What Lowe’s and Home Depot are not telling you by Charles Passy

1. We may be bigger, but we’re not necessarily better

 Summer is when many Americans spend plenty of time working on home improvement projects. That inevitably means many Americans will also be spending plenty of time–and plenty of dollars—at the big-box stores that have come to dominate the home-improvement industry—particularly, Home Depot (HD) and Lowe’s (LOW), which are responsible for around 80% of the industry’s $153.8 billion in annual revenue, according to market researcher IBISWorld.

And with the economy (and perhaps more pertinently, the housing market) showing signs of improvement in recent years, both companies have become investors’ favorites. Home Depot stock is up roughly 180% since the end of 2009 and Lowe’s is up about 100%; by contrast, the Dow Jones Industrial Average is up about 60% during that same period.

But shoppers haven’t shown quite as much enthusiasm as investors. In a J.D. Power survey of six major home improvement and hardware retailers, Lowe’s ranked third and Home Depot fourth; Ace Hardware, a network of mostly independently owned, neighborhood-oriented stores, took the top spot, which arguably suggests that consumers prefer that model over the big box one. And on consumer-oriented sites such as Consumerist.com, stories abound of experiences gone awry at Home Depot and Lowe’s, particularly involving installation issues.

Perhaps most telling of all: While many retail experts thought the big box home improvement chains might spell the demise of independent hardware stores, it appears the mom-and-pops are holding their own against the giants. IBISWorld predicts hardware stores will see slightly better annual growth (2%) in the years ahead than the home improvement giants (1.7%). While the big-box chains can often offer an extensive selection of items and low pricing, they can’t always compete in terms of personal service or the ability for shoppers to get in and out of the stores quickly and easily. Hardware stores tend “to be more welcoming to customers,” says IBISWorld analyst Jocelyn Phillips.

For their part, Home Depot and Lowe’s emphasize the many positives they bring to the shopping experience. A Lowe’s spokeswoman touts the fact that “Lowe’s offers more in-stock appliances than any other retailer and offers easy installation services.” A Home Depot spokesman points to the fact that the chain is “continually working to improve” customer service “regardless of any rankings” and that its efforts include making sure “store associates are able to spend the majority of their time assisting customers rather than (on) operational tasks such as stocking shelves.”

2. Your worst day becomes our best quarter

By any measure, superstorm Sandy was one of the most horrific weather events in recent memory, responsible for nearly 150 deaths and more than $50 billion in damages. But to the big-box home improvement chains, the October 2012 storm was a boon for business because of the need for rebuilding supplies that ensued.

Home Depot saw its fourth-quarter sales in 2012 grow by 13.9% compared with the fourth quarter in 2011. Lowe’s didn’t fare as well overall—its sales for the quarter were actually down versus the previous year—but the figure was higher than expected and Sandy was credited for the unanticipated improvement. The same profiting-from-disaster situation has been true after other major weather events—say, Hurricane Katrina in 2005.

Not that the home-improvement chains should be faulted, say retail experts: It’s simply the nature of the business. (And it’s the nature of other businesses, too—think auto body repair shops.) Additionally, both Home Depot and Lowe’s have repeatedly made the case that they take an interest in the communities where they’re situated and contribute when needed. In the instance of Sandy, for example, both chains publicly committed at least $1 million to relief and recovery efforts.

Dan Tratensek, vice president of publishing for the North American Retail Hardware Association, notes that bad weather can sometimes be a negative for business. For example, last summer’s drought in the Midwest hurt sales of gardening and barbecue supplies. “No plants were growing and no one was grilling because it was too hot,” he says.

3. Want to score a good deal? It can’t hurt to ask

There are plenty of ways to score a deal at Home Depot and Lowe’s, from taking advantage of weekly sales to tapping the price match policies that both chains have in place. But perhaps one of the best savings tools is something more associated with flea markets, garage sales and used-car lots—namely, good old-fashioned haggling.

Shopping experts and retail analysts say customers can sometimes negotiate a discount, especially on big-ticket items like appliances or on larger orders, provided they’re willing to bargain with sales associates and managers. For the record, the chains don’t exactly advertise the fact they can be flexible on pricing—if anything, a Home Depot spokesman says, “We do not haggle on pricing.” (But the spokesman also says, “We do have certain policies to empower our associates”—say, in a situation when a customer is disappointed that an item is out of stock.)

Still, there’s an obvious reason why Home Depot and Lowe’s may be willing to bargain: They can’t afford to lose the business otherwise. The two chains are not only fighting each other for market share—Home Depot has 2,200-plus stores, Lowe’s has 1,800-plus—they’re also facing competition from discount retailers warehouse clubs and online retailers. Either way, it’s the consumer who benefits from any such battle of behemoths—again, provided they’re not shy about speaking up, says Peter Brown, a consultant with Sageworks, a firm that has studied the home improvement industry. “I’m consistently able to drive deals at Home Depot and Lowe’s,” says Brown of his personal shopping experiences.

4. The price may be free, but you’ll pay in the end

What’s better than saving a few bucks? Getting something for nothing, of course. Home Depot and Lowe’s offer plenty of freebies—specifically, free workshops geared for do-it-yourselfers or kids and free consultations or design services when it comes to remodeling projects.

But retail experts say consumers should recognize these perks for what they are: a way to draw traffic into the stores and, in turn, to move merchandise. In other words, you might come for that free clinic on understanding energy efficient lighting, but you could end up buying some extra light bulbs on your way out the door. Or your might receive free recommendations about how to redo your kitchen, but you could end buying, well, a new kitchen. “You have to take it”—meaning the word “free” – “with a grain of salt,” says Chris Morran, deputy editor of Consumerist.com.

5. So much for happy returns

Both Home Depot and Lowe’s say that returns shouldn’t be an issue. “Our goal is that you are completely satisfied with your purchase,” says Home Depot on its website. “Customer satisfaction is our goal,” says Lowe’s. But both companies have exceptions to their return policies, particularly involving customers who may return non-receipted items on a repeat basis. Home Depot says it “reserves the right to limit or refuse to accept the return of merchandise at any time for any reason.” Lowe’s says it “reserves the right to refuse or limit the number of returns without valid receipts.”

Retail experts say this is part of a broader clampdown throughout the entire retail industry. The reason why stores are getting tough? Nearly 9% of all purchases are returned, equating to some $264.3 billion (yes, billion with a “b”) in lost revenue, according to The Retail Equation, a company that provides analytical services to retailers. Even more troubling of late, says The Retail Equation, is the growth in return fraud of all kinds; the use of counterfeit receipts alone increased by 18% in 2012.

The problem, of course, is that the clampdown can affect honest customers–meaning those who need to return items occasionally for legitimate reasons, even if they don’t have receipts. In any case, a Home Depot spokesman says if a customer has a return issue they “can call us and find out the reason for the restriction, so if there’s confusion, we can lift” the restriction. A Lowe’s spokeswoman did not go into greater detail about the company’s return policy, other than to refer to what’s indicated on the chain’s website.

6. Don’t mind paying 27% interest? Sign up for our credit card

The big box home-improvement chains put plenty of credit card deals on the table. Currently, Home Depot’s offers include ones for up to 24 months of 0% financing or 10% off a single-receipt flooring purchase, and Lowe’s offers include ones for up to 18 months of 0% financing or 5% off in-store purchases.

But personal finance experts warn that if you look past the offers at the key terms and conditions, you may be less than impressed. Store cards in general often have very high interest rates—at least after those introductory 0% offers expire. In the case of Home Depot, the rate can go as high as 26.99%, based on the cardholder’s creditworthiness (the lowest listed rate is 17.99%); Lowe’s card has a listed rate of 24.99%. By contrast, CreditCards.com says the national average card rate is currently around 15%.

Indeed, with the high rates the store cards are charging, even a great introductory offer may matter little if you end up tapping the credit, says Odysseas Papadimitriou, chief executive of the personal finance website CardHub.com. “You can eat away those savings very quickly,” he says. Just as important: You may find better cards offered elsewhere. Sign-up bonuses and promotions are hardly unique to store cards—for example, Bank of America is currently offering some new cardholders up to a $200 reward.

Still, Home Depot and Lowe’s say their cards stand on their own. “We’re extremely competitive” in the credit marketplace, says a Home Depot spokesman. “(We) provide flexibility for our customers planning and budgeting for a home improvement project,” says a Lowe’s spokeswoman.

7. Our best deals go to contractors, not to you

Sure, it’s the DIY customer who’s key to the success of the big box home improvement stores. But then again, those customers don’t necessarily come in and order pallets of bathroom tiles on a weekly basis. Which is why contractors get all sorts of perks at Home Depot and Lowe’s that regular shoppers don’t, including special bulk pricing, dedicated parking and checkout lanes and specialty sales associates.

That’s also why both chains continue to woo contractors with additional products and services. For example, Lowe’s just unveiled a new website, LowesForPros.com, geared for contractors. With both chains, the professional segment is “a big piece of their business,” says Robin M. Diedrich, an analyst with Edward Jones. In fact, Diedrich says it could easily equate to a third of sales. (Actually, Home Depot puts the figure at 35% and Lowe’s at 30%; both stores insist they tailor their programs and offerings to meet the needs of contractors and DIYers alike.)

8. Our house-brand products don’t always earn rave reviews

Like many retailers, Home Depot and Lowe’s have their share of house brand items—that is, products manufactured directly for the stores that are typically offered at a lower cost. (Some name-brand manufacturers also offer “exclusives” through Home Depot and Lowe’s.)

But a cheaper product isn’t always a good product, at least according to some reviewers. Consumer Reports took Home Depot to task for its Home Legend Lisbon Natural line of flooring, noting its “poor resistance to fading, scratching and denting,” and its Glidden High Endurance and Duo lines of paints, pointing to the fact “they were susceptible to staining” in some cases. The ToolGuyd blogwas less than kind about some of the items in the Kobalt line of tools from Lowe’s—in particular, the Magnum Grip pliers: “I had a lot of problems with these pliers, and can say with utter and frank honesty that these are the WORST locking pliers I have ever used.”

Of course, the negative reviews are balanced by plenty of positives. Consumer Reports awards “Best Buys” for such Home Depot exclusives as a Ridgid cordless drill and a John Deere tractor. Consumer Reports has also consistently ranked Lowe’s’ Valspar line of paints as among the tops for interiors.

9. We’re really in the appliance business…

Don’t let the rows and rows of light and plumbing fixtures and nuts and bolts fool you. In many ways, home improvement stores have really become appliance stores. In the last decade, Home Depot and Lowe’s have seen their appliance sales grow considerably—that’s especially the case at Lowe’s, which in 2013 finally toppled longtime category leader Sears (SHLD) as the country’s number-one appliance retailer, according to TWICE magazine, a trade journal. Lowe’s says appliances make up 14% of its sales (Home Depot would not provide a specific breakdown).

In many ways, say retail analysts, Home Depot and Lowe’s are benefiting from Sears’ overall slide as a retailer—the chain has closed close to 100 of its U.S. stores in the last year. Plus, given the size of most home improvement stores—the typical Home Depot is about 100,000 square feet (or double the size of your typical grocery store)—there’s plenty of room to stock those appliances. “It’s a market segment they can move into relatively easily,” says Phillips, the IBISWorld analyst.

But just because you can pick up a washer and dryer along with your plumbing fixtures doesn’t necessarily mean you should, say consumer experts. In a recent survey, Consumer Reports found Best Buy and Costco had better pricing than Home Depot and Lowe’s, and that local, independent appliance stores ranked higher than the home-improvement giants for customer service. “It’s hard to beat your neighborhood mom-and-pop retailer if you want attentive, knowledgeable salespeople,” the publication declared.

10.…and the snack-food business

Fancy a cold can of Coke along with your lumber? At home improvement stores, snacks and sodas are increasingly part of the product mix. For that matter, so is toilet paper. Home Depot even has gone so far has to recently launch its own its own laundry detergent.

What’s the purpose of this unlikely push? Naturally, it’s to extract every extra dollar or two from customers, say retail analysts, especially at a time when brick-and-mortar stores are seeing shoppers migrate increasingly online (U.S. shoppers made 3.8% fewer shopping trips in 2013 versus 2012, according to market researcher Nielsen). Ultimately, the money isn’t all that significant: IBISWorld estimates that “miscellaneous items”—a category that includes everything from soda and chips to books and apparel–account for just 3% of home improvement store sales. And the stores aren’t claiming to be as competitive pricewise as supermarkets when it comes to, say, soda. Still, it’s a moneymaking category no matter what, says IBISWorld’s Phillips. “Once the customer is in the door, you sell them whatever you can sell them,” she says.

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connie dello buono

Health educator, author and enterpreneur motherhealth@gmail.com or conniedbuono@gmail.com ; cell 408-854-1883 Helping families in the bay area by providing compassionate and live-in caregivers for homebound bay area seniors. Blogs at www.clubalthea.com Currently writing a self help and self cure ebook to help transform others in their journey to wellness, Healing within, transform inside and out. This is a compilation of topics Connie answered at quora.com and posts in this site.

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