HomeRetailersLowe's is Betting on Rural Locations, Sees Consumer Softness

Lowe’s is Betting on Rural Locations, Sees Consumer Softness

Lowe’s reported earnings yesterday for Q1 2023, and it was pretty much the same story that we heard from The Home Depot last week. It was a mix of bad weather, lumber deflation, and consumer softness leading to guiding down for the year.

As weather improves, we are optimistic that customers will reengage with spring projects, and we are ready to support the increased demand with our best in-stock position and staffing levels in 3 years, coupled with improved omnichannel and fulfillment capabilities. However, we are expecting a pullback in discretionary consumer spending over the near-term.

Marvin Ellison, CEO of Lowe’s

A pullback in discretionary consumer spending is not good news for the grill industry for obvious reasons. It wasn’t all doom and gloom from Lowe’s though, they also unveiled their rural strategy to drive growth.

Today, I’m excited to announce we are now scaling our rural framework to as many as 300 additional stores by year-end, with a wider offering of farm, ranch and outdoor products that positions Lowe’s as a one-stop shop to make it convenient for rural customers to get what they need in one shopping trip. Our rural format includes broader product offerings in categories such as pet, livestock, trailers, fencing, utility vehicles, specialized hardware and our new Carhartt apparel, all designed to meet the unique needs and preferences of rural homeowners who work and play outdoors.

Bill Boltz, EVP of Merchandising at Lowe’s

Lowe’s ran a pilot of more targeted product offerings for rural locations and saw success with it. From the results of the pilot, they believe that the rural expansion at 300 stores will lead to increased sales per square foot. With the lower expense base from rural locations, it will also translate to profit growth.

The main reason that Lowe’s is able to take on this initiative now is because they improved their assortment planning tools.

We had a, what I describe as a peanut butter spread on our assortment planning because our tools was so inferior it was almost impossible for the merchants to do any really specific localization. So, now we have improved our assortment planning tools, we now have the ability to execute the localization strategy as part of our Total Home strategy. And because of that, we now know what categories to pull out of these rural stores that were not productive and now we are adding in new categories, which will give us the ability to take the customer who is shopping us and shopping other retailers because of the lack of broadness of our assortment, and we are getting a larger share of wallet of that customer, and we are also attracting a new customer that’s now coming in because we are selling items, i.e., pet that we didn’t sell before that they are now coming to us as a destination.

Marvin Ellison, CEO of Lowe’s

Lowe’s projects that the rural store expansion will be a key component of their operating profit growth over the next 3 to 5 years. We’ll see how it performs as it’s rolled out, and how it impacts other retailers, like Tractor Supply, that are squarely targeted at rural customers.

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