In an age of luxury merchandising and technology-fueled e-commerce selling, who would have ever thought that two of the most successful and admired retailers in the business make their money selling 2x4s, plumbing fixtures and gardening tools? Home Depot and Lowe’s are weathering the pandemic as well as any two companies in the country, building on the wave of success they’ve been riding for the past several years. Happily, situated in a very sweet spot in the marketplace right now — the home improvement and remodeling sector — they are also two of the best-run, most innovative and efficient businesses around.
And though Home Depot is the larger of the two by a significant margin and Lowe’s is still rebuilding itself after a fallow period, each is to be admired for its retailing expertise.
Looking at the two operations across a number of disciplines reveals many similarities: Lowe’s CEO and some of its top management are all Depot alumni. But there are also some key differences on how they approach the marketplace. First and foremost, however, they are the beneficiaries of the times we live in.
The Right Stores in the Right Place
If you’re the best eight-track tape player or video rental retailer in the country, it still won’t save you. For a retailer, location-location-location is as much about market sector as it is about geography. And Home Depot and Lowe’s find themselves in the best spots possible in the marketplace during these Covid-infested business conditions.
The entire home improvement, remodeling and decorating business is doing amazingly well this year, beating last year’s sales numbers by mid-single digits even though many of its nonessential physical stores were closed for much of the spring. As such, the sector finds itself in rarified air compared to other parts of the American economy like clothing stores, department stores and, worst of all, anything to do with travel, entertainment and dining out.
Both Home Depot and Lowe’s have built solid foundations, erected sturdy and durable business structures and allowed for add-on businesses to keep their property values rising.
Unlike the Great Recession of 2008-2009 when the collapse of the housing market set things off, today home sales, new construction and resales are holding up very nicely… aside from urban locations which are not as critical for Depot and Lowe’s given their product mixes and store locations. In fact, in the suburbs surrounding major cities and elsewhere around the country, housing is not just holding up, it’s booming. A booming housing market means a booming home improvement market.
Depot and Lowe’s have benefited from this climate as well as any players in the space. This past quarter — stretching from mid-spring to early summer — saw the former reach comp store increases of 23.4 percent while Lowe’s did even better, up 34.2 percent. Both of these gains come on top of strong periods a year ago.
Those comp numbers are even more impressive when you remember that unlike other brands in the sector, neither retailer was closed earlier in the spring when the pandemic shutdown was at its most feverish. So, we’re not talking about pent-up demand causing a reopening surge at their stores. In fact, their numbers for the earlier quarter, while not quite as overwhelming, were still pretty impressive.
The fact that Lowe’s and Home Depot were deemed essential and allowed to remain open has been a critical component of their successes. Jim Cramer of CNBC called it “the greatest wealth transfer in retail history,” highlighting the market share shifts that allowed open essential retailing operations to pick up business from stores deemed nonessential and therefore closed.
There was less transfer of share when it came to the home improvement and do-it-yourself channel since these two retailers control such a dominant portion of the market to begin with. Many local independents — some part of buying co-ops like Ace or True Value — pretty much remained open too. Where the two giants might have gained share is in the home decorating business…more on that next.
Making it Pretty
Even though it’s the lumber, plumbing supplies and tools that most people identify with these two operations, in fact their home decorating businesses continue to gain share. Home Depot has said it does $1 billion in this category and two years ago it bought home textiles retailer The Company Store to bolster its soft home business. Lowe’s hasn’t put a dollar figure on its sales in this category, but the retailer has historically been further along the decorating curve than its competitor, devoting more space to products like window treatments, rugs and decorative accessories than Depot. It’s reasonable to expect that both retailers will continue to expand their efforts in the furnishings side of the business, especially online.
Yes, the fact that few people are buying 4×8 sheets of plywood or new kitchen sinks online and buying products that require a certain hands-on purchasing process has shielded the home improvement sector in general from the onslaught of Amazon, Wayfair and their digital brethren. But that hasn’t stopped Depot and Lowe’s from continuing to invest in their e-commerce operations and grow their online businesses.
Lowe’s CEO Marvin Ellison: read a former Home Depot veteran who made a short career detour as president of JCPenney before rejoining the industry in 2018, has made it a priority to
get his company’s e-com business up to speed. “It was very obvious that the fundamental things that world-class retailers do very well were absent here,” he said recently at a Goldman Sachs Conference. “I was surprised how inefficient our e-commerce platform was and how it did not drive traffic or connect with the physical stores.”
Since then he has focused a lot of resources on fixing the retailer’s digital business with excellent results. Online sales are up 135 percent year-over-year the company said at the same conference and it has ramped up its ability to offer both BOPIS (buy-online-pick-up-instore) and curbside pick-up options. More than half its online orders are fulfilled that way, the company said earlier this year.
Depot, which was further along in its online operations, has seen strong gains as well. For this same second quarter its digital sales doubled, and it says its e-commerce business now represents more than 15 percent of its overall revenue. It too is seeing increases in customers ordering online and picking up curbside or in the store.
Good Old Merchandising
While both stores still stick to their warehouse origins and neither is going to win any in-store display or design awards, each is moving forward with merchandising initiatives — both in store and online — that are among best-in-the-retail class.
Home Depot, in previewing its holiday offerings earlier this month, announced it would be offering Black Friday prices for the entire shopping season rather than just for that Thanksgiving weekend. Like many retailers, it will be closed on Turkey Day but the prices will be in effect when its stores reopen on Friday and also online throughout November and December. Other retailers have moved to similar promotions, but none have come out with quite this blanket sale period.
Lowe’s is being even more creative in its merchandising plans this season. For the fall New York Fashion Week, it commissioned several high-profile designers, including Jason Wu and Rebecca Minkoff, to create home settings for their shows featuring products available at Lowe’s. As tie-ins go, it was one of the more unusual, but design-by-association has worked for other retailers not normally known for their fashion sense. It did garner a lot of headlines. Lowe’s also connected with entrepreneur Daymond John, best known for being one of TV’s Shark Tank investors, to create a forum for startups and small businesses to pitch new products to the retailer. Called “Making it…With Lowe’s” the program invites entries which will be winnowed down through a process leading to five small business owners who will pitch their product “live” to CEO Ellison and other executives. The winners will be announced in 2021. Needless to say, both retailers have also been active in social programs supporting minority rights and hiring.
Little Improvement Needed
Without rolling out too many bad puns (is there such a thing as a good pun?) both Home Depot and Lowe’s have built solid foundations, erected sturdy and durable business structures and allowed for add-on businesses to keep their property values rising. Wall Street thinks so too, as each company’s stock price has nearly doubled since early March, putting them in a league with just a handful of public companies.
With most forecasters predicting anything to do with the home will continue to do well for the next 12 to 18 months, Home Depot and Lowe’s should remain two of the country’s strongest retailers. They are built for the times.