Value Line Executive Summary

Executive Summary
In 2002 an Analyst named Carrie Galeotafiore put together a five year financial forecast
on the retail building supply giants Home Depot and Lowes. The Retail Buildings Supply
Industry in the U.S is estimated to be valued over $175 billion and growing in 2001. The
industry was traditionally divided among three formats: hardware stores, with 15% of sales;
lumberyards, with 34% of sales; and the larger-format home centers, with 51% of sales. From
1998 to 2001 the annual growth had slightly declined but that can be blamed on the poor
economy in 2000, 2001.
The growth rate looked promising in the coming years due to low interest rates, and a
strong housing-construction market. The opportunity was there for a company or companies to
thrive and both Home Depot and Lowes were in good position. The two giants where mirror
images of each other in the publics eye but both had very different strategies and market
focuses. Although they had different strategies and brands images to improve, both companies
needed to develop their customer service, and create a more favorable merchandise mix. Initially
Lowes focused on more of the rural upscale areas while Home Depots strategy had been to
move towards the more condensed metropolitan areas. In 1999 while Lowes had acquired the
multi-store warehouse chain Eagle Hardware for $1.3 billion Home Depot had also acquired
large distributors and companies such as Apex Supply, Georgia Lighting, and Your Other
Warehouse to just name a few. Home Depot decided to start stocking merchandise in larger
quantities and carrying some of the more professional brands. In order to reach out to the smallprofessional market they developed Pro Stores. As Home Depot grew in the U.S they continue
to expand internationally into countries such a Mexico and Canada which consisted of 10% of

their total business. On the other hand Lowes decided not to expand internationally. The online
presence of both companies continued to grow with Lowes website targeting professional
customers called Accent and Style.
A worry from investors was that because both companies had now tried to enter the
metropolitan markets that it would cause extreme price competition. The CEO of Home Depot at
the time felt that the best way to increase the stock price was to focus on increasing the stores
operation efficiency and customer service in order to lower prices and make the weekend
hardware shopper more comfortable. Galeotafiore supported these ideas and felt it was not only
important for Home Depot to appeal to the professional contractors but to make the store
appealing and more comfortable to all shoppers.