Is Lowe’s going out of business? Lowe’s is aiming to optimize. The home improvement store said it had signed a legal contract to transfer its Canadian business to a private equity company. It will be sold to Sycamore Partners for $400 million in cash and potential performance-based payments in the future.
Quebec’s Boucherville is home to Lowe’s Canadian division. Under various brands, it runs or provides support for about 450 corporate and individual partner dealership stores. This includes Dick’s Lumber, RONA, Lowe’s, and Reno-Depot.
Marvin R. Ellison, chairman, president, and CEO of Lowe’s, said the sale is a crucial step towards streamlining Lowe’s business strategy. Early 2023 is the projected closing date for the agreement. It will make RONA and Lowe’s Canada independent businesses with Quebec as their headquarters.
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Is Lowe’s pulling out of Canada?
A close relationship will always exist between the housing and home renovation markets. Contractors need tools to purchase new homes if they’re being built. Home repair projects can be a useful way to pass the time if people are eager to stay put while they wait for a good time to sell.
Spending money on home renovations may be profitable when the market recovers if properly planned and managed. That is what occurred during the COVID-19 shutdown. A large number of people were left alone at home. Many of us have wondered, “What the hell more is there to do,” as we looked at our overgrown plant gardens or fading old cabinet doors.
Additionally, it was a great moment for home improvement businesses. Sales at Lowe’s (low), Home Depot (HD), and Ace Hardware rose by 8.7% from 2021. Due to people who were bored and stuck indoors, all those extra tools and nails generated $440 billion in sales.
Considering the slowdown in the real estate market, many people are once again looking creatively at the same old projects. Some real estate investors predict a home renovation boom. It’s because high borrowing rates are causing more individuals to stay put than they would like.
Lowe’s stated in November 2022 that it would sell its Canadian locations to a private equity company. For purchasing around 450 stores, Sycamore Partners paid $400 million in cash and future performance-based incentives.
“The sale of our Canadian retail company is an essential step towards simplifying Lowe’s business strategy,” said Marvin R. Ellison, president and CEO of Lowe’s. This business comprises around 7% of its projected full-year sales for 2022. But it also erodes their projected full-year operating margin by about 60 basis points.
Lowe’s will undoubtedly see a loss in sales volume due to closing all those stores. However, this transfer will result in a minor improvement in the company’s total margins. Ellison claimed that the business can now concentrate on developing its US stores.
According to Ellison, “we remain optimistic in our short- and long-term vision for the US company.” He added, “highlighted by better sales patterns and good profit flow-through in the third quarter, as well as our projections for excellent business growth for the balance of 2022.”
But it seems like “The Sycamore Partners” want to launch their own independent business under the name “Rona” for the time being. All Lowe’s stores in Canada will change over to Rona stores. Rona will work hard to maintain the store’s relationships with local vendors.
What is the future of Lowe’s?
Neil Saunders, managing director of GlobalData, stated that Lowe’s Canadian business was acceptable. He added that the company’s future might be hampered by fierce competition and an inability to adapt to the Canadian market.
“The company has never felt like it had its own identity; it still felt like a bolt-on to the US division.” Thus, selling it will bring in some money that can be used to support the US company, particularly with measures to increase market share with experts.
According to Lowe’s CEO, the partnership with Sycamore would strengthen the company’s efforts to improve operating margin and investment return. He added that it would increase shareholder value and Lowe’s capacity to expand its market share in the United States.
According to Mr Rael, “optimizing, simplifying, and rationalizing store operations will greatly impact Lowe’s goals of increasing its operating margins.” It will also expand its market share and generate good shareholder value.
However, the US market provides a bigger challenge. Lowe’s has underperformed compared to Home Depot, their main rival, because massive financial headwinds would considerably affect their sales performance.
Kevin Graff, president of Graff Retail and a member of BrainTrust located in Canada, said, “Lowe’s Canada had not performed all that badly.” However, he observed that the chain’s previous Canadian division was being prepared for a difficult period under new management.
In Mr Graff’s words, “I can count the instances where a private equity transaction works out successfully on the one hand.” “I’m not dragging Sycamore Partners through the mud, but I guess this won’t end happily for employees or customers in the months and years to come.”
Some people did not predict Lowe’s would leave Canada in the long run if it led to a market gap. According to Ms Campbell, “Lowe’s is wise to step back and reevaluate—giving them a chance to return in the future.”