Lowe’s Opens Warehouses to Stow Goods to Improve Seasonal Distribution Efficiency

Date: Thursday, March 9, 2023
Source: Wall Street Journal

Lowe’s Cos. is opening more warehouses that will serve as storage facilities for offseason goods, a strategy the home-improvement retailer says will help it more efficiently distribute its inventory.

The facilities are part of a broader $1.7 billion investment Lowe’s has been making in its supply chain to fill online orders faster. That has included adding e-commerce fulfillment centers to its network that pick and pack orders for delivery to customers’ homes.

But while many other retailers have focused on building those warehouses to speed up order fulfillment in a move away from storage facilities, Lowe’s has also invested in new so-called import distribution centers across the country that stow products such as seasonal and outdoor living items until they are in demand.

“With our old model, we were locked in a fixed route from a distribution center to a store,” Don Frieson, executive vice president of supply chain at Lowe’s, said in an investor day presentation in December. “Now, we have increasing flexibility to flow product from whatever facility makes the most sense based on product availability and route efficiency.”

By waiting to send merchandise along the supply chain until it is needed, Lowe’s said it can free up capacity in its other logistics facilities and reduce the number of items it has to mark down in stores when inventory is sitting in a place where there isn’t demand for it.

Mooresville, N.C.-based Lowe’s is opening its latest import distribution center this month in Nanticoke, Pa. That building will join a network of five centers elsewhere in Pennsylvania and in California and Georgia, a company spokesperson said.

Retailers during the past few years have grappled with supply-chain disruptions that have slowed shipments and left retailers stuck with too many items in the wrong locations.

Many companies recently have focused on building fulfillment centers that process online orders for delivery to customers’ doorsteps, particularly as e-commerce sales have grown.

Using facilities to instead stow products until needed could help Lowe’s speed up its distribution and cut transportation costs, said Lauren Beitelspacher, a professor of marketing at Babson College in Massachusetts who studies supply-chain topics.

“Historically, if you get 10,000 units of something and you disperse it out right as it comes into your distribution center, it’s going to the stores,” Mrs. Beitelspacher said. “If one store runs out and one store has excess, then you have to pay for the transportation from one store to the other.”

Lowe’s said it has added about 16 million square feet of space to its logistics operations over the past five years as part of its supply-chain expansion. The company now has more than 100 logistics facilities.

Lowe’s reported comparable sales, those from stores and digital channels operating for at least 12 months, fell 1.5% in the fourth quarter. Its e-commerce sales grew 5% compared with the year-ago period, which it said was partly due to strong appliance sales.

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