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CNBC Transcript: CNBC Exclusive: Craig Menear, President of U.S. Retail for Home Depot, Speaks with Kelly Evans Today on CNBC's "Closing Bell"

WHEN: Today, Wednesday, August 6th

WHERE: CNBC's "Closing Bell"

Following is the unofficial transcript of a CNBC EXCLUSIVE interview with Craig Menear, President of U.S. Retail for Home Depot, today on CNBC's "Closing Bell."

All references must be sourced to CNBC.

KELLY EVANS: Craig Menear, president of U.S. Retail here at Home Depot. We're sitting inside one of your giant new-- what are you calling them?

CRAIG MENEAR: It's a direct fulfillment distribution center.

KELLY EVANS: What does that mean? So it's not a traditional warehouse. What happens here?

CRAIG MENEAR: So what happens here is we have the capability to have about 100,000 individual stock keeping units in this building that we can send directly out to our customers either to their home or through one of our 2,000 locations in our stores.

KELLY EVANS: Because Home Depot is no longer building new stores. You're putting your investment dollars into these kinds of facilities, why? What does this represent in terms of the transformation of the retail space?

CRAIG MENEAR: So you're right, Kelly, we are putting the investments beyond stores now. And we can do things like build out this direct fulfillment D.C. to be able to enable what we call our interconnected retail. And so what that is is allowing our customers to shop when, where and how they want in terms of whether that be buying direct from us and having it sent to their home, which this facility has the capability to do, or whether that is buying online and choosing to pick up in store, so things that we stock in our stores, or buying online things that we don't stock in our stores and having it sent to one of our stores for -- at their convenient pickup.

KELLY EVANS: Is it safe to say you guys are becoming sort of like the Amazon for items that weigh five pounds or more?

CRAIG MENEAR: So we are focused in this facility on not only parcel shipment but also being best in class at big and bulky. So whether it's a customer buying a bathtub, for example and having that shipped to them or shipped to one of our stores for pickup that's what this facility will give us the capability to do.

KELLY EVANS: That's a difficult thing to do, isn't it? To move some of these big, heavy items around the country. Amazon today is rolling out same-day delivery in more U.S. cities. But that's for a lot of small items, toothbrushes, books, those kinds of things. What is the challenge when we're talking about getting a washing machine or a dishwasher to a customer within days or hours even?

CRAIG MENEAR: So it is all about making sure that you can do that cost effectively and efficiently for the customer in a time frame that they need. And so that's really what this facility enables us to do is to leverage the entire supply chain network that we've built at the Home Depot and be able to do that at a very cost effective manner for the customer.

KELLY EVANS: Is it safe to say the philosophy for Home Depot here is better late than never when it comes to the internet? I mean, look, it's still only, what, 3% of your sales-- online sales?

CRAIG MENEAR: 3.5% roughly, yes.

KELLY EVANS: That's nothing.

CRAIG MENEAR: Right. No there is in some ways there is an advantage to being a follower or last mover advantage, if you will.

KELLY EVANS: So now that you're getting into the space more aggressively, what's it going to take and what is your projection for growing online sales, mobile sales, all of this as part of the company's future? And does that mean you're going to kind of turn your stores ultimately into little distribution centers of their own and everything winds up being delivered directly to somebody's doorway?

CRAIG MENEAR: Well that will ultimately be determined by the customer and how they choose to shop. But we have do have 2,000 plus conveniently located stores for our customers that gives us the ability to deliver quickly and efficiently to the consumer. So in total if you think about, we have the ability to offer our customer over 700,000 items where a typical store will only stock about 35,000 items.

KELLY EVANS: What is the goal? What is the dream, the holy grail? What is this all going to look like if you pull it off in the next, say, five to seven years?

CRAIG MENEAR: So it's continue to grow and grab market share in the market in total and to be able to service our customers really when, where, and how they want to engage with the Home Depot. Because the retail space is evolving as we know it today.

KELLY EVANS: Yes, and is the goal, for example, to be able to get that small business owner whose washing machine breaks down-- a washing machine that he orders same day for much of the country? Is that part of the goal?

CRAIG MENEAR: So really with a facility like this that we're sitting in here in Locust Grove, Georgia, it's about fast delivery. So if you place an order, for example, by 5:00 on a Monday night, you'd have that item by Wednesday.

KELLY EVANS: For how much of the country?

CRAIG MENEAR: For roughly, when we're finished, we're building-- we have this facility here, we're opening another facility in Paris, California in the fourth quarter of our fiscal year this year and then a third facility in the Ohio area in 2015 when those are complete, for parcel shipment will be able to hit 90% of the U.S. population in that time frame.

KELLY EVANS: And that time frame again is what?

CRAIG MENEAR: Roughly if you order by 5:00, let's say, on a Monday you'll have that within 48 hours later. It should be delivered to you by Wednesday.

KELLY EVANS: For things even as big as a washing machine or a dishwasher?

CRAIG MENEAR: That's on parcel shipment. And then the larger, bulkier items we will actually be able to utilize our complete network including our stores for fast delivery to our customers as well.

KELLY EVANS: You've been in retail for a long time. How would you describe the changes that are taking place right now?

CRAIG MENEAR: I would say that the change that's happening in retail is probably more in the last three years than it's been in the last 50. And we'll see that continue to evolve over the next several years to come.

KELLY EVANS: Towards what? What is this all evolving towards?

CRAIG MENEAR: So Kelly, what it really is, is it's what many people call the third phase of retail where the customer is now in control. And so you have to be able to build up capabilities and react to be able to allow the customer to engage with you as a retailer how they want to, versus traditionally how we all did it which was through brick and mortar.

KELLY EVANS: Right, now it seems like everyone's doing it through their mobile phone or at least online. There's a lot of talk that you're being groomed to be the next CEO here at Home Depot. And when you think about the future of this company, a future perhaps with yourself at the helm, what does that future look like?

CRAIG MENEAR: So the future I think is incredibly bright for the Home Depot. We look at the interconnected retail world as a growth opportunity for us. If you think about 2013, our company grew $5 billion in total. And about $900 million of that came through and our interconnected retail opportunities. And I think as you look forward in the future that's really an enormous opportunity for the Home Depot and its shareholders.

KELLY EVANS: Have you been involved in succession talks?

CRAIG MENEAR: You know, at this point, that is all up to the board and to Frank. I have been given the opportunity to be the president of U.S. Retail and that's an enormous opportunity and responsibility. And that's really what I'm focused on right now.

KELLY EVANS: And as you said it comes at such a disruptive time. It used to be that people thought about the home retail space if you want to call it that as between Home Depot and Lowe's. Who are your competitors today?

CRAIG MENEAR: So we compete with a wide range of competitors at Home Depot. We compete against discount companies, against club retailers, we compete against independents, we compete against wholesale distribution as well as pure online retailers. So it's a wide base.

KELLY EVANS: Absolutely. It also reflects that perhaps at the end of the day it's going to be about price and it's going to be about time. How soon can I get it and who's going to be cheapest? Which of those is most important to Home Depot?

CRAIG MENEAR: So when we listen to our customers what our customers tell us is what's really important is that we deliver value for them. And a key component of value for our customers is how do we save them time, how do we save them money? And it's a combination of those two things that has been a key focus for the Home Depot, will continue to be, and what we believe will allow us to continue to drive share gains in the marketplace.

KELLY EVANS: If the home of the future is a smart home, in other words, one with a bunch of interconnected devices that you control from your mobile phone what does that mean for Home Depot and whether you need things like a Geek Squad kind of thing that Best Buy offers to service some of these or people to explain how this all works or further integration of the technology supply chain and to what's traditionally been a home retailer.

CRAIG MENEAR: It's a great question. And the first thing that I would say is it's really important for us to be working upstream with our suppliers to make sure that we have development of product that will, in fact, enable the smart home and allow customers to be able to connect products within their home the way they want to do that. Whether or not that evolves into a need for service will be determined down the road. Many of the products today that are smart enabled, if you will, are very, very intuitive products that many customers are finding it very easy to set up in their home themselves. Simply clicking on an app and making the connection.

KELLY EVANS: Oh sure. But it also does open new risks for your business because I think of Nest, a high-profile launch, one that's driven traffic to your stores. And yet, one that also had a recall lately. So talk us through the risks there.

CRAIG MENEAR: Certainly there's risk in any recall situation where a product doesn't perform the way you would like it to. But overall in general that's relatively small percentage of any issue, if you will, that comes up within product. Most of our manufacturers work very, very diligently to make sure they're bringing great products to market. It happens occasionally and you just have to deal with it.

KELLY EVANS: But all the same, how do you make sure that if people are after some of these smart home devices that they're coming to Home Depot for them and not going to not only your direct competitors but ultimately the Apple store in the mall for them?

CRAIG MENEAR: So that's actually the same challenge that we have across any product whether it's smart or not. And again, that drives back to the value proposition that we offer overall for our customers, using the buying power and leverage of the Home Depot to make sure the customers get a great deal when they're coming to Home Depot. And also the hard work that our merchants put in working on exclusive products with our suppliers to drive differentiation in the marketplace as well for the Home Depot.

KELLY EVANS: And finally just to bring it back to where we're sitting, I noticed walking in there are hundreds of trucks outside with hundreds of different names on them. This is all about product delivery. The delivery part remains extremely important. What are the biggest challenges there for you?

CRAIG MENEAR: So, again, last mile delivery is important and it's leveraging the network that we're building out at Home Depot to be able to do that in a very inefficient manner. Again, we have 2,000 plus conveniently located stores through our customer base. So we are very convenient for our customers and the supply chain capabilities that we build out to date. And the enhancements in a delivery module that we're working on today will allow us to be very effective at delivering quickly to the customers in a cost effective manner.

KELLY EVANS: If I'm home town colleague UPS, should I look to your future plans as an opportunity or as a threat?

CRAIG MENEAR: I think UPS would look at it as an opportunity.

KELLY EVANS: Will Home Depot ever be delivering by drone?

CRAIG MENEAR: Probably most of our products are a little heavier a lot of the big products that we carry. That drone might be called a helicopter.

KELLY EVANS: Would you rule out helicopter delivery in that case?

CRAIG MENEAR: I think that we'll have to wait and see what happens there.

KELLY EVANS: Very good. Craig, really appreciate your time. And just before we go could you give us a sense of what you're most excited about in retail today and what keeps you up at night?

CRAIG MENEAR: So, I think what I'm most excited about is the opportunity that exists in front of us. When you think about, again, the changing marketplace in retail, the way the customer's engaging in the digital space is changing how customers think about buying products, that's an exciting element. And it presents an opportunity for growth for the Home Depot. I think probably the thing that keeps me up at night the most is change isn't in people's human nature. And so we have to make sure that as a retailer we're focused on the customer, we're focused on the changes that they're looking for and that we move with that change.

KELLY EVANS: And what about the people here, the workers? On the floor of Home Depot, there aren't many. You know, this is a very technology-heavy future, isn't it?

CRAIG MENEAR: In many ways, it is. Yet, in this building, for example, we'll have about 300,000 associates here in this building -- excuse me 300 associates in this building operating the facility. So there is a lot of opportunity for our associates to continue to grow within the Home Depot.

KELLY EVANS: Craig, we'll leave it there for the time being. Craig Menear, president of U.S. Retail for Home Depot, thank you so much.

CRAIG MENEAR: Thank you.

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