A CyberAttack on Home Depot Masks Exploding Online Sales

NEW YORK (TheStreet) -- The cyberattack on Home Depot (HD) that has allegedly impacted it's 2,200-plus U.S. stores offers the latest glimpse into how the shunning of actual cash by consumers is placing enormous stress on the infrastructure of major retailers. Home Depot is now working with Internet security firms Symantec (SYMC) and Fishnet Security, as well as the United States Secret Service, to identify the source of a breach that executives first observed on Sept. 2.

With no estimate on the number of parties potentially harmed by faceless cybercriminals, any eventual monetary damage payout is a large unknown that clouds the outlook for cash usage by Home Depot in 2015. However, it also conjures up uncertainty regarding the near-term outlook for a business that has been humming since 2011 amid the housing market's recovery, as consumers may forego purchases at Home Depot in the same manner they did at the data breached big-box retailer Target (TGT) .

Since Target's data breach was made public in late November of last year, the company's U.S. store traffic has declined by 2.3% in the first quarter and 1.3% in the second quarter. The company has issued three consecutive earnings warnings, as it has had to become more competitive on prices to lure in disenchanted consumers.

Online sales have benefited from new delivery options and enhanced product search capabilities. Home Depot's online sales increased 40% year-over-year in the first quarter of this year, and then by 38% in the second quarter, aided by delivery options allowing customers to buy online and pick up in the store (launched in 2013) and buy online and ship to the store.

Visits to HomeDepot.com were up 34% in the second quarter and per week, 24 million people frequented the online store to search for home improvement goods. About one-third of online orders are picked up in a Home Depot store, a statistic shared by the company's Chief Financial Officer Carol Tome on the second-quarter earnings call Aug. 19.

But new shipping capabilities are only a part of the fuel behind the company's online sales success, the others are less noticeable, though equally important.

"You want to make checkout as fast as you can," said a company spokesperson in a phone interview with TheStreet. The company also "continues to make improvements in search capabilities, the parameters of what people search for, right down to the size of a stick of lumber." Online sales now represent 4.2% of Home Depot's total business.

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Other areas being developed in online sales including the ability to buy online and have merchandise shipped from the store and an extra speedy delivery services that may be a precursor to a future roll-out of same-day delivery. A concern for investors should be whether Home Depot is forced to shift manpower away from those initiatives as a result of the suspected online breach.

"We're actually going to roll it out later this year, and it will be around bigger ticket items," the spokesperson said of the buy online, ship from store. Home Depot is in the process of "building out three direct fulfillment centers currently" said the contact, with one "opening soon" in Georgia, followed by two others in the Midwest and West Coast. When all three, 1 million square-foot centers are up and running by mid-2015, Home Depot will be able to offer two-day shipping to 90% of consumers.

The new capability for Home Depot mirrors one being unveiled by Target ahead of the coming holiday season at 140 stores, which will give the Minneapolis-based retailer the ability to reach 91% of U.S. households by ground transit within one to two days.

Despite the bigger role that online is playing for Home Depot, the company doesn't "foresee the need to close stores," divulged he spokesperson, but he did go on to mention that "our store footprint in five years will probably look different."

The stores' interiors will also look a bit different soon. To better handle inbound, online-ordered merchandise and the subsequent influx of people into the stores, Home Depot is "converting store racks upfront to be holding areas for online orders."

The company will use 16 feet of racking to erect what it coins "staging areas" for online orders.

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At the time of publication, the author held no positions in any of the stocks mentioned.

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.

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