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Moving In On Southland's Home Improvement Market

Retailing: With the entry of Home Depot's new Expo Design Centers, the competition for local consumers' multibillion-dollar business will get intense.

July 18, 1999|ABIGAIL GOLDMAN | TIMES STAFF WRITER

The home improvement binge has turned Southern California into one giant construction site, with the nation's biggest remodeling chains hauling out their heavy machinery in a fight for control of the region's multibillion-dollar business.

Top dog Home Depot Inc. is pitted against rural-bred Lowe's Cos., which entered California this year. And in this latest round of the warehouse battles, what might get left in the home improvement dust are California's own players, Irvine-based warehouse chain HomeBase Inc. and smaller independent stores.

Each of the players is eager to prove it has the right mix of merchandise, service and store locations to lure do-it-yourselfers flush with stock market windfalls and positive views of a growing economy.

This week, Home Depot will up the ante with the first Expo Design Centers in California, opening Thursday in Monrovia and Huntington Beach.

The Atlanta-based company hopes its new Expo chain will do for interior design what Home Depot and its warehouse competitors did for home improvement: reinvent the industry by offering do-it-yourself possibilities not available in the old world of contractor- and decorator-led remodels.

Lowe's, based in North Carolina, comes to California trumpeting that it offers everything under one roof, and boasting of a softer, more welcoming environment that holds everything from cappuccino machines to materials for making the kitchen counter upon which they would rest. Lowe's hopes to grow here by attracting an underserved portion of the home improvement customer base: women.

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HomeBase stresses its home field advantage, remodeled stores, an increase in staffing and a rapport with customers who've stayed loyal because of its low price structure. The independents are left to market their small-store service and attention.

The dramatic expansion in the home improvement industry has paralleled the country's economic boom, with record stock market highs and interest rate lows fueling a runaway housing market. New homes mean fix-up projects for new owners; those who stay put, meanwhile, often compensate by redoing their current homes.

Both trends mean big dollars for the giant home improvement centers, an increasingly large part of the nation's $152-billion home improvement products business.

In Los Angeles and its four adjacent counties, residents--faced with a housing supply at historic lows that is limiting their trade-up options--pumped more than $9 billion into the home improvement business in 1998, according to Lowe's.

What's more, Californians, late to recover from the recession of the early 1990s, are likely to still be making over their homes after the din has died down elsewhere in the country.

For consumers, analysts say, more warehouse stores are likely to mean lower prices and better selection in the short term. "They keep each other honest," one analyst said.

The newcomers, however, threaten a broad scope of small retailers and the services they provide. When Home Depot and some of the other warehouse chains moved in over the last 20 years, it was local hardware stores that suffered and often failed. With the entry of Lowe's and Expo, the pain is likely to be more widespread, with independent paint, rug, tile, appliance and lighting stores feeling pinched.

Analysts say a broad-scale industry battle is inevitable because the home improvement business, although not near saturation now, cannot grow indefinitely.

Indeed, Home Depot, now with 832 regular stores and pursuing a fast-track growth plan, appears to be counting on new formats such as Expo to sustain growth by moving into new market segments.

In five years, Expo, with its higher-ticket merchandise, could account for as much as 10% of Home Depot Inc.'s overall sales, said Wayne Hood, retail analyst with Prudential Securities in Atlanta.

"I've always felt Lowe's was better in home decor and Home Depot was always stronger in the core building materials," Hood said. "Expo makes Home Depot more competitive."

None of the companies releases annual per-store sales averages, but an analyst who covers the industry estimated the average Expo brings in between $30 million and $35 million, compared with Home Depot's average of $45 million per store, Lowe's $40 million and HomeBase's $20 million.

Expo President Bryant Scott said that rather than stealing sales from Home Depot, the company has found over several years of testing with a handful of stores that Expo increases main store sales, although the company said it could not say by how much. The company will locate Expos as close as possible to Depots because customers undertaking remodeling projects with the design store often find they need more basic items available at Home Depot, Scott said.

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