Wednesday, June 10, 2015
Posted by: Elizabeth Nicholas
Home Depot & Lowe’s: The Pros Know Best - Barron's
June 3, 2015
Home Depot has said pros are just 3% of their customers and 35% of sales while Lowe’s suggests that pros are about 15% of customers and 30% of their sales (we believe there is some apples-to-oranges on how each company defines a pro and, yes, Home Depot tends to deal with larger pros as well). Both Home Depot and Lowe’s, according to their own reports, have seen pro customers grow about 500 bp within their business mix over the last decade. While the math isn’t exact – this suggests meaningful leverage from adding more pro customers – or more spend from pro customers. Pros are, essentially, the best potential new customers for both Home Depot and Lowe’s even after years of growth. This is doubly important, in our view. First, growth of pro business can mean meaningful incremental sales (even at sharp pro pricing) are incrementally profitable due to leverage on existing costs and assets. Second, sustained better revenue growth, due to success with pro customers could help Home Depot and Lowe’s be seen as somewhat “growthier” rather than just “cyclical” (although, obviously, housing cycles will affect demand from DIY and pro customers alike). In rough terms – using HIRI market size data – Home Depot and Lowe’s do about 37% of the DIY business in the U.S. ($91 bn of $244 bn) and 49% of the pro business in the U.S. ($45 bn of the $91 bn). Ten years ago, Home Depot and Lowe’s did about 39% of the DIY business in the U.S. ($82 bn of $209 bn) and 43% of the pro business ($32 bn of $75 bn).