A lot has been written about the death of brick-and-mortar retail. As more sales migrate to online channels, physical stores have suffered.
Take Home Depot Inc (NYSE:HD) for example. Investors have been fearful that HD would lose out big time as the nation’s largest demographic — millennials — would never set foot into one of its stores. After all, the pampered generation wasn’t exactly known for its DIY skills or ability to even think about owning a home.
But it turns out, analysts have been wrong. Millennials love Home Depot.
Thanks to several key moves and newfound housing affordability, HD has been quite successful in capturing this key demographic and getting them to open their wallets — in stores and online. For investors, this is great news and highlights why Home Depot could be one of the best stocks to own over the long haul.
Millennials: A Major Demographic Headache for Home Depot
Ninety-three million. That’s a lot of people. And it just so happens to be the number of millennials living in the U.S. according to the last Census report in 2016. This contrasts to the roughly 74 million baby boomers.
Already, the largest generation has changed a variety of sectors, and retail is no different. But because of the age bracket’s huge spending potential, they are an important group to court, which has been a problem for home improvement retailer Home Depot.
For HD, several trends have worked against it with regards to millennials. The obvious one being home ownership rates. Thanks to the recession, student loan crisis and other financial problems, many millennials have been priced out of owning a home.
For a store that sells hammers, fencing and other home-related items, the lack of home ownership for this group is a major strike against Home Depot. Not that many millennials know how to use a hammer anyway.
And that was Home Depot’s second major strike. It turns out, millennials are much more “Do it for me” rather than “Do it yourself.”
All in all, the generation has had less “traditional” life training than predecessor generations as helping Mom with the laundry and Dad with the lawn has given way to soccer games, math tutoring and other activities. Because of this, many millennials question why they would need a wrench or saw in the first place.
With the combination of these issues, analysts have questioned Home Depot and its roll in the retail landscape in the future.
Home Depot Meets Millennials Head-On
Rather than accept its fate, Home Depot has met the millennial challenge head-on by offering knowledge. The home improvement store has begun marketing various tutorials on how to do basic home repairs and upgrades.
This includes a hefty dose of online videos as well as in-store hands-on workshops. The hope is that if Home Depot can show you why and how to use a miter saw, you’ll buy one and the molding that goes with it.
In addition, HD has beefed up its online and app offerings. This includes a hefty amount of omnichannel operations, in-store pickup and newer high-tech products. That includes several new smart-home centers in select markets.
And these efforts seem to be working.
Sales to the key demographic have started to rise in a big way. During the third quarter of last year, Home Depot saw a big bump in sales tied to millennial customers. That’s carried over to the fourth quarter and full-year earnings reports as well.
And more recently, a new survey from Bank of America has shown that HD is winning the war vs. rival Lowe’s Companies, Inc. (NYSE:LOW). More than 64% of millennial respondents preferred HD over other options, including Amazon.com, Inc. (NASDAQ:AMZN).
This is great news as millennial home ownership is finally starting to rise. It took a while, but lower interest rates and a return to 0%-5% down mortgage programs have helped many get into a home.
According to Zillow Group Inc (NASDAQ:ZG), the demographic group now makes up 42% of all home buyers and 71% of all first-time home buyers. Even better is that the demographic is spending more on home upgrades early on vs. their parents.
All of this is great news for Home Depot.
Millennials Love Home Depot, and You Should Love HD Stock
For investors, Home Depot’s moves to score the demographic’s cash seems to be working. Home ownership is rising, and DIY projects are growing. By offering new products, knowledge and a hefty dose of omnichannel retailing, HD is setting itself up to be the preferred choice of the demographic going forward.
This should continue to buoy HD stock down the road.
Already, shares of Home Depot have continued to rise. But with the largest demographic cohort under its wing, HD could be unstoppable over the long term. That makes it a big buy. Under current earnings expectations, analysts currently have a $215 price target on shares. But that 16% potential gain could seem like a drop in the bucket as more millennials open their wallets.