up, we move into the stage 2 of integration, which is really about building out specific business cases.
While there's still certainly a lot of work yet to be done, I think we have a good sense of what we need to accomplish over the next 18 to 24 months. This is the stage 3 of integration, where we truly realize the value of the Interline acquisition and the Total Pro opportunity. This end state incorporates the capabilities we've discussed in a unified manner. An integrated sales force, common inventory and order management, enhanced delivery solutions, and credit availability that all come together in one seamless offering to the Pro customer. Stepping back, we can see our focus on three Pro customer categories will blend together to provide that unique value proposition. One that can't be repeated by a pure-play retailer or a pure-play installer or a pure-play MRO company.
In the future, the large-scale property manager will have one account with a national provider that can supply not only recurring MRO needs, but also the building materials and configurable products such as paint and carpet. For that renovator/remodeler with crews at job sites all over town, he or she will have coordinated quick turn delivery for product needs as they arise. For that HVAC installer, he or she will have a partner that not only generates leads but also has the expanded assortment, delivery, and inventory management solutions that help him or her grow their business. One Home Depot will provide a wide spectrum of solutions for products and service needs. We've started the journey, and we're excited for the road ahead. Thanks very much, I'd like to now turn it over to Mark Holifield, who will discuss our supply chain optimization.
Good morning, everyone. It's my pleasure to give you an update on our The Home Depot supply chain. Supply chain's been a key focus for us in the past several years. We've completely changed the way we manage inventory. We've developed new ways to move product to our stores and customers. We've seen great benefit from those efforts, improving our in-stock, our inventory productivity, our logistics cost, and our service to our stores and customers. We've been excited to transform from a laggard in supply chain to a leader based on results in those key deliverables. We're not stopping there. As we look to the future, we plan to continue to lead. We don't consider our supply chain transformation to be done. We consider it a continuing effort. Today, I'll talk about two areas of focus in continuing our transformation.
First, enabling direct fulfillment and delivery direct to the customer. Second, further optimizing our core store supporting supply chain through an exciting new program we call Supply Chain Synchronization or Project Sync. Our focus on interconnected retail requires us to continuously develop our supply chain to meet the changing needs of our customers. As Kevin mentioned, more than ever, our customers are demanding new fulfillment and delivery capabilities, we're building those. In our core store supporting supply chain, despite the progress we've made, there remains vast opportunity to improve. As we now have all the important components of our core supply chain in place, DCs, transportation networks, forecasting and replenishment systems, and other supply chain execution systems, as Ted mentioned, we're now collaborating further with our suppliers to synchronize the various activities in our supply chain from supplier to shelf.
We expect these efforts to continue to drive improvement in our in-stock inventory productivity, logistics costs, and service to our stores and customers. Before we go too far, though, let's review the network infrastructure that we've put in place. Here in the U.S., we operate 18 rapid deployment centers or RDCs. These are the cornerstone of our network, handling over 50% of our stores' product flow dollar volume. Now, our RDCs don't hold inventory, but leverage state-of-the-art information management and product sortation techniques to allow for last-minute allocation of incoming goods to meet the demand. These processes lead to superior store in-stock with no stocked inventory at the RDCs and low logistics costs through minimizing handling and transportation. Second, we have 12 stocking distribution centers or SDCs.
These facilities allow us to stock products that have a long or variable supply lead time, like imports or unpredictable and spiky demand like seasonal goods. They also allow us to stage seasonal and event goods in advance of product resets that allows us for orderly transitions in store sets. Third, we have 25 bulk distribution centers or BDCs. The way to think about these facilities is that they're most efficient for products that travel best to our stores on flatbed trucks. They primarily distribute lumber and building materials that typically arrive at the BDC on rail cars or flatbed trucks. Our RDCs, SDCs, and BDCs meet the various central distribution needs of our stores very well, providing us three paths to choose from to optimally flow the various types of products that we sell. Stores aren't the only place we now serve our customers with product.
Because the needs of our customers who want product delivered directly to them are quite different than the needs of our stores. Over the past couple of years, we've invested in a network of three new direct fulfillment centers, or DFCs. The mission of these facilities is to pick, pack, and ship individual orders directly to our customers. Through use of these dedicated direct fulfillment centers, we can optimize around serving customer needs directly with unique inventory and handling capabilities compared to our store-supporting DCs. We should not forget, as we think about The Home Depot network with our store footprint, we have about 2,000 functioning distribution points conveniently located with about 35,000 SKUs in stock. Our stores can be a very effective distribution point with fulfillment capability and convenient pickup and delivery options available.
Oh, yes, we're very excited about our recent acquisition of Interline Brands, bringing over 90 more distribution points with a fast delivery of a broad MRO assortment to their service areas and how Interline further augments our portfolio of options for our customers. All of that to say, we have many fulfillment and delivery options to meet our changing customer needs most optimally, and we continue to develop these capabilities further. While our U.S. distribution network for stores is now well developed, we're excited to extend the benefits of our core network infrastructure further into Canada. We opened our first Canadian RDC in Vaughan, Ontario in the greater Toronto area in 2014, serving our Eastern Canada stores. Over the next few months, we expect to complete our core distribution infrastructure in Canada. Just last week, we began receiving freight into a new stocking DC extension onto our Vaughan RDC.
Early in 2016, we'll open a new site in Calgary, first with an RDC and then with a new SDC. We expect these new facilities to bring the benefits of our RDC and SDC programs to all Canadian stores, improving our in-stock inventory productivity, logistics costs, and store service. Just as a reminder, we've had a complete and effective core distribution infrastructure in Mexico for several years, with distribution centers in Monterrey and Mexico City serving our store base there. Returning to the U.S., as I mentioned previously, the first area of focus in our continuing transformation has been to further strengthen our capabilities to deliver on our vision of interconnected retail. Kevin mentioned how important it is to provide convenience to our customers wherever they wish to interact with us.
To do this, we've been developing capability to have a global view of our inventory availability wherever it exists in our supply chain and a complete view of our fulfillment and transportation options and assets. Through these, we can most optimally meet our customers' needs with the right product delivered where, when, and how they want. One example of how to leverage our inventory and our fulfillment channels further is our new capability to fulfill buy online, ship to store orders through our RDC network. BOSS is an increasingly popular option for our customers, thanks to its convenience and low cost for customers and The Home Depot as compared to direct delivery. Let's say a customer orders a grill that's not stocked in a store but is stocked in one of our direct fulfillment centers.
We can deliver that grill directly to the customer's address from the DFC. Many customers choose that option. That option, given the size, weight, and shape of the grill, might be costly in terms of the delivery charges. Through BOSS, we can often reduce that cost significantly, shipping the grill to the nearby store and taking advantage of lower shipping rates from our DFC to our store. With BOSS via RDC, aggregating store-destined BOSS shipments from the DFC to each of our RDCs, we can reduce that cost further still, building larger truckload shipments from the DFC to the RDC and then having the BOSS shipments ride with core product shipments to the stores. This capability will be live in all three of our new DFCs to all of our RDCs and stores by the end of this year.
As we talk about delivery, I think it's important to give you some perspective about just how fast delivery is growing and how important it is to our business now. Our delivery volume is now well over 20 million deliveries per year, including delivery from our DFCs, our suppliers drop shipping direct to our customers, and store-based delivery and our appliance delivery. Of course, Interline now adds to that total. Our delivered sales are now around $10 billion and growing. You can see why these initiatives are so important to us. Another new capability to meet our customers' needs for improved fulfillment and delivery capability is buy online, deliver from store or BODFS. While we've delivered orders taken in our stores and on the phone for years, we've not been able to take orders online and drop them to the appropriate store for fulfillment and delivery.
This new capability provides that. In addition, with this new capability, we're implementing the ability to select a two or four-hour delivery window for a fee. With this, customers will be able to count on us to deliver when they need the product, as opposed to waiting all day for an all-day delivery window. We think this will be particularly valuable for our pro customers with crews on the job site awaiting delivery to start work. This will also open up many more products stocked in our stores for delivery from online orders, providing new options for our customers. The new system is more intuitive and simple for our store associates compared to the existing delivery systems. When it comes to being competitive in the delivery business, customers expect speed and low cost. We've made the investments required to provide that.
Our three new direct fulfillment centers are strategically located to enable delivery to 90% of our U.S. customers within two business days using economical ground parcel service. For non-parcel freight and for BOSS orders, as mentioned previously, these centers are also well located to minimize transit days and cost. The centers have the capacity for additional parcel SKUs and can house up to 100,000 SKUs to further enable our direct-to-customer sales growth. We're confident with the investments we've made and continue to make, we're well-positioned to drive profitable growth in our direct fulfillment business. The secondary focus in our continuing transformation is further optimizing our core store supporting supply chain through Supply Chain Synchronization or Project Sync. As I mentioned previously, we see our supply chain transformation as still a work in process.
As many of you know, we've completely re-engineered our supply chain over the past several years, centralizing our distribution and inventory management and implementing our innovative rapid deployment center network. The results of that work have been substantial. First, and most importantly, our in-stocks are better than ever. Second, we've improved our inventory productivity substantially. In fact, on a per store basis, with roughly the same sales per square foot now, our inventory at cost is about $1 million per store lower than it was in 2006. Third, we've reduced our supply chain expense, and you've seen the benefits of that in our gross margin. We've improved our supply chain service to our stores and customers. While we've improved our core supply chain results in every dimension, we don't see an end to that.
We expect continuous improvement going forward in our in-stocks, inventory productivity, logistics cost, and service to our stores and customers. In 2008, we kicked off what we'll call our infrastructure phase, building out our platform of RDCs, rationalizing our stocking DC platform, and implementing state-of-the-art supply chain execution systems across the network, and that led to the results that I've mentioned. I think it's important to keep in mind that this infrastructure phase has only spanned about seven years. Our RDC platform is still fairly young, particularly in comparison with other retailers' DC networks. Given that, we continue to develop and improve our methods and processes as we continuously learn how to execute better. As we've looked at our supply chain, there remains breakthrough opportunity to optimize our supply chain, and we call that next phase Project Sync.
We've actually begun this process and are in pilot now in our Houston, Texas, RDC and the stores in its service area. First, let's take a look at our supply chain as it runs in large part today. You can see the various nodes in the RDC supply chain along the arc shown here. The truck is at the top of the arc, as transportation is the dominant cost of operating our supply chain. While our RDC program has made vast improvements in our truck utilization, there's still a large opportunity here, our ordering of product is not optimized to fill trucks. Our order days aren't as predictable and consistent as they could be. As a result, there's lead time and inventory embedded across the supply chain to buffer for that variability. Our supplier lead times vary from two to 10 days.
Our inbound transportation transit times vary from 1 to 5 days, depending on the distance. Because of further buffer in our DC schedules, it might take a few days for freight to be processed at our RDC. Because of all that variability, that creates challenge at our stores with unpredictable and lumpy freight flow. The result, as you see here, is an 11-day lead time on average. All this can be optimized through more collaboration and rigor around our schedules, and we're doing this in our Houston RDC today. With these changes, we can reduce the lead time dramatically, in this case, to as low as five days. By optimizing our ordering through better planning and collaboration with suppliers, we reduce the variability and unpredictability there. Using intelligent truckload rounding algorithms, making data-driven optimization decisions on inventory and transportation costs, we order in full truckloads.
Working with suppliers, we can find opportunities to ship direct from plants, perhaps bypassing supplier DCs. Through better collaboration with and predictability for our suppliers, we arrange for next-day or even same-day shipping and coordinate loading configurations more closely. Transit times are optimized to avoid delays, and those full trucks are able to be more timely than less than truckload shipments. Through more collaboration and rigor on scheduling, product is received immediately on receipt at the RDC. That product then flows to the store in a much more orderly and level fashion, allowing our store associates a more predictable and stable flow of freight. These efforts have shown the ability to reduce lead time to as low as five days from supplier to store shelf. Lower lead times means faster replenishment with lower inventory and cost. How does all this actually work in Houston?
We've put in place what we call an Engineered Flow Schedule that involves all partners in our supply chain, our suppliers, our carriers, our DCs, and ultimately, our stores. As you can see in this real example, we've collaborated with these partners to add rigor and logic to our order days, our supplier shipping schedules, our carrier schedules, and our RDC receiving and processing schedules. This effort's being led by Tom Short, our Vice President of Supply Chain Development. In Tom's words, we're databasizing all of the key data elements of our supply chain, from supplier shipping schedules and response time, to transportation carriers' capabilities and pricing, to our receiving schedules and capabilities in our RDCs and stores. Once all of these elements are databasized, our supply chain data scientists go to work to optimize and develop the Engineered Flow Schedule, such as that shown here.
This is a considerable effort utilizing agile IT development processes as we develop a scalable supply chain system solution for this process going forward. For the supplier shown here, where we previously had volatile lead times of 6 to 12 days, we now have stable lead times to the RDC of three days. The Engineered Flow Schedule is agreed upon and measured to by all partners in the supply chain. All members of the supply chain are accountable through simple metrics. Let me show you a video that'll help illustrate what we're doing in Houston.
The Sync process was established to help get our freight from our vendors to our customer shelf faster.
Prior to Sync being initiated in the Southeast DC, the range of trucks would be somewhere in the neighborhood of 15-60.
In the past, we'd get 15-18 trucks from the vendor in one or two days. Now, with the Sync process, we have an engineered flow schedule, that vendor arrives every day of the week or every other day of the week, we only get two trailers.
It's level-loaded volume across the week, which enables us to better labor plan. When you had the big influx at the beginning of the week, you're in reactionary mode, you'd have overtime working that volume.
It helps drivers in numerous ways, but probably the most beneficial is the consistent schedule that equates into steady mileage each week, which is steady pay. It also allows the driver to go home more frequently and, overall, provides a better quality of life.
By the collaboration and the consistency that we're seeing through the Sync program, there is the potential there that with reduced variation, we have the opportunity to lower our inventory levels.
Our comps are still just as strong, if not stronger. We have better in-stock position.
From a customer impact, we've taken the time from when they take something off the shelf till it gets replaced. We were at about an eight-day interval, and that is now down to a three-day interval.
My recommendation in Sync expansion is to implement it as quick as possible.
Labor, transportation, inventory, asset utilization are all improved, as you heard in the video. This truly delivers on the vision of connecting merchandise from supplier to shelf to customer. The result is an improved supply chain from end to end, benefiting all members, as you can see here. Our suppliers, carriers, DCs, and stores all benefit from more predictable and consistent freight flow. This further makes us a preferred customer with suppliers and carriers. It's great for associates at stores and DCs in providing more predictable and stable schedules. It further lowers our inventory and speeds our response to out of stocks, and it lowers our logistics costs and labor costs in stores. If you think about it, one of the most expensive product movements in our supply chain is having an associate have to retrieve product from our store overheads and pack it down to the shelf.
The more we can move directly from the back dock to the shelf through fast response replenishment, the faster and more efficient our full supply chain can be. Despite all the progress made so far, there's still large opportunity to improve in our Home Depot supply chain. We expect to continue to drive down our total logistics cost as we've been doing, focusing on productivity in our inbound transportation, our DCs labor, and our outbound transportation. Just as we've driven up productivity in our logistics, as Marc Powers mentioned, we can see Project Sync driving labor productivity improvements in stores. Wrapping up, while we're pleased with the progress we've made in improving The Home Depot supply chain in our infrastructure phase, there remains a lot of opportunity. First, to develop and leverage our fulfillment and delivery capability to meet our customers' needs.
Second, through a new optimization phase, Project Sync. With those continued improvements that we've demonstrated in pilot in Houston, with continued rollout, we expect to continue to lead in supply chain and further our competitive advantage, improving our in-stock, our inventory productivity, our logistics costs, and our service to stores and customers. Thanks very much. Now I'd like to introduce our CFO, Carol Tomé.
Thank you, Mark. Let me add my welcome to our investors and analysts. We are glad that you joined us today. There's a lot of internal momentum at The Home Depot, as you've heard from my colleagues, we're happy to have this opportunity to update you on our strategic initiatives and financial outlook. The power of The Home Depot has been will continue to be seen in our financial results. Today, I'd like to cover four topics. First, quickly discuss our 2015 financial guidance. Second, share with you our point of view on the U.S. economy our addressable market. Third, share our 2018 financial targets, finally, wrap it up with a discussion on capital allocation. Let's get started by taking a quick look at our 2015 guidance. In November, we updated our sales and earnings per share growth guidance, we confirm that guidance today.
We expect fiscal 2015 sales to increase by approximately 5.7% with comp sales growth of approximately 4.9%. Note that our sales growth guidance is after accounting for the impact of a stronger U.S. dollar. We expect a stronger U.S. dollar will negatively impact total sales growth by approximately $1.4 billion this year. As for earnings per share, we project fiscal 2015 diluted earnings per share to increase by approximately 14% to $5.36. By delivering these results, we will be reporting the highest retail sales, operating margin, diluted earnings per share in our company history. Turning to our view of the U.S. economy and our addressable market. We think our market is healthy will remain that way for several years. While my comments are U.S.-centric, we think our addressable markets in Canada and Mexico are healthy too.
Our point of view of the health of our addressable market begins with U.S. GDP. While we've been in a modest recovery for several years, U.S. GDP is expected to grow over the next several years. We then look at housing metrics, the good news is that all housing metrics are trending in the right direction. Finally, we look at changing demographics and customer preferences, these too bode well for our market. As we think about things over the next three years, we believe the external environment supports our growth plans. Let's turn and look at some of the indicators and metrics we use to formulate our sales plan. First, U.S. GDP. Looking over the next three years, GDP is projected to grow on average about 2.6%. As you know, GDP growth is the basis for our sales growth projections.
Since 2010, consumer spending has been is projected to be the largest contributor to GDP growth. Part of this is driven by lower levels of unemployment, which now stands at 5%. Interestingly, only 3% of consumer spending is spent on items like apparel and shoes. We see more spending going into durables like automobiles, electronics, and housing, a positive trend for our business. Moving to housing, we look at a few factors. From a big-picture perspective, we look at private fixed residential investment as a percent of GDP. With over 60 years of data, PFRI has averaged around 4.5% of nominal GDP. At the end of the third quarter, PFRI stood at 3.4% of nominal GDP. We all know statistics revert to the mean at some point, PFRI has a long way to go to reach recovery.
Following the last recession, home prices started to appreciate in 2012, and since then, the Case-Shiller National Home Price Index has grown by 27%. Even with this appreciation, home prices have not fully recovered as they are about 6% below peak prices. The outlook is for continued home price appreciation, albeit not at the rates we've seen in the past several years. We believe home price appreciation has been a key contributor to our sales growth. Once homeowners view their homes as an investment and not an expense, we believe they spend more money on their homes. It is in a way, a wealth effect. With lower home value to mortgage ratios and lower levels of negative equity, people feel like they have more money to spend. We've seen this in our big-ticket spending, where transactions over $900 have grown in every quarter since the second quarter of 2011.
We know we have an aging housing stock in the U.S. Looking at this chart, in 1995, only about 47% of the housing stock was 30-plus years old. In 2015, about 63% of the housing stock is 30-plus years old. This trend is a long-term trend that we believe will continue supporting home improvement spending. The chart at the right is a sentiment index. When the future expectations line is above 50, this means that remodelers expect the future to be better than current conditions. We can look at economic indicators to know that housing hasn't fully recovered, we can look at our own business.
While we have more than recovered the $13 billion of sales that we lost during the last recession, many of our U.S. classes have not fully recovered, supporting our point of view that there is more upside ahead in both repair and remodel, as well as big-ticket items. Household formation has been slow to recover, running under historical averages since 2006. This has created pent-up demand, where about one-third of Americans between the ages of 18 and 34 are living at home with their parents. In 2015, we saw a jump in new household formation to almost 1.6 million households, that number is projected to hold true and maybe increase for the next several years. At the same time, housing turnover has returned to a normalized rate of 4% of units. Both of these factors suggest that demand for housing will grow.
Housing demand just isn't about single-family-owned housing. In fact, renter-occupied households are growing faster than owner-occupied households. Multi-family housing starts have and are projected to remain robust. This bodes well for The Home Depot because of our acquisition of Interline, where we can better serve both the owner-occupied and the renter-occupied household. As households are being formed, younger people, the Millennials, are forming households. Some say this age cohort doesn't want to own a home. That's not what our research shows. Our research shows that ownership is an important goal, just not now. In the face of potentially higher interest rates, will Millennials be able to afford a home when they want to? Interest rates could jump 200 basis points, and the affordability index would still be over 100%. Further, underwriting standards are starting to show some easing.
This will be an important factor in terms of mortgage availability for this age cohort. When we add it all up, we believe the external environment and our positioning in the marketplace support our growth plans. Let's turn to our longer-term financial targets. This morning, we're going to discuss our 2018 financial targets, and in our February earnings call, we will provide specific guidance for fiscal 2016. As a leadership team, we have a pretty good track record of establishing financial targets and then meeting or exceeding those targets. It's been a journey. We first established operating margin and return on invested capital targets back in 2009. At that time, our operating margin was 7.3%, and our return on invested capital was 10.7%.
We saw a path to a 10% operating margin and a 15% return on invested capital, but we weren't sure when we were going to get there, we set the target at 20XX. We reached those targets in fiscal 2012, we set new financial targets. We call them our 12/24 targets. In fiscal 2013, we realized that we would reach the 12/24 targets one year ahead of our goal. We set new targets, and we call these targets our 13/27 targets, and we will reach and slightly exceed these targets by the end of fiscal 2015. As you heard from Craig, today we are introducing our next set of financial targets, and I'll take a few minutes to walk you through the details of those targets.
Looking to fiscal 2018, we believe we can grow our operating margin by 130 basis points to 14.5% and grow our return on invested capital by 800 basis points to 35%. To reach these targets, it all starts with sales. Between 2012 and 2015, we grew our sales by $13 billion, and we think over the next three years, we can do it again, growing sales from approximately $88 billion this year to $101 billion in fiscal 2018. Using our directionally correct but imperfect sales forecasting model, we believe our comp sales growth will average around 4%. This assumes U.S. GDP growth in the 2.5% area, plus 150 basis points of growth coming from continued improvement in the housing market. We have similar growth forecasts in Canada and Mexico. Our total compounded annual sales growth forecast of 4.7% includes the impact of Interline, as well as modest new store growth.
As you know, we have a private label credit card program, and sales on our private label cards make up about 24% of all of our sales. Importantly, our program is a financing program, not a discounting program. While our program is both for DIY consumers and pros, as Bill mentioned, financing is really important for our pros. We've been testing a new value proposition for our pros, and we're ready to roll it out. Beginning in January, we're going to offer our DIY consumers an enhanced value proposition of 365-day returns. For our pros, we will be offering 60 days to pay, a new fuel reward program, and 365-day returns. We are excited about these new programs as we think they will truly meet our customers' needs and help drive sales. Turning to gross margin, our largest cost pool is cost of goods sold.
Within cost of goods, we have a number of efforts underway to drive productivity. We have a cost out team that works hand in hand with our merchants to better understand what the right cost should be, identify strategic cost out opportunities, and address vendor cost increases. As you heard from Mark Holifield, we also see continuing cost out benefits coming from our supply chain. The list of productivity opportunities goes on. From a gross margin rate perspective, however, we are planning flat gross margin rates as we will reinvest cost out into lower margin categories, including those categories that have not fully recovered. From an expense perspective, our business model defines operating leverage. Our expenses naturally want to grow slower than our sales growth.
Over the past several years, we've driven a lot of cost out by removing tasks and simplifying our business such that our expenses have grown even slower than they would naturally. Looking ahead, our expense growth factor will change. First, the Interline business model has introduced more variable expense than we've had in the past. Second, we are projecting some higher people costs, like higher medical and wage expense. Now, as you heard from Mark Holifield, we view productivity at The Home Depot as a virtuous cycle. Through our productivity efforts, we will be able to offset a good bit of those rising people costs, but not all of them. Finally, we are leaning into interconnected retail, and some of that comes with investment. Over the next three years, we expect to leverage expenses by 130 basis points.
As you think about expense leverage, a good rule of thumb is that expenses will grow at about 50% of our sales growth rate on a go-forward basis. Turning to a discussion on capital allocation. This morning, you heard us talk about Supply Chain Sync. We are very excited about this initiative, as it is truly an example of connecting end to end to create value. By lowering lead times, we should drive productivity, especially when it comes to inventory productivity. We are on a path to grow our inventory turns from the 4.8 times we expect to report in fiscal 2015 to a targeted 5.7 times by the end of fiscal 2018. 5.7 times is our target, but we are committed to reaching that target in the right way. In other words, we won't sacrifice in-stock positions to reach an inventory turn target.
Over the next three years, we anticipate investing $5 billion back into the business. A good deal of this spending will support our aging store base, but we are also investing heavily into IT development and in support of interconnected retail. Our company is a cash cow. In 2015, we will generate roughly $9.6 billion in cash, and over the next three years, we project that the amount of cumulative cash flow generated will exceed $32 billion. This is a good problem to have and allows us to invest back in the business and return cash to our shareholders through dividends and share repurchases. After investing in our business, you will recall that we have three shareholder return principles. With excess cash, our goal is to maintain a high return on invested capital, benchmarking all uses of excess liquidity against the value created for our shareholders through repurchases.
Our dividend principle is to target a payout of approximately 50% of earnings, with a goal of increasing our dividend every year. Finally, our share repurchase principle is to use excess cash to repurchase shares as long as it's value-creating. We have a focused and disciplined approach to optimizing invested capital. Back in 2008, we had $29.2 billion of invested capital with a return on that capital of 9.5%. Fast-forward to fiscal 2015, we expect to have invested capital of $27.3 billion with a return on that capital of 27%. Today, we have $20.9 billion of long-term debt. The staggered maturities and weighted average cost of this debt portfolio provides a competitive advantage, and our strong long-term debt ratings of single A provide operating and financial flexibility.
By the end of fiscal 2015, we project to have an adjusted debt-to-EBITDA ratio of about 1.95 times, close to our target of two times. As our earnings grow against this target, however, our borrowing capacity will grow. We project borrowing capacity of about $6.5 billion by the end of fiscal 2018, which provides ample flexibility. Moving to our dividend, we have a solid track record of increasing the dividend and remain committed to our 50% payout. We've executed against this principle every year since 2009. As for share repurchases, we've been repurchasing our shares since 2002, and through the first nine months of fiscal 2015, had repurchased approximately 1.2 billion shares for $58.1 billion at an average price of about $47 per share. We intend to repurchase $2 billion in the fourth quarter of fiscal 2015, bringing total fiscal 2015 repurchases to $7 billion.
Looking ahead, we are targeting to complete our remaining $11 billion authorization by 2017 and will seek additional authorization at that time. Using excess cash and with additional authorization from our board of directors, we project the ability to repurchase $16.5 billion of our shares by 2018, and this is the basis for our 2018 return on invested capital target of 35%. If we were to layer in incremental debt, the amount of shares repurchased could increase to $23 billion. When added to the amount of shares already acquired, that's over $81 billion of repurchased shares, or about 50% of today's market cap. The power of The Home Depot has been and will continue to be seen in our financial results. Our financial targets set us apart from most of retail. Today's session wasn't just about target setting.
As you heard from my colleagues, it was about allowing us to share the strategy we are building upon as one Home Depot to create lasting growth and value creation for 2018 and beyond. We thank you for your time today, and we're going to break now and go into our Q&A session. I'd like to invite my partners up to the stage. It's going to take a few minutes for us to get situated, but as soon as we are, we'll get to your questions. Thanks very much. We have three of my colleagues from Investor Relations with microphones moving around the audience, Kathy, Jessica, and Emily. If you have a question, please raise your hand and wait until the microphone gets to you. We do want those joining us to be able to hear you on the web.
Please state your name and the firm you are with before asking your questions. Let's get started.
Thank you. Simeon Gutman, Morgan Stanley. On the comp guidance of 4%, you mentioned GDP plus a little bit of housing. Today's presentation made a pretty strong case for market share gains to accelerate, Pro side, interconnected. How should we think about that going forward?
Well, thank you for your question. If there's a bias in the forecast, the bias is towards the up.
We don't plan share gains.
Okay, one question of clarification. You mentioned, or you showed on the slide, the pro market is about $120 billion. If we take The Home Depot share of your pro share against the dollars, that would show that you have a pretty large market share of just the pro market. How do you reconcile that to the comment that you're only about 10% of each individual pro in your store?
Well, from a market share perspective, it's important to look at the pro piece of the home improvement retail market, the services, as well as MRO. When you look at it through that lens, we have about 13% of the addressable market. We think there's plenty of room to grow.
Hi, it's Brian Nagel from Oppenheimer. My question has to do with the credit initiative for the pro. As you look at it, two questions here. First off, since you've been testing the program for a while, could you give us any details on how, in that test, the extending credit or better terms to your pros has helped sales? The second question would be, as we think about rolling this program out beginning January, how big should it get and how will it basically look in The Home Depot financial statements?
Right. We're very excited about this because we've learned a lot about our pro. Bill, you can add to my comments when I'm through. First, if you think about our private label credit card, we have a great offering for our pros. The average line is $6,800. Over 71% of all the pros who apply for our card get it, but they only use about 21.5% of the line. Why? Because it's not a financing tool. Our pros need a financing tool. As we tested these 60-day terms, we learned that we're providing working capital for our pros. They get paid before they have to pay us. This is a good thing. We very much like the sales lift that we saw on our pilots, but it's more than just a sales lift. It was about getting stickiness with that pro.
How big can it get? We'll tell you as we continue to grow the program, but we're very excited about the future.
Just one additional comment. The pros do have a varying degree of credit requirements from size of jobs week to week, the degree of business, the velocity that they're in. It is good giving them that flexibility. Second, the 365 returns is important. It gives them more time on jobs, so I think that's also another benefit that rings solid with our professional customers.
Good afternoon. Dan Binder with Jefferies. Craig, you talked about examining disruptors in the market and then coming up with a plan to mitigate their impact. I was wondering if you could just maybe be a little bit more specific as to what you found and what you're doing to mitigate those impacts. Carol, if I could just ask one of you as well. I think in the past, your expense growth as a % of sales growth would vary at different levels of comp. I was wondering if you can give us a little bit more detail on how that would look at below or above levels of 4%. Thanks.
On our war games, obviously, I'm not going to spell out how somebody should come and attack The Home Depot, but I think it's important that great companies are working to understand how they can be disrupted, and that's the effort that we went through. From that effort, we actually informed growth opportunities that we're pretty excited about as well. I won't spell out for our competitors what to do.
Maybe I'll just take a minute to talk about the expense growth guidance because I've talked to many of you about that this morning, and I thought I'd give you a little bit more color. The last time we met in 2013, I said our expenses would grow at about 35% of our sales growth. If you look at our performance in 2015, we project our expenses to grow about 47% of our sales growth. That's got breach-related expenses in it. If you back out the breach-related expenses, our expenses are growing about 38% of our sales growth. The natural rate right now for the retail business is, call it, around 38%-40% of sales growth. Part of that is because we've been investing in shorter-lived assets. As you heard from Kevin Hofmann, we've been investing into interconnected retail.
Those IT investments have a shorter life, it's put a little bit more pressure on depreciation and just some operating costs as well. The ordinary retail business expenses should grow at about 40%. Interline has a different cost structure than the retail business. They have much more variability in their expense structure. When we add Interline to the mix, we expect the expenses to grow at about 50% of our expenses. If you say, "Okay, what's the difference depending on your sales growth rates?" If you look at our operating expenses, excluding depreciation, because depreciation is a function of what we spend and how we allocate our capital. If we ignore depreciation, our fixed variable expense today is about 40% fixed, 60% variable, and that will creep up to about 62% variable by 2018 based on our growth projections for Interline.
I'll let you, Dan, do the math on what can happen based on the various comp scenarios. I'll also say, in all candor, as we opened up, if there's a bias in our forecast, the bias is to the up. We have a track record of putting out targets that we can meet and exceed. We want to give ourselves plenty of room to do the right thing for the customers, but we feel very comfortable with the guidance that we've given today.
It's Laura Champine with Cantor Fitzgerald. Carol, as we look at the strong likelihood you're going to slightly exceed your margin targets with your performance this year, can you help us bucket that? Meaning, supply chain, I believe, was supposed to generate 30-40 basis points. How did that all fall out, and how does that inform your current projections? Then a follow-on to that, how much incremental expense do you expect? How much does it cost you to add on to your private label credit card offers in the ways that you're doing?
Yes. We're thrilled with the performance within Supply Chain. Here's a really fun fact. Between 2011 and 2014, we had 48 basis points of gross margin expansion coming off of our Supply Chain. Year-to-date this year, 22 basis points of productivity. With Supply Chain Sync that you heard from Mark and others, well, there's more productivity to come. We've carefully baked that productivity into the guidance that we've given you because we want to give ourselves flexibility to allow for growth. Growth in those categories that haven't fully recovered. You know the chart that showed the categories that haven't fully recovered? That's $2.5 billion of sales, all at margins that are under the company average. We want to give ourselves plenty of room for growth.
We couldn't be more pleased with Supply Chain, couldn't be more pleased with the expense productivity that we've seen.
Absolutely.
Of course, our sales have been higher than we had forecasted because we've used an economic model to build our sales forecast, and then things come our way, like market share and that sort of thing. On the second part of your question, Laura, about the cost of our new Pro offer, we're very fortunate that within our private label credit card program, we have a bit of a profit-sharing arrangement. The profit-sharing arrangement that we have will offset the incremental cost associated with that program.
I think it's also important just to recognize that for us, we will challenge ourselves with expansion in margin. We will get that expansion in the margin through the programs that you've heard today. We are going to reinvest that back into pressure in the marketplace to make sure we can continue to deliver the way we've been delivering and grow with the business where it naturally wants to grow as big-ticket categories come back and we close that gap on the $2.5 billion in sales.
Thanks. Chris Horvers, J.P. Morgan. Following up on that question, can you talk about the phasing of Sync? Is it sort of evenly over three years? The explicit cost savings that you generate, you talked about the inventory savings. Maybe how much of that, Craig, goes back into price versus, say, funding into the delivery aspect to the Pro and to the consumer?
Yeah, I'll let Mark address the phasing.
Absolutely.
Sure. Yeah, we're in Houston now, and we've got about two-thirds of the product flow in dollars going through Sync in Houston. We've expanded the program to our other five southern RDCs, we expect to see continued expansion of the program over the next three years. In terms of the savings, we're pleased with the savings we're getting in our inbound transportation. Probably a little too early to give specifics on that. We're also very pleased on the inventory turnover numbers that give us some confidence in the targets that we put out today.
There's additional benefits if you think about the program. We have actually reduced damage in the product that's being flowed through the program. We have less handling, obviously, in our stores, up and down. It's actually bringing shrink down in those stores as well. There's a number of productivity benefits that we receive from Supply Chain Sync, we'll appropriately use those savings to drive pressure in the market
I guess as a follow-up to it, that sounds like a very amazing opportunity that you have on the supply chain side. What are the risks? People on your side of the table that would ask the right questions of what's the risk from a just-in-time inventory perspective, or can you get disrupted on the weather more easily, so forth?
Sure. Our supply chain has really been built around agility and ability to respond very quickly to things that are happening in the marketplace. I think when you think about risk, whenever you take inventory down, of course, the number one risk you think about is are we going to drive ourselves out of stock? What I would say is because of Sync, and you heard in the video the example of spacing out the trucks into the RDC day after day as opposed to all at once. What that does is it gives us more shots at how we allocate that inventory and a faster response to out of stock. We can actually operate with lower inventory, be faster to respond to out of stocks.
Because we're getting in stock so quickly, we've actually seen in some stores some unprecedented sales spikes being covered, even with a lower inventory because of the speed of replenishment. Out of stock is certainly a risk that we always want to manage there. The great thing about Sync is it's not a huge capital investment. We are doing the IT development that allows us to scale the program. It's not like we're building big infrastructure and spending lots of money on fixed assets, trucks and DCs and things like that. It's really about how to utilize those more effectively.
Thank you.
Hi, it's Matt Fassler from Goldman Sachs. I've got two questions. I'll ask them one at a time. The first one relates to the market opportunity slide that you put up earlier. You talked about $140 billion service labor opportunity and then another $60 billion from merchandise pull-through. How big are you in that business today? What's your market share of that $200 billion pie, and where does growth in that piece figure into the broader revenue growth plan?
Our services business today is roughly 4% of our total business. We're relatively small in that space, under 3% today.
Is that likely to grow faster than the house as you think about the three-year plan?
I think it has that possibility, yes.
The second question, Bill, in your remarks, you had this great exhibit with a bunch of things that were complete, then a bunch that were in progress in terms of triggers to drive the pro business, there seemed to be a lot more left on the loyalty program that perhaps you haven't discussed. If you could talk about what milestones we should look for there. You gave us some great numbers on the impact of that program, the sales growth and people sign up, et cetera. What is the trajectory of that improvement? Is that still accelerating? Is that leveling off at this point?
Matt, I'm going to step back to your first question, if I can, just for one second. It's about the product pull-through. Not to say that we don't sell products to our existing pros that are doing installation services for us, but we don't sell a lot of it. I'll give you one example. We do a lot of water heater installs. We supply Rheem water heaters. They install the product that we stock. We don't always get connected on pipe fittings, valves, and those types of things. Now through Interline or also with the increased in-stock inventory depth in our stores, we have the ability to connect with that. Best way to drive that sales also is by getting those large providers linked up with one of our PARs, one of our sales professionals out of Interline, even a POS out of our existing stores.
Whenever we know in outside sales, we tie in a sales representative that pays close attention to that customer, we have the ability to accelerate the growth. That's where I think that we're going to see a lot of increased pull-through. To the question on loyalty, I talked about the engagement, the immediate response we see out of the customers, an increase in transactions, an increase in spend, 18% on the first year. We're really pleased with what we see. We like the way that we see the pros utilizing some of the tools and the benefits of the program. There's more to come on that. There's more that we have in the works to try to enhance that a little bit further. We have more in the pipeline where we think we can enhance that further.
Thank you.
Hey, it's Aram at Wolfe. Thanks for having us down here. Appreciate it. Question on the physical plant that might span a couple of disciplines. First of all, you used to come down to these meetings, talk about new stores. Clearly, we're not. Appreciate that. You used to talk about remodels, relocations, resets. We didn't hear much about those today. Can you talk about the investment in the physical plant? Also, you mentioned that the D&A, I think, needs to go up. If you can just also give us a sense as to where that might land as a % of sales a few years out from where it is today.
Sure. If you look at the $5 billion that we will be reinvesting back in the business over the next three years, about 40% of that is going into the physical plant, which includes maintaining our stores as well as resetting our stores. I will make a comment on maintenance. We do have an aging store base. The amount of money that we invest back into this aging store base is not just capital, it's also expense. We spend over $600 million a year on expendable items maintaining our stores. When we look at the total annual spend maintaining our aging store base, it's close to a billion dollars. On the D&A side, you should model depreciation and amortization in the $1.9 billion-$2 billion area.
Thanks. Clearly there's going to be changes in the stores, real estate values are rising. You showed that in your chart. If you are not doing as much change to the footprint, just wondering, what's the value of the real estate on your books? What's the value of the real estate, do you think, at a market value basis? Is it changed that there's an opportunity to extract some value from your real estate?
We've done some work in that regard. We've looked at, depending on what kind of market cap you want to use, the market value of the real estate could be like $35 billion or something like that, higher than the book value. Owning real estate is a competitive advantage, letting go of the most precious asset we have next to our people, our footprint, is something that we can't imagine would be value-creating for our shareholders. We are a cash cow, we can use our cash to return capital to our shareholders through dividends and repurchases. Spinning off the real estate or leveraging the real estate and putting cash lease expense into our operating model, we think is value destroying and not value creating.
Hi, Dennis McGill from Zelman & Associates. A question would be for Mark on Buy Online Deliver from Store. Can you just put some parameters around how exactly that would be established, what type of logistics would be in place, particularly for bulk items, and what type of capital investment there might be on the logistics side?
Yeah. Well, we've been doing delivery from our stores for years and years. We actually have a truck fleet out there, operated by dedicated contract carriers, that pick up product at our stores and deliver it to our customers today. Right now, we do that for orders taken in the store and orders when a customer calls the store and sets up that delivery. The assets are already out there in terms of the truck fleet and the drivers and the operations of that. What Buy Online Deliver from Store does is it really improves the process for that in the store, simplifies the processes, where before it was 40 clicks to get to a final delivery for our associate, it's now many fewer clicks, maybe nine clicks, to get to where that's a delivery, and takes a lot of complexity out of the process.
It automates the scheduling of that, allows us to commit to those two-hour and four-hour or all-day windows, depending on the customer's choice. On top of that, allows us to take the order online and drop it to the store. In terms of investment there, it's really about the IT plumbing to put all that together, and to roll that out to our stores. There's not a huge capital investment to make Buy Online Deliver from Store happen.
Thank you.
Hi, Scot Ciccarelli with RBC. Obviously, it's more expensive today to deliver product to a customer rather than have a customer walk into a store and walk out with that product. Can you help us understand the incremental cost with that move towards interconnected retail from just called big box retail? I don't know if it's possible, but provide us with an example of the difference in cost structure.
I'd start with it varies based on the product itself, right? There are actually categories where when you have other offsetting factors, whether that be labor cost involved in selling, it's cheaper to move the product through online delivered to the customer, and then there's categories where clearly the store is the best business model. It does vary pretty significantly by product category, and we've brought together the visibility of that for our merchants so that they can manage that as one entity, one process overall, and make the decision about where the best economic choice for the customer and for The Home Depot is.
Scot, we run it as a portfolio, so we really don't break out, well, here's this cost and here's that cost. To Craig's point, it's just one Home Depot, one portfolio, and you can see our margins continue to grow, even though some have more costs and some have less.
I think what Mark talked about with the ability to leverage the store footprint, 40%+ of our customers are actually finding that as a convenient option. They don't need to worry about, is it actually going to be on my doorstep when I get home at night? Gosh, I might have to take a half a day off work to sit around waiting for a bulk delivery, for example, which clearly would be more expensive if you're shipping it direct to home, because it's come in LTL, so like a large vanity, for example, that would have to be delivered on a pallet. Customers are choosing to do that through the store and pick it up at their convenience. That's a great advantage we have in terms of utilizing our store footprint.
Maybe a way to illustrate this further would be through an example. If you think about a product that fits into a parcel shipment very easily, the most optimal place to pick that is going to be our new direct fulfillment center network, not the store. They're optimized around picking, packing, shipping. That's not an optimal thing to do in the store if the inventory is in the direct fulfillment center. If a customer needs 40 bags of concrete, we sell an 80-pound bag of concrete for, what, $3.62 or something. If you need 40 of those things, the very best place to pick that up, the very best place if you want that delivered, is to have that delivered from a The Home Depot store on one of our flatbed trucks that rolls around there.
We're really building the portfolio of options that I think will allow us to really grow this profitably.
Thank you.
Stacie Rabinowitz, Consumer Edge Research. I was wondering, separate from changes in the housing stock and people buying new homes, are you seeing or do you expect to see any changes in the life cycle of how frequently people are replacing their existing appliances, flooring, et cetera?
Well, I think the beauty start with what Carol showed in terms of the aging housing stock is going to drive investment. I'll let Ted answer.
Yeah, I would say the categories that Carol outlined, the $2.5 billion that have not recovered to the 2006 peak, are heavily weighted to core building materials. These are construction-related products. You have all your various wood fiber categories, you have drywall, et cetera. We're starting to see that come back with some very nice comps in 2015, which is a strong signal for more construction activity.
Yeah, the age of the housing stock is going to make a big difference in how customers spend money inside of their homes. Research shows that homes that are 45 years and older have 5.4% more repair and remodeling spend than homes that are 24 years old. We like this aging housing stock in the U.S.
I think-
I would also say the thing that we talked about with innovation and product inside the stores, we see it all the time, that people are replacing items that are not end of life just because of the new innovation inside the product that Ted and team are offering.
Yeah.
Good morning. Good afternoon. It's Michael Lasser from UBS. You're talking about adding $13 billion of sales over the next three years, which is equal to the amount that you've added in the last three years. The one difference in the next three years is likely to be that the cost for the consumer to finance those sales, whether it's in the form of wealth accumulation because the rate at which assets continue to inflate slows, or because financing costs are going to rise, also might put some risk. What's the uncertainty with your outlook over the next three years as the environment just becomes a little less cooperative due to the slowdown in the wealth effect, or the consumer purchases become increased, more expensive to finance?
I wish our model was that good at projecting the impact of rising financing costs. I would say the offset to that, because we all believe that's going to happen, right? The offset to that is just availability. Think about HELOCs. HELOCs were dead in the water for years. They're coming back. Underwriting standards are starting to ease. There were more HELOCs written this year than there have been since the crisis. That's a pretty important point of financing, just availability, how people can get money. We haven't really factored that in. I would say, furthermore, to the opening question about just our sales forecast and Craig's comment about how we built it was just built on this macroeconomic model that's directionally correct. It's not perfect.
We continue to outperform that because of share gains, the great initiatives that we have underway in interconnected retail and in pro. You've got some natural hedges in the forecast that we've given you that could offset any potential headwinds that could come our way.
I think innovation is a key factor to continue to drive the excitement and the customer's willingness to spend in the space, that's something that we're focused on both in the brick and mortar space as well as in the digital space.
My second question is coming back to the topic of expenses. To what degree should we interpret the fact that you are going to see a faster rate of expense growth or the ratio is going to converge more as a reflection of the fact that some of the better days from a productivity standpoint, from a cost reduction standpoint are behind the company? Or maybe it's more so just the cost of doing business across retail is going up because of wages and healthcare and competitive factors. Thank you.
It's more the latter than the former. We are driving productivity. You heard Mark Holifield talk about what we're doing inside of the store. There are some costs coming at us that we haven't seen over the past couple of years, particularly as it relates to prescription drugs for things like hepatitis C and cholesterol. The cost of these drugs is astronomical, we are a values-based business. Taking care of our people is one thing that we stand for, if someone needs a prescription for a drug that costs $200,000 or $300,000, we're going to pay for it. We see prescription drug costs rising actually at a rate faster than our sales growth. Could we offset with productivity? We could offset by taking away benefits, but that's-
No.
that's not what we do.
No.
Hi guys, over here in the front to you guys. Joe Feldman, Telsey Advisory Group. Two different questions. One, you outlined a lot of great initiatives for the pro and some interesting stats on the Pro Xtra members. How do you get more people to sign up for Pro Xtra and get them to be more loyal? Because that's clearly a big, huge driver for you guys.
I think we are excited about the changes in the credit program. We think that that will drive more activity around that point. Just the overall velocity that we're seeing in the business itself. If you look at them, pros today are busy. If you look at them, they've got multiple jobs. There's a lot of areas where there's actually more work than there are pros in some geographic regions. We're confident that we're going to see activity there on an ongoing basis. The more that we can deliver benefits for them that resonate with them, that help them run their business more productively, make it more efficient, make it more easy for them to grow.
One of them is simply being able to go back and research all of their purchases, sort that by account, sort it by job, all those things that help them become more productive. It gives them more incentives. The special program or product offerings that we provide for them, there's a lot of benefits. We're in early stage, but we continue to see sign-up and momentum in the Pro Xtra program.
Thanks. Just a separate question. Can you discuss from a merchandising perspective maybe what the Millennial is buying versus what the boomer buys? What the differences are, maybe if you kind of forecast where the puck's going to, how do you skate towards that from an assortment? Thanks.
Well, in the sense that the Millennial now is a renter, you see more decor items, so something like window treatments or paint. They're not obviously doing construction to a rental unit. As Craig talked about, we see that it's a timing matter with the Millennial getting into a household. One of the things we did this summer as part of our strategic review was work with a number of Millennials. We had a group in for the summer who were design students, engineering students, MBA students, who spent a summer spending time in Home Depot stores and other retailers' stores and informing us on what they saw in our business model and other folks' business models and how that would be relevant to them in the future.
The good news on a number of fronts is they confirmed that they would be interested in moving and will move into traditional homeownership. It's just delayed. The second very important and pleasing result for us is they see the store, the big box home improvement store, as relevant for their needs. You often think, boy, is this a group that's going to want to go to boutique, going to want to shop exclusively online, and that was not the case at all. Now, they certainly want us to bring some enhancements to the experience with technology, not for technology's sake, but technology, say something like our app now that has a locator device, a SKU store basis.
We have positioning at every store and every SKU on the app, something like the color solution app where they can visualize their room, take pictures of their individual space, and play with colors like Kevin showed on his presentation. The good news is they're going to be moving into the space, they see our footprint as relevant, and we'll just work hard to make sure we maintain that relevancy.
Hi, Budd Bugatch with Raymond James. Been around The Home Depot a long time, management and leadership's been self-critical for a long time on the special order you were today and started the COM program and I think the delivery issues, too. Is there a way for us in the public world to understand where you're starting from in a net promoter score for those two things and watch that develop over time as COM gets installed and delivery assets get better utilized at the store? How should we think about that? You've made great progress on net promoter overall, how about as you look at those particular areas?
I was just whispering to Craig, one way to think about it is we're two years delayed in our rollout.
Right.
It wasn't very good when we started. The experience was pretty bad. We stopped it and said we've got to fix it.
Yep.
You're laughing, it's true. It was pretty bad.
It's a complex project
it's really, really, really, really complex.
It was very complex.
Yeah
to bring together all of the systems to allow the visibility across stores as well as across our digital assets to enhance the experience for the customer as well as for our associates. This was a lot of hard work, and we're not starting from a great place. Now, having said that, we're actually growing our special order business.
Yes.
Our special order business is growing nicely. It's growing both through obviously our digital world, which we have the ability to customize product, but it's growing in store as well. We believe that as we roll COM as a precursor then to Buy Online, Deliver From Store, we'll see continued growth in that category and obviously an enhanced experience for our customers as well as an enhanced experience for our associates where it's been really frustrating.
Okay. My other question for Carol, you showed the natural reduction of the lease-adjusted debt ratio. I don't think you were changing your guardrail, but I just want to make sure that you were just showing what that opportunity was for additional debt, and how should we model that or how should we think about that over the next couple of years?
Yes. Well, the chart was just to show as our earnings grow, so will our borrowing capacity, all things being equal. We project that we will have $6.5 billion of borrowing capacity over the next 3 years. The way you should think about it is to look at our history as predictor for the future. This year, we raised $2.5 billion in support of share repurchases. Last year, $2 billion in support of share repurchases. The year before, $4 billion in support of share repurchases. We have used our balance sheet to support returns back to our shareholders, there's no reason why we shouldn't continue to do that going forward.
Eric Bosshard, Cleveland Research. You did a good job of bucketing out the market that you're pursuing. Curious if you could do the same for the $13 billion of additional sales and how that would compare to the $13 billion of growth you've had over the past 3 years.
The exact numbers, think about the pro as a significant portion of the opportunity. We've been growing a $1 billion plus or ish a year, and we see that opportunity to continue.
As we talked about, we have a relatively small percentage of share in services today. Think about the services and the pro incremental growth. Embedded in that is a large portion of continuing to grow, clearly, with our do-it-yourself customer day in and day out, growing our business with them through continued efforts that Ted and the merchants are doing with product innovation, with the enhanced opportunities that we have through the technology that we're using to localize assortments, drive productivity in the micro-space. That's a foundational element of growth that exists. It's probably the largest portion of growth by itself. The largest incremental portion of growth would be through pro and services as you think about the pro in total and then digital.
If you put numbers behind it, I won't give you the specific numbers, it's double-digit growth in interconnected or digital. It's growth faster than the company average in pro, and then obviously the DIY is growing slower. The numbers will be what they are. We don't have that good of a crystal ball, that's sort of how we built the models.
Yeah.
Hi, it's Greg Melich with Evercore ISI. A quick follow-up on that. If you were to look at it from comp, if you could just do traffic versus ticket and maybe online, if you look from a comp perspective. The real question I had, I think it's best for Craig. I think I heard somewhere that we had 1 million SKUs available now, and the extended aisle and online is allowing you to go even further on that. When you think about the brand and Home Depot and what it means, how far are you willing to go with that? Would you have third parties on your website selling product? How when you think about with Amazon with 20 million-plus SKUs, how do you think about that?
I can address that part first. We talked about, and Kevin talked about, we're focused on a curated assortment. Don't see us going down the path of a marketplace. We want to control the experience. If you think about the history of Home Depot, really from shortly after the beginning, at least in the most recent 15, 18 years that I've been with the company, we've competed in the marketplace undersized, under-assorted against virtually everybody. We've done that through the power of our merchants, selection of product, exciting our store associates, and getting them excited about driving the business in the marketplace. We don't see that element changing. Wouldn't entertain at this point in time a marketplace, don't feel like that's where we want to go.
When we build our sales models, we aren't that sophisticated. We use 50% growth from transactions, 50% growth from ticket, and then we see where the customer takes us.
Keith Hughes from SunTrust. You talked a fair amount about facilities maintenance and the Interline brand in the presentation. Two questions around that. You still have pretty small market share and what's a great growth industry. Would you consider doing more transactions to increase your share there? If we look at Interline, and specifically Wilmar, a year or two from now, how will it be operating differently than it is today?
I'll just start that and let Bill pile on. Again, our thought process is around reasons for acquisitions would be to increase capabilities, not so much to go out and buy sales or share.
We're really in the early stages, right? 90 days since the acquisition, we are building out the business case models. We'll get a lot more detail around that, I'm sure, a framework around it over the next even 90 to 120 days. As we said, there's probably two years of execution here. I think our investors, our customers, our associates want us to go slow on this one to make sure that we're methodical about it, that we've got a great understanding of exactly what's important to the customers, and that we structure the way that we operate and the way that we're organizationally structured correctly. Clearly, a lot of feedback already with joint meetings with customers, and they really want one solution. They want the ability to manage their properties more effectively.
They have good measures through Interline with their website support systems that allow them to manage expense by door, by property. It helps them govern their purchases across multiple states or organizations. The ability to now plug that into Home Depot as an Interline truck goes by to scoop up some drywall or mud or have some paint thrown on a truck and start to get all those repair, maintenance, and even those renovation products put together. We had one major account that said, "I'll throw up a kind of a softball for you. Let me know if you think you'll ever be able to do something about it." Said, "You do a great job from the Interline side of serving us with our MRO needs. As we acquire properties, we give them a facelift, particularly in kitchens, flooring, solid surface and granite countertops.
Because of that, it raises the elevation of the level of housing. We have higher occupancy rate, less turnover. Is there any way that anybody's ever going to be able to do that in a one-stop shop?" The answer to that is yes. We can provide MRO, we can provide the products, we can provide the services for installation. I don't know if it's so much about Wilmar being totally different. It's getting all of these aspects plugged together where it's one customer, one unified service for Home Depot to provide to our customers. Pretty exciting. A lot of work ahead. A lot of work to get that connected. As we move forward, I think there's just huge opportunity to differentiate ourselves.
We have time for one more question.
Hi, thanks. It's Peter Keith with Piper Jaffray. I have two separate questions. First one's for Ted. With the category review cycle example you gave with water heaters was very impressive, and we've certainly seen the double-digit comps called out in the conference calls. Can we think about that opportunity across other categories that you might be working on now or going forward, where you have an opportunity to accelerate the share gains?
Absolutely. One of the answers to the prior capital question. We always spend significant dollars in our product resets. We'll continue to do that amount of spend has increased over the past few years, we see ourselves maintaining that level of reinvestment back into the store category by category. While we'll always do larger, more wholesale Product Line Reviews, what we're finding is every time we touch a category, comps will improve. When you're touching something we've talked about every three years we'll get through the store, you have a natural degradation curve. You update maybe your brand architecture, your assortment, your value proposition. You get the base set, you get the planograms refreshed, you then execute a reset, and you naturally see a lift in comps. That over a three-year normal reset cycle will degrade as you'd naturally expect.
What we're trying to do is to maintain that level of performance after the initial reset. While we'll continue to do larger resets, we call those PLRs, Product Line Reviews, we have a new cadence called a Business Review, where we're going in not doing as big of a wholesale refresh, but we're doing a lot of the same analytics. We've now introduced a Rapid Business Review. Here we've customized and built out our analytics and our data sets. We can essentially deliver to the merchant in a Rapid Business Review, the same robust level of analytics that used to take weeks and weeks to build for a Product Line Review.
On top of that, this de-averaging I talked about where we look for outliers, that's even in addition to a Rapid Business Review, where we're constantly churning out underperformers with analytics of why that particular category and that particular store is underperforming. We see this as a continuous process, the whole thing is about speed and maintaining that level of performance after a reset, so you don't go down a natural degradation curve.
Okay, thanks. Then my other question was regard to consumer financing. You have your pro-financing effort. I think your private label credit card, though, has been pretty consistent at about 24% of sales for a number of years. I'm wondering if you view the interest-free financing opportunity as a promotional lever. We're seeing increased financing across other areas of consumer durables, and other retailers are seeing increased penetration of sales on their credit card. You guys have kind of held at that 6-12 months interest-free. I'm wondering if you see an opportunity to flex that up a little bit to maybe drive some bigger ticket spend.
We actually do that. From time to time, we do 18-month financing. We do 24-month financing. We have a project loan available in our stores at very attractive rates. We will provide financing to meet the consumer's needs, particularly on those big-ticket categories like appliances and that sort of thing.
Well, thank you very much today. That pretty much concludes our question and answer period. I would like to thank our presenters, Craig, Mark, Ted, Kevin, Bill, Mark, and Carol. Many thanks also to the investor relations team, Kathy, Tammy, Emily, Jessica, Lindsay, and Tim. Thanks to Christine and the corporate events team, the merchants for their product demonstrations, Wendy, Mike, Fred, and the Dillon team, and to all of our volunteer Atlanta-based associates. This concludes the presentation. We'll see you at lunch.