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Home Depot, Lowe’s Squeeze Independent Contractors

| Written by Stacy Mitchell | 6 Comments | Updated on Jul 26, 2005 The content that follows was originally published on the Institute for Local Self-Reliance website at http://www.ilsr.org/home-depot-lowes-squeeze-independent-contractors/

Independent remodeling businesses are being increasingly squeezed by Home Depot and Lowe’s. Having captured nearly half of all hardware and building supply sales nationally, the two chains are now expanding aggressively into installation services.

Home Depot, which begin with carpet-fitting a few years ago, now installs everything from roofing and windows to decking and heating systems. Lowe’s is likewise moving into “do-it-for-me” services and together the two companies do about 26,000 installations a day.

Initially, both chains started by subcontracting the work to other firms, including some local, independent remodelers. But now they are bringing more and more of the business in-house. Home Depot recently acquired RMA, the third-biggest installer of replacement windows and external wall coverings, and also bought Installed Products USA, which installs roofing.

“Many [independent remodelers] thought they were invincible, that it would not affect them. Now Home Depot and Lowe’s want it all,” said Bob Sayre, who founded Max Equity, Inc. in 2002 to help independent remodeling businesses counter the mega-chains.

He says that Home Depot and Lowe’s have the advantage of massive advertising budgets and a widespread perception of lower prices. “They’re everywhere. That’s why they have the upper hand. They have the first shot at the customer,” he explained. A customer might go into Lowe’s to shop for a refrigerator, say, and then decide to have the whole kitchen installed by the chain, without getting bids from other remodelers.

What is particularly frustrating for independents is that mega-chains actually have substantially higher installation prices. “The customer is paying a significant premium,” said Sayre. Home Depot even admits as much. “We will never win on pure price,” Frank Blake, the company’s executive vice-president of business development told the London-based Financial Times. “The person operating in the neighborhood just on his or her own will be able to win.”

But people still assume that the big-boxes are less expensive. “They charge a premium now and once they own all the business, I can just imagine what they’ll do,” said Sayre.

Home Depot and Lowe’s also benefit from financing that allows customers no interest and no payments for six months to a year. Sayre tells the story of a countertop installer who lost a big job to Home Depot, because even though his price was 20 percent lower, he was unable to finance the deal.

“One of the things we’re doing is working with a bank to try to set something up so our members can offer that kind of financing,” said Sayre. Max Equity started with 70 independent remodelers in and around St. Louis. The association then went national and has now grown to more than 5,000 members. It hopes to reach 10,000 by the end of the year.

There’s no cost to join. The main benefit of membership is a rebate check. By pooling the purchasing power of thousands of remodelers, Max Equity is able to obtain volume discounts from suppliers. The company has negotiated deals with national suppliers of paint, flooring, siding, plumbing, and heating and air conditioning systems. It is also working to establish relationships with local vendors of lumber, kitchen cabinets, electrical supplies, and other products in every state.

The way it works is that, at the end of each quarter, the vendors add up the total purchases made by Max Equity’s members and then provide a rebate of 2-3 percent. Max Equity distributes 70 percent of the rebate back to its members, keeping the remaining 30 percent to run the program. (Members buy directly with the vendors, not through Max Equity.)

The average remodeler purchases more than $1 million in supplies each year, so the annual rebate can amount to more than $20,000.

Selected vendors benefit from the relationship, because they stand to become the first choice for remodelers that belong to Max Equity. Many also have a keen interest in making sure independent remodelers survive: the big-boxes either do not stock their products or demand such low margins that they cannot operate profitably.

Max Equity also plans to help members market their services through web sites in 52 local markets that enable customers to locate remodelers for virtually any home improvement job.

Having grown to dominate retail sales of hardware and building supplies, Home Depot and Lowe’s are turning to new avenues for growth.

Home Depot plans not only to compete with independent remodelers, but recently became a major supplier to this industry. Last year, the company acquired White Cap Construction Supply, a distributor of specialty hardware, tools, and materials for the construction trades. White Cap has 70 outlets, a staff of 1,700, and an extensive fleet of trucks for job-site deliveries.

On another front, Home Depot may soon be replacing your city’s waterworks, having acquired a leading supplier of water systems. Home Depot says half of all municipal water infrastructure in the US will need to be replaced over the next 15 years.

 

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About Stacy Mitchell

Stacy Mitchell is a senior researcher with the Institute for Local Self-Reliance, where she directs initiatives on independent business and community banking. She is the author of Big-Box Swindle and also produces a popular monthly newsletter, the Hometown Advantage Bulletin.  Connect with her on twitter and catch her recent TEDx Talk: Why We Can’t Shop Our Way to a Better Economy. More

Contact Stacy   |   View all articles by Stacy Mitchell

  • http://www.SoleraGroup.com Kevin Carney

    As an independent contractor I can see this “big box” trend happening all over, and not just in our industry. Local book stores, local coffee shops and even local doctors are being absorbed by “big box” names we all know. However, remodeling is not a commodity and the level of service a homeowner receives depends largely on the specific people providing it. I had not heard of Equity Max before, and for that alone I’m glad I stumbled across this article. I’ve already submitted my online application to join. It is possible for a group of independent businesses to collectively work together for their mutual benefit, and I’m hoping Equity Max is helping do this for independent contractors. Many people do not realize that Ocean Spray, a very well known brand, is an agricultural cooperative of cranberry growers. If they can do it, we can do it.

  • http://www.classicphotographers.com Michelle

    It is possible for a group of independent businesses to collectively work together for their mutual benefit, and I’m hoping Equity Max is helping do this for independent contractors. The employees at Home Depot knew nothing about our product and couldn’t care less. They only wanted their money. Thank you.

  • Anonymous

    As a home depot supplier/installer I know what Home Depot makes for profit on each sale. We would supply a water treatment system to the homeowner. We did all of the work. We pulled all the permits. We paid for them to be on our insurance. We made the initial contact to the customer, the installation, the follow up and service for a year. The employees at Home Depot knew nothing about our product and couldn’t care less. They only wanted their money. They received 15% of the total ticket! On the first sale we made they received $650.00 for doing nothing. If that customer would have called us at our store the cost would have been less by that same amount. The mistake that the customer made was to make the contact with Home Depot. The manufacturer of the system we sell has made this deal with Home Depot. They hope that this will be a huge increase in business for them. It is simple to figure out, by using Home Depot as a installer on anything it is bound to cost considerably more. A cabinet maker I know said he could save a customer 1000.00 or more if dealing direct with him. He was a Home Depot installer also.

  • Gary James

    I understand the frustration, and I’m sure this is written from the contractor’s point of view, but I have to take exception to the comment, “the customers are paying a premium.”

    I have had quotes over an 18 month period on replacing my asphalt roof. The first quote from a highly reputable roofer was, “$11,200, but prices are going up tomorrow.” Then, six months later, when oil hit $200 a barrel, “it was $12,200 and you just missed the pricing…the increase when into effect yesterday. Six months later, “Oh, no the pricing is going up because of stimulus programs, your roof would be over $13,000 now….I then called two other roofers, one being Lowe’s. The other roofer price? $13,500 for 41 square. (The neighbors just had their house done by this guy with 36 square @ 8600. So I guess the “independent” feels that an extra 5 sq is worth $5 grand.) Lowe’s: $10K with a 10% discount, to $9800. So, I am going to have to go with Lowe’s for price alone, since obviously the price of asphalt shingles will constantly go up do to higher oil prices, lower oil prices, stimulus plans, no stimulus plans, because someone needs to make a boat payment. Thanks for letting me post.

  • smitchell

    With both independents and big box installes, it’s definitely worth checking online reviews and information.  Both Home Depot and Lowe’s have a pretty spotty record when it comes to the quality of their roofing installs:


    http://www.my3cents.com/productReview.cgi?compid=412&product=Roofing

    http://www.my3cents.com/showReview.cgi?id=59865

  • A Stroke of Genius Painting & Wallpapering

    Just remember when your going with these large chains “for price alone”
    The stuff you get “cheaper” at these large chains isn’t of the same quality of the same brand and style that you will get at say, a building supply store, Be it lumber yard,Plumbing supply, Paint. or whatever.

    When you buy “cheaper” from these “large box” stores. Thats exactly what your getting. A “cheaper” product in both price and quality.

    Im a painting contractor. I’ve been in the business for over 30 years. And I can tell you right now without question or hesitation that the brand name paint brushes you buy in Home Depot and Lowes. are NOT the same brushes you will buy of the same brand and size or quality in a real paint store. And I don’t care what kind of claims are made of “A leading consumer magazine” makes of the paint being of the same or superior quality to names like Benjamin Moore or Sherwin Williams. There is no way any self respecting or honest professional painter will agree That Lowes or Home Depots top of the line paints match up favorably to either Benjamin Moore or Sherwin Williams top of the line paints. No way. No how. Its not even a close competition. I actually will charge more if the customer insists on using the paint from either store because it usually equates to more work for me.

    The big box stores sell paint and other materials cheaper. But in many cases. that’s exactly what your getting. Cheaper paint or material.

    And the same thing goes for their installers. If these guys were so good at what they do. They wouldn’t be working for the box stores.

    There is an old saying “Good work is not cheap and cheap work is not good”
    You get what you pay for.

    If all your after is the cheapest price. Dont be surprised or upset when you get the cheapest quality.
    Then again. You may just get lucky.