Home Stores Seek Improvement

Suffering Home Depot, Lowe's Plug Cheap Repairs in Housing-Market Crisis

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NEW YORK (AdAge.com) -- The silver-lining theory holds that when consumers can't sell their homes, they upgrade them. Tell that to Home Depot, which last week reported the first sales decline in its 30-year history.
John Ross, Home Depot's interim chief marketing officer
John Ross, Home Depot's interim chief marketing officer

Instead of replacing their kitchen cabinets, consumers are just changing the knobs. And that's prompted the likes of Lowe's and Home Depot to try to entice wary consumers by touting manageable, affordable upgrades. "You can do a bathroom for $1,000. You can also do it for $300," said John Ross, Home Depot's interim chief marketing officer. "We have to make it easier for people to understand how they do that. ... It's [providing] more clever insights into how you complete the project ... in ways that don't cost as much money."

Bleak home sales figures
The moves came after the Commerce Department reported a 34% dive in January sales of new homes compared with a year ago -- a 13-year low -- and the National Association of Realtors said existing-home sales fell 23% in January vs. a year ago.

That pain's being felt in the home-improvement aisle. Last week, Home Depot said fourth-quarter profits dropped 27% and full-year profits declined 24%. Guidance for the coming year is similarly bleak. The company is forecasting a 4%-to-5% falloff in sales for fiscal 2008 and expects sales in stores open at least a year to show declines in the mid- to high single digits.

Similarly, Lowe's said fourth-quarter profit plunged 33% as it forecast 2008 same-store sales to be down between 5% and 6%. Total sales, however, are forecast to increase 3% with the opening of 120 stores planned for 2008.

Lowe's, too, said it is seeing relative strength in smaller-ticket purchases, while the worst-performing categories have been cabinets, millwork and flooring. To that end, the retailer has made several appeals aimed at cash-strapped consumers. One article on its website touts "economical tips and products," while another examines "simple and cost-effective changes to your kitchen and bath."

"We are focused on highlighting key maintenance projects and inexpensive enhancements in markets suffering ... the biggest slowdown in housing while continuing to highlight larger projects in less-impacted markets," said Larry Stone, president-chief operating officer of Lowe's, on the company's ad plans in a conference call with analysts.

Obligated to help consumer
Mr. Ross said Home Depot will be looking for ways to convey the fact that many products are priced at historic lows due to the depressed economy. "I was looking at pricing on some products that were as cheap as they've been since the 1960s," he said. "Retailers like Home Depot, but really the entire industry, have an obligation to help the consumer understand that ... whatever is on their project list, it's a great time to take it on."

With both retailers already forecasting a difficult 2008, advertising budgets could come under pressure, although Mr. Ross said striking the proper tone is a bigger challenge than budget constraints. "For many years, the industry has been able to rely on this inherent, built-in growth. We weren't worried about competing with other channels for consumers' dollars," he said. "In this environment, we have to convince people that home improvement is a good place to spend."

Neither retailer commented on spending levels for 2008. In the first three quarters of 2007, Lowe's measured spending showed slight drops each quarter, for a total decline of about $21 million to $333 million compared with the same period in 2006. Home Depot, meanwhile, increased spending by about $24 million to $449 million during the first three quarters of 2007 compared with the same period in 2006.

Home Depot's agencies include Richards Group and Initiative, while Lowe's works with BBDO Worldwide, Campbell-Ewald and OMD Worldwide.
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