Lowe\'s Companies, Inc. (LOW) CEO Marvin Ellison Hosts 2018 Analyst & Investor Conference Call (Transcript)
(New York Stock Exchange: LOW) 2018 conference call for analysts and investors on the morning of 9: 30 on December 12, 2018
Ellison, corporate finance director and senior vice president
Bill Botz, president and chief executive
Executive Vice President Joe McFarland
Chief executive vice president StorageJocelyn
Jennifer Webb, chief marketing officer
Executive Vice President, Human Resources Department
David Denton, executive vice president, supply chain-
Chief Finance OfficerSeemantini Godbole-
Executive Vice President and Chief Information Officer
Eric boshder, Morgan Stanley
Cleveland Research Center
Bank of America-
Wolf research Joe Feldman
Please welcome Tiffany Mason, treasurer and senior vice president of corporate finance.
Good morning Tiffany Masson, welcome to the 2018 analyst and investor meeting at Lao.
Today, when we introduce new members of our executive leadership team and share our strategic priorities, it is a pleasure to have you with us.
Today\'s show includes a series of presentations, followed by a short break, followed by our financial update, as well as a long term Q & A with all speakers.
Before we begin, please note that in these presentations you will hear comments about our expectations and beliefs that are moving forward --
Outlook statement as defined in the Private Securities Litigation Reform Act of 1995.
Although we believe that we have a reasonable basis to set each goal, we cannot guarantee it.
These statements have proved correct.
They are affected by the various risks and uncertainties highlighted in this slide and are further described in the company\'s annual report on table 10
And in other periodic documents submitted to the Securities and Exchange Commission.
In today\'s presentation, we will use several non-
GAAP Financial indicators when discussing our performance and financial position.
You can be in these
GAAP Financial indicators and reconciliation with the most direct comparable GAAP financial indicators posted on our investor networking site.
You will also find out why the management of Labor thinks that these are not
GAAP Financial indicators are useful.
Thank you again for your attendance.
Now, it is my pleasure to introduce our president and chief executive, Marvin Ellison.
Good morning Marvin Elleson.
Hey, thank you, Tiffany.
I am honored to be here today as your President and CEO.
As you can imagine, I spent a very busy and fulfilling 5 months here and I want to give you some of my observations from today.
First of all, Lowe\'s is an excellent company with an excellent brand and a strong balance sheet.
In this challenging retail space, Lowe\'s is fortunate to be able to do business in areas where demand is strong.
We also have excellent staff with over 310,000 employees in our stores, distribution centers, call centers and store support centers who are resilient and committed to serving our customers and communities.
There is no doubt that our employees are our greatest assets as a company.
These early observations, as well as a very committed and supportive board, gave me confidence that we have a solid foundation.
As many of you know, I have been competing with Laurie for 12 years.
During that time, I gained a lot of respect for the company and culture.
I remember how fierce the company was once a competitor.
So when I took over the CEO in July, I started a full re-evaluation of the business to get to know something.
First of all, I want to know why we seem to have lost our competitive advantage.
Second, I want to know why we are not doing well in the market.
But more importantly, I want to know how to make Lao the best again --in-
Class retailer is a retailer that provides customers with a superior experience, a great place for employees to work, and a retailer that provides better and more consistent returns to shareholders.
So in the last 5 months we have had a full re-evaluation of the business, set up a new leadership team and worked with the team to develop an action plan, to restore our competitive advantage. in-
Classroom performance, the plan we will share with you today.
So, let me take a step back and let\'s take a look at the opportunity of Labor.
We continue to see a better macroeconomic environment for families.
Despite rising interest rates and pressure on housing volumes, consumers are still investing in their homes.
As you can imagine, we model thousands of macroeconomic data points to understand the key drivers of our business.
But with this work, we find that real residential investment, house prices and revenue growth are most relevant to our business.
While we like to help our clients with large autonomous projects, there are two
Our business is based on repair and maintenance work.
Considering the average level in the United StatesS.
Home is about 40 years old and we think there is a lot of potential in our product category to meet the customer\'s ongoing maintenance and maintenance needs.
Our company is very good.
Located in a large, fast-growing home improvement industry of nearly $900 billion, the industry is very fragmented except for the top two.
While I understand why the top two players have received so much attention, the truth is that our success is not mutually exclusive.
Considering the fragmentation of the huge home improvement market and space, we don\'t think this is a zerosum game.
In other words, this is not a win-win situation.
Although we have major competitors in this field, in general, our market share is less than 20%, so we have room for growth in both professional and professional fields. it-yourself.
Although DIY customers are still a very important customer for us, so that Lloyd can achieve the revenue and sales efficiency we want, developing our professional business will be an important priority.
In addition, despite the good macro environment, we have not realized our potential as a company.
Therefore, we believe that we have a great opportunity to expand our market share by addressing the problem of our poor implementation.
By doing so, we will create our own financial downwind.
We saw growth opportunities in DIY and pro areas and we are very happy with the future of Labor.
So, now let me take a moment to discuss what\'s got Laurie in trouble.
Execute the market and provide you with a quick update of the current state of the business.
So, as some of you may remember, when did Lao lead the industry in terms of supply chain capabilities, professionals and store experiences.
Simply put, the company has shifted its focus and lost its way.
We have taken some initiatives that have not added value to our core retail business.
In pursuit of better profits, we withdrew from the national brand, which greatly damaged our professional business.
Also, we lost our expertise in store operations and merchandising.
We can\'t keep up with the development of e-commerce.
Business, IT and supply chain.
As I mentioned earlier, we rolled up our sleeves.
Over the past few months, we have had a very detailed business review with the leaders of all functions.
I am with the supplier.
Some of my most valuable time is to engage with our clients and our colleagues in 14 states in the United StatesS.
Regional, Canadian and our maintenance supply headquarters operations.
During the time I spent with our colleagues, their talent, their tenacity and dedication to serve their customers were outstanding to me.
But it is also obvious that, despite our best efforts to serve our customers, our employees are at a competitive disadvantage in the past and cumbersome systems.
As many of you witnessed two weeks ago, when we experienced a system outage, our challenging IT infrastructure was evident on Black Friday.
This kind of system failure shows the outside world what our colleagues handle every day.
It\'s an awkward moment for the company, but it shows the world where we are at the moment.
However, these challenges reflect our past, but they are not our future. we will solve these problems.
Channel system, the work we need to do to improve our partners and customersfacing systems.
As an example, let me show you how we currently manage large and complex installation projects.
So, when I went to the store recently, I asked a question to a group of colleagues.
I said, okay, I\'m a client.
I bought the floor, cabinets, countertops and a set of appliances so this is equivalent to a kitchen remodel.
So I said to the team, how do we manage this kitchen project for our customers?
So, you want to know what my colleagues showed me as a dry wipe board behind our project management system.
So, after I got through the shock, I had a trackingup question.
I said, well, the customer did not dry the board.
How did they track the project?
Marvin, we give them a binder.
So as a project management system, dry erase boards and binder, it\'s hard to believe that retailers of our balance sheet size started using these systems in 2018.
But that\'s where we put our colleagues.
So, the question I ask myself is, how much will our sales and customer engagement increase with the development of modern systems?
The answer to this question creates a lot of energy and motivation for me and the new leadership team.
Now that we have found a chance, what should we do?
So today we will tell you more about how we can get back to basics and strengthen our focus on driving sales.
We have made plans to seize all the opportunities that the leadership team and I have found in the last 5 months.
We have two great advantages in solving these problems and quickly modernizing our business.
First, we have formed a leadership team with professional knowledge and rich experience.
This is the squad of leaders you will hear today.
Second, we have a good balance sheet and funds to redistribute capital and invest in our core retail business.
So, let me take a moment to discuss the importance of experience in three key leadership roles.
Therefore, at the beginning of this year, our senior leaders in charge of sales and store operations have limited home improvement experience and expertise.
Today, Bill Boltz, our executive vice president of sales, and Joe McFarland, executive vice president of storage, have 55 years of home improvement experience.
Earlier this year, our chief supply chain officer had no supply chain experience in this role.
Today, our executive vice president of supply chain Donald Friesen has over 30 years of supply chain experience.
I am very confident that experience is particularly important in key roles in the retail industry.
Now, let me remind you quickly of the progress we have made so far.
Let\'s start with the organizational structure.
We have adjusted our leadership team to improve our focus, execution and decision-making skills. making.
As I mentioned just now, we have recruited senior executives with extensive retail and technical experience who will build the necessary foundations for creating a world --class omni-
This new leadership team has the skills I speak.
In other words, they have faced similar challenges in their careers before and have a track record of success.
We have also adjusted our portfolio to focus on our core home improvement business.
Part of our focus, as you can recall, is to close Orchard\'s supply hardware business, and we decided to withdraw from the Mexican market, as well as the rapid refurbishment service and Iris smart home business.
We also simplified our real estate portfolio, which led to the closure of poorly performing stores in the US. S. and in Canada.
In addition, I ask the team to actively and reasonably arrange our store inventory to eliminate clutter and reduce inventory.
We finished the work in the third quarter and now we are investing in top-
Sell SKUs in large quantities for our professional customers.
These decisions are not easy.
But we believe they are the right decision for Labor, and we are trying to create a culture that really reduces costs.
We will no longer throw the payroll to our problem, instead we will define it strictly, we will find out the root cause, we will implement the technology to improve the process and the system, and make sure we increase the return on investment capital. We have implemented a stricter capital improvement process.
It is important for you to know that we are operating Lowe in a different way and operating in a way that allows us to pay more attention to what I call retail fundamentals.
When you hear that we are talking about certain initiatives today, they may remind you of things, expertise, operational discipline that you have heard from Lao in the past, the focus of this leadership team will enable us to successfully implement these strategies and take advantage of the opportunities that lie ahead of us.
So, let me know how to take advantage of this opportunity in front of us.
Therefore, in order to do this, we will be loyal to our new mission to provide the best quality service and value of the right home improvement products in every channel and community we serve.
This mission is not fancy or too ambitious, but it defines what we will represent every day as a company.
We will achieve this mission by winning victory in four key areas: Sales Excellence, all-round
Channel, operational efficiency and customer engagement.
So, let\'s start with excellent merchandise sales.
It just means having the right product at the right place at the right time so our customers can choose to shop anyway.
To deliver exceptional merchandising, we are working to increase productivity, drive localization, and streamline the reset process to improve our execution.
Bill Boltz will give a more detailed overview of our sales excellence program soon.
Our next strategic focus area is omni-channel.
Our goal is to make Lao a great whole.
Channel retailers to serve their customers the way they want.
We will provide a great full service
Enhance the channel experience by enhancing the overall customer experience, enhancing our fulfillment and delivery capabilities, and delivering exceptional operations.
Today, about 60% of online orders are received in the store.
This situation highlights that
Home improvement channel experience. Omni-
We believe that our transformation will play a role in the Channel.
You will hear more about our omni-
Later today, Don Frieson and our new CEO, Seemantini Godbole, launched the channel initiative.
Now, move into our third strategic focus area, operational efficiency.
To improve operational efficiency, we will focus on streamlining store operations.
Simplification can not only improve the customer experience, but also release operating profits for the entire business.
As we have mentioned many times before, everything in retail begins with inventory.
So we are trying to improve
Stocks are executed to make better use of the traffic we drive to stores and websites.
As a company, we will operate more efficiently.
Our fourth and final focus area will be to enhance customer engagement.
The core of this goal is to win professional players.
We have a great opportunity to develop this part of our business.
This is a very important customer because the cost of a typical pro is 5 times that of a regular DIY customer.
Although pro is an important customer, it is a customer with very basic expectations.
My experience tells me that you need to do five things well to win the market share of pro customers.
First of all, you have to offer competitive prices, including strong value propositions for heavy purchases.
Professional customers are very loyal to the brand, so you also have to reserve products for brands that resonate with them.
Secondly, it is important to provide a consistent level of service, because time is money for professionals.
You then have to prove to professionals that you value their business by providing a differentiated experience.
Finally, it is important to build relationships with professionals to make it easier for them to run their business and to demonstrate that you have a real understanding of their needs.
So later today, Joe McFarland will provide specific details on how we will improve our professional business and improve operational efficiency.
In addition, Jennifer Webb will outline how we will drive better employee engagement across the company.
You will hear from our chief marketing officer, Jocelyn Wong, who will share with you how we can build closer ties with our customers while focusing on marketing productivity.
So what you see on this slide is not the content of a list of fancy posters or slogans.
What you see here is our operation plan.
Each initiative has a designated captain by cross-Functional team.
From now on, my direct report meets weekly to review progress reports and scorecard for these cross-projects
As golf has said, we will check our expectations for these key initiatives.
As I mentioned earlier, we just manage labor in different ways.
So what value do we think these initiatives are for businesses?
We believe we can achieve a 12% Operating profit margin and a 35% return on investment over the next few years.
Dave Denton will provide short and long term details
We plan to generate the term value from the initiatives we will outline today.
When I think about the timeline of our shift in labor, I look at it in stages.
The first phase of our transformation will be to focus on the fundamentals of retail, which will enable us to take advantage of the immediate opportunities and the results of improvement.
The next phase in the next 18 to 36 months will be to drive sustainable growth.
The focus of the final phase is to seize market share.
In addition to the supply chain, the plan we will discuss today will be launched in the next 12 to 18 months to reset the bar to 2019.
But I want to be clear that we are not waiting 18 months to improve our finances.
We expect that as we work at every stage of this transformation plan, we will experience continuous improvement.
Today, the leadership team and I are very excited to outline these initiatives for you.
But before I finish, I would like to discuss our business in Canada.
RONA integration continues, including the execution of our e-commerce
The launch of business strategies and appliances and the optimization of shared supplier partnerships and procurement efforts continue.
Similar to the United States. S.
We are implementing plans to improve execution, expense discipline and operational profitability in Canada.
Although comps has recently experienced some pressure from the weak housing market in Canada, we continue to take a share and believe that the business will remain unchanged for a long time. term growth.
So in the end, some of you may be disappointed because we will not take the time today to update our strategy by outlining the importance that AI will play in our decisions, to take advantage of virtual reality in the family --making.
Don\'t worry, these are very important elements of our current and future strategies.
However, I feel today that you should be more focused on providing you with a transparent view of the current state of Lowe while giving you a clear view of our immediate plan to improve the fundamentals of retail as part of our three
As we said, we are from Tennessee and decided to bake the cake before we start offering you icing sugar.
It\'s a new day. it\'s a new day.
I expect that we will re-focus on the retail fundamentals that we will outline today.
In the next few years, we will seize the opportunity of market share and create considerable cash flow.
When we focus on the core retail business and optimize the allocation of capital, I believe we will make a meaningful long-term return on Lowe\'s investment.
Long-term returns from all of our stakeholders.
I want to thank you again for coming here today.
Now I am happy to hand it over to Bill Botz, our executive vice president of sales.
Thank you, Marvin.
Good Morning, everyone.
It was a pleasure to be here as part of the Labor team.
A year ago, I worked with the team as a supplier and was on the other side of the business.
I think Lao did a very good job in understanding and understanding all-round expectations.
The challenge is that Lowe does not have the right system, process or focus to implement this vision.
Since joining Lowe 4 months ago, I have been able to understand the status of merchandise sales from within and have made some key comments.
Let me start with category management.
Today, we do not have a category management strategy for managing resource allocation.
Therefore, we are inconsistent with customer needs, or our product layout decisions are more national than market-oriented --
Led to a decline in sales efficiency.
For example, we use a valuable tailcap space as a showroom instead of placing products that attract customers to be interested in transportation.
You can see here that we use 3 tailhats in the store, and sometimes, there are up to 4 smart home devices on the same aisle, we have not followed any productivity targets in this area in terms of sales
Pass or make a profit.
We are focusing on a new trend.
However, this is done without understanding how it relates to the customer and its expectations.
We also lost hands with professional players.
Lack of attention to the depth of inventory, the right price and the products they expect.
In fact, we lost some of the key brands a few years ago because we focused on profit margins rather than understanding and responding to the overall needs of that important customer.
We also found that our online classification lacks a significant SKU deficit compared to our competitors, resulting in loss of sales and lack of localized products, also resulting in loss of sales and declining productivity in many of our markets.
For example, in the bull head city of Arizona, the hat is the national hat of Dyson fans.
If you are familiar with the market, the average household income in the market is about $31,000.
So while Dyson is a great product and a great brand, the average price of $300 for a fan may not be the best option for us to buy a tailstock at this store
Finally, our reset execution has been very poor.
It lacks process, structure, and discipline, resulting in ineffective reset activity being slow: out of stock, loss of sales, and a huge distraction from our store staff.
So seeing all this, we recognize that we have a great opportunity to improve performance by performing at a higher level.
In order to do this, we focus on the retail base, which means focusing on the right things, the basic things, blocking and solving problems, and really need to stay simple, so in the sale of goods, it all starts with sales.
It sounds obvious, but we have to create a sale. Promote culture.
To do this, we have to improve our productivity by building and implementing the category management process.
We know that our sales per square foot are not maximized because we do not keep track of it.
When we visit the store, we have talked with our merchants and store colleagues about the sales efficiency of these specific terminals or other key areas of the store, we were surprised by their limited sales information at store level.
Due to the lack of information, we cannot focus on improving sales efficiency.
So we need a cohesive strategy to determine what we focus on, where we invest, and how we will coordinate our products in stores and online.
We know that so far we have not allocated our resources to the areas where opportunities are greatest.
We also know that we must better meet the needs of our customers at the market level.
To do this, our merchants have been meeting with suppliers to ensure that we focus on the right brands and the right products to meet the needs of our customers, provide these localized and related product categories.
We must increase the speed of entering the market.
We know that we have a lot of room for improvement, to do things better, to do things more effectively, and to have a greater sense of urgency.
We know retail is a competition.
So as a business team, we know we have to move faster.
In order to seize these market opportunities, we must implement them more precisely.
As a former supplier of Lowe, I know first hand how difficult it is to make decisions and launch new products.
So, improve our reset and our
The store execution process is an important part of improving our speed of entry into the market.
Looking forward to the future, we are committed to owning and delivering exceptional merchandise sales.
As Marvin said, it really is to have the right product at the right place at the right time, so that our customers can shop with us anyway, which is what they choose.
We are building a strict category management process to improve the efficiency of sales in our stores and online.
A central analysis-based approach we will define the roles of each category in the Lowe\'s and identify the inherent category opportunities in the net space for intentional resource allocation, and focus on opportunities for businesses.
The category definition of our landing is choice, flow-driven, destination, core and convenience.
Now, the selection category includes categories that you offer multiple options, and you can include both national brands and private label products.
The traffic driving category attracts customers\' interest with great offers and value, and its design is very competitive and destructive.
Our destination category causes customers to drive past other retailers to see you.
For these categories, we will focus on the brand, classification, breadth, depth and quality.
In order to attract and retain new customers, we will strive to take advantage of these categories.
Our core category is a must.
Yes, those home improvement projects that are usually projects-focused.
Among these categories, there are the least promotions and less transitions.
Finally, the convenience category is what we call the impulse or mission travel program for basket finders.
The price sensitivity of these categories is low, so we will focus on accessories to drive sales and profits.
Therefore, this strategic approach will enable us to meet the needs of our customers, invest in the maximum return for each category, and increase sales per square foot while increasing profit margins.
We expect that this initiative will bring initial benefits starting in the second half of 2019.
We will take advantage of this category management process to make informed decisions on where and how to extend our online classification and provide more options for the home improvement needs of our customers, and support identified.
We also created a more practical operation model by aligning our online merchants with our core sales team, allowing us to make consistent classification decisions across all channels.
Sales Excellence also requires us to establish the right number of suitable varieties for the right store that meets the needs of our customers.
Therefore, we focus on localization at the market and store levels and drive customer engagement with improved, relevant and localized product portfolios.
For example, we have encountered deck stains in markets where there is no deck.
Looking into the future, we will change this situation through targeted categories that reflect the need for each market customer to drive sales productivity.
This is critical for professional customers as local building regulations require that these categories be customized at the market and store levels.
So to assist in this work, we are now investing in a field sales team with local merchant expertise in each of our regions to make us more competitive with the local market.
These teams will focus on maximizing the use of our end cap, our resilient space at the local level to drive this correlation and increase sales per square foot, thereby increasing inventory
We are currently forming our on-site sales team to launch in the first half of 2019.
So when we build our classification at the national and local levels,
We will develop and provide classification tools for our merchants to help them understand the factsbased decision-
These tools will leverage Lowe\'s transaction data as well as customer and competitive data to help design the right portfolio by location and channel.
We have seen the power of classification optimization in driving sales and delivery of inventory turnover.
For example, in our past life, Joe and I worked together to expand the variety of cleaning products in the city market, not outdoor power equipment.
This enables us to make better use of the space and exclude the mower and tractor from the city stores, driving the growth of sales per square foot.
So in 2019, we will be using our exciting brand machine meeting with artisans and Sherwin --Williams.
Given the strong response we have seen so far in the category, we are very excited about the continued launch of artisans.
So far, we have launched artisans in about 220 stores in 2018, and we will continue to launch in the first half of 2019.
We will use the battery to power the growth trend of outdoor power equipment, we will be at 20 and 60-
Platform of Volt battery.
We will also introduce new gas-powered products to help improve the range of products. These new 20-
Volt cordless products in the garden are compatible with all the tools in our tool department while introducing the new 60-
The Volt platform brings the power and performance of the gas in battery-powered products, and creates a new Craftsman creator.
We are very pleased to be the exclusive destination of this iconic brand on home center channel, which offers the best tools, tool storage and outdoor power equipment in the industry.
We will also take advantage of our expanded strategic partnership with Sherwin --
Williams is one of the most recognized brands in the paint industry.
Whether it\'s a homeowner or a professional, it has great respect for quality products.
With this partnership, Lowe\'s is the only national home center offering best-selling stain brands Minwax, Cabot, Thompson water seal.
These teams provide a simplified lining structure that makes it easier for customers to choose the right product according to their painting needs, and we have an exclusive collection of Sherwin\'s HGTV Home-
As well as interior and outdoor paint in valspa.
We can\'t forget the accessories because we now have the brand of brush that is the leading industry in Purdy.
So we are happy to bring more top brands for DIY and pro customers that they trust for the next paint or stain item.
We will continue to leverage this partnership to increase marketing support and improve inventory to meet business needs.
In order to drive superior merchandise sales, we must also increase the speed of entry to the market by improving our reset process in order to make it easier to take advantage of market opportunities.
As we mentioned earlier, our rest execution process is tough.
As a matter of fact, our recent shutter reset has 8-
It actually took us 27 weeks to complete this reset plan.
During this long process, customers saw empty shelves, they were getting frustrated and we missed the opportunity to sell.
So we \'ve got a deep dive into the drivers of this poor reset execution, and I \'d like to share with you the five key observations we \'ve identified.
First, there is a lack of financial rigor in the reset approval process.
It makes it impossible for us to properly sort the most important reset.
Second, we used one. size-fits-
All approaches fail to recognize that stores with a lower number and much lower wage flexibility struggle to find the resources needed for a timely reset.
Third, our supply chain has not played an active role in integrating reset products to create a seamless and efficient store delivery process.
Fourth, there is no consistent exit policy to clear or remove the product before a specific date.
Finally, we are not aligned in the organization to facilitate smooth reset execution, which means that our planning team and execution team are placed in different organizations, which leads to misplacement.
So now, with a clear understanding of the issues and challenges, we are now focused on implementing the new reset execution process.
Specifically, we are doing the following.
We are investing in the executive team in our store.
We have started to build and pilot our merchandising services team or what we call MST.
This is funded by the supplier.
This is the industry standard.
We have an average of eight full members.
Time partners for each store.
These team members will be responsible for our day. to-
Daily maintenance of the Bay demo in our store.
In addition to our endcap execution, they will also be responsible for performing off-
Shelf, improve our
Maintain inventory and assist our store staff with daily packing.
These teams are critical to improving our execution at the store level, and we need to spend that time-
Drain tasks from the shoulders of our red vest colleagues so we can release them to take care of our customers.
We also focus the responsibility for reset execution on our sales team that is now able to manage the terminalto-end process.
Looking into the future, our supply chain team will work to ensure that we reset the upstream packaging in a way that is easy for the team to execute, which will reduce the reset interruption of the store and allow us to complete these resets faster.
Before performing a reset, we will also coordinate training and strengthen communication to ensure that our store team understands the strategic principles behind each reset.
We will also establish clear guardrails for product transition activities, which will enable us to effectively liquidate all non-
Forward the product before the reset starts.
As we strive to improve the return on Reset investment through the category management process, we are developing more financial rigor around the needs of the overall reset activity.
Each reset will be evaluated by a business case based on our barrier rate criteria.
We will also strengthen our reporting tools so that we can better measure reset performance.
We believe that this new reset process under an organization, with the introduction of the MST team and our on-site merchant team, will help us to increase the speed of listing and allow us to launch new products faster, to promote the growth of market share, while reducing the interference with the market to improve the return on investment.
So it\'s a new day, a new day.
Hope you can see that we have a special opportunity in front of us to get profitable share gains by having the right product in the right place at the right time, in this way, our customers can choose to shop with us anyway.
By focusing on the basics of retail, putting the customer\'s needs first through a rigorous category management process, driving sales and profit productivity, and by classifying our goods with the right market, improve our listing speed and reset capabilities, drive localization, and we believe that we are laying the foundation for home improvement solutions that drive sales and expand market share.
I would like to thank you for your time this morning.
Now, I am pleased to welcome my partner, Mr. executive vice president of the store. Joe McFarland.
Thank you, Bill. good morning, everyone.
Today, I am pleased to share with you the way we deliver a superior customer experience and make Lowe a more operational and efficient company.
To begin this journey, we have carefully studied the current state of our store.
We are very excited to see customers coming to Lowe\'s, so our traffic growth is very strong.
However, frequent out-of-stock leads to poor conversion, slower transaction growth, and customer disappointment.
We have colleagues who know the business very well and do their best every day to find solutions for our customers.
But we also see that we make it difficult for these colleagues to finish their work.
The lack of processes, procedures and clear directions makes their work inefficient.
Complex and outdated viewsof-
The sales system takes too much time and training to navigate and gets our professional staff in a mess and customers are waiting in line as well.
In fact, the staffing model has invested too much time in the association and task allocation activities, insufficient investment in sales activities, and lack of attention to pro customers, this leaves us with no suitable pro service model and no competitive value proposition.
Although we want our store to be part of omni --
We do not provide the tools to do so.
The order management system is out of date, split between multiple platforms that don\'t talk to each other and are not properly connected through our supply chain, so they don\'t have an accurate view of the available inventory.
This makes the use of associated time inefficient and has a tendency to cancel orders.
We don\'t have a single view of our customers.
Instead, we have multiple views across multiple systems, making it impossible for us to truly understand our customers in a way that effectively predicts their needs and provides solutions.
At the same time, we are facing challenges such as poor transformation in our business. we throw the payroll on this issue instead of conducting a comprehensive root cause analysis and formulating effective solutions, resulting in more inefficient gains and losses
However, after our extensive review, it is clear that there is a great opportunity ahead of us.
As you will continue to hear today, we believe that every challenge can be solved and solved, and the good news is that I have extensive experience in solving these problems.
We have built a strong team of operational leaders to help us drive operational excellence and efficiency.
In doing so, we have a huge opportunity to take advantage of the brand\'s strong customer affinity and better serve the strong traffic we drive to the store.
Today, I will show you how to improve operational efficiency by streamlining store operations and improving our in-house operationsStock execution.
Next, I will share how we will earn professional customers by improving our products, services and value delivery, so as to achieve shared benefits.
Finally, I will discuss how to improve our service business to improve profitability and better serve the business. it-for-me customer.
The first step in providing a retail base in our store is to simplify store operations.
We will provide clear information to our employees while establishing the right processes and systems to provide the best experience for our customers.
One of the main challenges we face at the store level is the huge amount of things we ask the store to perform.
Therefore, we first simplify communication and information transmission with the store.
We have turned to a simplified weekly script to focus the team on the top priorities, key metrics and key deliverables.
We have implemented the filtering embedding process to ensure that we only send the most important communications to the store and let them focus on the right things.
In order to solve the problem of information overload and inconsistency, we closed the report of 95% to the store.
This is to get our staff out of the office, put a lot of reports in the sales Hall and spend more time with customers.
We then replaced a large number of hard copy reports with a simplified dashboard to provide better store performance visibility than expected.
What you see on this slide is the actual report and email
Send an email to the store manager of one of our storesmonth period.
This is not a prop.
In fact, we collect these documents in order to have a better understanding of the information flow provided to the general store manager.
I think you will agree that it is almost impossible to manage and prioritize effectively.
However, this is our actual situation about 6 weeks ago.
Another key focus is that we simplify storage operations, that is, align and assign payroll correctly.
Having colleagues in the right place at the right time is one of the most important things we can serve our customers.
In addition to the cost of selling goods, wages are the company\'s biggest expense.
Our current system of manual scheduling needs to be improved.
The current system is outdated and ineffective, and the Labor trend cannot be correctly predicted.
It has a schedule of 13 weeks ahead of schedule and does not arrange working hours according to the department to meet the customer\'s demand model.
This leads to inefficiencies and waste of time for managers to overwhelm and edit schedules.
In fact, when the labor dispatch system should bear this burden, our store spends more than 1 million hours a year to make a schedule.
We are now implementing automated sales in the form of customer data to better anticipate customer needs by time of day, date of week and department.
We also align labor hours with peak traffic to ensure that we make effective use of labor hours and reduce wage spending while providing quality customer service.
In addition to allocating our salaries more effectively, we will also reduce task time, enabling our employees to spend more time with their customers.
We only spend 40% of our salary in the store today with our customers, which must definitely be changed.
Our goal is to increase our customers.
Wages will reach 60% hours by the end of 2020.
As a first step, we have canceled sales of mission activities at the busiest time of the day, so that our employees can focus on providing excellent customer service.
This process eliminates competitive needs and provides a clearer, concise and consistent approach to delivering repeatable and reliable experiences across all of our stores.
On 2019, we will use the MST team discussed by Bill to reduce the task allocation responsibility of the sales staff.
We will also improve the efficiency of front-end tasks.
Our store is at the end of the sales area and behind-
By building clearer processes and programs and taking advantage of technologies such as mobile devices, the store is closed.
In front, for example-
At the end of the store, we are improving our view --of-sale systems.
We are replacing the tedious, outdated green screen with a graphical, modern, intuitive sales interface to make it easier for our employees to navigate and to train new and seasonal employees faster.
We also offer more checkout options to our customers.
For example, we will add self-service checkout to all stores over the next two years.
On our new handheld we will support the mobile checkout feature to drive more front-end featuresend efficiency.
At the sales level, we use mobile devices to reduce task time and increase productivity.
For example, printing a price tag while walking in a store requires a colleague to walk from the aisle where they work to one of the 2 terminals in the store where the label is actually printed.
In the future, we will launch a handheld printer that will allow employees to print pricing labels on the aisle, saving valuable time.
We will also use mobile devices to improve the efficiency of other task processing activities.
Don will discuss how to achieve the efficiency of the supply chain transformation by moving large items (such as electrical appliances) to two distribution centers.
When we use payslips more effectively by standardizing processes and procedures to reduce task time and improve labor efficiency, we will drive the leverage of payslips.
Starting from January, we will use part of these wage savings to add three hours of department managers to each store. These customer-
The role to face will focus on improving the customer experience by providing better departmental coverage and guiding our employees to deliver excellent customer service.
As Marvin discussed, many of our colleagues
System-oriented is the need for modernization.
So we are upgrading our order management system to replace multiple legacy systems with one of the bestin-
A first-class system that manages orders and services, we connect this system to our supply chain to give our employees a more accurate understanding of inventory and increase visibility across the system, provide more for customers.
We will also provide this improved inventory view for our colleagues\' mobile devices to continue moving from desktop to mobile devices, reducing the need for employees to run desktop terminals to collect information and to put customers on the aisle.
Now, let me take a moment to discuss the root cause of our shortage.
Historically, the inventory of labor is not the inventory turnover target, but the inventory amount.
Therefore, we have not fully invested in high-speed SKUs in maintaining the appropriate number of jobsstock position.
As Bill described, invalid resets also result in stock out of stock in key categories.
As Don will describe, traffic challenges across the network lead to overstocking or understocking.
In the store I see the lack of engineering processes to complete tasks such as moving the product from receipt to sales area which adversely affects our internalsstock position.
Finally, our store manager did not have the autonomy to re-order the product and could not solve the inventory problem of key items.
So, to improve our
The position of the stock, first of all, we developed a comprehensive
The inventory process, which includes standardized procedures to effectively transfer products from receipt to sales area, we roll this process to all USS.
Store in November.
We have also set up a regular packaging process to ensure that we have been filling the shelves with products we already have.
Next, we will improve the stock flow from RBCs to stores to ensure we have consistent stock
Inventory levels throughout the week, then we will give our store a better idea of the incoming schedule for RBCs and the actual content on the incoming truck.
This will enable our store managers to better plan to receive these trucks and allocate the appropriate labor force without having to pull employees down from the sales area as they did in the past.
Finally, we will give our store manager limited autonomy to re-order the appropriate number of low risk, high speed in sku to increase revenue
Inventory of our key projects.
When we monitor out of stock, we will take advantage of the mobile devices of associate to develop from slow paper stock replenishment
The basic process of efficient automation process.
All of these workflows are combined to improve our
Inventory levels allow us to increase flow conversion while increasing labor productivity, and then increase sales.
We expect our in-
When we got into 2019 shares.
Finally, let\'s talk about how we can win with our professional clients.
First of all, we have carefully studied the gap of our professional products.
We found that our Assistant on pro desk was undercovered and there was no dedicated loader to help professionals load trucks.
Time is money for all of our customers, but nothing is more important than professionals.
If a professional customer has to take a person away from the job site and then send them to Lao to get more supply, it will lead to a decline in their business productivity.
Now, if the pro had to leave three people off the job site for the trip to Labor, because pro couldn\'t rely on us having loaders to help load the bulky products they needed, this has lost productivity even more.
We did not directly lead the professional team in the store to focus the team on key professional activities.
We did not properly classify the professionals and our work batches were insufficient to meet their needs.
This leads to poor professional customer experience, lack of professional loyalty and loss of professional market share.
Now, it\'s time to change it all.
Professional customers are too important in home decoration and represent too many opportunities to leave directly.
As Marvin pointed out, pro accounts for more than 50% of the existing home improvement products.
At Lloyd\'s, only 20% to 25% of our sales come from professional customers.
So pro is one of the biggest opportunities for us to gain market share, and we focus on this opportunity.
Pro is a very important customer, as Marvin said, but they have very basic expectations.
Winning with pro comes down to five things.
First of all, provide competitive prices, including strong value propositions for a large number of purchases.
Our prices are competitive at the individual SKU level.
Professionals find our batch pricing confusing and unreliable.
So we are rolling out a simplified, transparent pricing process for bulk orders so that professional customers can better understand our value proposition and rely on it.
We are also improving our contractor packaging as another way of communicating value messages to a large number of sourcing professionals.
Second, stock pro related brands, in view of the fact that pro is very loyal, we will also improve our products through key brand introductions to bring pro customers back to Lowe.
With the launch of SharkBite A, we have seen the power of the destination pro brand to attract customers. O.
Smith, Marshall town, Hitachi and Bosch, we are not done.
We have the opportunity to work with other major national brands of pro.
Given that these suppliers do not have exclusive arrangements, we believe they are as excited as we are about the professional business opportunities offered by Lao.
Third, to provide a consistent level of service, to ensure that we have the appropriate store level concerns for pro, we have a dedicated pro department head in each of our stores.
We will also develop labor standards for the professional help desk to ensure we have the proper staffing and we will have dedicated colleagues to help professionals load trucks.
We will also have knowledgeable and consistent staffing in major professional sectors such as crude pipes and electrical, wood and building materials, wood products and paint.
Fourth, to provide a differentiated experience, we will differentiate through strong products and excellent services, as well as using our maintenance supply headquarters business to provide additional products and services to professionals.
We have introduced a simplified catalog of products for MRO customers and are planning more branch extensions.
Looking ahead, we will strive to integrate external professional sales staff and make better use of the MSH catalog to deliver products to our stores.
Finally, develop a strong relationship with professional customers and will build a strong relationship with our professional team to provide familiar and friendly faces to those repeat professional customers.
These relationships also show that you understand the needs of professional clients.
Given that adequate inventory is one of these needs, we are investing a lot of work for professionals.
This is to ensure that we have stock depth at the store level to meet the needs of professional customers and have a presentation impact on those top customersselling items.
This represents the current inventory level in the wood and building materials sector of typical stores.
Now, this represents the attitude of the department after we have invested heavily.
Visual presentation is important for professional clients.
If they shop on Monday and see limited inventory, they won\'t be back later this week for fear that you will be out of stock.
So we are investing a lot of work right now and will have enough inventory ready for professionals in early 2019.
We also have the opportunity to improve our service business by streamlining our sales model, improving our project management system, expanding our national installation network, and narrowing the scope of product inspections we undertake, improve the overall customer experience.
As Marvin mentioned, our current project management process is out of date.
So we are working with Seemantini and you will hear from him soon to modernize this part of the business.
This will enable us to serve the growing cause. it-for-
I ask for more effective and efficient.
It is a new day, a new day, and the opportunity before us is very obvious.
We can win in today\'s retail environment by focusing on the retail base to take advantage of our great home improvement industry and huge brands.
We want our focus to be on improvement.
Stocks, providing better customer service and winning professional customers will drive higher sales efficiency in the coming years.
While we focus on streamlining store operations, implementing technology and increasing payroll productivity will improve our operational efficiency.
Thank you for your time today.
With that, I want to hand it over to Jennifer Webb, executive vice president of human resources.
Thank you, Joe. good morning.
As Marvin and Joe pointed out, we have some very good colleagues in the home improvement industry.
They are the loyal stewards of our brand and are committed to serving our customers.
That is to say, we must make better use of their talents and enthusiasm to maximize customer engagement.
This is a key challenge as we seek to drive sales across the business.
So for the past few months, I \'ve been working with our functional leadership to identify areas where we can help our colleagues improve customer engagement.
Today, I am very excited to talk to you about two very specific but unique aspects of our action plan.
It all starts with making sure our staff is focused on delivering great customer service every day.
We are rolling out a new smart customer service model that will guide the way we hire, train, evaluate and direct our employees.
This project simulates a great experience and drives the behavior of delivering the experience that customers want.
The smart model focuses on finding customers in order to open a dialogue to meet their needs, add relevant products, services and expert advice, review how their needs are met and thank them.
Smart is not just a training program.
This is a fundamental shift in our culture from a shop focused on task assignment to a laser shop --
Focus on providing quality customer service.
The Smart program is a comprehensive toolkit that includes training programs and mobile devices designed to deliver everything our employees need to deliver exceptional customer service.
Provide intelligent model training for all our colleagues in the United StatesS.
It will be held in 2019.
The new smart mobile device we are rolling out to our store will enable our employees to use the data and tools they need to serve their customers.
These expectations from the Smart model will also be embedded in our recruitment and assistant development projects.
We believe that a strong and healthy sales culture drives exceptional customer service, and the smart model is the foundation of this culture.
In addition to focusing our staff on company-wide training with excellent customer service, we are also taking steps to help our staff develop key trade skills, these skills will serve our customers better and develop into customers who may eventually become our network of contractors or loyal professionals.
Before I dive into the details of what we are doing, I would like to take a moment to talk about the trends we have seen in the labor market for a while.
In the past few decades, there has been an idea in our country\'s culture that the profession of the skill industry is isolated, difficult, dirty and underpaid.
Most middle and high school children believe that if the industry they end up in is their profession, plumbers, electricians, carpenters fail.
Five people around the world say they don\'t like their jobs and have no career path.
Many people believe that their craft or trade skills cannot provide the prosperity of modern technology. driven society.
This is not necessarily the case at all, and despite the increasing demand for services for qualified trade professionals, this has led to a long-term shortage of them.
It is expected that nearly 3 million skilled trade jobs will be vacant by 2028, and we are determined to change this situation.
In February, we announced the launch of a new workforce development program called \"tracking the industry.
Work with Guild education and adult education companies to track the financial support of the industry to provide our employees with innovative career choices and pursue skills industries.
As part of this program, Lowe\'s provides paid tuition fees for trade skills certification, academic guidance and support, and full employment opportunitiestime pre-
We have a nationwide network of apprentices of contractors or continued growth with Labor.
By investing in our employees, we are developing them into a trusted team of consultants that can support our customers, at the same time to build a technology trade workers pipeline for the next generation in a long timeterm.
Let\'s watch a video highlighting the importance of changing the narrative around this key profession.
For the first time we took part in the deal, providing a pilot program for about 48 partners in four major markets, Denver, Charlotte, Pittsburgh and Richmond.
The pilot project was a great success, with 200 candidates enrolled in the previous months.
We have completed the launch of this project to qualified partstime and full-
Time assistants for every store, distribution center and call center across the United StatesS.
As of October, enrollment for the program continued to expand.
These colleagues are completing the course at their own pace so they can be an electrician, plumber, Carpenter, HVAC installer or electrical repair specialist.
We are very happy to be able to invest in developing our partners and get in touch with our DIY and pro customers in advance.
When we focus on becoming more customers
As a customer-centric company, we must continue to expand our relationship with our customers.
We are changing the culture at the store level, focusing on customer service rather than task assignment, teaching our employees the skills they need to deliver quality customer service and providing training in skilled industries, help our employees to better serve their customers.
By investing in the skills and abilities of our employees and using their talent and enthusiasm to maximize customer engagement, we are today turning them into a trusted team of consultants in our aisles while delivering skilled workers to the next generation.
I am excited about all the work we are doing and believe in investing in our most valuable assets and our colleagues will help us win in today\'s environment.
Thank you for your time this morning.
I will now hand it over to Jocelyn Wong, senior vice president and chief marketing officer.
Thank you, Jennifer. good morning.
I am happy to share with you all the different ways we develop marketing and build closer ties with our customers while focusing on productivity.
Over the past 18 months, we have made good progress in driving traffic, which is what we do by leveraging our strong brands while building capabilities to quickly modernize our digital marketing approach
But there is still much room for improvement.
We have the opportunity to improve the information in the mass media to expand our reach and relevance and to attract a wider audience.
We also work closely with store operations and merchandising to ensure our
Inventory and product supply are consistent with the products and services we are promoting.
Now, we also need to build the right data infrastructure in order to make better use of our own customer data and reach out to customers in a meaningful way on their journey.
We are moving away from the past history of incremental marketing spending that relied on mass media, into an era of using better goals and personalizing to attract customers in the right place, with the right information at the right time to drive incremental traffic, it is planned to spend less advertising in the coming years.
So let\'s start with our customers.
For more than ten years, we have been the home improvement destination for what we call light DIY customers.
Now, this is a more casual DIY customer who likes to do some small home improvement projects by himself, but is not completely confident in his DIY skills.
We have become their target.
Because we provide them with an experience that makes them feel comfortable, knowledgeable and ultimately confident enough to move forward with their project.
We know them and we serve them well.
Let\'s take a look at one of our attractions for this client last spring.
Now, while our Moments campaign has done a good job for us, we know that we cannot achieve our growth goals without expanding beyond this customer base.
Our mass media ideas must attract more viewers in order to work hard for us and increase traffic for every dollar we spend.
Therefore, we are working to improve our information, focus on the need to win in the heart of heavy DIY customers, and prioritize the segment of professionals.
Now, the heavy DIYers are hands-on makers.
They have always been DIYers, so they have both the confidence and the desire to participate in a more advanced family --
Heavy DIYer is a frequent-
Store buyers who rely heavily on online channels for inspiration and research.
But they want to see and touch the products they are buying and talk to our colleagues about the projects they are working on, especially when they need help with the projects they have already started.
Heavy DIYers spend more on products, nearly twice the average level, they are in-store 1.
5 times more than ordinary customers.
So we are developing our marketing campaign with new slogans, don\'t just do that, do the right thing at a lower price, start with Labor.
Now, we believe that this new activity will help us to improve the continuity of the home improvement customer skill set, and our research also shows that light DIYer also has a good response to this activity.
This is important because it allows us to maintain our strength with light DIY while broadening our information.
In other words, we believe that by 2021 we can reduce our marketing spending while talking to more customers.
So, let\'s take a look at two of our upcoming s