Home Depot and Lowe’s are starting to realize that the surging housing market — which had fueled their own sales for the last few years — is really and truly over and it may not be coming back for a good long while. What does this mean for their customers? An emphasis on lower prices every day — and fewer promotions.
After flirting with aggressive promotions earlier in the housing downturn, both retailers have backed away. The moves indicate a recognition by the retailers that it will be several quarters before demand picks up – with or without big discounts, according to industry experts.
And while the approach might cost the retailers some customers in the near term, it’s the right one longer term, said Sanford Bernstein analyst Colin McGranahan.
Even though Lowe’s and Home Depot this week expressed hope that housing sales may bottom soon, few industry watchers expect homeowners in the next year or two to resume the kind of major kitchen and bath renovations that fueled home- improvement sales earlier this decade.
$50 and $99 Carpet installation deals are a good example of the type of promotion that the big two will no longer be offering:
The Atlanta company, which a year earlier provided whole-house carpet installation for $99, is now charging $199. It has also pulled back on some of its credit promotions – offering a standard no payment, no interest promotion on purchases of at least $299 on its proprietary credit card for a 6-month term instead of the 12-month offer it has occasionally made.
Home Depot’s “judicious” use of promotions and improved forecasting of sales, margins and inventory helped it expand gross margin despite weak demand and rapidly escalating costs, Lehman Brothers analyst Michael Lasser said.
Lowe’s, meanwhile, recently raised the price on its whole-house carpet installation deal by $50 to $249 after the promotion hurt gross margins in the first and second quarters. President and Chief Operating Officer Larry Stone told investors and analysts that the No. 2 home-improvement retailer is focusing on “easy-to-understand promotions with a fewer, bigger, better approach.”
Home Depot, Lowe’s Pull Back on Promotions To Guard Margins [CNNMoney]
(Photo: meghannmarco )