Lowe’s made an announcement on Monday that it is closing all of its Orchard Supply Hardware stores by the beginning of next year.
Orchard Supply Hardware Shutting Down
Founded in 1931, Orchard Supply Hardware is a California-based company with 99 stores nationwide. In 2013 it was acquired by Lowe’s but the chain is now being shut down so that the company can focus on its home improvement business.
The decision was announced to the employees on Tuesday but stores are expected to open for normal business hours for the rest of the week.
According to the statement, stores will start holding sales from next week onwards to sell off the inventory and by the end of the company’s fiscal year, all 99 stores would be closed permanently. Lowe’s distribution center in California will also be shut down, the statement said.
The company’s CEO and President, Marvin Ellison said that the decision to close off Orchard Supply Hardware wasn’t an easy one but it was necessary for the business.
Ellison was deeply regretful because of the decision’s impact on company’s associates. He assured that all impacted employees will be provided with outplacement services and those who choose to apply for other positions in Lowe’s will be given top priority.
Goal Reassessment
The company explained that it took a non-cash pre-tax charge worth $230 million after strategic reassessment of Orchard Supply Hardware. Ellison said that as the retail environment becomes more demanding, Lowe’s is reassessing its goals and cutting back on inventory to match the shrinking demand.
In 2018, the company reduced its sales forecast from 5 per cent to 4.5 per cent, and stores which have been open for one year or more are expected to grow 3 per cent, lower than last year’s forecast of 3.5 per cent. In its second quarter, Lowe’s reported sales of $20.9 billion, almost 7 per cent higher than last year’s figures, and exceeding the forecast of $20.8 billion made by S&P Global Market Intelligence.
The company’s decision to slim down on operations is to compete better with Home Depot. Despite shares surging over 7 per cent on Wednesday, Lowe’s has cut down on sales and its profit outlook for this year. Just last week, rival Home Depot reported strong earnings for its most recent quarter and now Lowe’s is playing catch-up.
In comparison to Lowe’s stores which only grew 5.3 per cent this year, Home Depot bragged an 8 per cent sales growth. Ellison, who was recently appointed as the CEO of Lowe’s isn’t scared to make big changes in the company to help it become more competitive.
Currently 4,300 employees work at Orchard Supply Hardware, who are at the risk of losing their jobs when the stores close by the end of fiscal year. Lowe’s announced that its earnings have decreased by $230 million this year due to the store closings whereas it has only paid $205 million in 2013 to acquire Orchard Supply Hardware.
Undergoing Major Changes
The company may also incur additional costs of up to $475 million due to closings over the next few months.
This is one of the main reasons why it reduced its yearly sales forecast. Lowe’s is also shaking up its product offering which will have a negative impact on sales over the short run. Ellison is planning to cut down inventory aggressively by taking out items that perform poorly and reinvesting the freed-up capital in other parts of the business.
It’s obvious that Lowe’s is currently undergoing some major changes that could impact its position in the industry in the long-term. Only recently, it was announced that David Denton, who was previously the chief financial officer of CVS has been hired as the new CFO.
Denton will assume his new position at Lowe’s after CVS formalizes its acquisition of Aetna. The current CFO of Lowe’s, Marshal Croom, is expected to retire within the next few months.
The company’s line of executives has been seriously shaken up since Ellison became the new CEO. Last month, he announced that the company is eliminating a number of senior leadership positions including chief customer officer and chief operating officer.