Digital transformation helps the DIY sector avoid the retail downturn in the vaccine economy

After Target and Walmart’s dramatic fall from grace on Wall Street last week, two other COVID crisis winners, Lowe’s and Home Depot, have performed better than expected as their ongoing digital transformation programs pay dividends.

As noted earlier, the DIY and home improvement industry has been a beneficiary of the pandemic as an essentially house arrested population finally initiated those often delayed repair projects around those homes. But with the ongoing return to offices around the world and skyrocketing inflation, there was inevitably the question of whether this boom would be sustained in the vaccine economy.

The answer seems to be yes – or at least yes, so far.

Lowes

At Lowe’s, CEO Marvin Ellison is working with a customer base where sales are 75% DIY consumers. While overall sales fell 4% year-on-year, revenue on lowes.com increased 2%, with online now accounting for roughly 10% of sales penetration:

As we improve our omnichannel offering, we are gaining ground with consumers who increasingly expect a fully integrated shopping experience. We are also expanding our delivery strategy to market by adding other large and bulky products in Florida, including patios, grills, and appliance guide lawnmowers that we already supply from our cross-dock terminals. By adding these incremental products, we are making better use of our fixed costs while improving customer service.

Joe McFarland, Executive Vice President, Stores, added that in-store digital transformation has brought clear benefits:

We are laser focused to deliver a consistent, high quality customer experience. At the same time, we have the manpower aligned with demand patterns to effectively manage our payroll this quarter even in a lower sales environment. The investments we’ve made in recent years and our improved work management tools are clearly paying dividends as we flex the workforce across stores and departments so effectively that we continue to achieve high customer satisfaction scores.

Furthermore, the technological improvements we have made in recent years allow our employees to dedicate 60% of their time to customer service and only 40% to manual activities. Recall that, up to 2018, 60% of all associated time was assigned to activities that did not support the customer. We reversed this relationship by enabling more and more functionality on our associates’ handheld mobile devices, eliminating many time-consuming tasks.

This is in addition to new technology that has improved our in-store checkout, modernized project management, improved inventory visibility, and digitized in-store pricing for appliances and lumber. This increased employee productivity has not only increased profitability, it has also improved our customer service.

As for the outlook for the industry, Ellison said:

I think what’s interesting about home improvement is that we are aware that we have inflation problems. We are aware of rising interest rates, but as we look at the home improvement industry, we still remain very confident in the outlook and are very confident in the industry. We have not seen any exchange of material from our customers. We closely monitor Pro and DIY. We look at it as closely as you can imagine.

When we think about the key economic drivers of our business, it remains the appreciation of house prices. There remains the age of real estate, there remain those things that give the landlord the confidence to continue investing in the house. And as we speak to our Pro customers, they have booked us for the year. We talked to our DIY customers, they would just wait when this came out. So we feel good about the DIY industry.

He added:

I just want to reinforce the point about the value of home price appreciation for consumer confidence. And that’s one of the reasons I think DIY is a unique retail sector in this macro environment where there are a lot of questions about consumer health. What our data tells us and historically correlates is that when the value of your home increases, you simply have more confidence in investing in that home because you see it as an investment and not an expense.

Home storage

There are similar sentiments on Home Depot, where sales on digital platforms have grown 3.7% year-on-year. CEO Ted Decker commented:

A year ago, we had the highest first quarter sales in the company’s history, as we benefited from the massive demand for homeware, the favorable climate and government stimulus. This year, we hit a new high watermark for first quarter sales as strong demand for homeware continued despite a slower early spring in many parts of the country … The home improvement consumer remains engaged. Clients keep telling us their homes have never been more important and project backlogs are very healthy. We believe that the medium and long-term basis of DIY demand has never been stronger

Home Depot’s digital transformation drive continues to receive investment, while a management reshuffle aims to improve the customer experience with a new EVP of Customer Experience role, held by Matt Carey, while Fahim Siddiqui was promoted to Executive Vice President and Chief Information Officer, where he will be responsible for all aspects of technology development and strategy. Decker explained:

These moves will help further guide the alignment around our interconnected retail strategy, which will enable us to enhance what we believe is the best home improvement experience.

My opinion

It remains to be seen how long this continued success will last. If the last few years have taught us nothing else, it is surely to expect the unexpected. But for now, the COVID home improvement boom looks healthier than might have been anticipated in the vaccine economy, and a good portion of that goes to long-term digital investments.

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