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12/17/2021

Lowe's to Convert to New Delivery Model

Jamie Grill-Goodman
Editor in Chief
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Lowe's store

Lowe's Full Year 2021 Outlook (comparisons to full year 2020)

  • Total sales of approximately $95 billion, representing approximately 33% comparable sales growth on a two-year basis
  • Gross margin rate of 33%, up slightly compared to prior year
  • Operating income as a percentage of sales (operating margin) of 12%
  • Total share repurchases of approximately $12 billion

Lowe’s is taking a critical step in the modernization and transformation of its supply chain.

The home improvement retailer plans to convert its entire U.S. chain to a new market delivery model over the next 18-plus months, Marvin R. Ellison, Lowe's chairman, president, and CEO, said this week.

In the new model, big and bulky products flow directly from the supply chain to customers' homes without ever flowing through the store. Lowe’s has already converted its entire Florida and Ohio Valley markets to the new model.

“To understand what an improvement [move] this represents, you need to start by understanding the legacy store delivery model,” explained Ellison. “Our current legacy delivery model is tremendously inefficient with each store functioning as its own distribution node for big and bulky products. In this model, we hold appliances in the stock rooms and in storage containers behind the stores. And then we leverage store-based delivery trucks and associates to deliver to customers' homes. These deliveries have been conducted without routing software and customers can only purchase the inventory that's available in that store for delivery.”

Lowe’s is seeing higher operating margins and appliance sales, improved inventory turns, reduced damages and better customer satisfaction with higher on-time delivery rates as the retailer deploys the new model, he noted. Shoppers also benifit by being able to choose from a wider selection of inventory located at the bulk distribution centers available for next-day delivery to their homes.

“This new model will enable us to drive sales while improving inventory turns and operating leverage through a technology-enabled simplified customer-focused process,” he said.

[See also: Lowe’s to Launch New Spatial Commerce Experience in Its Mobile App]

The market delivery model is expected to modestly benefit store operating expenses, including lower store labor and damage-related expenses, as Lowe’s rolls it out across additional markets in 2022.

As Lowe’s modernizes its supply chain, it’s also expanding its buy-online-pickup-in-store (BOPIS) options, including the launch of curbside pickup and touchless pickup lockers across all stores. As the market delivery model rolls out, the retailer is gaining space in its stores’ stock rooms, which will allow it to expand its parcel store fulfillment network, while also expanding same-day and next-day fulfillment capabilities, said Ellison.

[See more: Lowe's to Roll Out Contactless Pickup Lockers Nationwide]

Lowe’s expects CapEx of up to $2 billion this year as it focuses on high-return investments that will drive long-term growth.

"We are confident in the long-term growth prospects for the Home Improvement market, and that we are making the right investments to continue winning with both our Pro and DIY customers,” Ellison said in a press release.