Among her top concerns, the analyst said the company’s merchandising initiatives appear “misguided.” For instance, its move to consolidate units and reinvest space in top-selling products and more localized assortment may have “angered and confused” vendors.
Meanwhile, a new management structure announced in May to focus on customer experience and operations has led to both its head merchant and head of supply chain positions still remaining vacant after previous leaders were reassigned to other jobs, she said.
“We find it puzzling that the company would choose to reposition high-ranking members of the merchandising and supply teams in the midst of a critical operational restructuring,” Champine said.
On the store front, the company’s trying to differentiate itself by showcasing specific brands and innovative products in areas such as endcaps, or displays at the end of an aisle, but that move has also proven “unimpressive,” the analyst said.
Another move to use endcaps to showcase clearance items may also prove to be “counterproductive” to the company’s goal to increase average transaction size, she added.
Online, while the company’s ecommerce sales have increased 60% in the third-quarter, they represent only about 1% of Lowe’s total sales, she said, adding that percentage doesn’t justify its plan to spend about $500 million in annual capital spending on that front.
“We don’t believe the home-improvement categories are well suited to the online channel,” she said.“Lowe’s plans include spending virtually all e-commerce revenue on capital expenditures for the channel.”
Meanwhile, Lowe’s can’t count on increasing its U.S. store footprint for growth, the analyst said. Lowe’s square footage is expected to increase less than 1% annually the next five years, compared to an average of 6% in her specialty retail coverage universe.
Internationally, while there may be a long-term opportunity as Lowe’s expands in markets such as Canada after a failed bid for Canadian rival Rona last year, the analyst said its international ambitions may prove to be another distraction at the moment.
Lowe’s “can’t afford to lose focus on the structural overhaul in the core U.S. market,” she said.