Sunday, April 27, 1997

The customer reigns at Lowe's

By DOUG WILLIAMSON

Business Editor

"The consumer is brilliant. The consumer knows all things. The consumer is king."

Bob Tillman wants his 65,000 employees in 24 states to buy into his view of the customer.

It was those customers who told Lowe's Cos. in 1989 that they loved their employees and hated their stores. The home improvement center firm had to respond.

Tillman related how helped reinvent the company to students at Abilene Christian University's College of Business Administration last week.

1989: A fateful year

"In 1989, we realized we were off the mark. We totally restructured. We established an organization with market research, buying, logistics and merchandising were all under one individual - me," he said. We had 295 stores, all under 20,000 square feet. Our sales were $2 billion.

"The customer was changing, so we needed to change. The customers were telling us, 'Lowe's, we love you, but we hate your stores. The challenge was to reinvent ourselves as a company."

Competition with Home Depot also pushed the changes.

"We saw what Home Depot was doing. We were tied to the track with a locomotive coming at us at 150 miles an hour," he said.

Responding to weaknesses

Lowe's customers said they didn't like the company's high-low pricing philosophy. They said wanted good value every day, Tillman explained.

To meet that need, Lowe's adopted Everyday Competitive Prices in 1991-92.

"In 18 months, we did what Wal-Mart took eight years to do," he said. "The move to ECP taught us that the consumer is brilliant. The consumer knows all things. The consumer is king.

"We were the low-cost provider, lowest in the business, but our selection, other than lumber and building materials, sucked. We added more mid-range and premium products. As we moved the new philosophy into specific categories (of merchandise), sales went up 25-50 percent in a week," Tillman said.

Lowe's now has a corporate price on every item in all stores. No store manager can raise that price.

"In 70 percent of our markets, 70 percent of those prices are the best prices in town. We empower and challenge store managers to reduce prices to beat the competition. We guarantee we will beat other prices by 10 percent," he said.

Female shoppers also became a target group for Lowe's in 1989. Seventy percent of the buying decisions are made by females.

"We found ways to better cater to them. We put twice as much light in our stores and made the aisles twice as wide," he said.

Change came moderately easy

Tillman said Lowe's was able to change for two reasons:

-- Senior management was receptive to change because financial people filled most of the positions, and they didn't have ownership of the stores. They trusted the people in the company.

-- Lowe's is an employee stock ownership program company. Twenty percent of the company is owned by its employees. Owners are more receptive to change than employees.

"Every single thing, every single process had to be changed." he said.

Lowe's was financially very strong and had the money to grow the company.

Company among the tops

The 51-year-old company, began in Western North Carolina. Today, it is the largest seller of lumber in the world at 3.5 billion board feet per year.

It is second in the home improvement center industry with $8.6 billion in sales, trailing only Home Depot with $19 billion. Tillman expects Lowe's sales to surpass $10.5 billion this year. By the year 2000, today's 400 stores will grow to 600 and employment will almost double to 120,000.

"Our best stores are the ones that compete with Home Depot. The reason Lowe's is here today is Home Depot. Competition is the best way to ensure retail companies will survive," he explained.

Tillman railed at bankruptcy laws that give other, smaller competitors an advantage. He said they are able to do some irrational things like "buy-one-get-one-free" that Home Depot - a rational competitor - never would do.

He said Lowe's strategy "demands we take people (competitors) out. The smaller, less competitive companies get taken out."

In the last six years, Lowe's has spent $4.5 billion in capital to reposition the company and will continue to spend $1 billion a year for at least the next two years.

Eighty percent of Lowe's business is do-it-yourselfers and 20 percent is commercial customers. The retail customer is the driver of business, Tillman said, and will be the same in the future.

"We want to grow our commercial sales (to tradesmen) from 20 percent today to 30-40 percent of our total volume," he said.

The two challenges

The two challenges Lowe's faces today are:

1. How to stay ahead of the curve.

"With our big box stores, we have flexibility. If we need to add on because the customers want additional products, we can. Today, the consumer wants everything made easy," he said..

2. "We need to grow at 20-25 percent a year to continue being a growth company. Expansion to foreign countries is a possibility, however no retailer in America has ever been successful internationally," Tillman said.

Lowe's recognized the need for more widespread name recognition, especially in larger markets where it is going head-to-head with Home Depot. That's why the company is sponsoring a NASCAR team and the Home and Garden TV Network. Both are targeted to the company's present and potential customers.

"When your car is leading a race, the exposure on network television is worth $2.5-$3 million in advertising to you," he said. "Also, 85 percent of NASCAR fans own their home and are in the mid-to-upper income ranges."

The retailer has a 52 percent share of the HGTV cable network, which is helping get that name identification in larger markets.