Despite soaring technology investments, many companies struggle to deliver and sustain strategically-relevant improvements. That’s because technology adoptions too often target cost reduction and neglect more-elusive sales growth.
Remarkably, an August 2021 Gartner study of IT financial management trends at firms with over $250 million in revenue found that only 37% of surveyed tech leaders currently characterize their focus as “building revenue” rather than “managing costs.”
Home improvement retailer Lowe’s takes a starkly different approach. Hired in mid-2018, Chair and CEO Marvin Ellison pledged to build a lasting digital infrastructure centered on elevating customer experience, buying and loyalty.
While retail digital transformations naturally focus on modernizing IT platforms to better serve customers and more efficiently manage inventory, Lowe’s added and incentivized a critical revenue driver in its design—employee productivity.
Productivity with purpose
In a National Retail Federation interview, Lowe’s CEO observed that routine retail store and inventory maintenance tasks can consume frontline worker time and sacrifice customer service. At Lowe’s, common activities such as returns processing, price updates and installation scheduling were paper-based, labor-intensive and potentially error-prone. Ellison committed to change that.
Led by CIO Seemantini Godbole and former online president Mike Amend (now Ford’s Chief Digital and Information Officer), Lowe’s identified technologies to streamline daily workflows and better utilize employee time to grow sales.
Despite the pandemic economy’s drastic strain on companies’ tech needs, plans and timelines, Lowe’s remained steadfast in prioritizing revenue drivers and delivered results that outpaced most retailers, including its rival, Home Depot.
In 2021, Lowe’s launched its perpetual productivity improvement (PPI) initiative. On Lowe’s 2020 Q4 earnings call, Joe McFarland, Executive Vice President of Stores, explained, “[PPI] will play a critical role in our continued multiyear improvement in operating profit. Through PPI, we will leverage new processes and technology to deliver continuous productivity enhancements.”
McFarland provided specifics, highlighting, “Some of the most significant technology initiatives under PPI are modernized checkout infrastructure, industry-leading in-store workforce management tools, new touchscreen point-of-sale, expanded rollout of digital signs, incremental functionality deployed to handheld devices and enhanced store inventory management systems, to name a few.”
Each enhancement niftily serves dual strategic purposes—to improve customers’ everyday buying experiences while cementing their long-term loyalty.
Revitalized retail
On the 2021 Q1 earnings call, McFarland cited how the tech adoptions free employee time and boost profits. “We rolled out digital signs, first in appliances, and most recently, in our lumber department. These signs cut down on associate tasking labor and they also support better product margin performance, as we can now more rapidly implement price changes in line with the market.”
“We're also leveraging an improved freight flow app, creating a fully digital process that gives our associates better line of sight to when products will arrive at our stores,” he continued. “The app, which was developed in-house, even helped store associates to prioritize the incoming merchandise so they can quickly and efficiently position the product on the sales floor for our customers.”
Lowe’s also developed and deployed in-store customer transaction technology. “We launched secure mobile checkout, which we are using to improve the speed of service in high traffic areas. This checkout app developed in-house is allowing us to take care of customers from scanning items, tendering payment, and printing or emailing receipts before they even join a line. Our customers are delighted with the solution, especially on busy weekends,” he emphasized.
By Q2, according to McFarland, Lowe’s had “installed our homegrown self-checkout solution in over 550 stores that did not have any self-checkout capability for our customers. This Lowe's-designed self-checkout was built with the home improvement shopper in mind, featuring a simplified user interface, multiple ways to scan product and the ability to use Lowe's [loyalty] discounts.”
Winning together
Incentives are critical to accelerating workplace changes. Employees often resist technology that they fear will jeopardize jobs. To overcome this common barrier, Lowe’s wisely links productivity gains to employee profit sharing.
And the payback has been speedy and significant—for investors and employees. Lowe’s stock has more than doubled from pre-pandemic levels and employees are enjoying record quarterly profit-sharing bonuses.
“For the sixth consecutive quarter, 100% of our stores earned a ‘Winning Together’ profit-sharing bonus, resulting in a $91 million expected payout to our frontline hourly associates. And because our efforts once again exceeded expectations, this represents an incremental $20 million over the target payment level,” McFarland announced on the 2021 Q2 earnings call. That’s in addition to company-record $152 million bonuses paid to store workers in the first quarter.
On the same call, McFarland detailed that the tech implementations are, “driving higher customer adoption rates and incremental payroll leverage. With digital signs fully rolled out across lumber and appliances, we are not only driving labor savings but also enhance product margins as we can now adjust prices more quickly to protect share and margins during periods of price volatility. And with approximately 60% of online orders picked up in the store, our dedicated in-store fulfillment teams are [integral to] Lowe's omnichannel customer experience.”
Lowe’s CFO David Denton, added, “I'm very pleased that we are now expected to deliver approximately 145 basis points of operating margin improvement over 2020. This reflects a disciplined focus on driving productivity and operational excellence across the organization.” As Lowe’s nears $100 billion in annual sales, such margin improvement delivers sizable cash flow surpluses to fuel growth, fund technology, please investors and reward its workforce.
Firm foundation
With its customer experience focus, employee productivity incentives and capital for a giant new tech hub in Charlotte, North Carolina, Lowe’s has all the right tools for the ongoing home improvement boom, as well as retail’s emerging omnichannel future. That’s a blueprint for meaningful digital transformation.
