Lowe’s Closing of 34 Stores in Canada and What They Should Do

It is no surprise to me that Lowe’s is closing 34 stores across Canada. This morning Lowe’s reported Third Quarter sales and earning results in which it announced it will be closing 34 stores. You can get into the financial symptoms of why the decision is being made, but I’m going to jump to the fundamental source of why those stores have done poorly and what could have been done better.

Background

The financial statements are a result of decisions and plans that were created and implemented from years ago when the Lowe’s acquired RONA. Combined, Lowe’s now had 539 stores. That’s almost three times more than Home Depot’s 182 Canadian stores.  In a news release dated May 20, 2016, Lowe’s highlighted previously stated commitments as part of its acquisition of RONA, including:

• headquartering the Canadian businesses in Boucherville, Quebec;
• maintaining RONA’s multiple retail store banners;
• enhancing distribution services to dealer owners;
• continuing RONA’s employment of the vast majority of its current employees and maintaining key executives from RONA’s strong leadership team;
• continuing RONA’s local and ethical procurement strategy and potentially expanding relationships both Lowe’s and RONA have developed with Canadian manufacturers and suppliers; and
• continuing to support Canadian communities through RONA and Lowe’s charitable and environmental initiatives.

Analysis of Lowe’s Operations

From my perspective a a business consultant with expertise in locating operations, commercial realtor, residential property manager and homeowner, I have much more to share about Lowe’s than I’m going to publish in this post. Overall, I’m grateful for Lowe’s and RONA and would shop there more often if the stores were better located or if the online ordering process was better. However, I can share the generalities of what I’ve seen of Lowe’s and examples from others experiences:

1. Lowe’s Distribution Network – instances where online orders take up to 2 weeks for delivery, distribution centres not knowing what store to ship to, re-routing of shipments,  product sent to stores that aren’t closest to the destination. All these result in greater operating costs and damage to reputation among frequent purchasers of hardware items. Here are some examples of these consequences: Nov. 2, 2019, Nov. 13, 2019, Nov. 18, 2019,
2. Product Offering – products in stores often don’t match the demand for those products in that area. This indicates that whoever is doing the ordering for those stores isn’t in touch with the local market.
3. Retail Locations – great discrepancy in success of different locations. Some locations are inconvenient to get too. Some pulling areas are concentrated, while others are too distant.
4. Corporate Decisions – Lowe’s decided to have their headquarters in Montreal rather than the economic headquarters of Canada and where there is the greatest economy for renovations and construction. This also impacted the ability to attract top management talent and operating efficiencies. The preservation of retail banners also impacted the ability to leverage marketing and consumer behaviour.

Of course, significantly impacting the situation is the prolonged devastation to the Albertan economy from the collapse of oil prices. Reflecting this is Lowe’s higher per capita closure of stores in Alberta compared to other provinces. Further impacting the situation is the economic circumstances in other provinces. Had Lowe’s considered the cyclical nature of the Albertan oil-based economy and looked at the situation with the Tar Sands projects and price of oil, they would have acted more quickly. The question in my mind is who was responsible for looking at such significant considerations and why didn’t they hire someone like me to help with the research and analysis?

Here’s What I Would Do If I Were Running Lowe’s

1. Take a more rational and efficient approach to distribution and logistics. With increasing trend to online purchases, improved online ordering and processing systems. This includes the integration of AI into marketing programs. Rather than push out discount notices to the buyers, use phone apps and client data to recommend purchases and locations in real-time. Many property managers, trades people and realtors, who account for much of hardware store sales. They are frequent and volume buyers who in many cases purchase on a daily basis and must do so in between meetings and tasks. Integration of AI into real-time marketing and co-ordination with supply-chain and logistics will not only provide competitive advantage directly with consumers, but also create powerful operating efficiencies. Improve on product handling and delivery!
2. Get to know the customers better, especially by buyer types, but also by local community. Having the right product in the right place is the KEY to any retail success. Online buying is one thing, but if I’m dealing with a leaking faucet or flooded basement and I need to get some supplies right away, I just can’t wait for next day (or longer). I’m also willing to pay extra for those products at that time. Some neighbourhoods are more prone to flooding or icing in certain  months. Make sure that the store managers and purchasing managers are aware of these trends. Also, make sure the distribution system can act quickly so that it can have the product in the store when its needed. For example last year there was a major icy snow storm and for two weeks de-icing salt for pavement was completely sold out across the GTA. I, and others, would have gladly paid double the price to have a supply available. There isn’t any reason why supplies or inventory couldn’t have been re-routed to have product in store the next day. Once in store, I would likely pick up other items that I may need, like a new pair of work gloves, windshield wiper fluid, etc. These are items I’m picking up anyway from whatever store I’m in.
3. Hire an expert to help with locating stores. Locational Analysis is a necessity that U.S. retailers entering the Canadian Market either fail to conduct or don’t have the expertise to properly undertake. This is painful for me, someone trained in urban economics with experience in locating operations, to see. Yet, by  hiring someone like me to conduct this work, it will make the difference between failure or success to foreign retailers in Canada. Retail Locations are the  most important for most end-use consumers. When I’m picking up a new wire for my weed-wacker which ran out in the middle of trimming my lawn or oil for my motorcycle, I’m going to want to go to the nearest retailer. Also, trades people don’t like to go out of their way when picking up supplies, so they tend to go to locations near highway entry points. Many trades will pick up items in the morning on their way to different jobs. So, locate stores where these trades people tend to live. I know neighbourhoods that are heavily populated with trades people who would do just that, but with no hardware store nearby.
4. Always make corporate decisions based on ability to best identify and service customers, followed by operating competency and competitive advantage, and finally with an eye on operating efficiencies and profitability. Make sure it’s all in that order because each one relies on the previous consideration. Of course to have the right expertise with knowledge of key markets, like the Greater Toronto Area, requires you to hire someone in that market or with extensive experience in that market.

How Can I Help?

When Wal-Mart bought out the Woolco Stores, I worked with Bank of Montreal to analyse the impact it would have on the remaining Canadian retailers from their sales and operations to their financial performance. In a matter of weeks I had dissection and analyzed the impact on every major retailer across Canada and translated that into the impact on their financial performance. How I did this is for another much more detailed post.

In short, I analyzed every single retail outlet of every major retail chain which included: 1) consumer threshold, 2) product-mix overlap, 3) local pricing sensitivity, 4) psychological and geographical traffic boundaries, 5) traffic flows and much more. Then I cross indexed the information and translated it into the financial performance. Finally I conglomerated the data by retail chain to product financial projections for each one. The report went up to the Bank of Montreal Board of Directors and the information was then used to dictate risk appetite and credit exposure among the major retailers.

As part of my analysis, I drew two powerful conclusions, one of which was contrary to what Bank Executives were expecting at the time. If it were not for that analysis, the bank would have made different decisions, created different lending policies, which would have significantly affected Canadian retailers and their employees.

What Should You Do Before You Locate or Acquire a Location in Canada?

Contact me to have someone on your side who can help with every aspect of what needs to be done. But, most importantly, who can get you the right information, with proper analysis and solutions so you can make the best decisions for your business success!

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