Lowe’s CEO Marvin Ellison Talks ‘Retail Fundamentals’

By Dave Sebastian |  February 6, 2019

A robot that guides customers to a specific item on the store shelf. A virtual-reality environment that lets customers visualize home renovations before they happen. Those were just two of the efforts that home-improvement retailer Lowe’s Companies has rolled out of its innovation labs to upgrade the shopping experience.

Leveraging new technologies to enhance the customer experience is essential, Lowe’s CEO Marvin Ellison said at the National Retail Federation’s annual trade show in January. But he’s been enforcing a mantra since he took the helm in July 2018: retail fundamentals.

Source: National Retail Federation

Marvin Ellison, CEO of Lowes

“We need to modernize,” Ellison said in a talk with Susan Hart, the Global Retail Practice Leader at the recruiting firm Spencer Stuart. “[I]t’s getting back to the basics. This may not be too sexy, too innovative, but if you’re a retailer, you have to be in stock. You have to have online capabilities with easy navigation search and checkout, and you have to be multi-channel, where customers can shop online and in store seamlessly. And you need great service and good training from your associate population.”

Ellison has been an agent of change since coming on board last year; he’d previously served as CEO of JCPenney. Lowe’s announced plans to close 51 of its “underperforming” stores in the United States and Canada. And Ellison has also restructured his C-Suite, installing new people into roles from Chief Financial Officer to the Head of Supply Chain.

The changes came as Lowe’s posted $68.62 billion in revenue for 2018. But the company is struggling to keep pace with rivals like Amazon and Home Depot.As Lowe’s seeks to gain a bigger slice of the market share, Ellison said that retail fundamentals come above all else. (While Ellison made no mention in his NRF talk of the company’s network of innovation labs, a company spokesperson confirmed that they are still operating under Seemantini Godbole, the new Chief Information Officer, who joined in November 2018.)

“You can’t put the icing before the cake,” Ellison said. “We talk a lot about icing lately, but the fundamentals — or the cake — has not been baked nearly as effectively as it could be.”

Edited highlights from Ellison’s talk are below. 

Customers Respond to Innovation

Appliances have become incredible hubs for innovation, where you can get messages from your refrigerator, telling you what you need to buy based on the current quantity. You can remotely view on your smartphone the contents of your refrigerator while you’re out shopping. … What’s important about that is customers really respond well to innovation, and that’s the one thing that Lowe’s, I think, has done a nice job of. … [O]ur merchant team’s spending a lot of time with suppliers, we’re spending a lot of time with our proprietary branded product trying to understand what’s next, to ensure that we are on the leading end and we’re not lagging.

The Pricier the Home, the More Opportunities for Lowe’s

What’s unique about home improvement is that we look at housing as a broad, macro-measurement. … Two things that we look at in the housing macro is real residential investment and real price appreciation. So obviously the interest rate environment has put some pressure on real residential investment, but home price appreciation continues to go up, and that really resonates positively to our business. As long as your home is going up in value, you have a positive thought process around investing in a home. If your neighbor sells their home, and they make a significant kind of appreciation and a sell price, then you have the confidence to go out and replace your countertops with granite… [Y]ou have confidence in putting in a new floor because you believe you’re going to get return on that investment. But if your home price is declining or your neighbor sold their home and the opposite occurred and they lost money, then you’d be really reluctant to put any investment in your home.

Strengthening the Core

Lowe’s was a great example of good being the enemy of great. The question is: How much better can you be? How much better can you be for shareholder return and for creating an environment that’s great for your associates to work [in]? We’re on a journey not to be a good company but to be a great company, and part of that is the awareness that we can be better. And so when you look back at when we made capital investments the last five to seven years, you can determine quickly that the focus of the company had shifted from the core retail business to other things — being a smart home business to being an insurance restoration business, having joint ventures globally that didn’t pay off to the degree it should, getting into the small retail format business. We did all of those things, and by doing that, the capital allocation was spread away from core fundamental things like having a world-class supply chain, like having modern info technology as a platform, like having modern merchandise systems … in the store to create seamless, simple, and limited-effort jobs for the associates.

… You have to invest your capital in maintaining, strengthening the core of your business. … And so we’re going back, and we’re just revisiting those things — what we’re calling it is “retail fundamentals.” Retail fundamentals is just a term for, how do you get back to the basics of great product presentation in the store and online, great staffing and training, being in stock, marketing messages that resonate, and the ability to have a multiple-platform business to serve customers the way they want to shop? It’s getting back to those basics [that] we think will unlock tons of opportunities for us — both financially and from a standpoint of growing our customer base.

The Need to Understand Millennial Customers

The good news is that [there was] a strong belief coming out of the financial crisis that the millennial…demographic [would] shy away from home ownership, and that’s just not true. I mean, [it’s] totally contrary. Millennials are buying homes and are first-time home owners. … They desire to live closer to the city. … They’re going into those homes and they’re making investments to make those homes modern to their taste. And so the millennial customer and the demographic is going to emerge very soon as the demographic [that is] larger and more powerful than baby boomers, which is going to be significant not only for Lowe’s, but for all retail and everyone selling goods and services. So I think it’s incumbent on us as a company to really understand those customers… When we look at our marketing, when we look at our products that we sell, when you look at innovation of products, all those things are very, very relevant. … We understand the customer well, and we know that we’re going to have to be significantly better in the future…