When it comes to retail digital transformation, there are few people in the sector with as much experience as Marvin Ellison. Most recently CEO of JC Penney, his 30 year career has also taken in stints at Home Depot and Target.
Ellison took the industry by surprise earlier this year by announcing his departure from JC Penney, where his work was frankly far from complete, to take up the role of CEO at Lowe’s Stores. It was, he says, just too good an offer to pass up:
I grew up in a two stop-light town in Western Tennessee, a middle child of 7 kids, parents who were laborers, my dad worked as a sharecropper, my mom as a maid when I was growing up and to have an opportunity to run a company this large, this prestigious is the American dream. So how do you pass it up?
It’s another case of being the ‘turnaround’ guy for a retail brand that’s in need of some rethinking in an omni-channel world. There are two main types of change that need to be addressed, reckons Ellison:
Some of the changes are what I call process design, because we have a lot of opportunities to have just efficiency around the things that we do that are fundamental to retail processes. And then you have technology enhancements we need to make.
On the process front, there seem to have been some surprises waiting for Ellison:
As an example, one of the things that I was very surprised by is that we have very little, if any, engineered standards in our stores on how we do things. To be more specific, most retailers have taken time-and-motion studies to understand exactly the amount of time it takes to unload a truck, to ring a register, to stock a shelf and to do basic fundamental tasks so that you can build your payroll model around the common motion activities.
There are no engineered standards at Lowe’s. So when I asked a question, ‘OK, you got a 1,000 pieces on this truck that’s showing up, how many hours are we going to allocate to unload that truck?’. The answer is, ‘As many as we need’. So, there is no process [whereby] we can say a thousand pieces will equate to x amount of hour The answer is no, because we have never done that. If a cashier has 10 items in the basket, how long should it take that person to ring up a customer, so we can understand if our execution of checkout is efficient? We have no data.
On the tech front, top of mind is a search to find a new Chief Information Officer to lead the changes here, but Ellison has his own thoughts on the subject:
We are looking at how we can enhance our environment with technology, because today we just throw payroll at every problem and that’s not sustainable and you never get to the root cause. So instead we are saying. ‘OK, we have an issue with being out of stock, let’s look at the algorithm of replenishment, let’s not just throw...more payroll at it…it’s early days, but we see lots of opportunity in the short run, but we also see great possibilities to modernize our business enhancing and we think that we can drive top and bottom line.
Tech will also come into play to improve the customer experience, he adds:
We are not satisfied with our level of service at any level in our stores whether that is in-store, online or on the phone. But here is what I have learned the hard way and I got the scars to prove it - you can’t improve service unless you simplify the business. If you give an associate on the sales floor a choice between doing a task list of 15 things or serving the customer, they are going to do the task list because you can measure if the task was done or not. So one of the first big initiatives that we are focused on...we call simplification. We are going through every single test that is currently being asked of the associate to do and we are asking the question, ‘Does it drive value and can we can we automate it or can we digitize and so we can take it away from the associate to do?’.
What Ellison is keen to keep front of mind is not to chase ‘bright shiny things’ but to remain aware of the need to keep the lights on:
When you focus on something like innovation, you create a mantra that we are going to be a retailer focused on innovation and that’s kind of our calling card. I think that’s appropriate, but you can’t do that at the expense of driving productivity, you can’t do that at the expense of being focused on sales per square foot.
So that means pragmatic investment on things that will deliver benefits, such rolling out mobile devices to all the stores:
We have already funded it and that’s going to be revolutionary for us, because we are still very prehistoric in how our associates pull data on what’s on order, how we track in-stock, how we determine the number of items we have, how we look at sales data based on items. We understand the system we need to be able to pull the data. The associates can have real-time data at their fingertips without having to run to a terminal to determine if something is in-store, online, on order, what’s the price how many units we have...it’s going to be a capital expense that we think we get a quick return on.
There’s also a need to drill down on e-commerce capabilities, says Ellison, and to keep this top of the agenda:
We know that two things are occurring in home improvement. Number one, customers are much more likely to go online to research a purchase even though that purchase maybe made in the store. We understand that, we see it every day. We also understand that e-commerce gives us the best opportunity to extend our assortment and to show our customers a depth and breadth of product assortment and selection that we cannot replicate in the store.
But also e-commerce gives us the ability to take roughly 2,300 locations and create an ecosystem where digital and stores are seamlessly connected as one ecosystem, so customers can shop any time, any way, in any process that they deem to their liking, online and in store.
Ellison estimates that roughly 60% of e-commerce purchases involved the customer engaging with a physical store, but that leaves room for improvement:
Even though I admit that we are not as good as we need to be, our customers are responding in a significant way to our digital/physical store combination. There is a lot of work that we are going to do to better leverage our stores fulfillment. There is more work that we are going to do to make sure that we improve our navigation, our search, our checkout, our mobile app on our pure e-commerce function.
But the key to it all is how do you connect the physical and the digital and we know that it’s something that we will continue to work on...we are building an organization that’s going to allow us we think to leapfrog our competitors in the future because we have a really good vision around how we combine our stores and our digital platforms as one ecosystem...there are a lot of retailers out there that I think are a really good benchmark. I think Best Buy is a benchmark, I think Target, I think Walmart. And so you have a really retail universe of companies that are doing this very, very well.
Next up is a revamped strategy around supply chain management, something that is another area in need of upgrading, says Ellison:
I would say our supply chain was very adequate for a retail company that was traditionally a brick-and-mortar retail comp, but as you think about this whole omni-channel, connecting digital and physical, that’s really what a transformation has to play out. I think the biggest supply chain initiative...is the ability to shift all of our customer delivery from the store to more of a central model. What that will do is allow us to take our industry-leading market share position in appliances and take that burden off the stores and move it to more of a integrated supply chain model, where we will not put the stores through that process.
That will be a game changer for us, because it frees up a significant amount of space in the stores to do other things within the omni-channel model that we currently cannot do. In addition to that, we think it can be a better service for the customer, because we can ship to them, more home deliveries that are more aggregated than just uniquely one item. That’s the biggest transformation.
Ellison has a big job on his hands here. His departure from JC Penney came at a time when its omni-channel efforts still weren’t delivering, but it’s worth looking further back to his time at Home Depot for the more likely outcome in his new role. The story there is one of inter-connected retail and it’s producing results. If Ellison can replicate that story at Lowe’s, then he’ll succeed.