Home, Sweat Home

January 29th, 2007
By Suzanne Kapner
NY Post

Senior Home Depot executives set targets for store-level employees to boost the amount of money they collected from vendors to cover the cost of damaged or defective merchandise, according to internal company documents obtained by The Post.

The documents bolster allegations made by former employees that they were encouraged to perhaps manipulate a widely used program. They appear to have been authored by Tom Taylor, Home Depot's former executive vice president of merchandising, and Mike Lamb, the current senior director of asset protection, and provide a first link between potential wrongdoing at the store level and Home Depot's corporate executives based in Atlanta.

Some policies have since been changed, with more safeguards put in place.

The allegations over so-called return-to-vendor credits, known in shorthand as RTV, has spawned three wrongful termination lawsuits against the giant home improvement retailer and sparked an ongoing Securities and Exchange Commission investigation, which Home Depot has confirmed. At the heart of the accusations in the lawsuits is whether Home Depot used its clout to improperly collect money from vendors to cover the cost of damaged or defective merchandise - and in the process inflate store revenues.

"The Home Depot values its relationships with all of its suppliers," the company said in a statement to The Post regarding the newly discovered documents. "Our return-to-vendor practices are subject to contracts that vary vendor by vendor and we respect all such obligations. Our internal financial controls related to vendor policies and inventory accounting preclude any potential for a material adverse impact on the company."

One section of the documents discusses how stores are missing out on revenue by falling short of an internal target for RTV credits. "18 Stores are below the Division's RTV rate of 10.2 percent to sales," one bullet point states, resulting in a $1.6 million annual shortfall per store.

Setting a companywide benchmark that linked RTV credits to a sales was unrealistic, according to current and former employees, because damaged or defective merchandise could vary widely, both from store to store and also within a store from month to month.

One employee told of a store with $40 million in annual sales that recorded $100,000 in RTV credits in one month. Another Home Depot store several miles away with $50 million in annual sales had just $30,000 in RTV credits that same month, this person said.

By setting unrealistic guidelines and reprimanding employees when they fell short, Home Depot created an environment that implicitly encouraged staffers to break the rules by doctoring RTV logs to include merchandise that was neither damaged or defective, sources said.

Neither Lamb nor Taylor, who left Home Depot in July after 23 years with the company, returned a call seeking comment.