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I. Current Situation
A. Current Performance
An overall increase in sales, return on assets, shareholders’ equity and net
earnings.
Increased the number of stores from 854 to 952.
Reported consistent sales gains across all categories.
B. Strategic Posture
1. Mission:
The mission is not clearly stated but a “vision” statement provided by
Lowe’s is “We will provide customer-valued solutions with the best prices,
products and services to make Lowe's the first choice for home
improvement.”
An implied mission is to make money for their shareholders.
2. Objectives:
Grow domestically
Increase sales per square foot.
Add high-quality product lines.
Increase West Coast influence
3. Strategies:
Grow domestic square footage at an annual rate of 16%-17% over the next
two to three years.
Plan to open 150 stores in 2005 and another 150-160 in 2006.
Target metropolitan markets with populations of 500,000 or more.
Add more than 40 stores in the New York/New Jersey metro market as well
as in Chicago.
Developed an installed sales program in response to significant growth in
the “buy-it-yourself” market
Design to attract customers, especially women
Develop strategic alliances such as HGTV
4. Policies:
Increase in-stock quantities for bigger jobs to win the loyalty of commercial
customers.
Enhanced ordering and credit programs
Increased delivery options
Provide professional-preferred brands
Kiosks to facilitate special orders
II. Corporate Governance (Submitted by J. Brayall)
II.A. Board of Directors:
Robert Niblock- Chairman & President of Lowe’s Companies, (3+yrs) since March 2003. Exec
VP 2001-03, CFO 2000-03 and Sr VP - Finance of the Company, 1999-2000 and VP and
Treasurer of the Company, 1997-1998. Mr. Niblock was elected a director by the Board of
Directors on Apr04, and was also named Chairman and CEO of the Company, effective upon the
retirement of Robert L. Tillman on Jan 2005.
Robert L. Tillman (3+yrs) Chairman of Executive Committee- Former Chairman of the Board
and CEO, Lowe’s since 1996.
Leonard L. Berry, Ph.D. (3+yrs) Distinguished Professor of Marketing and M.B. Zale Chair in
Retailing and Marketing Leadership, Texas A&M Dr. Berry ID’d the most frequent contributor to
the services marketing literature in the US. 2000 rec’d the Outstanding Marketing Educator
Award from the Academy of Marketing Science & Pinnacle Award as Marketing Educator of the
Year from Sales and Marketing Executives International.
Peter C. Browning (3+yrs) Non-Executive Chairman of the Board, Nucor Corporation, Dean of
McColl Graduate School of Business at Queens University of Charlotte, NC. Mr. Browning’s
unique breadth and depth of experience and expertise to includes board governance, board
performance and dynamics, executive leadership transition and succession planning and more
than 35 years of domestic and international mfr experience.
Paul Fulton (3+yrs) Chairman of the Board, Bassett Furniture Industries, Bassett, VA- since ‘97;
CEO; Dean of the Kenan-Flagler Business School of the UNC at Chapel Hill from 1994 to 1997;
President of Sara Lee Corp from 1988 to 1993.
Dawn E. Hudson President, (3+yrs) Pepsi-Cola Company, Purchase, NY- President since May
2002. Ms. Hudson spent 13 years in the marketing, advertising and branding strategy arena w/
leadership positions.
Robert A. Ingram (3+yrs) Chairman, OSI Pharmaceuticals, Inc., Vice Chairman Pharmaceuticals,
GlaxoSmithKline- Previously, he was CEO of Glaxo Wellcome plc from 1997 to 2000 and
Chairman of Glaxo Wellcome Inc., Glaxo Wellcome plc’s US subsidiary, from 1999 to 2000.
Currently serves on the boards of directors of Allergan, Inc., Cree, Inc., Edwards Lifesciences
Corp OSI Pharmaceuticals, Inc.
Richard K. Lochridge (3+yrs) President, Lochridge & Company- Director of PETsMART. (Retail
leader-discretionary (pets) spending sector.)
Claudine B. Malone (3+yrs) President and Chief Executive Officer, Financial & Management
Consulting, Inc., McLean, VA - Director of Science Applications International Corp since 1993.
Chairman of the Board of the Federal Reserve Bank of Richmond from 1996 to 1999. She
served as a visiting professor at the Colgate-Darden Business School of the University of Virginia
from 1984 to 1987, an adjunct professor of the School of Business Admin at Georgetown
University from 1982 to 1984 and an assistant and associate professor at the Harvard
Graduate School of Business Admin from 1972- 1981
Stephen F. Page (3+yrs) Vice Chairman and Chief Financial Officer, United Technologies
Corporation, Hartford, CT - high-technology products and services to the building systems and
aerospace industries, Executive VP of The Black & Decker Corp.
O. Temple Sloan, Jr. (3+yrs) Chairman and Chief Executive Officer, General Parts, Inc., Raleigh,
NC- Expertise in real estate, finance, capital markets and strategic transactions, his experience
as founder, chief executive officer and board chairman of one of the largest privately-owned
companies in North Carolina.
Marshall O. Larsen- (<3yrs) Chairman of Goodrich Corp- Chairman of Goodrich Corporation, a
supplier of systems and services to the aerospace and defense industry, since Oct03.
Each Lowe’s Director is classified as an “Independent Director” or a “Management Director.”
All Directors are Independent Directors, except for Mr. Tillman, who is a Management Director.
A “Management Director” is a present or former employee who serves as a Director. An “Independent
Director” is a Director w/in the scope of SEC rules defining “non-employee directors.” The Board of
Directors considers a “material relationship” to be one that impairs or inhibits, or has the potential to
impair or inhibit, a director’s exercise of critical and disinterested judgment on behalf of the Company
and its shareholders.
Compensation of Directors —Mr. Tillman receives no Director or Committee compensation. Directors
who are not employed by the Company are paid an annual retainer of $75,000, plus $15,000 annually
for serving as a Committee Chairman. (See table II.B.1)
Directors’ Stock Option Plan. This Plan provides for each eligible Director to be awarded a stock option
to purchase 4,000 shares of Company Common Stock.
Directors’ Deferred Compensation Plan. This Plan allows each non-employee Director to defer receipt
but not less than all, of the annual retainer and meeting fees otherwise payable to the Director.
The Board has four standing committees, Audit, Compensation & Organization, Executive &
Governance. All Directors attended at least 75% of the meetings of the Board and the Committees on
which they served.
II.B. Top Management:
Larry Stone Sr Exec VP of Ops: began his Lowe’s career in the stores in 1969 and has served in
virtually every leadership position w/in store operations, merchandising and store environment
during his career, including Sr Exec VP of Ops, merchandising and mkt’ing.
Dale C. Pond SR Exec VP- Merchandising / Marketing after serving 12 years within Lowe's
retailing section.
Mike Mabry Exec VP of Log & Distrib Sep04, after serving as SR VP of distribution. Mabry joined
the company in Dec03 after a 12-year career with Wal-Mart.
Greg Bridgeford Exec VP of business development 04 after serving as SR VP of business
development since 1999.
Steven Stone Sr VP and CIO since 2003; VP of IT Strategy, 2002 - 2003; VP MIS Ops, 1999 - 2002;
VP IT 1997 – 1999.
Lowes Sr Mgmt, due to its broad experience base, w/ those brought up from the ranks and others
externally rounded, is very well positioned for the future challenges.
Testament to the importance of continuity in mgmt and the sharing of knowledge. Culture of
promoting from w/in, Lowe’s has a pipeline of seasoned talent ready to manage new Lowe’s stores
and for greater (inter)national expansion.
CSR Culture - dignity, mutual respect, personal pride and fairness - fosters diversity. Open
communication across the chain continues to be a focus - monthly employee newsletter, the Lowedown,
sharing company information w/ all employees.
Uses employee surveys / open doors mgmt, share ideas & suggestions.
Salaries are reasonable but the bonuses, stock options and other compensation are (varyingly)
substantial and are based on the performance produced.
A. Natural Physical Environment: Sustainability Issues
1. Lowe’s decision to advance in domestic metropolitan areas brings up the concern of urban
spread. Limited space and destruction of natural habitats are some factors affecting Lowe’s expansion. A
future threat may be ensuring they are protecting any endangered habitats with their expansion or
ensuring they do not build on protected land. The natural environment offers many opportunities to
Lowe’s as long as they continue to preserve the resources they sell. An example of this would be to
ensure their lumber suppliers are being provided from companies that are replanting after cultivating
the raw product. Since lumber was the second highest sales area for this study, ensuring reforestation
would be essential in sustainability.
a) By evaluating their carbon footprint and electricity usage, Lowe’s could play a significant role
in keeping global climate change to a minimum. Significant global warming may also affect sales
pertaining to new insulation technology to air conditioners.
b) Severe storms will positively affect Lowe’s sales due to the need for reconstruction of
damaged homes. These events from Mother Nature will positively affect sales, but will negatively affect
the consumers.
2. Dependent on which part of the world Lowe’s decides to expand; significant weather could
play different roles on a particular store. In the Asian-pacific arena, tsunami may be the largest threat to
the area. Not only could it threaten the consumers and there homes, but the retail store itself could take
extensive damage from theses storms, if a store is opened near India, than earthquakes may be the
most significant danger associated with these forces.
B. Societal Environment
1. The economic downturn is probably the largest, and most important environmental factor
affecting Lowe’s for the current time.
a) With the crash of the housing market Lowe’s may be struggling to sell to contractors due to
the slow home sales in the nation. This associated with unemployment could cause the retail outlet to
possibly loose revenue if the market doesn’t make a turn for the better. (T)
b) The advancement of green technology will lead Lowe’s to offer products for the average
home owner to make green home improvements to save money. The advancement in technology, such
as high-efficiency appliances or low consumption products could lead the way for the future of the
technological environment. (O)
c) With new regulations requiring “cleaner” products and the taxation of numerous
environmental products, Lowe’s must regulate which products they choose to sell and evaluate to what
cost they will incur to sell these items. (T)
d) Since Lowe’s has elected to advance in the metropolitan areas the sociocultural aspect will be
a factor that Lowe’s could benefit from. With development in the area comes buying surges for home
improvements and home building. Even with home building in a recession, they could still benefit from
booming populations. (O)
2. The only force that may have a drastic change would be the sociocultural change. Every region will
have its own needs, wants, and values that need to be addressed by local management.
C. Task Environment
1. The largest force driving industry competition would be market performance and how it affects the
housing market. Stakeholders will also affect how Lowe’s handles business in the task environment.
Unemployment, recession, seasonal changes, and the stock market are just a few factors that may affect
competition. These forces should remain the same globally since each retailer has one main goal, profit
w/ customer satisfaction.
a) Threat of new entrants – Medium
b) Bargaining power of buyers – Medium
c) Threat of substitute products or services – Low
d) Bargaining power of suppliers - High
e) Rivalry among competing firms – Medium
f) Relative power of unions, governments, special interest groups, etc. - Medium
2. Home Depot remains the most competitive retailer for Lowe’s. With these two retail giants marketing
to the same customer demographic, if could become a threat to Lowe’s since Home Depot stocks are
lower. (T) Additionally, smaller hardware stores will also vie for the local customers, this could be both a
threat or opportunity, dependent on how uppermanagement handles the local business owners. (T,O)
D. Summary of External Factors
IV. Internal Environment
A. Corporate Structure
1. Different departments are separately managed with experts on the floor at all times.
2. Staffed with extremely knowledgeable, helpful employees and hands on managers.
B. Corporate Culture
1. The staff as a whole shares the interest in helping the customer feels as confident and
secure as possible in the concept of the DIY (Do It Yourself) project.
2. The men and women helping customers out on the floor come from all different types
of cultures and backgrounds. They learn from one another to become the most helpful
employees they can be.
C. Corporate Resources
1. Marketing
a. Focus in 3 areas: Installed Sales, the Commercial Business Customer, and Special
Order Sales (SOS).
b. Emphasize the BIY (Buy It Yourself) method. They allow the customer to purchase the
materials, than provide professionals to install them.
c. In late 2003 and early 2004 Lowes launched a new program offering enhanced
ordering and credit options along with better delivery options for commercial
customers.
2. Finance
a. Net earnings for 2003 increased 27% from 2002 to $1.9 billion.
b. Sales increased 20% from 2001 to 2002 and 17% from 2002 to 2003.
c. Growth is consistent and aggressive throughout the company benefiting both
stockholders and shareholders.
3. R&D
a. Lowes saw the greatest success in the larger, metropolitan area stores so they began
planning to open stores in areas with populations of 500,000+.
b. They have used similar methods for research and development as their leading
competitor Home Depot, only slightly less successful.
IV. Internal Environment
C. Corporate Resources continued
4. Operations
a. Lowe’s opened its first 100,000 square ft store and rapidly expanded.
b. Lowe’s plans to grow to an annual rate of 16-17% over the next two years, without
doing so internationally.
c.
5. Human Resources
a. Lowe’s sells to customers and other retailers with very good relationships with
both types of customers.
b. In 2003 Lowe’s developed a series of initiatives to better serve commercial
to better serve commercial business customers
c. Lowe’s used a Global Sourcing Division for foreign products instead of going with the
growing demand of outsourcing in China which placed pressure on both suppliers and
prices
6. Information System
a. With the use of new technology Lowe’s has seen product returns cut in half
b. The design of Lowe’s stores had attracted customers, especially women, who dislike
the warehousing layout of Home Depot. Lowe’s featured wider aisles, brighter lighting, and
more signs and a larger selection
Exhibit 2
Internal Factors Weight Rating Weighted Comments
Score
Strengths:
Skilled, helpful employees .15 5.0 .75 Important for customer
service
Name associated with quality .10 4.0 .40 Know home improvement
Aggressively growing .10 3.7 .37 Business is booming
Regional Distribution Centers .20 3.6 .72 Key to logistics
located all over the country management
Does business with over .05 2.9 .15 Small investment in many
7,000 vendors vendors
Weaknesses:
Lacking sufficient West coast .10 2.4 .24 Open West coast stores
business
Limited inventory .05 1.7 .09 Need a few more high end
product lines
Not enough commercial .10 2.1 .21 Behind Home Depot in
business customers commercial business
Need a greater share of the .15 2.3 .35 Over $200 billion industry
market annually (home
improvement)
Total Scores 1.00 3.28
Exhibit 5
(In Millions, Except Per Share Data)
30-Jan % 31-Jan % 1-Feb %
Net Sales $30,838 100% $26,112 100% $21,714 100%
Cost of Sales 21,231 68.85 18,164 69.56 15,427 71.05
Gross Margin 9,607 31.15 7,948 30.44 6,287 28.95
Expenses:
Selling, General and Administrative (Note 5)
5,543 17.97 4,676 17.91 3,857 17.76
Store Opening Costs
128 0.42 129 0.49 140 0.64
Depreciation 758 2.46 622 2.38 513 2.36
Interest (Note 15)
180 0.58 182 0.7 174 0.81
Total Expenses 6,609 21.43 5,609 21.48 4,684 21.57
Pre-Tax Earnings
2,998 9.72 2,339 8.96 1,603 7.38
Income Tax Provision (Note 13)
1,136 3.68 880 3.38 593 2.73
Earnings from Continuing Operations
1,862 6.04 1,459 5.58 1,010 4.65
Earnings from Discontinued
Operations, Net of Tax (Note 2)
15 0.05 12 0.05 13 0.06
Net Earnings $1,877 6.09% $1,471 5.63% $1,023 4.71%
External Factors Weight Rating Weighted Score Comments
Opportunities:
Green technology
Green Technology .20 4 0.8 still being
advanced
Stores can handle
Population Growth .10 4.4 0.44
these booms
Has already
Upturn of Housing
.20 3.5 0.7 proved itself w/
Market
housing growth
Threats:
Must ensure
Home Depot .20 4.0 0.8 stakeholders are
won over
Local Business Keep in good faith,
.15 3.4 0.51
Owners no bullying
Economic Must prepare for
.10 4 0.4
Downturn the worse
“Green” Not many rules
.05 3.1 0.16
rules/regulations established yet
Total Scores 1.0 3.81
Table II.B.1
Restricted
Stock Stock Opts All other
Name & Postion FY Salary Bonus Comp Awards Awards # Shares Comp
Robert L. Tillman 2004 1,000,000 3,000,000 52,415 5,895,000 287,000 360,000
Chairman & CEO
Robert A. Niblock 2004 651,000 1,625,000 0 3,930,000 149,000 204,231
President
Larry D. Stone 2004 702,000 1,404,000 0 3,930,000 161,000 189,447
Senior Executive VP
Store Operations
Dale C. Pond 2004 518,000 1,036,000 143,365 0 78,000 0
Sr Exec VP
Merchandising
Mike Mabry 2004 No Data
Executive VP Log & Distrib
Gregory M. Bridgeford 2004 355,000 532,500 0 1,965,000 41,000 79,823
Executive VP BD
