Analyst: Home Depot price cuts appear to be working

Deborah Weinswig, an analyst for Citigroup, has released a research note saying that Home Depot’s recent efforts to slash prices on approximately 1,200 items in stores appears to be successful so far.

Weinswig said the pricing shows early signs of success, and customers also appear to be leaving stores with more overall products purchased, leading the results from the cuts to “exceed expectations.” She added, "In light of the difficult environment, HD is focused on delivering a more relevant merchandise assortment to customers and improving service levels in the store to drive sales and gain market share.”

In mid-September, Home Depot voted to cut prices on various items throughout its store in a bid to boost sales and grab market share -- prices on one in every 25 items in stores were cut from 5 percent to 50 percent.

Insulation and thermostats, toilets, trash bags and paint all were on the agenda for the price cutbacks, the retailer said. In all, 1,200 items saw prices slashed through the initiative, which is expected to continue through the coming quarter.

Tough economic indicators -- falling home prices, a rocky performance on Wall Street --all undoubtedly led to the decision to scale back on pricing. But there are some other, longer-term goals, Home Depot CFO Carol Tome pointed out, saying some price cuts all have the strategy of establishing “everyday value” in an economic downturn.

“By moving to a strategy where every category has a role and intent, it means that pricing should have a role and intent as well,” she said at the recent Bank of America Investment Conference in New York. “So if you look at a category, for example, like a destination category, say, insulation; we have been heavily promoting insulation. There is no need to promote insulation, we just need to move to everyday value, and that's what we're doing. We are moving away from promotions to everyday value.”

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