Lowe's agreed to buy rival Rona for C$3.2 billion, creating one of Canada's biggest home-improvement retailers.Cole Burston/Bloomberg
Sylvain Prud'homme is about to embark on his biggest home improvement project yet.
The president of the Canadian division of U.S. retailer Lowe's Cos. Inc., which revealed this week a $3.2-billion deal to acquire hardware rival Rona Inc., is tasked with doubling its operating profit in this country in five years. Already the company has identified more than $1-billion of revenue and earnings opportunities.
One of his first assignments will be to start stocking major appliances at Rona to capitalize on Lowe's strength in that category – so dominant in its U.S. home country that market leader Home Depot Canada put a bigger push on appliances when Lowe's arrived here in late 2007.
As well, Mr. Prud'homme is looking to use U.S.-based Lowe's e-commerce know-how to bolster online shopping at Rona while taking advantage of Lowe's significant size to gain savings in its merchandise buying and other operations. And Lowe's Canada will finally get a foothold in Quebec where it has no stores and Rona dominates.
"We were still only the No. 10 player in market share at Lowe's. We're still small – we only have 42 stores" in Canada, Mr. Prud'homme said in an interview on Thursday, comparing the chain with Rona's roughly 500 outlets. "We're much stronger together because now we have access to a lot of different things we did not have access to before."
In a fragmented market that feels the growing presence of cybershopping powerhouse Amazon.ca, Lowe's takeover of Rona will put more heat on rivals such as Home Depot, threatening to steal business in already competitive segments, including appliances.
"They're getting into an already crowded marketplace against tough competitors," said Michael Knell, editor of trade publication Home Goods Online in Brighton, Ont.
In appliances, Sears Canada Inc., while facing challenges, is still the leading retailer, but the number of merchants selling those products, such as stoves and refrigerators, has "exploded exponentially" over the past few years, Mr. Knell said. Some prices for items such as fridges have dropped to almost half over the past three decades, he said. As a result, gross profit margins are thin, between 18 to 21 per cent compared with 48 to 51 per cent for mattresses and about 45 per cent for sofas, he said.
Still, Mr. Prud'homme said Lowe's has surpassed Sears south of the border as the top appliance seller and "we're having really good success here in appliances at Lowe's Canada. There's no reason for us to think we can't be as successful with appliances with the rest of the network."
He said appliances are a natural fit with home renovation products. "You're not going to invest in your kitchen most of the time without changing or updating or upgrading your appliances," Mr. Prud'homme said. "It's just a very natural category that ties up really well with home improvement."
Major appliances are about a $3.6-billion annual business in Canada that has seen relatively little or no growth over the years, Lowe's research indicates. Sears is the top player with 23.3 per cent of the market, well ahead of second-ranked Home Depot Canada with 13.1 per cent, according to Lowe's data.
Michael McLarney, managing director of the North American Retail Hardware Association Canada, said major appliances take up a lot of space in stores. Canadian Tire retreated from the category after a trial a few years ago, he said.
"Having said that, it should be a good fit for many Rona stores, including some of the smaller independents that cater to rural markets," Mr. McLarney added. "Home Hardware, for example, has done a good job with appliances in this environment."
Canadian Tire spokeswoman Jane Shaw wouldn't comment on appliances. Of the proposed Lowe's takeover of Rona, which is expected to close later this year, she said: "We have been expecting a transaction of this nature for some time now. Our priorities and growth plan are well known – including the growth of e-commerce – and we continue to play our own game."
As for Amazon.ca, it continues to build its home-improvement business, said spokeswoman Katie McFadzean. But Seattle-based Amazon.com Inc. has yet to launch large appliances in Canada, although the company stocks them on its U.S. site.
Amazon.ca has operated a home improvement and tools store since the fall of 2011 and sales are "going great," she said. "Over the years, we've continued to expand our selection and add brands to the store."
Brandon Stranzl, executive chairman of Sears Canada, said he welcomes Rona's anticipated added competition in major appliances. "Lowe's is a great company," he said. "They do a really good job … I don't think it will impact what we're doing in a significant way."
He said it's a good sign for Canada and its economy that Lowe's wants to expand here. "It will only make us stronger to have good competitors."