Home Improvement Chains Battle Online

For years Home Depot, the nation's third-largest retailer, rolled out its bright-orange boxlike stores in an assembly-line fashion, opening more than 1,000 outlets since 1985. Lowe's was a distant runner-up in home improvement sales. And while other retailers scrambled to bring their businesses to the Internet, Home Depot barely bothered. Business was too good in stores.

Cut to 2001. The nation's broad economic slowdown hit Big Orange hard: Earnings for the latest quarter fell 20 percent, the company's first quarterly profit decline in more than a decade. Home Depot executives postponed plans to open 25 of the 225 new stores set for 2001. Then last month, in the midst of a retrenchment, the company trumpeted that it was ready to do online sales nationwide.

Home Depot stepped up its e-commerce efforts five months after Lowe's began pushing its products online. It's yet another example of how the No. 1 home improvement company is looking over its shoulder at a rival that company execs insist is irrelevant anyway.

At this point, the battle for Internet customers is pretty low-key. Officials at Home Depot and Lowe's decline to provide online sales numbers, though both companies admit the numbers are small so far. What's striking, however, is that the two have clearly identified e-commerce as a growth business and are putting more money into it even as they scale back in other areas.

Home Depot's annual report, for instance, notes that the company's administrative expenses as a percent of sales rose to 1.8 percent in 2000, from 1.7 percent the previous year, and it attributed that increase largely to spending on the Net. The difference sounds small, but it's significant for a company that has steadily cut administrative expenses over the past two decades and had total sales of $45.7 billion in 2000. And Home Depot's decision to roll out its e-commerce offerings nationally comes after eight months of testing in three cities that clearly left its executives with an appetite for more.

In turn, Lowe's is continuing to build its business on the Net. A few weeks ago, it opened a new portal, Accent & Style, which offers home decorating tips. If all goes as planned, the site will drive sales online and in stores.

Both companies emphasize that the Web has its limits, and each site offers only an abbreviated selection of items. Homedepot.com sells about 40 percent of the 50,000 items it stocks in stores; the Lowe's Web site carries about 35 percent of its total store inventory.