Lowe’s Companies, Inc.

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Lowe’s Companies, Inc.

Post Office Box 1111
North Wilkesboro, North Carolina 28656
U.S.A.
(919) 651-4000
Fax: (919) 651-4766

Public Company
Incorporated: 1952 as Lowe’s North Wilkesboro Hardware, Inc.
Employees: 15,556
Sales: $2.83 billion
Stock Exchanges: New York Pacific London

Lowe’s Companies, Inc., operates a chain of retail stores that sells building materials and related products to the do-it-yourself home improvement and home construction markets. At the end of 1990, the company operated 309 stores, primarily in the southern United States.

In 1921 L.S. Lowe opened a hardware store in the small town of North Wilkesboro, North Carolina. 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% 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. 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 1955 Buchan had six stores.

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. 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. 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.

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%. 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.

In the later years of the 1980s, Lowe’s began increasing the size of its stores. Prior to that time the stores were approximately 20,000 square feet. In 1988 the company opened 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. Lowe’s planned for all future units to be either 45,000 or 65,000 square feet. To accommodate the expansion, the company began to lease more of its own space. In 1989 Lowe’s owned 89% of the buildings that housed their stores. By the end of 1991, Lowe’s expected to add one million square feet of space, bringing the total to eight million.

Future plans also called for the expansion of the core consumer goods: hardware, tools, paint, plumbing, home decor, and stereo equipment. Fringe items that had crept in over the past decade, including exercise equipment, bicycles, and bath linens were to be phased out.

Traditionally, Lowe’s preferred to move into small- to medium-sized towns where they did not have to compete with a large local wholesaler. This may change in the 1990s. Industry analysts predicted Lowe’s desire to increase its market share would require moves into more heavily populated geographical areas and larger stores.