Market share gains
The Rona (RON.TO) acquisition should give Lowe’s (LOW) a leading position in Canada’s home improvement market, estimated at over $45 billion Canadian.[1. Source: Lowe’s filings, IHS HIRI 2015 Report on Canadian HI Products Market] Lowe’s has 42 stores in Canada presently and holds the number-three position in terms of market share. It’s behind the world’s largest home improvement retailer, Home Depot (HD), which has 181 stores in the country, and Rona itself with 496 corporate and dealer-owned stores.
Lowe’s is also bullish on the prospects of Canada’s home improvement market. Home ownership levels are high in this market, and Canada has a well-oiled distribution network. The Canadian home improvement market is projected to grow at a compound annual growth rate of 3.9% in 2014–18.[2. Source: Lowe’s filings, IHS HIRI 2015 Report on Canadian HI Products Market]
However, according to Richard D. Maltsbarger, Lowe’s chief development officer and president of international operations, Lowe’s initially expects to grow slower than the overall market over the next two years as it absorbs the impact of the transition and business improvement. According to Maltsbarger, “We are recognizing that over the next two years as we work on transitions and improving the business, we are likely to grow slower than the market growth in Canada, followed by which, we believe, we’ll have a much stronger business to take share within the market.”
Just last month, Lowe’s announced that it would be exiting its one-third owned joint venture in Australia with Woolworths. The company announced that it would focus on investments that provide a higher return, according to Maltsbarger.
Rona is Quebec-based, and Lowe’s doesn’t have a presence in the province as yet. Home Depot has 22 stores in Quebec. Rona, on the other hand, is the market leader in Quebec with an estimated 25% market share. Rona has a total 238 stores in the province, including 151 that are dealer-owned.
Inorganic versus organic growth
Lowe’s “buying-growth” strategy also opposes to rival Home Depot (HD), which recently stated that it won’t be growing sales via the inorganic route. Other rivals in the home goods industry, like Restoration Hardware (RH) and Williams-Sonoma (WSM), have grown in Canada via the organic route. Opportunities for further inorganic growth in Canada among the larger players have been disrupted somewhat by this acquisition of Rona.