Lowe's (NYSE:LOW) has found its next CEO in J.C. Penney (NYSE:JCP) boss Marvin R. Ellison. The hire, which goes into effect on July 2, closes a months-long search for a successor to Robert A. Niblock, who announced plans to retire in March.
In some ways, this choice is surprising, given that it's too early to call Ellison's efforts at J.C. Penney a success. Since he joined the retailer as CEO-designate in 2014, Ellison has led a turnaround effort that is showing some promising signs, but it's hit some bumps along the way as well.
Still, in Ellison Lowe's gets a retail industry veteran with significant experience in the home improvement niche: He spent 12 years at Home Depot, where he served as executive vice president of U.S. stores from 2008 to 2014. In that position he was responsible for sales, profit, and overall operations for 2,000 stores, more than 275,000 employees, and $65 billion in annual sales volume, according to a press release.
What this says about Lowe's
Lowe's, which today reported first-quarter diluted earnings per share of $1.19 compared to $0.70 in the first quarter of 2017, clearly has concerns that go beyond one quarter, or even a few quarters. The chain also saw its sales rise by 3% to $17.4 billion and comparable-store sales inch up by 0.6%.
Those are decent numbers that continue to reflect that home improvement retailers have been largely immune to the effects of the e-commerce-driven "retail apocalypse." That's because when it comes to their core products, they are generally either bulky and expensive to deliver (you're probably not shipping two-by-fours or drywall via UPS), the sorts of things consumers prefer to see in person before they buy, or the kinds of items people need immediately.
But in hiring Ellison, who also has experience in transforming J.C. Penney's supply lines to support an omnichannel model, Lowe's is acknowledging that shopping patterns may continue to shift. If there's an evolution in consumer preferences around the home improvement niche, the chain will have to do two things -- give people more reasons to come into its stores, and build out its omnichannel capacity.
Both Ellison and Lowe's board member Marshall O. Larsen addressed the second point in their statements in the press release announcing the hire.
"Marvin is an experienced retail CEO with extensive expertise in a complex omnichannel consumer-facing company," said Larsen.
"Together, we will leverage Lowe's omnichannel capabilities to deliver the most simple and seamless customer experiences as we execute with purpose and put the customer first in everything we do," added Ellison.
It's about what's next
In tapping Ellison for the CEO role, the board of Lowe's has acknowledged that the company must continue to evolve. But what its next iteration ought to look like is a moving target. It's hard to guess exactly where technology and consumer preferences will go. However, that sort of guesswork is something Ellison has significant experience in. At J.C. Penney, he initiated tests of a number of ideas, and quickly moved forward with those that worked on the consumer-facing side. On the back end, he pushed the chain to develop its omnichannel capabilities, with initiatives such as using its stores as shipping hubs for some online orders.
While J.C. Penney's recovery is still a work in progress, the situation at Lowe's is much more hopeful. Ellison will take over a company that has been doing well, but where the leadership knows that change will be required to keep up momentum. In his new position he will have both time and capital, two things he lacked at his previous employer. If he takes the same measured but decisive approach to this role as he did to his last, he should prove a solid pick for the home improvement chain.
Daniel B. Kline has no position in any of the stocks mentioned. The Motley Fool has the following options: short September 2018 $180 calls on Home Depot and long January 2020 $110 calls on Home Depot. The Motley Fool recommends Home Depot. The Motley Fool has a disclosure policy.