Well over a decade ago, I didn't understand why Lowe's Cos. started its in-your-face competition with The Home Depot--literally building across the street from the big orange behemoth in market after market.
At the time it seemed risky, expensive, and destined to fail. Home Depot was marching into new markets at blitzkrieg speed, obliterating or absorbing local lumber yards, hardware stores, and nurseries in its path. What was this bold, yappy little competitor doing challenging its invasion?
Shows what I know. It turns out that--as is the case with fast food giants Burger King and McDonald's, which are also often neighbors--there was plenty of market to share. During the boom years, both companies continued their cross-country and--in Home Depot's case--cross-continental market grab.
But now, with a slowdown in the new-home market as well as the general economy, both companies recently reported decreases in sales and earnings. Home Depot's first quarter sales shrunk 3.4% year-over-year. Lowe's reported a 1.3% decline in its first quarter compared to '07.
Both companies reported comparable store sales declines, at 6.5% for The Depot and 8.4% for Lowe's. Home Depot even announced it was closing 15 stores and pulling 50 out of its future growth pipeline.
Despite those numbers, the ever-plucky Lowe's sees opportunity in the slowdown. "In an environment where the market is shrinking, our goal remains to get a bigger share of the pie," said chairman and CEO Robert A. Niblock. "We continued to capture market share in the first quarter." Niblock happily reported that an independent source had verified a 70 basis point jump in Lowe's total store unit market share.
Lowe's reputedly better service has put enough of a hurt on Home Depot to cause that company to beef up its sales force with more experienced personnel, adding more than 2,500 "master trade specialists" to its stores. It is also starting to incentivize hourly employees based on store performance.
As a regular at both stores, I can't say I've noticed much of a difference in the quantity of indifference over at Home Depot. And at Lowe's the other day, the paint guy ignored me for five minutes before I barred his exit from the paint mixing area, forcing him to listen to my question. His answer, of course, was wrong.
I do, however, now better understand why the co-location thing works for the two companies. Probably 50% of the time, I end up going to both stores for one project. Sometimes it's because one store doesn't exactly have what I want or need. Other times, on larger purchases, I comparison shop both stores. Neither one consistently wins my business. On the other hand, I usually buy something I didn't intend to at each store, thus enriching them each equally--and more than if I'd only visited one.
While both companies say they are working to improve customer service for people like me, I think Home Depot is still missing out on improving service to a sizeable chunk of its business: commercial customers.
I've heard tales of contractors and subcontractors waiting a dozen deep to get service in the early morning at Home Depot, and those guys don't have the time to shop both places daily. But one day, they're going to get fed up and go to the new Lowe's across the street or maybe even some local lumber yard smart enough to treat them like the valuable customers they are.
Just by virtue of its DNA, Lowe's might have the advantage here. The Home Depot was really devised as a Walmart of sorts for homeowners, while Lowe's has its roots as a hardware store and contractor supplier.
Since Home Depot sold off its HD Supply arm last year, it has emphasized a couple of initiatives for what it calls its "pro customers," including a "bid room" available at all its stores that offers quotes on large orders--usually within 24 hours. The purpose is to leverage the company's buying power to get better prices for commercial customers. The company also offers to deliver large orders directly to the job site.
Whatever Lowe's is doing for its professional customers seems to be working. The company reported in its annual report that comparable store sales and sales growth in its business customer sales category outpaced the company average.
"Our efforts to build relationships and serve the needs of repair/remodelers, property maintenance professionals, and professional tradespeople continue to drive results," the report said. "We feel that our continued focus on the categories of this initiative that have the greatest opportunity will produce growth."
In a considerably challenged business environment, I'd think the smart home improvement big box store would be looking to gain market share everywhere. And commercial customers are going to buy more than the window-washing gadget I bonded with while waiting out the paint guy at Lowe's.
Hmm, maybe that slow customer service thing IS an effective business strategy after all.