Lowe’s has entered a partnership to roll out a new service for customers as it faces weak demand in its stores.
In the second quarter of this year, the home-improvement chain’s comparable sales only increased 0.2% year over year, according to its latest earnings report. A recent Placer.ai report also revealed that average customer visits per Lowe’s location declined 0.4% year over year during the quarter.
On an earnings call in August, Lowe’s CEO Marvin Ellison said customers continue to feel the weight of economic pressures, including inflation and a stagnant housing market.
“Elevated fuel prices combined with broader economic uncertainty have influenced household budgets,” said Ellison. “Customers continue to tell us that they are being cautious about their spending and prioritizing where and when they invest in their homes. As a result, discretionary DIY demand remains under pressure.”
Lowe’s introduces drone delivery
Against this backdrop, Lowe’s has launched drone delivery, a move aimed at helping customers complete home improvement projects faster by expanding same-day delivery, according to a new press release.
The home-improvement chain has partnered with DoorDash and Alphabet’s Wing to offer this service, which delivers select home improvement items directly to customers in as little as 20 minutes. Lowe’s is now the first home improvement retailer to offer drone delivery.
Lowe’s is currently only piloting this service at a store location in Matthews, N.C., where customers can have eligible products, including hand tools, tape, batteries, paint products, and all-purpose cleaner, delivered via drone.
The retailer states that customers can access the service using the DoorDash app, which automatically displays the drone delivery option “if the delivery address is eligible near the Matthews, N.C. Lowe’s store.”
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It is also important to note that Wing drones currently transport orders weighing approximately 2.5 pounds per flight.
“By piloting drone delivery, we’re addressing a real project pain point with an innovative solution that is integrated into the retail journey, giving our hometown customers next-generation fulfillment right when they need it,” said Seemantini Godbole, chief information and AI officer at Lowe’s, in the press release.
The launch of Lowe’s new drone delivery service comes after its free, same-day delivery options helped drive online sales in the second quarter of this year.
“We drove steady momentum in our same-day fulfillment offering during the quarter as more and more customers take advantage of our delivery options to keep their projects moving,” said Joseph McFarland, Lowe’s executive vice president of stores, on the company’s earnings call in August.
“By giving customers another fast and convenient way to access our broad assortment, same-day fulfillment is becoming an increasingly important part of the Lowe’s omnichannel experience,” he continued.
The move also rivals Home Depot, which rolled out Express Delivery at over 2,000 stores nationwide in August, allowing customers to have Pro and DIY essentials delivered in 3 hours or less.
The housing market problem weighing on Lowe’s sales
Lowe’s is betting big on delivery at a time when the housing market continues to put pressure on its sales.
On the company’s August earnings call, Lowe’s Chief Financial Officer Brandon Sink emphasized that customers are focusing on tackling smaller DIY projects rather than larger remodeling jobs due to housing market headwinds.
“Affordability remains kind of the major concern, and that’s across rates, it’s across home prices, insurance, taxes,” said Sink. “And that’s really translating to prioritization of repair and maintenance spend and the projects that our consumers are engaging in, and this ongoing trend of caution around big ticket discretionary.”
At the start of 2020, 30-year fixed U.S. mortgage rates averaged below 4%. When the Covid pandemic set in, rates fell to a weekly low of 2.65% in January 2021, the lowest it’s ever been, according to a Bankrate analysis.
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However, mortgage rates began rising in 2022 when the Federal Reserve started hiking its benchmark interest rate to combat inflation. By October 2023, the average 30-year mortgage rate had surpassed 8% for the first time since 2000.
Since then, mortgage rates have averaged between 6% and 7%, and they continue to climb.
Recent Freddie Mac data show the average 30-year fixed-rate mortgage reached 6.67% in August, up from 6.54% in July.
Existing-home sales also declined by 2% month over month in August, while the median existing-home price rose 1.6% from a year earlier to $429,100, according to recent data from the National Association of Realtors.
“Mortgage rates and home sales move in opposite directions, so it’s not surprising to see a mild dip in home buying activity due to high mortgage rates,” said Lawrence Yun, National Association of Realtors chief economist, in a press release.
In an August Investing.com report, Bryan Hayes, an analyst and strategist at Zacks Investment Research, said that “housing turnover is the single-most important driver of home improvement demand, because people renovate when they buy and when they sell.”
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