May 18, 2022

Home Depot has a flatbed distribution center in the Dallas area. It is opening more facilities across the country to handle the bulk of homeworkers’ orders.

Melissa Repko, CNBC

In a huge warehouse in Dallas, a fleet of forklifts transports large and bulky home improvement supplies from drywall and concrete to wood. Freight wagons cross the huge facility on a railway line. Trucks prefer, ready for loading.

The establishment of Home Depot – which could accommodate around 14 professional soccer fields – is helping the company expedite store shelves and get purchases delivered to customers’ doors. Getting more business from electricians, remodelers, and other home improvement enthusiasts, especially those who place large orders, is an important part of the retailer’s strategy.

The pandemic has fueled a hot real estate market and a penchant for “nesting” and created tailwinds for Home Depot and Lowe’s. As Covid-19 cases drop in the US and homeowners spend more time on planes or at parties, the biggest business opportunity is home improvement sales growth.

Home Depot has historically sourced more of its business from these more lucrative and frequent buyers, but Lowe’s is also trying to attract more professionals. About 45% of Home Depot’s total sales come from professional customers versus about 20 to 25% at Lowe’s, the companies say.

Over the past few months, executives at both companies have said they see a lot of catching up to do on professional projects as people are comfortable inviting contractors into their homes and eating and traveling more rather than a list of do-it-yourself Check off projects.

“They all have very good books when they talk to the professionals,” said Ted Decker, president and chief operating officer of Home Depot. “You all have arrears.”

Home improvement retailers need to ensure they have sufficient inventory to meet this demand, even if supply chain challenges – like congested ports – delay deliveries.

A customer wearing a protective mask loads wood at a Home Depot store in Pleasanton, California on Monday, February 22, 2021.

David Paul Morris | Bloomberg | Getty Images

On the hunt for bigger customers

For years, Home Depot has positioned itself as a convenient alternative to ordering from specialist retailers for professionals. With a $ 1.2 billion investment in the supply chain that includes opening a network of flatbed distribution centers like the one in Dallas, that has doubled.

Four have so far opened in Dallas, Baltimore, Miami and Newark, New Jersey, and three more will open later this year in Atlanta, Houston and Tampa, Florida. Each facility can hold a large amount of inventory, such as B. hold a larger selection of shingles and deliver orders directly to a project location.

With the massive facilities, Decker said, Home Depot is chasing down larger professionals who only occasionally shop with the company.

“As a sole proprietorship or a father-and-son team, we may have practically all of her wallet,” he said. “The bigger the professionals get, the more we are, however, more of a substitute merchant. They get their main material requirements for a larger order from one of these unequal competitors.”

Home Depot recently expanded its pro business by acquiring HD Supply, a major distributor of home appliances, plumbing and electrical appliances, for approximately $ 8 billion. It had previously spun off the company.

Decker said Home Depot expects the biggest year-over-year growth numbers to come from professionals in the coming quarters, especially after a year of construction sites closed, consumer remodeling postponed, and DIY projects skyrocketing.

Pro-side growth of the Home Depot business outperformed the DIY side for the first time in a year in the first quarter that ended May 2, Decker said. Combined, sales in the same store grew 31% for the quarter.

At Lowe’s, too, Q1 pro sales growth outpaced DIY sales, up more than 30% year over year. Combined with home improvement, sales in the same store rose nearly 26% for the quarter.

A customer pushes a shopping cart to the entrance of a Lowe’s store in Concord, California on Tuesday, February 23, 2021.

David Paul Morris | Bloomberg | Getty Images

“The pick-up truck professional”

For Lowe’s, resurrecting the professional business was part of CEO Marvin Ellison’s turnaround plan. He said Lowe’s sweet spot was “the pick-up truck professional” and not big corporations.

It has introduced services and perks similar to what Home Depot already had – such as: B. Tool rental and a member-only loyalty program. New brands have also been added and store goods rearranged so that the items needed for the same project are in one place rather than scattered across aisles, saving professionals time.

Fred Stokes, senior vice president of pro sales and services at Lowe, said these recent investments are already paying off. In a statement, he said Lowe’s had attracted new professionals and increased the proportion of the wallet among the existing ones. He said he has “heard from many of our professionals that they appreciate other changes they see”.

A construction worker is remodeling a house in Cambridge, Massachusetts.

Suzanne Kreiter | The Boston Globe | Getty Images

A fragmented market, a growing cake

Lowe’s is gaining ground, but it’s still catching up, said Michael Baker, DA Davidson retail analyst. He said the entire difference in sales per store for the two home improvement retailers was due to the gap in the size of the professional companies.

DA Davidson estimates that Home Depot and Lowe’s revenue per average store in 2020 were $ 57.6 million and $ 45.4 million, respectively. That’s because of the huge gap in Pro-per-store sales: $ 24.2 million at Home Depot versus $ 9.5 million at Lowe’s.

He said, however, that Lowe has a greater chance. He ranks Home Depot stock neutral, with a target price of $ 317 – below its closing price of $ 322.70 on Friday. On the flip side, he rates Lowe’s stock as a buy and has a target price of $ 217, above Friday’s close of $ 195.71.

“Lowe’s DIY business is as strong as Home Depot’s,” said Baker. “So in theory there is no reason why your business shouldn’t be pro-business. You just have to invest and build it over time.”

Edward Jones senior research analyst Brian Yarbrough said the competition between the two was not a “zero-sum game.” Home Depot and Lowe’s have a diverse mix of competitors, ranging from local mom and pop hardware stores to specialty retailers like wood warehouses and power utilities. This fragmented market enables them to attract new customers and poach them from one another, he said.

In addition, home values ​​are increasing and that inspires renovation projects. Baker said this means a bigger pro market for both retailers. “The overall cake is growing,” he said.