This Do It Yourself Store Is Really Doing It

Strolling the aisles of the newest superstore in Greensboro, N.C., recently, Home Depot Inc. Chairman Bernard Marcus was welcomed with a syrupy sweet, "Hello, Mr. Marcus" over the PA system. A sycophantic employee? Hardly. This store belongs to Lowe's Cos., the No.2 player in the home-improvement retailing industry. That greeting to a rival resonated with an unspoken message: We aren't scared of you anymore. Lowe's Chairman Robert L. Strickland shares the sentiment. "We are going to fight them now," he vows.

Meet the new-and-improved Lowe's. Over the past few years, Strickland has expanded and rejuvenated the once-sleepy chain by opening huge retail warehouses. After opening 31 superstores that averaged over 100,000 square feet last year, Lowe's plans to build 44 this year. Strickland has been casting a wide net for shoppers by stocking his shelves with everything from drapes to televisions, while adopting such policies as daily free home delivery.

GIANT OUTLETS. Indeed, Strickland is proving that there's more than one destination for the avid do-it-yourselfer. Net earnings for the North Wilkesboro (N.C.)-based Lowe's could climb 42% in 1994, to $187 million, says analyst Lynn C. Sawyer of NatWest Securities Corp., as its revenues climb 31%, to $5.9 billion. Wall Street has also noted Lowe's success. In the past year, Lowe's stock has more than doubled, to around 32 while shares in Home Depot have dropped 4%, to about 401/8 (chart). "I think people have overestimated the competitive threat that Home Depot brings," says Thomas Marsico, a portfolio manager at Janus capital, which owns shares in both Lowe's and Home Depot.

Lowe's hasn't always done so well. Formerly nicknamed "Slowe's," the company had built its business selling lumber and supplies to contractors. And for a long time, it ignored the booming market of cost-conscious do-it-yourselfers. Its stores were small, and their shelf space and service were limited. By contrast, as Home Depot expanded from 4 to 190 stores in the 1980s, Lowe's went out of its way to woo hardware-challenged consumers. It opened giant outlets and staffed its stores with trained craftspeople to answer queries on subjects from plumbing to house painting.

Before long, Strickland, 63, and a 37-year veteran of Lowe's, saw the handwriting on the drywall. By 1991, Lowe's sales were growing by only 8% a year, vs. 35% at Home Depot. So he embarked on a radical plan. At the end of 1991, he took a $71 million pretax charge against earnings, to start consolidating small stores. His goal: to double the size of Lowe's to 600 stores by the end of the decade. Virtually all will be warehouse outlets. By limiting Lowe's expansion to small cities and towns in the Southeast, Strickland has so far avoided going head-to-head with Atlanta-based Home Depot, which plans to have 840 stores nationwide by 1998.

Strickland also set out to broaden Lowe's appeal beyond the toolbelt-and-T-square set. He has expanded his stores' product offerings over the past five years from 14,000 to some 40,000--including an array of appliances and home electronics that Home Depot has traditionally shunned. Lowe's has also extended Home Depot-style service into the decorating arena. Most of the outlets now have boutique sections where customers can match paint, wallpaper, and vertical blinds. "Lowe's has found a niche Home Depot is not serving," says a consultant who has worked for both.

Lowe's still faces huge hurdles. So far, it has spent more than $900 million on expansion. Much of that was borrowed, which pushed its debt-to-capital ratio to 40%. To help fund further expansion, Strickland says he will consider an equity offering. Then there's the competition. In January, Home Depot opened a second Expo Design Center to test sophisticated, decorator-quality merchandise. And, by 1995, the chain will open 37 stores that compete in the same markets as Lowe's. "We're going to try to knock their block off," snickers Home Depot's Marcus.

Strickland says he's ready to fight back. He recalls how Home Depot ran his store out of Atlanta in 1984. "We haven't gone back--yet," he says with a wink. It may be just a matter of time before Marcus finds his name echoing through another Lowe's superstore--this time much closer to home.

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