Lowe’s Home Improvement Inc.’s Business Model

Lowe’s Companies, Inc. (Lowe’s) is a Fortune® 50 home improvement organization that serves over 18 million customers each week; it is one of the world’s largest home improvement retailers and the second largest home improvement retailer in the United States (Lowe’s, 2021). Fiscal year 2019 sales totaled $72.1 billion, with an expected increase of approximately 22 percent in 2020 (Lowe’s SEC, 2020). Lowe’s is classified as a building material and garden equipment and supplies dealer by the North American Industry Classification System (NAICS). However, this classification represents only about half of Lowe’s total market for its products and services; these include appliances, home décor, paint, plumbing, electrical supplies, installation services, extended protection plans, and equipment appliance repair services. Lowe’s customers include retail customers interested in do-it-yourself (DIY) and do-it-for-me (DIFM) projects and professional customers involved in property management, maintenance repair or remodeling operations, contractors, or construction trades.

Lowe’s Business Model

A business model is fundamentally a narrative of how an organization creates, produces, and acquires value (Kaplan, 2012). To best understand business model innovation, a canvas is often created to form an outline that maps out the organization’s business model elements. The canvas is a theoretical comprehension of an organization’s business rationale (APUS, n.d.). Osterwalder and Pigeur (2010) created the business model canvas, a visual representation of nine basic building blocks that display the logic of how the business operates. The building blocks for Lowe’s include:

• Customer segments: Homeowners or renters working on DIY or DIFM home improvement projects, and PRO customers, professionals, or contractors who provide services to homeowners
• Channels: Brick and Mortar locations staffed with skilled specialists to assist customers directly, and a digital sales channel that allows customers to shop and compare products online.
• Customer relationships: Self-service for customers to browse products in-store or through online or mobile sales channels; or personalized service with direct assistance provided to customize individual customer needs.
• Value propositions: Accessibility of over 1900 locations across the U.S. and Canada; reputation as the second largest home improvement retailer in North America; and an extensive selection of products catering to both DIY and professional customers.
• Key partners: Suppliers, vendors, channel distribution partners, social and community partners, and strategic alliance partners.
• Key activities: Approximately 208 million square feet of retail selling space, serving over 18 million customers a week.
• Key resources: Inventory, supply chain, online platforms, partnerships, and employees
• Cost structures: Products and merchandise, services and equipment, operating supply chain and distribution network, operating retail operations, omnichannel platforms, marketing, and employee wages
• Revenue streams: Sales of home improvement products in-store and digitally, sales fees, service fees, and ancillary services.

The business model canvas is a working document that can be shared and used by many different team members to interact, share and engage in business planning (Osterwalder & Pigneur, 2010). The canvas allows leadership to discuss and map out strategies in a way that can easily be modified or adjusted; the canvas may also be used to compare other organizations’ business models to develop competitive business tactics.

Identification of theoretical/behavioral trends

Business model patterns are described as similarities in arrangement, business model building blocks, or behaviors (Li, 2017). Five common patterns emerge when using the canvas: unbundling, the long tail, multi-sided platforms, FREE, and open business models (Osterwalder & Pigneur, 2010). Additionally, Osterwalder also introduced six business model design methods, which include: customer insights, ideation, visual thinking, prototyping, storytelling, and scenarios. Interpreting strategy through the business model canvas is the final construct of business modeling methodology; this practice aids in evaluating existing business model functionality.

Lowes’ mission is to deliver the right home improvement products, with the best service and value, across every channel and community it serves (Lowe’s, 2021). Lowe’s launched an aggressive transformation process that started with introducing its new leader, Marvin Ellison, in July 2018. Robert Niblock, Lowe’s CEO for the previous after 13 years, retired under pressure from investors for failing to increase Lowe’s stock value to its stockholders after years of trailing behind Home Depot. Current strategic initiatives include a supply chain transformation, improvements in merchandising productivity and operational efficiency, and an increased commitment to customer and employee engagement. Lowe’s business model pattern has adapted to the unbundled concept, maintaining three types of businesses that co-exist within the organization, each with different requirements.

Customer relationship management – whether the employee works in contractor services, installed sales, or customer service; they each share a common goal of identifying, attracting, and building relationships with customers;

Product Innovation – buyers and merchandisers are responsible for developing or sourcing new and attractive products or services and developing effective ways to present them to the customer.

Infrastructure business – creating programs and services to complete high volume projects, such as installing new roofing or home renovation and remodeling projects.

Though the three businesses are interconnected, each is maintained separately to avoid conflict or unwanted interactions (Hagell & Singer, 1999).

In the past, Lowe’s relied heavily on market research to determine metrics and develop a marketing and sales strategy; however, this also changed in 2018 when the company centralized its data collecting process to speed up the decision-making process (Williams & Pop-Nikolov, 2020). In a recent interview, Doug Jennings, Lowes’ VP of Data Analytics and Customer Insights, explained that the company began including customer insight to devise a merchandising and sales approach that ensures that the right products and services are available to the customers. When designing the business model, including customer perspectives drives decision-making regarding distribution channels, relationships with customers, value propositions, and revenue streams (Osterwalder & Pigneur, 2010).

Theory, Metaphors, and Frames

The Four-Frame model introduced by Bolman and Deal presents four leadership perspectives that prompt questions, separate truth from trivia, navigate points of view, and provide problem solving tools (Bolman & Deal, 2017). Bolman and Deal specified that leadership should approach organizational challenges from the four perspectives, structural, human resource, political, and symbolic, to gain an overall view of the issues, advising that consistently limiting their assessment to only one of the frames would lead to ineffective leadership. Structural and human resource are the two frames that best represent Lowe’s. The structural frame focuses its approach on mechanical elements of the organization, including strategy, goal setting, assigning responsibility, and creating systems and processes. The human resource frame focuses on people’s needs, emphasizing support, empowerment, development, and employee engagement. (Bolman & Deal, 2017). The structural frame is associated with Morgan’s metaphor that the company is a machine in which people are the parts; much about the business is standardized and systematically organized; there is a hierarchical, top-down structure with precisely defined jobs (Morgan, 1986). The human resource frame is associated with the family metaphor, or organization as a culture. Lowe’s is a society with its own socially constructed culture, including organizational terminology, products, rituals, and processes.

According to Gareth Morgan (1986), metaphors are used to reveal, resist, or reform organizations’ change principles.

Recommended Improvements

For many years, Lowe’s struggled where Home Depot excelled in sales performance, a direct result of waiting too long to invest in e-commerce and updating its product assortment. After Lowe’s website crashed on Black Friday 2018, Lowe’s began an overhaul of its digital footprint; an investment that proved to be very beneficial during the surge of e-commerce demand brought on by the COVID-19 pandemic. Refocusing the omnichannel approach to service customers how they want to be served and expanding Lowe’s digital footprint are vital improvements that have been identified using the business model canvas. For example, Lowe’s heavily invested heavily to improve the omnichannel model and re-platformed its main website to the cloud resulting in an enhanced customer experience, which included adding a mobile channel (Lowe’s SEC, 2020). Lowe’s has embraced a “Total Home” strategy by expanding its online only collection of products to include more than just kitchen appliances and home décor (Lowe’s Corp., 2020). Another improvement identified by customer insight is resetting the store footprint to optimize customer needs. Optimizing product availability and creating contiguities of related merchandise in a more convenient area, and creating a designated area for PRO customers to shop bulk items are expected to improve customer experience in the stores.

References

APUS. (n.d.). MGMT600 Lesson 1: Define Organizational Management. Web.

Bolman, L. G., & Deal, T. E. (2017). Reframing Organizations: Artistry, Choice, and Leadership. Hoboken, New Jersey: John Wiley & Sons. Web.

Hagell , J., & Singer, M. (1999). Unbundling the Corporation. Web.

Kaplan, S. (2012). The Business Model Innovation Factory: How to Stay Relevant When the World Is Changing. Hoboken, New Jersey: John Wiley & Sons, Inc.

Li, W. (2017, April 29). Business Model Patterns [Video file]. Web.

Lowe’s. (2021). Who we are, Our strategy. Web.

Lowe’s Corp. Lowe’s 2020 Investor Update. Web.

Lowe’s SEC. (2020). U.S. SEC Form 10-Q. Web.

Morgan, G. (1986). Images of Organization. Newbury Park, CA: Sage Publications Inc.

Osterwalder, A., & Pigneur, Y. (2010). Business Model Generation: A Handbook for Visionaries, Game Changers, and Challengers. Hoboken, New Jersey: John Wiley & Sons. Web.

Williams, Z., & Pop-Nikolov, B. (2020). Data, Analytics and Customer Insights at Lowe’s. Smarter Building Materials Marketing [Audio Podcast]. Web.