Home Depot and Lowe's reported lower sales in their most recent financial results compared to a year ago as shoppers cut back on spending at home improvement stores. Meanwhile, home improvement chains are trying to navigate a difficult macroeconomic environment by boosting business with specialty contractors and finding new ways to serve online customers.
Lowe's on Tuesday reported first-quarter sales of $21.4 billion, down 4.1% from the same period last year. Still, it exceeded expectations, predicting that sales this year will be about 2% to 3% lower than in 2023. The same goes for Home Depot, which reported $36.4 billion in sales last week, down 2.3% from a year ago.
Customer traffic at both chains is down, suggesting weakness in the market for big-ticket items. DIY spending is down as renovations are brought forward during the coronavirus pandemic. Additionally, high interest rates have slowed home sales, which has affected spending on renovations and repairs.
“While real wage growth and home price increases are strong, home improvement customers remain on the sidelines, expressing concern about the rising cost of living and the overall state of the economy,” Marvin Ellison, CEO and chairman of Lowe's, said in an earnings call on Tuesday.
To offset this decline in demand, Home Depot and Lowe's both plan to improve their services for professional contracts, which they see as a fast-growing segment. Additionally, both companies saw a slight increase in online sales. Lowe's reported a 1% year-over-year increase in online sales, and Home Depot reported a 3.3% increase in sales. This includes orders processed through stores.
Ellison said the company aims to meet the needs of small and medium-sized contractors and tradesmen with services such as on-site delivery and opening supply branches. “We still have a long way to go to grow with these customers while leveraging our retail footprint to drive profitability,” Ellison said.
Home Depot CEO Ted Decker said the company sees potential growth opportunities with residential specialty contractors who buy into many categories of complex projects, a total addressable marketing value Decker estimates is about $250 billion. But to serve that group, it will need to develop more fulfillment options and order management capabilities, which Decker calls the “pro ecosystem.” Home Depot plans to bolster those services with a possible acquisition of SRS, a trade distributor that makes products for roofers, pool contractors and landscapers. He said the new service system will be in place in 17 markets by the end of the year.
“Driving sales growth with our Pro customers continues to be one of our top areas of focus,” said Decker.
Both companies have pointed to specialty contractors as a growth area in recent years. But that inevitably distanced them from the broader challenges posed by the housing market. Bill Bastek, Home Depot's executive vice president of merchandising, said on an earnings call last week that while professional and DIY sales were relatively consistent, both were negative in the quarter. Ta.
Lowe's reported positive comparable sales for professional sales in the current quarter. But Ellison said there's plenty of room for growth in a highly fragmented market. “We strive to provide a high level of service to small and medium-sized professionals while continuing to build trust and credibility,” he said.
Amanda Wyatt, a contractor and founder of DIY training platform Design Insider, said she is still seeing and hearing about a significant amount of real estate and renovation activity in the second home market. But even when contractors are busy, they are still dealing with associated headwinds such as price fluctuations, increased labor costs, and material availability. Because of these issues, budgets don't stretch as much as they used to, and some homeowners may scale back on projects they plan to undertake.
“If you were building three years ago, you were paying $500 a square foot; now you're paying $800 a square foot,” she says.
For the more mainstream customer, Home Depot and Lowe's are both looking at ways to boost online sales. Home Depot is working to improve its online search and filtering features to help shoppers find what they're looking for faster. At Lowe's, Ellison said Tuesday that improved online conversions are helping offset softness on higher-ticket items, thanks to partnerships with DoorDash and Shipt. The website is also starting to integrate more virtual reality features to let shoppers visualize what products will look like in their home.
Additionally, Lowe's rolled out its MyLowe's Rewards program nationally this quarter, which includes free standard shopping and a points-based rewards system. Ellison declined to say how many people have registered so far, but said the launch has been a success both in-person and online.
He said that overall, Lowe's has invested billions of dollars in the company during this time and is focused on what it can do to drive long-term growth.
“I think the first quarter reflects that we're operating at a high level despite facing macro headwinds,” Ellison said, “but we're positioned to truly emerge from this downturn as a better company.”
Home Depot and Lowe's both saw declines in in-person visits in the first quarter, down 1.1% and 4%, respectively, according to data from Placer.ai. RJ Hottovy, head of analytics research at Placer.ai, said the past few quarters have been tough for home improvement retailers. “Some of that is to be expected with low home turnover,” he said.
However, Mr Hottobee said there could be a rebound in the future as the housing market changes. While some areas have fundamentally changed from before the pandemic, home improvement is an area that has normalized and will continue to normalize, Hotby said.
“We have seen a lot of household formation by Gen Z and younger groups. More people are working from home, which is leading to increased attrition. Many people are moving away from urban environments and becoming more “We are seeing them move into smaller markets,” he said.
This bodes well for the home improvement industry as a whole. Mike Taylor, practice director at consumer information firm JD Power, recently researched the home improvement space and found that trust in big brands is significantly higher. “This is primarily a macro event happening to them right now,” he said.