Lowe’s fourth-quarter performance reflected some of the difficulties the retailer experienced from challenging the status quo in 2018. Lowe’s reported a net loss of USD824 million on a 1% increase in sales in the quarter. While a weaker housing market in Canada and unfavorable winter weather likely factored into Lowe’s performance, the retailer is clearly experiencing the near-term effects of its recent strategy shifts. Despite these dampening effects, Lowe’s continues to push forward with newly announced initiatives to ultimately position itself for future growth.
Impact of Recent Strategic Shifts Lingers on Results
Divestment and store closure costs continued to be a drag on the retailer’s performance. In Q4, Lowe’s recognized approximately USD1.6 billion in pretax charges, the largest of which related to a goodwill impairment of its Canadian business. Elsewhere, the retailer incurred lease and severance obligations from closing its Orchard Supply Hardware banner, its Mexico operation, and its underperforming U.S. and Canadian stores. Another hit came from taking an inventory write-down on clearance activity from intense SKU rationalization and divestment in its Alacrity Renovation Services unit and its Iris Smart Home brand. Although these charges caused an anticipated short-term hit to earnings, they highlight new leadership’s commitment to honing its focus on retail fundamentals to drive long-term growth.
New Initiatives Show Early Signs of Success
As the retailer finished out a year of rebalancing, Lowe’s executives were optimistic about the return it is already recognizing across a number of strategic pilots. To start, its effort to manage inventory and out- of-stocks in stores began to pay off. On the floor, the new vendor-funded Merchandise Execution Teams focus on monitoring inventory levels and resetting off-shelf displays. The retailer also began to give store managers more autonomy to reorder popular SKUs at their discretion and streamlined weekly reporting to give associates more time to assist shoppers. In its pro contractor business, Lowe’s began introducing job-lot quantities of select pro-heavy SKUs and test markets. The combination of these initiatives helped boost Lowe’s January comps and transactions significantly, while also raising satisfaction scores and penetration among pros.
Looking Forward: Preparing for the Spring Selling Season
As these new initiatives begin to take shape, Lowe’s is laser-focused on optimizing its assortment and execution ahead of its busiest season. Taking learnings from the early successes of its pilots, Lowe’s will roll out certain initiatives more widely to capitalize on increased seasonal demand. Additionally, the retailer plans to launch its Field Merchandising Teams, which will enable more localized assortments and efficient resets as spring begins to break. Suppliers should expect the retailer to focus heavily on efficiency and forecasting as it works to avoid out-of-stocks in its top season. Also consider opportunities to partner with new execution teams to help hone messaging and off-shelf displays for your products.
As the home improvement channel gears up for the spring, we’ll be keeping an eye out for merchandising and shopper trends impacting the season. In the meantime, stay tuned to KRIQ for our full analysis of Lowe’s and Home Depot’s fourth-quarter and full-year 2018 performances.
For more information, please contact:
Hannah Hayes, Analyst