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Online Extra: How Lowe's Hammers Home Depot


As the proverbial 2,000-pound gorilla of the hardware business, Home Depot Corp. (HD) has big-footed over scores of rivals, sending regional chains like Hechinger into bankruptcy. But if one hardware retailer has shown it can compete with Big Orange, it's Lowe's (LOW), the scrappy North Carolina chain that has expanded to more than 950 stores in 45 states. Increasingly, Lowe's isn't scared to locate a new store right across the street from Home Depot.

Lowe's secret? Thanks to its extensive customer research, Lowe's concluded several years ago that 80% of home-improvement decisions were initiated not my men, but by women. So Lowe's began making its stores cleaner and brighter and adding more designer-name goods by the likes of Laura Ashley and Michael Graves. So far, this formula is paying off: Profits rose 28%, last year, to $1.86 billion, on an 18% rise in sales. And in the latest BusinessWeek 50 rankings of the top-performing companies in the U.S., David bested Goliath: Lowe's vaulted to No. 9 on the list, while Home Depot finished at No. 22. Dean Foust, BusinessWeek's Atlanta bureau chief, recently spoke to Lowe's President Robert Niblock about its performance. Edited excerpts follow:

Q: Here's a comparison I never thought I'd see: Over the past three years, your stock has doubled, while Home Depot's has declined by 12%. What's the secret behind your success?

A: We've got a great vision and great strategy as to where we want to go, and we're playing in a marketplace that provides us a great opportunity -- the importance of the home to the American consumer. But it's really the culture of the company and the great management team that we have, and the drive to go out there and really take care of the customer.

In retail, you've got to be out there to provide that great customer service and meet your customers' needs one transaction at a time. And we do a tremendous amount of customer research [that] I think allows us to keep our finger on the pulse of the trends in our sector.

Q: How has this research changed how you do business?

A: This has allowed us to move to what we talk about in our merchandising strategy as the "upward continuum." That doesn't mean walking away from opening price-point items in a particular category, but you are really trying to provide an assortment that allows the customer to shop aspirationally. Some customers may shop at the upper end of that continuum, some may only want opening price-point items. Other may buy in the middle, but they aspire to move up the continuum.

Q: You have a much higher percentage of full-time workers than Home Depot -- around 80%, vs. 60%. Home Depot says it has the flexibility to make sure there are more people on the floor at peak hours. But I would assume you made a philosophical decision here to staff differently.

A: That's really what our staffing model is, and that's what allows us to attain our customer-service standards. When customers walk in the door of our store, they generally expect a higher level of service than, say, a general-merchandise store. The reason for that is, we don't just sell items, we sell entire projects and solutions. They don't come into a Lowe's store to buy kitchen cabinets, they come into a Lowe's store to buy a new kitchen.

Q: Home Deport is making this really hard push into direct sourcing to create proprietary brands. Between 7% and 9% of its revenues now come from proprietary brands. What is your philsophy on this?

A: Over the past couple of years, probably about a 6% to 7% of our products are being sourced outside of the U.S. on a direct basis. We believe that to be competitive we'll have to increase that level of direct sourcing.

When it comes to private labels on merchandise, we do have proprietary national brands. We want to build those national brands, those where the consumer really has trust in that brand. Major appliances is an area where it's important to have the brand name -- whether it's Whirlpool (WHR), GE (GE), or Maytag (MYG) -- on that appliance.

Q: There has been speculation that the home-improvement retail category will reach saturation at some point over the next couple of years. Do you buy that?

A: There's still substantial opportunity out there for the home-improvement industry. When you look at us and Home Depot together, depending on how you roll up the market, we only have about 20% to 25% percent of the market combined. Last year we opened 130 stores, and we plan to open 140 in 2004. We still think we have tremendous opportunity.


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