I had the luck of being in the UK market since early last year, and thus seeing what happens when a housing market goes flat. And that's flat, versus a collapse, as HP'ers know I fully expect in the US.
What happens after consumers realise the HELOC train has left the station? They stop spending. And where do they stop spending first? Duh - at the home improvement store.
B&Q (owned by Kingfisher) is the Home Depot of the UK - same colors, same products, same same. And since the UK market flattened out, B&Q has hit the skids, with some horrific sales (or lack thereof)
This is why I'm now short (via January Puts) Home Depot and Lowes. And if you research Home Depot, in addition to being a lousy run company with the worst CEO in the Fortune 500, you'll see that they've bought up a lot of suppliers too, with their focus on the trades and wholesalers. So it's not just the consumer drying up that'll kill them, but with homebuilding falling off the cliff, that's a lot less lumber, a lot less saws, a lot less nuts and bolts, etc that'll be needed
I believe these two stores will get slaughtered, and I mean slaughtered, during the housing meltdown. Just as B&Q got killed over here.
Investors are not waiting for the roof to collapse, but they expect some meaningful damage. Since January, shares in home improvement giants Lowe's and Home Depot (NYSE:HD) have both fallen by more than 15 per cent, while the broader US retail sector is off only 2 per cent. Amid fears of a general consumer slowdown, housing has taken centre stage.
There are risks. Lowe's on Monday cut its earnings forecasts and said that same-store sales growth could be as low as zero in the third quarter. But the company appeared to focus on general pressures facing consumers from high fuel prices and geopolitical concerns rather than the housing market itself - which the company expects to have a soft landing.
Even if that is the case, however, it is worth a peek across the Atlantic at what happened to UK market leader Kingfisher when the housing market enjoyed a relatively soft landing. Sales growth turned negative and operating margins halved. Admittedly, most UK retailers also had a tough time, but it does give a sense of the damage that is possible for home improvement retailers when a red hot housing market stops sizzling.
August 22, 2006
Home Depot and Lowes: Investors are not waiting for the roof to collapse, but they expect some meaningful damage
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13 comments:
home depot just stopped reporting same store comp sales
hmmm...
kinda like when the fed stopped reporting money supply
hmmm...
ever notice all the illegals hanging around home depot looking for jobs? wonder if they're noticing a slowdown too
"rather than the housing market itself - which the company expects to have a soft landing."
Why do they expect a "soft landing." That is, other than their subjective belief, has a housing head ever set forth any objective evidence to suggest that the landing will be soft? Is there even a factual basis for such statements?
you'd figure people in the homebuilding industry would have to be honest with their shareholders about what they're hearing and seeing.
soft landing my ass, and they know it. one thing that won't have a soft landing is their stock price, just like the homebuilders themselves, 50% off for starters
wow click on that b&q link it's like reading the future for home depot!
Gerry Murphy, the chief executive, blamed the sales fall on the recent collapse in the housing market, which has compounded the difficulty of 'dealing with a consumer who is challenged'. He admitted that without the stimulus of moving house, consumers had fewer reasons to visit B&Q.
He added: 'People are less confident about borrowing to support consumption. I don't think we'll see confidence begin to recover until people have a reason to believe the value of their assets is safe.'
Yesterday I went to the Costco here in Reno to buy some of their wonderful Alaskan Salmon and decided to walked around the store a bit...
Is it just me? Or is kitchen and home accessory stuff super-sized? Costco has so much large-scale stuff, I feel like Alice in Wonderland in there after she drank the shrinking potion.
Anyway, I observed two ladies shopping together-they were checking out a large family-sized stainless steel seafood serving set - complete with stainless bowls and all the shellfish cracking tools, and I over heard one lady say to the other, "thats nice", and the other lady replied: "Oh,I dont need anymore stuff!"
Seems like the mindset on spending is changing, and the trend is reversing itself.
Things are a changing...
what are you rviews on the current state of the uk market? crash still coming?
signals are mixed, and i have enough cash to buy a place outright, but the number of people telling me i can't lose by buying has me convinced that i probably would.
Local home depot during last downturn saw less contractors, but made up for it in do-it-yourself homeowners doing repairs and projects.
HD and Lowes and and especially 84 Lumber
have to re adjust their selling approach to aggressively go after the pre-bubble Harry Homeowner who just wants to fix up his place because he wants a NICER place and can afford to!
The contractors won't be there to keep them going, and If like "84”, they have told the Harry Homeowner's to "go pound sand, we don't want or need your business" its going to require a major mindset re-adjust in the sales dept.
When I put an addition on my place in 2000, 2x4's were $1.25 not $3.00, house wire was 12.00 a roll, not 75.00, sheet rock was $3.99 a sheet, not $11.99. Even though the do-it-yourselfer saves on labor, the prices are going to have to come down, A LOT!
HD and Lowe's will still be with us. I don't know about 84 lumber. Dealt with 84 lumber for years. I used them exclusively to build my first house because of their good prices and above average service. Times have changed! Last time in the store I was treated like a non-entity POS and was told "we ONLY serve the contractor trade now" Still have a bad taste in my mouth. Multiply me by a LOT of complaints I have heard by little people like me about this company, and the housing bust just might take "84" down with it. Paybacks a Bitch!
84 Lumber built a store near me, I kept seeing signs, but didn't know where it was until I asked someone in town. They had built it across the tracks, which parallel the river. I had to cross the tracks, turn, drive the length of a commuter parking lot, on to a dusty lanebeyond that for 1/4 mile. There wasn't anyone in the store, customer or staff, and I wandered fruitlessly, looking for paint. Finally, a clerk emerged from the back and told me they had no paint, at all. I couldn't believe it. I was annoyed to begin with, then got stuck waiting for a train to pass on my way out! Seems they set it up for handy offloading of lumber from train straight to contractors' trucks. I wouldn't be surprised to find this place shuttered before long.
Stuck in So Pa said...
The contractors won't be there to keep them going, and If like "84”, they have told the Harry Homeowner's to "go pound sand, we don't want or need your business"
Anonymous said...
There wasn't anyone in the store, customer or staff, and I wandered fruitlessly, looking for paint.
I also didnt know 84lumber turned into a bunch of jerks only serving the big buck contracter. I walked in my local store,same thing,no staff,no service,no stock.Just a glorified loading ramp from train to contracters with a big sign on the roof.They should go down hard.
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