Home Depot Could Be Winner In The Dotcom Segment

Home Depot (NYSE:HD), America’s largest home improvement retailer, could win the budding online segment against arch-rival, Lowe’s (NYSE:LOW). Since the recession, Home Depot and Lowe’s stocks, (chart below), have seen phenomenal growth against a recovering U.S. economy and housing markets. Although macroeconomic fundamentals were hardly favorable last quarter, Home Depot continued to win, reporting $20.90 billion in revenues to beat analyst expectations. At the same time, Lowe’s fell prey to the slowdown to under-perform analyst expectations with $14.1 billion in revenues. While a number of factors are suggestive of further growth for Home Depot, one very promising avenue for the retailer is the online sphere, and here’s why the retailer could be the champion.

Source: NASDAQ

1. Firstly, Home Depot has a much more extensive footprint with over 2,200 stores, as opposed to 1,840 with Lowe’s. This automatically allows Home Depot a better integrated network to drive ease and efficiency in product shipping. Given that approximately 40% of all online orders are picked up in a store, better interconnectedness between the online space and the in-store space could guarantee better performance for Home Depot.

2. Leveraging their vast network, Home Depot declared the launch of “Home Depot Delivers” in 2013, in an attempt to enable same-day shipping for all online orders. ^[1] In this respect, they opened two distribution fulfillment centers last year, with each center holding more than 100,000 stock keeping units, 70,000 more than the average store. The opening of a third fulfillment center later this year could further boost online sales for the retailer, by reducing the time lag between ordering a product and its delivery. ^[2]

3. Home Depot has come up with ways to better cater to its DIY (do-it-yourself) and DIFM (do-it-for-me) customers. In this respect, HomeDepot.com is well equipped with providing any hands-on customer with the tools, timeline, and steps. Apart from this, the site also allows customers to avail services of any of their licensed contractors to see projects to completion. These services, more than anything else, could appeal to the valued Pro customers to go on to drive ticket sizes for Home Depot.

4. Lastly, Home Depot is the king of productivity. For efficiency gains, Home Depot has devised their in-store technology to perfectly complement what is available in stores. For instance, Home Depot’s app goes beyond what Lowe’s offers in terms of maps and location based product inventory, to further include features such as a voice guided product locating service and updated online offerings during in-store shopping across various categories. These features make shopping at Home Depot easy, along with bringing the customer’s attention to the company’s online offerings.

Source: Earnings Call Transcripts, Seeking Alpha

Clearly these factors have worked in Home Depot’s favor, to allow them over $3.7 billion in web sales, as opposed to $1.4 billion for Lowe’s in 2014. Furthermore, the gain in sales that Home Depot has been witnessing trumps that at Lowe’s, as witnessed by the 30% in Q1 2015 in comparison t0 25% at Lowe’s. ^[3] In this situation, it may be hard for Lowe’s to catch up to Home Depot going forward, especially as the retailer continues to leverage its productivity enhancing, vast store network, and large product range.

• Here’s Why Home Depot Continues To Win
• Home Depot: Four Factors To Watch Out For In 2015
• Key Trends In Housing Impacting The Home Improvement Market
• Trefis Analysis: Painting and Flooring market share
• Trefis Analysis: Home Depot EBIDTA Margin 

1. Home Depot tests delivery-from-store expansion [↩]
2. Home Depot Launches “Home Depot Delivers” To Fulfil Same-Day Shipping [↩]
3. The Home Depot (HD) Craig A. Menear on Q1 2015 Results – Earnings Call Transcript [↩]