Lowe's vs. Home Depot: Retail Strategy Comparison

Industry Overview

The two largest firms operating in the home improvement retail space are Lowe's and The Home Depot. These two companies essentially dominate the industry, with Home Depot accounting for nearly sixty percent of total revenues and Lowe's capturing the bulk of the remainder (approximately 39%). A number of smaller firms also target specific market segments and various local markets, competing for a smaller share of overall revenue. Within this industry, there is limited opportunity to build a strategy around product differentiation as a competitive advantage. Most stores carry either the same product mix or products that could be considered direct substitutes, and most consumer preferences revolve around price, convenience, customer service, and ordering and delivery options.

The industry is also highly correlated with the performance of the housing market, and any movements in that market exert significant influence over developments in home improvement retail. One industry analysis summarizes the key dynamics by noting that this mature retail sector is largely characterized by a high degree of market concentration and homogeneous product lines, leading to intense price competition — particularly between the two major companies that dominate the market (IBIS World, 2016). This paper considers some of the industry-level and company-specific challenges that these two giants face in the U.S. home improvement retail market.

Home Depot's Strategy and Market Position

Home Depot's (HD) mission statement is fairly broad and encompasses service, selection, and price. The company is focused solely on the home improvement industry and states that it will satisfy customer needs by offering a large selection at low prices. Beyond this, the company does not publish readily available information about its target market or other aspects of its strategy. Instead, Home Depot focuses more on its value system, which consists of eight values crafted into a "value wheel" that includes items such as entrepreneurial spirit, relationships, and service (The Home Depot, n.d.). The organization does not explicitly disclose detailed information about its market strategy.

Other sources are more informative. For example, the Panmore Institute has published a guide outlining the foundation of Home Depot's current strategy, noting that its generic strategy based on Porter's model is broad differentiation combined with cost leadership. The same source notes that the company's original generic strategy was pure cost leadership (Smithson, 2016). Home Depot stores first opened in 1979 and used a cost leadership strategy to build market share, advertising under the slogan "Everyday Low Prices." Despite being the larger of the two companies today, HD was actually founded more than thirty years after Lowe's — Home Depot in 1978 versus Lowe's in 1946. Through its low-cost leadership strategy, the company grew quickly and has expanded to 2,269 stores, of which 1,976 are in the United States, 182 are in Canada, and 111 are in Mexico (Fernando, 2015).

Home Depot now relies on broad differentiation as its primary generic strategy. Its emphasis on customer service and an industrial-style store layout reflect a target audience skewed more toward the home improvement professional and the experienced do-it-yourself customer.

Conclusion

These two organizations dominate the home improvement market, leaving little room for smaller competitors, which are forced to carve out increasingly narrow niches within the industry. Home Depot's strategy has largely centered on offering low prices, providing strong customer service, and catering primarily to professional clients. Lowe's has also competed on price, but differentiates itself through branding efforts that make home improvement more accessible to new customers, as well as through a full-service approach that assists with the installation of many of the products it sells.