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October 2002

     Big Box Bulletin

Lowe’s is Sprucing up its House
LOWES

Lowe’s is bringing higher margin home improvement features to its stores, furthering the competition between Lowe’s and Home Depot.

According to an article published in Business Week, Lowe’s ambitious $2.9 billion plan to add 123 outlets this year, most of them in big cities, hinges on whether the home improvement chain can attract women who will shop for big-ticket appliances and high-margin home furnishings at its urban stores. 

Lowe’s is pushing hard for growth to make up for lost time. Serving as the top home-improvement chain until the late 1980s, it was knocked off its perch as Home Depot embraced big-box retailing, while Lowe’s clung to its small-town stores. Robert Tillman, 58, who has worked at Lowe’s for 39 years, became corporate executive officer in 1996. A year later, fearful that Lowe’s would forever lose out to Home Depot, Tillman began to open a handful of larger stores in metro areas. Now, Lowe’s is accelerating that rollout just as Home Depot, which has saturated the largest markets, slows its expansion in order to squeeze more sales out of existing stores.

According to the article, the duel between these home-improvement giants is one of the best shows in retailing today. In recent years, Lowe’s earnings gains have outpaced that of its big rival. In the first quarter of 2002, same-store sales at Home Depot rose 5 percent. But Lowe’s, which opened 46 stores in the quarter, did even better; its same-store sales climbed 7.5 percent. Lowe’s profits jumped 54 percent, to $346 million in the quarter. Home Depot failed to keep pace, as profits rose only 35 percent, to $856 million. 

Lowe’s is also focusing on higher-margin goods—everything from Laura Ashley paints to high-end bathroom fixtures. Two years ago, for instance, Lowe’s sold only $99 gas grills. “We looked just like Kmart and Wal-Mart,” said Dale C. Pond, executive vice president for merchandising. Now, the front of Lowe’s floor display for grills features $899 stainless steel Jenn-Air models. It’s no coincidence, then, that gross margins were 29.7 percent in the last quarter, up from 28.3 percent the year before.

Home Depot, meanwhile, has traditionally relied on low prices, lots of selection and sales of building materials to professional contractors. But as Lowe’s moves into bigger metro markets, Home Depot is apparently fighting it every step of the way—and that means going after some of its rival’s biggest spenders. Home Depot has cut back its overall expansion pace, even though it still plans to open 200 stores in 2002, four fewer than last year. 

According to an article recently published on TheStreet.com, Lowe’s reported first-quarter earnings offered more evidence that consumer spending remains robust—especially when it comes to the home—and also signaled that Lowe’s continues to gain ground in its face-off with Atlanta-based Home Depot, said the article.

See a Ball Game Buy a Wrench
PORTLAND
According to a recent article in the Oregonian, Portland, Oregon’s Memorial Coliseum could become a big-box retail store.

“The Portland Trail Blazers [who play in the coliseum] are floating a development proposal that would add a large-scale retail store, such as Home Depot, to the mix of possibilities for converting the 40-year old arena to new uses,” said the article.

J. Isaac, a Blazer financial vice president, thinks the retail concept could be united with a revised version of the amateur sports complex.

According to the article, “This suggestion comes as part of a two-pronged approach by the City Council to find new uses for the coliseum. The Trail Blazers have been looking for potential private uses while a consulting team hired by the city has been examining the public uses.”

Hardware Store? Not in Northwest Washington, D.C.
A recent article written by The Washington Post staff writer Margaret Webb Pressler discussed how you won’t find a hardware store in Washington, D.C., “from Dupont Circle to Bethesda.”

HARDWARE SHOP The article said the reason is because hardware stores are too expensive to operate. “Most customers need help figuring out how to do something, or finding it, and providing staff with such knowledge is expensive. It simply isn’t the same as hiring a clerk at a clothing store … At hugely successful hardware stores such as Frager’s on Capitol Hill and Strosnider’s in Bethesda, most of the employees could easily get well-paying jobs as contractors or plumbers, for example, so the stores have to pay them to keep them,” said the article.

If metro areas look to small towns for guidance on maintaining a hardware store, they aren’t likely to find it. Yordy’s Tru-Value in Flanagan, Ill., feared it would go out of business at the end of last year, reported M.K. Guetersloh in The Pantagraph

Community members invested $97,000 to keep the hardware store in Flanagan, said the article.
“That gave us a good indication that the people of Flanagan agreed that it was important to keep the store open,” said Brian McSherry, president of the Flanagan Community Corp., which is made up of 67 investors who became owners of the hardware store, now named the Flanagan Hardware Store at the first of the year.

“Having the hardware store sure helps a lot of us out,” said resident John Klein in the article. “It saves us from going to Pontiac or Bloomington to buy something like this that we need right away.”

While Flanagan fought to keep its hardware store, what is the possibility of a hardware store putting in roots in Northwest Washington? Because the big chains don’t want to take the risk of moving into this area, it leaves an independent retailer to take the chance. However, the article said, “Facing the prospect of high costs, ruthless competition and fickle customers, there apparently aren’t too many would-be retail entrepreneurs willing to give it a try.”

Local Companies Struggle Against the Big Box
“The future looked pretty bleak for Seigle’s Building Centers a decade ago when price-slashing rivals Home Depot and Menard’s rolled into the Chicago market,” said a recent article in the Chicago Tribune.

Seigle’s has stayed in business even though Home Depot has aggressively infiltrated the market and Menard’s has been aggressively advertising. The company has watched as smaller hardware stores in the area have closed down due to the struggle.

“Rather than becoming another victim, Seigle’s is thriving. Although it hasn’t been an easy transition, the company retooled its traditional business and jumped into another that is far from the lumberyard—real estate development,” said the article.

“When people say, ‘What impact has Home Depot had on Seigle’s?’ I tell them it was the best thing that ever happened to us,” said Harry Seigle, who co-owns the Elgin-based company with his brother Mark. “We really re-engineered our operation. It not only saved our business, it helped us prosper.”

According to the article, 2001 was a record year for Seigle’s, which racked up $215 million in sales of building supplies, up 10 percent from 2000. 


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