One of the retail markets to ‘have a good pandemic’ was the DIY and home improvement sector. With millions of people locked in their homes, there was no excuse not to get on with those little jobs around the place that had slipped by over the years. And key to the success for retailers here was having a robust omni-channel offering that could compensate for eager home improvers not being able to get into the store to buy what they needed to get underway.
But in the cold light of the Vaccine Economy, things have changed - and not for the better, as the two US market leaders, Lowe’s and Home Depot, are finding to their cost. At Lowe’s online sales are down four percent year-on-year, slightly better than Home Depot which has seen a five percent decline on its digital platform use.
So, what’s to do? According to Lowe’s CEO Marvin Ellison, a big omni-channel champion, there are clear macro-economic factors at play:
While we've seen a more cautious consumer for some time now, this quarter, we saw some of these consumers increasingly prioritizing experiences over goods, spending on travel and entertainment. As a reminder, at Lowe's, 75% of our revenue is driven by DIY customers and 25% by Pros while the broader market mix is roughly 50% DIY and 50% Pro. As a result, whenever the DIY customer becomes cautious, it disproportionately affects us.
We saw increased pressure on sales of bigger ticket purchases like appliances, where consumers are postponing purchases, if they can. For example, customers who may have previously bought an entire kitchen suite may now just buy a refrigerator.
But Ellison is determined to continue to upgrade the technology underpinning Lowe’s business, having been a strong critic of the legacy platforms with which the retailer has struggled in recent years:
We're making progress with the investments we've made over the last several years to improve our service offering, including increasing loyalty through our MVP Pro Rewards, developing a world-class CRM platform, improving job site delivery, enhancing service levels in our stores, creating a more seamless online experience and a number of merchandising initiatives
Joe McFarland, EVP of Stores, highlights some of the changes that have been on the back of what he calls “our foundational technology investments”. These are, he explains, designed to modernize operational store process, simplify the work of store associates and create a great customer experience:
For starters, we created an industry-leading customer centric scheduling system, which allows us to predict customer demand and align staffing around peak customer traffic for each store and each department. This system creates enhanced operational agility so we can rapidly adjust as demand pattern shift.
Second, we've enabled greater productivity by putting mobile smart devices in all of our associates' hands to make them more efficient, reducing manual tasking and enabling faster customer service. For example, by integrating smart devices with our new Store Inventory Management System or SIMS, our associates can find products 40% faster. And through Project Simple, we've eliminated duplicative tasks and reduced non-productive hours, so we could repurpose associate time from tasking to selling and service.
A third foundational improvement is the expansion of our Merchandising Services Team or MST. This team keeps our shelves stocked and they recently assumed responsibilities for price changes across the store and watering in the garden center. MST is now leveraging a new app that directs them to serve a specific base based on the rate of sales, making their hard work even more productive and freeing up more time for our Red Vest associates to spend with customers.
The company has also fully retired its old self-checkout systems and have shifted to proprietary self-checkout systems, he adds:
We've seen greater customer adoption of these new systems since they're so much easier to use. In fact, our front-end transformation is well underway with approximately 450 stores planned by the end of this year. Over a three-year timeline, we're revamping the checkout experience across all of our stores and increasing the selling space at the front. We're adding more merchandise right at checkout with a new design that makes it easy to showcase grab-and-go items. And with this front-end transformation, we're shifting to an easy-to-use assisted self-checkout with cashiers, who'd be right there to answer questions and help customers when they need it.
And the Buy Online, Pick-up In Store (BOPIS) offering that was so important during the COVID crisis is getting a ramp-up, he says:
We're tripling the staging area for BOPIS orders to support increased online sales and create a much faster, easier, customer experience, building on our momentum when it comes to driving improved customer service scores for these orders. At the same time, we're excited to launch omni-selling in our stores, a critical milestone in our journey to become a world class omni-channel retailer.
Enabled by our new store operating system, we can now easily sell our endless aisle on lowes.com within the aisles of our stores. For example, let's say a customer is shopping for new faucets and browsing our selection of the most popular finishes in the store. While talking with an associate, they decide to go with the unique finish from lowes.com that the associate highlights on their mobile device. The associate then saves the faucet in the customer's digital card with their phone number and the customer can continue shopping in the store.
When the customer is ready to checkout, all the cashier needs to do to combine the digital and physical purchases is pull up the digital card using the customer's phone number. We're still in the early innings here, but we know this is a great opportunity to drive our omni sales and make sure our customers get everything they need to complete their project in one shopping trip.
It’s a similar story at Home Depot where CEO Edward Decker sums up the current climate as “a period of moderation” but adds:
However, we are confident in our ability to navigate through this unique environment. We remain very excited about our strategic initiatives and are committed to investing in the business to deliver the best interconnected shopping experience, capture wallet share with the Pro and grow our store footprint…We continue to invest and focus on creating a frictionless interconnected shopping experience for our customers. We are pleased with the progress we are making. homedepot.com is one of the largest retail websites in the United States, and our digital app is one of the most highly rated in all of retail.
But there is still room to “reduce pain points across the shopping journey,” he admits:
Our teams are identifying areas of improvement like better communication throughout the shopping journey and an easier returns process and the ability to seamlessly and intuitively make changes to an order once placed.
Senior EVP, US Stores and International Operations Ann-Marie Campbell picks up the story:
In the past, we've talked about GSR or ‘get stores right’. GSR drives productivity by using our proprietary space allocation model coupled with our tenured field merchandising teams to determine which categories to invest in on a store-by-store basis. More recently, we have talked about our rollout of Sidekick and computer vision. Using Machine Learning technology, computer vision helps our associates quickly find de-palletized product in the overhead and Sidekick helps direct associates to key bays where OSA [On Shelf Availability] is low or doesn’t exist.
Today, these tools have been deployed across all US stores. And while early days, they have driven meaningful improvement in our on-shelf availability. The beauty of these initiatives is that they also drive productivity. They make it easier for associates to restock product, have a greater depth of high-velocity product and ensure we remain in stock with more products on the shelf and available for sale. As a result, we enable our associates to focus on the most important tasks and allocate more time to deliver a better shopping experience.
And it seems there’s more to come, as Decker states firmly:
The technology project list over the next three to five years is robust and it's going to allow us to continue to find ways to drive profitability, irrespective of the macro=environment that we're in.
We cannot overlook the fact that we now have the oldest housing stock in US. history with the medium age of homes now 41 years old, which will need ongoing investments in repair and re-model projects. These factors continue to reinforce our optimism about the mid to long term outlook for our industry.
From a British perspective, sitting in a house built in 1872, the idea that the median age of homes in the US is a mere 41 years amuses me rather, as does the, I’m sure, inadvertent implication here that waiting for obsolescence is a strategic option for Home Depot and others.
But both Lowe’s and Home Depot seem rightly intent on keeping an eye on the long game and using this “period of moderation” as an opportunity to continue to execute on omni-channel transformation.