Lowe's Cos., the country's second-largest home improvement retailer, sees a "window of opportunity" during this current soft business cycle to solidify its relationship with customers and improve the productivity of its operations, which include more than 1,400 stores nationwide. "Our goal is to create a new standard for the industry," Robert Niblock, Lowe's chairman and CEO, told investors and analysts at its annual conference, which the retailer this morning held in Charlotte, N.C., and simultaneously webcasted.
The downturn in the housing market, as well as drought conditions in several of its markets this summer, have had a negative impact on Lowe's sales and earnings in 2007. But the company is still on pace to open between 150 and 155 stores this year, including its first foray into Canada with six stores scheduled to open in the Greater Toronto market in December and January. (Lowe's eventually wants to plant 100 stores in Canada.) And while it projects comp-store sales declines through 2010, the company anticipates double-digit sales and earnings gains during each of the next three fiscal years, when it expects to add between 135 and 140 new stores per year, and to enter Mexico in 2009.
Lowe's sees a $755 billion market for home improvement-related goods and services in North America that it wants to take a bigger chunk out of. Expansion is one way: the company has 400 store sites that it has either approved or has under development, and another 500 potential sites it has identified for growth over the next five to seven years. Company officials point out as well that Lowe's is the market-share leader in only seven of its 20 major product categories, and that its stores capture business from just slightly more than three-fifths of the 13 million customers who come into them every week. Larry Stone, Lowe's president and COO, said that if each customer made one more purchase at the company's $68.13-per-transaction average, its annual sales would increase by $1 billion.
Company officials outlined several of the ways that Lowe's is attempting to increase its market share. "The next growth curve," said Niblock, could be in-home management of big-ticket projects for time-strapped "do it for me" customers, where Lowe's would provide extensive planning and product coordination, as well as the execution. Lowe's is testing this program in four markets currently, and Niblock sees this as a way for Lowe's to get customers to spend more with his company. Mike Brown, Lowe's executive vice president of store operations, noted that stores in Atlanta, Dallas and Philadelphia are testing an in-home installed sales model; and that three markets are experimenting with repair services for appliances, Lowe's single-biggest sales category.
Several Lowe's officials said that one of the keys to sustaining its growth will for its stores to meet customer expectations for "shopability," which is probably Lowe's single greatest advantage over rival The Home Depot. Over the past five years, the retailer has spent $2.5 billion upgrading existing stores, which has included making dramatic improvements in product signage and packaging, and maintaining the "clean and bright" shopping environment that has become its calling card.
The company has a number of new store formats in the works, too, that might fit better in different-sized markets than its typical 117,000-square-foot and 94,000-square-foot footprints. Under construction is an 80,000-square-foot store, with an attached drive-through lumberyard on the side, which the company will open next year. Lowe's is also developing a two-level store that would have 75,000 square feet of selling space on the first floor, 40,000 on the second and another 20,000 square feet for lawn and garden. Lastly, in the conceptual stage is a smaller store for standalone markets whose populations are less than 250,000. "We know how to run small stores," says Greg Bridgeford, Lowe's executive vice president of business development, who recalled that when he joined Lowe's in the 1970s, the company's store size averaged 13,350 square feet.
Creating a sales culture
Company officials spoke at length during the conference about how streamlining its operations is helping Lowe's to realize its growth ambitions. For example, merchandising has been reorganized so that related product groups - such as appliances, kitchens and baths; or lawn and garden and outdoor power equipment - fall under the supervision of one of five general merchandise managers. A separate senior vice president oversees global sourcing, which accounts for $6 billion of Lowe's annual sales and most of the proprietary brands its stores carry. (Lowe's is now the sixth-largest user of ocean-freight containers in the U.S.)
About three-quarters of its stores' inventory is funneled through Lowe's internal distribution network, so it's imperative for the company to be able to respond quickly to changing market conditions in order to keep its product levels under control. To that end, Lowe's spent three years developing a demand planning system that it started implementing at its distribution centers this July. That system is informed by sales forecasts that go out as far as 52 weeks, and vendor order forecasts that go out 26 weeks.
Improving freight flow is one of Lowe's five operational strategies, according to Brown. Two others focus on creating a "sales culture" within its stores, and building a corps of tenured and talented employees. The company grades each store every quarter along several criteria - employee selling skills, installed sales, delivery, the checkout experience and phone service - and rewards top employees with gifts (including cars) and cash. It also identifies those employees it believes are qualified to step into management positions as it expands. (Brown said 8,000 of Lowe's 210,000 employees are "ready to take the next level of responsibility.")
Another strategy is to reach more customers through special orders and eCommerce, which account for 10 percent of its annual sales. Lowe's recently started rolling out an electronic installed sales contract, and over the past year has increased, by 54 percent to 55,000 SKUs, the number of items it offers for sale via its website, Lowes.com, which receives 3 million visitors per week.
Learn more about markets featured in this article: Charlotte, NC.