Lowes Industry Analysis

Only available on StudyMode
  • Download(s) : 246
  • Published : April 5, 2012
Open Document
Text Preview
|
Industry Analysis|
Home Improvement Industry: Lowe’s|
|
James Britton;Evan Sturm;Patrick Flanagan;Donald Rome|
February 29, 201|

|

Introduction:
The Lowes Corporation operates in what is known as the home improvement industry. The home improvement industry is about $300 billion in the US and another $48 billion in Canada. This industry was formed out of a consolidation of the industry of local hardware stores. Local hardware stores still exist and are a small competitor in the home improvement industry. However, the home improvement industry took on a form of its own in the late 1970’s when The Home Depot Corporation made a decision to compete with a large regional chain of hardware stores called Lowes. Lowes recognized the threat of competition and both Lowes and Home Depot stores begun to invest in rapid expansion and grew their stores to be large big box retailers where customers could come to buy a variety of products ranging from appliances to tools, to paint, lumber and nursery products to improve their home. There have since been a few large regional chains that have been able to penetrate this market including Menards and Rona. This industry is largely confined to North America, with the exception of the recent expansion of Home Depot into China. Between the big box retailers in this industry, there is little differentiation and the margins are generally pretty low. Intensity of Rivalry:

Factors that determine intensity:

Highly Intense Factors:
* Competitors are numerous
* Industry growth is slow
* Fixed costs are high
* Products are largely undifferentiated
* Brand loyalty is largely insignificant
* Consumer switching cost is very low

Moderately Intense Factors:
* Two of the largest competitors (Home Depot and Lowe’s) have equal market share and the remainder is consumed by a host of small competitors * Exit barriers are fairly high

Interpretation: Highly Intense
* This makes the industry overall less attractive for new entrants * Profit potential is decreased due to a saturated market, a few large competitors, slow growth and largely undifferentiated products.

Bargaining Power of Buyers:
Overall, the bargaining power of buyers is quite low in the retail home improvement industry, for the following reasons: * There are a large number of individual customers of home improvement retailers such as Lowe’s, Home Depot, or local hardware stores, and they individually buy in small quantities. Therefore, these customers have little leverage to influence the price or the service provided by the store. If customers could band together in a large group (as McDonald’s customers did to protest the use of Styrofoam food packaging) they could potentially force a retailer to alter a policy, because they would then represent a larger piece of the company’s business.This would be a rare occurrence. Building contractors, who buy materials in larger amounts on a wholesale basis, may have some room to negotiate due to the greater quantities purchased. * Demand for home improvement products is strong, which decreases buyer power. The weak housing market is projected to keep retail home improvement sales strong, as homeowners repair and remodel their houses, rather than sell them (Souers 2012). * For many products at the home improvement store, there are no real substitutes. If one needs a light switch, a 2x4, or a length of pipe, there is nothing else that will do the job. This serves to decrease buyer power. * Switching costs for the customer are low, because they can buy the same or similar things in many stores. This contributes to more buyer power, as companies will lower prices or improve service if large numbers of customers defect to other stores. Bargaining Power of Suppliers:

For many reasons, suppliers in the home improvement industry generally are in a weak position relative to retailers. Our rationale for that conclusion is outlined...
tracking img