Lowe's low prices take bite of profits
The home improvement retailer needs to sharpen its promotional strategy around big-ticket sales to defend its market share.
Despite the strategy, sales continue to struggle -- more than they already has been, because of the depressed housing market -- as customers continue to seek discounts, particularly for discretionary and big-ticket purchases. At the same time, its bigger competitor, Home Depot (HD), has been grabbing market share from Lowe's because of better pricing models, among other things.
'Everyday low prices' strategy subdues sales
Last quarter, even though Lowe's benefited from the warmer winter, it posted same-store sales growth of 2.6%, much lower than Home Depot's 6%. It was the 12th straight quarter that Lowe's trailed Home Depot in same-store sales.
The main reason behind the lower comps was its disruptive decision to move away from promotions and discounts on expensive items like appliances, and instead offer 'everyday low prices.'
The new pricing strategy, which aims to establish Lowe's as the retailer offering most competitive prices, was adopted late last year. But the strategy has yet to gain traction among customers who are strongly inclined to look for discounts, particularly for big-ticket purchases like appliances.
While the company and investors may be excited about the new strategy, customers have been slow to pick up on its changes and nuances. Meanwhile, Home Depot has outpaced Lowe's in terms of pricing strategy with promotions and discounts.
Also, while Lowe's might take time to popularize itself as a competitively priced retailer, the biggest driver that brings customers to make big-ticket and discretionary purchases is still discounts, and Lowe's needs to sharpen its promotional strategy around big-ticket sales in order to defend its market share.
Copyright © 2014 Microsoft. All rights reserved.
Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.
These companies won't soar like other plays in the sector, but they make for great income sources.
VIDEO ON MSN MONEY
Top Stocks provides analysis about the most noteworthy stocks in the market each day, combining some of the best content from around the MSN Money site and the rest of the Web.
Contributors include professional investors and journalists affiliated with MSN Money.
Follow us on Twitter @topstocksmsn.