Source: Lowe’s
Has Lowe’s Pasture Become Greener In Rural Markets?
Lowe’s is rolling out a rural store concept featuring a broader offering of farm, ranch, and outdoor products in up to 300 additional stores by year-end.
The selected stores, primarily in the South, Midwest and Northeast, play up categories such as pet, livestock, trailers, fencing, utility vehicles and specialized hardware. The stores also stock Carhartt and Wrangler apparel.
Bill Boltz, EVP of merchandising, speaking on Lowe’s first-quarter analyst call, described the rural-focused stores as a “one-stop shop to make it convenient for rural customers to get what they need in one shopping trip.”
The expansion follows a successful pilot and takes advantage of Lowe’s strong existing positioning in rural markets. Lowe’s operates three times as many stores as Home Depot in North Carolina, West Virginia, and Kentucky; twice as many in South Carolina, and 1.5 times as many in Virginia, Alabama, Tennessee, and Mississippi, according to an analyst note from Jeffries.
Lowe’s expects the rural locations will help elevate margins since the stores can be operated at a lower cost.
“As an example, what we spend to operate our store in Philadelphia, Mississippi is significantly less than the cost to operate one of our stores in Philadelphia, Pennsylvania,” said CEO Marvin Ellison on the call. “While in years past, our penetration of rural and remote stores was viewed as a competitive disadvantage, we now expect that these stores will be a key component of our operating profit growth over the next three to five years.”
Jeffries analysts said Lowe’s will face challenges competing against Tractor Supply’s “loyal following” in rural markets.
“Given the retailer’s micro-merchandising, exclusive product, and loyalty program, we believe [Tractor Supply has] built an impressive moat in small town America,” according to Jeffries’ note. “That said, we do see the opportunity for market share shift as Lowe’s takes a page out of Tractor Supply’s playbook.”
Lowe’s reduced its full-year outlook last week as lumber prices fell, unfavorable weather hurt demand for seasonal merchandise and do-it-yourself customers bought fewer big-ticket items.
Discussion Questions
DISCUSSION QUESTIONS: Have rural markets become a more significant opportunity for Lowe’s and other retailers? How does operating in rural markets differ from suburban and urban markets?
Poll
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Kai Clarke
CEO, President- American Retail Consultants
Jenn McMillen
Chief Accelerant at Incendio & Forbes Contributing Writer
Tractor Supply has proven how rich the rural market is, and the question will be can Lowe’s capture some of this market? This recent move by Lowe’s suggests that they can and will. As noted, TSC has built a very effective moat in rural markets, but there’s still lots of underpenetrated markets and so opportunities exist for Lowe’s or other competitors contemplating entering rural markets. Whether Lowe’s is successful or not, only time will tell, but what is certain is that these new Lowe’s rural stores will test Tractor Supply.
According to the U.S. Census, population in areas designated as “rural” vs. “urban” has been on the rise since COVID accelerated adoption of work from home and hybrid employment. It is smart that Lowe’s recognizes this trend and is positioning to capture both that population growth and the increased disposable income/home investment that comes with the relocating population.
There is an opportunity here – but it is one that is currently served primarily by Ace and Tractor Supply. Both are excellent retailers so Lowe’s will need to come up with something pretty compelling and sufficiently differentiated to make inroads. The economics or running smaller rural stores are also very different to larger stores, which necessitates some big changes in thinking for Lowe’s if it is serious about these opportunities.
Lowes will be going up against some big rural players, among them Tractor Supply, Fleet Farm, Rural King and others, who are entrenched in their communities. Where Tractor Supply trounces Lowes, though, is on the loyalty front. Tractor Supply has a robust loyalty program, whereas Lowes’ loyalty program is “meh” at best.
Many of the smaller regional players around the country like Farm & Fleet have allied with each other in buying / marketing groups as well – they are as well entrenched in their local communities as ACE. Tractor Supply Co. and Fleet Farm cover the regional centers very well. It is interesting that the southeastern states noted in the article are the ones which do not have much presence of the small regional chains. Lowes is a couple decades late to the party and I suspect they will not get much traction in the Midwest or West.
Totally agree — our loyalty data supports this perspective too – program adoption and impact tend to be significantly stronger in rural areas.
It’s a worthy strategy, for sure. We once worked with a restaurant company that ONLY served towns of 5000 or less and did millions of dollars. The key for Lowe’s tho, will be inventory: size, quality, content. That could take a while with that much different customer. The other factor is competition. Is a firmly established ACE franchise already in place? Because if so, they’ve got all of the above figured out as well as the personalized service piece. So in the end, i think it’s got a solid 50-50 chance of success.
One thing to consider is the fierce loyalty rural customers have to their long time stores. Everyone knows everyone. And friends and neighbors work in their current stores. An aggressive hard push to pull customer’s may not be the best path out of the box for Lowes.. But y’es, Lowe’s does have all it needs to secure customers in the long run.
Yes, yes and yes. Why wouldn’t you want to go after the rural marketplace? Tractor Supply, 84 Lumber, Ace, True Value, Home Depot all have a presence here and Lowe’s is simply late to the game. Lowe’s should focus and manage their resources on this market opportunity just like their other markets, especially as the hardware market competition is becoming even more competitive and difficult.
It sounds like Lowe’s wants to become the next Farm & Fleet. That is a challenge. Loyalty is a significant factor in rural markets. On the surface, we may think the Tractor Supply et al. stacks ’em up and sells. I surmise that those stores have associates who can talk “rural and farm” with the customers. Will Lowe’s be able to do that?
Is there enough business for one more rural player? Rural economies have lagged and are expected to drag in the future.
Despite the competition, Lowes has a real opportunity in these markets. Typically they’re underserved and increasingly populated by people from the cities who are already familiar with the Lowes brand. To be successful in the rural markets, the key is logistics and inventory control. You need a wide enough assortment to be credible, but inventory and store size are optimized for less demand.
Opportunity for Lowe’s, yes. But part of that opportunity will be taking on the established retailers in these areas that know how to serve their customers (often with more service). Will be interesting to see if Lowe’s can make the requisite adjustments to succeed in rural markets with lower volume levels and reduced product demand.
This a good move for Lowe’s. the “rural” markets present an opportunity to capture share from Tractor supply which has been successful in them but not faced as large and well run competitor.
Lowe’s has a good name. They will have to get recognized as a viable retailer in the rural markets. The key will be to find a market that has room for another major retailer – or has a void that Lowe’s can fill.
The biggest obstacle Lowes – or any retailer- faces in undertaking a rural strategy is understanding the mindset. It’s less about merchandise and much more about trust. That’s where Tractor Supply, Ace and even Menards have deep roots and an understanding of what their customers want and value and they deliver on that promise. Loyalty in these markets can’t be bought so they need show they are in it for the long haul.
Feels like a test & learn opportunity more than a “go big” opportunity. It could work but just like all of the other commentators have pointed out there are formidable competitors that are well entrenched with the rural consumer. There are only so many shoppers in a rural catchment area.
To steal the tagline from Tractor Supply, the brilliant and successful rural retail operator, the “life out here” is a substantial opportunity. However, I believe the rural customer will be far more demanding when it comes to authenticity, sincerity, and pleasant service. Can retailers who are seen as opportunistic at best and Johnny come lately at worst succeed? Maybe, but it will take some hard work, and a significant culture, strategy, and store personnel change to make it happen. Finally, is Lowe’s willing to start stocking live chicks and a good selection of working clothes? There may be lower-hanging fruit to be had in figuring out how to increase current market performance.