Lowe's Moves into Home Depot's Backyard

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As a New Yorker, one who has never owned an apartment much less a house, venturing to Atlanta to check out

Home Depot

(

(HD) - Get Report

HD) and

Lowe's

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(LOW) - Get Report

LOW) was a daunting prospect. Since I've never set foot in a big-box home improvement retailer (I don't even like to change my own light bulbs), my imagination was rife with

Tim Allen

look-alikes hefting wood and loading lime into wheelbarrows.

A homebuilder's hotbed, Atlanta has led the nation in new homes built and sold for seven consecutive years, according to a recent article in

The Atlanta Journal-Constitution

. Home Depot, which is based in Atlanta, opened its first store in 1978, and now has 25 in the greater metropolitan area. Its chief competitor, Lowe's, based in North Wilkesboro, N.C., entered the market in 1995 and now has six stores. That makes for about one home improvement superstore for every 100,000 Atlanta residents.

Jerry Shields, a Home Depot spokesman, says the company doesn't consider the market saturated. Yet customers tell a different tale. "There's so many of them in town, I'll just stop at whichever is closest," says one woman in the paints section of a Lowe's. "I have no preference."

Some analysts suggest that with Home Depot accounting for 19% and Lowe's for 7% of the $151 billion home improvement industry, there's enough room for both to thrive. Lowe's is aggressively entering Home Depot territory, and now competes head-to-head in 20% of its markets.

With Home Depot carrying superior brand recognition, Lowe's has been making inroads by distinguishing itself with newer, brighter stores and more attentive sales help. While both companies contend they will match each other on price, a recent

Prudential Securities

shopping survey in the Atlanta area found that Lowe's had slightly lower prices on selected goods.

Other factors making Lowe's attractive, and causing Prudential analyst Wayne Hood to rate it a buy, while he rates Home Depot a hold, are its greater growth potential and lower stock multiple. (His firm hasn't performed underwriting for either company.) Lowe's is only in three of the 25 most-populated U.S. markets, while Home Depot is in almost all of those top spots. And Lowe's is trading at 27 times FY98 earnings, while Home Depot carriers a far richer 39 multiple.

******

The jarring sound of a buzzsaw makes me jump as I enter Home Depot. At first all I can do is stand in the entryway and stare at the endless aisles in amazement. No wonder these stores do in excess of $39 million in sales a year. I've never seen so many useful-looking gadgets piled sky-high in one place before. To the right is a nursery filled with orchids and other lovely plants that would not last long in my dimly lit New York crevice. To the left is the lumberyard where flannel-shirted men cut their own wood as effortlessly as I slice a bagel. I stand transfixed by a 20-foot-high wall of insect repellent, and fantasize about wiping out the entire roach population of Manhattan.

Whether it's the sizzle from the burgers frying at the

Fuddruckers

food stand, or the wood shavings flying in the lumber center, this particular Home Depot is alive. (One visited later had a more lethargic atmosphere.) The place is filled with able-bodied American men on a Saturday itching to paint the bathroom, refinish the floor -- heck, build that log cabin from scratch. Testosterone flows freely.

With 50,000 different products in stock, even the most finicky do-it-yourselfer would be hard pressed to walk away empty handed. A shopper looking for a toilet can choose from a basic model, selling for around $100, or the upscale

Heritage

version, retailing for $787. The

Read-Relax

toilet, for $487, catches my eye. Some of the product names, however, sounded like they came straight from a teen horror flick. It took me several minutes to figure out that the

Shred 'N Vac

was just a simple old electric saw.

With its overwhelming size -- this store was 100,000 square feet -- sales help is crucial in minimizing frustration and eliminating shopping time. The staff, about 100 on the floor, are friendly when approached, but not always accessible.

As he loads lime and fertilizer into his

Chevy

truck, satisfied customer Joe Leach says that he's shopped at Home Depot for years, because it always has what he needs.

Lowe's bright, airy stores are decorated in a blue-and-white theme more reminiscent of

Betty Crocker

than Home Depot's earthen brown and orange colors. "Fifty percent of our shoppers are female," says Carson Anderson, a Lowe's spokesman. Lowe's focuses on the female, he says, because 70% of the buying decisions are made by women. "There's a lot of 'honey do' projects," he says. With an average Lowe's generating $25 million a year in sales, that's a lot of girl power.

That's not to say Lowe's is a wimpy store. It has almost has many product categories as Home Depot. It has the nursery, the lumberyard and the wall of insect repellent. It's just a bit more touchy-feely.

"We have a three-feet rule," says one salesperson. Every customer within three feet of an employee must be asked if they need help.

Craig Beach, who owns two homes in the Atlanta area and is making his second trip to Lowe's that day, says: "Lowe's is more friendly. Home Depot is more detached."

Then there are Lowe's design seminars, like the "10 Tips on Interior Decorating" that was in session near the home appliance section. (Home Depot has seminars as well.) About 40 women and three men were absorbing tips about how to match wallpaper to carpeting, although the women looked far more interested than the men on this lazy Saturday. Hmmmm, who wears the pants around here?

Lowe's is the fourth-largest home appliance retailer in the U.S. and devotes considerable space to these products, which are not sold at Home Depot. Lowe's also has more vignettes, where customers can see what a kitchen set up might look like -- again appealing to the women. Yet Lowe's pays dearly for this more spacious layout. Its sales per square foot are just $302, compared with Home Depot's $416.

Despite its underdog status, Lowe's is posing a credible challenger to the reigning champ. Driving that point home is a large billboard visible the moment you exit one Home Depot. It reads: "Lowe's now open."