No longer a low-profile company, Lowe's Companies has evolved from a regional hardware store operator into a nationwide chain of home improvement superstores bent on international expansion. The #2 US home improvement chain (after The Home Depot), Lowe's operates 1,805 stores in the US, along with some 42 stores in Canada, 10 stores in Mexico, and an e-commerce site. Its stores sell roughly 36,000 products for DIY-ers and professionals for home improvement and repair projects, such as lumber, paint, plumbing and electrical supplies, tools, and gardening products, as well as appliances, outdoor power equipment, home fashions and furniture. Lowe's is also the second-largest US home appliance retailer after Sears.
The company serves more than 17 million customers a week from its 1,857 stores in the US, Canada, and Mexico.
By product, Lowe's generates around 12% of its revenues from lumber and building materials sales, while tools and hardware, appliances, fashion fixtures, rough plumbing and electrical, and lawn and garden sales each account for around 10% of revenues (or 50% of total sales combined). The rest of its revenues come from seasonal living; paint; flooring; millwork, kitchens and outdoor power equipment sales, with each category making up around 5% of revenues. Home fashions, storage and cleaning makes up the remainder.
The retailer sources its products from 7,500-plus vendors worldwide, and owns and operates 15 highly-automated regional distribution centers in the US. In addition to its namesake chain, Lowe's holds a majority stake in Orchard Supply Hardware (OSH), which operates 80 neighborhood hardware and backyard stores (primarily in California).
Sales and Marketing
Lowe's mainly serves two audiences: Pro customers, which made up 30% of sales in fiscal 2016 (January year end) and include homeowners, renters, and professional customers in construction trades and maintenance, repair & operations; and retailer customers, which count individual homeowners and renters.
The retailer offers flooring, millwork, and appliance installation through independent contractors. Installed sales accounted for approximately 8% of sales in fiscal 2016. Online sales, through websites including ATGstores.com, lowes.com and lowes.ca, accounted for another 3% of total sales. The company also markets and sells its products through three contact centers (in Wilkesboro, North Carolina; Albuquerque; and Indinapolis) via direct phone sales and customer support.
Lowe's has been ramping up its advertising spend in recent years. It spent $769 million in fiscal 2016, up from $819 million and $811 million in FY2015 and FY2014, respectively.
The company's net revenues have risen over the past five years. In fiscal 2016 net revenues increased by 5% due to a growth in comparable sales, driven by 2.5% increase in comparable average ticket and a 2.2% rise in comparable customer transactions; and due to the addition of new stores.
Net income decreased by 6% in fiscal 2016 due to higher selling, general, and administrative expenses, as the result of 90 basis points of deleverage associated with an impairment charge recorded in 2015 related to the valuation of one-third interest in the Australian joint venture with Woolworths Limited and higher income tax provision, related to losses associated with the joint venture investment in Australia with Woolworths Limited.
Operating cash flow decreased by 3% due to lower net income and working capital related to higher cash used in merchandise inventory and decreased other operating liabilities.
The company is focused on increasing its online shopping experience with enhanced product content and search functionality and improved tools to better support customers’ digital experience, including click-to-chat and order status and tracking.
Streamlining its international business, in 2016 the company planned to begin the process of exiting its investment in the joint venture, which operates Masters Home Improvement stores and Home Timber and Hardware Group’s retail stores and wholesale distribution in Australia.
Lowe's continued in 2015 to focus on three priorities to drive top-line growth, including: its enhanced Sales & Operations Planning process, which improved the timing of seasonal planning and new product and promotion launches; building on its customer experience design capabilities; and improving its relevance with the Pro customer, a growing customer base, by adding more key and in-demand brands such as Henry coatings, Hubbell wiring devices, GRK Fasteners, and Progress Lighting.
To drive same-store sales growth, Lowe's and its Innovation Labs work to improve its stores' customer experience. To this end, in early 2015, it opened its Global Innovation Center (GIC) in Bangalore, India to help develop next-generation customer experiences, placing more emphasis on technology and analytics to provide more personalized shopping experiences for customers. In 2014, Lowe's introduced the first of its Holoroom concept, which offers 3-D and augmented reality home improvement simulations. In another innovation launched that year, it introduced two retail service robots to help assist customers in an OSH store.
With sales maturing in the US, Lowe's has also begun to set its sights on international markets for store expansion and revenue growth. In mid-2015, it expanded its store count in Canada to 54 locations (up from 40) by acquiring a dozen former Target stores in the region and opening up two new stores.
Lowe's has also been trying to differentiate itself from its rivals by forming strategic partnerships with select suppliers, including Stainmaster (carpets), and Pella (windows), to offer brand-name merchandise in its stores. It's also trying to attract more female customers, who, the company claims, call the shots on about 80% of home improvement decisions. To make its big-box stores appealing, Lowe's makes effective use of lighting and signage and caters to women and baby boomers with an inviting store layout (as opposed to Home Depot's more industrial look). The retailer has also increased the number of sales representatives working the floor on weekends, its peak shopping period.
Mergers and Acquisitions
In 2016, the company bought Quebec-based RONA, retailer and distributor of hardware, building materials, and home renovation products for C$3.2 billion (US$2.4 billion). This acquisition represents a key step in accelerating Lowe’s growth strategy which creates largest home improvement retailers in Canada as well as expanding the company’s operations in that country.