Improving Home Improvement: Home Depot & Lowe’s Lead In Volume But Trail In Customer Satisfaction
To paraphrase Bob Dylan (formerly Robert Zimmerman, of Hibbing MN.) “the times, they are a-changin’” – and fast! The coronavirus has led to previously unimaginable changes in lifestyle. In a manner of mere hours, our homes became our offices and classrooms. The convenience of our densely populated cities suddenly became a liability, even a health hazard. And discretionary spending was halted, like a derailed freight train.
Some are predicting that there is no going back; to the cities that is. In a survey of 1,000 city dwellers conducted by Wall Street firm Jefferies, nearly a quarter (23%) said they were planning on relocating to suburbs in the next 18 months. Further they see this migration as a driving force that will cause renters to become homeowners, which will result in an increase in spending on home improvement.
It does not take advanced math to calculate the size of a suburban mortgage that a high-earning couple could take on, in lieu of nosebleed high apartment rent in our central cities. In fact, places like New York and San Francisco are going from property owner’s markets to renter’s markets due to the outflow.
Category of Our Time
We’ve already seen significant increases in home improvement spending, as many of us have engaged in “swat-improvement” projects, re-purposing bedrooms into offices, and rec-rooms into classrooms. Mastercard
There is also strong evidence that the entire category is taking share from the discretionary, non-essential sectors. Not surprisingly the biggest beneficiaries have been Home Depot and Lowe’s, which has pushed their shares up in 2020 by 15.5% and 13.3% respectively.
Home Depot is Feeling the Heat
For the category leader, its first quarter ending May 3, 2020, sales increased 7.1% with comparable same store sales up 7.5% year-over-year. As with Lowe’s and most other retailers HD’s increase came at a high cost due to the $850 million expense connected to the many initiatives brought on by the pandemic.
These included expanded paid time off for hourly workers and those 65 and older, along with weekly bonuses for hourly associates and extended daycare benefits. Fortunately for Home Depot the considerable e-commerce expenditures made in recent years enhanced their online order fulfillment, which grew in triple digits by the end of April.
Lowe’s Is Closing the Gap
Lowe’s had plenty to cheer about despite installed sales declines of 50%, with their online sales up 80% in the first quarter on a healthy $19.7 billion in sales. And while Lowe’s 2,002 stores (generating $72.2 billion) still trails HD’s 2,285 units (generating $110.2 billion), they are one-upped Depot in the important customer satisfaction category.
The just released J.D. Power 2020 U.S. Home Improvement Retailer Satisfaction Study positions Lowe’s with an index score of 838 above that of Home Depot’s score of 827. The study looks at staff and service, price, merchandise, store facility, and sales and promotion.
Lowe’s has also been busy investing in small businesses and promoting sustainability and good governance during these difficult times. In early June, Lowe’s opened its first round of its $25 million grant applications in conjunction with the Local Initiatives Support Corporation (LISC) to provide critical aid to minority and women-led small businesses suffering due to the coronavirus pandemic.
Ace’s High, Satisfaction Wise
And while Lowe’s beat out Home Depot in the J.D. Power’s Retail Satisfaction Study, Ace Hardware smoked them both. In fact, for 13 of the last 14 years Ace Hardware has been #1 for customer satisfaction, based on a 1000-point scale, with a score of 844.
According to Power’s director of @Home practice Christina Cooley, “The one-on-one engagement a customer has with the retail staff continues to be the largest driver of overall customer satisfaction with home improvement retailers.”
With over 5,200 stores in 60 countries, Ace is the world’s largest hardware retail cooperative, which was sold to its dealers in 1973 by its founder, Richard Hesse. Ace has also been consistently ranked among the top franchises by Entrepreneur Magazine, in their Franchise 500 ranking. The Oakbrook, Ill based company reported total fiscal 2019 revenue of $6.1 billion, an increase of $354.2 million, or 6.2 percent. First quarter 2020 revenues of $1.43 billion showed an increase of 3.8 percent compared to the prior year.
Its “optimum stores size” at 10,000 square feet, is about one tenth the size of an average 105,000 sq. ft. Home depot. But what they lack in scale, they more than make up in shopability, and customers service. “Now, more than ever, customers are looking for the guidance they need—but they’re also looking to get in and out of the store quickly.” Said Cooley. And according to J.D. Power’s findings customers reported the biggest factor in customer satisfaction was if they were helped within two minutes or less. Well, let’s see.
Being Big and Small at the Same Time
My own visit to the newly opened Ace Hardware in my neighborhood bore this out. Twice within the first two minutes of my visit I was pleasantly asked if I needed assistance. While the Gopher Ace Hardware I visited was clearly under the 10,000 square foot average it was well laid out and almost surgically merchandised.
Ace obeys the laws of “edited offerings” to keep the consumer out of product overwhelm. Rather than show nine different brands of product types, they do an excellent job of merchandising the full line of a few selected, best in class brands. Beyond space savings, this enables their sales personal to be more knowledgeable about what they are selling. At the same time, they had great depth in all the commodity “fix-it stuff” that brings customers in. And like the neighborhood hardware store of the past, (and contrary to the big boxes) you do not need to buy whole bag of bolts or box of screws when you only need two.
At a time when retailing success seems to be all about size and market domination, Ace Hardware is somewhat of an anomaly. They provide entrepreneurial retailers the opportunity to be big and small at the same time, while winning the most coveted “customer satisfaction prize” in the process.