Digital DIY – how Lowe's underestimated the complexity of its e-commerce challenge


Digital DIY – how Lowe’s underestimated the complexity of its e-commerce challenge
Stuart Lauchlan
Thu, 11/28/2019 – 03:58

Summary:
Lowe’s e-commerce capabilities were well-behind most of the retail sector and that’s going to take time to fix, says CEO Marvin Ellison.
Lowe's

In the first part of this article, US home improvement market leader Home Depot chalked up successes in its $11 billion, three year digital transformation program, but admitted that it hadn’t reckoned with quite how much foundational work was needed to break free of legacy IT.

Over at Lowe’s, which ranks second in the sector, CEO Marvin Ellison has moved on from criticising the lack of digital investment made by his predecessors to admitting that he and his team didn’t get to grips with the scale of what would be involved in putting that right:

When I look back at our initial assessment of the business, I would say the only thing that we probably underestimated, [in terms of] the level of complexity, was the e-commerce business. When we did our analyst and investor conference last December, we did not have our new online president on board, so although we spent a lot of time dissecting the business across multiple channels, the e-commerce business was still a little bit of a mystery for us, and that mystery unveiled itself during the Holiday season when we had all the issues, and we’ve been digging ever since then.

That’s a reference to the problems that Lowe’s ran into last Black Friday when its website crashed, something that Ellison and Co will be hoping is not repeated this weekend. But the CEO is philosophical on how his $555 million digital investment has progressed to date:

Yes, there’s been ups and downs, but we were very clear that this is a transformation. We didn’t make any bones about the fact that this is a company that had great potential, but it had underinvested in supply chain, IT, and also leadership development. If I had to take a snapshot of how I feel about where we are, I think we are right on track, where we hoped to be, and that is taking into account there’s been a lot of uncertainty in the marketplace, like tariffs. That’s one that we did not anticipate, that we’ve been managing as best we can.

And he’s keen to remind everyone of the mess that he inherited when he came on board in September last year:

I would argue that there’s not a brick-and-mortar retail in the US that is our size that had such limited growth in the dot com business. Most US retailers that announce their comp growth for the quarter typically will have a dot com number that’s starts with a 20% growth, which is typical in this day and age. We’re not there yet, but we know how to get there, and we’re trying to take the right steps to fix the root cause of the issue.

It’s not difficult to grow dot-com sales, it’s difficult to do it correctly, meaning make money. So rather than having a bunch of non-productive promotions and other coupon-y events, we shut that down and we basically said, ‘How do we structure this business in the right way?’. We have a really good road map in place.

Google Cloud upgrade 

That said, he admits that will be the second half of next year before some of the fundamental things that the firm needs to have in its digital arsenal will be in place. But he adds:

I see it as the glass half full. Our store productivity is strong. Any time you can deliver a 3% comp off the total benefit of your brick and mortar stores in this day and age is a very positive sign, but getting our dot-com and our omnichannel business going is a huge priority and we think we can get that going as we enter into 2020.

One of the biggest pushes next year will be the upgrade to the Lowes.com website which is being moved off its current ageing platform and onto Google Cloud. Ellison believes this will make a significant difference:

Our e-commerce business is under repair and we are addressing legacy issues with the platform. Our first step in improving our online business is creating stability. To that end, we’re working diligently to improve the foundation of Lowes.com by re-platforming the entire site to Google Cloud from a decade-old platform. This work is critical to improving the stability of our ecosystem and increase our agility. We expect to have the entire Lowes.com site on the cloud in the first half of 2020. With a modernized, stable architecture in place, we have the ability to provide our customers with basic online functionality and address legacy ecommerce capability gaps.

But while this heavy lifting means “temporarily slowing our dot-com growth�, there are other initiatives that are underway, such as changes to the design of the website to improve customer experience. These will include a dynamic home page, simplified search and navigation, the ability to schedule a product delivery, and one-click checkout. Ellison says:

We know how to repair all of these capability gaps and we have a detailed road map combined with an exceptionally talented team with deep omni-channel experience. It will simply take time and proper sequencing. We expect to see our Lowes.com growth rate start to accelerate in the back half of 2020.

At the back end, Lowe’s has budgeted $1.7 billion to transformation its supply chain systems over the next five years:

That is to totally transform our supply chain from a distribution network design to get product from suppliers to stores, from suppliers to distribution centers, etc. to being more of an omni-channel center that’s going to allow us to go from store-based delivery to market-based delivery. We’re opening two new bulk distribution centers this year and three cross-dock terminals, which is really the foundational steps to helping us to build out the supply chain transformation. This will be significant for us because it’s going to take enormous pressure off the stores from being the hub for all things delivery. But it’s also going to give us the ability to deliver to customers’ homes and pros’ job sites with the same efficiency that we deliver to a store. That is something that we are going to be constantly rolling out throughout the year.

By the end of this year, a new Price Management System will be in place which will then be integrated with retail analytics tech acquired back in May through the purchase of Boomerang Commerce. Ellison says:

That’s going to give us for the first time the machine learning and AI functionality around pricing and around scraping so that we can be a lot more dynamic.

If this year’s Black Friday weekend goes without the problems of last year, Ellison will end 2019 on an upbeat note and playing a long game:

We feel good about the business, we feel good about our trends, and we have a repair plan to fix dot-com. We’re not trying to rush a quick fix. We’re going to fit it foundationally and we think that’s going to give us long term growth potential.

Image credit – Lowe’s


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