Hardware Industry: The Home Depot, Lowes, Lumber Liquidators

FIRE 520 - Hardware Industry: The Home Depot, Lowes, Lumber Liquidators

Introduction → Industry Focus

The home improvement industry’s main concentration is The Home Depot, 58%, and Lowes, 39%. (7) The industry is highly correlated with the housing market. The increase in sales of existing homes drives up the value of HII. As homeowners prepare to put their homes on the market, for sale or for rent, the need for home improvement stores also increases.

Another factor to consider is the two largest, current generations and their living patterns. The Baby Boomers are established and settled and not looking to move. The Millennials, largest being 22-24 year olds, are drawn to urban settings where renting is more affordable. Increase in rentals and the decline of sales will drag down the HII. In the next ten years or so when the Baby Boomers can no longer live in their current homes and the young Millennials start families, move out of their urban rentals, the need for home improvement store will again see an increase in revenue. (7)

The need for home improvement stores is seasonal with a peak in August and the low in January. (7) Looking at the two main corporations, The Home Depot’s main focus is customer service, DIY, and DIFM. Lowe’s main focus is discounts and store esthetics. When the economy is in a recessions, Lowes will start to see an increase in revenue compared to The Home Depot being stronger when the economy is on the rise.

Introduction → Individual Company Focus (ALL)

The Home Depot

Home Depot was founded in 1978 by Bernie Marcus, Arthur Blank, investment banker Ken Langone, and merchandising guru Pat Farrah (1). The four founders had a vision to create a store that could equip the do-it-yourselfer for any project. The first two Home Depot stores opened in Atlanta, Georgia on June 22, 1979 (1). The first stores appeared to be never-ending warehouses of supplies. Only later would customers realize that empty boxes piled high on the shelves gave the illusion of even more product.

From the beginning, Home Depot's goal was to provide the average person with the know-how and tools for any home improvement project. Home Depot's advantageous product alliances allowed them to deliver the most exclusive assortments to customers. Through a combination of

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national brands and proprietary products, the company sets the standard for innovative merchandise for the do-it-yourselfer and the professional contractor (1). Associates were highly trained in products and tasks, even offering clinics to customers in order to teach them how to do it themselves. Home Depot revolutionized the home improvement industry with an elevated level of customer service, saving their customers money through the exchange of knowledge while offering them the most exclusive assortment of products.

In 1981, Home Depot went public on NASDAQ and later moved to the New York Stock Exchange in 1984 (1). The strategic mission resonated with customers. Their rapid growth led to their celebration of the 100th store opening in 1989, only eleven years after being founded. With the acquisition of Aikenhead’s home improvement centers in 1994 and of Total HOME in 2001, the company saw continued expansion geographically to Canada and Mexico. In 2006, the company furthered its reach to China with the acquisition of The Home Way, a 12 store chain (1).

Today, Home Depot is the world's largest home improvement specialty retailer, with more than 2,200 retail stores in the United States (including Puerto Rico and the U.S. Virgin Islands), Canada, and Mexico. According to Bernie and Arthur, "the customer has a bill of rights at The Home Depot, and this entitles the customer to the right assortment, quantities and price, along with trained associates on the sales floor who want to take care of customers." (1). As Bernie says in Built from Scratch, “At the end of the day, we’re in the people business.” Home Depot’s stock is traded on the New York Stock Exchange (NYSE: HD) and is included in the Dow Jones industrial average and Standard & Poor's 500 index (1).

Do we want to include anything about values, philosophies, initiatives, etc?(

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Lowe’s

Lowe's Companies is the world's second-largest home improvement retailer, with over $56 billion in revenues generated in fiscal year 2014. It focuses on retail do-it-yourself (DIY) customers, do-it-for-me (DIFM) customers who utilize Lowe's installation services, and commercial business customers. Lowe's offers a complete line of products and services for home decorating, maintenance, repair, remodeling, and the maintenance of commercial buildings. As of January 30, 2015, Lowe’s operated 1,793 stores in 50 U.S. states, 37 stores in Canada, and 10 stores in Mexico, representing approximately 201 million sq. ft. of selling space. Stores include a lawn and garden center, averaging an additional 32,000 square feet. Of the total stores operating at January 30, 2015, approximately 86% were owned, including stores on leased land, while the remaining 14% were leased from unaffiliated third parties. Typical Lowe’s stores stock about 36,000 items, with hundreds of thousands of items available through the company's special order system. As of January 30, 2015, the company operated 74 Orchard Supply stores in the U.S. Orchard Supply stores were acquired in August 2013.

Over the past several years, Lowe’s has focused much of its future expansion on metropolitan markets with populations of 500,000 or more. The company expects that the majority of its expansion will be comprised of the 112,000 square foot stores in larger markets, but it also plans to open 94,000 square foot stores in smaller to mid-sized markets. During 2009, Lowe’s entered into a joint venture with Australian retailer Woolworths Limited to develop a chain of home improvement stores in Australia. Lowe’s is a one-third owner in the venture.

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Historical Financial Performance, Key Fundamentals and Acquisitions

Figure 1. Total returns (assuming reinvestment of dividends) of the Lowe’s common stock, S&P 500 Index and S&P Retail Index. The graph assumes $100 invested in Lowe’s common stock and each of the indices

Lowe’s stock (LOW), traded in the NYSE and included in the S&P 500

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