Who is the customer Home Depot cannot lose?


Home deposit (NYSE: HD) reported another trimester of eruption in the first trimester of 2021. Comparable store sales jumped 31% from the same period a year earlier and revenues totaled $ 37.5 billion. The company continues to benefit greatly from massive government stimulus measures, as well as increased discretionary spending by consumers on home improvement projects.

These developments have boosted the DIY side of the business during the pandemic, but the emergence of the other group of customers, the professionals (or pro), is vital to Home Depot’s success.

Let’s see why.

Image source: Getty Images.

A critical partner

In the last quarter (ended May 2), the company posted double-digit increases for both customer groups. But the pro segment, recording accelerating gains in four consecutive quarters, recorded its highest quarterly growth rate on record. In fact, professional sales have even overtaken the DIY group.

During the lockdown, people were reluctant to let contractors enter their homes to work on large projects. It seems that sentiment has changed, which makes sense given the progress in reopening the country so far. When calling for the results, COO Ted Decker said that “the demand for projects is high”.

So why are these customers so important to The Home Depot? I believe there are three main reasons.

Lowe‘s (NYSE: LOW), the other major player in the industry, is far behind Home Depot when it comes to professional maintenance. About 25% of Lowe’s sales come from contractors, while about 45% of Home Depot’s are. The Atlanta-based retailer’s huge lead, bolstered by its recent acquisition of HD Supply, strengthens its competitive position vis-à-vis Lowe’s.

Second, compared to DIY customers, the pros are much more valuable. They generate larger tickets and frequent slots more often, which is absolutely vital for a retail executive where increasing store productivity is the name of the game.

In the first quarter, purchases of big ticket items (those over $ 1,000) jumped 50%, in part on the strength of the professional sector. Additionally, sales per square foot soared 29.8% and Home Depot’s first-quarter profit per store ($ 1.8 million) far exceeded Lowe’s ($ 1.18 million), demonstrating the operational superiority of the former.

And third, the professional customer is stickier than the ordinary handyman. If I am an entrepreneur and my business has been using Home Depot for years, I would be very reluctant to switch to Lowe’s or any competitor for whatever reason. Price isn’t the most important factor for a pro, as their primary focus is getting the right tools and parts needed to get the job done.

The One Home Depot strategy, launched in late 2017, has resulted in a more transparent omnichannel offering, and Home Depot is better able to serve its customers in the way that works best for them. In the first quarter, 55% of online orders were fulfilled through a store, showing the urgency that customers need. All of this results in high changeover costs for professionals, which is a key competitive advantage for The Home Depot.

The investor to go

It is not difficult to understand the importance of business customers to the success of The Home Depot. Being a vital part of their business makes The Home Depot much stronger from a competitive standpoint. The company must continue to respond to them if it hopes to maintain its lead in the home improvement industry.

As the economy continues to slowly reopen, expect the pros to generate more significant gains for the rest of the year. He is a customer that The Home Depot cannot lose.

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Neil patel has no position in any of the stocks mentioned. The Motley Fool owns shares and recommends Home Depot. The Motley Fool recommends Lowes. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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