Home improvement retailer Rona Inc.’s shares soared 12 per cent on Tuesday following a report that U.S. rival Lowe's Cos. Inc. may be interested in buying the Canadian chain.
Robert Hull, chief financial officer at Lowe’s, was reported as saying he was open to “all options” when asked whether the company would be interested in buying Rona, should it become available.
Industry observers have said for years that it makes sense for Lowe’s to swallow some of Rona to compete with giant Home Depot Inc., which has 180 stores in Canada. All players have been pinched in a soft home improvement market and rocky economy.
Mr. Hull told Reuters on Tuesday that Rona, based in Boucherville, Que. was a “very interesting company” whose appealing qualities include a strong presence in Quebec, where Lowe’s has no stores.
Lowe’s spokeswoman Chris Ahearn said that, while the CFO did talk on Tuesday about the retailer’s intention to continue to expand its business in Canada, he “did not speculate as to how we may grow. He did say Rona was a very interesting company with many attractive qualities.”
Lowe's, of Mooresville, N.C., plans to operate as many as 100 stores in Canada in the future, she said.
With just 31 big-box stores in Canada today, Lowe’s has struggled to increase its footprint in this country since arriving in late 2007. At the same time, Rona has suffered weak financial results as it grappled with the recession and a slow recovery. In February, Rona set in motion a turnaround plan, including betting more on smaller stores and e-commerce while closing big-box outlets. But the revival efforts haven’t been enough to stop suggestions that Lowe’s should buy at least some of Rona as a way for both retailers to bolster their performances.
“The Canadian home improvement business appears to have excess capacity,” Keith Howlett, retail analyst at Desjardins Securities Inc., said in a report last month. “The greatest value to Rona and Lowe’s would be to conclude a transaction to sell Rona big-box stores outside Quebec to Lowe’s.”
A key stumbling block for Lowe’s in acquiring Rona has been its wide array of stores, ranging from small shops to superstores, more than 800 in all, while the U.S. chain runs just big-box outlets, analysts say. However, retailers today increasingly are shifting to smaller stores to cater to shifting consumer demands.
Even a Lowe’s executive hinted recently that it’s eyeing a variety of store sizes. Doug Robinson, senior vice-president of international operations at Lowe’s, said he sees a need to look at “alternative formats” in Canada.
He told a conference on March 6 there’s a need to “rethink both the size and the types of locations that we’re looking for that will allow us to grow more rapidly and more profitability” in this country.