New York, NY, December 27--Shoppers at Home Depot and Lowe's stores are increasingly asking those retailers for one more thing when they get their purchases home: help.
Whether it's laying a new carpet or connecting a dishwasher properly, time-constrained homeowners and aging baby boomers are becoming more willing to pay for services that were not always associated with the big-box home-improvement retailers, which made their names catering to the do-it-yourself crowd.
"As baby boomers get older, they're increasingly going to be less 'do-it-myself' and more 'do-it-for-me'," said Morningstar analyst Anthony Chukumba, who does not own shares in either company. "They're going to get older and not build that porch or put that air conditioning in, and they'll look to Home Depot and Lowe's to do it for them."
Home Depot currently does 11,000 installations on an average weekday, said Joe Izganics, president of At Home Services for the retailer. Its services revenue rose 26% to $957 million in the quarter ended Oct. 31, a period when services accounted for about 5% of its total revenue.
Home Depot's services business includes installations for customers, its professional business-to-business segment, and products purchased to be installed. Home Depot doesn't break out the figures for each segment, and it hasn't projected services revenue growth for this year, Izganics said.
Lowe's expects home installation sales of $2 billion this year, compared with $1.5 billion in 2003, said Greg Bridgeford, executive vice president of business development. Home installation services accounted for 5% of the company's 2003 revenue.
Flooring is one of the most popular installations for both retailers. Door, window and kitchen cabinet installations are also popular. Both companies hire outside contractors to do the work.
Shortly after taking over as Home Depot's president and chief executive in 2000, Robert Nardelli made it clear that growth in the services business was a priority. The company has said services represent a $200 billion market.
The retailer has 23 installation programs for various products around the country, with plans to add more. Another way the company is building the services business is through alliances like its recent agreement with AARP that includes merchandising, marketing and educational initiatives designed to help people make their homes easier to live in as they get older.
The aging of the U.S. population isn't the only trend fueling growth in the services business. Consumers increasingly view their homes as investments and therefore want to maintain and upgrade them, said Marquis Investment Research analyst Charles Georgas, who does not hold shares in either company.
The installed services business has plenty of room to grow, retailers and analysts said. If the housing market begins to cool because of higher interest rates, homeowners will likely opt for more remodeling projects instead of new homes, Georgas said. Also, products such as appliances are always needed, he said.
"I think we're talking years of installed sales growing faster than the chain average for both companies," said Goldman Sachs analyst Matthew Fassler. He doesn't own shares in Home Depot or Lowe's, but Goldman does investment banking work for the companies.
