In a presentation to investors on Wednesday, newly arrived Lowe's CEO Marvin Ellison, a veteran of the retailer’s main rival, The Home Depot, said that Lowe’s had lost its way but has identified areas to improve and on which to base strong growth.
Ellison said the retailer will make retail fundamentals a priority in the wake of missteps — including a website outage during peak Black Friday shopping — but will continue with its technology efforts. As part of the investor day, Lowe’s also unveiled a focus on its pro customers and a new marketing approach aimed at a wider audience which includes a new slogan, "Do it right for less. Start with Lowe’s."
In the few months since his arrival, Ellison has shaken up his team and shuttered underperforming stores, including the complete shutdown of the Orchard Supply Hardware unit and its Mexico operations.
Ellison and his team delivered some tough talk last week. He characterized the retailer’s Black Friday e-commerce blunder as humiliating but said it's all the worse because, he said, too often analogous breakdowns happen every day on Lowe's store floors.
"Despite a favorable macro environment … [we] have not performed," he said, according to a webcast of the presentation.
While the retailer will continue with its state of the art virtual reality and other experiments, for which it’s become known, Ellison said the company wouldn’t be showing off those flashy features because it’s getting back to retail fundamentals. Indeed, he noted that the company's backrooms too often rely on paper, pens and hard binders, making operations inefficient and ineffective.
The company must also step up its game with its pro customer, which spends more but has expectations for service and merchandising that Lowe's isn't adequately supplying, according to executives.
"We’ve fallen out of step with the pro," the company’s new merchandising chief William Boltz told investors, a significant problem in light of Ellison’s contention moments before that professionals in construction and related trades spend five times more than the do-it-yourself customer.
The company is also working on its omnichannel capabilities, and Ellison said that’s "where the transformation is going to play out," noting that 60% of online orders are picked up in store.
That will be crucial, agrees GlobalData Retail Managing Director Neil Saunders, who also said that Home Depot has already mastered omnichannel and taken share in the process.
"[W]hile online purchasing only represents about 4.9% of all home improvement sales, the channel is growing rapidly," he said in comments regarding Lowe’s emailed to Retail Dive last month. "Many consumers now use online as an important part of their purchasing journey, including to find items they need, check stock in stores, and place orders for collection in shops. ... In our view, Lowe's is going in the right direction but has a lot of work to do in catching up with its larger rival. Omnichannel is now the new battleground in home improvement, and Lowe's is currently on the losing side."
The turnaround is being launched amid a downgrade from Moody's, which last week warned that the home improvement retailer's recently adopted "more aggressive financial policy ... will result in significantly higher debt levels and weaker credit metrics and reduces the company's financial flexibility," according to Moody's Senior Credit Officer Bill Fahy. "However, Moody's estimates Lowe's earnings, cash flows and liquidity will remain solid as it executes various strategic initiatives intended to address these operational challenges."