Is Lowe’s Cos. about to make the same mistake that its main rival, The Home Depot, did a decade ago?
In an attempt to reduce its payroll expenses and streamline its operations, North Carolina-based Lowe’s disclosed that it is eliminating about 1,700 middle-level manager positions from many of its stores across the United States.
Lowe’s currently employs 238,000 people nationwide. The company said it is “flattening” its store management structure. (Its stores were averaging between four and six managers each.) A spokesperson told Home Channel News that the company is eliminating zone managers, administrative managers, operations managers and sales managers in the stores affected, and placing those responsibilities under the store manager and assistant manager. About 20% of Lowe's 1,700 stores will escape this management restructuring.
The retailer is also planning to hire between 8,000 and 10,000 part-time workers to beef up its in-store staffing during weekend selling periods. At an analyst conference last November, Lowe’s COO Larry Stone stated, “We have reached another point in our lifecycle where we must adapt to maintain our growth in the home improvement business. Our entire organization is focused on making the promise of a better, more seamless customer experience a reality.”
This personnel maneuvering is likely to have a positive effect on Lowe’s bottom line at a time when retailers of home-improvement and building material products have been hammered by the recession. Through the first nine months of its fiscal year, Lowe’s reported a 9.3% increase in net income, to $1.725 billion, on revenue of $38.335 billion, up 3.5%. Its selling and general administrative expenses for that period rose 2.8% to $9.2 billion.
However, flooding stores with more part-timers as a way of controlling costs and providing better customer service is a strategy that backfired on The Home Depot in the early 2000s.
In 2001, Depot’s then-Chairman and CEO Bob Nardelli launched a “Store Productivity Improvement Initiative.” That program sought to bring more discipline to what had become an operational free-for-all in many of the company's stores. The initiative held district and store managers’ feet to the fire to meet the retailer’s profit goals, which led to a wave of part-time workers being hired for peak selling periods. Dennis Donovan, Depot’s executive vice president of human resources at the time, said that it was entirely possible that part-timers could eventually account for half of the company's workforce, from 35% historically. Donovan was also infatuated with using information technology to train and monitor these workers.
It didn’t take long before customers were telling anyone who would listen about the perceptible erosion in Depot’s customer service levels. After Nardelli was deposed in January 2007, his successor, Frank Blake, all but disavowed the part-timer scheme in favor of employing better-trained full-time workers and restoring entrepreneurial decision making to store managers.
That’s not to say that The Home Depot isn’t feeling the recession’s bite along with Lowe’s. Over the past few years, the company has gotten out of many of its ancillary businesses, the most noteworthy of which was its decision to close its remaining Expo Design Centers. And the bloodletting isn’t quite over yet, either, as Depot disclosed that on Thursday it would start liquidating its underperforming stores in Rocky Mount and Greenville, N.C., and in Holland, Mich. The North Carolina stores being closed employ 185 workers.
John Caulfield is senior editor for Builder magazine.