The big hardware store has wiped out many local hardware stores as well as Starbucks (SBUX) – Get Starbucks Corporation reports on local coffee shops vandalized. lows (low) – Lowes Companies Inc. Receive reports and Home Depot (HD) – Get Home Depot Inc. (D) The report offers an amazing selection – literally football field sized shopping areas, with almost everything a builder, homeowner or person who does it could want.
And while many businesses have struggled during the pandemic, two major hardware store chains have benefited from being stuck at home. This resulted in many projects ranging from home paint jobs to additions, remodels and the replacement of many appliances.
Over the past five years, both chains’ share prices have surged about 150%. This makes sense given their dominance and the rise in the market for people looking to build or improve homes.
Nothing should change in this market, although inflation can delay some plans, repairs and projects. However, many home improvement projects need to be done at some point and can only be delayed for so long. Both companies have the potential to grow sales, albeit not linearly, but they’re a key reason I don’t own stocks and probably never will.
Lowe’s and Home Depot have a big problem
Lowe’s and Home Depot both serve contractors (people who know exactly what they’re doing and what they need) and people (like me) who definitely don’t know. Visiting one of these chains can be a very frustrating experience, and both score below average in their category on the annual American Customer Satisfaction Index (ACSI).
Home Depot scored 76 and Lowe’s 75 on a 100-point scale, Nike led the specialty retail category with 81, and Office Depot took the bottom with 72. However, these scores are all from Home Depot and Lowe’s customers. And the experience of a homeowner who knows relatively little about home improvement is very different from that of a contractor.
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Both Lowe’s and Home Depot make them very difficult to do business with. Getting help can be challenging, and even when you do find someone who can help, they are often unwilling to help or are generally unhappy. Both chains have permanent staff in specialties like paint or kitchen design, but finding someone to answer all your flooring questions can be a lonely problem.
Neither chain really includes customers who don’t know what they’re doing. It may not be a large percentage of the audience (and I tend to be incompetent when it comes to DIY), but I don’t invest in companies that don’t treat me well.
And while I’ve had a lot of bad experiences at Lowe’s lately, it’s not a new problem, it’s an endemic one. Neither Lowe’s nor Home Depot have a minimum wage of $15 an hour. With so many of its competitors doing this, it’s hard to imagine any series attracting the best talent.
What can Home Depot and Lowe’s do?
Both chains collapsed to their common monopoly position. I don’t want to invest in any of these, but I tend to look to one or the other for most of my home improvement needs. Yes, there are local hardware stores (and we bought the paint for our current house project from one of them), but Lowe’s and Home Depot have a much larger selection.
If one of the chains takes on customer service — starting with paying a higher rate for its employees — it could set itself apart from its competitor. I would literally pay extra to help a caring, unfriendly worker while I walked around the store trying to figure out what I really needed.
At worst, any chain can adopt the idea of offering on-demand customer service. This could mean better staffing or simply a central location in each store to find out who can venture into the store with you.
Both series have done well, but sales success has masked their problems. Home Depot and Lowe’s need to extend customer service beyond their contractor base. By doing so, it has a major advantage over its competitor and addresses a key weakness that has likely cost Amazon and other competitors the chain’s sales.