A Strategic Audit of Lowes Inc - Term Paper Example

A Strategic Audit of Lowe’s Inc. Current Situation A. Current Performance a. Sales are sinking a bit, total revenue decreasing, but still profitable.i. Is keeping up with Home Depot, its closest competitor, as far as its profit margin. ii. Gross profit is around $16,500,000. iii. Total debt is around 70% of total revenue. B. Strategic Posture a. Mission i. “To be our customers’ first choice for home improvement in each and every market we serve.” ii. “To earn our Customers’ trust and meet their individual needs, we will provide valued solutions with the best prices, products and services and make our Customers’ lives easier.” b. Objectives i. To provide superior customer service. ii. To provide everyday low prices. iii. Striving to meet the needs of business customers, do it yourself (DIY) and do it for me (DIFM) customers. c. Strategies i. Acquiring a deep product selection, so that customers can find all that they need in one shopping trip, without having to special order items. ii. Installing a Special Order Sales program that makes special ordering items easier. iii. Providing convenient, one-stop shopping by providing contractor packs, which are used items contractors can buy in bulk and a special website (LowesForPros.com) that offers business forms, job estimates, article, newsletters, etc. to business customers. iv. Making on-line shopping easier at Lowes.com. d. Policies i. Maintains a good relationship with employees by providing them with on-going training to strengthen their customer service skills and knowledge about the products. ii. Employees receive excellent benefits, including 401(k) matching, health insurance and discounted stock prices. Strategic Managers A. Board of Directors a. 11 Members. b. All of the members are a part of the governance committee, four are a member of their executive committee, five are members of their compensation committee, five are members of their audit committee. c. The majority must function as independent directors. B. Top Management a. Promoted from within. External Environment A. Natural Environment a. There is an increasing focus on energy-efficient materials and products, in light of environmental concerns. b. Gender roles are switching, as more women become involved in do-it-yourself (DIY) projects than ever before. B. Societal Environment a. Economic i. Changes in bankruptcy laws in 2005, higher interest rates and decreasing credit availability will affect the housing market, which, in turn, will affect Lowe’s, which depends upon the housing market. b. Technological i. Customers are increasingly looking at “Smart Technology”, such as one-touch programming for spas and baths; heated, self-cleaning and self-closing toilets; washers and dryers with humidity sensors and steam cycles, which provides an opportunity for Lowe’s to sell product upgrades. c. Political-Legal i. Home Improvement companies in the European Union are expanding outside of Europe. ii. China is providing a potential market, as that country has new laws that ease restrictions on buying homes. Moreover, homes in China do not come equipped with basics, such as flooring, fixtures and appliances, so the Chinese people must purchase these items when they buy a new home, which provides avenue for Lowe’s if they decide to expand into that market. d. Sociocultural i. Generation Xers are coming to the age where they are buying homes, and they are, by and larger, buying homes at younger ages than their parents. ii. Generation Yers began entering the housing market in 2007. iii. Immigration provides opportunity, as they are potential home buyers as well. iv. Baby boomers continue to remodel homes. C. Task Environment a. Rivalry high – Lowe’s continues to be a distant second to Home Depot in terms of overall revenue. Price competition is keen, and rivals continue to offer new services and new products to attract customers. b. Potential entry of new competitors is low to moderate – There is limited customer loyalty, capital requirements to enter the industry are high, industry growth rates have been slow because of the recession. c. Competitive pressures from substitute products is moderate-high – substitutes would include stores that are outside of the home improvement industry, such as Wal-Mart and Costco; brand-name stores, such as Maytag Appliances and Sherwin-Williams paint; and trained professionals, such as plumbers and electricians. Internal Environment A. Corporate Structure a. 43 different vice-presidents, each on in charge of a different aspect of the business b. The president is the chief operating officer, the CEO is chairman of the board. B. Corporate Culture a. Lowe’s has excellent relationships with their employees, due to the fact that employees consistently receive training and the benefit packages are generous. C. Corporate Resources a. Marketing i. Lowe’s uses television marketing for extensive brand awareness. ii. Major events are promoted through the radio, especially over the Fourth of July. iii. Newspaper and Magazine ads remind customers that Lowe’s has “Everyday Low Prices” and a broad selection of products. iv. Direct mail is used to develop relationships with current customers and new home buyers, who are potential customers. v. Internet and e-mail is used to communicate with subscribers and customers. vi. To reach Hispanic and African-America customers, Lowe’s uses a mix of “print, direct mail, and point of purchase materials.” b. Finance i. Sales grew substantially between 2005 and 2007, from $36,464 to $46,927. ii. Investing in existing stores is a focus, as well as opening new stores. iii. 20 product categories gained market share between 2005 and 2007. c. R&D i. Increasing demand for energy efficient products puts this sector in the forefront of their R&D strategy. ii. Lowe’s is keeping up with technological demands for new products, such as those listed above. d. Operations i. As of 2007, Lowe’s had almost 1,400 stores in 49 states, with 157,000 full-time employees and 53,000 part-time employees. ii. The company was ranked, in 2007, as #45 on the Fortune 500 list. iii. Around 13 million customers are served per week. e. Human Resources i. Employee engagement is an important focus, as disengaged employees are negative drivers. All HR offerings, such as learning and leadership developing are geared towards employee engagement. f. Information Systems i. Could be key to growth. ii. Bar codes, automatic order filling capabilities and other distribution technology could be lacking. Analysis of Strategic Factors A. Situational Analysis a. Strengths i. Strong financial growth. ii. Highly ranked on the Fortune 500 list. iii. Stores in 49 states. iv. As far as offering Hispanic opportunities, is ranked in the top 10. v. Is one of the best managed companies in America, according to Forbes Magazine. vi. Stores are served by 11 regional distribution centers. vii. Marketing channels are numerous. viii. Benefits for employees are generous. ix. Product line is deep. b. Weaknesses i. Still number 2 behind Home Depot. ii. Store sales are flat compared to Home Depot. iii. Technology is limited in distribution centers and needs to be upgraded. c. Opportunities i. China is a possible market to explore. ii. Need for green technology and green houses provide an opportunity for customers to upgrade their old energy-inefficient doors and windows to newer, energy-efficient ones. iii. Rural areas, urban areas and bedroom communities are markets that may be tapped. iv. Hispanics and African Americans are buying homes in larger numbers, and this is a potential untapped market. v. Developing countries that are becoming more affluent or whose middle class is growing represent a potential market as well. vi. Generation X, Y and Single Women are buying more homes. d. Threats i. The current economy remains unstable. ii. Small, locally-owned businesses that retain a high degree of loyalty are a threat to market share. iii. Tightening of credit criteria and bankruptcy laws are leading to fewer new home buyers. B. Review of Current Mission and Objectives a. Mission appears appropriate. b. The main objectives of enhanced customer service and low prices are not quantified and seem nebulous. Strategic Alternatives and Recommended Strategy A. Strategic Alternatives a. Purchase shares in small, locally-owned businesses. Provide these businesses with products and services. “If you can’t lick ‘em, join ‘em” so to speak. i. Pros – since small, locally-owned businesses are the main threat to Lowe’s, by partnering with these businesses and providing products and services, they get a piece of that pie as well. Small businesses probably need the cash infusion, so everybody wins. ii. Cons – small, locally-owned businesses that are profitable may not want to help their large competitor. b. Continue with innovations in green technology and green housing structures, such as doors and windows and become a cutting-edge leader in these areas (increase R&D in these areas). i. Pros – Lowe’s can get in front of Home Depot by providing customers with more options to go green with their home, and have more of a niche with this area. ii. Cons – Increased R&D costs are risky, as there is no telling how the green market will be in the future. It might be a fad, or might be long-lasting. Also, the costs for these items will probably increase with the new technologies, which might turn customers away. c. Explore possibilities in China i. Pros – China is an expanding market with new laws regarding housing, and their new houses do not come equipped with basic items, such as floors and appliances. The Chinese people are therefore prime candidates for the DIY market. ii. Cons – The Chinese government is notoriously unfriendly to businesses, and businesses have problems with the restrictions in that country. Lowe’s might have to face a lot of political and economic barriers. B. Recommended Strategy a. Increase R&D for green products and technology. b. Explore the opportunities in China with heavy market research, as well as research into the feasibility of going into China, due to the politics and governance of the country, as well as explore the potential rivals in that country. c. Seek out small, locally-owned businesses for potential partnerships, which might include owning a share of the business or supplying a line of products to the business. Implementation A. Recruit experts in the Chinese market to conduct all necessary research for a feasibility study in that country. B. Experts in green technology should also be pursued. C. Small, locally-owned businesses should be researched – how profitable are they, what are their needs, are they open to partnerships, are they in need of a cash infusion, are they open to carrying new products, etc. Evaluation and Control A. Once a partnership is formed with the locally-owned businesses, a close eye must be kept on how profitable the partnership is, and how the Lowe’s line of products is faring at each individual business. A close eye on how each business handles customer service is also key. B. If China is pursued, and Lowe’s implements stores there, extensive studies are key. How is the government responding to the new stores, how are the Chinese people responding, what kind of marketing might work in that market, what are the needs and opportunities, what kind of political restrictions are in place, what kind of restrictions are on the horizon, etc.? C. A constant evaluation must be made as to what the trends are in green housing, and Lowe’s must get in front of each trend. Sources Used Gilliard, D. “Lowe’s Companies, Inc. And the Home Improvement Industry in 2007”, Journal of Business Case Studies, (February 2008), pp. 39-58. Read More