Business analysis of Lowes Companies Inc

Published Date: 23 Mar 2015 Last Modified: 16 May 2017

Lowe's Companies, Inc. is a public business which was incorporated in 1952 as Lowe's North Wilkesboro Hardware, Inc. Lowe's is the second-largest home improvement retailer in the United States. More than 400 Lowe's stores in 24 states serve the do-it-yourself home improvement, home decor, home repair, and home construction markets. Lowe's is primarily located in small and medium-sized markets, with the stores averaging more than 75,000 square feet. This average is growing, however, as the company now typically builds 100,000-square-foot units in smaller markets and 114,000-square-foot units in larger markets ("Lowe's Companies Inc.", 2011).

The first Lowe's store was opened in 1921 in North Carolina, and thereafter, development and expansion saw the addition of another five stores by 1955. Rapid expansion took place during and after the 1960s. In 1960, one of its founders - Carl Buchan - died. The company went public the following year and was renamed Lowe's Companies Inc. By the end of that decade, Lowe's had more than fifty stores and by 1979, there were more than 200 stores in the chain ("Lowe's Companies Inc.", 2011). The company grew to a chain of almost 1,000 stores in 45 states by 2004. This total includes the 46 stores opened between the end of January 2003 and the beginning of August 2004. (Rouse, 2005, cited in Wheeler and Hunger, 2005).

In 1946, Carl Buchan reorganized Lowe's operations from a simple hardware store to a wholesale style seller of building supplies and hardware. This proved to be a strategic move as after World War II, there was a construction boom which made their business very profitable. In this situation, sales were often made directly from a freight car on the railway siding that ran by the store. Lowe's was able to avoid paying the higher prices set by wholesalers by purchasing stock directly from the manufacturer, which meant lower prices for customers. The majority of Lowe's customers were contractors and construction companies.

It was in the 1960s that the do-it-yourself (DIY) market was beginning to open up (Gilliard, 2008). This was as a result of the rising costs of buying, or building a house or having one professionally remodeled. Homeowners recognized that they would not be able to afford professionals to 'fix up' their homes and so they began to take on these projects themselves. This meant that hardware stores had to provide the opportunity for persons who were not professional contractors to respond to the remodeling needs of their homes. Lowe's responded to this challenge and began arranging their stores to allow for homeowners to buy and install home décor, flooring, and such the like.

It was also at this time that the home building market began to experience periodic slumps, and Lowe's management began to notice that their sales figures were moving up and down in tandem with housing trends. In the later part of the 1970s, construction of new homes decreased to almost a standstill. It was then that the management of Lowe's decided to target the consumers of their products - the homeowners - and not just the contractors or building experts. The belief was that increasing consumer sales would lessen the company's vulnerability in the seasonal and economic downtimes. Strategically, they studied the track-records of their DIY stores and found that these stores recorded strong sales even in the periods of home-building slumps. As a result of this observation, Lowe's management team took on a new market strategy which was aimed at attracting consumers.

The redesigning of the company had started again. Consultants were hired to remodel the showrooms, resulting in a supermarket style layout. Items such as lawn mowers were placed in front of the store. The traffic pattern was designed to draw customers inside the stores and into the interior decoration section, and then on to the back of the store where there were traditional hardware supplies. The theory behind this traffic pattern was that most consumers would come for the basics, but by walking through the store to get it, they may end up buying much more. The strategy worked, as in 1983, sales reached $1.43 billion and marked the first time that the company had profited greater from selling to consumers than to contractors.

As the redesign continued, Lowe's employed the use of poster-sized photographs representing how the product would look in the consumer's home instead of lettered signs. Lowe's updated their product lines, as core consumer goods areas - hardware, tools, paint, plumbing, home decor, and stereo equipment - were expanded, while such fringe items as exercise equipment, bicycles, and bath linens that had crept in over the previous decade were phased out. There was also increased advertising and extended opening hours. These strategic moves led to increased customer inflow, and increased profit.

The late 1980s was yet another time of redesigning for Lowe's and indeed, other competitive hardware stores. The era of the "big box" had come in and Lowe's could not afford to be left behind. Although Lowe's had opened many stores in its chain (over 300 in 1989) the size of the stores were small when compared to those of their biggest rival, Home Depot. To this end, Lowe's shifted from a chain of small stores to being a chain of large, warehouse-style stores beginning in 1989, and completing this change in 1991. The company undertook a major relocating and remodeling of about half their stores from 1991 up to 1995. The largest size stores of approximately 115,000 square feet were reserved for the large markets like Greensboro, North Carolina. In the smaller markets which Lowe's had traditionally served, they aimed to increase the size of stores or build 100,000-square-foot units. The larger stores all had huge garden centers, some bigger than the size of their original stores. The aim was to allow for more sales from consumers, while continuing to serve the contractors. Lowe's also added major appliances and home electronics (which Home Depot Stores did not usually stock) to their sales offerings in 1994.

In the early 1990s, Lowe's concentrated on restructuring existing companies and did not make many expansion moves. However, as the years progressed, the company opened additional stores, 54 in 1994 and 1995 alone. They added 21 more stores in Texas between 1994 and 1996. 40 stores were added in 1997. Aggressive expansion was the name of the game for Lowe's in the 1990s. The company expanded, rapidly, both in the size of stores and in the number of stores. As a new decade dawned, Lowe's continued to expand aggressively. There were 150 store openings planned for 2005 and another 150 - 160 planned for 2006. They continued to target metropolitan markets with populations of 500,000 or more. At the end of September, 2004, the company had over 1,000 stores in its chain.

SWOT Analysis

In the effort to achieve and maintain its competitive edge, the management team of Lowe's Companies Inc. undoubtedly had to evaluate its external environment and the opportunities and threats that came along with these environments. The SWOT Matrix was used to identify not only Lowe's internal strengths and weaknesses, external opportunities and threats, but also to identify strategies employed, and employable to effectively deal with each aspect of the SWOT. The Strengths, Weaknesses, Opportunities and Threats (SWOT) Matrix is an important matching tool that helps managers develop four types of strategies: SO (strengths-opportunities) Strategies which uses a firm's internal strengths to take advantage of external opportunities. WO (weaknesses-opportunities) Strategies aim to improve internal weaknesses by taking advantage of external opportunities. ST (strengths-threats) Strategies use a firm's strengths to avoid or reduce the impact of external threats, and WT (weaknesses-threats) Strategies are defensive tactics directed at reducing internal weakness and avoiding external threats (Weihrich, 1982, cited in David, 2007). The matrix below gives a concise view of Lowe's internal and external environments, as well as strategies they may have employed to strengthen their standing in the Home Improvement Industry.

Table 1

Lowe's SWOT Analysis using the SWOT Matrix

Strengths - S

Second-largest home improvement retailer in the United States

FORTUNE® 500 company that serves approximately 15 million customers a week at more than 1,725 home improvement stores in the United States, Canada and Mexico

High quality products

In recent years, Lowe's earnings have outpaced its big rivals.

5. Opened 46 stores in the1st quarter of 2002which caused sales to climb 7.5%.

6. Its warehouse-style stores are laid out so that two shopping carts can pass in comfort, a feature that has appealed to women shoppers. "80% of [home] projects are initiated by females."

7. Lowe's was able to avoid paying the higher prices set by wholesalers by purchasing stock directly from the manufacturer, which meant lower prices for customers.

8. By remodeling and changing market strategy, Lowe's was able to increase sales to $1.43 billion in 1983

9. Good financial standing

10. Increased advertising and extended opening hours.

11. Added major appliances and home electronics (which Home Depot Stores did not usually stock)

12. In 2010, Lowe's earned several notable industry distinctions for its corporate responsibility.

13. Targeting markets with population of 500,000 or more, accounting for approximately 65% of new store openings in 2003- 2004.

14. Project card launched 2005 which provides in-store financing.

Weaknesses - W

1. The top home-improvement chain until the late 1980s, when it was knocked off its perch as Home Depot embraced "big- box" retailing, while Lowe's clung to its small-town stores.

2. Remaining in only three geographical areas.

3. No Mission statement.

4. Not utilizing the technology boom in smart phones for promotion purposes.

5. Not capitalizing on some areas of the marketing mix.

6. Failure to tap into European market.

Opportunities - O

1. Form alliances or merge with global vendors to market products that can only be seen through Lowe's stores.

2. Feature design and full-size display showrooms via physical walk through and virtual landscape.

3. Expansion into other geographic areas not served.

4. Shift from a chain of small stores to being a chain of large, warehouse-style stores beginning in 1989.

5. Acquiring other small-like dealer stores for Lowe's expansion.

6. Increase regional distribution centres (RDC).

7. Promotions via smart phone technology.

8. Increase retail customers since these accounted for 73% of sales.

SO Strategies

Use brand recognition as a competitive advantage (S1, S2, O1,O3, O5)

Use website to get feedback from customer about products and services (S5, O7)

Increase market share and competition. (O1, O3, O5, S1, S2, S6)

WO Strategies

Marketing department becoming more aggressive. (W4, W6, O7)

Supply demand for more advanced electronics while increasing profit(W1,O1)

Sponsoring big ticketed high traffic events e.g. Basketball, NFL as means of advertising and promoting Lowe's (W5,O2, O7)

Threats - T

Late 1980s to early 1990s "big box" era.

Economic recession that has been a global occurrence.

Strong competition from rivals due to increasing media landscape and technology.

Government regulations

Inflation

Increasing transportation costs.

Ease of entry for competition into the industry

Death of baby boomers

ST Strategies

1. Capitalize on economic revival of geographic region to maintain market position (S1, S4, S7, T2, T6)

2. Ensure that products are of the highest quality to compete effectively in the industry (S3, T3)

3. To gain duty free concessionary rates for imports. (S8, T2, T4)

WT Strategies

1. Longer life rather than making frequent model change(W3,W4,W10, T7,T9)

Corporate Strategy

According to David, (2007) a vision statement is an inspirational description of what an organization would like to achieve or accomplish in the mid-term or long-term future. It is intended to serve as a clear guide for choosing current and future courses of action. A vision statement outlines what you want your company to be, thus answering the question, "What do we want to become?" It should therefore provide a vivid and clear picture of where the organization is heading and be in alignment with the organization's value and culture.

Lowe's has chosen as their vision statement "We will provide customer-valued solutions with the best prices, products and a service to make Lowe's the first choice for home improvement". Based on this Vision Statement, a proposed mission statement for Lowe's Inc. is "Lowe's Companies Incorporated aims to be customers' first choice for home improvement in each market we serve; to earn our customers' trust and meet their individual needs; provide valued solutions with the best prices, products and services that make our customers' life easier." With such a mission statement, Lowe's would, of necessity pull out all the stops to ensure that their customer base is satisfied and also that they make every effort to make customer's life easier. This would be done through a variety of strategies, some of which are discussed below.

Horizontal Integration

Horizontal integration implies seeking ownership of, or gaining increased control over an organization's competitors (David, 2007). To this end, Lowe's began its expansion into western states in 1999 when it purchased Washington-based Eagle Hardware & Garden which owned 41 stores. Over time, they would acquire additional stores as their expansion continued.

Market Development

With Lowe's starting out in North Carolina with 1 store in 1921, offering hardware materials then growing exponentially to 15 stores by 1960 in 4 states; it is evident that one of the strategies that has always worked for them is market development. Lowe's continues to introduce its offerings into new geographic regions, hence improving its revenue base while creating a name for itself in the industry. In 2007, Lowe's had 185 000 employees. The company owned 11 Regional Distribution Centers (RDCs), 12 flatbed distribution centers and leased 1 flatbed distribution center .At that time Lowe's also had plans to open two new RDCs in fiscal year 2007 and one in 2008, as well as to open 2 additional flatbed centers.

Market Penetration

Lowe's went public in 1960and began trading on the New York Stock Exchange in 1979. Until 1988, outlets were about 20,000 square feet, but in 1989 when Lowe's was overtaken by Home Depot as the number1 home retail chain the company began focusing on building larger stores of about 100,000 square feet and phasing out the smaller stores. In 2004, Lowe's planned to grow its domestic market presence by 16%-17% over a period of 2 to 3 yrs, which meant increasing stores by approximately 300 for that period. Lowe's also aggressively targeted markets which had populations in excess of 500 000 which accounted for approximately 65% of new store openings in 2003-2004. By September 2004, the chain grew to over 1000 stores in the New York, New Jersey, and Chicago areas.

Table 2

Lowe's Market Penetration - 2003-2007

YEAR

2007

2006

2005

2004

2003

NEW STORES

153

155

150

140

130

TOTAL STORES

1385

1234

1087

952

(as of January 30)

828

Source: http://investor.shareholder.com/lowes/documentDisplay.cfm

Related Diversification

In 1989 the company entered into a joint venture to sell an exclusive line of Kobalt-brand professional mechanics tools that were produced by Snap-on and the company began allowing contractors to special order items that were not stocked in stores

Competitive Strategy

Lowe's tag line is "everyday low price". The organization uses a number of marketing channels to reach its customers. National television is used to build brand awareness, radio advertisements are used to promote major events, newspaper and magazine ads are used to reach customers and remind them of the Everyday Low Price promise and the broad product selection. Direct mail campaigns are used to develop relationships with current and potential customers such as new home buyers. The internet and email are used to share information with customers and subscribers. Gift cards are available as a convenient way for consumers to make purchases. Also business-to-business gift card accounts are available to companies for use as incentives and rewards. Multicultural marketing outlets use print, direct mail, and point of purchase materials to reach out to the growing number of Hispanic and African American customers.

Industry Analysis

By differentiating itself with Home Depot and providing a greater customer service, Lowe's made another fast growing story in the home improvement market and has successfully given Home Depot a big punch. In general, there is still plenty of room for the building supply retailers to grow and now both of the companies are finding ways to provide better customer service and capture larger shares of the potential market. The industry remains highly fragmented, and the trend toward consolidation will likely continue going forward. The war between of Home Depot and Lowe's will not end in the next 3 to 5 years, or even longer.

There is steady growth of the home improvement industry as a result of DIY customers, making it a $400 billion industry. In United states 2001 the industry was worth $187.6 billion with the expectation to climb to $236.7 billion. Sales in the industry was subjected to a number of external factors such as interest rates, housing turnover, debt levels of consumers and job security. People were keen on improving their homes rather than buying a new home. Interest rate cuts in 2001 to 2003 allowed consumers to borrow more to finance home improvements. Other points of interest in the industry include historically high rates of home ownership; creation of bigger buildings and spaces ("big-box") by the biggest players in the industry ; 32% of market share being controlled by the two major players - Home Depot and Lowe's; competitive factors in the industry are price, location, customer service, product and brand selection, and name recognition.

The National Retail Hardware Association and the Home Center Institute in the United States report there are three primary channels of distribution for hardware and home improvement products: hardware stores, home improvement centers and lumber/building materials outlets. They further state that economic changes are impacting this industry. Changes in bankruptcy laws that took effect in 2005 along with higher interest rates and tightening credit criteria by lenders may keep first-time homebuyers from entering the market. This impacts the growth of home improvement spending - which is typically highest within the first six months after a buyer purchases a home (NRHA, 2005).

Technology was also improving in the industry, allowing customers the ease of placing orders and the efficiency it affords. Special offers could now be made to customers. The market share increased for those who were better able to capitalize on the use of the World Wide Web. The bargaining power of suppliers affects the intensity of competition in an industry, especially when there is a large number of suppliers (David, 2007 p.103). In such a case an organization can pursue a backward integration strategy and buy out a supplier. Rival firms may offer extended warranties or special services to gain customer loyalty. Consumers often can negotiate the selling price as in the case of Progressive Insurance Company, which in one of its advertisements gives the customer a price gun to name his/her price.

Recommendations

After analyzing Lowe's SWOT and their various strategies, I posit the following recommendations.

Lowe's should seriously consider entering new geographic markets to facilitate further expansion.

Lowe's should continually conduct market surveys in order to be consistently knowledgeable of what the customer needs and expectations are of the company and its product offerings.

Investing in technological improvements and expansions will make the shopping experience a more efficient one.

Lowe's could liaise with major media networks and have live outside broadcasts from different store locations in order to create a bigger footprint on the industry. These broadcasts should feature give-a-ways of, for example, gift certificates.

Lowe's could also consider establishing a footprint in the European market to facilitate further expansion.