By Neil Saunders
Although Lowe’s total sales growth looks light, it is affected by the closure of some stores, so the comparable sales number provides a more meaningful guide. On this front, Lowe’s put in a good performance and managed to beat Home Depot—albeit marginally—in terms of US comparables. The figures also demonstrate that Lowe’s has growth momentum, mainly because uplifts have been delivered off the back of tough prior-year comparatives. The results continue to indicate that the recovery program instituted by Marvin Ellison is gaining traction.
Under Ellison, retail basics such as in-stocks, merchandising, and customer service are being improved. This is making the shopping experience easier for both the professional and occasional home improver and is helping to deliver higher conversion and average ticket across both stores and online. We believe that this uplift should continue across the remainder of the year as Lowe’s makes further investments in its proposition.
In a sense, Lowe’s improvement to date has been brought about by better execution, allowing the retailer to get more out of existing customers. It is not, at least not in large part, the result of Lowe’s securing many new shoppers. There is much work to do in making Lowe’s a first-choice destination for more home improvement consumers. This is especially the case online, where Home Depot is the first port of call for the vast majority of those undertaking DIY tasks, something which ultimately crimps Lowe’s online growth numbers.
Bringing this about is not an easy task and Lowe’s will likely never outpace Home Depot. But we are confident that the executional changes being made today will help provide a gentle uplift in customer numbers as Lowe’s reputation for reliability and service strengthen. However, a more substantial uplift in shopper numbers can only be generated by creating sustainable points of differentiation with other players in the market.
The addition of the Craftsman range is a good example of how Lowe’s might be able to compete more effectively with its bigger rival. Since its introduction, this authoritative brand has created much interest and has improved customer conversion and spending in the categories where it has been rolled out. The expansion of the label to new areas like outdoor power equipment should help Lowe’s build further credibility, especially among professional customer segments.
We also believe that more of a focus on retail occasions such as outdoor living, winter preparation, and Christmas will help Lowe’s deliver something different. Home Depot is reasonable in its execution of these, but it remains rather functional and sometimes lacks inspiration. Lowe’s has an opportunity to add value and curate a compelling assortment that help make it more of a destination. The same argument also applies to the softer side of home improvement in home decoration. Although Home Depot is making some moves here, it is not a core focus for the company and therefore there something of a gap in the market that can be exploited.
Alongside the front-of-house changes, Ellison is also putting the operational side of the business in order with improvements to processes and a streamlining of teams. We believe these things will help produce better bottom-line figures, which in concert with sales improvements, should help Lowe’s deliver overall good future results.
Neil Saunders is managing director of research firm GlobalData Retail.