HomeBase

0

Homebase//dt1st/mark2nd

By SUSAN DEEMER

Orange County Business Journal

Southern California has become ground zero in the home improvement wars.

The question is, who will be left standing?

Home Depot plans to boost its number of stores in Southern California as part of a national expansion, while Lowe’s Cos. Inc. is entering the West Coast this year.

That puts the pressure on Irvine-based HomeBase Inc., which ranks second to Home Depot in Southern California, to hold onto its customer base.

“Whether there is room in the market for three large competitors remains the question,” said Nate Franke, a retail analyst in the Costa Mesa office of Deloitte & Touche LLC, who specifically questioned the viability of Lowe’s expansion plans. “Typically what you see is, the two smaller ones joining forces to go after Home Depot, or HomeBase could go ahead alone and differentiate itself.”

But HomeBase has its own vulnerabilities. While beginning to show improvement after two years of flat revenue and sluggish earnings, almost half of the chain’s 88 units are within three miles of a competing home-improvement store and that number is likely to grow in 2000.

HomeBase has $1.45 billion in annual sales, but overall it’s a much smaller player than either Home Depot or Lowe’s.

Analyst Brian Postol of A.G. Edwards & Sons Inc. says his company dropped coverage of HomeBase about a month ago. “I didn’t see it being a viable competitor down the road,” Postol said.

HomeBase, which was founded in 1983 as the HomeClub with just two stores, is preparing to put up a fight. It has pulled out of several under-performing markets, expanded its product offerings, remodeled three-quarters of its locations and beefed up its ad budget. It also has opened four new stores this year and plans two more by December, as well as six more in 2000.

The plan is to remain mostly a regional chain with stores in 10 states the bulk in California (47 stores to Home Depot’s 113).

William B. Langsdorf, executive vice president and chief financial officer, says HomeBase and Home Depot have an edge over Lowe’s on the West Coast due to their name recognition and present real estate. “It’s going to be an uphill battle for Lowe’s,” Langsdorf said.

Don’t tell that to Wilkesboro, N.C.-based Lowe’s, which is in the midst of a $1.5 billion West Coast expansion. The company is scheduled to open 100 stores over the next three to four years, including 30 openings planned for the Los Angeles area and several in Orange County.

Lowe’s also is building a regional distribution center in Moreno Valley and announced a $350 million project to build 20 superstores over the next five years in the Arizona market.

As for Atlanta-based Home Depot, “our expansion plans include growth in areas where we already have stores,” said spokeswoman Amy Friend, noting that the chain is growing at an annual rate of 20 percent to 25 percent in California.

While some analysts say the Southern California area is on track to report a 5 percent annual increase in home-improvement sales, others caution that the industry is headed for a slowdown.

“We have all three companies (Home Depot, HomeBase and Lowe’s) as ‘holds’ to reflect a slower housing market and higher interest rates,” said Wayne Hood, an analyst with Prudential Securities.

Some in the industry speculate that Lowe’s may yet consider buying out HomeBase, but company officials decline to discuss the issue.

No posts to display