Home Depot’s business is heavily dependent on the housing market. Housing turnover sends families to Home Depot for things like paint, cabinets, new flooring, etc. Home Depot is also a significant occupier of commercial space including 209 million square feet of retail space and another 35 million square feet of industrial/distribution space. So Home Depot’s business is impacted by the residential market and Home Depot impacts the commercial market.
It is perhaps a significant data point for both the residential market and the commercial market that Home Depot shows signs of hunkering down and little to no plans to expand. We’ll look at both sides of the equation in this post.
For more graphs/slides see: Home Depot Presentation at Raymond James Institutional Investors Conference
First, a graph showing the lack of residential investment that has Home Depot in “hunker down” mode.
To get a sense as to how aggressive Home Depot will be in occupying new space we can look at their plans for their cash flow. In 2010 Home Depot primarily used its cash flow for share re-purchases and dividends. When a business makes such an aggressive move to get cash flow back in its investors hands, it’s usually a sign that they don’t believe they have something more productive to do with the money (like develop and open new stores for instance).
Additionally, Home Depot discloses that it plans to open only 2 U.S. stores in 2011. As one of the major big box tenants, Home Depot certainly has an impact on the commercial development market. That they seem to be in “hunker down” mode is probably not extremely positive for the commercial market (read retail or industrial distribution). They own most of their stores, but taking them out of the competition for new space will certainly impact the development market.
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