When Marvin Ellison, 53, recently joined Lowe’s as CEO and president, it was a surprise. He had been the CEO of J.C.Penney for only 3 years and had not yet achieved any significant goals. Before that, he had been with Target for 15 years and had a 12-year tenure at the Home Depot. During that time, he established a very fine reputation as being very people-oriented. At the Home Depot, he was EVP of stores for six years and his interpersonal relationships were superb. In contrast, at J.C.Penney he lacked merchandising support and couldn’t make the progress needed.
Now, at Lowe’s, Ellison will try to show his mettle. At a recent brokerage house meeting, he listed what is wrong at Lowe’s. It is a very long list. He plans to change everything—from supply chain to logistics to design. One wonders how Lowe’s became a $69.6 billion company with 2,390 home improvement stores by bumbling up to date. (Lowe’s had $3.4 billion net earnings in 2017.) Sure, every company needs technology enhancements, but not by throwing out everything that the company is already doing.
Ellison brought with him several loyal lieutenants, like Joe McFadden from J.C.Penney as EVP of stores. He also hired Donald Frieson from Walmart’s Sam’s Club as EVP of supply chain, Bill Boltz as chief merchant from Chevron and previously from Home Depot and Sears, and added David Denton as EVP and CFO (he had been CFO at CVS). That adds up to big change for the associates.
Ellison wants to centralize the company and make decisions at headquarters in Mooresville, North Carolina. This change of policy, from a more decentralized organization, will require many operational and technological changes. However, the strategy requires higher productivity to drive profits, but such significant change is usually very disruptive and hard for an organization to absorb smoothly. As I understand the plan, an aggressive price policy is being implemented to be more competitive in the home improvement field as well. I have already seen strong “two-for-one” promotions by the company.
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It may be a mistake.
The competition is waiting and will fight back.
One of the strongest and best-run home improvement companies in U.S. retailing is Home Depot. Fiscal year 2017 sales were $100.9 billion, and net earnings were $8.6 billion. It has 2,286 retail stores in all 50 states, the District of Columbia, Puerto Rico, U.S, Virgin Islands, Guam, Canada and Mexico.
Home Depot’s current management is led by Craig Menear, 61. President and CEO since February 2015, he has been with the company since 1997 and held many management positions over the years. He became EVP of merchandising in 2007 and remained in that role until 2014 when he was appointed president of the company. He is a seasoned merchant and has now added focus on the professional construction and home building customer. They have their own incentives.
Of course, value is a strong driver of the company, and all customers can find many of the best brands in the home improvement warehouse stores on sale.
To remain competitive, Home Depot is investing $1.2 billion over the next five years to transform its supply chain. That will result in same-day and next-day delivery for 90% of the U.S. population. That will help the speed of new construction work. Management has also embraced personalization as a theme and is making every associate respond to this initiative. Not only will that core value resonate more with customers, but I think associates will use it to find ways to create more opportunities for purchases.
For many years, the Home Depot philosophy has been to create value for the customer. They call it the three-legged stool; customer experience, product authority and capital allocation driven by productivity and efficiency are the three legs. This philosophy has been a strong underpinning of the company and, in the competition with Lowe’s product authority, will stand out.
I think there will be stronger, and more intense, competition between Lowe’s and Home Depot now. My money is on Home Depot’s seasoned management and aggressive pricing of famous brands. Lowe’s new management may be overly ambitious.
Date: September 13, 2018