Lowe's 2004 Annual Report Download - page 6

Page 4 Lowe’s 2004 Annual Report
The last Big 3 initiative is our focus on the Commercial Business Customer (CBC). Our relationship with these customers continues to
strengthen, with Lowe’s becoming ever more convenient as our store base expands. The strengthening of this relationship is evidenced by our
solid CBC performance in 2004. Our Commercial Business Customers generated comparable store sales over twice the company average, and we
had double-digit comp sales in 15 of 18 merchandising categories. We are encouraged by the fact that our business with this customer segment is
growing across the store, not just in lumber and building materials. Increased convenience combined with great products, competitive prices and
great customer service is at the heart of our success with these customers.
An integral part of our ability to drive strong comparable store sales year after year is our commitment to invest in our existing stores.
In 2004, we spent over $500 million on our existing store infrastructure, performing everything from routine maintenance to major
remerchandising projects. Our goal is to ensure that customers shopping a 10-year-old store experience the same compelling and inspirational
displays and merchandise as those shopping our newest store. To help us achieve that goal we remerchandised 132 stores in 2004, updating
their merchandising sets and improving product adjacencies. The areas of focus were Cabinets & Countertops, Appliances, Flooring and
Millwork, as well as other areas as needed to bring these older prototype stores up to our newest standards. One example of a major reset
conducted in 2004 was in Tool World, where we updated our stores by re-racking and remerchandising our tool department to make it easier
and more inviting for customers to shop.
We will continue to invest in our existing store base in 2005. Our investment plans include over $700 million for existing stores, including
major remerchandising projects in 180 older stores. As always, we’ll enhance our merchandising sets and continue to ensure a consistent
shopping environment for customers from coast to coast.
In the second half of 2004, we began a major distribution initiative we are calling Rapid Response Replenishment, or R3. This initiative is
designed to better leverage the approximately one billion dollar multiyear investment we’ve made in distribution by handling more stock keeping
units through our distribution centers, holding more inventory safety stock in the distribution centers, ready to ship to the stores that need it,
and increasing the frequency of shipments to our stores. This will lead to a reduction in inventory in individual stores. When fully implemented,
we will be better able to fulfill store-level demand and reduce the lead-time variability of products going to our stores. The end result will be
better in-stock positions and a lower overall inventory investment. To ensure our ability to meet customer demand as we implement R3, however,
we took a conservative approach to changing how we flow inventory, first building inventory in our distribution system to be followed by
lowering safety stock in our stores. We are confident that when this new initiative is fully deployed in the second half of 2005, we will reap
the expected benefits.
While we accomplished a lot in 2004, the year was not without its challenges. Our stores and communities in Florida and the Gulf Coast
experienced one of the most intense hurricane seasons on record, with four large storms making landfall. The commitment of store employees in
the affected areas, as well as facilities, logistics and distribution personnel, allowed our stores to open quickly after those storms passed. In many
cases we were open the next day, helping the communities we serve.
As a backdrop to the continued success of our many internal initiatives to drive sales and improve productivity, the macroeconomic
environment remains strong and gives us confidence in our business for the current fiscal year. According to the Blue Chip economic indicators,
the employment picture is brightening, with current estimates suggesting the U.S. economy will add over two million jobs this year. Incomes are
growing, with real disposable income expected to increase by approximately three percent. In addition, supported by strong demand and an
expectation that mortgage rates will remain at historically low levels, the National Association of Realtors®expects 2005 to be the second-best
year on record for housing
— on top of three record years in a row. Add to that the fact that demographic and societal trends remain supportive
to home improvement, and it’s clear why we’re optimistic about our prospects for 2005 and beyond.
On January 28, 2005, Bob Tillman retired as Chairman and CEO after 42 years with the company. I’m privileged to represent the hundreds
of thousands of current and former Lowe’s employees who benefited from his vision and leadership in thanking Bob for his years of dedicated
service to Lowe’s. I’m proud and honored to assume the additional roles of Chairman and CEO, and I look to continue to enhance and cultivate
the exceptional company Bob helped build. I’m confident that with the support of over 160,000 employees, each committed to our culture of
customer service, the future for Lowe’s is as bright as ever.
Robert A. Niblock
Chairman of the Board, President and Chief Executive Officer
April 15, 2005 Mooresville, NC