Lowe’s sells its Canadian ops to focus on the U.S.

Discussion
Photo: Getty Images/jewhyte
Nov 09, 2022

Lowe’s is looking to simplify. The home improvement retailer last week disclosed that it has entered into a definitive agreement to sell its Canadian operations to the private equity firm Sycamore Partners for $400 million in cash and future performance-based considerations.

The retailer operates stores in Canada under its namesake banner as well as RONA, Réno-Dépôt and Dick’s Lumber. It serves roughly 450 corporate and independent affiliate locations in the country. The deal with Sycamore Partners is expected to close early next year.

“The sale of our Canadian retail business is an important step toward simplifying the Lowe’s business model,” Marvin Ellison, Lowe’s chairman, president and CEO, said in a statement. “While this business represents approximately seven percent of our full year 2022 sales outlook, it also represents approximately 60 basis points of dilution on our full year 2022 operating margin outlook.”

Mr. Ellison expressed confidence in the short- and long-term outlook for Lowe’s U.S. business. He pointed to “improved  sales trends and strong profit flow-through in the third quarter, as well as our expectations for solid business performance for the remainder of 2022” as a partial basis for his optimism.

Lowe’s CEO said the deal with Sycamore would “intensify” the retailer’s focus on improving its operating margin and return on investment capital. He said that it would also strengthen Lowe’s ability to gain market share in the U.S. and create greater shareholder value.

The home improvement retailer reported second quarter sales of $27.5 billion, down slightly from 27.6 billion for the same period in 2021. U.S. same store sales were up 0.2 percent during the quarter. Net income for the retailer was $3 billion, in line with its performance the year before.

The home improvement retailer in September parted ways with chief brand and marketing officer Marisa Thalberg as part of a corporate reorganization. Lowe’s did away with Ms. Thalberg’s role and brought its marketing team under Bill Boltz, executive vice president of merchandising. Jen Wilson, senior VP, brand and customer marketing was promoted to senior VP, enterprise brand and marketing, reporting directly to Mr. Boltz.

Mike Shady, senior vice president of online, who previously reported to Mr. Boltz, now reports to Seemantini Godbole, Lowe’s chief digital and information officer.

DISCUSSION QUESTIONS: Do you think the sale of Lowe’s Canadian business will help the retailer achieve its stated goals of improving its operating margin, gaining market share and creating greater shareholder value? What do you see as Lowe’s strengths and weaknesses over the next year and beyond?

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"Canada is a tough nut to crack as many retailers have had to learn the hard way. It can’t be treated as a cut-and-paste. "

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10 Comments on "Lowe’s sells its Canadian ops to focus on the U.S."


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Neil Saunders
BrainTrust

Lowe’s Canadian business was reasonable, but its potential was somewhat limited by tough competition and a failure to adapt to the Canadian market. It always felt like it was just a bolt-on to the U.S. division rather than having its own identity. Selling it will generate some cash which can be used to bolster the U.S. business, especially in terms of initiatives to build share with professionals. As for increasing market share with consumers, I am not particularly optimistic given the weaker state of that part of the market and Lowe’s consistent underperformance relative to Home Depot.

Dave Bruno
BrainTrust

It certainly seems that divesting its Canadian operations will have an immediate impact on margins, and doing so will definitely help simplify operations. I’m not clear yet, however, as to how they will gain market share. There is no direct line relationship between simplified operations and increased share, but perhaps the shuffling of executive roles and reporting structures that continue apace at headquarters will begin to make an impact on market share and shareholder value soon.

Kevin Graff
BrainTrust

Hello from Canada, the land and people that look like Americans (that’s a compliment!) but are often misunderstood. Ask Target, Sports Authority and many others who came to the “frigid” north. Lowe’s actually did a good job up here.
Here’s the challenge though: I can count on one hand (don’t even need all my fingers) situations where a private equity sale actually works out well. I’m not throwing mud at Sycamore Partners, but my bet would be that this won’t have a happy ending for staff or customers in the months and years ahead.

Brandon Rael
BrainTrust

We have seen companies invest and build a presence in the Canadian retail market and then, a few years later, depart and consolidate their store base. Lowe’s strategic decision to divest the Canadian operations is not surprising, as they are facing challenges in simplifying and optimizing their business model. Simply opening up stores in Canada leveraging similar strategies to the stateside stores is a losing sum game.

Optimizing, simplifying, and rationalizing store fleets will positively impact Lowe’s goals of improving its operating margins, gaining market share and creating greater shareholder value. However there is a greater challenge in the U.S. market as Lowe’s has underperformed relative to their main competitor Home Depot, and significant economic headwinds will significantly impact their sales performance.

Carol Spieckerman
BrainTrust

Canada is a tough nut to crack as many retailers have had to learn the hard way. It can’t be treated as a cut-and-paste. Mr. Ellison was smart to shear Lowe’s Canada off to focus on accelerating momentum for Lowe’s U.S. business.

DeAnn Campbell
BrainTrust

Canada has a terrific policy of requiring stores in Canada to sell a certain percentage of Canadian made products. Most large U.S. retailers don’t have a solid procurement network build up to source good Canadian made products, don’t understand Canadian tastes and preferences and haven’t figured out their customs and taxation strategies to affordably ship products across the border. They go in with high expectations, scramble to source Canadian made products as an afterthought and struggle with setting price points that customers will accept yet still cover the added expense of taxes. This was Target’s problem exactly, and they left a bad taste behind for Canadian shoppers. Lowe’s is smart to pull back and rethink – giving them the opportunity to come back in the future.

Gene Detroyer
BrainTrust

Once upon a time, a great American company was headquartered just 356 miles from the Canadian border. They thought, easy-peasy, let’s become an international company and open Canada. The first year they lost $1 billion; the second year, $1 billion; the third and last year, they lost $! billion.

Why? They thought all they had to do was copy and paste their U.S. business into Canada. They were so wrong. Canada is a different country with a different culture.

Even assuming Lowe’s Canadian business was managed in the Canadian way, it strikes me that Lowe’s is flailing. How is this going to improve the focus on the U.S. business?

Craig Sundstrom
Guest

Canada: the frigid North … where American retail dreams go to die. Well, maybe it’s not quite that dramatic; nor, for that matter, will be the effect on Lowe’s: for all the ado made about it, the Canadian market is about equal to a large U.S. state, so if you can imagine a national retailer exiting, say Texas, the effect will be similar. So resources will be freed up — or, more likely, reallocated — but the company won’t look, or operate much differently.

And though it wasn’t specifically asked, this might be a good time to review why US retailers’ international operations (seemingly) so often sink. (in no particular order):

Arrogance: we know the market…so there’s nothing to learn.

Overestimating the revenue: assuming your name means so much at home it will mean just as much over the border (it won’t).

Underestimating costs: everything from labor laws to logistics. The confusing muddle of names Lowe’s operated under in Canada hints at the difficulties of trying to adapt to local conditions.

Gene Detroyer
BrainTrust

For Canada: arrogance, arrogance, and more arrogance. It is just a small country, so it can’t be too hard.

Verlin Youd
BrainTrust

It’s the right move, but a huge hit in terms of dollars. Lowe’s bought RONA for $2.4B in 2016 under a different CEO and largely different management team and is now selling it for $0.4B. With the Home Depot success, and market domination in most of Canada, someone should be able to figure out how to position a real competitor.

wpDiscuz
Braintrust
"Canada is a tough nut to crack as many retailers have had to learn the hard way. It can’t be treated as a cut-and-paste. "

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