Research Paper on "Lowe's Overall Assessment of the Health of the Franchise"

Research Paper 7 pages (2026 words) Sources: 6

[EXCERPT] . . . .

Lowe's Companies is a major home improvement retailer. They offer repair, remodeling and maintenance products for both residential and commercial buildings. Headquartered in Mooresville, North Carolina, the company employs 229,000 people ("Company overview," 2010). To further explore the current state of Lowe's this paper begins with a brief history of the company and the vision/strategy of the organization. This is followed by an exploration of the internal and external factors affecting the organization. The financial health of the company is presented, including profits and stock value. The more qualitative topic of the morale of company employees and the entrepreneurial spirit will also be discussed. Lastly, recommendations regarding how the CEO may improve his company will be overviewed.

Lowe's

Introduction:

Lowe's Companies is a major home improvement retailer. They offer repair, remodeling and maintenance products for both residential and commercial buildings. Headquartered in Mooresville, North Carolina, the company employs 229,000 people ("Company overview," 2010). To further explore the current state of Lowe's this paper begins with a brief history of the company and the vision/strategy of the organization. This is followed by an exploration of the internal and external factors affecting the organization. The financial health of the company is presented, including profits and stock value. The more qualitative topic of the morale of company employees and the entrepreneurial spirit will also be discussed. Lastly, recommendations regarding how the CEO may improve his company will be overviewed.

History & Vision of Lowe's:

Lowe's Companies was founded in 1946, in North Wilkesboro (Hellreigel & Slocum, 2007, p. 423). This small town hardware store sold everything from overalls and work boots to wash tubs and horse collars. In 1961, the company went public. Eighteen years later, the company was traded on the New York Stock Exchange. At first, the company's primary customers were professional home builders. In the 1980s, with the decline of the housing market, this customer base began to change. It was at this time that Lowe's main competitor, Home Depot, introduced their low-price, do-it-yourself (DIY) warehouse concept. Instead of building new warehouse stores to mimic Home Depot, Lowe's changed the layout of their stores (Hoover, 2002, p. 880). By 1982, half of the company's 229 had been redesigned to service DIY customers ("History," 2010).

Today, the company has more than 1,725 stores in the United States, Mexico and Canada. They were ranked 42 on the Fortune 500 list, in 2009. This same year, Lowe's was the first winner of the Energy Star Sustained Excellence Award in Retail. The company also contributed $30 million to a variety of community organizations and schools ("Overview," 2010).

Lowe's SWOT Analysis:

A SWOT analysis for Lowe's highlights the internal and external factors affecting their success in the industry.

Strengths

Weaknesses

Recognized company name and efficient merchandising

Effective distribution network

Expense management processes and practices

Reduced gross margins

Product recalls

Opportunities

Threats

Increased eco-friendly product demand

Expansion into Australia

Growing private label brands demand

Rising American labor costs

Reduced American discretionary spending

Grim American housing market outlook

Strengths:

As a Fortune 50 company, with more than 1,725 stores in all 50 states of America, Canada and Mexico, a primary strength of Lowe's is the company's brand name. Extensive television, print and online advertising campaigns further builds Lowe's brand name as a leading DIY center. This brand name is enhanced by the company's effective merchandising. Each Lowe's store is comprised of four segments designed to target the needs of different customers. In addition, merchandising displays are created to give customers ideas as well as increase customer traffic. The effectiveness of the company's merchandising is evidenced in the 110 basis point increase in market share the company garnered in FY2009 ("SWOT analysis," 2010).

The company also has an effective distribution and logistics network. Lowe's operates 14 regional distribution centers that each services 118 stores. In addition, there are 15 flatbed distribution centers to distribute products that require special handling. Three transload and four specialty centers complement these facilities and cater to specialty and Internet sales. To reduce inventory costs, the company has implemented a Special Order Express program that stocks high dollar, slow moving products at regional distribution centers, so customers have easy access to these products, without them taking up retail store space ("SWOT analysis," 2010).

The company's expense management processes and practices is another strength Lowe's utilizes to lower costs and retain profitability in these challenging economic times. Physical inventory processes and store operations recycling and waste management strategies, improved signage and reusable sign board, and reduced need to reset displays led to a reduction of approximately $28 million in costs, in FY2009. In the last three years, these and other expense management processes has save the company approximately $100 million ("SWOT analysis," 2010).

Weaknesses:

Excessive promotions has led to reduced gross margins for Lowe's. This has exacerbated the low sales volumes and high costs that have been negatively impacting the company's margins. Operating under the strategy of everyday low pricing, Lowe's must compete with companies who are using aggressive promotional activity. This will continue to drive down the company's margins ("SWOT analysis," 2010).

Several product recalls, by the U.S. Consumer Product Safety Commission, have negatively affected the company. "In August 2009, the company recalled 4.2 million roll-up blinds and 600,000 Roman shades due to the threat of strangulation deaths of children" ("SWOT analysis," 2010). With more than 7,000 vendors providing products to Lowe's, the company has little control over the quality of the products; however, product recalls reflect poorly on the company and damage the company's brand image.

Opportunities:

Increasing environmentally conscious consumers in America has led to an increased demand for eco-friendly home improvement products recently, and has resulted in it being one of the fastest growing sectors in America. An industry report found that 33% of consumers were considering energy saving improvements and 73% were willing to pay more for energy efficient and eco-friendly products. In response, Lowe's has launched eco-friendly brands, such as their Sta-Green phosphorous fertilizers and Ecoblu non-toxic, econ-friendly products and components. Lowe's Healthy Home program offers consumers cost-effective environmentally responsible home improvement solutions ("SWOT analysis," 2010).

Another opportunity lies in expansion into the Australian marketplace. Through a joint venture with Woolsworth, Lowe's is positioned to penetrate this market, thanks to their 23 million weekly customers and 3,000 stores. The home improvement market in Australia is valued at approximately $20 billion and is currently underserved ("SWOT analysis," 2010). The joint venture will have 150 stores built over the next five years (Mitchell, 2010).

There is also a growing demand for private label brands, as demonstrated by a ten percent growth for these labels, as opposed to three percent growth, for branded products in 2008. The current weak economy suggests consumers are more willing to try private label products, which offers companies a higher product margin. For Lowe's, this includes their proprietary labels such as Kobalt and Premier Living ("SWOT analysis," 2010).

Threats:

Rising labor costs in the United States may negatively affect Lowe's. This includes not only government mandated minimum wage increases, but also an increased proportion of full-time employees, as a response to a tight labor market and a need to retain employees. These can negatively affect the company's margins ("SWOT analysis," 2010).

Reduced discretionary spending in the United States, due to rising unemployment and increasing food prices also is a threat to Lowe's. In November 2008 alone, employers cut 533,000 jobs. Food prices index rose by 0.9%, by July 2009. These factors result in lower discretionary income and reduced consumer confidence, which can negatively impact revenues ("SWOT analysis," 2010).

Lastly, the grim outlook for the American housing market is also a significant threat to Lowe's. "Lowe's is directly impacted by the number of new houses added, which tend to affect the demand for home improvement products and building materials. (…) the current economic crisis in the U.S. housing market is affected due to credit crunch, unemployment, reduced spending, etc." ("SWOT analysis," 2010). This will continue to negatively impact Lowe's revenues.

Financial Health of Lowe's:

The financial health of Lowe's is a direct reflection of the economic challenges their primary region of operation, the United States, is facing. For the fiscal year ending January 2009, FY2009, the company recorded $48,230 million in revenues. This was a decreased of 0.1%, compared to FY2008. Lowe's operating profit was $3,786 million in FY2009, down 19.5% compared to FY2008. Net profit for Lowe's was $2,195 million in FY2009, a decrease of 21.9% from FY2008's net profits ("Company overview," 2010). The significant decrease in operating and net profits are not only indicative of the weak American economy, but also the challenges Lowe's faces due to decreased margins.

Morale and Entrepreneurial Spirit of Lowe's:

Morale at Lowe's is not as positive as it could be. Uncertain economic times has resulted in the organization reducing the number of planned store openings, over the last few years. Although the company believes there is significant opportunities available for Lowe's, in some markets they have decided to wait for… READ MORE

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