Innovation

Innovation ** The home improvement industry is a continuously changing market; Home Depot and Lowe’s are constantly making incremental improvements to their processes, procedures and technologies. In their never-ending battle for market dominance, managers must constantly analyze their business environment, down to the tiniest detail, to be able to innovate for an advantage. Lowe’s first started selling shares in 1961, almost twenty years before Home Depot; however, it was Home Depot that was able to revolutionize the home improvement industry by introducing “big-box” warehouse stores to provide better selection, better prices and better service than its competitors (Upbin, 2003). Home Depot was able to become the largest home improvement retailer in the U.S. by “being fustest with the mostest.” This is an innovation and entrepreneurial strategy, described by Peter Drucker, in which an entrepreneur aims at leadership, if not dominance of a new market or a new industry (162). Arthur Blank and Bernie Marcus founded the Home Depot in 1978 (Johnson, 1998). They built radical “big box” stores, averaging 108,000 square feet, loaded with every imaginable home product. Besides building bigger stores than their competition, the true innovation was in their founders’ mantra: this is a service business, not a discount hardware store. They hired plumbers, carpenters, contractors, and other industry professionals to provide the highest level of customer service possible. Their famously loyal and knowledgeable store employees are widely credited with creating the modern home improvement marketplace and propelling the chain to dominance in its market niche. In 1989, Home Depot officially surpassed Lowe’s in revenue to become the largest home improvement retailer in the U.S. (Upbin, 2003). “Then, after the innovation has become a successful business, the work really begins,” writes Drucker (164). He adds, “then the strategy of ‘being fustest with the mostest,’ demands substantial and continuing efforts to retain a leadership position; otherwise, all one has done is create a market for a competitor.” To ensure Home Depot is constantly innovating and able to stay ahead of their competitors on price, displays and product assortment, they constructed an 88,000 square foot Innovation Center in 2004 (Grow, 2004). In a secret, discrete looking brick building, somewhere in Atlanta, HD associates are able to test everything from riding lawn mowers to displays for patio furniture sets before they hit the stores. Tom Taylor, EVP of merchandising and marketing, and his team use this facility to experiment and explore new product segments. Drucker believes, “new uses have to be found; new customers must be identified, and persuaded to try the new materials”; this is exactly the impetus behind the innovation center and a sign that Home Depot doesn’t not plan on relinquishing its leadership position. During the 1980’s, Lowe’s was the industry leader, but intense competition from Home Depot caused the chain to suffer (Upbin, 2003). Although Lowe’s resisted, management knew it would need to adopt the “big box” format in order to survive. Lowe’s abandoned its 52 year heritage as a ‘small-box,’ small-market retailer to follow the blueprint created by Home Depot (Johnson, 1998). The average size of a Lowe’s store increased from 20,000 sq. ft. in 1989, to 86,000 in 1998, to over 100,000 today. In this sense, Drucker would consider Lowe’s a ‘creative imitator.’ “What the entrepreneur does is something that somebody has already done. But it is creative because the entrepreneur applying the strategy of ‘creative imitation’ understands what the innovation represents better than the people who made it and who innovated,” writes Drucker (165-166). Like ‘being fustest with the mostest,’ ‘creative imitation’ is aimed at market or industry leadership. Robert Tillman, Lowe’s former CEO, says, “If you've ever been No. 1, it's no fun being the No. 2 sled dog and looking at the lead dog's you-know-what” (Johnson, 1998). According to Tillman, “our objective is in every market we serve to be the first choice store for home improvement products.” In order for a creative imitator to be successful, they must serve the markets the pioneers have created but do not adequately service. “Other companies mindlessly copied Home Depot but didn’t focus on the customer,” says Tillman, “if the customer doesn’t think we’re doing what we need to do, then we do it.” The management team at Lowe’s developed two innovative strategies to better service this market. Tillman seized research that showed women initiate 80% of home improvement projects (“Robert Tillman: Lowes,” 2003). Stores were redesigned to be given a brighter appearance, they began stocking more appliances, and they’ve focused on higher end goods – everything from Laura Ashley paints to high end bathroom fixtures. While not completely pulling back on male-dominant categories like tools, they’ve expanded their décor related segments and have added other subtle feminine improvements. The second driver in differentiating themselves is their lean distribution network. Since they used to operate mainly in smaller markets, they’ve learned how to distribute merchandise more efficiently than Home Depot. Their distribution networks, located around the country, permit Lowe’s to buy larger quantities of products from vendors, resulting in volume discounts and lower prices and they can get those products into its stores quicker (Johnson, 1998). This strategy has appeared to work so far as Lowe’s has been able to close the gap on Home Depot. Current CEO, Robert Niblock says, “our core strategy is really based on winning customers’ business and loyalty by offering them something different and hopefully better” (Howell, 2005). The innovation is ongoing for Lowe’s; to keep stores fresh and relevant, they spent more than $500 million in 2005 on existing stores, ranging from routine projects to major merchandising projects. Although still in second, they’ve been able to carve out a niche for themselves in home improvement retailing with a compelling, differentiated offering, especially amongst female buyers.
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