Analyzing Lowe's Companies Inc.

Final Research Project

Topic choice

Analyzing Lowe's Companies, Inc.

Industry analysis

          Lowe’s competed in what is known as the home renovation industry, which is transformed by mainly consolidating hardware and tools stores and building materials supplies. The home renovation industry in the U.S. is approximately $300 billion, whereas in Canada, it is around $48 billion. The home renovation industry includes three types of businesses/consumers: general contractors, specialized contractors, and DIYers (do it yourself). According to Remodeling Sentiment Report, about 65% of homeowners reported that they prefer DIY when they want to renovate their houses. Retailers such as Lowe’s and Home Depot sell hardware tools and materials for these consumers, and even provide home remodeling consultation and installation services for customers who are interested in DIY.

         Home Depot started the home renovation industry in 1970’s, when the company wanted to compete with regional hardware chain stores Lowe’s. After Lowe’s realized the threat of the fierce competition, Lowe’s and Home Depot both started to expand rapidly by building big-box retail stores throughout the country. Since then, customers could buy hardware tools, appliances, and raw materials within one place. Other competitions came from smaller specialized stores such as hardware stores, home and garden centers, electrical stores, and home appliances, etc.

        Porter’s Five Forces Model analysis has been conducted to better understand Lowe’s industrial situation. First of all, the threat of entry will mainly depend on the barriers to enter the market of home renovation industry. The barriers include economies of scale, product differentiation, cost advantages, government regulations, etc. Lowe’s started their business before World War II, and began to operate hardware chain stores back in 1950’s. I believe that the relationships with their suppliers have been well maintained and developed. Moreover, with hundreds of chain stores, Lowe’s ability to allocate their resource more efficiently has given them high level of economies of scale, which is difficult for other new companies to imitate. The long history of the business practices presence in the U.S has also given Lowe’s brand recognition and reputation, which created considerable level of customer loyalty. For these reasons, we believe that the threat of entry is relatively low in the market of the home renovation industry.

        Second of all, I think that the threat of rivalry is relatively high due to the following reasons. There are numerous competitors, including the industry leading company Home Depot, and other smaller specialized hardware stores. The industry growth is very slow because it is associated with the real estate market. Products sold in these competing firms are largely undifferentiated, causing the fierce competition on prices. Furthermore, the home renovation market has also reached saturation since the real estate market is not growing rapidly.