Home Depot Slows Down Expansion; Still Losing Customers to Lowes

Home Depot (HD) announced it will no longer pursue the opening of about 50 U.S. stores it was planning. New store capital spending will be reduced by approximately $1 billion over the next three years. Total capital spending for the current fiscal year is projected to be about $2.3 billion, down from $3.6 billion last year. Also announced were the closing of 15 underperforming U.S. stores that do not meet the Company's targeted returns.

Home Depot reiterated that its earnings per share from continuing operations are expected to decline by 19-24% for fiscal 2008. This comes on the heels of the announcement last month of it was getting rid of the "HR Manager" position at each store in favor of a more regional model.

Home Depot needed to do this and, like the HR move, one has to wonder what took so long? For years Home Depot has needed to invest more capital in its dingy locations as it has been consistently losing market share in almost every sales category to the cleaner, brighter Lowe's (LOW) chain.

The savings from these closings ought to go directly into store remodels. If they don't, while HD will see an improvement when the economy improves, it will pale in comparison to what investors in Lowe's will see. The desertion of shoppers from HD to Lowe's will not change just because the housing market does. It will only change when HD gives them a reason to go back.


Disclosure: No position.

Comments

[adan:]

while my wife and i haven't been to either lowes or home depot in over a year now, which is one telling thing about their business, when possible we always chose lowes over home depot for one simple reason, service

2008 May 04 09:46 AM

[unimpressed...:]

Home Depot needs an overhaul of their business plan. For instance: clean up their stores so they look less like a dirty warehouse and more like a business. Get their employees off their dear asses and out onto the floor assisting customers. Train or replace their in-store management people so that they have more than a clue about how to manage a retail environment.

Home Depot stocks almost the same products as Lowe’s, but HD's prices are much lower. If they would get their customer interaction on-track and alter the appearance of their stores, they would be much more successful than Lowe’s could ever hope to be with their outrageously over priced goods and services.

Perhaps the best place to start the overhaul is in the HD corporate hdgtrs. Fire the CEO and all the corporate officers and bring in professionals who are dedicated to their professions and less concerned with enriching themselves.

2008 May 04 05:47 PM

[brynmetler:]

As I residential builder, I can only concur with the findings, Home Depot is not in the game with Lowe's. They don't even have their own delivery trucks, and cannot make decisions at the local level on much of anything. Their appliance depts. do not carry the products in stock, but you place an order -- like a Sears catalog store. Never again will I buy an appliance at Home Depot unless it is in stock at that moment.

Nardelli and his clowns have just about destroyed Home Depot, and it shows no signs here locally (SC) that it knows what problems it has. Lowe's isn't perfect by any means, but much easier to work with.

Home Depot stock should tank, and then I might buy some, but for now, Lowe's gets my business and my money.

2008 May 04 08:18 PM

[Lizzy:]

The stock holders should demand some changes at the HQ level of HD. When you have 2 companies with basically the exact same product lines and target market (and stores usually within a block or two of each other) and one company is doing substantially better than the other, then you've got to question the oveall management starting at the top.
I prefer to shop Lowes because of the same reasons already stated... cleaner more eye-appealing store, employees who actually help you, and products actually in-stock rather than having to be ordered. HD was the first to come into our town & we were glad to have it. When Lowes came into town about a year later we had been conditioned to believe Lowes was going to be higher priced so we intially avoided it, but it only took a few trips there for things we couldn't find at HD to eventually discover it was a nicer more organized store with much better service.
Does HD want to cater to mainly just the contracting sect, or do they also want the business of the average consumer??
A note to HD: I've now bought 2 refrigerators, a washer/drier, multiple custom window blinds/coverings orders, multiple ceiling fans & light fixtures, etc etc at Lowes. I may not be a BIG customer, but multiply me by thousands. That's a lot of business to let go to the competition just because you have this "warehouse" mentality at HD. Think about it.

2008 May 05 07:24 AM

[Mikeys1:]

I run a remodel business and have always gotten better service at Home Depot. The last time I went to Lowes to buy 19 sheets of Drywall and asked an employee to help me put it on a cart. He told me it wasn't his department and walked off. I left and went to Home Depot and they loaded it right up for me.

2008 May 05 09:49 AM

[THD - Long:]

Please pay attention when 1Q08 results are released.....these arguments around THD store cleanliness and warehouse environment are half baked and over 1 year old. THD is slowly focusing on core retail and winning back market share. At the end of the day....when Lowes wakes up - they want to be THD. No questions asked.

2008 May 05 08:50 PM

[THD OVER LOWES:]

I currently work at the depot and do agree with some of the comments above. I do think we need to get a new CEO and i do think we clutter up the stores, which come from corporate on where to put stuff. Home Depot is more of a contractor store than Lowes. i have shopped at Lowes and think the service is worse than Home depot. I also believe that alot of Lowes associates work for commission, which i do not like. I do think hd is getting better than when nardelli was here. He destroyed the company. I think its a good thing the company is closing some stores that are underperforming. When it comes down to it, hd is #1 for a reason, the company just made a couple of bad moves.

2008 May 06 11:39 PM

[User 189886:]

Todd, sounds like you have a little bias toward Lowe's, possibly even a stock holder trying to sway the market. The only reason one can find any help in a Lowe's is because no one shops there. Yes, Lowe's shows better comp sales because they are still growing. Home Depot has recently taken on a new CEO and is changing direction back to what they know. Home Depot is established, the market leader, and will grow further as they clean up issues created by a prevoius CEO. As for associates on the floor, there is a point of diminishing returns. Home Depot has always put just enough people on the floor to help the majority of those in need and get necessary tasks accomplished. If they were to put one more person in every department, employees would have too much time on their hands, money would be wasted, and stockholders upset. As a customer of Home Depot, when shopping, I try to go in with a good attitude, get to know key personnel, research my project, and above all realize that the sign on the front of the building says, "Do it yourself warehouse". Bottom line, if Lowe's sold product at the rate Home Depot did, one couldn't find any associates on their sales floor. Typically, I've found about one associate per two departments in Lowe's and asked by them if I needed assistance on one in twenty visits. I have also found that many Lowe's associates have been let go from Home Depot. A couple final notes; when shopping either Home Depot or Lowe's, your procrastination is not their problem. Don't wait until the last minute to start any construction project and expect the retailer to perform miracles. Construction takes time and is messy. Mistakes will be made and orders late. Plan ahead and educate yourself.

2008 May 06 11:48 PM

[Mike08:]

Truth is HD has hurt itself by opening & flooding each area with too many stores. Waste of money and doesn't really improve the overall sales of each store. It only reduces the total amount of sales of each store at the end of the day. Don't even factor in prices of products, if the product is the same Lowes will price match and beat it by 10%. Appliances? Lowes is the #2 appliances seller behind Sears. Each store pretty much has instock appliances of the displays there and can Special Order hundreds of others. Not really even a good comparison to say every store of each company is the exact same. One HD store may do really better than a Lowes stores in one area and vice versa in another area. Even by amount of sales of stores, a Lowes store will make much more daily than a HD store, due to "cannibalization" method. You usually have 1 Lowes store compared to 3 or more HD stores in the same area. Customer Service will vary from store to store. Lowes does tend to cater to the "non contractor" retail customers and HD tend to cater to the contractors. Associates? You will often find that both companies will be very very quick to hire the former worker or recruit from each other(often due to less training involved and quick placement on the salesfloor for customer service). HD & Lowes, both got caught up in a buying spree(buying companies that were often suppliers), which both were not really in any position to really run the supply companies. Most customers & shareholders don't even realize that both companies actually stock products that are bought from each other. For some odd reason seems like the "corporate level" thought they could put the squeeze on each other & not notice it would be putting the squeeze on their biggest buyer. As you can probably tell I am an employee of one(Lowes). I have more than a few family members that work for both companies from associates to management. Truth be told, both places are warehouses that sell just about the same products. And no Lowes does not want to be like HD at all. We like our customer base to be the "non contractor" customer and I think HD bread and butter is contractors. True enough HD is our competition but that doesn't mean we want them out of business. Thats just not American and the consumer really benefits from it with getting the best value and eventually best service for the battle of their repeat business. Also, money wise, I do own stock in both companies!

2008 May 07 03:12 AM

[User 191061:]

Bring back Bernie Markus and Arthur Blank, the 2 guys that started HD. They knew how to treat their employees and to run a successful
business. I'm pretty sure the majority of HD employees are sour and bitter because of the crap management puts them through. I know I worked there 6 years ago. I remember after being there a week in the beginning an Asst. Mgr. came up to me and said, "If you ever pull that Sh-t again, I'll fire your f--king a__." He said that because I told a customer, "If you go get a cart I would be glad to help you load you merchandise." I guess the customer didn't believe they needed to get a cart! That's just one of the mellower stories I have. HD needs to clean up the stores. Find decent management, and please get rid of the day labors in the parking lot. I'm tired of them sitting on my car when I'm in the store shopping. I have never seen a laborer on Lowes property! The day laborers also urinate all over the parking lot . The security guards seem to be amigos with all the day laborers. Maybe the security guards use to be the day laborers. HD treat your employees and customers with respect or you'll go down the tubes just like Kmart.

2008 May 09 01:44 AM

[User 194365:]

Some people like #2's just because they harbor the hope that #2 will someday become #1. But history is littered with #2's that never managed to make #1's. Most recent striking example: Circuit City vs. Best Buy. We all know that Lowe's is brighter, more superficially appealing. But at the end of the day, Home Depot still has the momentum in terms of sales, economies of scale, location, and, yes, reputation. As a prior poster wrote, when Lowe's wakes up in the morning, it hopes it sees Home Depot when it looks in the mirror. But lookit: Lowe's has a great deal going for it, and when this stock falls below 18 or 19, it'll be worth picking up a few shares just for when the economy turns around. People aren't buying houses, which is a fact that sellers presumably know, which means on the one hand, maybe they want to spruce up their houses in the meantime (or in preparation for putting it on sale . . . hah!), or on the other hand, that nobody's got money for nuttin', and least of all to put in granite countertops and skylights. Both HD and Lowe's are still in for many months of tough times, and in a contracting market the argument of growing market share -- well, a larger slice of a smaller pizza pie is, any way the cookie (I mean, pie) crumbles, a smaller piece altogether.
I'll wait till two or three quarters from now before dipping my toe into the moat surrounding these two big box retailers.

2008 May 16 12:44 AM

[jimmyecon:]

I mostly shop at Home Depot but sometimes do go to Lowes. The Home Depot almost always has more customers than Lowes does.

I would like to know sales per square foot and not just comps from one year to the next. From what I have seen, it sounds almost impossible that Lowes is more successful than Home Depot.

I understand that Lowes is growing and successful expansion results in higher percentage profit growth and I understand that Home Depot is a mature company with less opportunity to grow so it's profit growth has to be lower.

I do think that after Arthur Blank and Bernie Marcus left the company, service did decline but I have noticed an improvement since Nardelli left.

I usually shop at the Dahlonega Georgia Home Depot. The service at that store is wonderful. Even the manager gets out on the floor and serves the customers.

2008 May 16 07:02 AM

[proline5656:]

I worked for HD for 9 terrible months. The managers know nothing. they underpay and are top heavy. After 35 years in construction, my knowledge was not utilized properly. Eric McDonald should get involved with his Dept. heads more. terrible district managers. I told them I was walking and no reply.I was at the so-called Pro-Desk, What a Joke. They are supposed to be the Pros, but the advise I heard given to some contractors and home/owners was wrong and possibly dangerous.

2008 May 16 05:00 PM

[User 239889:]

This is great news!

2008 Aug 13 07:30 AM

[Plastering:]

I choose Home Depot over Lowes,being a Plastering Contractor in Massachusetts.Time and $ count.

Jan 02 06:26 PM

[Bill09:]

stop going to lowes and home depot and go the the local guys and get great service and product info.

Jan 08 05:14 PM