Lowe’s (LOW) , along with other retailers in the home improvement sector, is continuing to suffer from an alarming trend that’s putting a dent in its profits. The company is relying on three factors to help tackle the problem.
In its third-quarter earnings report for 2024, Lowe’s revealed that its customers have grown weary of spending money in its stores. Lowe’s comparable sales during the quarter declined by 1.1% year over year.
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Also, according to a recent report from Placer.ai, Lowe’s saw store visits decline by roughly 4% compared to the same quarter last year. The retailer also trailed behind its main competitor Home Depot, which accounted for about 29% of visits to home improvement and furnishing chains across the country during the third quarter; Lowe’s accounted for almost 21%.
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Decreases in the number of visits and consumer spending have contributed to the company’s net earnings slipping by roughly 4.6% compared to the same quarter in 2023.ing
Lowe’s CEO calls out the source of the problem
During an earnings call on Nov. 19, Lowe’s CEO Marvin Ellison claimed that while interest rates have recently decreased, consumers continue to face other economic pressures that are causing them to hold onto their cash.
“While interest rates are beginning to drop, consumers continue to face affordability challenges as both inflation and interest rates are putting pressure on their wallet,” said Ellison. “Mortgage rates also remained stubbornly high and there’s still a meaningful gap between current mortgage rates to purchase a home and the homeowners existing rates with over half of current rates below 4%. Combined with the lack of available homes for sale, housing turnover remains near 30-year lows.”
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Currently, the average 30-year mortgage rate remains high — above 6% — and it has been that way for the past two years, despite the Federal Reserve’s recent interest rate cuts.
Lowe’s also noted its customers are mostly pulling back on funding large DIY home improvement projects in areas such as kitchen, bath, flooring and decor. However, it has seen more of its customers purchasing items for smaller projects in sectors such as outdoor.
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This consumer behavior doesn’t come as a surprise since, according to a recent survey from U.S. News, 42% of U.S. homeowners are only opting to take on light home improvement projects, such as painting or landscaping, compared to the 30% who are doing full renovations.
Also, 43% of those homeowners said that the only way they will be able to fund those projects is by using only their savings.
Lowe’s hopes that three factors will help reverse low sales
Ellison also revealed during the call that even though Lowe’s sales continue to dip, the company is relying on three factors to help boost sales in the long term. First, he stated that homes are increasing in value over time, which will encourage more consumers to put their homes on the market.
Second, he said that disposable personal income is currently “outpacing inflation,” and third, the medium age of homes is “the oldest it’s been in U.S. history currently sitting at 41 years old.”
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“These drivers will support demand over the long term, which means existing homeowners are likely to continue investing in repairs and upgrades to their homes,” said Ellison. “Especially as interest rate pressures ease, we expect that homeowners will start to tap into the record $35 trillion in home equity to finance larger home improvement projects.”
He also claimed that remote work and millennial household formation, with Baby Boomers aging in place, will help grow demand in the home improvement industry in the medium- to long-term.
In addition to relying on those trends, Lowe’s will also be “laser-focused” on providing value to its cash-strapped customers in order to help improve sales. This comes after it recently saw increased momentum from customers surrounding key savings events such as Labor Day and MyLowe’s Rewards Week.
“Value can certainly come through price, can come through new and innovative products, and we’ve seen it really come all three ways,” said Lowe’s Merchandising Executive Vice President Bill Boltz during the call.
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