We all know that home sales across the country have been in a world of hurt over the past few years. And home improvement retailers have certainly shared in that pain. But should this give home improvement retailer Lowe's (NYSE: LOW) a free pass on strategy? I think not.
As CEO Robert A. Niblock put it in Lowe's second-quarter earnings release: "Longer-term, we believe improvements in labor and housing markets will be necessary to support more consistent improvement in demand for home improvement products."
That makes sense. However, I believe Lowe's is capable of growing its bottom line regardless of what happens with real estate or employment figures in your hometown. Lowe's needs to take advantage of some of the things it's already doing right and polish up some other areas of its business.
Here are three ways that Lowe's can remodel its business strategy:
1. Demonstrate how Lowe's is different from and better than Home Depot
Lowe's estimates that the home improvement market exceeds a half-trillion dollars. That's a lot of hammers, a lot of garden hoses, and a whole lot of granite countertops. Yet Lowe's remains stuck in the No. 2 spot among home improvement retailers behind Home Depot (NYSE: HD). How come? I believe it's because many of its own customers see no difference between Lowe's and the big orange box.
Both stores sell similar products and services in big-box environments throughout the nation. But consider Wal-Mart (NYSE: WMT) and Target (NYSE: TGT) for a moment: two similar types of stores but two very different shopping experiences. Same goes for more upscale players such as Nordstrom (NYSE: JWN) and Macy's (NYSE: M). As a result, both Target and Nordstrom have loyal and growing customer bases.
Lowe's customer experience could easily become vastly superior to Home Depot's: more organized departments, superior customer service, cleaner stores, more cutting-edge products, a floor staff that knows exactly where those pesky rubber washers are hiding. All these traits could become hallmark differentiators. Lowe's needs to hone these skills a bit more and articulate them to the world in a coordinated advertising campaign.
2. Increase the quality of Lowe's branded merchandise
Lowe's has lines of proprietary, exclusive merchandise in its stores, with brand names such as Aquasource, Harbor Breeze, Kobalt, Portfolio, and Utilitech. That's a lot of generic-sounding brands to keep up with.
Lowe's should steal a page from Sears' or Costco's playbook and create a signature brand, such as Craftsman or Kirkland Signature, that might really resonate with customers. Lowe's could significantly increase sales of its higher-margin in-house offerings by sweeping them all under a single Lowe's-branded name, and offer better warranties, better customer support, and (most importantly) better products.
But how do you improve a hammer, you might ask? Take a look for yourself. Also check out the sweet cordless drill I recently picked up. If I weren't already married, I'd propose to this drill. Lowe's needs those kinds of products.
3. Do it for me
Lowe's installs everything from washers and dryers to kitchen cabinets and floors. Yet walking into a Lowe's, you'd be hard-pressed to figure out exactly what Lowe's will and won't do around your home.
It's confusing and it doesn't have to be. By clarifying that Lowe's can fix a ton of things in your home, and leveraging its superior reputation for service (see item 1 above), the company could boost its installation business (approximately 6% of total sales in fiscal 2009) by a bundle. Furthermore, I suspect that there may be a number of holes in Lowe's installation business that, when filled, could reap low-hanging and high-margin fruit.
Foolish takeaway
Lowe's could have a much brighter future despite the troubles in the housing arena. It just needs to renovate its business strategy a bit and then share the good news with the world.
Is there something else that would make Lowe's your go-to home improvement retailer? Sound off in the comments below.
