Lowe’s rolls up its sleeves, addresses merchandising

Lowe’s second-quarter financial report was a disappointment to the company’s executives, who made no excuses for the retailer’s poor showing. Earnings were down slightly, revenues grew by only 1.3%, and comp-store sales were essentially flat. “Even after taking into account the challenges of the macro-environment, we are still not pleased with our performance this year,” said chairman and CEO Robert Niblock, speaking at an analysts’ conference call on Aug. 15.

Instead, Niblock and his executive team outlined a series of initiatives they intend to implement -- or in some cases, accelerate -- to address some “gaps” they’ve identified through a critical analysis undertaken earlier in 2011. “We will go to market differently beginning in the second half of this year,” Niblock said.

What exactly does this means for Lowe’s customers and vendors? The former can expect fewer promotional sales, more emphasis on “Every Day Low Pricing,” and a broader assortment on Lowes.com. If the customers are Spanish speakers, they can conduct their whole e-commerce transition in their native language on Lowe’s new Spanish website.

Customers can also get their lawn mowers, string trimmers and other outdoor power equipment repaired by Lowe’s. The North Carolina retailer just completed the rollout of this program after testing it in 100 stores and finding that customers would rather deal directly with Lowe’s than the manufacturers for repairs.

But many of the current and future changes revolve around merchandising strategies, making them harder to implement and more subtle to notice -- except by suppliers, of course.

Lowe’s is calling its new strategy “integrating planning and execution” (IPE), or putting the right product in the right store at the right quantity. A cornerstone to this process is catering to the needs of local markets. This is not a new concept in retailing -- you don’t send snow blowers to Phoenix -- but Lowe’s wants to peel back layers of previous merchandising habits to create an “institutional memory to maintain local assortment decisions when merchants change.” More than 80% of the merchandising teams have product line reviews in process using IPE techniques, according to the company.

Bob Gfeller, executive VP merchandising, said the line reviews “are uncovering significant consumer insights that are driving different product decisions.”  For example, the IP&E process was recently used in a fashion category, with “talented people” from across Lowe’s organization acting as consumer advocates during all aspects of the product line review, from design to store experience. As a result, selection varied from store to store, as did price points, in keeping with what people expect to see in their local markets. The remerchandised category should be ready for the fall of 2011.

This “solutions-based merchandising” approach was developed in the first half of the year, in a test store where Lowe’s removed a lot of standard racking and experimented with more open vignettes, expanded endcaps and “drop zones.” Gfeller referred to the Holy Grail of retailing -- getting customers to shop across departments and buy everything they need for a remodel at once -- as one motivation for the merchandise retrenching.

“We were not satisfied with second-quarter performance, but my team has been reshaping the merchandising direction, implementing changes now that should advance us further in our multiyear implementation of our broader strategic vision,” Gfeller said. And although he stressed the “test and learn” approach to some of the new ideas, Gfeller also said resets from the current line reviews are now beginning and will continue throughout 2012.