Lowe's CEO says profitability will rise as retailer speeds up fridge, washing machine deliveries

Business
  • Lowe's expects to grow sales and boost profitability thanks to an initiative to reform its home delivery operations, CEO Marvin Ellison told CNBC on Wednesday.
  • "We're in the process of rolling this out over the next 18-plus months around the company," Ellison said in a "Mad Money" interview.
  • Earlier Wednesday the retailer beat Wall Street's expectations for second-quarter revenue and per-share earnings.

Lowe's CEO Marvin Ellison told CNBC on Wednesday the retailer expects to grow sales and boost profitability thanks to an initiative to reform how it delivers bulk items like appliances to customer's homes.

Ellison detailed the large-scale effort called "market delivery" in a "Mad Money" interview after the company earlier in the day reported better-than-expected earnings per share and revenue. Lowe's shares rose more than 9% in the session.

"We're in the process of rolling this out over the next 18-plus months around the company. We think it's going to give us improved turns, improved profitability and improved sales," Ellison told host Jim Cramer.

In the past, Lowe's workers had to "physically ensure" a product such as a washing machine was in stock at a store if a customer wanted to buy it, Ellison said. Then, he said, a second employee would later on have to call the customer to schedule home delivery. "That's a very inefficient and a very prehistoric process," he said.

"What market delivery does for us, it takes all of the inventory for appliances, as an example, [and] puts it in a centralized distribution center. The associate now can go online, has real-time visibility of the inventory," which then can make its to customers' residences "often times next day" without ever going to the store, Ellison said.

"We don't have to carry all the inventory trying to be in stock on every skew in every store. We don't have deal with the damages associated with moving it multiple times. We don't have to deal with the markdowns because you may assort a store incorrectly. And more importantly, the labor savings we have in our stores is incredible."

This streamlined home delivery process rolled out as a pilot in its Florida market, Ellison said. In that area Lowe's has recorded "improved sales. We have reduced inventory. We have improved profitability. We have better deliver times, and most importantly, we have customers who are much happier with our process," said Ellison, who took over as Lowe's CEO in 2018 after leading retailer J.C. Penney.

Nearly all retailers are focused on making deliveries more efficient, as shoppers expect fast and easy delivery in an age of e-commerce growth. Last year, for example, Lowe's chief rival, Home Depot, embarked on a plan to open three new distribution centers to speed up its delivery efforts.

Ellison said an increased variety of products will soon be part of this new way of home delivery. In addition to appliances, the executive said it will cover riding lawn mowers, large grills and certain patio furniture.

"We think that's a really big deal to give our customers a much better environment when they buy something from us that needs to be delivered," Ellison said.

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