If only to save face, Lowe’s Companies CEO Marvin Ellison had to come up with something good to say about the U.S. home-building giant’s decision to sell its Canadian retail operations last week for a fraction of what it had invested in them.
“The sale of our Canadian retail business is an important step toward simplifying Lowe’s business model,” Mr. Ellison offered after North Carolina-based Lowe’s announced the sale of the division for $400 million in cash and future “performance-based deferred consideration.” for New York private equity firm Sycamore Partners.
It is true. Lowe’s LOW-N’s 15-year Canadian odyssey has been marked by one complication after another, stemming from the US company’s limited understanding of and unwillingness to adapt to Canada’s (and particularly Quebec’s) own retail situation.
It’s tempting to dismiss Lowe’s as a victim of Target syndrome, as another example of a US retailer’s inability to excite Canuck consumers. But Lowe’s entry into the Canadian market was not doomed from the start. It opened its first company-owned stores here in 2007 to rave reviews, and after buying Rona Inc. in 2016, it could rely on a network of retailers with deep roots and trusted brand loyalty in Quebec to take on rivals Home Depot and Home Hardware. .
Throughout its 15 years in Canada, however, Lowe’s headquarters were constantly distracted by the bigger problems the chain faced in the U.S. market, where it was shareholder activist and forced to fend off unflattering comparisons with Home Depot. The Canadian division suffered from benign neglect. And Lowe’s US senior management never seemed to care enough to change that.
“We gave Marvin Ellison an ‘F’ on this one,” says Michael McLarney, president of Hardlines Inc., which tracks the $58 billion Canadian homebuilding industry. “Not to explain [the Canadian division] to US analysts on the next conference call, he’d rather end it.”
Mr. Ellison took over as Lowe’s chief executive in 2018 after US hedge fund DE Shaw & Co led a shareholder revolt against his predecessor, Robert Niblock. The latter was not only responsible for the politically ill-advised decision to bid for Rona during the 2012 Quebec election campaign, which forced Lowe to abandon the bid, but led Rona’s $3.2 billion takeover bid in 2016.
Mr. Ellison, a former Home Depot executive who had spent a few years running the struggling JC Penney department store chain, did not hire Lowe’s board with the Canadian unit in mind. And he felt no need to defend his predecessor’s decision to expand Lowe’s overseas footprint, especially after the company had also stumbled into the Australian and Mexican markets under Mr. Niblock. If not for the pandemic, Mr. Ellison could have sold the Canadian division earlier.
Instead, after closing dozens of stores here and taking a $958 million impairment charge on the Canadian division, Mr. Ellison replaced the head of Lowe’s Canadian division, Sylvain Prud’homme, a Quebec native, with American Tony Hurst, who had also worked. At Home Depot and JC Penney.
When Mr. Hurst returned to the US headquarters in early 2022, the Canadian division had been officially on the sales block for months. And Caisse de dépôt et placement du Québec, which had cleared the way for Rona to buy Lowe by agreeing to offer its stake to the U.S. retailer in 2016, was wanted back on board. “We sent a letter. [to Lowe’s] at the beginning of the process to express our interest and action [the Caisse has] set out to create a purchasing consortium with other strategic Québécois companies and partners,” spokesman Maxime Chagnon acknowledged in an emailed statement. “Our door is still open.”
Caisse can get another kick in the can. Sycamore is not expected to hold on to Lowe’s Canada property for a very long time. It turns them over, for profit of course, as soon as possible.
Ironically, Sycamorea was advised on Lowe’s Canadian purchase by RBC Capital Markets, which had worked on Lowe’s (along with CIBC World Markets) 2016 Rona deal. The amount Lowe’s paid for Rona in 2016 was about 75 percent more (in Canadian dollars) than it had offered in 2012.
Taking into account the sums Lowe’s invested in deploying dozens of its own-banner big box stores across Canada between 2007 and 2012, the entire Canadian division (including its significant deferred tax asset based on cumulative operating losses) is now being sold for $400 million. is an admission of failure. The modest performance-based payments Lowe’s will earn going forward won’t change that.
Lowe’s may have just set a new standard for a US retailer blowing it in Canada. But it didn’t have to end this way.
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