This century has witnessed consecutive journeys, headed in opposite directions for the industry’s long-time two leading retailers. At the end of 2000, Home Depot’s founders turned the corporate reigns over to their hand-picked outsider, General Electric executive Robert Nardelli. Mr. Nardelli’s ambitions created aggressive growth plans which led to numerous acquisitions of regional pro dealers, as well as the testing and expected expansion of several ancillary retail ventures, including a short lived convenience store experiment. Thus the company strayed from its founder’s sturdy organizational roots.
As the subprime crisis entered the picture, followed by the recession, Home Depot’s financial prospects rapidly dimmed under the unprofitable burden of the company’s numerous, recent investments. As a result, stockholders revolted. Ultimately, Nardelli was driven out, albeit with a $123 million golden parachute, which frustrated stockholders even more.
All this time Lowe’s was increasingly admired for its focused performance and steady growth by most industry observers, as well as by the financial community. During this time, Home Depot stock basically held its own during a boom market as Lowe’s stock doubled in value.
In January 2007, the tables turned. National and international financial forces drove the industry severely down. However, under its third generation of leadership with Frank Blake at the helm, Home Depot quickly closed down ancillary retail endeavors, including its EXPO Design Centers, and sold off its pro dealer holdings at a notable loss, so as to get back to its strong home improvement roots.
Here, Lowe’s fortunes fell with most of the industry. As Lowe’s cut back on expenses, Home Depot aggressively invested, especially in the hiring of industry professionals. Ultimately, Lowe’s nervously, demonstrated corporate errors which resulted in public relations nightmares as the company suffered through two poorly handled rounds of store closings. Former and then current employees bashed the bumbling manner of the closings. Customers, journalists and politicians followed in the chorus of heart felt booing.
This was followed by major merchandising guffaws which led to speculation on senior executive shifts, similar to what had happened at Home Depot earlier. The severe merchandising missteps continued until as recently as 2012. To make matters worse, articles appeared in the press, comparing Lowe’s confused merchandising flubs at local stores to nearby Home Depot successes. Some Home Depots were the recipients of frustrated Lowe’s customers who had been redirected from a first store visit, only to find the second Lowe’s was out of the air conditioners the first Lowe’s had promised it had.
Lowe’s stream of bad news events seemed to take a turn for the better last year on the announcement of its acquisition of Orchard Supply Hardware, a notable regional chain based in San Jose, CA. Prior to being acquired by Sears in 1996, OSH was much admired for its uniqueness. With stores averaging around 40,000 square feet at the time, OSH was thought to be a beacon for future hardware store prototypes. The retailer used its grand size to carry an impressive array of product, some of which was appropriate for the specific needs of local communities, though hardly typical of hardware stores.
Last summer Orchard filed for Chapter 11 bankruptcy protection. Much of its financial problem was not surprisingly due to the debt the company was saddled with after being recently spun off by Sears. The opportunity seen for Lowe’s by this acquisition was based on its pre-Sears performance, an impressive management team and an asking price greatly depressed by the bankruptcy proceedings.
Orchard has since impressively refurbished several locations while closing a few others. A few of the closures were temporary measures as these stores were updated to the company’s new format. The acquisition was seen by many as a hopeful sign that as Lowe’s big boxes ran out of areas that could support new openings, Orchard prototypes could open new corporate vistas.
Now several financial publications have gotten wind of a possible new area of expansion for Lowe’s. Apparently Lowe’s has hired the Goldman Sachs Group to explore expansion possibilities in Brazil. Should opportunities present themselves, it is likely Lowe’s would be looking to acquire an existing Brazilian chain. Brazil has long been viewed as solid emerging market along with Russia and India.
Lowe’s should be careful here. Through the past several decades the have been times where Brazil was seen as a market especially ripe for investment, only to find a new political regime struggling with such as inflation or political corruption. The current presidential race is contentious due to economic concerns which have come to light over the past year and a half. The previous administration under the leadership of the renowned Lula, was indeed seen to have established the country as a long-term up and comer. Now, maybe not so much.
Before Lowe’s tries to enter a distant though promising market, it should give its Orchard experiment a chance to migrate from California. Thus far its Orchard investment has been minimal and will seem like a bargain should it become as popular outside its home state as it was at home, during its pre-Sears heyday.