The Retailer Not Being Battered By COVID-19
Despite nationwide lockdowns and increasing unemployment Home Depot was able to post $28.2 billion of revenues in their first quarter, 7.1% higher than a year earlier.
The pandemic comes at a time when the Georgia-based retailer has been investing in digital solutions to improve customer service and increase efficiency across the organization. To assist customers with their shopping experience Home Depot has invested heavily in software-driven solutions, including a mobile app capable of guiding a customer through any of their stores to locate specific items.
With 1,984 locations across the country and over 30,000 items in each store, the home improvement giant has been working to make the shopping experience as seamless as possible.
This customer centric attitude has served them well over the past few years as their earnings have increased 30% from $8.6 billion in 2017 to $11.2 billion in 2019. While fiscal year earnings for 2020 will likely decrease as a result of reduced operating hours, Home Depot remains one of few retailers not completely battered by nationwide lockdowns.
Further increasing Home Depot’s stronghold has been the consolidation of the home improvement industry which has gone from 4,603 companies in 2011 to 3,780 in 2020, according to IBIS World.
Home Depot controls over 50% of the home improvement industry making them by far the largest industry player, as well as the sixth largest retailer in the country.
Lowe’s, which controls 36.2% of the industry, reported a similar advance in first quarter sales with $19.1 billion in their first quarter compared with $17.7 billion a year earlier. However, Lowe’s has been suffering over the past 2 years after closing 28 Canadian stores in 2019 and liquidating the assets of their Mexico business which resulted in an extra $265 million of pre-tax charges.
The two companies control almost 90% of the home improvement market across the country, with collective revenues of $182 billion, making them one of the nation's largest duopolies.
Home Depot’s advance in quarterly revenue was offset by a $848 million charge to account for expanded employee benefits which increased as a result of paid time off, weekly bonuses, and overtime pay offered as a response to COVID-19.
Home Depot’s response to the virus also included an expansion of their short-term credit programs from $3 billion to $6 billion in order to maintain a higher level of liquidity during what is likely to be a prolonged recession.
Nevertheless, the home improvement industry still looks bright. As the world continues to make rapid advancements into the internet of things revolution, more homeowners are likely to go shopping for smart-home devices and connected appliances. According to IHS Markit, over 80 million smart home devices were installed in 2016, a 64% increase from the year before.
To keep up with increasing demand Home Depot has been devoting an increasing amount of shelf space to high-tech devices such as those made by Wink and Nest, two smart home device makers, as well as displaying internet connected appliances which are likely to bring in higher margins.
With a generation of young millennials looking to purchase their first home over the coming years the demand for smart appliances will be rising quickly, and Home Depot looks to be in the number one spot as the go to retailer.