More to Choose From

By Larry Dignan  |  Posted 2003-06-16 Print this article Print

The No. 2 home improvement retailer's systems target better store designs...and Home Depot.

More to Choose From

Ed Hrysko, 67, of Lyndhurst, N.J. knows why he's shopping at Lowe's instead of Home Depot—his wife brought him. "I've never had any trouble with Home Depot and I've always gotten good service," says Hrysko, while looking at refrigerators. "But my wife prefers Lowe's because there's more to choose from." His wife, Lorraine, 59, says she feels out of sorts at Home Depot. "I think more about design and I'm not really interested in wood, four-by-fours and four-by-sixes," she says. "I can come here and tell Ed to give me 45 minutes and we both have something to do."

Szymanski says Lorraine Hrysko's response is just what Lowe's is hoping for. "The theory is that if you do your kitchen you may do your bathroom and drapes, too," says Szymanski.

Hrysko's shopping experience at Lowe's is not haphazardly guided. Lowe's shuns standard warehouse techniques such as "pallet drops" and "dump bins" where merchandise is put at the end, or middle of aisles, to move it quickly. Instead, the company uses "planograms"—data-driven shelf plans—to influence where and at what level it puts every product it sells.

The goal: Move big projects and all the goods that go with them. It's taking root. In the first quarter, Lowe's had an average ticket of $56.28 compared with Home Depot's best-ever mark of $51.29.

Here's how the planograms help. Lowe's doesn't just match a list of items to holes on shelves. With the help of analytical software, it checks past sales histories of the products it sells: which generate the most profit, where they get the best attention, what season gets the most action. The results are run through a series of rules, to try to avoid any anomalies such as toilet plungers winding up in bathroom project displays; and put the really important goods at eye level. Out comes a floor and shelf plan. This is how Lowe's stocks its stores.

To get the most out of planograms, it helps to have a warehouse of data from all stores in all regions, to analyze sales and supply-chain inventory. A product where there are numerous shipments this week can be stocked in many locations—think batteries. A product like power generators delivered to a retailer every month may not be marketed as aggressively.

Home Depot, by comparison, has not been able to make planograms work. One initiative faltered when division heads and store managers didn't rally behind the effort, according to one insider. The firm also didn't have an underlying data repository to fuel the program.

Instead, Home Depot would take a list of items to be sold and make them fit on shelves with little science behind the choices.

Lowe's cares what goes where. Consider one of its most important aisles: fashion lighting. End-caps at Lowe's can have items such as chandeliers with Italian crystal beads with prices topping $200. In the aisle itself, lighting fixtures hang against realistic backdrops depicting a living room. Pricier items are typically at eye level, following merchandising conventions, with high-turnover impulse purchases such as dimmer switches and 40-watt light bulbs always in reach.

Lowe's lighting aisle and other design areas use such "atmospherics" to increase the willingness of customers to buy, says Michael Levy, a retailing expert at Babson College. The key is to allow a customer to visualize a project, easily find items specific to that project and then purchase them.

"Lowe's has really seized on the opportunity to target women by paying attention to atmosphere and aesthetics," says Levy. "These are things that the average 'tool guy' doesn't pay attention to."

Lowe's plans out its stores with Web-based software from Marketmax, a retail analytics company. With sales, household income and other data, Lowe's can develop a store-layout central, then roll it out to different sections of the country. For instance, Lowe's can experiment with a layout in one location and, if it's a hit, expand its use elsewhere. Each store's managers need only pull up a Web browser to get the layout.

Lowe's has taken things a step further—key national suppliers gain access to its store layouts for aisles such as lighting and fashion plumbing. Through a subscription to Marketmax software, Lowe's national suppliers then can create planograms for aisles they control. Lowe's, for instance, does not centralize the plans for lumber or garden aisles.

Once a supplier creates a planogram, it transmits them electronically to Lowe's, which amends or signs off on them. If approved by Lowe's planogram group, the designs are implemented across its stores. The theory: The suppliers are the experts at selling their products, controlling minutia like which products to expose twice and in what quantity.

Through a MicroStrategy-powered portal, Lowes' suppliers also gain access to data so they can spot what inventory is moving and what is not.

"Instead of hoarding data, it's being given directly to suppliers who have a link back to the data warehouse," says MicroStrategy chief operating officer Sanju Bansal.

Home Depot is about to give planograms another try—with Marketmax software as well.

But Lowe's has been at it for a decade, and has already discovered that better space strategy drives sales. Small appliances such as food processors sit near large appliances such as refrigerators. Lowe's doesn't want shoppers to just buy a fridge; it wants customers to populate the counter next to it. In 2002, appliances accounted for 11% of Lowe's sales, up from 8% in 1999.

"Lowe's is clearly doing a good job appealing to the nontraditional home center shopper," says Tom Moseman, senior vice president at Envirosell, a retail-consulting firm.

Business Editor
Larry formerly served as the East Coast news editor and Finance Editor at CNET News.com. Prior to that, he was editor of Ziff Davis Inter@ctive Investor, which was, according to Barron's, a Top-10 financial site in the late 1990s. Larry has covered the technology and financial services industry since 1995, publishing articles in WallStreetWeek.com, Inter@ctive Week, The New York Times, and Financial Planning magazine. He's a graduate of the Columbia School of Journalism.

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