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Why I own $LOW
Simply said LOW is a great company and a great retailer. First and foremost on a personal level I have always had a great experience shopping at LOW. There have been several occasions where someone went out of their way to help me and that keeps me coming back for all my home improvement needs.
What gets me excited about LOW?
The first reason I own LOW is it's moat against Amazon. It seems most brick and mortar retailers have been battling AMZN for market share. LOW is not immune to AMZN but they certainly do have more of a moat than others. Some of the scale of purchases make it necessary for home improvement retailers to exist. For example, a kitchen remodel simply cannot happen on AMZN....at least not in the foreseeable future.
There was a significant amount of discussion in 2020 around a shift from cities to suburbs and housing market growth due to COVID. There was also discussion around remodel trend during the pandemic either due to people spending more time in their homes or excess cash flow from not traveling or going out. This remodel trend helped LOW see some impressive price appreciation in 2020. While this trend may decline into 2021 and beyond I think there is some staying power to this trend for a few reasons.
- If home sales stay strong, it's very likely that new homeowners will want to change aspects of their new purchase. This requires trips to LOW. It's also possible that anyone looking to sell into this market might look to make overdue improvements to improve the selling price of their home.
- I believe the staying home trend is stronger than expectations. While there certainly will be a rotation in consumer spending back to travel and going out, more than ever people will be working remotely from home. Entertainment has shifted more and more to home. Restaurants are almost all delivering. With more reasons to be home, there's more reason to hate your old bathroom that's stuck in the 80s. Or take on a new DIY project to improve your home office.
From the latest quarterly reports, LOW has spent a significant amount of resources into improving e-commerce and shifting their target customer towards "pros". E-commerce growth will be a key growth driver (especially if AMZN does come knocking). The "pro" market is where LOW currently loses to it's main competitor Home Depot (HD). HD has done a great job in this market and have loyal customers that have higher $ tickets. If LOW can successfully attract pros I think they see continued growth.
What gets me nervous about LOW?
I could be totally wrong about the stay at home trend continuing to benefit LOW in 2021 and beyond. And worse, the shift could be more dramatic than current expectations. This would certainly be a reason to reconsider as there likely would be increasingly tough quarter revenue and earning comparisons to 2020.
Stay tuned to see how LOW performs each Quarter.
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