In the Dallas area, Home Depot has a flatbed distribution center. It is expanding its facilities around the country to help meet the big orders placed by home professionals. CNBC’s Melissa Repko A fleet of forklifts transports large and cumbersome home renovation products, such as drywall and concrete, to a massive warehouse in Dallas. On a rail line, box cars sliced through the massive factory. Trucks arrive, eager to be loaded. The facility, which is the size of 14 professional football fields, is assisting Home Depot in replenishing store shelves and delivering products to customers’ homes. It’s an important component of the retailer’s plan to attract more electricians, remodelers, and other house professionals, especially those who place large orders. The pandemic spurred a hot real estate market and a desire to “nest,” giving Home Depot and Lowe’s a boost. As the number of Covid-19 cases falls in the United States and homeowners spend more time on aircraft or at parties, revenue growth from home experts is the most promising business prospect. Home Depot has traditionally gotten more business from these more profitable and frequent customers, but Lowe’s is attempting to recruit more professionals as well. According to the companies, pro customers account for around 45 percent of Home Depot’s overall sales, compared to 20 percent to 25 percent at Lowe’s. Executives from both companies have recently stated that they are seeing pent-up demand for professional work as customers feel more comfortable bringing contractors back into their homes and dining out and traveling more instead of ticking off a list of do-it-yourself jobs. Ted Decker, president and chief operating officer of Home Depot, stated, “In talking to the pro, they all have extremely good books of business.” “They’re all behind schedule.” To take advantage of that demand, home improvement shops will need to make sure they have sufficient of goods on hand, even if supply chain issues, such as congested ports, cause shipments to be delayed. On Monday, Feb. 22, 2021, a customer wearing a safety mask loads lumber at a Home Depot store in Pleasanton, California. Getty Images/David Paul Morris/Bloomberg pursuing larger clients Home Depot has positioned itself as a handy alternative to ordering from specialised suppliers for professionals for years. It has increased its supply chain investment to $1.2 billion, which includes the development of a network of flatbed distribution centers like the one in Dallas. So far, four locations have opened in Dallas, Baltimore, Miami, and Newark, New Jersey, with three more scheduled to open later this year in Atlanta, Houston, and Tampa, Florida. Each facility has the capacity to store a large number of goods, such as a larger variety of shingles, and deliver orders directly to project sites. Decker claims that the enormous facilities are attracting larger professionals who only buy at Home Depot on occasion. “We may have practically all of a contractor’s wallet or a father-son team’s wallet,” he said. “However, as the pro gets bigger, we become more of a fill-in purchase. One of these distant competitors is providing their primary material requirement for a larger job.” Home Depot has expanded its professional division with the $8 billion purchase of HD Supply, a significant distributor of appliances, plumbing, and electrical supplies. The corporation had already been spun off. According to Decker, the highest year-over-year increase numbers in the future quarters would come from professionals, especially after a year in which building sites shut down, consumers postponed remodels, and DIY projects soared. In the first quarter, which ended May 2, the pro side of Home Depot’s business exceeded the DIY side for the first time in a year, according to Decker. Same-store sales increased by 31% in the third quarter. Professional sales outpaced DIY sales at Lowe’s in the first quarter, with gains of more than 30% year over year. Same-store sales increased by approximately 26% in the quarter when combined with DIY. On Tuesday, February 23, 2021, a shopper pushes a shopping cart towards the entrance of a Lowe’s store in Concord, California. David Getty Images | Paul Morris | Bloomberg ‘The expert in pick-up trucks’ Lowe’s CEO Marvin Ellison’s rescue plan includes boosting the professional business. Lowe’s sweet spot, he claims, is “the pick-up truck pro” rather than major corporations. It has introduced services and rewards that are similar to those offered by Home Depot, such as tool rental and a loyalty program with exclusive benefits for members. It has also added new brands and reorganized store products so that things needed for the same job are all in one area rather than being spread out across multiple aisles, saving time for professionals. Lowe’s pro sales and services senior vice president Fred Stokes said the recent expenditures are already paying off. Lowe’s has attracted new pros and grown wallet share among existing ones, he said in a statement. “We’ve heard from many of our Pros that they appreciate the other adjustments they’re experiencing,” he said. In Cambridge, Massachusetts, a construction worker renovates a property. Getty Images/Suzanne Kreiter/The Boston Globe The market is fragmented, but the pie is increasing. According to Michael Baker, managing director and retail analyst at D.A. Davidson, Lowe’s is gaining ground but is still playing catch-up. He claims that the size differential between the two home improvement merchants accounts for the full difference in sales per store. According to D.A. Davidson forecasts, sales per typical store at Home Depot and Lowe’s in 2020 will be $57.6 million and $45.4 million, respectively. This is because to the significant difference in pro sales per store between Home Depot and Lowe’s: $24.2 million at Home Depot against $9.5 million at Lowe’s. Lowe’s, on the other hand, he believes, has a better chance. He grades Home Depot as neutral, with a price objective of $317, down from Friday’s closing price of $322.70. Lowe’s shares, on the other hand, he recommends as a buy, with a price objective of $217, up from its Friday closing of $195.71. Baker stated, “Lowe’s DIY business is equally as powerful as Home Depot’s.” “So there’s no reason why their professional business shouldn’t be. They simply need to put money into it and see it grow over time.” The competition between the two, according to Brian Yarbrough, a senior research analyst for Edward Jones, is not a “zero sum game.” Home Depot and Lowe’s face a diverse set of competitors, ranging from small-town hardware stores to specialty merchants such as lumberyards and electrical supply stores. He claims that the fragmented market allows them to pick up new clients as well as poach them from one another. In addition, property values are growing, which is prompting remodeling efforts. According to Baker, this indicates a larger professional market for both retailers. He stated, “The whole pie is growing.”/n
Read More
