Home Depot
Who's Down and Out?

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By Justwoods
August 22, 2001

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I have heard many arguments as to why Home Depot (HD) is going to underperform Lowe's in the future, and on the surface the arguments seem to be very logical:

1. Lowe's is a growth story moving into lucrative markets dominated by HD till now. The end result, as the argument goes, is to erode HD's market share and same store sales.

This may be true to some extent but the high volume markets are fraught with problems Lowe's has not yet faced. It's not as easy as just opening your doors. These markets have increasingly become more hostile to the big box expansion and are making it considerably more expensive and difficult to open a new store.

While so many are looking only at the damage that will be done to HD they seem to ignore the fact that there is considerably less market share to grab than when HD opened in the larger markets. Lowe's may not show the same returns HD enjoyed 10 years ago. Let's not forget HD is experimenting with the lower cost, urban market store which in theory can move into the smaller markets that until now have been dominated by Lowe's. These stores could therefore erode Lowe's market share in markets they have dominated and have a negative effect on their same store sales as well.

In the same vein much of HD's expansion is with the EXPO store, an area Lowe's does not even compete in.

2. Lowe's stores have wide aisles and are brighter and cleaner than HD, therefore most certainly appealing to women more than HD, the macho store.

This most certainly has been the impression in the past but with the rollout of SPI, new signing programs and other strategic moves this will be a non-issue by the end of the year. And EXPO most certainly appeals to the female shopper even more so than Lowe's. That being said, even as HD rolls out SPI it is going forward with the pro-initiative. This will have a positive effect on HD's bottom line and may hurt Lowe's in those markets where they still operate contractor stores, again eroding Lowe's market share and same store sales.

3. Customer service is slipping at HD.

This has not been my personal experience as a shopper but I have no doubt some of the complaints about service are true and need to be addressed. This too, from my experience, is being solved by the rollout of SPI. Tasks are done at night and service during the day. If done correctly it works amazingly well. I have seen the results and experienced the service improvement first hand.

4. Lowe's is dominating the appliance market whereas HD only garners a small share of this category.

This is an area only scratched by HD and can only improve in the future. This has great potential for HD. If they pursue it correctly, any increase in sales from here is market share gained at the expense of those such as Lowe's and Sears who are already at the top of their game.

Let's not forget the new return policy of "no cash refund without a receipt." This should cut out millions in theft and fraud. Some think this move alone will ad several cents per share back to the bottom line. This action can only be taken by HD since Lowe's and others in the industry are already using this policy. This should not be an inconvenience to the legitimate shopper and receipt holders. I am sure that the same satisfaction guarantee will be in place, it just requires a receipt to get cash.

In closing I'd just like to add that Robert Nardelli is an unknown factor. His first nine months have shown great promise and therefore I am guardedly confident that he will continue to make positive strides with this company both with cost controls, acquisitions (his specialty), and new initiatives.

The future is most certainly bright for this industry. As Lowe's dances in the spotlight as a Wall Street Darling Home Depot is quietly reinventing itself, once again changing as necessary to meet a new and challenging market. That said, I think it is premature to say Home Depot's sunniest days are over!!! IMO