Lowe's – Pricing Opportunities as Demand Levels Off – 21
October 2021
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Specialist:
Title:
Moderator: Nyree Hinton (NH), Third Bridge Sector Analyst
Stacey Ryan (SR)
Former President, Operations at Lowe's Companies Inc
Agenda:
1. Category overview – brand management, pandemic impacts and private label
2. Physical retail footprint for Lowe's (NYSE: LOW), including regional consumer trends vs Home Depot
(NYSE: HD)
3. Pricing trends, inventory management and sustainability of price increases
4. Omnichannel update – fulfillment timelines and digital experience
Contents
Q: Could you give an overview of the home improvement industry, which is very broad, and highlight a few
categories that stick out for their growth?
Q: How do big box retailers decide how to fit their category offerings or strategise what to include in their
stores, given there are some pure-plays but also so many categories?
3
3
Q: How has the pandemic impacted or charged demand? How did the retailers react to the pandemic across
their fall clean-up or other seasonal items? Could you could compare Lowe’s and Home Depot’s strategic
positioning? Lowe’s seems a little stagnated on growth while Home Depot seems to be continuing to grow at
a large clip while the coronavirus bump is fading. When you look at the pandemic and what it has done to the
4
industry as a whole, I feel like housing is always on fire.
Q: How would you compare the capabilities of Home Depot and Lowe’s to keep products in stock?
Q: How patient were consumers with out-of-stock items during the pandemic? Is there brand loyalty such
that a consumer is likely to order and wait a few weeks or are they more likely to visit another retailer to
attempt to find that product? How does that factor into the consumer profile?
5
5
Q: How much of the lack of in-stock supply is down to retailers such as Lowe’s or Home Depot incorrectly
predicting demand in some categories vs true manufacturing issues?
Q: How has Amazon influenced home improvement, especially in micro categories such as pressure
washers? Can you discuss what that has done to take share away from some big box retailers?
Q: Has this shifted the retail landscape in store to focus on higher-ticket items? Where’s the margin
opportunity between big ticket and smaller? Is it a volume play? If I could sell a million light bulbs, at least
I’m driving foot traffic, or are retailers really looking at their products such as washers and dryers and
saying, “Let’s prioritise these categories”?
6
6
6
Q: What are some pros and cons of Lowe’s and Home Depot’s physical footprint across the US, and of
smaller pure-plays that have been able to take share where there is not a Home Depot in a 10-mile radius? 7
Q: How do new home builds play into Lowe’s or Home Depot’s retail footprint decisions? Huge
developments are being built one after another in the Midwest, for example. Do these incentivise retailers to
get a footprint in those areas? How do players decide to enter a new market based off the important criteria
you highlighted, whether natural disasters or overall migration to Miami? Could you prioritise the leading
factors for each?
7
Q: Can you discuss the e-commerce delivery dynamic and how that has impacted new retail store counts?
Does getting delivery orders from this segment of the US necessarily mean it’s profitable or that it makes
sense to open a physical retail location, given the many other overhead costs?
8
Q: How have Home Depot and Lowe’s approached promotional activity pre- and post-pandemic? One would
figure they’re able hold prices steady, but have there been trends of active promotional activity to drive
traffic?
8
Q: How do home improvement retailers approach inventory turnover? They do not have to deal with short
shelf lives as they deal with products such as metal that can stay there for three years. If a product is not
selling, how do they know when to move product and at the right price? Do some retailers have quicker
turnover than others in giving manufacturers time for their brands to sit on shelves?
Q: What do you think should be remembered or assessed when it comes to Lowe’s and Black Friday?
9
9
Q: You said pressure washers were available with Lowe’s online for the same price as Amazon, just with
different delivery times. Can you compare Lowe’s pricing competitiveness in a category like light bulbs to a
player like Amazon? There have been plenty of times I’ve walked into Target, seen something and then seen
it for 20% less on Amazon, so I just walked out of Target and ordered it on Amazon. Could you assess big box
retailers’ ability to price competitively on digital channels to stay competitive with channels such as
Amazon?
10
Q: Could you highlight the strengths or weaknesses in Lowe’s private label? Was it a little late to the game? 10
Q: Could you highlight some of the crushing issues laying on margins as we approach this holiday season? 11
Q: Can you compare Lowe’s and Home Depot’s employee retention and the strategies they have used to
improve this? Employees are leaving several companies, including Walmart, Target and Amazon.
11
Lowe's – Pricing Opportunities as Demand Levels Off
Transcription begins at 00:00:04 of the recorded material
NH: Welcome to Third Bridge Forum’s Interview entitled Lowe's – Pricing Opportunities as Demand Levels
Off. I am Nyree Hinton and I will be facilitating with Mrs Stacey Ryan, former President of Operations at
Lowe’s Inc.
Stacey, before we start today’s Interview, please state I agree or I disagree to the following statement: You
understand the definition of material non-public information and agree not to disclose any such information,
or any other information which is confidential, during this Interview.
SR: Agreed.
NH: Could you start by introducing your background and the various roles you’ve held in the industry?
SR: Yes, I have been in the retail industry for over 23 years, spent over 15 years at Target in various positions
from inside of store to field store leadership, to operations leadership and for stores at the corporate office. I
was also a Vice President of Operations in the Texas, Oklahoma, southwest markets for Target, as well as the
greater northeast, Philly, New Jersey and New York, and then also moved over to Lowe’s as a Vice President of
Operations, spent some time at in-store operations at the corporate and in the field as a Regional Vice
President, and then as a President of Operations, where I oversaw the store’s communications and technology
teams as well as 650 stores across the southeast part of the United States. That’s really what’s most relevant
and then I was an EVP of Operations at L Brands and currently President at JRM Logistics.
[00:02:05]
Q: Could you give an overview of the home improvement industry, which is very broad, and highlight a few
categories that stick out for their growth?
SR: To your point, it is a very large, broad, sector and it is growing. It’s USD 900bn, over USD 900bn sector
within the United States and across Canada. It’s very fragmented. You have your big box players, such as
Lowe’s and Home Depot and your pure play online home improvement retailers and suppliers, as well as your
pure play online home improvement retailers and suppliers, as well as your pure play smaller shops for
cabinets, flooring. It’s just an extremely broad market with lots of competition, whether it’s big box or head to
head with pure play categories. Right now, the home improvement industry, there’s just no other way to
describe it, but it is on fire from the macro environment that is happening. COVID, obviously spurred that, but
it has continued with the housing turnover and the housing equity increases that home owners are feeling.
Categories right now that relate to repair and remodel due to that equity, are extremely, extremely, extremely
in demand. Those are appliances, kitchens, bathroom cabinets, flooring, rough plumbing, electrical. Those
categories really have been fuelling growth as well as a category like millwork for doors, windows and garages
as well.
[00:04:16]
Q: How do big box retailers decide how to fit their category offerings or strategise what to include in their
stores, given there are some pure-plays but also so many categories?
Private and confidential 3
SR: The big box players, they have the advantage of having not only their stores but also their websites and
their dot-com platforms, that really provide al to of information and a lot of how-tos on their product
categories. What they’re able to do is, they’re really able to highlight at the moment, at any given time, based
upon all the categories that they sell. They’re really able to give the customer, whether it’s on their phone or
online, a taste and a preview of what they will see when they go into the store. When they’re in the store, what
you’ll notice in a Lowe’s and Home Depot, one of the things that they can do is that, right now, at this moment
in time, one of the things that’s really popping is fall clean-up. Things like pressure washers, push-brooms,
some cleaning supplies, it’s a little micro season.
There are areas of the store promotional space, typically at the front of the store, that Lowe’s, Home Depot,
these big box stores are able to use these flex merchandise spaces to go broader and deeper and offer special
buys to the customer, where they’re able to compete with some of those smaller pure plays that go very deep
into a category. Bathrooms and vanities are a great example of that, because those categories, that product
group has been extremely in demand, you have probably noticed that throughout a Lowe’s or a Home Depot,
oftentimes there are vanities that are outside of the bathroom department in these promotional areas, which
allow them that space and flexibility. At one point, it would be vanities, then it would be fall clean-up. It’ll
move from fall clean-up into the late Q3 and Q4 where you will have gifting and you will see more of a
presence of power tools and other types of gift giving items.
[00:06:55]
Q: How has the pandemic impacted or charged demand? How did the retailers react to the pandemic
across their fall clean-up or other seasonal items? Could you could compare Lowe’s and Home Depot’s
strategic positioning? Lowe’s seems a little stagnated on growth while Home Depot seems to be
continuing to grow at a large clip while the coronavirus bump is fading. When you look at the pandemic
and what it has done to the industry as a whole, I feel like housing is always on fire.
SR: COVID obviously brought housing turnover. It made household creations speed up for the millennial
population. It also created a nesting. People were in their homes quite a bit and so projects, they also had more
time given that they weren’t going places, they weren’t commuting to and from work. Some of those factors are
still, some of them have faded, some of them are still there. DIY really spiked, and obviously, Lowe’s has a
strong, DIY is a big part of who their customers are. They penetrate very well with the DIY, DIY has a lot of
affinity for Lowe’s, based upon some of those categories in their stores such as kitchens, bathrooms, where
there are larger vignettes, seasonal areas where there are larger areas of decor for your outdoor. Typically, they
have had broader product around the home decor and the kitchen bath seasonal areas that really resonate
with the DIY customer. When COVID came, that DIY, which prior to COVID, DIFM, do it for me, was really
more dominant in the industry, and so pro, and that pro customer, really was that leading customer in home
improvement.
At the beginning of COVID, you saw the DIY take over and naturally a lot of work that pros did inside the
house and outside of the home even, stopped for a while. Then what happened as you went into, as COVID, as
we transitioned and things changed with the environment around COVID, the pro, as you went into 2021,
started to shift and take over. Now, what you’re seeing is the pro customer has really come back. They have a
lot of backlog of projects, large projects that relate to the strength and the repair, remodel, home renovation
market. COVID had this and even now, the DIY, the millennial and then later on the Gen Z customer, those
groups that are coming into home ownership over the next several years and certainly five years and beyond,
are really geared towards being strong DIY, having a strong DIY affinity. COVID has really been a catalyst that,
what will be interesting to see is, is this lingering where DIY stays slightly elevated to where it was prior to
2020 and look at 2018-19 levels, to see if that DIY is continuing, even to get a baseline, to see how that is
progressing as that emerging customer comes into the landscape.
Private and confidential 4
[00:11:59]
Q: How would you compare the capabilities of Home Depot and Lowe’s to keep products in stock?
SR: Both retailers and even obviously retailers outside of the home improvement sector struggled, depending
upon the category, with a high level of demand and some production issues with COVID overseas impacting
inventory levels. You certainly, if you walk stores and you walked a Home Depot vs a Lowe’s, oftentimes what
you would find previous to COVID, Home Depot had a stronger in-stock position typically. During COVID, it
really was a mixed bag. Coming out, and not that we’re totally out of COVID, right now, what you see across
the board is, you do see in stores that in certain areas such as power tools and some of the rough electrical and
rough plumbing, you do see stronger in-stock position in Home Depot. Then in other categories with
appliances and cabinets, in-stock cabinets, as well as some of the, in paint, is a good comparison, where Lowe’s
in stocks are very strong in comparison too.
I think Lowe’s has publicly announced and discussed that they have invested heavily into buying early and
going deep, to be able to support Q4 and the holiday season, knowing that there were going to be a lot of
supply chain issues that are continuing to plague the retail industry. That’s something to be seen, whether that
does transpire, but they have said that they bought early and they bought deep to be ready for the holiday
season. I know we’re going to discuss it a little later but they also talked about what their Black Friday and
their holiday season, holiday strategy is and really, it’s to start their big second annual sale at the end of the
month. I believe 30 October, 28 October, they’re going to start dropping deals every week, all the way through
December and they are doubling down on the amount of gift-type items that they have this year in comparison
to last year, in what they’re calling their gift zone.
[00:14:59]
Q: How patient were consumers with out-of-stock items during the pandemic? Is there brand loyalty such that
a consumer is likely to order and wait a few weeks or are they more likely to visit another retailer to attempt to
find that product? How does that factor into the consumer profile?
SR: It’s a great question, and today, and really, the pandemic has made consumers even more savvy in how
they shop, pre-shop online, before they even go to a store, to be able to check inventory, due to exactly what
you’re talking about. Oftentimes going somewhere whether it’s a grocery store or a home improvement, only to
find out that there are none. More consumers, it’s a growing trend, are going online to check in-stocks and I
would tell you that if they can get it somewhere else and it’s the same price, but they can get it sooner, that’s
where they’re going to go. In looking at our conversation today, one of the things that I was curious about,
knowing that dynamic and how important it is, that the ability to serve the customer when they want that
item, is really going to be who wins.
I picked an item, right now, pressure washers, they have a little micro season. I picked an item that is a
standard Briggs & Stratton, 2200 PSI electric pressure washer. I pulled up, online, and Home Depot and
Lowe’s both sell the same Briggs & Stratton, 2200 PSI pressure washer. They both sell it for USD 248.50. For
Home Depot, I can’t go into the store and get it if I wanted it today. I could get it shipped to store and pick it
up from 29 October to 1 November for free, or they’ll ship it to me for free by 26 October. Curious to see, from
Lowe’s, is it comparable? Lowe’s, for store pick up, I can get it for free by 1 November, but, in parentheses,
estimated. That 1 November isn’t a hard date, it’s estimated, or I could get it shipped to my home as soon as 1
November. As a consumer, if I’m looking at the two, I’m paying the same price, but I can actually get it from
Home Depot, to my house, by 26 October, and they’re telling me that’s a firm date. That’s where I’m going to
go ahead and purchase it. I think that’s just an example that illustrates your question around the importance
of having the inventory and being able to get it to a consumer however they choose to want to pick that item
up.
Private and confidential 5
[00:18:17]
Q: How much of the lack of in-stock supply is down to retailers such as Lowe’s or Home Depot incorrectly
predicting demand in some categories vs true manufacturing issues?
SR: It’s a very difficult question to answer right now because there are so many, and a pressure washer is a
great example of an item where there could be components that were having, from the manufacturer, that they
were having issues getting and so, hence, manufacturing the whole product. Whereas an item like this, you
probably would expect it to be in store, ready to go for this micro season. It’s hard to say, but there is
definitely, right now, in the industry, particularly in tools and outdoor power equipment, where the
manufacturer, they have opportunity vs was it where the retailer didn’t forecast it correctly. I think in this case
when I look at it, my assumption is that it’s supply chain, quick, it’s supply chain agility, but that is just my
personal take based on the timing of when they’re saying the items will get there. I think that’s an important
factor, to your question, is the supply chain agility of the retailer.
[00:20:08]
Q: How has Amazon influenced home improvement, especially in micro categories such as pressure washers?
Can you discuss what that has done to take share away from some big box retailers?
SR: Definitely. Where Amazon has really, and certainly in the last five years, big box retailers such as home
improvement and really general merchandise, your Walmarts, your Targets, the retail industry has reacted to
Amazon and where Amazon was killing categories. I’ll give you a great example, light bulbs. Light bulbs are a
category. You know what light bulb you want. You really don’t need to go into a store, necessarily. Amazon
does extremely well with light bulbs across indoor, outdoor categories and so, being able to get it to the
customer at the same rate that Amazon can, and really paying attention to where you are on Google search,
natural search, paid search. Areas like light bulbs, furnace filters, are two really good examples. Pressure
washers, that is an interesting, outdoor power equipment, they certainly are a factor of power tools, probably
smaller power tools. The smaller the item, the more impact Amazon has had on big box retailers, home
improvement retailers vs larger type of items. In a category like pressure washers, I would tell you that a
Lowe’s, a Home Depot, are going not be more dominant than an Amazon, and that may go back to that
credibility of buying an item such as that from a home improvement warehouse, vs an Amazon.
[00:22:30]
Q: Has this shifted the retail landscape in store to focus on higher-ticket items? Where’s the margin
opportunity between big ticket and smaller? Is it a volume play? If I could sell a million light bulbs, at least I’m
driving foot traffic, or are retailers really looking at their products such as washers and dryers and saying,
“Let’s prioritise these categories”?
SR: Really, those categories, it really becomes, from a margin perspective, to look at the buy online, pick up in
store. Rather than having the shipping cost being in stock on these categories become even more important, in
order to be able to have the consumer get it, because again, if a consumer can go pick it up in an hour, vs even
waiting until next day or same day, a couple hours later. If there are other reasons that they need to go to the
store, that helps, but as far as from a margin play outside, it is looking at those larger category items that fall
into that repair, remodel. Not just the appliance, but ensuring that you sell all the accessories to go along with
that appliance, because you’re going to have more margin in those vs just that appliance. I’ll just pause there.
Private and confidential 6
[00:24:16]
Q: What are some pros and cons of Lowe’s and Home Depot’s physical footprint across the US, and of smaller
pure-plays that have been able to take share where there is not a Home Depot in a 10-mile radius?
SR: Lowe’s and Home Depot, obviously, Home Depot has a slightly larger footprint across the US. Where
Home Depot has a significant advantage in store count is really on the West Coast, and in some key areas
along the sun belt. One to mention, I believe four Lowe’s, maybe five, in the Greater Dade County, which
encompasses Miami Bay, which encompasses Miami. Which has had explosive growth during COVID with a
lot of migration and just has an explosive growth over the last decade or so. Home Depot has tripled those
amount of stores in that Miami-Dade, in that south Florida area. Then, in the northeast, they are slightly more
inside the urban core. They have a heavier store footprint. Lowe’s is very dominant. They are a North Carolina
based company. They’re very dominant in the southeast, in the Mid-Atlantic, the Tennessee valley, in areas of
Texas. Florida, more upper Florida.
They’re in more suburban, they have a large count of rural stores where you won’t find a Home Depot and
Lowe’s is really, give a great example, you may have never heard of or you may have, Bristol, Virginia. Bristol
is a single store. Beckley, West Virginia with a Lowe’s store, not a Home Depot anywhere in the vicinity. They
have a lot of single stores without Home Depots in very rural areas across Virginia. Again, kind of the
homeland, so to speak, but the North Carolinas, Tennessee, Virginia, West Virginia, where they don’t compete,
necessarily, head to head, with a Home Depot. They are the big box retailer and there may be smaller mom-
and-pop-type home improvement shops, tractor supplies typically in those areas, but they are the largest
home improvement retailer. Home Depot is definitely more geared towards urban and suburban areas. Again,
the West Coast, they’re very dominant in vs Lowe’s.
It’s interesting, and natural disasters are actually a great example of looking at where, who has more store
count and how close is it to the areas. Hurricane Ida, that just occurred is, there are a lot of things going on in
the country today that it takes away from discussing the impact that a hurricane like Ida had and the extensive
damage across the south and into the northeast that hurricane Ida had. Looking at where, there are certainly
places where Lowe’s will win with their store count and then there are certainly places where, up in the
northeast corridor, that Home Depot will probably, just due to natural, where stores are located. I would
expect hurricane Ida to drive substantial sales across many major categories, well into Q4, Q1 of 2022, all the
way through Q2 of 2022. Sorry, I didn’t mean to go a little off topic, but that’s really where you see that store
count piece. Natural disasters are just a great example of where you see the store count and positioning really
matters.
[00:29:05]
Q: How do new home builds play into Lowe’s or Home Depot’s retail footprint decisions? Huge developments
are being built one after another in the Midwest, for example. Do these incentivise retailers to get a footprint
in those areas? How do players decide to enter a new market based off the important criteria you highlighted,
whether natural disasters or overall migration to Miami? Could you prioritise the leading factors for each?
SR: Certainly, the macro, certainly the housing development and the growth. Population growth, which then,
hence, population growth, housing growth, certainly is part of looking at where you would want to go. Also,
looking at what the competition is in the market is also a factor. When you look at the Midwest, one player that
really rises to the top and is extremely strong, they’re a private company, but Menards. Menards, especially in
the upper Midwest, but really, they’ve been expanding over the last several years into areas like West Virginia
and Pennsylvania and Tennessee. They opened a store in Kentucky. They’ve been around for a very long time.
People in the Midwest are, home improvement customers, by nature, are extremely loyal. A lot of that goes to
the service and really thinking about when you spend money on your home, it’s your biggest asset, it’s the
most personal thing to a customer and so there tends to be quite a big of brand loyalty.
Looking at the competition, looking at the housing growth and the population growth would certainly dictate,
as well as how would a store vs having really great omnichannel capability. What’s your penetration from an
Private and confidential 7
online perspective, also gives you insight into whether this would be a place for a store footprint. Certainly,
prior to COVID, physical retail store growth was not high but particularly in the home improvement sector,
you do see new stores due to exactly your point of where population is migrating to, where new homes, Lowe’s,
Home Depot, new homes, typically, it’s not the construction of the new home for the home improvement
retailer. It’s really what goes into the home after the walls are built. Toilets, cabinets, but the appliances, the
lawn care, the seasonal items, all of the things that come after the house, that really benefits a big box home
improvement retailer.
[00:32:37]
Q: Can you discuss the e-commerce delivery dynamic and how that has impacted new retail store counts?
Does getting delivery orders from this segment of the US necessarily mean it’s profitable or that it makes sense
to open a physical retail location, given the many other overhead costs?
SR: That is an excellent question because it does not necessarily mean that, because what’s happening, what
you are seeing is, in these rural areas, in rural communities, COVID has increased the amount of online
shopping. It has increased the amount of online shopping across generations and across in different places
that maybe didn’t penetrate, such as far-reaching rural communities or as it did previous to the pandemic, the
growth certainly accelerated. If you can serve, if there isn’t the dynamic such as population growth and the
new housing start to go along with that, you have to be really careful and not just use that online penetration
right now because that is growing and truly should continue but doesn’t mean that it’s enough to have a
profitable store location.
[00:34:21]
Q: How have Home Depot and Lowe’s approached promotional activity pre- and post-pandemic? One would
figure they’re able hold prices steady, but have there been trends of active promotional activity to drive traffic?
SR: Currently, during COVID, you saw a major pull back on promotions, not just in home improvement but
across retail, (1) was to protect in-stock and (2) you didn’t have to. The demand was high and was there and a
lot of retailers pulled back on promotions because traffic was strong and so they strategically used promotions.
Not that you don’t strategically use them even outside of COVID but there certainly was less promotional
activity across the board. What you are starting to see and you’re starting to see it at Home Depot and at
Lowe’s and it’s being much more targeted around items and specific events vs having, so for instance instead
of having appliances across the board beyond sale for an event such as Columbus Day, you would find
strategically certain items and certain brands. Less total category promotions is what I’m seeing and more
strategic items.
Then certainly, one thing that the pandemic has accelerated, it was already a trend so to speak, but free
shipping is just typically, you’re seeing free shipping on most items. Where that differs though is in your bigger
bulkier items. That becomes, what you’re noticing is, it’s becoming who is the most competitive, not
necessarily that it’s free but who has the most competitive shipping. Shipping, free shipping on items that are
smaller, lighter weight, is just becoming the norm and the expectation. What you’ll find is a pull back on other
types of promotions and able to support that, but then in bigger bulkier items, you’re finding different pricing
among who is going to have the lowest shipping cost.
Again, sometimes that, it’s not even, the first thing that matters to a customer is when I will get the item, who
is going to get me the item and what’s going to turn away a customer in this environment and moving forward
is when you tell a customer they’re going to get an item and then they don’t get it. That will lose the confidence
and trust of the customer and they will choose to, their loyalty will go somewhere else. That is such an
important factor right now. Promotions are definitely less and they’re definitely more strategic by item and
category.
Private and confidential 8
[00:37:49]
Q: How do home improvement retailers approach inventory turnover? They do not have to deal with short
shelf lives as they deal with products such as metal that can stay there for three years. If a product is not
selling, how do they know when to move product and at the right price? Do some retailers have quicker
turnover than others in giving manufacturers time for their brands to sit on shelves?
SR: Yes. Great question, much different in home improvement than in home improvement categories then in
a lot of your general merchandise categories. Obviously, apparel has a very, very short shelf life. Really, that’s
going to happen in the line review process. Typically, if it’s a once a year or twice a year category where you
would look at taking that pricing action or after a seasonal event, if it’s a seasonal type of item and it doesn’t fit
back into… So, a great example is if you have vanities in a promotional area, the promotional event is done.
Those vanities now have to come back to the bathroom department. Do they get marked down or do they get
some how, merchandised in to be able to sell through and not take the markdown? Right now, given the
environment, you would not see a markdown taken on those vanities. They would come back in line, squeeze
in, so to speak, in some form or fashion before markdown would be taken. If you’re coming out of a seasonal, if
you’re coming out of, let’s say patio season is ending and these are chairs that are not going to carry forward.
I’m going to go ahead and mark those down and sell through rather than hold onto those until next year with
no spot. It’s a little tougher by category in home improvement. You really have to look at it by what product
group it is and the type of seasonality before you would say that it would just be on a quick cadence to mark
down.
[00:40:51]
Q: What do you think should be remembered or assessed when it comes to Lowe’s and Black Friday?
SR: One that it’s going be, similar to last year where the events leading up to, that Black Friday will be
stretched out and it won’t be a single day, but more through the weekend and into Cyber Monday and hat first
week of December. As well as, given the fact that Lowe’s just announced they’re starting their promotions on
28 October and really starting their gift zone, so to speak, early. I think what you could expect is the retailers,
particularly Lowe’s as trying to entice customers to shop early and customers have a certain amount of spend.
Right now, the message out is, “Shop early because inventory is not going to be there if you wait around.”
You’re seeing that all across the news, everything. Late, early November and the weeks before Thanksgiving,
are going to be critical weeks for retailers because the expectation is, consumers are going to shop early
because they know items aren’t going to be around if they don’t. Like I said, it appears that Lowe’s already
unveiled their strategy, they’re going to start their gift zone and they’re going to start their deals at the end of
October and stretch them out through December. It’s less about one major event but more so throughout the
season. They did say that they were doubling down and doing more gifts, so, based upon what they have
shared publicly, it appears that they’re really going after this holiday season and really trying to capture that
consumer earlier in the journey and retailers who do typically will have a stronger holiday season.
NH: How does that factor into the supply chain efficiency of Home Depot and Lowe’s? Could you compare the
two, highlighting where Lowe’s is lacking and the players’ ability to meet demand?
SR: I think this example of the pressure washer, although, albeit one item, that highlights the differences
within the supply chain. It will be interesting to see how much product actually flows in early to be able to
capture that. Home Depot typically has their Q4 product already in, in Q3. You can typically walk into a Home
Depot and if you look up they have pallets wrapped in typically dark cellophane wrap that you can’t see what’s
behind that. Sometimes you might see a holiday sign on it but they typically have brought in their
merchandise. It’s ready to go. They do an excellent job of having it palletised and categorised. It’s very easy
and efficient for the stores to set it, sign it, merchandise it and once it’s done, it’s done and it’s out and then
they move right back into the next category and the next micro season within Q4 and then right after Q4. They
have and they definitely don’t miss when it comes to having the product at the right time, in their stores and
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on the shelves and at a sellable level.
[00:45:08]
Q: You said pressure washers were available with Lowe’s online for the same price as Amazon, just with
different delivery times. Can you compare Lowe’s pricing competitiveness in a category like light bulbs to a
player like Amazon? There have been plenty of times I’ve walked into Target, seen something and then seen it
for 20% less on Amazon, so I just walked out of Target and ordered it on Amazon. Could you assess big box
retailers’ ability to price competitively on digital channels to stay competitive with channels such as Amazon?
SR: It’s very challenging, as you highlighted. What you have seen is, what has happened is, from your Targets,
your Walmarts, to Home Depot and Lowe’s, is more sophisticated pricing systems that scrape not only in, back
in the day you used to do something called comp shopping where you would actually compare item to item at
stores. Now, that’s so antiquated, you can’t, that doesn’t matter because of the Amazon effect. What retailers
will often, what you have to really look at is, one, you need the ability. Amazon can change prices so quickly to
stay up and so retailers have invested in more sophisticated pricing systems that scrape online to be able to
have the ability to change prices and watch categories that are very in demand at the current time and then the
commodities. Your commodity pricing, you might not be able to match certain products but you can go lower
on others such as private label, your private brand.
One of the things that retailers do is look at their private label and their private brands and how can they
position that as the entry, as their OP, as their entry price point. They can take an item and say, “I’m not going
to be beat by Amazon and it’s going to be my private label and it’s going to be this paintbrush. These
paintbrushes, our private label will be X.” If Amazon goes low, has one that’s lower, which sometimes you find,
that’s where you have to decide, can you do that or can you not? Private label, oftentimes is where the retailers
will react to that Amazon effect.
One of the things though, certain categories, particularly across home improvement will be MAP pricing and
so, that changes the dynamic and they shouldn’t be lower than what the retail, what the bricks-and-mortar
retailer is but it’s on those other types of items that are not MAP pricing. The ability to, in product groups
where you can have a private label, and I tell you that’s where Home Depot does a really great job and they did
an awesome job of counteracting Amazon with their HDX brand of light bulbs, where they were able to get
very competitive with price. That’s something that can work but it is a challenge and you’re not going to meet
or beat Amazon in everything. You really have to be strategic of what product categories matter to your box, to
your portfolio.
[00:49:19]
Q: Could you highlight the strengths or weaknesses in Lowe’s private label? Was it a little late to the game?
SR: Lowe’s has had private label. They’ve had more private label, they’ve gone away from private label, they’ve
gone back to private label. Having a very consistent strategy and I know now that they speak of really going
deep and wide in private label and they see where they can expand in areas like cleaning supplies, lighting and
other categories. It’s certainly something that Home Depot has the edge on because they already have such a
strong private label. I would say it’s hard to even say where they could expand, except for within category.
They could add to it to have even more pricing flexibility. It’s an opportunity that Lowe’s can certainly, that an
expansion of will certainly help them expand their margins.
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[00:50:35]
Q: Could you highlight some of the crushing issues laying on margins as we approach this holiday season?
SR: Really, the biggest one is obviously the supply chain cost and the shipping cost with the situation at the
ports and just being able to find drivers and rigs to be able to get merchandise to distribution centres and to
stores, and then the greater expectation of shipping costs and delivery to the consumer. Those are really the
biggest pressure points, are going to be within the supply chain cost and those rising costs and where do you
offset those. I think a great example of being able to offset some of those costs are within labour. Lowe’s has
recently installed digital pricing. Home Depot also has digital pricing in their stores. Those are hundreds and
hundreds of labour hours that are reduced when you’re able to be able to digitally change prices. It also
improves their ability to be able to be, to compete in pricing with online competitors. Will it be enough to
offset those rising costs and what you’re hearing? Will the actual revenue be worth what it’s going to take to
actually get the goods where they need to be when they need to be there. That’s really going to be the biggest
pressure point. If you didn’t have it in your supply chain and positioned, that’s where it’s really going to come
in because then in late, in mid-November and to replenish even in early December, those costs are going to
skyrocket. Those who have positioned this fourth quarter and already have that inventory in a certain place
within their supply chain, are going to be able to combat those rising costs better than others.
[00:52:58]
Q: Can you compare Lowe’s and Home Depot’s employee retention and the strategies they have used to
improve this? Employees are leaving several companies, including Walmart, Target and Amazon.
SR: Yes, excellent question. It is definitely having your employees be ambassadors of your brand and that
would, in turn, that means they have to say and they project that they are treated well and they enjoy working
at the brand and they take care of customers, that is becoming, and honestly, if you look back at the pandemic,
how customer service and how customers were treated and in their journey with home improvement, you have
many touchpoints. Oftentimes, you sell a product or a service, that customer comes back and is talking to you
about it and they’re buying more or they’re not buying more because something went wrong. Truly what the
customer service and the customer sentiment, which is totally, so much is on that employee morale, is really
what is going to fuel the return customer and the loyalty, that as you go through a more normal cycle of
business, will be really important.
Your question around, how are employees feeling, what I do is social media is a great place now that if you
want to know where’s a great place to work, all you need to do is go online and go to a forum like Reddit.
Reddit is one that comes to mind or even Facebook but to get a very good sense of what it’s like and how
employees feel. I do that and I read what Lowe’s or Home Depot and Walmart and Target to get a sense, and
certainly, one could say, “No one is posting anything happy, it’s just disgruntled.” That actually isn’t really the
case. There are lots of different things that are posted but it gives you a really good sense of what that morale
within that store employee or distribution employee, what their morale is.
I would tell you, what’s very interesting is, I would highlight Home Depot and the loyalty that you hear from
associates about the pride in working there. Both Home Depot and Lowe’s do a great job of providing bonuses
to their employees and they did that previous to COVID. They talk about it on their calls, that for the last, I
don’t know how many quarters, both organisations have given 100% bonuses to their store employees. That’s
paid, that’s on top of their regular pay cheques. There certainly is that but that is just, what everyone is
learning now is that’s not enough to keep your employees and really, this Q4, within bricks-and-mortar retail,
is going to be won by who actually has associates to actually process and take care of the customer and
transact the sales. Labour is very competitive. I would give the nod, based on what I can read and see, that
Home Depot has the edge when it comes to employee morale, but again, that is just what I can see from
reading social media and looking at the different employee sentiment that is out there.
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[00:57:31]
NH: I think that’s a good place to end the Interview. Let me close by saying thank you, Stacey, for your time
today. We were able to cover an extensive amount so I appreciate that. Thank you, clients, for joining Third
Bridge Forum’s Interview. If you’d like to speak to Stacey in a private call or meeting, please let your
relationship manager know. Have a good one.
Transcription ends at 00:57:46 of the recorded material
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