Lowe’s & Rona: Pluses and Minuses Analysis - Retail Advisors Network

Lowe’s & Rona: Pluses and Minuses Analysis

IMG_0634.JPGThis week’s big retail news story consisted of the marriage of two former  competitors within      the Canadian heavy DIY (Do-It-Yourself)market. Lowe’s    took advantage of the weak Looney and added RONA to its shopping cart for a cool $ 3.2 Billion CDN.

Like any deal there are positive and negative aspects for all parties involved.  Here are some to consider from our perspective. We have also listed in our opinion, what the potential impact will be on the most important person in the room: the end consumer:

Pluses

  • Instant increased national footprint
  • Increased buying scale across all overlap commodities, including greater leverage in back end program terms with vendor base
  • Inbound/outbound freight efficiencies due to consolidated freight negotiations
  • Incremental new revenue streams (example: addition of appliances into existing Rona boxes where category did not exist previously)
  • Strengthened eCommerce/Omni Channel capabilities and efficiencies

Minuses

  • Short/medium term negative sales impact as deal completes and transition begins(office move from Toronto to Quebec; strategic, tactical as well as complex operational, systems and process alignment between the two banners as well as multi format stores across the country)
  • Short term negative margin impact as a result of heightened response campaigns from key competitors to protect market share, all in an inflationary environment due to higher import costs
  • Short term negative net income impact from closure of redundant and/or low performing stores, employee severance, potential union unrest(Quebec), renovation costs of Rona store conversion to Lowes (where applicable), inventory right-sizing, etc
  • Increased on-going operational expense in managing multiple banners/multiple store formats, multiple private label packaging, union negotiations(Quebec),etc
  • Potential cultural misalignment between US parent and Francophone management office in Canada

  Consumer Impact

  • Generally speaking, on a short to medium-term basis, a combined Lowes/Rona entity should result in downward pressure on retail prices (degree of pressure uncertain due to current inflationary environment of import products) as a result of:  (a) increased buying scale from the merged entity ; (b) inventory clearance from closing of redundant/ under-performing stores;(c) heightened competitor response campaigns as a means towards protecting valuable market share 

We hope this creates some thought starters as to what may be in store over the next year or two.  Only time will tell if this deal was worth the purchase price.

Tony Whitehouse & Bruce Winder

Co-Founders & Partners

Retail Advisors Network™