If there is one lesson to take away from Home Depot, Inc. (NYSE:HD)’s recent earnings, it’s never underestimate a category leader. To say that the company’s results were surprisingly strong would be an understatement. Home Depot essentially proved that their competition doesn’t stand a chance against the leader in home improvement.
The category online retail isn’t hurting
There are seemingly hundreds of articles written every day about how online retailers are killing physical stores. I read headlines suggesting that online is the end of the big box store, and that they can’t hope to compete. Apparently no one told either Home Depot or their customers any of this.
The housing market has shown signs of life for several quarters, with companies like Toll Brothers Inc (NYSE:TOL), Lennar Corporation (NYSE:LEN), and others reporting significant increases in their contracts signed, and their backlogs. When you combine the strength in the housing market with a recovering job market, Home Depot, Inc. (NYSE:HD)stands to benefit from both.
It might seem that Lowe’s Companies, Inc. (NYSE:LOW) should benefit equally from this positive economic news, but the company has consistently underperformed their larger counterpart. Wal-Mart Stores, Inc. (NYSE:WMT) has improved their tools, fixtures, and home improvement selection over the last few years. The company doesn’t have the same breadth of product selection as Home Depot or Lowe’s Companies, Inc. (NYSE:LOW), but the convenience factor allows many customers to buy items for simple home improvement projects.
One of the biggest challenges Amazon.com, Inc. (NASDAQ:AMZN) has in trying to crack the home improvement market is these are goods that contractors like to see before they buy. The weight of the products is another issue. It’s one thing for Amazon to ship a television or smaller items. It’s something quite different for Amazon to try and economically ship things like lumber, doors, windows, and more. Amazon’s competitive advantage is fast shipping and pricing. Home Depot can match anyone on pricing, and with over 2,200 stores, why would a contractor wait for items to be shipped if they can get them right now?
Sales, sales, sales
Home Depot, Inc. (NYSE:HD) showed the strength of their brand in the last three months, with overall sales up 13.9% and same-store sales up 7%. When you look at their competition, it’s hard to argue that anyone is doing better. Amazon.com, Inc. (NASDAQ:AMZN) reported faster general merchandise sales growth at 28%, but much of what Amazon seems to be selling are consumer electronics and other goods, not home improvement items. If you look at Best Buy Co., Inc. (NYSE:BBY) and Sears Holdings Corporation (NASDAQ:SHLD) reports, you can see they are both struggling in the consumer electronics area, and this is generally an area of strength for Amazon.
Lowe’s has nearly the same opportunity for sales growth with over 1,700 stores, but the company just can’t match Home Depot. In fact, Lowe’s actually saw same-store sales increase just 1.9%, and overall sales were down 5%. While Walmart just reported a single-digit increase in sales, the company said it gained market share in electronics, toys, and grocery items, but home improvement wasn’t mentioned.