Can Hurricanes Provide A Boost To Home Improvement Companies?

by Trefis Team
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Home improvement companies Home Depot (NYSE:HD) and Lowe’s (NYSE:LOW) seem to be ready for the hurricane season even if the residents are not. With hurricane wind speeds reaching epic proportions, consumers have been flocking to grocery and hardware stores to stock up on the necessary supplies. According to Home Depot, once a storm such as Irma is spotted, the company alerts the stores in the potential strike zone, and starts mobilizing resources to that area. A majority of these supplies reach the stores through distribution centers, which have been pre-loaded with hurricane supplies well ahead of the hurricane season. Similarly for Lowe’s, the company stated it had shipped over 325 truckloads of products to Florida ahead of the storm, and continue to expedite such shipments in order to aid the customers to prepare better for the storm.

How Home Improvement Companies Benefit From These Devastating Hurricanes

Early estimates of the damage done by Hurricane Harvey has been pegged at billions of dollars. Hannover Re, one of the largest reinsurers in the world, estimated losses of $3 billion just on insured items. Meanwhile Enki Research, which calculates the costs of hurricanes, tsunamis, and other natural disasters, has estimated Harvey to cost anywhere between $48 billion and $75 billion. Such a disaster is bound to affect the overall economy. For reference, while Hurricane Katrina cost an estimated $108 billion, according to University of Texas professor Bernard Weinstein, the damage and its economic impact totaled close to $250 billion. Moreover, the US economy grew at 3.8% in the quarter before the storm hit, but plummeted to just 1.3% in the aftermath.

As Hurricane Harvey and Irma are expected to devastate many  houses, there will be a greater need to fix these houses post the storms. Such a scenario will boost the demand for products of home improvement companies such as Home Depot and Lowe’s, which cater to not only the do-it-yourself (DIY) segment, but also professionals in the home improvement/remodeling and construction space. Home owners face the likelihood of severely damaged properties, necessitating the demand for home improvement equipment and materials. Moreover, since the  majority of the properties in the flood affected areas are without insurance, people will be forced to pay out of their pockets for the repair work. Hence, a substantial portion of the work can be expected to be conducted by the DIY segment, which is a core customer base for both Home Depot and Lowe’s. Even prior to the storms, the companies had been selling large volumes of small-ticket items such as bottled water, tarps, and straps, as well as larger ticket times like fans, blowers, air conditioning units, and generators.

According to projections by Planalytics, Hurricane Harvey could cost retailers as much as $1 billion in lost sales. However, careful planning and ample preparedness can help Home Depot and Lowe’s to see a sales boost. According to Home Depot, after Hurricane Sandy hit the New Jersey shores in October 2012, the sales attributed to the storm came in at $242 million in the fourth quarter, which was $112 million higher than the sales related to Hurricane Irene in the same period a year prior. Furthermore, the tailwinds from the storm-related sales continue well after the quarter in which it hits, a consequence of which will be that these companies’ sales may receive an uplift for the remainder of FY 2017.

Have more questions on Home Depot and Lowe’s? See the links below.

Notes:

1) The purpose of these analyses is to help readers focus on a few important things. We hope such communication sparks thinking, and encourages readers to comment and ask questions on the comment section, or email content@trefis.com
2) Figures mentioned are approximate values to help our readers remember the key concepts more intuitively. For precise figures, please refer to our complete analysis for Home Depot and Lowe’s.

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