Among last week’s surprise outperformance announcements were strong quarterly reports for both Home Depot (HD) and Lowe’s (LOW). Although they benefitted from remaining open and selling essential products such as cleaning supplies throughout the COVID-19 pandemic, both companies (along with several others that have recently reported) mentioned a tailwind from April stimulus checks and increased unemployment benefits, which may abate over the next few months as these benefits are ratcheted down. Our CE Vision tools allow an examination of what spend has been for each income group at these companies as well as in their industries and subindustries to assess the relative impact of low-income disbursements and the rate at which these groups may be slowing purchases due to lower benefits. We also dig into small contractor trends by tracking purchases among business owners. Finally, we estimate whether projects may be smaller or larger and long-term based on repeat purchases for new shoppers.
In general, Home Furnishings/Home Improvement as a subindustry saw strong spend growth in May-July across income groups. However, spend growth from lower income shoppers dramatically outpaced growth for higher income groups, with double-digit spend growth for those making less than $40K per year and $40K-60K per year starting as early as April when stimulus checks were first issued. Year-over-year spend growth went as high as 37% for those making $40K or less in May and June, while it hit 43% in May before decelerating to 33% in June for those making $40K-$60K. Although growth among the highest income group making greater than $150K per year was still strong at 8% in May and 15% in June, it was still very far below growth among less affluent shoppers.
Subindustry Spend Growth by Income
The “Pro” contractor segment has previously been a strong growth driver for both Home Depot and Lowe’s. Although our data captures only personal credit cards, it will track professional customers using a personal card to make business purchases. To this end, the overleverage to DIY customers in the most recent quarter for Home Depot and Lowe’s was trackable via the “Business Owner” demographic variable available in the CE Vision tool. Although the year-over-year delta in the percent of individuals who were business owners for both companies was consistent from January 2019 to March 2020, in April this percentage dropped -0.5% for Home Depot and -0.8% for Lowe’s. It also declined -0.5% for Home Depot in May and -0.3% for Lowe’s.
Demographics Over Time
The type of projects being done for home improvement can be an important indicator of how long spend growth might persist. A single purchase for a simple repair doesn’t have as much staying power as a complex renovation that involves several trips over multiple months. Our data is able to track individual customers over time, showing that for both Home Depot and Lowe’s, there was a surge in repeat purchasing in the most recent quarter, as over 20% of shoppers who made their first purchase in April during Q1 at both retailers came back for a second trip in May. These numbers stayed elevated into the quarter, with over 15% of shoppers at both chains who made their first purchase in May coming back in June.
With CE Vision, users can compare growth rates across income groups among their competitive set to their own internal performance to see if they are keeping up or being disproportionately impacted by macroeconomic factors and develop strategies to mitigate losses. CE Vision allows companies to track the trends almost real-time with a one week data lag, seeing if predictions from several companies that the low-income tailwind may peter out comes to pass, and how much growth may slow if it does. It also allows companies to see how much of their competition’s spend is coming from small business owners and whether this is a group worth including in their marketing plans. Finally, companies can benchmark repeat shopping behavior versus competitors to see if others in their industry are doing a better job of driving repeat traffic.