Value Line Publishing Background Info
Carrie Galeotafiore: analyst for Value Line Publishing. Value Line Publishing is an investment-survey firm.
EIU (Economist Intelligence Unit) estimated 2001 U.S. retail building-supply industry at $175 bil.
Split btwn 3 retail formats: hardware stores(15% of sales), lumberyards(34%), and larger-format home centers(51%).
Industry was dominated by Home Depot and Lowes
They had more than a third of total industry sales.
Within the past 5 years, 1136 new stores.
Future growth opportunities: acquisition/consolidation, professional market, international expansion, alternative retail formats, alternative products, and head-to-head competition.
Acquisition/consolidation:
1999: Lowe's acquired a warehouse-format chain named Eagle Hardware which had 38 stores. $1.3 bil transaction.
Home Depot has acquired Apex Supply, Georgia Lighting, N-E Thing Supply Company, and Your "Other" Warehouse.
Professional Market
Both chains want to attract professional clienteles more efficiently. To do so, they are stocking merchandise in larger quantities, giving employees higher training, as well as carrying professional brands.
Home Depot created Home Depot Supply and the "Pro Stores" to reach out to the small-professional market.
International expansion
Home Depot acquired a Canadian home-improvement retailer Aikenhead in 1994 which developed an international presence.
Also targeted the $12.5 bil home-improvement market in Mexico by acquiring Mexican chains TotalHOME and Del Norte.
In 2002, Lowe's didn't have an international presence.
Alternative retail formats
Both chains have online stores that offer design and decorating tips.
Alternative Products
Both chains were expanding into installation services.
Home Depot was currently at $3 bil for their at-home business
Head-to-head comp
Traditionally, Home Depot focused on metropolitan areas while Lowe's focused on rural areas. So Lowe's is expanding to metro areas.
Home Depot's new CEO, Bob Nardelli, wants to focus on enhancing turnover and store efficiency through ongoing system investments.
Issue: Home Depot had come under criticism for declining customer service. Solution: Nardelli wants to help employees focus on their customers while the store is open and only restock the shelves while they are closed.
Home Depot expected rev growth to be 15% to 18% through 2004.
Lowe's management claimed they would maintain their sales growth of 18% to 19%.
Lowe's planned to open 123 stores in 2002, 130 in 2003, and 140 in 2004.
Issue: Donald Trott, analyst at Jeffries, downgraded Lowe's based on a forecast of a deflating housing-market bubble and a view regarding a company's stock price was richly priced relative to Home Depot's. Solution: Galeotafiore countered that Lowe's had now shown that it could compete effectively with Home Depot. She expected there to be ongoing improvement in sales and gross margins.