Lowe’s is finally starting to feel the pressure with which many retailers have been struggling.
On Monday, the home improvement chain announced that by February 2019, 51 of its stores—20 in the United States—would permanently close their doors.
In a press release, Lowes said it was closing the stores as part of its “ongoing strategic reassessment.” It also said it’s focusing on profitable stores and improving “the overall health of its store portfolio.”
Lowe’s said that it’s giving “most” employees the option to transition to stores nearby—which, in the case of the majority of U.S. closures, are within 10 miles of the location shutting down.
“Today’s announcement that Lowe’s is closing 51 underperforming stores is not surprising, and in our view, could suggest the beginning of a broader initiative to improve profitability via real estate rationalization,” wrote Zachary Fadem at Wells Fargo on Monday.
“We suspect the 51 stores being closed are losing money, are being cannibalized by other Lowe’s stores, or face heightened competition by Home Depot and others,” Fadem added. He expects investors will gain more clarity about the plans when it meets with investors on Dec. 12.
The booming renovation market might be slowing, too. Though the amount projected to be spent on renovation materials means that chains such as Home Depot and Lowe’s won’t be going out of business, it does indicate tougher competition on the horizon.
The pace of spending on renovations is likely to start declining next year, according to a report out Thursday from the Joint Center for Housing Studies of Harvard University.
Harvard’s Leading Indicator of Remodeling Activity touched a decade high of 7.7% this year, but annual increases in remodeling expenditures are projected to drift down to a 6.6% annual increase at this time next year.
… The housing slowdown is also likely to weigh on some of the players that have benefitted from this iffy situation over the past few years. On Wednesday, Credit Suisse analysts downgraded shares of Home Depot HD, +1.12% and Lowe’s Cos. LOW, +0.17% citing slower growth in home prices, among other factors.
Home improvement chains have largely avoided the issues facing others in the retail space, namely the growing pressure from e-commerce sites and online retail giant Amazon. However, as competition heats up, Lowe’s profits and stock price are falling behind its biggest competitor.
Retail stores are struggling to adjust to the rapid rise of online shopping, particularly from Amazon (AMZN). Many successful retailers with big stores have adjusted their business strategies to make better use of their physical spaces. Others, including Sears, Kmart and Toys “R” Us, failed.
Lowe’s and its rival Home Depot have proven to be largely Amazon-proof, because Amazon does not sell lumber or other heavy, bulky home improvement products.
But Lowe’s is struggling to keep up with Home Depot. Last year, Home Depot’s revenue hit more than $100 billion, while Lowe’s sales were below $70 billion. Lowe’s stock price has also lagged behind its rival, leading to pressure from activist investors.
Even though its financial forecast looks cloudy, Lowe’s spokesman shared messages of confidence in the market and consumers’ renovation behaviors.
Home Depot declined to comment because the company’s earnings call is coming up next week. A Lowe’s representative told Business Insider that it’s still confident about rising residential investment and home prices, saying that those factors “are the key drivers of home improvement growth versus new housing starts.”
The Lowe’s spokesperson added that the “aging housing stock” in the US was another sign that Americans are living in their houses longer and viewing those houses as investments.
“When you combine that strong investment mentality with disposable personal income growth and strong consumer credit, consumers tend to spend more on home improvement projects,” the spokesperson told Business Insider. “As they have increased financial ability to invest in those homes, it certainly drives demand for home improvement, both in terms of discretionary remodels and renovations and necessary repair and maintenance projects.”
Though Lowe’s decision to close stores was a numbers-based decision, its chief executive had focused his statement on employees affected by the move:
“While decisions that impact our associates are never easy, the store closures are a necessary step in our strategic reassessment as we focus on building a stronger business,” said Marvin R. Ellison, Lowe’s president and CEO. “We believe our people are the foundation of our business and essential to our future growth, and we are making every effort to transition impacted associates to nearby Lowe’s stores.”
The chief executive of Lowe’s Canadian market also assured consumers that the company is taking care to help employees adjust to the closures.
Sylvain Prud’homme, chief executive of Lowe’s Canada, did not say how many employees would be affected by the closures, but said the changes will allow the company to improve collaboration between its banners to better serve customers.
“Everything will be done to ensure a smooth transition until the stores are closed, and Lowe’s Canada will support impacted employees, including by transferring eligible employees to other locations within our network whenever possible,” Prud’homme said in a statement.