Lowe’s Business Model and How it Makes Money

Lowe's Business Model

Lowe’s is an American retail store that provides products and services in the home improvement area. Lowe’s is a household name in the US and some parts of Canada. Similarly, the company is the second-largest home improvement retail store in the US. It only lags behind its long-time rival, Home Depot. Lowe’s, found in 1921, has become one of the most successful businesses in the US.

Financially, Lowe’s is only behind Home Depot in terms of revenues. The company generated $89.597 billion in revenues in 2020. It was a significant increase of 24.19% from 2019. Despite the ongoing pandemic, Lowe’s performed significantly well. It was also the company’s highest revenue to date. Similarly, Lowe’s had total assets of $39.471 billion in 2019.

One of the reasons behind Lowe’s success in the past has been its business model. A business model describes the strategies that companies use to generate revenues. It includes the markets a company targets, its products, its revenue sources, its expenses, and much more. In short, a business model is a plan to describe how a business makes money.

Lowe's

What is Lowe’s Business Model?

Lowe’s Companies, Inc. offers home improvement products. The company is the world’s second-largest home improvement retailer. Similarly, it provides home improvement products in various categories. The company has thousands of products in categories such as Appliances, Lawn & Garden, Flooring, Kitchens, Lumber and Building Materials, Seasonal and Outdoor living, and much more.

Lowe’s generates its revenues from two primary customer groups. Firstly, these include professional customers. These are customers who are professional workers, such as plumbers, general contractors, handymen, property managers, electricians, etc. These customers usually order in bulk and then deliver these products to the consumers.

In this scenario, the customer and the consumer for the products are different. Professional customers generate the highest amount of value for the company. As mentioned, these customers usually buy products in bulk, which increases the revenues that the company generates. The consumer, on the other hand, does not directly pay for the product.

The consumer, in this scenario, buys the products from the customer. The customer may charge extra for Lowe’s products after delivering them. However, these charges may include transportation and installation fees. Despite that, the consumer will use the products in the end. Therefore, it creates a chain relationship between Lowe’s and the consumer.

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The second group of customers is direct consumers. These may include consumers that want to buy products for home improvements or DIY projects. These consumers usually consist of homeowners that purchase products to complete their own projects and installations. Due to the vast amount of information available around the ‘DIY projects’ topic, the demand for products has increased.

However, these customers don’t make the same number of bulk purchases as professional customers. However, in this scenario, the customer and the consumer are the same. These customers may also purchase the products from Lowe’s and hire a professional to perform the installations. However, these professionals do not enter the supply chain.

Lowe’s also offers a variety of clinics and workshops to customers for products. The company does so to share knowledge and build an emotional connection with its customers. It shows that Lowe’s is aware of its current customer base and tries to cater to it. This way, the company develops customer loyalty among its customers.

How Does Lowe’s Make Money?

Lowe’s makes money from two sources. It includes revenues from the sale of both products and services. Product revenues primarily relate to net sales from in-store and online merchandise purchases. Due to its wide range of stores in both the US and Canada, Lowe’s generates a decent chunk of its revenues from its in-store purchases.

However, the ongoing pandemic severely reduced the sales that Lowe’s generated from its stores. Despite the decrease in in-store revenues, Lowe’s reported a record highest net sales number. It was primarily due to the company’s online presence through its mobile stores and website. Some of these sales may also include products that customers eventually return. However, the percentage of returns is minimal.

Lowe’s also makes money from the services it provides. Services revenues come from professional installation services that the company renders through subcontractors. These subcontractors are related to merchandise purchased by a customer. In some cases, installation services may also include materials provided by the subcontractor as well.

Lowe’s also makes money from stored-value cards. It includes gift cards and returned merchandise credits. The company provides customers with these cards, which allows them to purchase items in the future. However, the percentage of revenues that Lowe’s earns from these cards is a small percentage of its total revenues.

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On top of these products, Lowe’s also provides extended protection plans. These are Lowe’s-branded programs that provide customers with insurance for the products they purchase. The company may provide these plans for up to five years with a minimum of one year. Similar to the cards, the revenue from these plans constitutes a small portion of Lowe’s total revenues.

The company also segregates its revenues based on the merchandise it sells. It divides these revenues into Home Décor, Building Products, Hardlines, and Others. The Home Décor division includes products, such as Appliances, Décor, Flooring, Kitchens, and Bath and Paint. Similarly, the Building Products include Lighting, Lumber and Building Materials, Millwork, and Rough Plumbing and Electrical.

Merchandise Divisions

The Hardlines division includes product categories such as Hardware, Lawn and Garden, Seasonal and Outdoor Living, and Tools. All products that do not fall into one of these categories come in the other category. Given below is a summary of the revenues the company generates from each of these divisions.

Division2019 (USD Billions)2018 (USD Billions)2017 (USD Billions)
Home Décor25.86725.26124.521
Building Products23.01822.99222.033
Hardlines21.23520.38219.715
Other2.0282.6742.35
Total72.14871.30968.619

It is clear from the above chart that the Home Décor division is the primary earner for Lowe’s. The company generated 36%, 35%, and 36% of its total revenues in 2019, 2018, and 2017. The second biggest division is the Building Products division that generated revenues of 32% in all of the three years. The third biggest division is the Hardlines division that generated 29% of Lowe’s total sales in all three years. Lastly, the Other division contributed 3%, 4%, and 3% to its total sales in 2019, 2018, and 2017.

The Home Décor division also experienced increases in revenues in both years. This division underwent an increase of 2.93% in 2018 from 2017. Similarly, it experienced an increase of $0.606 billion in 2019, being a 2.40% increase. The buildings and Products division underwent increases in revenues in both years. In 2018, this division had a total increase of 4.17%. In 2019, it saw a 0.11% increase.

The Hardlines Division saw an increase of 3.27% in 2018 from 2017. The next year, this division experienced a $0.853 billion increase, being a 4.19% jump. Lastly, the Other division experienced an increase of 12.12% in 2018. However, the sales in the division declined by $0.646 billion. Although it was a substantial decrease of 24.16%, it did not affect the company’s operations.

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Geographical Areas

Lowe’s also segregates its revenues based on geographical area. The company separates any revenues generated in the United States from international sales. In the international division, the company includes all sales from Canada. It also consisted of some stores from Mexico. However, Lowe’s closed the last of these stores in 2018. Given below is a summary of the revenues generated from each of these divisions.

Geographical area2019 (USD Billions)2018 (USD Billions)2017 (USD Billions)
United States67.14765.87263.263
International5.0015.4375.356
Total72.14871.30968.619

From the above summary, it is clear that Lowe’s largest segment in the US division. This geographical area generates 92%-93% of the company’s total sales. Overall, Lowe’s generated 93.07%, 92.38%, and 92.19% revenues from this segment in 2019, 2018, and 2017. The remaining amount comes from the International division. The company generated 6.93%, 7.62%, and 7.81% of its sales from the International division in 2019, 2018, and 2017.

The United States division has been the company’s primary income source. This division has experienced steadily increasing revenues throughout the years. In 2018, the sales from this division increased by $2.609 billion (or 3.69%). On the other hand, Lowe’s increased its revenues in 2019 by $1.275 billion. It was an increase of 1.94% only.

The International division does not contribute to the company’s revenues significantly. It is because the company has not been able to pose a threat in international markets beyond Canada. It is primarily due to the amount of local competition that the company faces in those markets. This division also suffered due to the closure of stores in Mexico, which contributed to lower profits.

The international division generated total revenues of $5.437 billion in 2018, which increased by 1.49%. However, the division suffered in 2019, as it only generated revenues of $5.001 billion, which was a decline of 8.02%. As mentioned, the primary reason behind this decline is the closure of remaining stores in Mexico. The company no longer generates any revenues from Mexico.

Conclusion

Lowe’s is an American retail store that specializes in home improvement products. Lowe’s business model is one of the factors that contribute to its success around the US. The company generates money from its several merchandise divisions and geographical areas. A summary of Lowe’s business model and how it makes money is provided above.

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