Large and heavy building materials, including DRYWALL OR SHEETROCK, concrete, and lumber, are moved to a Dallas warehouse using an army of forklifts. Here come the trucks, all set to be loaded. The massive building was sliced in half by a rail line operated by boxcars.
The massive space at Home Depot’s facility, equivalent to 14 professional football fields, facilitates faster stock replenishment and doorstep delivery of customers’ orders. The strategy is integral to the retailer’s plan to increase its share of the high-spending clientele it serves, such as professional electricians, remodelers, and other home improvement specialists.
As a result of the pandemic, home sales and the desire to “nest” have increased, which is good news for retailers like Home Depot and Lowe’s. Since fewer people are getting Covid-19 in the United States and people are spending more time away from home (on vacation or at social events), the best possibility for expansion is among home service providers. Lowe’s is trying to compete with Home Depot for the business of these more affluent and devoted customers. Compared to Lowe’s, where professionals only account for roughly 20% to 25% of sales, Home Depot reports that professionals make up 45% of their consumer base.
Both companies’ top brass have noted a rise in demand for their services in recent months, as homeowners feel more at ease bringing contractors back into their homes and opting for outings to restaurants and vacations rather than checking off a list of do-it-yourself tasks.
Retailers specializing in home enhancements will need to stock up in anticipation of increased demand, despite potential shipping delays due to factors including port congestion. To Home Depot’s president and COO, “In talking to the pro, they all have extremely robust books of business,” Ted Decker. You can’t pick one since “they’re all behind.”
After The Large Fish
Home Depot has been marketing itself to tradespeople for many years as a more practical option for sourcing materials from niche distributors. The company has doubled down on this strategy by investing $1.2 billion in its supply chain, much of which will go toward establishing a nationwide network of flatbed distribution centers similar to the one it recently opened in Dallas.
Dallas, Baltimore, Miami, and Newark, New Jersey, have all opened locations, and Atlanta, Houston, and Tampa, Florida, will add three more by year’s end. Each warehouse can stock various shingles, for example, and ship orders straight to the construction site.
Due to the store’s huge facilities, Decker speculated that Home Depot was going after more extensive professionals who only shopped there.
“We might have nearly all of their pocketbook,” he said, referring to a sole contractor or a father-and-son team. However, the greater the pro is, the more often we are bought in as a fill-in. They’re purchasing the bulk of what they need for a more extensive project from one of these dissimilar rivals. About a year ago, Home Depot spent almost $8 billion to acquire HD Supply, a major distributor of appliances, plumbing, and electrical supplies, expanding its professional division. The business had been split off in the past.
Decker said Home Depot expects the most year-over-year growth in the coming quarters to come from professionals, which is especially significant after a year in which construction sites shut down, consumers postponed remodels, and DIY projects increased.
For the first time in a year, Home Depot’s professional division outgrew its do-it-yourself division during the first quarter ending May 2, according to Decker. Total quarterly same-store sales increased by 31%.
In the first quarter, professional sales at Lowe’s increased by more than 30% year over year, outpacing the growth of DIY sales by a wide margin. DIY contributed to a roughly 26% increase in quarterly same-store sales.
“Expert in Pickup Trucks”
Improving Lowe’s performance is a top priority for CEO Marvin Ellison, and one part is reviving the company’s professional business. In his opinion, “the pick-up truck pro” rather than significant corporations are Lowe’s ideal customers.
It has introduced offerings similar to those provided by Home Depot, such as a tool rental service and a loyalty program with exclusive advantages for its members. Additionally, the company has introduced new product lines and reorganized the store’s inventory to centralize like-items for a given project rather than scattering them throughout the store, saving professional’s valuable time.
Senior. of professional sales and services at Lowe’s Fred Stokes claims the returns on the recent investments are visible now. He publicly stated how successful Lowe’s has been in luring new professionals and expanding its share of the wallet among existing ones. That “many of our Pros” have “heard that they appreciate other changes they are seeing,” he said.
Despite The Market’s Fragmentation, It’s Experiencing Steady Growth.
Retail analyst at D.A. Davidson Michael Baker said Lowe’s is making progress but is still playing catch-up. He said that the disparity in pro company size accounted for the fundamental difference in sales per store at the two home improvement chains.
According to D.A. Davidson, in 2020, Home Depot stores made $57.6 million in sales, while Lowe’s earned $45.4 million. That’s because its pro sales per store at Home Depot are $24.2 million, but at Lowe’s, they’re only $9.5 million.
He did, however, state that Lowe’s has more potential. He gives Home Depot’s stock a neutral recommendation and sets a price target of $317, which is lower than the stock’s $322.70 Friday closing price. In contrast, his recommendation for Lowe’s store is a buy, and his price target is $217, which is higher than the stock’s Friday closing price of $195.71.
“Lowe’s Do It Yourself business is just as robust as Home Depot’s,” Baker claimed. Thus, there is no reason their professional enterprise is not. Over time, they have to put money into it and develop it.
Home Depot and Lowe’s face competition from a wide range of businesses, from small, independent hardware stores to more extensive, specialized stores selling everything from timber to wiring. The match between the two is not a “zero-sum game,” according to Brian Yarbrough, the senior research analyst at Edward Jones. He argued that the market’s fragmentation gave them an advantage in acquiring new clients and stealing away existing ones. Additionally, rising home values motivate improvement initiatives. As a result, according to Baker, both stores should expect growth in the professional sector. He stated, “The total pie is expanding.”