Home renovation giant Home Depot is slowly but surely becoming gobbled up by another giant, online e-retailer Amazon.
Earlier this month, Home Depot released its quarter 2 earnings, and while they surpassed expectations from Wall Street, they didn’t make much improvement from the steady decline they’ve been experiencing within the past few years.
Despite this growth, according to Inc.com, it doesn’t seem like it is going to be long before Amazon completely takes over. This is because Home Depot focuses a huge amount of their revenue on big-ticket items, things Amazon doesn’t need to worry about.
For decades, the Atlanta-based retailer has been the king of home renovations and remodeling. And since 35% of remodeling jobs involved the whole home, the retailer could provide a one-stop-shop for homeowners to get anything they need. Their business model typically relied on people coming for larger ticket items, like lawnmowers, and leave with smaller things like paint, light bulbs, and batteries.
Now, the Amazon effect is looming, and people are going online more and more for these everyday housing items. And since Amazon is already selling these items, they just have to branch into the appliance market and Home Depot may really face some hard competition.
Actually, Amazon just made a deal with Sears to sell Kenmore appliances, showing Home Depot that they do have the possibility to move further up in the market and that anything is possible when this e-retailer is involved. Plus, it is also worthy to mention that since everything is going online, Amazon gives a lot of benefits to consumers who thrive on efficiency and instant gratification. This could be due to the fact that between 80% and 90% of customers check online reviews before making a purchase, and want to know what they are investing in before they take the plunge.
Lowe’s, another home improvement retailer, is also struggling. Bloomberg reports that adjusted earnings were $1.57 a share last quarter, which is a 3.7% drop from the $1.62 prediction analysts made earlier this year. So since Home Depot is doing just a bit better than them, they are increasing their labor in stores, putting pressure on meeting increased margins, and try to get strong traffic despite the fact that their busy season is over and colder weather is approaching.
Despite these predictions, Home Depot does have an advantage over Amazon — it offers a range of different services that can be purchased on top of appliances. They’ll install water heaters, help with bathroom remodeling, and give a custom consultation in store on different remodeling projects for free.
So where does Home Depot go from here? The world can only watch and wait.
