Five highlights from Lowe’s CEO
At the Goldman Sachs 30th Annual Global Retailing Conference in New York, the lineup of speakers included Marvin Ellison, chairman and CEO of Mooresville, North Carolina-based Lowe’s.
Fielding about a dozen questions from analysts on topics ranging from share of wallet to home appliances to the “flywheel effect,” Ellison held court for about a half hour.
Here are five highlights from his presentation:
1. Factors that make Lowe’s go.
“For us at Lowe's, the two more consistent demand drivers, are home price appreciation and personal disposable income,” the CEO said.
He explained that home price appreciation and equities are up significantly even when compared to pre-pandemic levels.
“But on that personal disposal income, we're seeing that do-it-yourself customer to be a bit cautious. And as a reminder, at Lowe's, 75% of our revenue is driven by the DIY customer and 25% by the pros. Whenever that DIY customer becomes cautious, specifically on big ticket, it disproportionately affects us.”
“Having said all of that, we feel great about the medium-to long-term prospects of the sector and of our business,” he added.
2. Roads to increased share of wallet
“The share of wallet for us is really being driven by strong performance in two businesses, and that's pro and online,” he said. “Even in a market that's down this year, we've had positive growth in online and in pro.”
Ellison described the Lowe’s core pro customer as a small-to-medium-sized pro. “We’re not chasing the larger more industrial pro. That’s not in our strategic viewpoint, as of yet.”
That small- to medium-sized Pro represents about $250 billion in market share opportunity, he said.
3. The “flywheel effect”
“When you look at the $250 billion market share opportunity for the small-to-medium-sized pro, we think that the flywheel effect of the investments we've made in service levels, brands, loyalty program, CRM, digital online channels—we think that that flywheel will allow us to continue to take share in that specific segment.”
The “flywheel effect” is a term coined by business guru Jim Collins in his book “Good to Great,” Simply put, it describes the business momentum gained from small wins.
“You're going to see us continue to improve our fulfillment capabilities. And you're going to see us continue to attract additional brands and create a broader assortment of existing brands,” he said.
“And we have an expectation that we'll grow this pro business two times the market.”
4. Appliance leadership
The CEO described the company as “incredibly excited” about the company’s market share position in appliances, which account for roughly 14 percent of total sales.
He pointed to reasons for Lowe’s success and his optimism for growth in the appliance aisle.
“Number one, we've dedicated the most space,” he said. “We have the widest selection of brands. And we have now the ability of to deliver next day in every market where we have market delivery currently in place. And we'll have the entire company, for all intents and purposes, built out on market delivery by the end of the fiscal calendar.”
5. A project near and dear to Ellison’s heart: rural stores.
Explaining to analysts that he grew up in a rural environment, the Lowe’s CEO added that when he visits his dad out in the country, he ends up spending a lot of time in stores in the surrounding area (“to the dismay of my executives,” he added.)
The purpose of those visits is to better understand how those rural stores are serving customers. One finding was a need to be more of a one-stop-shop.
“So we just decided to take a step back, look at the space productivity of these rural locations and [ask]: are there categories we could exit out of that are not very productive? And could we replace them with more productive categories so that we could give that rural customer more of a one-stop shop?”
He said he was pleased with results of investments in workwear with Carhartt and others, with Petco store-in-a-store concept, with ATV vehicles and other areas.
“The expectation for us is to grow share of wallet, increase number of business and transactions and increase average ticket size. And we're really pleased with what we're seeing in the early stages of this,” he said.
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Correction: A previous version of this story incorrectly described the estimated market share opportunity represented by the small to medium-sized pro. It is $250 billion.
