A look at the world’s largest chains

Home Depot and Lowe's, the world's two largest home center chains, like retailers around the world, found 2010 to be a much better year than the past several have been. Home Depot's performance, especially, is a tribute to the rejuvenation of the company under the leadership of Frank Blake, its CEO, who took over from Bob Nardelli, the ex-GE executive recruited by the board some years before to replace founder Arthur Blank. Lowe's is the world's second largest home center chain and the only national chain capable of competing head-to-head with Home Depot. Privately-owned Menards, which operates nearly 300 stores in the Midwest part of the U. S., goes head-to-head against both chains very successfully. In 2010, both Home Depot and Lowe's showed modest same-store comp-sales gains, with Home Depot doubling the gains of Lowe's – 2.9 per cent to 1.3 per cent. Both had healthy gains in earnings. What is most interesting is the continuing focus on increasing gross margins by both chains. Again this past year, both increased them – Home Depot to 34.3 per cent and Lowe's to 35.14 per cent. Considering that both sell major appliances and lumber-building materials with lower margins, this means shelf prices increased, though some gains could be achieved by sharper buying and distribution efficiencies. In its annual report, Blake's letter to shareholders outlined many of the strategic and business decisions the company made to improve its financial and operating performance. It was the first year of positive growth since 2006, he explained. Earnings were up 29.7 per cent from the previous year. However, while overall comp-store gains were up, those of the Canadian division were down. Mexican and U. S. units both recorded good gains. Home Depot's move into China was tentative and has been downsized several times, until currently it is operating just 5 stores there. Focusing on improving customer service, Blake said the company is now devoting 51 per cent of its payroll to “customer-facing” activity. To spur better service, it paid $126 million in bonuses to eligible employees during 2010. The company also is outfitting store-level employees with hand-held devices it labels “First” phones, which provide inventory information, pricing data and can even be used to record sales on the sales floor. Another example of the company's commitment to improve customer service. The other major strategic decision the company made under Blake's regime has been the decision to open Rapid Deployment Centers to feed the stores, rather than rely, as it had done for decades, on direct-from-manufacturer shipments to individual stores. The use of its 19 RDCs has enabled stores to reduce inventory levels and attain higher stockturns at the store level. Unlike Home Depot in its earlier days, Lowe's always has used distribution centers to feed its stores. During the past year, Lowe's focused on developing 1,300 Project Specialist Exteriors, men and women who visit customers' homes and provide information on installation of products. They serve together with 135 District Commercial Account Specialists, who do field work with commercial customers. Lowe's says it is working to develop sales in multiple ways—in its stores, in the field and in consumer homes and, of course, via the Internet, with an expanded and improved web site program. Its comp-store gain was the first since 2005. It expects 2011 sales to be up 5 per cent with 1-2 per cent gains in comp-store sales. Unlike Home Depot, which has slowed new-store openings, Lowe's says it expects to open 25-30 units, though this pace is well below earlier years.
 
Home Depot
Lowe's
Gross Margin
34,30%
35,14%
SGA Expenses
23,30%
24,60%
Dep. & Amortiz.
2,40%
3,25%
Interest Expense
0,80%
0,68%
Net Earnings
7,80%
4,12%
 
 
 
Average Sale
$51,93
$62,01
Sales/Store
$30.2 mn
$27.9 mn
Sales/Sq Ft
$288,64
$246,00
Comp Store Gain
2,90%
1,30%
Total Sales
$67.997 bn
$48.8 bn
 
 
 
Average Store Size
105,000 sq.ft +
113,000 sq. ft.+
# of Stores
2248
1749
 
 
 
Plbg, Elec. & Kitch.
30,00%
28,00%
Hdwe & Seasonal
29,40%
27,00%
Bldg Mat, Lbr, etc.
21,70%
19,00%
Paint & Flooring
18,90%
15,00%
Appliances
 
11,00%