- New housing starts soared over the summer, but that doesn’t matter much to home improvement retailers like Home Depot and Lowe’s.
- Speaking at Goldman Sachs’ virtual retail conference this week, the CEOs of both companies clarified that their businesses are not dependent on new home construction.
- In fact, Lowe’s CEO Marvin Ellison said that the aging housing stock in the US is good for business.
- “If you’re living in one of those aging homes, it’s going to lend itself to you making those investments to modernize,” he said.
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When it comes to the home improvement business, fixing up an older home is a far more lucrative than building a new one from scratch.
That is at least the case for retailers like Home Depot and Lowe’s. The CEOs of both companies recently made comments during Goldman Sachs’ annual Global Retailing Virtual Conference suggesting that not all aspects of the housing market are equal in determining future sales success.
Both Lowe’s CEO Marvin Ellison and Home Depot CEO Craig Menear said that new construction has little bearing on their businesses. Instead, upgrading older, existing homes guarantees customers keep coming back.
“We’re really not set up for new construction,” Menear said. “We have home builders that shop at the Home Depot, but that is not what we are really set up to do. We couldn’t put together a lumber package to save our life.”
Lowe’s CEO Marvin Ellison also said that “new home construction” is not a large driver of business for the company. However, there is one housing market figure that the leader of the home improvement retailer said he does keep an eye on: the median age of housing stock. This number refers to the age of the home.
Ellison delved into why older housing stock and a “limited inventory in new homes” actually provide a boost for home improvement retailers.
“We’re in the home improvement business, which lends itself to home turnover,” Ellison said. “As customers are buying new homes, they’re selling their existing homes. We tend to pick up business from those owners buying those existing homes and those prospective home sellers putting their homes on the market.”
Despite certain states banning non-essential construction, the coronavirus pandemic has sparked a bit of a turnaround for residential building. New housing starts — or the start of construction of new houses — surged 22.6% in July. That’s the largest jump since October 2016, according to the US Census Bureau.
Meanwhile, the median age of owner-occupied residences in the US has climbed in recent years. In 2017, Construction Dive reported that the median age of owner-occupied properties jumped from 31 years in 2005 to 37 years in 2015.
Ellison said that business from home turnover could come in the form of shoppers visiting Lowe’s for new paint, tools for flooring repairs, or appliances to assist with landscaping.
“You want to do all those things before you put it on the market,” he said. “And when you buy a home, you want to personalize it. If you’re living in one of those aging homes, it’s going to lend itself to you making those investments to modernize the kitchen, the bath, and also those maintenance and repair items.”