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Home Depot Look To Build On Stay-At-Home Economy Success Lowe’s

Lowe’s, Home Depot Look To Build On Stay-At-Home Economy Success

May 24, 2021 at 04:00PM
by PYMNTS

If there was a blueprint from last week’s series of Q1 retail earnings announcements, it went something like this: In-store comps shot up over 2020, stimulus payments drove a lot of business, digital sales continued to benefit from technology investments — and we’re not really sure what the rest of the year looks like.

And if there’s a retail category that stands to be more dynamic and potentially chaotic, it’s home improvement. After the category settled into the “essential” category in Q2 of last year, the stay-at-home economy took hold. Many retailers prospered in it, not the least of which were the two giants of the sector: The Home Depot (up 20.7 percent for 2020 versus 2019) and Lowe’s (28.1 percent). So when each reported earnings last week, their spike in comparable earnings didn’t count for much compared to 2020. After all, according to the real estate site Porch.com, 76 percent of all homeowners undertook at least one improvement project during the pandemic.

But the burning issue is whether or not the category caught lightning in a bottle with 2020 and follow-on Q1 results, or whether it’s fueled by a new era of nesting and new homeownership. Evidence shows that home improvement will continue its momentum based on available Q2 data, the housing market and a burgeoning digital business.

“If you look at the macro factors that really impact this business … it’s things like low mortgage rates, rising home prices, the age of housing stock, improved household formation trends and also strong consumer balance sheets,” Lowe’s CEO Marvin Ellison told analysts last week. “All of those specific macro factors are pointing in the right direction for us. In addition … home price appreciation actually benefits home improvement. It may not benefit the overall housing market, but when consumers decide to stay in their existing home and make investments in upgrading the home, that correlates to really strong home improvement sales.”

Both Lowe’s and The Home Depot reported that April and month-to-date sales for May were consistent with their Q1 results. As Ellison said, the trends that benefit the home improvement market are not necessarily tied to the housing market. Home sales, according to new data, could be weakening. Nearly 50 percent of homes sold for more than their list price during the four weeks ending May 16, according to a recent study from Redfin. But pending sales for the seven-day period ending May 16 were down 10 percent from April. Mortgage purchase applications also decreased 4 percent week over week.

“Make no mistake, the housing market is still very hot and will remain hot for the rest of the year,” said Daryl Fairweather, Redfin’s chief economist. “But there may be signs that some buyers would rather spend their money on restaurants, vacations and other things they have held back on for the past year, instead of on housing now that the threat of the pandemic is dissipating in America.”

Could that spell trouble for home improvement at retail, despite Ellison’s comments? Probably not. But it could sound the bell for increased competition in the space, creating what foot traffic metrics firm Placer.ai calls the “balance of power.” Placer says that the rising tide of 2020 lifted all boats, including for the emerging growth engine called Tractor Supply. Placer data shows that in March and April of 2019, The Home Depot averaged an 8.2 percent greater visit share than Lowe’s, which grew slightly to 8.4 percent in 2021. Tractor Supply saw its share among the analyzed group grow from 5.7 percent in 2019 to 6.7 percent in 2020, and its revenue jumped 42 percent from Q1 2020 to 2021.

Because it has been centered in rural areas and leans more toward farming inventory, Tractor Supply should not be counted out as a force in home improvement as it grows into more thickly settled geographies. It has a comparable number of stores (1,944) to Lowe’s (2,333) and The Home Depot (2,200). Tractor Supply is also investing heavily in its digital business, both online and through its mobile app. Its growth rate, according to CEO Hal Lawton, has topped 100 percent for the last four quarters. And its mobile app, which was released last July, has one million users.

The Home Depot and Lowe’s are also counting on their digital-first tools to power continued momentum. Both have focused those efforts on the professional contractor, indicating that both retailers expect the DIY market to fade with the pandemic and more complicated projects to go forward.

“While I won’t give any specific numbers and breakouts, I can tell you that our customer files of both Pros and consumers have grown … with a repurchase rate of developed customers growing faster than the new customers,” COO Ted Decker told analysts. “And the activity we’re seeing in engagement with our Pro customers with our B2B website, delivery capabilities and new loyalty program — all of those are also adding to the stickiness of the Pro customer.”