External Analysis of Lowes Companies Inc.

Introduction Lowes Companies Inc. or Lowes is an American retail chain specialized in the home improvement and appliances stores. At the beginning of 2011, its Lowes has more than 1749 stores operating in the domestic markets of United States. It operates in approximately 50 states in United States of America and has operations in Canada and Mexico as well.Lowes operates 24 stores in Canada and 2 stores in Mexico. These stores represent more than 180 million of its retail selling space (USSEC, 2011).It expanded its business portfolio in Canada in 2008 and the construction of two stores in the Mexico started to enter the Mexican markets. The customer it serves includes house owners, the renters and business customers. It has divided its customer types into company related strategic segregation; for example, the Homeowners and renters primarily consist of do-it-yourself (DIY) customers and do-it-for-me (DIFM) customers. These customers use the personal and family use products.While the Commercial business customers serve for its construction, repair, remodeling, commercial and residential property management etc. division of the company. The company is currently listed at number 42 in the Fortune 1000 companies list (one source, 2011). In the list of top three hardware manufacturers in USA, Lowes is listed at number two in the hardware manufacturing companies list for providing superior quality products to its customers, where The Home Depot lies at number one. Flavelle (2007) reported that Lowes is the market leader in European markets.

SWOT Analysis

SWOT Matrix

The SWOT analysis lists internal strengths and weaknesses and compares them with the external opportunities and threats. The SWOT analysis of Sears Holdings Corporation is as under: Strengths Market share R&D Strong market position Brand equity Opportunities Joint ventures mergers expansion innovation Threats Economic slowdown Competition External changes government, politics, taxes Weaknesses Product expansions Geographical reach

y y y y

y y

y y y y

y y y

Strengths

Lowes is bestowed with number of strengths. It is the worlds second largest retailer of home improvement items. It is operating more than 1700 stores in the U.S, Canadian and Mexican markets and offers wide range of products related to home improvement and installation services to the number of its customer base (Forbes, 2011).The plumbing, kitchen and related segment of the business amounted for nearly 33% revenue for the company

(Forbes,2011).This market share from one single business segment shows the strong financial and market position of the company in the domestic markets. Like its counterparts in its industry, it also owns and sells private label brands (Lowes, 2011). Some of its featured brands includes: Allen & Roth,Aqua-Source, Kobalt, Perfect Flame and Master-forge etc. respectively (Lowes, 2011). These brands are the result of effective ad-hoc Research and Development adopted by the company to master its offered products and services to their existing and the potential customers.

Weaknesses Lowes is the worlds second largest retailer of home improvement items. Despite of this fact, it has certain weaknesses too. One of its weaknesses is that the company has its major business operations in United States where it currently operates around 1723 stores in various states of the country. Lowes recently started its business operations in Canada and Mexico and entered into joint venture with the Australian company. It has currently 24 stores in Canada and 2 in Mexico (Annual Report, 2010). Despite of its expansion, it still required to expand its business operations more aggressively to maximize its presence in the markets and its market share. For this the expansion on the developing markets of Asia are most favorable to the company due to small levels of costs associated with the operations and huge benefits in return. Moreover, Lowes has currently over 40000 items in its private label brands (USSEC, 2011). It is suggested to the company to strategically expand its existing product line to create its niche in the market. Opportunities As described in the weaknesses, the Lowes has low geographical penetration across the globe. This leads to number of opportunities for the company. Among them are joint ventures, mergers etc. the recent merger of Lowes with the Australian retailerWoolworths Limited in 2009

helped Lowes to develop competitive advantage over the Australian markets. The management reported that LowesCompanies Inc. expects to develop a chain of home improvementstores in Australia. It further expects to start its first store in Australia by the mid of 2011 (USSEC, 2011). Lowes is currently offering number of products and services to its range of customers. These products and services offerings includes: home improvement, kitchen improvement, plumbing, private label brands, national brands, credit financing, remodeling, repairing, etc. It can maintain its competitive edge through maintaining innovation in its products and services over its counterparts. Threats Lowes companies face serious level of threats in the external markets. These threats include the fierce competition imposed by the existing market players in the national and international markets. Lowes currently competes with the range of retailers, stores, home improvement stores and related companies that offers the products similar to that of Lowes. The main competitors of Lowes includes: Home Depot, Sears Holdings Corporations, Walmart, Target etc. The biggest competitor to Lowes in the home appliance business is Home Depot. The success of the company in the market is based on the prices and quality of the products offered to the end customers. Another serious threat to the company is posed by the slowdown of the economy. The company reported that the size of US markets for home improvement items has decreased substantially to 11% as of 2009. As of 2009, the company earned total revenue of $271 billion which was reported decline of 11.5% from its total amount of revenue generated in 2008 (USSEC, 2011). Any change in the policies, rules, regulations, trade laws etc. can have significant impact on the business of the company and it may incur large amount of loss or suffer from increased costs due to the potential changes in the governmental policies.

PESTEL Analysis The PESTEL analysis contains the analysis of Political, Economic, Social, Technological, Environmental and Legal environments of a country with reference to a particular object. The PESTEL analysis of Lowes Companies is as follows: Political The political engagement plays strategic importance for the companies operating in the markets. The Lowes maintains history of corporate involvement and compliance with the community related matters and the political engagement. The company is engaged in the governmental issues through number of activities (USSEC, 2011). Lowes is the member of various trade related organizations like Retail Industry Leaders Association (RILA). These partnerships allow the company to strategically utilize the information and resources related to its industry.Furthermore, Lowes has developed a political action committee called LOWPAC committee that works to contribute and sponsor various candidates at state, federal and local level who take interest in the industry Lowes is working in. these contributions ensures that the candidates or parties will take effective part in the advancement of company in the markets (Lowes, 2011). Economic The sales of Lowes are greatly affected by the economic conditions of the country. The economic condition in the domestic and the international markets may badly affect the US economy, the global financial stability and performance. The home improvement industry is

suffering from serious downturn in the US markets and reported 11% decline in the business (USSEC, 2011). The declining position of the industry affects the customer buying preferences as well. The high rate of rents and mortgage charges followed by other related costs stops the customers to install any home improvement service or buy things related to that. The sales of Lowes are derived by the home improvement projects it takes. If this situation continues to prevail to the home improvement industry, then it will negatively impact the rate of growth of Lowes and their total sales. Social Lowes effectively takes part in the community development initiatives and maintains long history of supporting the local communities where it operates and is proud of its contributions in the projects like fostering the public education and community improvement projects (Lowes, 2011). It employs large number of people in its stores and offers wide range of benefits to them. These benefits includes service rewards, gifts, health and dental services, etc. it has started a program called LifeTrack to further benefit its employees and encourages rewards to its employees for healthy behavior (Lowes, 2011). Lowes started a charity for educating children called Lowes Charitable and Educational Foundation (LCEF) that contributed more than $30 million to schools and community organizations in the United States, Canada and Mexico in 2010 (USSEC, 2011). Moreover, it has worked with Habitat for Humanity since 2003 to combat substandard housing and made nearly $40 million contribution to it till now (USSEC, 2011).

Technological

Technology is vital to success in todays competitive environment where large numbers of counterparts are ready to snatch the market share of a company.The likelihood of success of Lowes business operations and their sales is dependent on the timely delivery and the functionality of information systems incorporated within the company. The company and its information technology system team is responsible for timely and cost effective delivery of products to the end users thought proper functioning, collaboration and cooperation with one another. If it fails to develop and implement the technological advancements to produce and deliver its products to the end users within the appropriate time frame, cost and functionality, then the company will not be successful in the markets it operates in (USSEC, 2011). Furthermore, the financial performance and the market position of the company will greatly suffer if it fails to maintain the crucial information systems within the company.The failure of these systems to perform efficiently could keep Lowes from delivering positive customer experiences that are increasingly important part of their multi-channel sales and marketing strategies (USSEC, 2011).

Environmental The operations of Lowes are subject to various federal, state and national level laws and regulations that have been developed to force the environmental protection and safety by the government. These laws and regulations have and may in future increase the cost of doing business in the markets including the increased energy costs, emitters of greenhouse gasses, waste materials etc. Lowes is the industrial leader in the environmental protection initiatives. It has won number of awards from U.S. Environmental Protection Agency (EPA). These awards include Energy Star awards (2010)for the sustained retailer of the years position which is

followed by nine consecutive awards of same level from 2003 to 2011(News Blaze, 2010). Lowes is effectively participating in the carbon disclosure project that aims to maintain the largest database of the corporate information in the world. Furthermore, it provides in store recycling of plastic bags to its customers for maintaining the waste materials level low and offers rechargeable batteries for energy saving. Lowe has won the Top 10 retailer award for participating in the U.S. Environmental Protection Agencys Green Power Partnership program (USSEC, 2011).

Legal Lowes is subject to various laws and regulations imposed at state, federal and local level to it. These laws are subject to change over time. The changes can have significant impact on the company and its operations, directly or indirectly.The company has a history of involvement in the few class action lawsuits that are related to the payment terms and the working hours within the company. Most of these cases focuses that the pay given to the employees was less then they deserved for working for extended hours (Sapien& Kessler, 2010; Reeves, 2010)

Porters Five Forces Analysis

Rivalry among Established Competitions The rivalry amongst the existing competitors in the markets is high. Lowes Companies Inc.competeswith large number of retailers, stores, home improvement stores and related companies that offers the products similar to that of Lowes. The main competitors of Lowes

includes: Home Depot, Sears Holdings Corporations, Walmart, Target etc. The biggest competitor to Lowes in the home appliance business is Home Depot. The success of the company is based on the prices and quality of the products offered to the end customers.

Bargaining Power of Suppliers The level of bargaining power of suppliers to drive their profits from the market players is pretty fair. Lowes Companies Inc. has diverse range of suppliers to meet its requirements. For this many suppliers have to give discounts and other incentives in order to remain in business and meet the challenges imposed by the other suppliers in the market. Strong supplier relations have been integral to Lowes throughout their long histories. Through these suppliers, Lowes Companies Inc. is able to offer products that are of high standards. Lowes can find other suppliers that can provide its supply needs. Thus, the power of the suppliers in the industry is then counterbalanced by the availability of substitutes.

The Bargaining Power of Buyers The bargaining power of buyers is very high in the case of retail business. Due to the presence of various similar services providers the customer tends to switch to the other if they find their product better in terms of quality and prices. There are a number of factors that support this claim. For instance, buyer power is high as many substitutes are made available to the market. The buyer power allows the buyers to have a greater control over the manufacturers.

The Threat of Substitute Products or Services The threat of substitute products in case of Lowes Companies Inc. is high. There are various retailers in the market competing with each other. This makes the great degree of

availability of alternative products to the buyers. They have significant amount of product choices and option available. The high rate of substitutes for products is then considered a threat for Lowes.

The Threat of the Entry of New Competitors The industry imposes certain barriers to the entry of the new companies in the markets. This means that the level of threat of new entrants is relatively low in the industry. There are varying reasons to the low rate of entry. Among them is the entry barriers imposed by the industry. The new entrants will have to comply with the governmental regulations in order to make their entry in the markets. Then the existing players are protected by the number of barriers which makes it difficult for the new entrants to give hard time to them. Among them are: entry restrictions, tariff rates, high capital requirement, distribution channels etc. These barriers limit them to compete against the existing market players

Recommendations

The findings of the study suggested that the Lowes Companies Inc. should focus on the following factors in order to excel its business and social image in the world: 1. Expand its geographical presences to the emerging markets 2. Effectively utilize the resources in terms of its Research and Development for the expansion and development of products and services to make them more competitive against their competitors.

3. People like innovative products or services that distinguish them from the others in the line. Work on the production Innovation by using technological advancement to attract the large number of customers. 4. Merger with the companies that can help it leverage its competitive advantage will boost the market share of the company and its profitability.

References Flavelle, D. (2007) Lowes Targets Canada, The Star Website, Retrieved on July 4, 2011 from http://www.thestar.com/Business/article/258527 Forbes (2011) Lowes Has Upside With Rising Market Share, Retrieved on July 4, 2011 from http://blogs.forbes.com/greatspeculations/2011/01/07/lowes-has-upside-with-rising-marketshares/ Lowes (2011) Benefits, retrieved on July 6, 2011 from https://careers.lowes.com/benefits.aspx (2011) Featured Brands, Retrieved on July 4, 2011 from http://www.lowes.com/cd_Featured+Brands_944498525_ (2011) Government and Political Engagement, Retrieved on July 6, 2011 from http://www.lowes.com/cd_Government+and+Political+Engagement_927896962_ (2011) Mexico, Retrieved on July 4, 2011 from http://www.lowes.com/Mexico/constructores.html News Blaze (2010) Lowe's Becomes First Retailer to Win Energy Star Award for Sustained Excellence in Retail, retrieved on July 6, 2011 from http://newsblaze.com/story/2010030106200900002.bw/topstory.html

One Source (2011) Fortune 1000 Companies List, Retrieved on July 4, 2011 from http://www.onesource.com/free/Company/FortuneList/Fortune/0 (2011) Lowes Companies Inc., Retrieved on July 4, 2011 from http://www.onesource.com/free/Lowes-Companies-Inc/Company/Profile/17799 Reeves, P. (2010) Reeves: EEOC files lawsuit against Lowe's, retrieved on July 6, 2011 from http://www.knoxnews.com/news/2010/apr/18/eeoc-files-lawsuit-against-lowes/ Sapien, J. and Kessler, A. (2010)Proposed Lowes Drywall Settlement Offers Small Payouts to Victims, Big Fees for Attorneys, retrieved on July 6, 2011 from http://www.propublica.org/article/lowes-drywall-settlement-small-payouts-to-victims-big-feesfor-attorneys/single

USSEC (2011) Lowes Companies Inc., Form 10-k, Retrieved on July 4, 2011 from http://files.shareholder.com/downloads/LOW/1310821351x0xS60667-11-61/60667/filing.pdf

(2011) Risk Factors, Form 10-k, retrieved on July 6, 2011 from http://files.shareholder.com/downloads/LOW/1310821351x0xS60667-1161/60667/filing.pdf