Lowe’s Can Gain Market Share With New Customer Incentive Program
Over the past decade, Lowe’s (NYSE: LOW) has gained significant market share at the expense of Home Depot (NYSE:HD). However, in recent years, Home Depot is looking stronger, with improved store interiors that make stores more customer friendly along with a stronger supply chain that adds to the company’s operational efficiency.
Lowe’s Introduces New Customer Incentive Program
As the competition between these two home improvement heavyweights intensifies, customer service is emerging as one of the key features on which they will need to innovate. We previously discussed Home Depot’s new mobile barcode program aimed at improving the in-store customer experience. (see Home Depot’s New Customer Service App Could Spur Market Share Growth).
To improve its customer service, Lowe’s has introduced a new incentive program for customers paying with the store’s credit card (which does not carry any annual fees) either in store or on the company’s website. Customers making a single purchase of $299 or more can opt for either a 5% discount or a special financing offer. [1]
Lowe’s Plumbing, Electrical & Kitchen Market Share
The plumbing, electrical & kitchen division is the largest value driver for Lowe’s by our estimates, contributing around 33% of our $24.85 stock price estimate for Lowe’s. Our number stands roughly in line with the current market price.
Despite tough competition and having fewer stores than Home Depot, Lowe’s market share in plumbing, electrical & kitchen products has grown from 13% in 2006 to over 17% in 2010. But the growth rate has slowed in recent quarters. We anticipate more moderate growth going forward, with market share approaching 19% by the end of our forecast period.
According to analysts at Goldman Sachs, 30% of private label sales relate to big-ticket purchases ($299 and over) currently subject to six-month no-interest financing. [2] With the introduction of this new customer incentive program, Lowe’s has the potential to attract more customers, in addition to retaining its current customer base. As a result, the company could see a pickup in its market share growth.
If, for example, Lowe’s plumbing, electrical & kitchen market share grows to 22% by the end of our forecast period (vs. our base case projection of 18.5%), it would imply about 5% upside to our current price estimate for Lowe’s stock.
See our complete analysis for Lowe’s stock here
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