Eagle store conversion headache begins to subside

Home Channel News, Dec 11, 2000

ORANGE COUNTY, CALIF. -- Someday, Lowe's officials may look back upon their company's acquisition of Eagle Hardware & Garden as a smart move that jump-started its Western expansion. But future tense notwithstanding, Eagle's 41 warehouse home centers have been one headache after another for Lowe's, which completed its acquisition of Eagle for $13 billion in stock 20 months ago. The conversion of all the Eagle locations into Lowe's merchandise and display format is almost complete, but in its wake lies the detritus of disgruntled vendors and alienated customers.

In April 1998, Lowe's, a chain that to that point had confined itself pretty much to the southeastern United States, announced its plans to expand into five Western markets with between 100 and 125 stores over the following four years. Seven months after that proclamation, it had struck a deal to buy Eagle, which had gained a following among customers and securities analysts as one of the few viable competitive alternatives to Home Depot in the markets where they both operated.

Lowe's was attracted to Eagle's loyal customer base and its regional approach to merchandising. Acquiring Eagle would eliminate a competitor for both real estate and customers. In addition, Lowe's was gaining the "knowledge base" of 6,000 Eagle employees, which Lowe's chief operating officer Larry Stone said last month was the "primary" reason for making this deal.

Lowe's has retained some of Eagle's category strengths, particularly in kitchen displays, fashion plumbing and hardware. But ultimately, Eagle's product assortment and information technology had to conform to that of its new parent Lowe's tried a variety of approaches -- closing some stores and remodeling them, re-racking the stores while they stayed open and simply switching out the merchandise -- though each of these maneuvers had its drawbacks.

In the first quarter of this year, Lowe's did a complete remodel of an Eagle store prominently located in Norwalk, Calif., next to the 405 freeway. The store was emptied of inventory, new entrances and exits were punched out and the fixtures were replaced. The store was out of operation for three months. "It was a very expensive project," Stone recalled. "And when I multiplied that by 40 stores...." He didn't need to finish his sentence.

Next came Chino Hills and La Quinta, Calif., which Lowe's kept open during their resets. Sales at those stores tanked afterward. So Stone persuaded Lowe's chairman Bob Tillman to empty the remaining two California stores, in Westminster and Torrance, and do a more limited remodeling. The stores would be closed for three months, but the project wasn't as costly.

In the Pacific Northwest, where more than half of Eagle's stores are clustered, Lowe's chose to remerchandise the stores without shutting them. Angry customers complained to The Seattle Times about poor service, unavailable products and disheveled aisles.

Meanwhile, Home Depot converted its Seattle stores to 24-hour operations and stepped up its advertising. Smaller merchants such as Hi-Way Lumber in Medford, Ore., also enjoyed the windfall. "When Eagle came [to Medford] four or five years ago, I lost some walk-in trade," observed store manager Bob Casad. "But with Lowe's, I gained some customers."

Lowe's had expected some customer attrition and comp-store sale reversals in the converted stores, according to Stone. "When you go in and try to remerchandise a 100,000-squarefoot store, it's a massive task," he said. "We didn't underestimate what we had to do." All told, Lowe's has "switched out" 60 percent of Eagle's inventory, which meant "$3 million worth of product is going out the back door [while] $3 million is coming in," said Stone, adding, "Quite frankly, there's just no easy way to do it."

Some of that burden fell on the vendors, which were expected to buy back large quantities of inventory. One building materials supplier, requesting anonymity, told NHCN that Lowe's gave his company 24 hours to pick up $300,000 worth of lumber at one former Eagle store -- and of course issue credit for it. Several suppliers interviewed by NHCN complained about erratic or conflicting communications from Lowe's about what products it wanted in its converted stores.

Then there are vendors left out in the cold by an inflexible sku system. Shawna Thorsheim, a live goods buyer for Evergreen Wholesale Florist in Seattle, was supplying blooming indoor plants to a number of Eagle stores before the changeover. "The managers were basically playing with the [Lowe's] skus to make what they were buying work in the system," Thorsheim said. "But then the Lowe's merchandisers jumped in and said, 'You can't do that anymore.'"

Getting Lowe's to create a new sku number was extremely difficult, according to Thorsheim. Then the Eagle stores started getting large corporate hops of live goods that left room for regional suppliers. "As result, the stores lost their variety," Thorsheim observed.

One of the disruptions Lowe's probably did not anticipate was he massive defection of store managers after its acquisition of the company. According to sources familiar with this deal, more than half of Eagle's store managers left the company, and a sizable number went to work for Home Depot.