Why Home Depot Dominates the Home Improvement Market


As of Wednesday’s close, Home Depot Inc. (NYSE: HD) sported a market cap of nearly $179 billion. Its chief rival, Lowe’s Companies Inc. (NYSE: LOW), remains far in the rear-view mirror with a market cap of more than $70 billion. Home Depot has advanced its strategy from being a cost leader to one that stresses broad differentiation in products and services.

How well that strategy has been working is reflected in the company’s valuation and in its ability to penetrate the market for home improvement products and services.

A recent survey of cash register receipts by NPD Group illustrates how successful Home Depot has been in grabbing mindshare in its target market.

NPD has developed a checkout tracking penetration index and applied it to Home Depot, Lowe’s and privately held True Value. The index is based on millions of receipts from consumers across all retailers and restaurants over time and is based on the answer to one simple question:

Of all shoppers who bought at least one item from a store or restaurant last year, what percentage of them bought something from __________?

In the case of home improvement stores in 2016, the answer, in Home Depot’s case, is 67.8%. For Lowe’s the answer is 59.3% and for True Value, the answer is 5.7%.

According to NPD Group, Home Depot’s penetration score improved by 1% year over year in 2016, compared with a gain of 0.8% for Lowe’s and a gain of 0.4% for True Value.

Home Depot prompts growth by selling more of the same products to consumers in its same market. The company has now rolled out to all its 2,278 U.S. stores a program that allows consumers to buy a product online and have it delivered the next day from a nearby store. Shopping doesn’t get much easier or customer-friendly than that, and when NPD Group tallies its penetration scores for 2017, programs like this should widen the Home Depot lead even further.

Home Depot’s stock closed at $146.92 on Wednesday, up 0.6% on the day, and up about 9.6% for the year to date. The stock’s 52-week range is $119.20 to $148.26, and the consensus 12-month price target is $155.45.

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