Finding its way across North America

Unlike its larger rival, Lowe’s has built its empire of more than 1,400 stores entirely in the United States and opted not to venture into international markets—at least until now.

With store saturation in the United States becoming a real possibility, Lowe’s is making its first move outside of the country with the opening of stores in Canada. The retailer has its first opening slated for the city of Hamilton, Ontario, just outside of Toronto in late summer and has four to five additional openings planned by the end of the year.

Lowe’s has already secured three sites in Ontario for stores in Brantford, South Brampton and Toronto that are all due to open by the end of 2007. Each Canadian store will cover about 145,000 square feet and will cost approximately $20 million apiece to build.

During a presentation in June at a conference hosted by the Sanford Bernstein investment firm, Lowe’s head of investor relations Paul Taft said the company believes the Canadian market won’t be much different than that of the United States. “The do-it-yourself market in Canada is very similar to the U.S. so it’s really a logical extension for us to open stores there,” said Taft. “The challenge will be to get the merchandising right as we expand there in 2007. Lowe’s expects the Canadian market to support up to 100 stores.

And the retailer will have plenty of competition in Canada from two homegrown chains and The Home Depot. Canadian Tire has 470 locations, Rona Inc. has more than 600 and Home Depot has approximately 220 stores.

And international expansion isn’t going to stop there. Lowe’s is planning a move into Mexico in 2009—another place Home Depot already operates—and has even chosen a site for its first stores.

“We’re going to open our first stores in Mexico in the city of Monterrey in 2009,” said Taft. The chain has already named Francisco Fernandez, an executive with former independent chain Total Home, as head of its Mexican division, and has three to five stores scheduled to open in Monterrey two years from now.

But while the market in Canada should be relatively easy to adjust to, the company is expecting things to be different in Mexico. “We know that Mexico is more of a do-it-for-me market as opposed to do-it-yourself, so we’re looking at having to adjust our approach from how we do business in the U.S.,” said Taft.

And while it has no concrete plans for moving beyond North America in the next few years, Taft said that Lowe’s has considered opening stores in China where the number of homeowners is increasing on the heels of a rapidly growing middle class. “We see China as a country that is more do-it-for-me than do-it-yourself and we would have to develop a model that would work in that environment,” he added.

Expansion in Europe is another possibility for Lowe’s, which was rumored in April to be pondering the purchase of the 235-store Focus home improvement chain in the United Kingdom.