Dive Brief:
- Lowe's will invest $1.7 billion to transform its supply chain over the next five years, CEO Marvin Ellison said on the retailer's third-quarter earnings call Wednesday.
- The spending has already begun, including the opening of two new bulk distribution centers and three cross-dock terminals this year.
- "This infrastructure improvement will be key to Lowes’ transitioning from a store-based home delivery model to a market-based model," Ellison said, who added the ultimate goal is to "build a true omnichannel ecosystem."
Dive Insight:
The new warehouses are taking pressure off stores to make customer deliveries, Ellison said. This is an important shift since Ellison's main challenge at Lowe's since day one has been to figure out how to keep in-store items in stock.
"We didn’t make any bones about the fact that this is a company that had great potential but it had under invested in supply chain, IT, and also leadership development," Ellison said.
The investment timeline further proves the long haul ahead for Ellison and Lowe's. An early step was to boost inventory by more than 15% in the second quarter to ensure in-stock status. Inventory grew an additional 10.9% year-over-year in Q3. Now the CEO must build a network that can support healthy inventory and in-store replenishment without inflated product levels.
"Throughout 2020 we will refine our in-stock expectations and begin to strategically reduce inventories in certain areas while protecting our in-stock position, sales and gross margin," CFO David Denton said.
Ellison explained that boosting omnichannel capabilities will be key to growing Lowe's online sales, which lag behind most retailers of comparable size — posting just 3% in year-over-year sales growth for the quarter.
