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Lowe's could consider Canadian exit: retail expert

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Toronto, Canada - June 06, 2019:  Lowe's store in Toronto, Canada.  Lowe's Companies, Inc. is an American retail company specializing in home improvement.
Lowe's store in Toronto, Canada. June 06, 2019

As Lowe’s Companies (LOW) closes 34 stores and restructures its struggling Canadian business, one retail expert says the company may consider exiting the Canadian market entirely if operations don’t improve.

The company announced Wednesday that it will shutter 26 Ronas, 6 Lowe’s and 2 Reno-Depot stores across British Columbia, Alberta, Saskatchewan, Ontario, Quebec and Nova Scotia. Lowe’s Canada did not say how many employees will be affected by the closures, but that eligible staff will be offered opportunities to transfer to other stores.

According to Lowe’s, the closures are a necessary step in a broader plan to ensure the long-term stability and growth of Lowe’s and its affiliated brands in Canada. Comparable sales in Canada fell in the third quarter, which the company’s chief executive Marvin Ellison said put “significant pressure” on the company’s overall sales performance.

Still, Ellison reiterated the company’s commitment to Canada.

“We’re committed to the Canadian market and we’re taking decisive actions to improve Canadian operations and provide a better customer experience while improving profitability,” Ellison told analysts on a conference call Wednesday.

But Bruce Winder, a partner at the Retail Advisors Network, believes there may be additional closures in Canada that could culminate in the U.S. company re-considering the future of its Canadian business.

“They’ve started to prune some of the dead branches, but there’s more pruning to be done,” Winder said in an interview.

“Eventually, and this may sound crazy, but Lowe’s in the U.S. will look at Canada and say, ‘Do we want to stay here, or do we want to take a page out of the Target playbook and exit?’ It’s a big decision, and it may seem inconceivable, but it could happen if things don’t improve down the road here.”

Winder pointed to Lowe’s 2016 acquisition of Rona as a move that has exacerbated competitive issues the company has faced in Canada.

“I think the No. 1 reason for this is that when Lowe’s bought Rona, they probably underestimated the complexity of that business and have had a very hard time making it work,” Winder said.

The decision to reduce its Canadian presence comes about a year after Lowe’s closed regional offices in Ontario and Newfoundland and shuttered 27 underperforming corporate stores, a move that at the time was called “the right path for our organization’s future.” Lowe’s is now undergoing a restructuring process that will aim to simplify the company’s store banners while reducing operational complexity.

“The Canadian business from a top line perspective has struggled,” Lowe’s chief financial officer Dave Denton said on a conference call with analysts Wednesday morning following the release of quarterly earnings.

“It is performing from an operating profit perspective below the company average, so it certainly is dragging us down.”

Some analysts welcomed the move to shutter some of the struggling Canadian stores.

“We... think additional moves to ring-fence Canada is being received favourably as it signals a more profitable international organization ahead and greater time (and) resources focused on the U.S. business,” Jefferies analyst Jonathan Matuszewski wrote in note to clients Wednesday.

Lowe’s stock closed the day up 3.91 per cent at $117.83.

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