By David Hatch

Think Lowe's (LOW), and two words come to mind: home improvement. But if the nation's second-largest home renovation chain succeeds with plans to harness mobile technology to improve store sales, another word could become synonymous with Lowe's: smartphone.

Lowe's, named by U.S. News as one of America's Most Connected Companies for its embrace of mobile communications, has embarked on an ambitious effort to grow its business with the distribution late last year of more than 42,000 iPhones to employees nationwide at its 1,725 stores. The devices, retrofitted to serve as price scanners and powered with extra batteries, make it easy for sales reps to handle customer requests on the spot. The iPhones connect to the Internet through in-store wireless networks and are equipped with credit card readers that will eventually be activated to ring up sales. Reinforcing the emphasis on mobility, in February store managers were outfitted with iPads.

On the customer side, to attract more Internet sales, the chain launched a new website in October, MyLowes.com, that has generated considerable buzz in retail circles. The site enables consumers to experiment online with home renovations, retrieve data about past purchases, schedule reminders to order items, and create personalized profiles with information saved to "folders." In late April, the site had more than 5 million registered users, says a Lowe's spokeswoman.

Also, as part of its e-commerce strategy, Lowe's in December acquired ATG Stores, a Kirkland, Wash.-based online retailer with more than 500 websites specializing in home improvement and lifestyle products. It was the first acquisition by Lowe's in more than 12 years.

"I think Lowe's is doing some really innovative things," says Leslie Hand, research director for IDC Retail Insights. "This is what retailers need to do as they attempt to build better customer loyalty."

During the company's February 27 earnings call to discuss its fourth-quarter results, Chairman and CEO Robert Niblock said 2011 marks "the largest single-year investment in IT in-store systems infrastructure in Lowe's history." Niblock said the technology enhancements "paved the way for a simple and seamless customer experience with Lowe's."

Can't locate a hard-to-find item? Lowe's employees have an app for that. Want to instantly check the availability of a product at another Lowe's location? They have an app for that, too. The iPhones enable sales reps to swiftly check competitors' prices and track inventory while they're roaming the floor.

A customer app provides store hours and locations, quick access to catalog shopping, and how-to videos on subjects like gardening and household projects. Apps for the iPad and iTouch have been released, while an Android app debuted May 8.

In a description of the smartphone rollout on Apple's (AAPL) website, Lowe's CIO Mike Brown, who is retiring after 28 years with the company, describes the initiative as a "game changer" for the big-box retailer. "In all of my 27 years at Lowe's, iPhone will go down in history as being the most impactful device we have ever put in our employees' hands," he says on the site. The souped-up iPhones replace the clunky scanner guns designed in the early 1990s.

Lowe's is trying to "empower" its employees "with at least as much information as consumers carry around in their pocket or their purse," explains Brian Kilcourse, managing partner at the Miami-based Retail Systems Research. "A lot of the talk about smart mobility nowadays is about the customer, but what about the employee? Consumers expect the employees to be just as informed — just as on the spot — as they are," he says.

Laura Kennedy, an analyst with Kantar Retail who closely tracks Lowe's, says the chain won't know until the second half of this year — or into next year — whether the iPhone distribution is translating into stronger sales. "The truth is, they're steering a big ship into a new direction," she says. While the MyLowe's site might better position the company against Amazon and appeal to younger customers who are comfortable with the Internet, the company's success also hinges on the direction of the economy and housing sector, she notes.

A key goal for Lowe's, of course, is to stay competitive with its larger rival, Home Depot (HD), which outpaced Lowe's over the last 11 quarters in same-store sales (a measurement of sales in stores open a year or more). To some extent, Lowe's is playing catch-up: in 2010, Home Depot reportedly spent $60 million to outfit 10,000 store employees with handheld Motorola devices similar to the gadgets issued by Lowe's, with the added advantage that they process credit card transactions.

Home Depot was first to launch a website featuring many of the applications now available at MyLowes.com. It also draws praise for a social media strategy that makes it easy for do-it-yourselfers to swap advice, and, according to news reports, plans to open a one-million square foot e-commerce distribution center in Georgia.

Lowe's is now locked in a game of one-upmanship with its rival, according to some retail industry watchers. "I think they're trying to leapfrog with the new technology and go beyond [what Home Depot offers]", says Joe Feldman, a senior retail analyst with the Telsey Advisory Group. Emphasizing that Lowe's is trying to reshape itself as an innovative company, he notes that Lowe's exhibited for the first time at this year's Consumer Electronics Show in Las Vegas to promote the debut of MyLowes.com.

Recognizing how swiftly consumer demands change, Lowe's is not standing still. A spokeswoman confirmed that the retailer is contemplating the adoption of yet another wireless innovation for its outlets: technology that enables customers to make purchases with the wave of a smartphone.

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