Digital efficiency focus remains on track at Lowe's and The Home Depot as margins come under supply chain pressure

One category of retailer that did well from COVID lockdowns was that of home improvement and DIY firms, with The Home Depot and Lowes dominating the pack. With populations under effective house arrest for so long, attention inevitably turned to the state of those homes and consumers embarked on upgrade programs, not least to accommodate work from home necessities.

As we emerge blinking into the Vaccine Economy, will that ‘fixer up’ enthusiasm translate into ongoing activity? This week both of the market leaders turned in solid quarterly numbers. The Home Depot reported Q4 revenue of $35.72 billion, up 0.7% year-on-year, with net income of $3.35 billion. Lowe’s saw revenue increase by 5% to $21.3 billion with net income up 23.3% to $1.2 billion.

But both firms also saw tighter margins and the knock-on effect of the global supply chain crisis, taking the shine of those numbers.

As noted before on diginomica, both firms have also had major omni-channel transformation programs in place, instigated before the pandemic, but which have proved useful during the crisis by increasing online activity and customer footprints. If those margins are going to remain under pressure, the operational efficiencies of digital platforms and tech are going to be all the more needed.

The Home Depot’s Chief Operating Officer - and soon to be CEO - Ted Decker pointed to the strength of the firm’s digital performance when he noted:

Sales leveraging our digital platforms grew approximately 6% for the fourth quarter and approximately 9% for the year. Over the past two years, sales from our digital platforms have grown over 100%. Our focus on delivering a frictionless, interconnected shopping experience is resonating with our customers as approximately 50% of our online orders were fulfilled through our stores in fiscal 2021.

He added:

Approximately 15 years ago, we pivoted from new stores as a driver of growth to growth driven by productivity. Years later, we began building capabilities to better enable a multi-channel shopping experience through an end-to-end approach. In recent years, we focused on a customer-back approach to deliver the best interconnected shopping experience in home improvement. Customer expectations continue to evolve, and there is little tolerance for any friction in the shopping journey. So we will continue to adapt to stay ahead of the customer.

Customers such as...

He cited the example of a Pro customer in Texas as indicative of how those customers have evolved:

Years ago, this large-scale repair/remodeler primarily shop with us in our stores for their unplanned immediate need purchases, largely out of convenience. Over time, their in-store spend increased and they were assigned a dedicated Pro Account Representative, or PAR, to deepen our relationship with them. As we invested across the interconnected experience, this customer engaged with us more often and occasionally used us for job site delivery. At this point, we saw their spend with The Home Depot grow to more than $100,000 annually, but still for mostly unplanned immediate need purchases in store.

Fast forward to today, this customer now utilizes a number of new and/or improved capabilities. Last year, this customer downloaded our mobile app. Their mobile orders increased. They joined our Pro loyalty program and authenticated with us via our B2B website. We began offering personalized pricing on certain products. And they took their first deliveries from several of our new fulfillment centers, including one of our new flatbed distribution centers. As a result, we’ve seen spend with this customer more than triple to over $300,000 annually.

The same story is reflected in the non-professional market, he added, citing a DIY customer he called Gina who wants to do a home bathroom makeover:

Four years ago, she would have relied heavily on our stores and website for helping completing her project. Gina's engagement on our digital applications is a little more difficult. The mobile experience wasn't as intuitive, search results weren't as relevant, and associated recommendations were limited.

Digital efficiency focus remains on track at Lowe's and The Home Depot as margins come under supply chain pressure

As a result, she likely made multiple trips to the store for items didn’t know she needed. And when she did go to the store, Buy Online, Pick-up In Store, or BOPIS, was essentially the only option outside of the traditional cash-and-carry model for collecting whatever tools and materials her project required.

Today, Gina's experience would be meaningfully different as her shopping journey is met with a lot less friction. As Gina begins her project online, improvements in search provide her with more relevant results. We also have a better understanding of the intent of her shopping journey and can make recommendations supporting her whole project.

And we know these product relevant recommendations matter. Over the last four years, we've seen a significant increase in sales driven by product recommendations. When Gina comes to our stores, our recently updated mobile app and improved signage help her more easily navigate our aisles. We've made investments in the front end to improve her checkout experience.

The end result is beneficial all round, he concluded:

We have seen customers like Gina increase their spend with The Home Depot as a result of our improved in-store experience, more robust and personalized online shopping journey and greater delivery and fulfillment options.

Lowe’s online thinking

Over at rival Lowe’s CEO Marvin Ellison pointed to e-commerce success also:

At, sales grew 11.5% on top of 121% growth in the fourth quarter of 2020, which represents a two-year comp of 147% and nearly 11% sales penetration. Our intuitive online shopping experience and expanded on trend assortments are resonating with our customers.

And while we’re pleased that our online sales have more than double over the past two years, we still have tremendous growth opportunity in front of us. And as part of our efforts to enhance our omni-channel experience, we are expanding our same day and next day fulfillment capabilities.

What that means in practice is a new delivery partnership with Instacart in a number of US markets.

Investment in online will continue apace, added Bill Boltz, EVP of Merchandising, with three main areas of attention in 2022 -expanding the online assortment, enhancing the user experience and improving fulfillment:

First, we’re expanding our assortment to meet our customers design and lifestyle needs. For example, within Lowe’s Liveable Home products, we will offer a range of products to help our customers adapt to their changing mobility needs.

At the same time, we will continue to enhance the user experience with continued upgrades to the visualization and configuration tools, like Kitchen Visualizer and Measure Your Space.

Finally, as we continue to improve our fulfillment capabilities, our customers can now track their appliance delivery in real time and we will soon be leveraging enhanced technology to further streamline the buy online, pick up in store experience for our customers through an improved store execution process.

As for the prospects for the home improvement sector in the Vaccine Economy, Ellison remains upbeat in his outlook:

We are very confident that there are certain trends that will sustain. You have Millennial household formation trends that are much more robust than any of us had anticipated pre-pandemic.

You’re also seeing the investments in the home that are maintained simply because there are so many millions of people working from home permanently. Even as we hope and pray the pandemic will dissipate, you still will have millions of people who will permanently work from home. That’s going to drive certain investments in repair and maintenance that we think will sustain going past 2022.

My take

Two companies that continue to dominate their business sectors, but which still need to up their game. Both have spoken about the legacy operating infrastructure that they’ve used in the past and both have taken remedial action to course correct. Both still have their renovation work to do.