Whenever you see a TV ad for Home Depot or Lowe’s full of all those smiling, industrious homeowner do-it-yourselfer types you can’t help but think these are the customers the two giant home improvement chains are focused on. But that doesn’t tell the whole story: professional builders and contractors are an increasing focus for both behemoths.

In an overcrowded retail landscape where everyone is going after everyone else’s business, Home Depot and Lowe’s have a virtual lock on the professional builder category. No one else even comes close. How many other subsets of the retail spending pie can you say that about?

From Home Improvement to Home Building

In fact, individual consumers account for the majority of revenues that these enormous retailers generate, but they are increasingly targeting an entirely different subset of the population: the pros. Each of these chains – especially Home Depot – continues to build out (sorry) its focus on the pro business, especially as the overall residential housing market remains stuck in neutral, a victim of high mortgage rates resulting in homeowner inertia.

Both Depot and Lowe’s have hit the wall (sorry again) in their sales over the past several quarters as the entire home improvement sector struggles. This follows the insane growth each experienced during the pandemic era when homeowners couldn’t spend enough money fixing up, repairing, remodeling and generally re-everythinging to the places they were stuck in, unable to get out to work, play, or travel. Those were good times for just about every retailer that sold products for the home and these two did as well as anybody in the sector.

Home Alone

And then Americans got the all-clear, stuck their heads out of their front doors, and never looked back. Consumer spending turned on a dime to cruises to the Caribbean, Taylor Swift tickets, and dinner at just about anywhere that didn’t involve a bag of food delivered to the front door. And it was all exacerbated by the rise in mortgage rates that the Federal Reserve engineered to cool off inflation. It worked, but it took the housing market with it. The logjam in housing starts, sales, and resales have created where we are now…which is not a good place for anyone trying to sell products for homes.

Depot and Lowe’s held on longer than home furnishings retailers but eventually, they too took the big hits. Each had a not-so-secret plan to find alternative sources of revenue. Both had always done decent business with contractors, home builders, and professional remodelers – collectively known as “the pros” – but now they’ve tightened the screws (yeah, I know this is getting old but, hey, I’m trying to keep things interesting here).

Home Depot’s Pro Agenda

You need no better example of how Home Depot – the fifth largest retailer in the country with U.S. sales of $145 billion, about a third bigger than Lowe’s –turned its attention to professional builders based on its experience with HD Supply. A big national distributor of maintenance, repair and operations (MRO) products for the multifamily and hospitality end markets, HD Supply had once been part of Depot but was sold off in 2007. In 2020, even before the pandemic balloon burst, Depot bought it back and integrated it into the family. Clearly, it saw opportunities outside its individual non-pro consumer base.

A more recent – and better – example is when Depot bought SRS Distribution Inc. – which describes itself as “a leading residential specialty trade distribution company across several verticals serving the professional roofer, landscaper and pool contractor” — in March of this year for $18.25 billion. With this acquisition the company was signaling it was focusing more attention on that pro customer.

“SRS will accelerate The Home Depot’s growth with the residential professional customer,” the company said in announcing the deal. “SRS complements The Home Depot’s capabilities and will enable the company to better serve complex project purchase occasions with the renovator/remodeler, while also establishing The Home Depot as a leading specialty trade distributor across multiple verticals.”

CNBC estimates that just about half of Depot’s annual revenues come from pro builders – even though they make up somewhere between three and ten percent of its customer counts. Do the math and you’ll find that’s a pretty amazing ratio. Depot is now setting up a network of distribution centers dedicated only to pro builders, stocking the kinds of serious inventory they need, versus the Phillips-head screws and six-packs of batteries that DIY customers tend to buy.

And in a practical yet surprising collaboration, Depot is partnering with DoorDash, delivering food for the pros’ lunch breaks alongside their orders from the hardware/homebuilding departments.

Lowe’s Knows

The number-two player in home improvement – with $90 billion in annual revenue it’s the ninth largest retailer in the country – is, as with many things, playing catch-up with its bigger brother when it comes to the pro market. Lowe’s says such customers account for between 20 and 25 percent of its total sales. Again, do the math: Home Depot with as much as $75 billion in revenue from pro builders versus maybe $20 billion for Lowe’s.

The number-two has created a Pro Desk that focuses on about 2,000 products that builders and contractors need most frequently, a step in its attempts to match Depot. Still, at least within this sector, the two are doppelgangers in store layouts only. In fact, it does beg the question if focusing more on the DIY customer with promotions, licensing deals and a greater emphasis on home décor, would Lowe’s gain an advantage with them.

Leave It to the Pros

Taken together it’s close to $100 billion in annual sales that these two giants do in the pro market alone. That’s about the size of Target’s yearly revenue and bigger than Best Buy, Macy’s, Kohl’s, and Nordstrom – put together.

What’s more, by comparison, the two big independent hardware/home improvement brands – Ace and True Value – do less than $35 billion in revenues. Add in some other retailers targeting the home improvement sector, like Tractor Supply, Menards, Sherwin-Williams and Harbor Freight Tools, and it’s still no contest.

The point here is that in an overcrowded retail landscape where everyone is going after everyone else’s business, Home Depot and Lowe’s have a virtual lock on the professional builder category. No one else even comes close. How many other subsets of the retail spending pie can you say that about?

That’s why you may look at these two behemoths and worry that as long as the DIYers are turning their attention away from their homes – and high interest rates are unlikely to jumpstart the housing market anytime soon – the brands will suffer. But you really need to look at the bigger picture. Home Depot and Lowe’s have constructed (promise, last time) an alternative parallel universe. And they’ve done it very professionally.