Lowe\'s Financial Strategy Lowe\'s Financial Planning Strategy

Lowe's Financial Strategy

Lowe's Financial Planning Strategy

Lowe's home improvement stores have tried to enact a financial strategy for many years that would make the company the highest regarded and largest retailer of their type in the world. They have been thwarted in those goals by the success of The Home Depot, but Lowe's has still managed to build a trusted brand despite recent global economic difficulties. By looking at both Lowe's recent stock price (over the last five years) and capital structure, it will be possible to determine the proper financial planning strategy that the company should pursue.

There are two basic strategies that Lowe's has employed over the past decade that have had varying levels of success. The first part of the last decade Lowe's focused more on a strategy that had to do more with what the company had on hand than the sales it made. Lowe's had a much higher inventory level than other home improvement retailers (Law, Lummus, Gray, Landgraf, & Keltz, 2007) because the company wanted to show customers that they were able to meet demand for product immediately better than the competition. However, this was an issue because inventory turnover was much slower. Lowe's was unable to stock as many new, innovative products as their competition, and this gave competitors an advantage. In the latter part of the last decade, Lowe's has focused more on customer service through offering more services and paying less attention to having a large amount of product offerings in their stores (Business Wire, 2011). Thus, Lowe's management has been able to say that they did not change their focus on customer service, they just listened to what customers wanted and tweaked their approach.

This change in strategy has allowed Lowe's to grow their stock price over the last five years as investor confidence in the company has grown. Over the last five years, Lowe's year end stock price has gone from a low of $21.52 (2008) to a recent high of $25.38 (2011) (Lowe's, 2012). This represents a 15.2% increase in the price of the stock over the past four years. This demonstrates that the strategy that Lowe's has employed has continued to generate interest, and investment, in the company.

The old strategy of holding a larger inventory of products seemed strong because it allowed customers to find products that they could not find elsewhere. The basic weakness is that this takes up too much shelf space in the store that could be given to better selling products and it reduces turnover time of the store's inventory. The opportunity was that it created more loyal customers supposedly, but the strategy also weakened the store because new customers were often unable to find the new products they wanted and went to competitors to find them.