Lowes Performance in Terms of Products Offered - Term Paper Example

? Lowe’s Companies Inc. BUAD 341, Section, and Meeting Time Due Table of Contents Introduction Theme History of the Firm Product Line of the Company 2 Industry History and Analysis 3 United States has experienced booms as well as recessions in the building industry where Lowe’s operates. Right after the end of the Second World War, the building and construction industry underwent a tremendous growth and boom. Most of the firms in operation then received increased revenue growth and increased profits. Returning war soldiers started building homes, while the business community restored its confidence in the United States as a viable investment destination. Many of the firms involved in the construction industry underwent through tremendous changes and growth during this period. 3 Major Competitors 3 NACIS Numbers 3 Relative Sales 4 Relative Returns 5 Product Life Cycle 5 Stock Performance 5 Works cited 6 Introduction The main aim of this paper is to analyze Lowe’s performance in terms of products offered, financial performance against major competitors and the industry in general and assets base. Lowe’s, being the second largest home improvement company in the united states, has a number of advantages and disadvantages against the market leader, Home Depot. While drawing the forecast for the company’s performance, this report will make an assumption that industry trends and performance will remain as they were for the past 3 years. Theme The management of Lowe’s company strategically placed the company’s product line to focus on home improvement tools and equipment through a restructuring process that took place in the mid-1940s. Providing a range of home improvement products including name branded products and national branded equipment, Lowe’s home improvement company is the second leading home improvement company in the United States from Home Depot Company. After undergoing various restructuring processes, the company’s profitability levels and revenues have increased significantly. Lowe’s hopes to get to the biggest percentage of hope improvement industry, with its aggressive expansion and growth plan. A review of the top rivals in the home development market shows that Lowe’s has always remained behind the market leader, Home Depot. Although the company faced reduced revenues during the 2008 economic downturn, it hopes to recover from the losses made as the construction business gets back on its feet. To keep up with its increased growth and achieve its target of being the market leader, the company needs to restructure its operations, to include a number of products. History of the Firm Lowe’s is the second largest home improvement company in the United States and Canada from home depot company. Currently, Lowe’s holds about 6 per cent of the total home improvement market, translating to about $140 million ("Lowe's Ranks High" 12). The company has had a long history of success, to reach its current 400 stores spread across 24 states in the United States. Initially, Lowes’ concentrated on medium sized markets, with its stores measuring no more than 75,000 square foot. Currently however, the firm builds stores of approximately 100,000 square-foot in medium sized markets and 114,000 square-foot stores in large markets. The first Lowe’s hardware store opened in 1921 in North Wilkesboro, North California. After the death of the founding father, Lucius S. Lowe in 1940, his daughter Ruth, took over the business, but opted to sell it to her brother in the same year. In 1943, Jim took Carl Buchan as his partner. With Carl Buchan as the manager, the store ventured into hardware and building materials. Before this specialization, the company incorporated a range of products such as notions, dry goods, horse tack, snuff, produce, and groceries. In 1949, the company bought a second store in Sparta, North California. The company became an incorporated business in 1952 as the Lowe's North Wilkesboro Hardware, Inc. between 1952 and 1959 with Buchan’s expansion of operations; the company’s sales grew from $4.1 million to 27 million. The biggest contributing factor for this tremendous growth was the post-world war two-construction boom. After the death of Buchan in 1960, the company created an office of the president, which saw an incredible growth of the company in the subsequent years to what it is today. By late 1960s, the company had over 50 stores with sales figures hitting $100 million. Despite the market fluctuations in the construction industry in the United States in the 1970s, Lowe’s revenues rose from $170 million to $900 million by 1979. It was however the change of business strategy that saw the growth of the company’s revenues to $1 billion. The company started targeting customers, thus providing them with the required products and the best services. In late 1980s, the company changed into warehouse style stores, investing in 1991 $71.3 million in a restructuring program. With the restructuring process, the company changed the size of its warehouses, investing more on size. In1996, the company announced a $292.2 million record in net earnings ("Lowe's Ranks High” 12). In financial year period ended August 2, 2013, the company reported $15.7 billion in revenues. Product Line of the Company Initially, Lowe’s company invested in a mix of products, ranging from notions, dry goods, horse tack, snuff, produce, and groceries. However, the company in the mid-1940s opted to specialize in hardware and building materials. Currently, the company provides a wide range of building materials, home improvement tools and outdoor equipment (Serafin 118). Every store provides over 40,000 products as well as services to its customers. It sells a national brands and merchandise, ranging from Whirlpool to John Deere to exclusive brands to the company such as the Kobalt, Premier Living, Portfolio and Harbor Breeze (Williams 33). Outdoor equipment provided by Lowe’s include different types of lawn mowers such as the riding lawn mowers, push lawn mowers, pressure washers, generators, lawn mower parts, b lowers, trailers and cultivators, protective apparel as well as chain saws and hedge trimmers. It also provides a variety of grills such as gas, charcoal, portable, and electric grills. Lowe’s also provides outdoor and indoor kitchens, smokers, grilling accessories and grill parts. Among the various tools in stock, include drills, power saws, hand tools, garden tools, rotary tools, electrical tools, plumbing tools, pneumatic nailers, tool batteries, routers and welding and cutting tools. The company also provides floor tools and materials, bathroom tools, lighting and home appliances (“Fair Disclosure Wire” web). The company has majored more on the appliances and tools, but has neglected the outdoor equipment. Excepting for a few machines, the company’s outdoor investment appears rather weak. Equipment such as gaming tools and equipment have the potential of increasing the company’s profitability. Park games, sports gear, mounted games among others are an important type of products the company needs to put into serious consideration. Industry History and Analysis United States has experienced booms as well as recessions in the building industry where Lowe’s operates. Right after the end of the Second World War, the building and construction industry underwent a tremendous growth and boom. Most of the firms in operation then received increased revenue growth and increased profits. Returning war soldiers started building homes, while the business community restored its confidence in the United States as a viable investment destination. Many of the firms involved in the construction industry underwent through tremendous changes and growth during this period. Nonetheless, just like any other sector in the United States, the industry has suffered whenever there was an economic recession. In the 1970s, the construction industry in the United States underwent serious fluctuations. The market registered reduced numbers of constructions. However, this did not affect Lowe’s revenue; amid the decreasing industry performance, the company registered increased revenues. Due to the economic downturn of 2008 and the housing crisis, the industry registered reduced revenues and income (McCormack, 14). Major Competitors Lowe’s is the second biggest home improvement company from Home Depot Company. Engaging themselves on a fierce battle, close to a quarter of Lowe’s stores is located within 10 miles of a competing home depot store (Khan web). Although Lowe’s and Home Depot are the most popular home development companies in the United States, combined they only make 18% of the estimated $ 725 billion home improvement market (Serafin 118). The market includes pure product demand by customers and installation labor demand. Lowe’s net revenues in 2009 were $47.2 billion compared to Home Depot’s $66.2 billion. Despite the difference though, Lowe’s has tried catching up with Home Depot on several parameters. Since 2004, Lowe’s has recorded increased revenues from same stores sales growth than Home Depot (Williams 13). Lowe’s company however has had a lower operating margin than Home Depot until 2006 when Lowe’s won a slight advantage over Home Depot (McCormack, 14). However, home depot surpassed Lowe’s in 2007, and in 2009, it had an operating margin of 7.3% compared to Lowe’s 6.0% (“Fair Disclosure Wire” web). In 2009, home depot had 268 stores outside the United States, mostly in Canada and Mexico against Lowe’s 16 stores, all located in Canada (Khan web). NACIS Numbers Relative Sales The figure shows relative sales of home depot company against Lowe’s in 2007. The companies have maintained constant sales results over time, especially after Home Depot surpassed Lowe’s in the individual warehouse sales. The figure shows sales per square foot of the two companies. This is however not the best parameter to use, as the companies could have registered higher sales in some of their branches. Relative Returns Home depot has registered an increase in returns on equity. Lowe’s on the company other hand experienced a decline in returns on equity in 2008. Results from the two companies that are on the lead in the home improvement business proves that home depot has always been the better firm compared to its bitter rival, Lowe’s. Subsequently, Lowe’s has to take advantage of the boom in the industry currently as well as the expansion plans if it has to win over the Home Depot. Product Life Cycle Home improvement industry in the uni8ted states has had a steady growth over the last few years. With this growth, firms too have expended, as witnessed by Lowe’s and Home Depot. Lowe’s in the past has restructured its operations to incorporate home improvement products alone. Currently, it stocks over 40,000 products in all of its warehouses. Stock Performance Works cited "Lowe's Ranks High." Appliance Design 56.12 (2008): 12-13. Business Source Complete. Web. 2 Oct. 2013. http://web.ebscohost.com/ehost/pdfviewer/pdfviewer?sid=d6b2cfe3-e662-4533-82b8-cf260379dde2%40sessionmgr110&vid=2&hid=117 Fair Disclosure Wire. "Lowe's Companies, Inc. 2011 Annual Meeting of Shareholders - Final." Fair Disclosure Wire May 27 2011. ProQuest. Web. 2 Oct. 2013 . Khan, Sarfaraz. Home Depot Rises As Lowe's Struggles. The Motley Fool. 16 June 2013. Web. 2 October 2013 http://beta.fool.com/sarfarazis/2013/06/12/home-depot-rises-as-lowes-struggles/36944/ McCormack, Karyn. "Lowe's: The Housing Chill Deepens." Businessweek Online (2007): 14. Business Source Complete. Web. 2 Oct. 2013. http://web.ebscohost.com/ehost/detail?sid=ae857e42-03dc-4453-802d-adc54c3b99bc%40sessionmgr13&vid=2&hid=9&bdata=JnNpdGU9ZWhvc3QtbGl2ZQ%3d%3d#db=bth&AN=27580949 Serafin, Tatiana. "Lowe's Cos." Forbes 177.1 (2006): 118. Business Source Complete. Web. 2 Oct. 2013 http://web.ebscohost.com/ehost/detail?sid=e667d9a1-6cf9-464a-b135-644329a45854%40sessionmgr13&vid=2&hid=9&bdata=JnNpdGU9ZWhvc3QtbGl2ZQ%3d%3d#db=bth&AN=19320236 Williams, Christopher C. "The Lowe's Advantage." Barron's 86.17 (2006): 33,33,35. ProQuest. Web. 2 Oct. 2013. Read More