Lowe’s Pricing Spineometer: 5 of 5 Vertebrae


Tim J. Smith, PhD
Founder and CEO, Wiglaf Pricing

Published March 15, 2024

Lowe’s, a North American hardware, construction, and home improvement merchandiser, had a negative Q4 2023. Revenue fell 17.1% to $18.6 billion and earnings before interest and taxes fell 1% to $1.7 billion over the same period last year.

A review of Lowe’s 4th Quarter 2023 earnings call held on 27 February 2024 and related financial reports provided insight regarding the importance of pricing on performance.

Executives identified two main drivers of the demand decreases over the same period last year: the weather and consumer behavior.  January brought distinct cold snaps in the deep south this year which were somewhat related to a decrease in sales volume.  More troubling however was the identified changes in consumer behavior and customers are feeling price pressures.

Squeezed household budgets and economic uncertainty reduced “demand for bigger ticket categories like kitchen and bath, flooring and appliances” according to Marvin Ellison, CEO of Lowe’s.  Other management comments identified a shift to consumers seeking spending on experiences rather than products and home improvement.

Marvin Ellison claimed, “The three core demand drivers of our business, disposable personal income, home price appreciation, and the age of the housing stock remain supportive.”  Management indicated an awareness that in the short term, these drivers are not helping their business but expected a return to normal purchasing patterns over the balance of 2024.  This sanguine approach to setting business expectations may prove questionable given the current uncertain economic environment and election year.

With regards to pricing itself, William P. Boltz, EVP of Merchandising, reported “maintaining a disciplined approach to pricing and promotions”.

Other factors that may impact pricing decisions can be found in management comments.  Marvin R. Ellison stated, “We are making the right investments in our Total Home strategy to take share.”  Also mentioned were “great spring products at an outstanding value” and a loyalty program (more discounts) to get DIY customers to return to Lowe’s.

Combined, these statements imply Lowe’s management feels as though price capture itself is largely a factor of macroeconomic and competitive forces that should be managed with restraint and highly selective in use for capturing market share.

From industry benchmarks, we would expect to find 200 to 1,000 professionals engaged in pricing at Lowe’s.  Where Lowe’s should sit in this range depends on several factors.  Lowe’s sells over 2 million different products across many different categories online and 40,000 in-store.  They operate promotional activities as well as loyalty programs.  Macroeconomic, consumer behavior, and competitive issues all greatly impact price capture at Lowe’s.  Operations are concentrated in North America.  Where business is going digital, Lowe’s is on trend here.  Industry and business model churn appears relatively low for Lowe’s. Combined, these factors imply Lowe’s should be in the lower quartile of industry benchmarks for pricing professionals.

Research into the investment by Lowe’s in pricing yielded encouraging results.  Well over 200 pricing professionals were identified at Lowe’s.  Their titles ranged from coordinator and analyst to manager and director. A VP of Merchandising lists pricing as his first responsibility.  Geographically, pricing professionals are largely staffed in North Carolina but can be found scattered across North America.  An office in Bengaluru, India, supporting Lowe’s technical needs also has pricing professionals.  Pricing professionals can focus on market segments such as Pro Pricing, installation, product categories such as flooring or appliances, functional areas such as market intelligence, analytics, promotions, signage, or simply pricing strategy itself at Lowe’s.  There were even a few economists at Lowe’s who could probably contribute to providing insights on macroeconomic factors and their impact on business performance and strategy.

Given the importance and capability of pricing at Lowe’s as indicated in financial reports, management statements, and our pricing team research, and given their performance, we have come to the following conclusion as of March 2024.

Lowe’s Pricing Spineometer: 5 out of 5 Vertebrae. (Not to claim everything is perfect at Lowe’s in pricing, but that it looks from the outside using publicly available information better than most industry peers.)

LOW (Lowe’s Companies, INC.) rose from 231 days prior to their earnings call to 244 days later. FY 2022 revenue of $97 billion with an 11% operating margin and P/E ratio near 18.

For FY 2022, a 1% improvement in price would yield 9.6% improvement in operating profits holding all else constant at Lowe’s.

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About The Author

Tim J. Smith, PhD, is the founder and CEO of Wiglaf Pricing, an Adjunct Professor of Marketing and Economics at DePaul University, and the author of Pricing Done Right (Wiley 2016) and Pricing Strategy (Cengage 2012). At Wiglaf Pricing, Tim leads client engagements. Smith’s popular business book, Pricing Done Right: The Pricing Framework Proven Successful by the World’s Most Profitable Companies, was noted by Dennis Stone, CEO of Overhead Door Corp, as "Essential reading… While many books cover the concepts of pricing, Pricing Done Right goes the additional step of applying the concepts in the real world." Tim’s textbook, Pricing Strategy: Setting Price Levels, Managing Price Discounts, & Establishing Price Structures, has been described by independent reviewers as “the most comprehensive pricing strategy book” on the market. As well as serving as the Academic Advisor to the Professional Pricing Society’s Certified Pricing Professional program, Tim is a member of the American Marketing Association and American Physical Society. He holds a BS in Physics and Chemistry from Southern Methodist University, a BA in Mathematics from Southern Methodist University, a PhD in Physical Chemistry from the University of Chicago, and an MBA with high honors in Strategy and Marketing from the University of Chicago GSB.