The Home Depot (HD) maintains sustainable competitive advantages in the home improvement retail sector through its prime location in most major cities and the insulation from Internet competition due to the nature of its products, says David Cassese, Portfolio Manager at BlackRock.
“Home Depot has the best locations in most major cities. They were there first, they were there well before Lowe’s (LOW),” Cassese said. He adds that, “If you think about what’s happened to a lot of the business models at retailers, the model has — and margins have been compressed because of online competition. Because of the nature of what Home Depot sells, they are mostly insulated from the Internet competition. So those will be the two sustainable competitive advantages they have.”
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Cassese says HD also has company-specific catalysts which made him look into the retailer. One of those, he says, is the improved in-store experience and inventory management that came as a result of logistics and store management that came with new senior executive changes years ago.
“There is a lot of pent-up demand for spending on the home, and we’ve really just started to see the housing market bottom and start to turn up. And we think, we have several years ahead of us here. We’re spending, we’ll catch up to ‘the normal,’ and perhaps even go past ‘normal,’ as people have put off projects for many years,” Cassese said.
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