Eye-on-Retail Tipsheet 11/20/12: Lowe’s Q3 call deep dive; Amazon would “love” to open retail stores.
Yesterday’s Lowe’s Q3 Earnings Call Highlights
Heard on the Call…
In the US, Lowe’s is focused on two large bodies of work this year — value improvement and product differentiation.
Through these efforts, Lowe’s expects to deliver comp transaction growth and better gross margin by localizing assortment (i.e. store clustering), driving excitement in stores through better display techniques, and managing an appropriate balance of product costs and retail pricing. Lowe’s expects to have this work done by mid-2013.
Accelerated line reviews and resets
Expect to finish line reviews in 90% of categories by end of this fiscal year.
Expect to reset 40-50% of business by the end of this fiscal year.
Resets are “peaking now” in early fourth quarter
Categories that have gone through reset have stabilized.
About 3-4 dozen categories have reached “normalization” stage now
Less than 20% of categories have “normalized” at this point
Seeking to improve product line designs…to make them more relevant to the markets they serve…reducing duplication among price points.
Tile category held up as an example of the accelerated line review process working well. Lowe’s started with consumer insights..used analysis to group stores into four clusters…sent firm expectations to vendor partners to bring innovation to line review..result was dropping duplicated skus while adding new wood looks…still reducing inventory by 20%…while investing in more inventory of popular and new styles and sizes.
Paint cited as a category that benefited from reset. They developed four new color collections one for each season…introduced premixed paint samples…and simplified offering of paint applicators.
Redirecting inventory dollar savings and vendor promotional dollars to higher velocity skus, job lot quantities, etc.
Product differentiation – Lowe’s is in the process of updating endcaps and is working to have better adjacencies with inline inventory. A cross-functional team is spearheading the process.
Endcaps — What’s working: Innovation endcaps, videos.
Endcaps — What isn’t working: “Theme” endcaps with multiple products…Takeaway “keep it simple”. Adjacencies to inline inventory is a weak spot but they’re working to remedy.
Categories that comped above company average: lumber, tools, lawn and garden, cabinets, paint, storage, cleaning, appliances and hardware.
12 of 14 product categories positive comped in Q3.
Nearly 2/3 of product categories comped above co. average in Q3.
Strength in commercial business..which is 25% of sales.
Lawn and garden cited as a Q3 success story where they were prepared with ample inventory and drove improved attachment rates in live goods, fertilizers, solid rocks and mulch.
Housing market is “on the mend”…but overall consumers remain cautiously optimistic.
Consumer sentiment study conducted by Lowe’s found that spending is staying the same or declining and the majority of those who delay a project site a lack of income growth as the primary reason.
Consumer sentiment study also found that the overwhelming number of projects planned for the next three months are for tickets under $500.
Lowe’s details storm stages as 1) Prep, 2) Impact, 3) Cleanup and 4) Recovery. Regarding Sandy, they say they’ve already been through the Prep and Impact stages and some of Cleanup. Cleanup will continue into Q4 and Recovery will extend into 2013.
Canada — Rona
“We like Canada from a market standpoint…pleased with performance of our 32 stores..continue to make improvement…but we need more scale..will come from opening additional stores…ecommerce site in Canada now open..ships to home or store…will also continue to look at acquisitions.”
Click here for webcast: https://phx.corporate-ir.net/phoenix.zhtml?c=95223&p=irol-EventDetails&EventId=4869856
“Lowe’s efforts to cut costs, spur sales paying off” by Phil Wohba at Reuters. “Credit Suisse analyst Gary Balter, in a research note, called the results “a promising inflection” that signed Lowe’s efforts are “beginning to take hold. On a call with analysts, Chief Executive Robert Niblock said the company’s current transformation phase would end in mid-2013.” https://www.reuters.com/article/2012/11/19/us-lowes-results-idUSBRE8AI0QK20121119
“Jeff Bezos: We would love to open Amazon retail stores” by Dan Farber at CNET (Video with text). Bezos — “We would love to but only if we can have a truly differentiated idea. We don’t do a me-too product offering very well. When I look at physical retail stores, it’s very well served. The people who operate physical retail stores are very good at it. The question we would always have before we would embark on such an thing is what’s the idea, what would we do that would be different, how would it be better… we don’t want to be redundant.” https://news.cnet.com/8301-1023_3-57551081-93/jeff-bezos-we-would-love-to-open-amazon-retail-stores/
“Amazon goes Hollywood” by JP Mangalinden in CNN Money/Fortune. “Can Amazon do to Hollywood what it has done to the publishing and retailing industries? Two years ago Jeff Bezos & Co. launched Amazon Studios, which aims to compete with traditional production companies by developing feature-length films and television series — with a distinctly Amazonian twist: Scripts and pitches are uploaded online, and may be evaluated and commented on by the public.” https://management.fortune.cnn.com/2012/11/16/bezos-amazon-studios/
CareerBliss Announces the Top 10 Happiest Stores for Your Shopping Pleasure. “CareerBliss analyzed more than ten thousand independent company reviews, evaluating which retail employees were happiest. Nordstrom—known for its customer service oriented culture—tops the list in providing a happy work environment for its employees. Following Nordstrom is Macy’s, OfficeMax, Best Buy and GameStop to round out the happiest retailers in America.” https://www.businesswire.com/portal/site/home/permalink/?ndmViewId=news_view&newsLang=en&newsId=20121119006880&div=-1245645151
“Wal-Mart fights back as Black Friday strike nears” by Jessica Wohl in The Christian Science Monitor. “Wal-Mart Stores Inc. is taking legal measures to sop months of protests at stores nationwide, filing charges against the union it says is behind such actions. The move comes as a group of Wal-Mart workers prepare to strike on Black Friday, the busiest shopping day of the year.” https://www.csmonitor.com/Business/Latest-News-Wires/2012/1119/Wal-Mart-fights-back-as-Black-Friday-strike-nears
“Pinterest Releases Business Accounts” by Armando Roggio in Practical Ecommerce. “Thousands of businesses have become part of our community, giving great ideas, content and inspiration to people on Pinterest. Whether it’s Anthropologie sharing awesome clothes, Whole Foods sharing tasty recipes, the Smithsonian sharing fascinating collections, or Amazon making products easy to pin, many of us have been inspired on Pinterest by businesses. We want to help more businesses provide great content on Pinterest and make it easy to pin from their websites. Today, we’re taking a first step toward that goal with some free tools and resources,” wrote Pinterest Product Manager, Cat Lee on the company’s blog.” https://www.practicalecommerce.com/articles/3812-Pinterest-Releases-Business-Accounts
“Staples CEO Sargent quits Home Depot board” by Jacques Couret in the Atlanta Business Chronicle. “The Atlanta-based home improvement giant reported in a U.S. Securities and Exchange filing..Staples Inc. Chairman and CEO Ronald L. Sargent resigned immediately from the Home Depot (NYSE: HD) board of directors.” https://www.bizjournals.com/atlanta/news/2012/11/16/staples-ceo-sargent-quits-home-depot.html
“Sears Canada launches new ad campaign for holiday season” (Video with text) by Hollie Shaw at Financial Post. “The company is trying to focus promoting its core merchandise categories including major appliances and furniture before Target Canada opens in Spring 2013. This week Sears Canada reported a net loss in the third quarter and a 7% drop in revenue.” https://business.financialpost.com/2012/11/15/sears-canada-launches-new-ad-campaign-for-holiday-season/