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Winnipeg Free Press - PRINT EDITION

Rona reinvented

Size matters, retailer realizes as it struggles to compete

By: Peter Hadekel

Posted: 05/5/2012 1:00 AM | Comments: 0

Paul Chiasson / THE CANADIAN PRESS archives Robert Dutton is pushing a new business plan that moves Rona away from its big-box format toward smaller stores. (CP)

MONTREAL -- Can a retailer successfully reinvent itself with new store formats and a new marketing approach to consumers?

That's the gamble hardware giant Rona Inc. is taking as it comes under increasing pressure from shareholders to turn around a string of disappointing results over the last few years.

The Boucherville, Que.-based retailer, battling it out with Home Depot in the Canadian market for hardware, renovation and gardening products, wants to shrink the size of its stores and adopt a new digital sales platform.

It's had trouble dealing with the tougher retailing environment that's prevailed since the financial crisis of 2008, with same-store sales generally on the decline.

Most recently, such sales fell by 3.8 per cent in the second half of 2011.

Rona management has a lot of explanations to offer: Consumer confidence has been rattled, inflation in gas prices is hurting store traffic, spring weather last year was bad for home renovation and 2011 results suffered from the end of a renovation tax credit.

But shareholders want results, not excuses. After trading near $25 in the fall of 2007, the stock has flirted with $10 lately. And the chain's troubles have prompted some shareholders to push for the sale of the company, especially in the wake of remarks by an executive of Lowe's that the big U.S. hardware chain would be interested in Rona if it were put up for sale.

Management's response is it's not selling. Instead, chief executive Robert Dutton is pushing a new business plan that reorients the retailer away from its big-box format toward a new concept of smaller stores that are easier to navigate for consumers.

Part of the plan is the rollout of a new website and digital platform to help consumers with their renovation projects and support retail sales.

The core of the plan is the launch of a "proximity-store concept" that cuts the average sales area by 30 to 50 per cent, to about 35,000 square feet. It will be deployed in 20 per cent of the corporate store network.

Of the 80 warehouse stores in its network, 10 will be closed and 13 renovated to fit a smaller sales area (the extra space will be leased).

This year and next, the sales volume of 10 big-box stores will be redeployed to 15 proximity stores and 10 smaller satellite stores of 5,000 to 20,000 square feet.

Announced in February, the strategy was the result of what Dutton described as extensive research into current consumer behaviour.

Today's shoppers are pressed for time and don't want to drive a long way at current gas prices. They prefer smaller stores with more service they can reach in 10 minutes instead of half an hour.

The concept is based on strategies at Rona's Alberta chain, known as Totem, and was tested at several other venues across the country. It features better-trained staff, a central service counter at the heart of the store and a more user-friendly layout.

It also reflects North American trends in retailing where chains are starting to move away from big-box formats to decrease their costs and increase their profitability per square foot. "After the financial crisis in 2008, consumer behaviour was seriously impacted by the global economic uncertainty, volatility in stock markets, inflation in commodity prices, increased caution but also desire for value and service," Dutton said.

That trend is showing up at such big retailers as Target, Walmart and Marks & Spencer, all of which are opening smaller stores, noted the newsletter In-Store Trends, published by the Retailnet Group.

In 2011, "we saw a number of retailers realize that the one-size-fits-all approach is no longer generating the same level of growth they once saw."

Consumers appear to be responding favourably to the convenience and consistency provided at smaller, brand-name stores, the newsletter said.

But "the question that needs to be asked is whether big-box retailers can shrink successfully." Large formats provide opportunities for economies of scale, but smaller stores "carry a host of challenges," including getting the assortment right for that particular location.

Rona believes its new formats will succeed, but will they be enough to kick-start the kind of growth that shareholders are demanding?

-- Postmedia News

Republished from the Winnipeg Free Press print edition May 5, 2012 B17

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