• Nation's Largest Home Improvement Retailers Nail Higher Sales With New Delivery Models

    Home Depot and rival Lowe's reported increased sales in their most recent quarter even with supply chain challenges and higher inflation. (CoStar)
    Home Depot and rival Lowe's reported increased sales in their most recent quarter even with supply chain challenges and higher inflation. (CoStar)

    By Richard Lawson
    CoStar News

     
    The nation’s largest home improvement chains are changing how they distribute big, bulky items from their warehouses, putting less in their stores and instead shipping directly to consumers to join other types of retailers in boosting their financial performance through changes in logistics and how they use their property.

    That strategy is paying off for Atlanta-based The Home Depot and Mooresville, North Carolina-based Lowe’s Cos., with both companies reporting higher sales and improved delivery speeds in their latest quarter despite clogged supply chains and rising inflation.

    The moves come as other types of chains such as Target experiment with moving more merchandise straight to consumers and less in the store, in some cases shrinking their store footprints to reduce rent as well as get merchandise to customers more quickly. But the move by the hardware chains known for their large spaces shows that smoother logistics can benefit other types of retailers.

    Marv Ellison, CEO of Lowe’s, told investors on the company’s earnings call Wednesday that its shift in delivering large products to consumers directly from warehouses and cutting out stores is beneficial in many ways.

    “This new delivery model is already driving higher sales and appliances, improved operating margins, reduced inventory, and higher on-time delivery rates,” Ellison said, adding Lowe's plans to complete rolling out the new delivery model across the United States in the next 18 months.

    Home Depot is taking a similar approach. It has been shifting to more bulk warehouse distribution centers, fulfillment centers and other types of warehouses with the goal to cover 90% of the country for same-day or next-day delivery.

    Ted Decker, Home Depot’s chief operating officer, told investors on the company’s earnings call that the plan is to have about 20 direct fulfillment centers. Seven or eight bulk distribution centers are operating now along with seven fulfillment centers, Decker said.

    Increased Retail Sales

    The earnings for the home improvement retailers come as the Commerce Department reported Tuesday that retail sales across the country showed strong 1.7% growth in October from September, marking three consecutive months of increases. The building materials category had one of the strongest increases at 2.8%.

    In the context of Lowe’s and Home Depot reporting higher sales, “retail sales data shows that consumer spending is outpacing inflation, retailers are lifting expectations, and job gains are being revised upward, again,” Bob McNab, an economist and director of Old Dominion University’s Dragas Center for Economic Analysis and Policy, said in an email.

    “There is a lot to suggest that the national economy is not being weighed down by inflation, yet,” McNab said. “We are seeing more data that suggestions that we are in for a period of higher growth and higher prices.”

    Professional contractors once again supplanted the do-it-yourselfer in lifting revenue at both companies that maneuvered through supply chain challenges during the quarter to keep products in stores and to ensure they have much of what they need on the shelves through the rest of the year. Home Depot has 2,341 stores mostly in the United States while Lowe's operates 1,973 stores in the United States and Canada and services 230 dealer-owned stores.

    Lowe’s and Home Depot charged ahead earlier this year to focus more on luring the pros into their stores as they expected d0-it-yourself sales to slow with the school year starting and more people returning to the office.

    Lowe’s initiated changes to its store layout to make it easier for the professionals to get what needed for projects while increasing the number of national brands in stock. Sales to professionals grew 16% in the quarter ended Oct. 29 over the same period last year and 43% over the past two years.

    During the quarter, Lowe’s recorded net sales of $22.9 billion, more than $600 million higher than the same period last year and $5.6 billion better than in 2019.

    For its part, Home Depot made changes to its loyalty program and created a moble app for pros and instituted a business-to-business site.

    “We're seeing record traffic on the app,” Decker said on the earnings call.

    Sales Rise

    Home Depot’s net sales for its quarter that ended Oct. 31 rose to $36.8 billion from $33.5 billion last year and $27.2 billion in 2019. It reported sales per retail square foot of $587.28, an increase from $552.85 in the comparable quarter last year.

    Both companies reported higher average ticket sales, with some of the increase attributed to buying items such as appliances. Inflation commodities prices also contributed, such as higher costs for copper and building materials. The major drop in lumber prices muted the impact of those rising costs.

    With a strong quarter, Lowe’s increased its full-year projected sales from $92 billion to $95 billion. Home Depot, however, is not providing guidance for the year.

    Craig Menear, Home Depot’s CEO, said on the investor call that the retailer will continue pushing holiday sales in the fourth quarter to build on strong Halloween sales that were driven by the popularity of a 12-foot skeleton the company introduced last year. It went viral in 2020 on social media and the company sold out.

    Lowe’s executives said holiday and cold weather product sales started early.

    “With broader awareness of potential global supply chain disruptions, we're seeing many consumers looking to purchase products as soon as they are available in our stores,” Bill Boltz, executive vice president for merchandising at Lowe’s, said on the call.

    Part of how Lowe’s is navigating the supply chain crunch is by ordering inventory much earlier than in the past, such as for the holiday season in 2021 and 2022. Boltz said that “this gives us more time to manage through any unforeseen delays in either the production or the distribution of our orders.”

    Source: www.CoStar.com