Lowe’s, Home Depot look to new store formats
Columbus, Ohio-based retail research firm Retail Forward held its annual home improvement industry conference on Aug. 30, outlining the predictions for the next five years at the nation’s two largest home improvement retailers.
Both retailers face challenges in the coming years, but those challenges differ, analysts said. While Home Depot must deal with aging stores and fewer expansion opportunities, Lowe’s will face new challenges in Canada.
First, speaking on Home Depot, economist and senior consultant Steve Spiwak said the nation’s largest retailer faced impending market saturation, and predicted the retailer would follow through on plans to diversify its store formats to continue expansion.
“Home Depot has its work cut out for it,” Spiwak said. On top of a weak housing market and major competitive pressures from Lowe’s, “it’s facing market saturation and an aging store base.”
For that reason, rather than continue strictly in the 100,000-square-foot and larger big-box format, the company could be considering smaller “25,000- to 50,000-” square-foot stores, “about the size of a neighborhood hardware store.”
Spiwak pointed to the company’s purchase of Yardbirds, which became Home Depot’s small-format offering in the San Francisco area. “Those basically were a way to get into the lucrative San Francisco bay area,” he said, but added the Yardbirds format could serve as a good “testing ground” for other areas of the country.
Although Lowe’s does not face the same markets saturation problems as Home Depot, nor the same issues with aging stores, it has expressed interest in further exploring smaller-format stores in coming years, said Nick McCoy, senior consultant with Retail Forward.
Lowe’s is looking at “smaller markets and in-fill markets with smaller stores — 80,000-square-foot stores that have done fairly well,” McCoy said, adding, “anything less than 80,000-square-feet will be too small. Don’t look for Lowe’s to be opening small hardware-type stores any time soon.”
The companies both have found ways of dealing with the housing slump, in part by focusing on “non-traditional events,” such as football tailgating and back-to-school sales.
“We expect, of course, that industry growth is slowing,” overall, McCoy said. “We expect it to be cut [roughly] in half over the next five years,” from 8.5 percent to 4.5 percent.
Sears sees income fall in the second quarter
Sears Holdings reported sales of $12.2 billion, down 4.7 percent from $12.8 billion last year. The company recorded net income of $176 million, down 40.1 percent from $294 million last year.
The lower results reflect lower operating results at Sears stores in the United States and Kmart stores, the company said in a statement. Sears Canada partially offset the poor performance, the company said.
“We are disappointed with our second quarter results,” said Aylwin Lewis, CEO of Sears Holdings. “In response, we are enhancing our marketing message to more clearly articulate the advantages of our products and service offerings.”
Sears’ domestic comparable-store sales fell 4.3 percent in the quarter, while comparable-store sales fell 3.8 percent at Kmart stores, leading to a decline in total domestic comparable-store sales of 4.1 percent.
Additionally, the company announced it has opened a new 782,000-square-foot direct delivery facility in Pendergrass, Ga. to serve the Alabama, Florida, Georgia, North Carolina, Tennessee and Kentucky markets.
Based in Hoffman Estates, Ill., Sears Holdings operates approximately 3,800 full-line and specialty retail stores in the United States and Canada.
M/I Homes amends credit agreement
Columbus, Ohio-based home builder M/I Homes said it has renegotiated the terms of a credit agreement with JP Morgan Chase, allowing the home builder to borrow $500,000 under its credit line, down from a credit line of $650,000.
As part of the agreement, M/I Homes can lower its interest coverage ratio, according to the company’s filing with the Securities and Exchange Commission, which could result in lower interest payments.
M/I Homes most recently reported a second quarter loss of $42.6 million, compared with profit of $18.3 million in the same period last year. The company was hit with $72.1 million in charges, mostly related to abandoning land option contracts.
Additionally, the company saw the number of homes delivered in the second quarter fall 24 percent, from 987 homes last year to 755. New contracts were down 10 percent to 688 from 764 last year.
M/I Homes builds single-family homes in Ohio, Illinois, Indiana, Florida, North Carolina, Delaware, Virginia, Maryland and Washington D.C.