Philippe Krivicky, Rona vice-president retail and emerging business strategy, at the company’s new Edmonton store.JASON FRANSON/The Globe and Mail
A Rona Inc. store that opens on Wednesday in Edmonton is key to the retailer's counterattack against U.S. rival Lowe's Cos. Inc.'s $1.8-billion offer to take over the Quebec-based home-improvement chain.
Nestled among big-box stores such as Wal-Mart, the new Rona outlet is a prototype of the retailer's store of the future.
About half the size of Rona's own superstores, it also carries about half the product offerings – but has twice the ratio of full-time staff to ensure knowledgeable customer service.
The Edmonton store is modelled on Rona's Totem outlets in Alberta, "proximity" stores – so called because they are near residential areas – that generate 50-per-cent more customer spending than their big-box counterparts, said Luc Rodier, the company's executive vice-president of retail.
Now Rona is betting big that the smaller format will help turn around its fortunes – and persuade investors Lowe's isn't the answer.
"It's a bold plan to change the face of a company," Mr. Rodier said in an interview Tuesday, on the eve of Rona releasing its second-quarter results. "It's a transformation of our [store] network."
Rona is racing to revive its operations by staking its future on smaller stores while closing big-box outlets that are unprofitable, and beefing up its online sales site. It's banking on being able to respond to shifting customer demands better than Lowe's one-size-fits-all superstore culture.
Still, as Lowe's raises the heat with its "expression of interest" to acquire its Canadian rival, Rona needs to fix its business fast enough to overcome a shaky economy and compete successfully in a crowded home-improvement field.
Rona's initiatives are "steps in the right direction," Irene Nattel, retail analyst at RBC Dominion Securities, said last week. Even so, the retailer's initiatives to address its big-box challenge are more modest than analyst Mark Petrie at CIBC World Markets would have liked.
"This strategy will take time to play out, and significant restructuring charges will be taken before the earnings begin to turn" he said in a report earlier this year.
Nevertheless, Mr. Rodier said Rona will reap the rewards of its store downsizing as early as year-end. In 2012, the strategy will result in $10-million of earnings before interest, taxes, depreciation and amortization, according to the company. In the following year, it will generate $30-million of EBITDA and, by the end of 2014, $40-million. "We will be able to show that the plan is working."
The Edmonton store, which is aimed at do-it-yourself home renovators, focuses on items such as hammers and lumber rather than barbecues and patio sets. It has a prominent service desk with seven computer stations at its centre, with staff getting hands-on training – rather than simply online lessons – in things like plumbing. "We want to say to people, 'You're going to come in here and realize your project,' " Philippe Krivicky, vice-president of retail, said during a tour of the store.
Customer service is key to Rona's smaller, proximity stores, which have been a solid performer for the retailer over the last few years, CIBC's Mr. Petrie noted.
Now Rona is revving up its proximity strategy, borrowing a leaf from its Totem stores in Alberta with plans to convert 20 per cent, or almost 170 stores, to the model, Mr. Rodier said.
Rona is giving its staff 50-per-cent more training than those in its big-box stores, he said. About 70 per cent of the staff are full-time, compared with roughly 35 per cent of employees in its superstores, he said. And Rona is training staff to be experts in all departments, rather than just one, so they can help customers with a wide range of projects.
Rona needs to polish its customer service. According to a survey late last year by Leger Marketing, the chain ranked 70th in Quebec and 41st in Ontario among retailers for its customer experience, which includes staff courtesy, competency and availability.
Still, in its second quarter, Rona is expected to benefit from the momentum generated in its first quarter, when favourably mild weather gave renovation sales a boost, Ms. Nattel said.
"But momentum in the back half of the year is anticipated to moderate, and turn flat to slightly negative in 2013, implying that Rona could struggle to generate a meaningful recovery in same-store sales growth over the next 12 to 18 months," Ms. Nattel said in a report.