Lowe's (LOW 0.22%) often gets labeled as "second best" to rival home improvement retailer Home Depot (HD -0.60%). It has fewer stores, less yearly revenue, and a lower share price. But what many fail to notice is that Lowe's keeps chipping away at Home Depot's lead and has been very successful in building up its business.
The company's achievements are a nice balance between old-fashioned good judgment and modern retail trend execution. So while it still plays second fiddle, it's beefing up to present itself as a well-matched competitor in the home improvement marketplace.
Image source: Lowe's.
Investments in growth and innovation
Not satisfied with its standing, Lowe's has implemented many growth strategies that have attracted new customers and grown its sales. These efforts fall into two main categories: Pro and DIY.
In Pro: The company has been developing "Lowe's for pros" for the contractor professional market, a huge home improvement segment that Home Depot excels in. Lowe's CEO Marvin Ellison called it a strong catalyst for growth in the company's third quarter, as the segment outperformed the DIY division and gained 700 basis points in internal customer service survey scores. The strength in this category has come from improving retail fundamentals, such as customer service and volume pricing. Lowe's also recently introduced a dedicated pro desk. Working off of this success, the company is launching a deeper pro experience, starting with a pro loyalty program.
In DIY: Lowe's has a strong focus on the customer experience, building out a robust augmented reality and artificial intelligence platform for customers to be able to experience products before they buy them. The company introduced the LoweBot, a stand-alone machine that can give customers instant answers to questions about products and where to find them in the store. It also rolled out smart devices for associates that allow them to update prices in stores and access information about products in real time.
Lowe's vs. Home Depot
No discussion about Lowe's can leave out the threat from Home Depot. By just about all measures, Home Depot outdoes Lowe's. That makes sense, considering Home Depot is a blue-chip company that has a commanding lead.
Home Depot is still growing faster than Lowe's and seeing higher sales.
|
Company |
Q3 2019 Revenue |
Q3 2019 Growth YOY |
Q2 2019 Revenue |
Q2 2019 Growth YOY |
Q1 2019 Revenue |
Q1 2019 Growth YOY |
|---|---|---|---|---|---|---|
|
Lowe's |
$17.4 billion |
(0.2%) |
$21 billion |
0.5% |
$17.7 billion |
2.2% |
|
Home Depot |
$27.2 billion |
3.5% |
$30.8 billion |
1.2% |
$26.4 billion |
5.7% |
Data source: Lowe's and Home Depot quarterly reports. YOY = year over year.
Home Depot doesn't have that many more stores than Lowe's, but it sees 33% more sales per square foot of store and saw a greater increase in the number of customer transactions in the third quarter. However, Lowe's saw a greater increase in average ticket, or the amount spent per customer.
|
Company |
No. of Stores |
Sales per Square Foot |
YOY Change in Customer Transactions |
YOY Change in Average Ticket |
|---|---|---|---|---|
|
Lowe's |
2,004 |
$336 |
(0.1%) |
2.4% |
|
Home Depot |
2,290 |
$449 |
1.5% |
1.9% |
Data source: Lowe's and Home Depot quarterly and annual reports. YOY = year over year.
Why it's underappreciated
It's important to note that in the third quarter, Lowe's comp sales were up 2.2%, and that was partially offset by stores closures.
Lowe's faces several challenges, notably its Canadian business and its digital platform. In Canada, the company saw negative comp sales in the third quarter. To counter this, the company is closing 34 stores in that country and simplifying its operations in the hopes of gaining improved efficiencies and a more coordinated sales effort.
The e-commerce business increased 3% in the third quarter, which at face value is OK. But when you compare it to overall retail trends and to Home Depot, whose e-commerce business saw double-digit growth in the third quarter, it appears a bit underwhelming.
Ellison asserted, "We know how to repair [this]." The company is overhauling its web site and changing its online pricing structure, and expects to see the benefits of those changes in the second half of 2020.
Lowe's has greater long-term growth opportunities, and that's important for creating shareholder value. It's investing in its business from the top to the bottom, assessing and tweaking weaknesses, developing its pro line, and aiming to stand out and offer a different experience.
Lowe's stock price has risen consistently. It grew 30% in 2019 and is up 4% so far in 2020, and the company is looking to even better days ahead.
