Tuesday, September 23, 2008

Home Depot cutting prices sharply

With the home improvement sector hurting even worse than most retail categories, Home Depot has decided that price cuts are the solution.
In an effort to pick up share from Lowe's and Wal-Mart in a pinched home-improvement segment, Home Depot is cutting prices between 5% and 50% on some 1,200 items. The discounts, which Home Depot expects to be permanent, will go into effect (immediately) and roll out during the next three weeks.
There's no doubt that HD is hurting ("sales fell 3.4% in the first quarter and 5.4% during the second quarter. Sales at stores open at least year dropped 6.5% in the first quarter and 7.9% during the second quarter"), the question is whether price cuts will do anything other than depress margins throughout the sector if competitors match the cuts.
An analyst note from Deutsche Bank warns that the promotions could hurt margins, if competitors counter Home Depot's promotion scheme. "The key here is that in this tough macro environment, we're not sure if incremental price promotions will even drive meaningful sales growth," the note states.

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