Target’s demise has been a gain for Lowe’s Canada
Company recorded 8th consecutive quarter of double-digit store sales
After Lowe’s Canada pulled its bid for Rona Inc. in 2012, retail experts were dubious about how the company would be able to grow as Target entered the country and swallowed up a glut of retail real estate, while Walmart bulked up in response.
But Lowe’s has managed to defy the industry’s performance expectations, last week racking up its eighth-consecutive quarter of double-digit same-store sales in Canada — a key retail metric tallying volume at locations open for more than a year.
“I don’t think that there is any silver bullet,” behind the strong numbers, said Sylvain Prud’homme, a former Loblaw executive who was hired to head up Lowe’s Canada as president in 2013, said in an interview.
“We have spent time with Canadian customers and learned about their expectations. When you have a retail segment where there are a lot of competitors out there, customers expect more value. So we have spent a lot of time talking to customers one-on-one at the store level, and talking to our (employees) in the store, and I receive feedback every single day. We have worked really hard on assortment, and we still are, and the customer has responded really well to it.”
Robert Niblock, CEO of the Mooresville, N.C.-based parent company that is Home Depot’s largest U.S. rival, also told investors during a first-quarter conference call that the Canadian unit posted the highest same-store sales it had recorded since 2007.
And with Lowe’s announcement this month that it was acquiring 13 of the former Target Canada locations, it is finally getting closer to the kind of scale it wanted to achieve when it opened in Canada almost 10 years ago, almost doubling its current store count over the next three years, including existing building projects already on the books.
Prud’homme declined to discuss the Rona debacle, three years after the U.S. retailer make a non-binding $14.50 per share offer for the Quebec home improvement chain only to incur the wrath of Quebec’s former Liberal government. On the cusp of an election, the province’s then-finance minister said such a deal would be bad for Canada and Quebec, further suggesting the province might buy Rona shares in order to prevent a Lowe’s takeover.
“We have been pretty vocal that we will look when the time is right at any opportunity in the market,” Prud’homme said. “We are looking at any potential avenue that would provide Lowe’s with the proper growth.”
Industry speculation still persists that Lowe’s may take another run at Rona in the future; though Lowe’s is performing well, it is still a vastly smaller than its key competitors.
Home Depot’s Canadian sales at its 181 stores were an estimated $5.6 billion in 2014, according to the industry publication Hardlines, virtually tied with 500-store Rona at $5.5 billion, including sales from the latter’s franchise partners. Lowe’s, which also competes with Home Hardware and Canadian Tire to a degree, had estimated sales of $1 billion in 2014.
In the meantime, Lowe’s business is split between retail customers and its “pro” customers, mostly general contractors who buy building materials. Prud’homme said the company is happy to carry multiple categories but decreased the item count in household goods such as cleaning supplies. “In doing strictly what our customer was expecting, we perhaps acquired some market share in other categories — appliances would be one of them.”
The recession and the 2011 announcement that Target was coming to Canada put pressure on Lowe’s when it came to finding good large-footprint retail sites.
“In retrospect, that slow growth was good for them,” said Michael McLarney, president of Hardlines, and managing director of the North American Retail Hardware Association Canada. “Lowe’s has always tried to build a better mousetrap in the U.S. against Home Depot, and that has been working here — Canadians are really getting it, and I think they are wooing the contractor very effectively.”
Alex Arifuzzaman, partner in retail real estate specialist Inter-Stratics Consultants, said Lowe’s methodical approach gave the company time to better understand the differences between Canadian and U.S. sales patterns.
“They took the opposite approach to Target,” he said. “And at the end of the day, it doesn’t matter how fast you expand — it’s if your expansion is profitable.”