Why Lowe’s is closing all 99 Orchard locations
Bay Area institution Orchard Supply Hardware has fallen victim to a battle of the big-box stores as parent company Lowe’s, seeking to catch up to Home Depot, has decided to close all Orchard stores.
Orchard was founded in San Jose in 1931 as a farmers’ co-op. Sears bought it in the 1990s and then sold it to Lowe’s in 2013. Dozens of the Orchard stores that Lowe’s is closing are located in the Bay Area.
Lowe’s said it will close all 99 Orchard locations in California, Oregon and Florida by the end of its fiscal year, which ends Feb. 1. The move affects 4,000 employees.
“While it was a necessary business decision to exit Orchard Supply Hardware, decisions that impact our people are never easy,” CEO Marvin Ellison said in a statement Wednesday. “We will be providing outplacement services for impacted associates, and they
will be given priority status if they choose to apply for other Lowe’s positions.”
North Carolina-based Lowe’s, which has owned Orchard for the past five years, just brought in Ellison last month. He replaced former CEO Robert Niblock, who is retiring after three new members joined the board amid pressure on the company from an activist investor.
Most recently chief executive of JC Penney and a former longtime Home Depot executive, Ellison is known as a fixer and is wasting no time on a major renovation. He eliminated the chief operating officer, chief customer officer, corporate administration executive and chief development officer at Lowe’s during his first week.
During Wednesday’s earnings call, Ellison said the changes are “less about looking at competition, but looking within.”
But Lowe’s also announced Wednesday that its second-quarter samestore sales weren’t as strong as expected, despite overall sales and profit that were up year over year, beating analyst forecasts. The
company posted $20.9 billion in revenue and profit of $1.5 billion, or $1.86 a share, for the quarter.
As he explained his plan, Ellison talked a lot about taking market share. Home Depot, the biggest competitor for Lowe’s, reported its second-quarter earnings last week: $3.5 billion in profit on $30.5 billion in sales.
Ellison also said buying Orchard may not have been the “most prudent use of capital” because the “business was just not running well.” Last year, it lost $65 million on $600 million in sales.
Ellison said shutting down Orchard is necessary for Lowe’s to focus on its
“core home-improvement business,” part of the many moves he’s making. He also expressed optimism that Orchard workers would be able to find jobs at nearby Lowe’s stores, since 86 percent of stores that are closing are within a 10-mile radius of a Lowe’s location. The company has more than 2,100 stores in the United States, Canada and Mexico.
The company did not give a number when asked how many Orchard employees will find jobs at Lowe’s stores, but based on the number of current openings, not all 4,000 employees will.
“We are making every effort to transition Orchard
employees to Lowe’s,” said Lowe’s spokeswoman Jackie Hartzell. “Openings currently available on the Lowe’s careers page will change on a rolling basis as positions are filled and new openings become available.” As of Wednesday, there were 473 openings at California Lowe’s stores, 360 in Florida and 82 in Oregon.
CEO Ellison talked a lot about cost-cutting, and at one point during the call said the company couldn’t fix all its problems by “throwing payroll” at them. He said the company continues to “assess everything.”
“We come away incrementally encouraged that new CEO Marvin Ellison is working quickly to streamline the (Lowe’s) business model and better position the company for improved results in coming quarters and years,” said Brian Nagel, consumer growth and e-commerce analyst for Oppenheimer, in a note to investors Wednesday after the earnings call. He left his 12-to-18-month stock price target for the company unchanged at $140.
Lowe’s shares closed about 5.8 percent higher Wednesday at $105.52.