Analyzing Lowe’s Merchandise and Services Assortment

Lowe’s (LOW) operates in the home improvement (ITB) retail industry. The home improvement business consists of products for building and maintenance, plumbing, electrical projects, and garden improvement products. The segment also includes furniture, paint, and appliances. Some retailers also provide installation services for their do-it-for-me (or DIFM) customers. The kitchen and appliances category was Lowe’s largest product category, accounting for 14.2% of the retailer’s sales in fiscal 2015, or about $8 billion.

Lowe’s sources its merchandise from over 7,000 suppliers with no supplier accounting for more than 6% of sales. Some prominent ones include:

• Masco (MAS) provides architectural coatings and paint products. Home Depot (HD) and Lowe’s are Masco’s number one and number two customers, respectively.
• Fortune Brands Home & Security (FBHS) provides kitchen and bath cabinets, plumbing, home security systems, locks, and doors, among others. HD and LOW, respectively, accounted for 15% and 14% of FBHS’s revenues, $4 billion in its last fiscal year.
• Scotts Miracle-Gro (SMG) provides lawn and garden care products. HD and LOW, respectively, accounted for 34% and 17% of SMG’s net sales in fiscal 2015, which came in at $3 billion.

Several prominent companies including GE, Valspar (VAL), and Sherwin-Williams (SHW) supply national level brands to Lowe’s. Lowe’s also offers customers a choice of its own store brands. These include a diverse range of products including home décor, power tools, garden décor, and patio furniture sets.

Store brands tend to provide a value proposition to the customer compared to national brands while simultaneously benefiting retailers’ margins.

Lowe’s also provides installation services for projects like roofing or flooring, as discussed in part four. These projects are carried out by independent contractors. Installed sales include both product sales, which are handled by sales associates, as well as installation management, which is handled by project managers.

Installed sales, including product sales, made up about 8% of the retailer’s sales in fiscal 2015 or between $4 billion to $5 billion. Value-added services like installed sales help Lowe’s generate higher sales as well as attract a certain category of customer, the DIFM customer.