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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.

To read more about Retail Forward's predictions for Home Depot and Lowe's, read the Sept. 10 issue of Home Channel News. Click here to subscribe.