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Artificial trees are getting the ax

Retailers stock fewer fake Christmas firs as people try to save by buying real ones.

November 27, 2009|Bloomberg News

Home Depot Inc. and Lowe's Cos., the largest U.S. home-improvement chains, are stocking fewer fake Christmas trees as shoppers plan to save money by buying the real thing.

"As the economy has gotten tougher, artificial trees have become more of a discretionary purchase," Craig Menear, Home Depot's executive vice president of merchandising, said in an interview at a store in Atlanta, its home base.

The retailer will stock the same number of cut trees as last year and a smaller percentage of factory-made trees, Menear said.

Lowe's will carry about the same number of cut trees as last year and 10% fewer fakes, Chief Executive Robert Niblock said.

Neither company would disclose their proportion of real trees to artificial.

Shoppers seem ready to trade the long-term benefit of a reusable fake tree for the short-term savings of a cut tree, which typically costs less.

Artificial trees at Home Depot are $79.97 to $269; cut trees are $9.97 to $100.

Lowe's sells fake trees for $38 to $298, which is $100 less than the highest-price fake last year. Its live trees cost $15.97 to $178.

Declining demand for faux firs mirrors a spending shift throughout both chains and across the U.S. Shoppers are moving away from discretionary purchases, especially the priciest ones. The value of average purchases fell in the third quarter, sinking 7.1% to $51.89 at Home Depot and 6.7% to $61.43 at Lowe's.

"The discretionary side of our business has taken a hit," Menear said.

Home Depot is tapping this spending pattern in the home improvement category by selling a primer-paint combination for as little as $30 a gallon, $10 to $15 less than the cost of primer and paint bought separately, said Gordon Erickson, a senior vice president of merchandising.

At Lowe's, holiday demand for decorations and electrical cords may push down average purchases in the fourth quarter, Larry Stone, president and chief operating officer, told analysts.

Large purchases won't rebound until U.S. unemployment peaks and housing prices stop falling, probably in the second half of 2010, Niblock said.

Home Depot rose 29 cents to $27.85 in New York Stock Exchange composite trading Wednesday. The shares had previously climbed 20% this year after declining the previous four years. Lowe's jumped 14 cents to $22.15. Before Wednesday, the shares had increased 1.7% this year.

The new frugality is spurring a change in strategy among retailers such as Home Depot, which cut inventories 8.9% in the third quarter. Lowe's, after reducing older stores' inventories 4.1% in the three months ended Oct. 30, bought "conservatively" for the holidays, Stone said.

Retailers' goal is to emerge from the holidays without leftover merchandise they must discount, said Robin Diedrich, an Edward Jones and Co. analyst in Des Peres, Mo. She recommends buying shares of Home Depot and Lowe's.

"In general, we're going to see lower levels of inventory across the board, whether it's seasonal items or regular merchandise," Diedrich said.

So far, Home Depot's sales of holiday items are "meeting our expectations" in terms of inventory levels, Carol Tome, chief financial officer, said. "We believe we won't have any markdowns at the end of the season."

Lowe's told analysts that it bought too many holiday decorations last year, making price cuts necessary.

This year, besides pruning its artificial tree order, the company has lowered its top fake tree price by $100 and is stocking more inexpensive models, which usually come without lights.

"We tried to respond to that consumer out there who needs a new tree but tries to stay within a restricted budget," Niblock said.

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