RONA sees growth in Canadian market

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Rumours of Rona’s demise are greatly exaggerated, chief executive officer Robert Dutton said Tuesday.

The country’s largest Canadian-owned home improvement retailer said it has plans to grow its market share to 25 per cent from the current 19 per cent, mainly through acquisitions. The Quebec-based company, a frequent subject of takeover speculation, acknowledged there’s nothing to prevent a rival firm from taking a run at its widely-held stock. But Dutton predicted that was "unlikely," noting the company is already so competitive any buyer would find itself unable to reap more efficiencies out of the purchase.

He also declined to confirm speculation Rona is looking to expand outside of Canada, saying there is still plenty of room to grow within its borders. "For 10 years we have been THE market consolidator in Canada, and until now Canada has been providing us with plenty of good opportunities for profitable growth. The consolidation of the Canadian market is far from over," he told the Economic Club of Canada.

"Getting outside of Canada or staying inside is not the question. The real question is about continuing to offer the best combination of products, services and prices to Canadians in every region and in every community, from big cities to remote villages," Dutton said.

The speech comes as home improvement sales in Canada remain relatively flat amid weaker housing starts and home resales, and the end of last year’s federal home improvement tax credit as an incentive.

When U.S. based-home improvement giant Home Depot opened its first stores in Quebec, in 1999, everyone started writing Rona’s obituary, he said. But even with the more recent arrival of Lowe’s, the U.S. second-largest home improvement retailer, Rona has more market share then both Home Depot and Lowe’s combined, he said. "When I tell this story, it is often received with typical Canadian disbelief," Dutton acknowledged. But he went on to say Canada’s home improvement sector is 80 per cent Canadian owned.

Independent retailers have less market share, at 51 per cent compared to 58 per cent in 2005, but it’s partly because many have joined Rona’s network, he said. "I want to be clear. I am not underestimating the competitive strength of our rivals, Canadian or foreign," he said. "What I want to say is that the arrival of multinational giants does not signal the death of national players — in either the short term or the long term."

Rona serves a variety of formats across the country, from corner hardware stores to mid-sized lumber yards to big box warehouse outlets. He disputed that successful retailers need to have a global scale to compete, noting that even Wal-Mart started out small. An original business plan, strong relations with suppliers and deep understanding of local markets are just as important, he said, referring to it as "home ice advantage."

Through Rona’s affiliation with the world’s largest hardware purchasing group, A.R.E.N.A., the company enjoys considerable buying power, he said. In its most recent quarter, Rona’s total revenue was down 2.1 per cent to $1.37 billion. Sales at stores open more than a year, a key retail metric, were down 6.4 per cent. Earnings per share were 17 cents, below analyst estimates of 22 cents and well below last year’s 24 cent performance.

By Dana Flavelle Business reporter for thestar.com