Unknown: The American Home is getting a makeover. record high
home prices increased DIY activity in robust housing
market had led to a jump in consumer spending on home
improvement projects. That has helped sales at Lowe's surge.
Home Improvement retailers have been among the biggest pandemic
beneficiaries. The home is multipurpose more so than ever.
It's a work from home space. It's a home schooling space and
is a predominant space for entertainment and recreation
lose is the world's second largest home improvement store.
It sells everything from power tools and kitchen cabinets to
lawnmowers and barbecues. About 90% of the US population lives
within 20 miles of a Lowe's store.
The company announced in August 2021 second quarter net sales
increased 1% from a year earlier to almost $27.6 billion.
When you look at the declines last year that occurred in areas
like restaurants, airlines hotels, we think the American
consumer saved $500 billion in those categories, which was
which was able to reallocate the categories like home
improvement. And it's not just pandemic air housing trends that
are lifting revenue at Lowe's. The company's undergone a major
turnaround effort, improving stores, redesigning its website
and going after the lucrative home professional market, which
includes electricians and plumbers. On top of that us
homes are getting older in many artists state of disrepair. In
2019. About 2.7 million US owner occupied homes had either
moderate or severe problems, including issues related to
electrical plumbing, pet infestations, or structural
integrity. So with consumer discretionary spending, shifting
towards entertainment and travel, will Lowe's and his
rival Home Depot be able to maintain their momentum and what
happens to the DIY Home Improvement market once the
pandemic subsides.
Lowe's traces its roots back to 1921. for almost two decades,
farmer and businessman Ellis low sold dry goods or supplies and
groceries out of his wilkesboro North Carolina hardware store.
Following his death in 1940, Lowe's son Jim and son in law,
Carl Buchan took the reins of the business. But it was the end
of World War Two and a decision by Buchan that laid the
groundwork for the future of the company anticipating a
construction boom with the return of GIS Lowe's pivoted to
Home Improvement products. The company went public in October
1961, with chairs trading at $12.25. By 1968, it had more
than 50 stores from Arkansas to Delaware, and in 1982, sales
reached a billion dollars. The company was expanding in other
ways to launching Lowe's dot com in the mid 90s and opening its
first Canadian store in 2007. But steep competition from rival
Home Depot was weighing on the brand Home Depot. The world's
largest home improvement store got its start in 1978. And
according to one analyst lose struggled to compete with its
rival in several metrics, including customer service store
locations, and its relationship with the pro market. Lowe's is
operated in an oligopoly and Home Improvement retail for 20
plus years essentially. However, it's always been the number two
player than smaller than Home Depot. It has deficiencies
relates to store locations in any given market oftentimes
moved in after Home Depot's didn't have the ideal locations,
I would describe Lowe's as one of the best retailers in
America. However, it was still second to Home Depot, who is one
of the greatest retailers in American and was and still is
the largest and most profitable Home Improvement retailer.
Lowe's was facing other challenges as well. According to
the Joint Center for housing studies at Harvard University,
or the total dollar amount spent on DIY activity from 2005 to
2019. Increase, there was an overall decline in 2005. DIY
projects made up a 24% share of the Total Home Improvement
dollar spent by 2019. That share was down to just 70%. According
to the group, older homeowners typically spend only 50% of
their home improvement dollars on DIY projects, younger owners
saddled with student debt and a challenging job market. We're
also spending less on home remodeling did 15 years ago,
younger owners millennials now now post millennials just not
having maybe the interest or the inclination to do those types of
projects or maybe not having the same skill set to do a DIY
project not learning those skills from their, you know,
parents or grandparents. And I think also a time issue, you
know, just having a lot of demands on your time. older
homes. We're also forcing owners to divert money away from DIY
projects in towards major replacement projects, like h
back systems and window upgrades. In an effort to turn
things around in 2018. Lowe's hired Marvin Ellison as CEO so
now
Since Mario has taken over, he's really catapulted business
forward, put on a better footing and made it much more
competitive with Home Depot. Lowe's operates about 2000 home
improvement and hardware stores in the US and Canada in services
about 230 dealer own stores.
The red hot housing market has given a boost to home prices and
the Home Improvement industry. With a backdrop of record low
mortgage rates, a low inventory of homes on the market and
bidding wars breaking out among buyers. The median price of an
existing home surged to a record $363,300 in June 2021. home
values are going up that makes home owners more confident to go
out and take out a home equity line of credit or do other home
improvement investments. Home Buyers typically spend 35% more
on Home Improvements in the first several years after
purchase the first three years after purchase. Compared to
homeowners who've been in their homes for more than three years.
Aging homes in need of a lot of work have also benefited the
industry. In 2019, the meeting owner occupied us home was 40
years old, up from 29 years in 1999. New York State homes have
a median age of 60 years and so right our homes have continued
to age over the last couple decades and definitely elevating
the amount of spending on especially maintenance repairs,
but but also again replacements You know, there there are cycles
to doing those home improvement projects that again just need to
get done at some point. But it might have been a shift to DIY
projects that have had the biggest impact at Lowe's.
between 2017 and 2019. us homeowner spent $522 billion on
home improvements, including $58 billion on roofing 49 point 8
billion on kitchen remodels and 49. Point 3 billion on h back
systems out of the 100 and 15 million home improvement
projects started during that period 63% were done by
professionals and 37% were done by di wires. 44% of homeowners
surveyed said that during that two year period, they made no
Home Improvements at all. The pandemic changed that. According
to one industry report, almost 70% of respondents said that in
the last month they have started a new DIY project at home the
increase in DIY activity, the increase in retail sales at Home
Depot and Lowe's and hardware stores for example. You know,
part of it was almost certainly a catch up, you know that
everyone seems to always have that list of projects that they
have around the house that they would like to get done that
they've wanted to get done. And the pandemic kind of opened up
that opportunity. Home Depot, the world's largest Home
Improvement retailer announced in August 2021 that its second
quarter sales increased 8% from a year earlier to $41.1 billion
Ace Hardware said in that same time period, its revenue
increased 8% to $2.5 billion.
Similarly, Lowe's announced that its second quarter 2021 net
sales increased 1% from the year prior to $27.6 billion.
It's no secret that the pandemic drove stay at home activities
across a broad array of codes consumer activities, but the
Home Improvement space was one of the first to benefit and saw
one of the biggest lifts of anyone in the retail world. And
Lowe's was really the poster child for that. With multiple
quarters of same store sales over 30% including a record comp
of 34.2% of back into q2 of 2020.
The big box retailer had 2020 net sales of almost $89.6
billion 24% higher than the previous year. Home Decor, which
includes appliances, flooring and paint made up 35% of revenue
building products, which includes electrical lighting and
lumber made up 32% of net sales. hardlines, which includes
hardware, patio furniture in tools made up 31% of revenue,
and the remainder was a mix of other smaller sources of
revenue. The company also faced a series of additional
challenges in 2020, including surging lumber prices and
pandemic related costs. One of the headwinds that both Home
Depot and Lowe's have been facing is some of the challenges
with keeping their shelves stocked. There's been such high
demand and across the world There have been a lot of supply
chain disruptions. Lowe's prices, its commodities,
competitively with the market. And so what you tend to see is
when commodity prices are going higher, this is a positive for
same store sales. It's been helping by hundreds of basis
points this year. However, the company does not end to make
more money from this. They really price and a very similar
level of markup. Lou's provided more than $900 million in Covid
related financial support in 2020 for its hourly workers.
CNBC reached out to Lowe's.
But they did not respond to a request for an interview,
Americans pivoted to DIY projects in 2020 and 2021 in a
big way. Those reported first quarter 2021 same store sales
jumped nearly 26%. But with a DIY craze in once group events
and overseas travel resumes. Well Lowe's has worn some Do It
Yourself trends could fade, the company believes it will
continue to gain market share as it draws in more pro customers
like contractors. Lowe's estimates, its pro product
market is more than $400 billion, it will grow faster
than the overall Home Improvement market. As of 2021,
the company gets about 20 to 25% of its revenue from Pro
customers versus about 45%. For Home Depot. The essence of a
home improvement business is to pro customer because they drive
productivity in every department every day of the week. And
Lowe's was not really focused on that. And so we pivoted and we
launched a loyalty program we brought in products that better
resonate with the Pro. And we just recently announced that
we're launching tool rental. It also invested $1.7 billion to
modernize its supply chain, elevated its product selection,
and expanded its online business. Lowe's is still
playing catch up to Home Depot in many ways. And it's often
following its playbook. So for example, it's adding loyalty
programs for home professionals things that it didn't have
before. It's revamping its website and even restructured
the way that it handled prices on its website, we went from a
decade old platform with Lowe's calm, and we replatform the tire
site to the cloud that enabled us to have a lot more agility
and functionality at a time where customers have made a
massive shift to e commerce and digital purchases. It's not just
the pro consumer that could provide a tailwind for the
company. An increase in severe weather events could also push
homeowners to spend more on disaster repairs. In 2020, there
were $22 billion weather related disaster events in the us the
most on record increased from the previous high of 16 events
in 2011 and 2017. There's plenty of you know, inclement weather
activity that will potentially result in a damaged home, you
know, flooded basement or, you know, even just a bad
thunderstorm that brings through, you know, winds that
rip off, you know, parts of the roof, or siding, US disaster
repairs, roasted $26 billion in 2019 5% higher than its
historical average. According to analysts, what is likely to
provide the biggest lift for Lowe's and its competitors is
that we are likely to be spending a lot more time at home
and redesigning our living spaces to support that. But I
think the bigger potential longer term trend here is around
consumers focus on their homes. So even as we move past the
pandemic Can people quote unquote, get back to normal
travel etc. They're still very much interested in making their
homes a more comfortable place to exist, entertaining in their
homes, working and playing in their homes. And with those
types of activities. They want to upgrade their homes. So I
think that creates potentially a longer term kalen then people
realize