Lowe's will slow down growth

The slowdown in the housing market is forcing a slowdown in growth for Lowe's:

Lowe's plans to open 75 to 85 stores in fiscal 2009, which translates to footage growth of about 5%, said the Mooresville, N.C., chain. That compares with this year's plan to open about 120 stores, or square-footage growth of as much as 8%.

It's not a good year for retailers in general, but things are especially bad in the home improvement arena, and it's likely to get worse, with Home Depot's plans to start a price war. Lowe's says in same-store sales will be roughly flat (a range of +1% to -3%)

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.

Home Depot cutting promotions

Home Depot announced that they are cutting back on unproductive promotions:

"We learned that numerous promotions were not providing sales lift, and therefore have reduced unproductive promotions," Craig Menear, Home Depot executive vice president of merchandising, said during the home improvement industry leader's analyst meeting ...

I'd like to know more about their data and analysis, but that's pretty much all the article says. It's so frustrating sometimes, when an article in the general media touches, ever so lightly, on a subject of interest to me, and then moves on.

84 Lumber: Two years later

I've only once before posted anything about 84 Lumber, and it was almost exactly two years ago -- on April 4, 2006 I posted this:

84 Lumber closing/opening stores

84 Lumber announced that they're closing 67 stores, but planning to open 125 others.

Stores in “no-growth” and rural markets will be closed, as the company tries to boost its annual sales to $10 billion by the end of 2009, 84 Lumber said in a statement.

The company had 521 stores and reported sales of nearly $4 billion in 2005.

“We determined that we needed to make some tough decisions regarding underperforming store and close them,” said company president Maggie Hardy Magerko.

84 markets exclusively to contractors and professionals, a segment that Home Depot has been targeting lately, including making significant acquisitions.

It's not much of an anniversary present, but now we have this item:

84 Lumber Co. said Monday it is closing another 30 stores across the country, citing the slumping housing market. [ ... ]

Last month, 84 Lumber consolidated nine stores into other facilities.

84 Lumber has 368 stores and 13 manufacturing facilities in 37 states. Several stores and plants are "mothballed" and will reopen when conditions allow, the company said.

I don't doubt that the poor housing market is having an effect, but let's do the math: Two years ago, when the housing market was still strong, they had 521 stores and said they were closing 67, but opening 125, which would bring them to 579. But now they have 368 and are closing 30. Most of those missing 150-200 stores must have been lost before the housing market went bad.

It's no mystery, of course: the problem isn't the housing market, the problem is Home Depot and Lowe's, and the two-per-channel theory.

Weekend quick notes

Rona, the biggest home improvement chain in Canada, is planning to reverse the usual pattern and come south to chalenge Home Depot and Lowes. The report is that they may buy a small US chain, and will concentrate initially on the northeast.

McCormick has bought Epicurean International, a Thai food marketer (Thai Kitchen and Simply Asia are their brands). "David Sakamoto, Epicurean International's chief financial officer, said the purchase by McCormick will allow his company's products to be further developed and distributed more widely."

84 Lumber closing/opening stores

84 Lumber announced that they're closing 67 stores, but planning to open 125 others.

Stores in “no-growth” and rural markets will be closed, as the company tries to boost its annual sales to $10 billion by the end of 2009, 84 Lumber said in a statement.

The company had 521 stores and reported sales of nearly $4 billion in 2005.

“We determined that we needed to make some tough decisions regarding underperforming stores and close them,” said company president Maggie Hardy Magerko.

84 markets exclusively to contractors and professionals, a segment that Home Depot has been targeting lately, including making significant acquisitions.

Home Depot c-stores?

Home Depot may be worth a separate blog, with the number of posts about them lately. Now they're talking about getting into the convenience store business.

I don't think I understand this one.

Analyst Bill Sims with Smith Barney said some retailers use gasoline as a loss leader and a way to drive traffic into their stores.

"If Costco's doing it, and Wal-Mart's doing it, why not Home Depot?" Sims said. "I would think it would be a great traffic driver and more of a one-stop-shop."

Excuse me if "Costco's doing it, and Wal-Mart's doing it" doesn't strike me as great logic. Remember your mom saying, "If Billy jumped off a cliff, would you do it?"

Okay – it’s not that bad, but it still sounds strange to me.

I see c-stores as being a great place to pick up a loaf of bread and a gallon of milk, not a loaf of bread and a gallon of paint, which is what the “one-stop shop” part of the argument seems to envision.

Still, in one limited aspect I can see the logic, and that is as a tie-in with their foray into the professional market. I guess I can see builders drinking coffee and buying donuts in the morning as they wait for their orders to be loaded. Still, that seems a weak foundation on which to build a c-store business.

But I could be wrong.

Home Depot to slow new store openings

As noted last week (see "Home Depot going pro" below) HD is emphasizing professional business as a hedge against the challenge in the consumer segment from Lowes. This was confirmed when HD announced their plans to analysts.

Though Home Depot said it would slow new-store growth to 400 to 500 through 2010, roughly half the number opened in the previous five years, its plan to derive more sales from professional contractors was seen favorably by analysts....

Although sales to contractors is only 4% of HD's business today, it is projected to reach 18% in 2010. They are also pushing for growth in services/installation, and international expansion.

Lowes, by contrast, will be opening 150-160 stores per year on 2006-07. If that keeps up (a big "if"), Lowes will be closing in on HD in store count by 2010.

Home Depot going pro

Home Depot is paying $3.2b for Hughes Supply Inc.

The purchase is Home Depot's biggest ever and will double the size of its supply division to $12 billion in revenue, allowing the company to continue its drive to win more professional customers. Chief Executive Officer Robert Nardelli has made three acquisitions in the past year to expand beyond do-it-yourselfers.

Bloomberg speculates that the move is at least partially an attempt to diversify because of incursions into its core business by Lowe's:

Home Depot is making acquisitions as it has become more challenging to find new store locations and sales growth lags behind Lowe's Cos., the second-largest home-improvement retailer.

Home Depot has about 2,000 stores, while Lowe's has about 1,175 and is still expanding into large U.S. cities. Home Depot has boosted sales an average of 12 percent a year over the past five years, compared with an average gain of 18 percent at Mooresville, North Carolina-based Lowe's.