Vendor Partners,
I would like to express my appreciation to you, our Vendor Partners. In fiscal 2017, supported by your commitment and dedication to our business, we achieved the highest sales and net earnings in our company’s history. We made meaningful progress during the year to expand our home improvement and reach more customers, more effectively. We strengthened our position as the omni-channel project authority and leveraged our customer experience design capabilities and compelling messaging to capitalize on customer demand and deliver improvements in value perception. Thank you for your partnership as we work together to meet the evolving needs of
customers and deliver on our purpose of helping people love where they live.
In the fourth quarter, we delivered comparable sales growth of 4.1% exceeding our expectations through compelling consumer messaging, strong holiday event performance, and integrated omni-channel customer experiences. Our U.S. home improvement business delivered a 3.7% comp for the quarter with positive comps in 13 of 14 regions.
From a product view perspective, we posted positive comps in 9 of 11 product categories while one category was essentially flat. Appliances led product category growth with another quarter of double-digit comps, leveraging our investments in customer experience, as well as our leading selection of brands and service advantages of next day delivery, haul-away and facilitation of repairs and maintenance.
Our strong holiday performance and Never Out strategy, which ensures were in a strong position to serve demand for critical items customers needed as winter storms hit, drove above average comps in Tools & Hardware and Rough Plumbing & Electrical.
Internationally, we delivered another strong quarter with high-single digit comps in Mexico and mid-single digit comps in Canada both in local currency. We’ve made significant progress integrating RONA delivering double-digit online sales growth rolling out Appliances to approximately 100 locations completing 5 Rona big box conversions driving strong growth in our affiliate dealer business and further optimizing shared supplier partnerships and procurement efforts. We are pleased with the strong momentum we’ve built throughout the year culminating in RONA posting its highest comp in 13 years. We believe that we’re well positioned for continued
growth and remain on track to double operating profitability in Canada by 2021.
During the year, we’ve achieved some important milestones and identified specific actions necessary to drive future success. We refined our marketing strategy successfully launching a new campaign Start with Lowe’s which has captured mindshare and improved measured campaign effectiveness.
We’ve also continued our evolution from analog to digital marketing delivering more personalized, targeted messages. And we’ve optimized our messaging content driving critical improvements in value perception. Together with our incremental marketing investments these improvements have increased awareness leading to robust traffic growth.
We capitalized on customer excitement for the holiday season. We provided cohesive decorating solutions as well as compelling gift ideas, across our product assortment, connecting our in-store display with digital assets such as Pinterest, Facebook, Instagram and YouTube and delivered a seamless shopping experience on Lowes.com.
We also continued to execute on our strategic priorities driving comp growth of 28% on Lowes.com the result of strong customer response to our enhanced, online shopping experience. We have optimized functionality and display for touchscreen devices, to support a better mobile experience, improved product content recommendations, refined search algorithms, improved click-to-chat capabilities and optimized our assortment, informed by digital line reviews.
Leveraging our MyLowes platform, we drove brand loyalty and built deeper relationships with customers. This is an important platform because MyLowe’s members spend approximately 35% more, on average, than non-members. In 2017, we added more than 4 and a half million new MyLowe’s members and we used the platform to simplify our military recognition program allowing active duty personnel and veterans to register through MyLowes and receive 10% off their purchases, every day.
I am particularly proud of how we’ve grown sales with Pro customers by focusing on our breadth and depth of inventory, our strong brand portfolio, providing localized assortments, and enhancing lowesforpros.com as evidenced by our Pro growth rate outpacing DIY for both the fourth quarter and the full year.
The integration of Maintenance Supply Headquarters and Central Wholesalers remains on track and provides a compelling opportunity to improve and expand our ability to serve multifamily property management customers.
We continued to enhance our in-home selling program providing customers the ability to now request services online. And we are centralizing our process for providing installation quotes allowing for greater efficiency and a more consistent customer experience. Our project specialists represent a critical element of our omni-channel offering and a differentiated capability in capturing and serving project demand for the Do-It-For-Me, or DIFM, customer.
We have made many investments in people, processes and technology and will continue to push forward on these efforts to support our customers. We will accelerate associate readiness and knowledge through our training programs and re-engineer key processes in order to better serve customers. We will stabilize gross margin by leveraging new pricing and promotion analytics tools to ensure that we are competitive on highly elastic, traffic driving products while driving profitability across less elastic items. And through our continuing value improvement efforts work closely with our vendors to improve first costs. Finally, as we’ve made the
required inventory investments to support key categories such as Appliances, Flooring and Tools as well as depth and breadth in critical Pro categories we will drive greater working capital efficiency.
We enter 2018 with a plan to accelerate investments in key capabilities and focus our resources on what is most relevant to engaging customers in the moments that matter. These six strategic areas of focus include the following:
First, we are working to know customers and their homes on an even deeper level, understanding their plans and designing better solutions to help them navigate their project journey. We’re integrating our analytics capabilities bringing together terabytes of customer data connecting many different touchpoints throughout our omni-channel platform, supplementing that data with third party information and leveraging our talented, global workforce to translate this information into actionable insights.
Second, we’re changing how we engage and connect with customers and associates through relevant tools and messages. We’ll deliver more refined, personalized messages to customers through our enhanced marketing management platform. We’ll better empower our associates by deploying more user-friendly interfaces beginning with our point of sale upgrade in Q1 which will allow our associates to better serve customers with the touch of a button. Later in the year we’ll significantly improve our associate connectivity expanding the functionality of our in-store hand held devices to improve the efficiency of our order staging and management daily
tasking and inventory management processes.
Third, as customers demand an increasingly broad set of fulfillment options, we’re transforming our supply chain to better serve their needs and expectations. We’re investing in a new direct fulfillment center, which we expect will be operational in the third quarter of 2018 allowing for the expansion of our online product offering and faster parcel shipping. We’re also investing in delivery capacity to meet increased demand. And we’re advancing our Pick Up In Store experience during Q1 to allow customers and our installation service providers to pick up product within 5 minutes of arrival.
Fourth, we’ll continue to deliver compelling product experiences to provide inspiration and personalized choice through a combination of strategic brands and differentiated, in-store experiences. We previously announced the introduction of Craftsman in store and online in the second half of 2018.
We’re proud to announce our expanded partnership with Sherwin-Williams. Paint continues to be a top home improvement project, and we will partner closely with Sherwin-Williams to deliver a simplified line design, that makes it easier for customers to select the right product for their painting needs. Sherwin-Williams will now be the exclusive national supplier to Lowe’s U.S. retail outlets for interior and exterior paints, including the Valspar and HGTV Home brands. Sherwin-Williams is one of the most recognized brands in paint and highly respected for quality products by both homeowners and Pros. Under this expanded strategic partnership,
Lowe’s will become the only national home center to offer top selling stain brands – Minwax, Cabot and Thompson’s WaterSeal – as well as the top paintbrush brand, Purdy. We are excited to bring consumers more of the top brands they trust for their next paint or stain project.
We’re also investing in our Paint service model to improve the associate and customer experience across the entire paint project. We are rolling out a new paint desk experience in select stores beginning in the first quarter with plans for a nationwide rollout in the second half of 2018. The improved experience will include an updated product selector display as well as a simplified and streamlined service model to make it even easier for customers to work with an associate to find a color, pick a paint or stain, quickly have it mixed and begin a project.
Fifth, while our Pro penetration has grown over the last 5 years we have a further opportunity to continue growing sales to Pro customers and expanding our market share. To that end, we’re investing to improve the Pro experience. We are building on our strength in the MRO space by optimizing our Maintenance Supply Headquarters business launching a streamlined product catalog this spring followed by branch expansion beginning later this year. We’re also testing improved Pro jobsite delivery in select urban markets with an expectation of rolling out the best concept nationwide in the second half of the year. And in order to build a
stronger generation of skilled trade professionals we are launching our Track to the Trades program a new workforce development initiative that provides innovative career alternatives and financial support for our employees as they pursue a skilled trade.
Finally, as the DIFM opportunity continues to grow, we’re providing a differentiated services offering, delivering complete home improvement project solutions through our in-home sales platform which, we are proud to note, has grown to over $2 billion in sales annually. Across all project types, our installation services team completes approximately 60,000 in-home installations each week. And we continue to push forward in this space, where we are currently testing the commercialization of Lowe’s Vision Pro with our in-home project specialists allowing customers to use augmented reality to visualize their kitchen or bath remodel and feel confident
proceeding with their project. Through this and other work, we have earned recent recognition by Fast Company as the most innovative company in Augmented and Virtual Reality.
These six strategic areas of focus and investment will be instrumental to further strengthening our competitiveness and enhancing our position as the omni-channel project authority.
This is an exciting time to serve the home improvement customer. I would like to thank you for your incredible contributions to Lowe’s and look forward to a strong continued partnership. It is your hard work, quality products and services and unwavering commitment that helps make us a great company and help our customers love where they live.
All the best,
McD |
