Lowe's Rides Out Stormy Economy Looking to Gain All the Way
With sales driven by a housing market that tumbled three-and-a-half years ago, Lowe's (LOW) has suffered distressed economic circumstances for a lot longer than most retailers. Yet it managed not just to survive but thrive by tempering the usual cost-cutting measures with initiatives that are helping it serve customers more effectively.
The effort has begun to pay off, CEO Robert Niblock said in a presentation to the recent Jefferies Global Consumer Conference. In the first quarter, Lowe's customers spent more on discretionary projects such as house painting and products such as riding mowers. That helped Lowe's post its first increase in comparable store sales, those at locations opened for at least a year, in a long time.
Lowe's recognized at the recession's beginning that frugality would be an important consideration for some time to come. It began emphasizing basic products consumers needed to maintain homes they were unlikely to sell or substantially remodel. Internally, Lowe's stopped contracting for store maintenance, bringing the function in house and establishing standards to improve execution. It wound up with cleaner stores that provide "a better in-store experience at lower cost," Niblock asserted. As Lowe's has done more marketing to women than is typical for home center/hardware store operators, a facility that's less like a shabby warehouse and more like a conventional store is a particular plus.
As the economy showed signs of improvement, Lowe's created a new store position, project specialist-exterior, to call on consumers interested in services that go beyond simple home maintenance, such roofing and door replacement. In the past, Lowe's employees would visit homes to provide service quotes, but potential customers had to contract the work at a store. PSEs can execute contracts in consumer homes, ensuring more frequent closings and eliminating an advantage previously held by independent contractors who cut their deals in consumer living rooms.
Niblock said that PSEs are in place at almost all the locations where they can boost sales, which he estimated to be 80 percent of stores.
Lowe's has created a similar position for commercial accounts. District commercial account managers work with the retailer's contractor and tradesman customers to push the full products-and-services range Lowe's offers building professionals. Existing customers were the initial focus, but Lowe's is turning to new business as the housing market bottoms out and looks to rebound next year, Niblock said.
Between them, he noted, the PSE and DCA programs already have contributed to comparable store sales gains. Niblock forecast that they would provide Lowe's with a comp lift of between one and two percentage points above average comparable-store sales growth in the home center sector going forward.
Lowe's, by combining cost-cutting, streamlining and programs that make shopping with it easier, has generated improvements in other operations, too. The retailer initiated a program to improve the planning for its distribution system to cut inventory costs and enhance its ability to consistently deliver even specialized and obscure items. That way, it reduces out-of-stock situations that frustrate customers. Lowe's also relaunched its website with greater sales and marketing flexibility and an enhanced ability to track customer purchases, which should allow it to employ that flexibility more efficiently. And the retailer is selectively adding stores to capitalize on depressed commercial real state costs while targeting markets where it has few locations, including major cities. In that way, it can build sales productively by minimizing cannibalization.
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