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Why Lowe’s and Home Depot’s growth will last past the COVID home improvement boom

Sometimes even a blowout quarter isn’t enough for Wall Street.

After Lowe’s on Wednesday reported U.S. comparable sales rose 30.4% last quarter, shares fell 6%. Home Depot’s very strong quarterly report on Tuesday, reflecting Americans’ continued spending on home projects during the pandemic, was also met with a stock price dip.

While some of that had to do Wall Street worries about the expenses at both companies linked to compensating workers and making stores safe during the COVID-19 pandemic, the hit to shares reflected a nagging fear among investors: how will Lowe’s and Home Depot keep up this torrid pace?

The companies hope to answer that question by branching out beyond their traditional bread-and-butter offerings. Next week’s Black Friday shopping occasion will provide some insight into how much customers will respond to newer products from these retailers. Lowe’s is making its biggest play yet for holiday season sales this year by adding fun to its assortment in an attempt to get beyond things like drywall and power tools. That means adding products like scooters, trampolines, exercise bikes, air hockey tables, and kitchen items on the assumption that people’s spending on their homes during the pandemic can go beyond setting up spaces suited for work-from-home and home schooling.

“We already service home office and home school needs, but we didn’t have a lot going on for the entertainment piece of it,” Lowe’s CEO Marvin Ellison tells Fortune. “Our data tells us that when the customer trusts us and buys products for their homes, they will trust us for buying other non-core items.”

He is taking a page from Home Depot’s playbook, which last year credited a strong Black Friday period, never previously that important to home improvement chains, for its stellar fourth quarter results. Last year, Home Depot created gifting areas in its stores and doubled down on home decor items. More recently, the company made Halloween a big sales event, enjoying strong results driven in part by a $300 12-foot skeleton that sold like hotcakes.

Both Lowe’s and Home Depot argue that even once COVID-19 fades and customers aren’t spending as much time at home, the boom will continue.

Ellison says that roughly two-thirds of revenue comes from things customers have no choice but to address, such as replacing a broken heater or appliance, or fixing a leak, so the bulk of the business is stable. Growth will come, he says, because of an aging of U.S. housing stock; some 50% of U.S. homes are older than 40 years and will need work in the coming years.

And unlike the 2009, when collapsing housing values dented spending on home improvement, this economic downturn has seen home prices hold up nicely, a trend that spurs homeowners to invest in their houses, and feel more invested in them, an idea one analyst on Wall Street echoed in a research note.

“We encourage investors to consider homeowners’ strengthened emotional attachment to their properties,” wrote Jefferies analyst Jonathan Matuszewski. What’s more, the analyst added, many large home improvement projects have been on hold because of social distancing requirements. “A wave of projects” could come once the vaccine arrives, he said.

More fundamentally, the companies see a cultural shift that will last beyond the current pandemic, with people likely to keep working from home more often even when offices re-open, and learning to love fixing stuff around the house.

“We’ve re-introduced people to home improvement during this period and doing it themselves,” Home Depot finance chief Richard McPhail told Fortune this week.

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