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

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