A Blog by Jonathan Low

 

Aug 16, 2016

How Home Depot and Lowes Are Fending Off Amazon

It helps to be selling large, heavy products like stacks of lumber or concrete pavers that are expensive to send and no shipper really wants to deliver.

But the lesson for other retailers attempting to combat digital commerce and free delivery may also be that the more consumers are invested - literally and figuratively - in the actual use of what is being bought, the more likely they are to want to inspect it in person before they buy. JL

Paul Ziobro reports in the Wall Street Journal:

Amazon doesn't have a toehold in large parts of the home improvement space, like lumber, paint and gardening supplies. Home Depot says just 25% of its business -- smaller, easy-to-ship items like power drills and small hand tools -- faces online competition. 11% of consumers planning a home improvement project planned to buy something from Amazon. That is far behind the 36% who said they planned to shop at Home Depot and the 21% at Lowe's.
Do-it-yourself chains Home Depot and Lowe's enjoy growth beyond website's online reach.
Do-it-yourself chains Home Depot Inc. and Lowe's Cos. appear to have built a retail oasis mostly walled off from the reach of online behemoth Amazon.com Inc.
Such gains are the envy of other retailers. Kohl's Corp., Macy's Inc. and Nordstrom Inc. each recently posted ongoing sales declines amid difficulty getting more people to shop in their stores. Wal-Mart Stores Inc., which reports its fiscal second-quarter results on Thursday, is projecting a small same-store sales gain, while Target Corp., whose quarterly earnings are due Wednesday, has projected a sales dip.
The retailers that have reported earnings thus far have pointed to slightly improving trends from earlier in the year. But they also have seen their business models upended by the rise of online shopping that reduces the need to visit a store for a sweater or blender. Macy's is responding by closing 100 locations.
Executives from the home improvement chains cite a litany of favorable housing trends for their good fortunes. New households are being formed and housing turnover remains steady. Millennials are even willing to buy homes, albeit six years later than normal, according to Home Depot. All that spurs trips to large chains to pick out appliances and paint colors, and plan projects around the home.
About two-thirds of U.S. homes are also more than 30 years old, Home Depot says, requiring more spending on upkeep. Low interest rates and rising home values -- which are now just 2% below their July 2006 peak, according to S&P CoreLogic Case-Shiller Indices -- make replacing a roof, or even updating a kitchen, more palatable, as homeowners view their homes as investments, not expenses.
Such trends have kept the home-improvement sector growing well above the broader retail market. Sales at home- improvement chains and similar stores are up 6.4% through July versus the same period a year ago, according to the Commerce Department. In contrast, overall retail sales are up 2.8% during the same period. Only drugstores and restaurants this year among brick-and-mortar locations are outrunning the home improvement stores.
Online sales, of course, are growing much faster, up 10.5% at non-store retailers this year, according to the same federal data. Much of that is coming from Amazon. But the e-commerce giant doesn't have a toehold in large parts of the home improvement space, like lumber, paint and gardening supplies. Home Depot says just 25% of its business -- smaller, easy-to-ship items like power drills and small hand tools -- faces tough online competition.
That doesn't mean either chain is immune to Amazon. A UBS survey in June found that 11% of consumers planning a home improvement project themselves planned to buy something from Amazon. That is far behind the 36% who said they planned to shop at Home Depot and the 21% at Lowe's, but up from just 7% a few months back.

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