Depot and Lowe's target city for new stores
SAN ANTONIO -- A battle of Alamo proportions is taking place here as the industry's two largest retailers lay claim to real estate and home improvement dollars. Despite a slowing economy and skittish consumers, Home Depot and Lowe's continue to secure prime commercial spots and hoist their retail flags over new sections of town. While some might argue that San Antonio and. its 1.3. million people could support multiple locations for both companies, this go-for-broke expansion is also happening in other, less-affluent parts of Texas.
Lowe's has reportedly purchased two parcels on the north side of San Antonio, each slated for one of its standard 150,000 square-foot stores. The Wilkesboro, N.C., retailer opened its. first store in San Antonio this spring and a second one last month. Two more are under construction. Home Depot, mean-while, has 11 units operating in San Antonio, with the 12th scheduled to open early next year. The Atlanta-based retailer is also completing a 150,000-square-foot distribution .center here that will focus on lumber and building ma terials.
Like Austin, the state's capitol city, San Antonio is one of the wealthier cities of south central Texas. A number of medical and biotechnology firms have their headquarters here, along with Baby Bell companies like SBC Communications, the nation's second largest provider of. local telephone service. But San Antonio is feeling the telecom pinch, along with the downturn in high-tech stocks. Sony and AT&T have both announced layoffs involving several hundred local workers. Even Luby's, the national cafeteria chain based here, has hit hard times.
Lowe's latest acquisitions are in newer, suburban sections of San Antonio where the median family income is well above $100,000 a year. But the same can't be said for Port Arthur, Texas, approximately 300 miles to the east. Unemployment in the Port Arthur area was 10.1 percent last June, when Lowe's held a job fair in preparation for a new-store opening on Sept. 12. Nearly 3,000 people showed up to apply for 150 jobs, according to a story in the local newspaper. Housing starts in the Beaumont-Port Arthur area are among the lowest in the state.
"Lowe's [targeted] demographics are middle-income, Anglo-Saxon females. We don't have many of those here," said Scott Parker, president of Parker Do it Best Lumber. The 10-store chain, headquartered in Beaumont, focuses on rural markets of southeastern and central Texas. The economy in that part of the Lone Star State has been "stagnant" for a number of years, Parker said. He was puzzled over Lowe's decision to build the Port Arthur store right next to an 80,000-square-foot Sutherland's Lumber. "It's irrational exuberance," concluded Parker, using the term made famous by Federal Reserve chairman Alan Greenspan when discussing investor enthusiasm for stocks. "They can't be receiving an acceptable return on investment."
An "acceptable" ROI may not be the top priority for Home Depot and Lowe's, at least right now. "I don't think either firm is above cannibalizing their own [sales] in order to secure market share," observed Bob Obernesser, a retail analyst with McMillan/Doolittle in Chicago. "Consolidating their existing stores is something they can do later. The guy who has the most big boxes will probably win in the long run."
Neither Home Depot nor Lowe's will admit to such a strategy; both insist there is enough sales potential in San Antonio to support the stores they're building. "We don't care if Lowe's moves in across the Street from us," said John Simley, a Home Depot spokesman. "We know how to compete with them."
The two warehouse retailers have found themselves pitted against each other for the same commercial sites in San Antonio, Simley confirmed. Home Depot has been able to outbid Lowe's in some cases, he said. In the northeastern part of the United States, Home Depot has passed on some commercial parcels that were later "flipped" to Lowe's, Simley said.
Tawn Earnest, a spokeswoman for Lowe's, identified San Antonio as a "target expansion market" that is "relatively untapped." Competition for good sites is no more intense in San Antonio than in other major markets, she said. Lowe's real estate team considers more than 400 factors when evaluating a potential store site, Earnest said. In key locations like San Antonio, "we are very competitive" for the better locations, she added.
On a national scale Lowe's is still barreling ahead with its expansion plans, and Home Depot is opening a new store every 43 hours. Both seem confident of their ability to bob along the surface of an economic red tide. Retail analyst Obernesser pointed out that consumers tend to "cocoon" themselves in a down cycle, a lifestyle that bodes well for home improvement sales.
John Spencer, manager of Homearama, has been selling kitchen and bath cabinets in San Antonio for 17 years. With the exception of a few weeks in early fall, the market never really slows down, he said.
The influx of big boxes into San Antonio has actually improved business, according to Spencer. "They bring in so much advertising, it helps the market go up," he observed. Home Depot and Lowe's plant the idea of kitchen and bath remodeling in people's heads, he said, explaining that many of these customers start looking at the big boxes but end up with cabinets from Homearama.
This being Texas, San Antonio is still considered wide open, in a commercial sense. Local residents are also friendly, on the whole, toward retail warehouses. "As long as it doesn't threaten the water supply, people are okay with it," Spencer observed.
Lowe's did get into trouble with local citizenry at one of its new building sites, however. Construction workers at the Callaghan Road location knocked down a 100-year-old oak tree here earlier this year, drawing the wrath of the entire city.
