Home Depot & Lowe’s
Financial Comparison and Analysis
Lowe’s (LOW) and Home Depot (HD) are competitors in the every growing market of Home Improvement. The following analysis of each company will examine the home improvement industry, the individual companies, their operating philosophies, their financial strengths or weaknesses, and a final conclusion on which company would be a better long-term investment.
The growing trend of home improvement has perpetuated a larger demand for box store home improvement shops such as Home Depot and Lowe’s. There are several types of companies that contribute to the booming renovation industry. Home Depot and Lowe’s provide all the materials and tools necessary to facilitate home renovations.
Home or residential renovation is a $300 billion industry in the United States, and a $48 billion industry in Canada. The average cost per project is $3,000 in the United States and $11,000-$15,000 in Canada (Wikipedia.com, Home Improvement April, 2010). Home Depot and Lowe’s are the first and second highest ranking (respectively) home improvement retail stores in the world. Combined these two companies produced $119.5 billion in sales for fiscal years ending February 1, 2009 (Lowe’s, 2008 Annual Report P.18; Home Depot, 2008 Annual Report P.28). These industry leaders, however, have had to change their operating philosophy as the economy started to shift into a recession in December of 2007.
The home improvement industry is greatly influenced by the housing market and by various economic factors. In 2008 housing turnover was down 16%, S&P/Case-Shiller US National Home Price Index was down 18.2%, Unemployment up from 4.9% in January 2008 to February 2009, and we witnessed some of the lowest consumer confidence levels on record (Lowe’s, 1008 Annual Report P.2). Neither Home Depot nor Lowe’s exceeded their goals set for 2008, however, as the economy shifted into recession each company was forced to reduce expansion and focus on profitability and stability instead of growth and gross volume in sales. As consumers have become increasingly more cautious about discretionary sales, the total purchase of non-essential home improvement products has fallen sharply. Consumers are focusing on more essential items for their home improvement projects.
The industry is characterized by big competition from Home Depot & Lowe’s, each with a large chunk of the market. With the concept of ‘everything under one roof’, home improvement retailers are continually expanding their store sizes. The do-it-yourself market has driven demand in past years. As tome continues, however, the aging population requires someone to do-it-for-me, industry operators may need to offer additional services in order to maintain growth.
Industry resources show us that consumers of home improvement products are continually growing and demanding new products at lower costs (HIRI.org, Home Improvement Research Institute 2010). The growing trending of “GREEN” products is a technology demand placed upon Home Improvement stores to provide more consumer based earth friendly home improvement products. The consumers of Home Improvement products demand to be offered higher value products at lower prices, which create interesting challenges for Home Depot and Lowe’s. Consumers demand the following – one stop shopping, lower prices, convenient locations to stores, and excellent customer service. Home Depot and Lowe’s have responded in kind with – super stores carrying a wide product line, price driven products, slight expansion and acquisition of new stores, and increasing sales force education.
HOME DEPOT: BACKGROUND & OVERVIEW
Home Depot was founded in 1978 in Atlanta, Georgia and has earned the ranking of number one as the largest home improvement retailer, operating 2,233 Home Depot stores located throughout the United States including the...
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