Last week, we discussed how Home Depot is increasingly becoming a commercial Pro or DIFM (Do-It-For-Me) business, with over 50% of its revenue coming from Pro customers. Home Depot focuses on larger Pros, such as contractors or foremen managing job site crews. This foreman-focused business has seen significant investment from Home Depot in the form of capital expenditures, enhanced services, and strategic acquisitions, including SRS Distribution and HD Supply in 2020.
Meanwhile, Lowe’s has taken a different approach by targeting the DIY segment and the "pickup Pro" market. For the quarter, Lowe’s Pro business grew by high-single-digits, outpacing Home Depot’s low-single-digit growth. This outperformance supports Lowe’s management’s argument that the pickup Pro market—characterized by smaller, less formal Pros—is underserved, fragmented, and less mature, offering greater growth potential in percentage terms (though not in dollar terms). With Home Depot’s mature business model and larger revenue base (twice the size of Lowe’s), the pickup Pro market may not be large enough to warrant significant attention. Home Depot has instead focused on the foreman segment, which generates around $35 million in average sales per location, compared to $12 million for Lowe’s pickup Pro business—a market that is only about one-third the size. This divergence in customer strategy between the two retailers has implications for CRE considerations, co-tenancy dynamics, and the potential to leverage Pro traffic.
On the DIY side, both Home Depot and Lowe’s perform similarly, with an average of $36 million in sales per store. Their merchandise and service positioning in the DIY space are nearly identical. As both companies await an eventual industry recovery and a drop in interest rates to revive the DIY market, how are their DIY businesses faring in the current environment? During Q3 2024 (August-October 2024), Home Depot appeared to deliver a stronger DIY result, with sales down low-single-digits compared to Lowe’s estimated sales decline in the low- to mid-single-digits.
Smaller markets and smaller format stores have also been outperforming the industry overall, which is consistent with our previous analysis. At first glance, Lowe’s does not seem to be benefiting from this trend. However, a closer analysis reveals some interesting nuances. To compare their performance outside the Southeast, which was impacted by storms, we created custom tags for stores in the ten largest states outside the region, including California. As shown in the chart below, Lowe’s struggled significantly in July (-4.9% comps in a month when the industry grew +1.7%). However, since then, Lowe’s has regained momentum and surpassed Home Depot in these key markets.
Digging deeper and using California as a representative market, we analyzed visits by duration under the premise that longer visits are often associated with larger baskets and more big-ticket purchases. California was chosen to control for adverse weather impacts over the summer and because both Home Depot and Lowe’s have substantial locations in the state.
In California, Lowe’s operates 109 locations, with 47 in the Los Angeles DMA (primarily in Santa Clarita and Riverside areas) and 16 in the Bay Area (largely in eastern suburbs like Dublin and Antioch). These are predominantly suburban and exurban stores. By comparison, Home Depot has a significantly larger footprint, with 230 California locations—103 in Los Angeles and 40 in the Bay Area—providing greater exposure to major urban markets as a percentage of sales.
The table below illustrates a notable improvement for Lowe’s in visits lasting over 15 minutes during the past quarter, a trend not observed at Home Depot. Lowe’s reported a 370-basis point (bps) quarter-over-quarter improvement in its company-wide big-ticket comp, consistent with the increase in longer visits. By contrast, Home Depot experienced a 100 bps decline in big-ticket comps, in line with a decrease in longer visits. Additionally, Lowe’s reported a smaller decline in big-ticket transactions (-2.8%) compared to Home Depot’s larger drop (-6.8%). The two-year trend also improved for Lowe’s while worsening for Home Depot. It’s worth noting that the definition of "big-ticket" transactions differs between the two retailers: Lowe’s measures purchases of $500 or more, whereas Home Depot uses a $1,000 threshold. This discrepancy should be considered when comparing performance.
Taking a closer look, we analyzed Lowe’s locations in the Los Angeles, Bay Area, and "outside" clusters based on visit duration. As shown in the table below, Lowe’s stores in smaller markets saw the greatest improvement in visits lasting over 15 minutes. Additionally, these smaller markets experienced smaller declines across all visit-duration cohorts. This trend suggests that smaller markets are recovering more quickly for big-ticket projects, providing a relative advantage for Lowe’s due to its higher exposure to these areas. If this pattern continues, Lowe’s could see a faster overall sales recovery compared to Home Depot.
In the medium term, as interest rates decline and housing turnover recovers, all markets—big and small—are expected to see growth. Next month, Lowe’s will host an investor meeting to present its medium-term outlook for the business and industry. It’s likely that the current tailwinds in smaller markets will feature prominently in their presentation. Last year, Lowe’s introduced a farm-and-ranch planogram into 300 locations and launched a Petco shop-in-shop initiative. Could the investor meeting also reveal plans for a new small-format store targeting smaller markets? It wouldn’t be surprising, as other retailers like Kohl’s, Ulta, and Macy's are pursuing similar strategies. Small-format stores are clearly shaping up to be an industry trend, not a one-off.
Regarding Lowe’s focus and investments to grow its DIY segment, Lowe's CEO Marvin Ellison emphasized its importance. “[W]e have to accept our reality as a company. And the reality is we are a DIY-dominant business, which means this is very important to us. Our loyalty program launched this year was specifically designed to give us more control over the DIY business rather than being victims of the macro environment or weather patterns. A key initiative for growing DIY market share this year has been the launch of the MyLowe’s Rewards loyalty program. In October, Lowe’s held its first MyLowe’s event from October 10–16. As shown in the chart below, the event drove a nearly 800 basis point lift in nationwide visit trends, highlighting its impact.
Lowe’s Chief Merchant Bill Boltz stated, “We're pleased to see continued momentum in our MyLowe's Rewards loyalty program, with promising results in key performance metrics such as repeat purchases, average order value, and the penetration of loyalty member purchases. We're now leveraging insights from the program to transform our marketing efforts by delivering tailored offers that anticipate customers’ needs. We remind them to use their MyLowe's money, provide personalized incentives to shop categories they’ve previously purchased from, and grant members exclusive access to new product launches, special events, and doorbusters.”
For the quarter, both Lowe’s and Home Depot experienced a similar sales impact from hurricanes, estimated at approximately $200 million, driven by demand for storm-related products like plywood, generators, and other essentials. However, due to Lowe’s smaller revenue base, the hurricanes had a relatively larger effect on its business. This included higher SG&A expenses for distributing storm-related products, cleanup costs, and community support initiatives. As affected communities begin longer-term rebuilding efforts, Lowe’s is well-positioned to benefit, adding another reason to anticipate outperformance over the next few quarters.
