Ellison won’t repeat Penney mistake, slams door on Orchard Supply Hardware
Marvin Ellison, CEO of Lowe’s, was criticized by some for being too slow to act when it came to closing underperforming stores when he held the top job at J.C. Penney. It appears that he doesn’t want to make the same mistake in his new job. Yesterday, Mr. Ellison announced that Lowe’s would shutter all 99 of its Orchard Supply Hardware stores and a distribution center used to supply them by the end of the year.
Lowe’s acquired 60 of Orchard Supply’s stores out of bankruptcy five years ago for $205 million. The soon to be defunct chain, which was spun off by Sears Holdings in 2011, lost $65 million last year.
Speaking on a Lowe’s earnings call yesterday, Mr. Ellison said, “hindsight is 20/20” and the decision to acquire Orchard Supply was a mistake in that context. Closing it, he believes, will prove to be the right choice.
“The business was just not running well, and as we started to do the strategic assessment of where we wanted to invest our capital and where we wanted to be focused, it became really clear to me and to the leadership team that we want to be focused on our core retail business, and we could grow Orchard into the most dominant small box specialty home improvement channel in America and it would be very minimal positive impact from an EBIT and from an overall revenue standpoint to the Lowe’s business,” Mr. Ellison told analysts (via Seeking Alpha).
Lowe’s CEO expressed optimism that the company will be able to minimize the negative impact on Orchard Supply’s employees as it moves to cease operations. He said 86 percent of Orchard Supply’s stores are within 10 miles of a Lowe’s and that associates looking for jobs with the company will be prioritized.
- Lowe’s Reports Second Quarter Sales and Earnings Results – Lowe’s Companies, Inc.
- Lowe’s (LOW) CEO, Marvin Ellison on Q2 2018 Results (Earnings Call Transcript) – Seeking Alpha
- Spin-off of Sears Holdings Corporation’s Interest in Orchard Supply Hardware Stores Corporation – Sears Holdings Corporation
DISCUSSION QUESTIONS: Is Lowe’s making the right decision to shutter Orchard Supply Hardware? What other changes will the chain need to make to remain competitive with Home Depot?