Home Depot, Lowe’s shift promo strategies

ATLANTA —A shift in strategy at Home Depot and Lowe’s has both retailers going back to basics and backing off promotions that aren’t generating much interest in the midst of a prolonged slump.

Executives at both chains acknowledged last month that they’re putting less emphasis on promotions in favor of keeping prices on everyday items low, particularly as inflation continues to drive up costs in some areas.

“We’re redirecting funds that would have been used in margin-eroding promotions,” Home Depot ceo Frank Blake told analysts during an August conference call. “Instead, we’re focused on offering better price points for our customers.”

Senior vp of merchandising Craig Menear said Home Depot is “being more selective in the types of promotions we offer,” adding that some promotions “force [customers] into a period of time where they need to buy to feel like they got the best deal.”

Recent changes include reducing the timing of its no-payment, no-interest promotion for items costing more than $299 from 12 months to six months and raising the price for whole-house carpet installation from $99 to $199.

Lowe’s raised the price for a similar service from $199 to $249. Lowe’s acknowledged that the retail environment has made it more difficult to stage typical promotions, since those that worked at certain times in previous years aren’t guaranteed to produce results.

“You don’t know what’s going to take place out there in this competitive environment from a promotional standpoint,” said Lowe’s ceo Robert Niblock in an August earnings call. Lowe’s president Larry Stone added that Lowe’s is going with “easier to understand promotions” and expects to offer fewer of them this fall and early next year.

Analysts see the shift as a positive for both chains as they continue to ride out a housing slump that’s likely to stretch well into 2009. “Those promotions cost retailers a lot of money and there’s no sense promoting something people aren’t looking for,” said George Whalin, president of Retail Management Consultants. “People these days are just going into stores for the things they need.”

Both retailers are still having trouble driving store traffic. For its second quarter ended Aug. 3, Home Depot reported a 7.9% decline in same-store sales. Lowe’s fared slightly better, but still reported a 5.3% drop in same-store sales for its second quarter.