Lowe'S Companies, Inc. Business Information, Profile, and History

Company Perspectives

Our growth is driven by our clear and well-defined strategy to put customers first and offer innovative home improvement products and services to make their lives easier. Our shelves are stocked with the respected brands that our customers trust, at everyday low prices. We continue to enhance the way we meet our customers' needs through advancements in technology and distribution, with services such as professional installation, and with enhancements to the special order process to improve the shopping experience. All of these efforts are designed to drive profitable growth and create value for our customers and shareholders.

History of Lowe'S Companies, Inc.

Lowe's Companies, Inc., is the second largest home improvement retailer in the United States (trailing The Home Depot, Inc.) holding about 6 percent of the $700 billion home improvement market, and also ranks as the seventh largest U.S. retailer overall. More than 1,250 Lowe's stores in 49 states (the exception being Vermont) serve do-it-yourself customers, so-called do-it-for-me customers using the stores' installation services, and commercial customers, including professional contractors, electricians, landscapers, painters, and plumbers. Lowe's relies on two prototype stores, a 117,000-square-foot version designed for larger metropolitan markets and a 94,000-square-foot model suitable for small and midsized markets. The average Lowe's carries 40,000 products for home decorating, maintenance, repair, remodeling, and construction. Hundreds of thousands more are available through special orders. Lowe's offers installation services in more than 40 product categories, with the greatest sales coming in flooring, millwork, and kitchen cabinets and countertops. Such services generate approximately 6 percent of the corporation's total revenues.

Early History

In 1921 L. S. Lowe opened a hardware store in the small town of North Wilkesboro, North Carolina, under the name Mr. L. S. Lowe's North Wilkesboro Hardware. Following his death, his son, James Lowe, took over the business. James Lowe and his brother-in-law, Carl Buchan, served in the U.S. Army during World War II, and during this period Lowe's sister and mother ran the business.

When Buchan was wounded and discharged from the army in 1943, he returned to North Wilkesboro to help operate Lowe's hardware business. In 1946 Buchan took a 50 percent interest in the store. Buchan quickly sold out much of the store's inventory. He then reorganized the store, which became a wholesale-style seller of hardware and building supplies.

When Lowe was discharged from the army, he returned to aid Buchan in operating the business. The two opened a second store and used profits to buy an automobile dealership and a cattle farm. In 1952 Buchan traded his interests in these two businesses for Lowe's interest in their two stores. Three months later, Buchan opened a third store, in Asheville, North Carolina. Also in 1952 the company was incorporated as Lowe's North Wilkesboro Hardware, Inc. According to company lore, Buchan retained the Lowe's name so he could use the slogan "Lowe's low prices." From 1952 to 1959, Buchan expanded operations, and sales increased from $4.1 million to $27 million. The post-World War II construction boom made the hardware business very profitable. The frenzied demand for supplies meant that sales often were made directly from a freight car on the railway siding that ran by the store. By purchasing stock directly from the manufacturer, Lowe's was able to avoid paying the higher prices set by wholesalers, which meant lower prices for customers. By 1960 Buchan had 15 stores.

Rapid Growth

The big push to become a major force in the home-building market came in 1960 when Buchan died and an office of the president was created. The company went public in 1961 and was renamed Lowe's Companies, Inc. Even though the company grew and new locations were added, the layout of the stores remained basically the same: a small retail floor with limited inventory and a lumberyard out back near the railroad tracks. The bulk of Lowe's customers were contractors and construction companies. By the late 1960s, Lowe's had more than 50 stores, and sales figures hovered around the $100 million mark.

About this time, the burgeoning do-it-yourself market was beginning to change the face of the construction industry. The rising cost of buying a home or having one remodeled by a professional led more homeowners to take on construction projects themselves. Home centers were becoming the modern version of the neighborhood hardware store. At the same time, the home building market was experiencing periodic slumps, and Lowe's management began to notice that their sales figures were moving up and down in tandem with housing trends.

In spite of the fluctuations in the housing market, however, Lowe's revenues rose from $170 million in 1971 to more than $900 million by 1979 (when there were more than 200 stores in the chain). This was due in large part to Lowe's financing program that helped local builders get loans, coordinated building plans with the Federal Housing Administration (FHA), and then helped contractors fill out the government forms and trained construction companies to build FHA-approved homes.

Targeting Consumers

When new home construction virtually came to a standstill in the later part of the 1970s, Lowe's made the decision to target consumers. The management team believed that increasing consumer sales would reduce the company's vulnerability during economic and seasonal downswings. In 1980 housing starts decreased, and Lowe's net income fell 24 percent. While studying the track records of do-it-yourself stores that sold solely to consumers, Lowe's found that these stores were recording strong sales even during the home-building slumps.

Robert Strickland came to Lowe's fresh from the Harvard Business School. Rising steadily through the ranks, Strickland had reached the position of chairman of the board in 1978 and, with newly appointed Lowe's President Leonard Herring, spearheaded the decision to attract consumers in a big way. Using the easily recognizable acronym RSVP (standing for retail sales, volume, and profit), Lowe's embarked on the new marketing strategy. A consultant was hired to remodel the showrooms, and the resulting layout was similar to that of a supermarket. Seasonal items, such as lawn mowers, were placed in the front of the store. The traffic pattern drew customers to the interior decorating section, then moved on to the back of the store where traditional hardware materials were displayed. The theory behind this traffic pattern said that most consumers may come for the basics but, by walking through the other departments, end up purchasing more. The store in Morganton, North Carolina, was the first location remodeled under the RVSP plan.

In another aspect of the redesign, poster-sized photographs depicting Lowe's merchandise as it would look in the consumer's home were used to identify departments rather than lettered signs. Product lines were updated, hours were extended, and advertising was increased. The strategy worked; by 1982 sales had reached $1 billion, and when the figure reached $1.43 billion in 1983, it marked the first time that Lowe's had made more money selling to consumers than to contractors.

One aspect of the RSVP plan that did not work was Wood World, an extension of the retail floor into one long bay of the lumber warehouse. Fire code regulations required the installation of expensive fire walls and doors, and the idea was soon scrapped. Paneling and other wood products were then put out on the sales floor with the rest of the merchandise.

Shift to Warehouse-Style Stores

By the late 1980s the retail scene in the United States had once again been transformed, and the era of the "big-box" warehouses had begun. Home Depot, Inc. led the way in the home improvement sector and its aggressive expansion of its 105,000-square-foot home improvement superstores quickly moved the upstart past Lowe's and other competitors into the number one position. Lowe's, meanwhile, had surpassed the 300-store mark in fiscal 1989 but those stores averaged barely more than 20,000 square feet. The company had opened some larger units in 1988, including a 60,000-square-foot store in Knoxville, Tennessee, a 40,320-square-foot unit in Boone, North Carolina, and a 60,480-square-foot store in North Chattanooga, Tennessee, but none approached the size of a Home Depot. Lowe's also made some adjustments to its product lines as core consumer goods areas--hardware, tools, paint, plumbing, home decor, and stereo equipment--were expanded, while such fringe items as exercise equipment, bicycles, and bath linens that had crept in over the previous decade were phased out.

In 1989 Lowe's began a formal shift from being a chain of small stores to being a chain of large, warehouse-style stores, with the company fully committing itself to this change in 1991. During that year, the company took a $71.3 million restructuring charge in order to accelerate the chain conversion. The charge covered the costs of closing, relocating, and remodeling about half of the company's stores, during the period from 1991 to 1995. Over the course of the four-year restructuring, the size of the new or remodeled stores crept upward from 45,000 square feet to 85,000 to 115,000. The largest size was to be reserved for Lowe's stores built in larger markets, such as Greensboro, North Carolina, while in the smaller markets the company traditionally served Lowe's eventually aimed to build 100,000-square-foot units. All of the larger stores featured huge garden centers, as big as 30,000 square feet in size. Overall, Lowe's aimed to generate more of its sales from consumers, while at the same time continuing to serve contractors. It also continued to sell major appliances and home electronics (including home office equipment, which was added to the mix in 1994), two categories usually absent from Home Depot stores.

From 1991 to 1993, the company concentrated almost exclusively on the restructuring and made only modest expansion moves, gaining toeholds in Maryland, Indiana, and Illinois for the first time. Although the chain added only five stores overall during this period, total square footage increased from 8.02 million in 1991 to 14.17 million in 1993, translating into an increase from 26,000 in average square footage to 45,500. In 1994 and 1995 Lowe's added 54 more stores, bringing the total to 365, and adding the states of Iowa, Michigan, and Oklahoma to its territory. Also in 1995, the company began to aggressively expand in Texas, going from two stores in 1994 to 23 stores in 1996. Lowe's also expanded into the state of New York in 1996 and into Kansas in 1997. Meanwhile, in August 1996 Herring retired and was succeeded as president and CEO by Robert L. Tillman, who had served as chief operating officer. Tillman was named chairman as well in January 1998.

By 1996 there were more than 400 Lowe's stores, averaging more than 75,000 square feet per unit. Sales had nearly tripled since the restructuring was announced in 1991, increasing from $3.1 billion to $8.6 billion. Net earnings reached a record $292.2 million in 1996. With more than 70 percent of its stores now "big boxes," Lowe's began to concentrate more on expanding into new territory in the mid-1990s, aiming to reach the 600-store mark by century-end. During 1997 Lowe's opened 42 more stores. Among these, Lowe's included a test of its first stores in an urban market, Dallas, one in which Home Depot was already entrenched. Despite the competition, the Dallas stores exceeded initial expectations by 20 percent, and from then on, Lowe's began targeting both large metropolitan areas and its more traditional small and medium-sized markets for growth.

Going Coast to Coast

To aid its expansion, Lowe's built six new, one-million-square-foot distribution centers located around the country. These centers supported further geographic expansion, including a $1.5 billion plan launched in 1998 to build more than 100 new stores in the western United States. Among the initial markets targeted were Los Angeles, San Diego, Las Vegas, Phoenix, and Tucson, Arizona. Lowe's westward expansion was accelerated through the April 1999 acquisition of Eagle Hardware & Garden, Inc. in a stock swap valued at about $1.34 billion. Eagle, based in Renton, Washington, operated 38 big box home improvement stores in ten western states and had revenues of nearly $1 billion. The Eagle outlets were gradually rebranded under the Lowe's name.

By the end of 1999 the Lowe's store count had reached 550, and its revenues of $15.45 billion made it the 15th largest retailer in the country. In 2000 another 75 stores were added, and the company revamped its web site into a major e-commerce site. Early the following year, Lowe's rolled out its first national television advertising campaign, using the tag line, "Improving Home Improvement," and touting itself as cleaner, better organized, and better lit than the warehouse competition (implying, without naming, Home Depot). The campaign's themes were consistent with Lowe's push to attract female consumers, a strategy that a number of analysts considered a key to the company's success; Lowe's catered to women because company research found that females made the vast majority of home improvement decisions. The drive to create a nationwide chain also continued with the launch of a $1.3 billion, five-year move into the Northeast, where Lowe's aimed to open more than 75 stores ranging from Philadelphia to Maine, with 25 alone in the Boston area. The first New York City store opened in the spring of 2001. Late in 2002 Lowe's announced further plans to open more than 60 stores in the New York metropolitan area and northern New Jersey. In 2003 the company introduced a smaller prototype format measuring 94,000 square feet that was designed for smaller, mainly rural markets. A 116,000-square-foot store continued to be the prototype for larger markets.

During the fiscal year ending in January 2005, Lowe's store count passed the 1,000 mark. At the end of the fiscal year, Tillman stepped down from his position as chairman and CEO, having led the company through an amazing period of growth. Between 1996 and 2004, revenues quadrupled, from $9.06 billion to $36.46 billion, while profits jumped sevenfold, from $310 million to $2.18 billion. Lowe's was the 11th largest retailer in the country. Taking on the daunting task of filling Tillman's shoes was Robert Niblock, who had joined Lowe's in 1993 and served as company president since 2003.

Rather than slowing, growth accelerated under the new leader, as no fewer than 150 new Lowe's opened during fiscal 2005, including the first stores in New Hampshire, the 49th state to join the company ranks. A like number or slightly more units were planned to be added over the next two years, toward an eventual total of between 1,800 and 2,000. At the same time, Lowe's was seeking to spur growth by increasing revenues derived from three areas: special orders, installation services, and commercial customers such as contractors, professional tradespeople, and property management professionals. In June 2005 the company announced plans to move into the Canadian market, aiming to open as many as ten stores in the Toronto area during 2007. Expansion into other international markets was under study. As Lowe's posted another record year in fiscal 2005, profits of $2.77 billion on revenues of $43.24 billion, one possible cloud on the horizon was a cooling of what had been a red-hot housing market, which had the potential to precipitate a concomitant downturn in the home improvement industry.

Principal Subsidiaries

Lowe's Home Centers, Inc.; Lowe's HIW, Inc.

Principal Competitors

The Home Depot, Inc.; Menard, Inc.; True Value Company; Wal-Mart Stores, Inc.; Ace Hardware Corporation; Sears, Roebuck and Co.

Chronology

• Key Dates
• 1921 L. S. Lowe opens a hardware store in North Wilkesboro, North Carolina, called Mr. L. S. Lowe's North Wilkesboro Hardware.
• 1946 Carl Buchan buys 50 percent interest in the store.
• 1952 Buchan gains full control of the concern, which he incorporates as Lowe's North Wilkesboro Hardware, Inc.
• 1961 Following Buchan's death the previous year, the new managers take the firm public and rename it Lowe's Companies, Inc.
• 1982 A shift to targeting do-it-yourselfers helps push revenues past the $1 billion mark.
• 1989 Transition to large, warehouse-style stores begins.
• 1997 Company opens first stores in an urban market.
• 1999 Eagle Hardware & Garden, Inc. is acquired.
• 2004 Store count surpasses the 1,000 mark.