Lowe's grows in downturn

If you think you've been going to Lowe's more in recent years, or simply considering it more – well, it's probably not just your suspicion.

Even as the downturn in housing has hammered home improvement stores, the Mooresville-based chain is claiming a growing share of the market, and aiming for more. That comes as its chief rival, Home Depot, has seen its market share slide and is working to recover, and as smaller competitors go under, too.

In a tough climate, the gain is a bright spot for the nation's second-largest home improvement retailer: If the pie isn't getting much larger, at least at the moment, it helps to claim a bigger slice.

“The key for home improvement retailers during this time is to keep shoppers coming to the stores, and I think Lowe's is doing a good job trying to focus their marketing message on smaller needs,” said Nick McCoy, a home improvement analyst with TNS Retail Forward, a Columbus, Ohio-based retail consultancy.

Lowe's CEO Robert Niblock said recently he can see the company eventually having 2,500 stores in the United States, up from about 1,575 now. Even so, Lowe's still has a long way to go before it's larger than the orange-aproned competition – nor is that necessarily a realistic goal, Lowe's President and Chief Operating Officer Larry Stone noted in an interview last week.

“At the end of the day, you know you're never going to have it all,” Stone said. “Our strategy as a company has not been to take everybody out. It doesn't work well and it's not going to happen.”

Founded in nearby Wilkesboro, Lowe's has operated in the Charlotte region for decades and remains dominant, with 28 local stores to Home Depot's 16. Six new Lowe's are also set to open in the area by the end of the year.

Nationally, though, Home Depot, is larger, by a lot. The Atlanta-based retailer had nearly $30 billion more in sales last year than Lowe's, and about 700 more stores. Lowe's, however, has grown at a faster rate in recent years.

After a messy management shake-up and job cuts widely viewed to have affected customer service, Home Depot has been trying to refocus and return to its earlier vitality. Its plans include closing 15 underperforming stores, reducing future openings and boosting the number of employees on the sales floor.

As a more technogically adept company with steady leadership, Lowe's doesn't have to reinvent itself, analysts say. And because Lowe's is smaller, it has more room to expand, they note, whereas Home Depot is closer to saturation.

“There's a real possibility within the next 10 years that Lowe's could catch Home Depot from a market share standpoint,” McCoy said.

Home Depot's share of the home improvement retail market peaked in 2003, according to TNS Retail Forward data. It's now about 20 percent and is projected to gradually decrease in the next few years.

Lowe's, on the other hand, had 14.3 percent last year, up from 10.6 just five years earlier, and is projected to have nearly 15 percent by 2012.

And, experts and company officials say, those gains aren't just coming from the Home Depot – they're coming from tool and appliance mainstays such as Sears, and smaller competitors that lack the money to survive the current downturn.

How Lowe's does it

In the past three years, Lowe's president Stone said, the company has gained share in dollars spent and units bought. Surveys also show that more consumers are considering the store when they're getting ready to shop.

In a large market like Charlotte, where convenience is key, the company can increase share by building more stores. In the future, Lowe's and its competitors also expect to grow by building smaller, less traditionally big-box locations.

Like Home Depot, Lowe's has moved away from big promotions and price wars. Instead, it's placed yellow “new lower prices” tags around the store and shifted its marketing message to emphasize smaller projects. Even the purposefully consistent layout of the stores is designed to keep customers thinking about home improvement possibilities, with seasonal products at the front entrance laid out in complete ensembles. And to keep the focus on products, the company uses muted gray shelves and fixtures throughout its stores.

In recent years Lowe's has gained share in lighting, nursery and outdoor power equipment, among other categories. Home improvement stores, Stone said, are only about three percentage points away from becoming the leading nursery destination. And they already lead in categories such as hardware and fashion plumbing, in part because they've shifted with consumers' habits, staying open for browsing at hours when dealer showrooms are not.

Each week, Stone said, Lowe's visits its stores and rivals' to keep tabs on competition. And though they do keep their eyes on Home Depot, they're not singularly focused on becoming the biggest chain out there – especially given the large sales difference between the two. “We want to be the home center that people say, ‘I love to shop their store, it's clean, I love their displays, it's well-lit, I love their merchandise,'” he said. “It's not that we don't want to be number one. But you've got to be a realist.”

What customers think

All home stores have a core of devoted customers. But keeping them happy – so happy, in fact, that they'll tell their friends – is perhaps the biggest key of all to gaining share.

In the most recent American Customer Satisfaction Index, Home Depot ranked at the bottom of the retail sector, with a score of 67 out of 100; Lowe's increased a point over the year before, with a 75, an average ranking.

“Customers are more satisfied with Lowe's, and that's a reason why Lowe's would be in a better position that Home Depot to weather the economic downturn,” said Claes Fornell, the University of Michigan professor who founded and heads the annual survey. “Both companies face difficult challenges in this economy, but more satisfied customers tend to be more loyal.”

That definitely describes Wachovia retiree Peggy Liles, 64, of Cornelius, who came to the Huntersville Lowe's last week for fall plants. “Every time I come, I say, I'm gonna spend this amount – and I spend triple,” she joked.

She's shopped at Lowe's for decades, she said, and believes the company has worked over the last 10 years to appeal to women, offering decorating ideas, small home appliances and lighting fixtures. “I'm always here to buy something,” she said. “I can just find what I want here, and the brands they have here I like. And I know they stand behind what they sell.”

Airline pilot Bill Serventi, 26, visited the same Lowe's – he and his wife just moved down the street, and they were buying organizers and hardware for their apartment. They like to go to the closest store; when they lived in Phoenix, that was Home Depot. But all things being equal, he'd choose Lowe's.

“It's a lot brighter and seems more organized,” he said. “It's not as industrial.”

But the Home Depot a quarter of a mile north also had its devotees. “I haven't had a bad experience here, and you can't say that about a lot of places you shop,” said stay-at-home mom English Tuttle, 33.

When she had an electrical problem last year, for instance, a knowledgeable electrician on staff resolved a question that it took three Lowe's employees to try to answer. She also prefers the company's brands, such as Behr paint.

“My husband also says we shop here because he doesn't like Jimmie Johnson,” she joked, referring to the Lowe's-sponsored NASCAR driver.

Then, of course, there are more practical concerns: On Thursday, Don and Jean Liebner of Huntersville chose Lowe's for their bathroom vanity lighting because Home Depot didn't have what they wanted. Up the street, Kevin Monk, 40, of Davidson bought a sink at the Home Depot for the same reason. Lowe's didn't have what he needed.

Fortunately for him, the stores were close. “It does seem like everywhere there's a Lowe's, there tends to be a Home Depot,” he said.

And as Lowe's grows, that will become a sight familiar to more and more people nationwide.