Customers As Data

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.

Customers As Data

Some lumber is being cut, but activity involving contractors is much lower than at the "Pro Desk" at Home Depot. Nancy Leahy, 39, of Ringwood, N.J. has redone two bathrooms—the first with Home Depot and a second with a combination of items from Lowe's and Home Depot. "I like Lowe's because there's more selection," says Leahy. "The prices are basically the same, but there's more help here. Home Depot is a contractor place."

As Lowe's and Home Depot go toe-to-toe on more corners, the two rivals may wind up sharing customers like Leahy, say analysts. To gain an edge, both want to know more about them.

According to sources close to Lowe's, the company has been using data warehousing in its most current form since 1998. At that time, Lowe's replaced an IBM data warehouse system with NCR Teradata hardware and customer-relationship software from MicroStrategy to track merchandising and campaign success.

Since then, Lowe's has mined data to track sales and target customers. For instance, if a customer buys a chain saw, he'll get direct mail on other items he's likely to purchase such as replacement chains, other power equipment or garden supplies.

Lowe's collects data on customers via its Garden Club, credit cards and promotions with NASCAR. However, Lowe's lacks a loyalty program due to its "everyday low price" model. Without a loyalty program, Lowe's can't use point-of-sale data to send mail telling customers they are one purchase away from getting a dollar reward.

Lowe's also employs a "hub and spoke" distribution model that relies on the hubs to get inventory to the stores. With products such as lumber and siding, Lowe's ships loads out on flatbed trucks to stores, executives have said on conference calls.

In contrast, Home Depot receives the bulk of its goods directly at the store, but is moving toward a more centralized distribution system. Lowe's also has created automated systems to replenish inventory and handle returns. Specifically, Lowe's has rolled out the MicroStrategy Narrowcast Server, which delivers sales and inventory messages to employees. Inventory personnel will be alerted to product shortages before they go out of stock completely.

Lowe's also has used technology to handle deliveries more efficiently. Through its electronic data exchange program, Lowe's requires its vendors to ship products with a unique bar code that receiving personnel must be able to scan without breaking down cartons on a pallet.

By swapping information electronically with vendors, the company says it can cut errors and "invest more time selling."

Lowe's also imposes fines on vendors that do not ship on time or deliver the quantities that aren't completely filled. The first month of noncompliance is met with a warning letter and the second brings fines. A late shipment is hit with a fine of 20% of the invoice value of the late shipment and that goes up to 30% in month three, and so on. Lowe's also can fine vendors $1,000 for each purchase order that has noncompliant bar coding.

According to a memo from Dale Pond, executive vice president of merchandising at Lowe's, performance levels "are not merely goals, but are requirements for all Lowe's vendors."

Suppliers must deliver goods on time with the right quantities of goods 98% of the time.

This hard line with suppliers and the analysis of what products should be placed where in a Lowe's store are barely visible to the consumer. But there is a payoff: Lowes' back-end improvements added $74 million to its bottom line in 2002, executives say. Store sales have grown an average of 19% each of the last three years; and Lowe's earns 5.6 cents on every dollar, up from 4.6 cents a year earlier.

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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