Home improvement retailer
) demonstrated its Iris suite of home automation products at the
Consumer Electronics Show (CES) in Las Vegas last week. The company
seems to be betting big on this segment as the next catalyst for
growth by competing on innovation rather than just retail sales of
other manufacturers' products.
With rapid advances in technology and growth in wireless
connectivity, the idea of smart homes is increasingly gaining hold.
This is not merely for convenience but also energy efficiency.
Customers can save a lot on their energy bill with a little upfront
investment and a small recurring service charge. As the nation's
second largest home improvement retailer paying special attention
to in-house innovation, we think that Lowe's is poised to capture
this space quite well.
See our complete analysis of Lowe's here
The Market Opportunity
Being able to order an electronic or electrical appliance in the
house to follow verbal orders without bothering to get up is
definitely attractive and convenient. However, it is doubtful that
many people would be willing to pay more than just a few dollars if
it is only convenience that's on offer. The good news is that the
biggest USP (unique selling point) of home automation is energy
savings and not convenience. Customers are bound to be attracted by
anything that results in substantial monetary savings. The latest
suite of products in the market enable people to monitor their
appliances. There are smart energy meters which view and manage
power usage, in case of a water leak the water valve shuts down
automatically and the water heater turns off once its job is done.
Since appliances are automatically turned off when not needed, it
results in huge energy savings for customers.
In the past, using home automation products was prohibitively
expensive. However, costs have come down significantly over the
last two years so the market for these products is now expected to
grow at an annual rate of about 47% over the next four years.
Lowe's' Iris System
Lowe's Iris Home Management System allows homeowners to monitor
and control their various devices through a cloud-based remote
interface which is available through a Web browser or a smartphone
application. The company currently has 40 products in its portfolio
in partnership with Honeywell, Schlage and Whirlpool, which can be
connected to Iris. The original suite of products included cameras,
thermostats and motion sensors. At the CES, Lowe's introduced a
garage door opener and a water shut-off valve as well. All these
devices are controllable using an application on the
Lowe's bundled kit offerings start from a price point of $179
and include 3-8 products, depending on the option chosen. Each
additional device outside the kit costs extra if a customer wishes
to purchase it. There is also a free monthly basic service that
allows basic control of Iris devices and sends email and text
alerts to the user if an alarm is triggered. The premium service,
which is free for the first two months, offers additional
customization services at a monthly fee of $9.99.
Home Depot, the country's biggest home improvement retailer and
Lowe's largest competitor, sells a suite of energy management and
home automation products. It also offers bundled kits but with a
different collection of products so a head-to-head comparison with
Lowe's isn't possible.
Other competitors include similar offerings from Time Warner,
CPI Security and Revolv. Revolv's business model is built around
integrating popular third-party smart devices, including
Philips Hue LEDs, the Nest thermostat, Sonos wireless speakers and
Yale locks. This is in contrast to Lowe's model, which involves
building the entire automation ecosystem around its own
We foresee a crucial battle in the next couple of years or so
which will determine whether customers prefer a closed ecosystem or
an open one. This could be similar to the battle between the Apple
and Android platforms where Apple embodies the closed ecosystem
philosophy whereas Android advocates an open ecosystem. However,
whereas Apple enjoys a cult status owing to its unique reputation
for radical innovation at regular intervals, the home automation
space is rather crowded and currently not dominated by a single
player. It is quite possible that if a dominant player doesn't
emerges in the closed ecosystem space, open standards will become
the norm. This would put companies like Lowe's at a disadvantage.
If Lowe's takes the initiative and invests enough resources in the
home automation space to carve a niche for itself, it may be able
to capture a significant chunk of the market and enjoy high profit
margins, even as it co-exists with Revolv and other open ecosystem
We have a
$46 Trefis price estimate for Lowe's stock
, which represents 8% downside to the current market price.
Understand How a Company's Products Impact its Stock
Price at Trefis