- Predictable, dependable store deliveries are the silver bullet in Marvin Ellison's quest to improve in-stock status at Lowe's, the CEO said on the company's second-quarter earnings call Wednesday.
- Ellison said Lowe's' internal supply chain was so inefficient the company had to maintain high levels of safety stock in stores to compensate for late and slow deliveries. "Now that our supply chain has become much more efficient, this more predictable delivery will allow us to reduce safety stock," the CEO said.
- Lowe's posted a considerable 15.5% year-over-year increase in inventory in the second quarter "driven by strategic investments in the first half of the year to drive sales," according to CFO David Denton. And now that the load-in of seasonal items and increased minimum stock standards have taken effect, Denton said the company can start paring down. "In the back half of the year, we will refine our in-stock expectations and begin to strategically reduce inventories in certain areas, while protecting our in-stock position as well as sales and margin," he said.
Ellison's effect on Lowe's has been more akin to a piece of sandpaper than a chainsaw, but the CEO is confident the retailer is on the right path. Though inventory is up, the first half of the year marked the first phase of a process, which the supply chain team at Lowe's will fine-tune from here.
"We made a strategic decision to invest [in inventory]," Ellison said, who has been blunt regarding Lowe's struggle to stay in stock in the past — pledging to take a data-driven approach and not just "throw more payroll at it."
"If you take a look back at Lowe's historically, Lowe's had one of the worst in-stock positions of any major retailer. And to be quite candid, it was actually worse than what we anticipated when we started to take actions to get in stock," the CEO said Wednesday.
Executives said improved in-stock status, driven by the increase in inventory, contributed to 2.3% sales growth year-over-year for the quarter. Furthermore, Ellison said the increased inventory is lean on seasonal items and likely won't require markdowns down the road.
Looking ahead, Ellison implied the test of Lowe's inventory tuning will come on Black Friday, where the company has fallen down in recent years.
"In the past, Lowe's has kicked off their spring/Black Friday type events and they've been out of stock, had some degree of service issues. And so, you disappoint customers. And those customers just don't come back for that second, third and fourth shopping occasion later in the year," he said.
However, Denton emphasized that though inventory fine-tuning begins now, it may not produce a palpable drop in inventory.
"This is probably a multi-year journey as we make sure that we have the right analytics in place, we have the right supply chain in place, and we've really thought through by category what's the right assortment," said Denton.