Following last week’s dramatic fall from grace of Target and Walmart on Wall Street, two other winners from the COVID crisis, Lowe’s and Home Depot, delivered better-than-expected results as their ongoing digital transformation programs pay dividends.
As noted previously the DIY/home improvement sector was a pandemic beneficiary as a populace essentially under house arrest finally got going on those often-delayed fixing up projects around those houses. But with the return to offices underway around the world and inflation soaring, there was inevitably a question about whether this boom would be sustained in the Vaccine Economy.
The answer appears to be, yes - or at least, yes, so far.
At Lowe’s, CEO Marvin Ellison is working with a customer base where sales are 75% made up of DIY consumers. While overall sales declined by four percent year-on-year, revenue on lowes.com was up two percent, with online now making up around 10% of sales penetration:
As we enhance our omni-channel offering, we are gaining traction with consumers who increasingly expect a fully integrated shopping experience. We're also expanding our market delivery strategy by adding other big and bulky products in Florida including patio, grills, and riding lawn mowers to the appliances that we already deliver from our cross-dock terminals. By adding these incremental products, we're better leveraging our fixed costs while enhancing customer service at the same time.
Joe McFarland, Executive Vice President, Stores, added that digital transformation in-store has delivered clear benefits:
We are laser-focused on delivering a consistent and high-quality customer experience. At the same time, we have labor aligned to demand patterns so that we effectively manage to our payroll this quarter even in a lower sales environment. The investments that we've made over the past several years and our enhanced labor management tools are clearly paying dividends as we flex labor across stores and departments so effectively that we continue to achieve strong customer satisfaction scores.
Also, the technology enhancements that we've made over the past several years enable our associates to spend 60% of their time serving customers and only 40% on manual tasking activities. As a reminder, as recently as 2018, 60% of all associated time was allocated on tasks that did not support the customer. We flipped this ratio by enabling more and more capabilities on our associates handheld mobile devices, which eliminated many time-consuming tasks.
This is in addition to new technology that has enhanced our point-of-sale checkout, modernized project management, improved inventory visibility and digitized in-store pricing for appliances and lumber. This improved associate productivity has not only driven profitability, but it has also enhanced our customer service.
As for the prospects for the sector, Ellison said:
I think what's interesting for home improvement is that we're aware that we have inflation concerns. We're aware that there are rising interest rates, but as we look at the home improvement sector, we still remain very confident in the outlook and we're very confident in the sector. We've seen no material trade down from our customers. We closely monitor Pro and DIY. We look at it intently as you can imagine.
When we think about the key economic drivers of our business, it remains home price appreciation. It remains the age of housing stock, it remains those things that give the homeowner confidence of continuing to invest in the home. And as we talk to our Pro customers, they're booked us for the year. We talked to our DIY customers, they would just wait when this one come out. So we feel good about the home improvement sector.
I just want to reinforce the point on the value of home price appreciation to consumer confidence. And it's one of the reasons why I think home improvement is a unique retail sector in kind of this macro environment where there are a lot of questions about the health of the consumer. What our data tells us and it correlates historically is when your home value is going up, you simply have more confidence to invest in that home because you see it as an investment and not an expense.
There are similar sentiments over at Home Depot where sales on digital platforms grew 3.7% year-on-year. CEO Ted Decker commented:
A year ago, we delivered the highest first quarter sales in company history as we benefited from outsized demand for home improvement goods, favorable weather and government stimulus. This year, we achieved a new high watermark for first quarter sales as strong demand for home improvement goods continued despite a slower start to spring in many parts of the country…The home improvement consumer remains engaged. Customers continue to tell us that their homes have never been more important and project backlogs are very healthy. We believe that the medium to longer term underpinnings of demand for home improvement have never been stronger
Home Depot’s digital transformation push continues to get investment, while a management reshuffle is intended to boost customer experience with a newly-formed role of EVP of Customer Experience, filled by Matt Carey, while Fahim Siddiqui has been promoted to Executive Vice President and Chief Information Officer, where he will be responsible for all aspects of our technology development and strategy. Decker explained:
These moves will help drive further alignment around our interconnected retail strategy, which will allow us to enhance what we believe is the best experience in home improvement.
How long this continued success will last remains to be seen. If the past few years have taught us nothing else, it is surely to expect the unexpected. But for now, the COVID home improvement boom is looking healthier than might have been anticipated in the Vaccine Economy - and a decent chunk of that is done to long term digital investments.