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.

By Trefis May 24, 2012 8:53AM
TrefisLate last year, Lowe's (LOW), the world's second-largest home improvement chain, decided to move away from promotions to everyday low prices to establish itself as the retailer offering most competitive prices.

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.


Lowe's Plumbing Electrical Kitchen Market Share

Tags: HDLOW
0Comments

DATA PROVIDERS

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.

STOCK SCOUTER

StockScouter rates stocks from 1 to 10, with 10 being the best, using a system of advanced mathematics to determine a stock's expected risk and return. Ratings are displayed on a bell curve, meaning there will be fewer ratings of 1 and 10 and far more of 4 through 7.

120
120 rated 1
268
268 rated 2
439
439 rated 3
709
709 rated 4
641
641 rated 5
609
609 rated 6
640
640 rated 7
516
516 rated 8
272
272 rated 9
152
152 rated 10
12345678910

Top Picks

SYMBOLNAMERATING
EXCEXELON CORPORATION10
TAT&T Inc9
VZVERIZON COMMUNICATIONS8
CTLCENTURYLINK Inc8
AAPLAPPLE Inc10
More

VIDEO ON MSN MONEY

ABOUT

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.