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Nuts And Bolts Of Lowe’s Canada: How Rona’s Data Fends Off Rivals

Lowe’s recent purchase of the Canadian chain Rona is described as a strategic move to improve profits via a new market. Of critical importance in doing so is Rona’s participation in a coalition loyalty program, which has been key in fending off Home Depot in the past.


 

If the only tool a DIY retailer has is data, then could it not approach every challenge as if it were a customer engagement exercise, and nail it?

This is a question raised by the finalization of Lowe’s $2.4 billion acquisition of Rona, creating one of Canada’s largest home-improvement chains. Lowe’s describes the purchase as a key step in accelerating its growth strategy, which in Canada is an understatement: Rona brings 496 locations to Lowe’s 43. Perhaps more important than locations, however, is what Rona knows about its valued shoppers, and how it has used this knowledge to retain shoppers in the past.

Photographer: Cole Burston/Bloomberg

Photographer: Cole Burston/Bloomberg

Both Lowe’s and Rona are careful to point out the benefits the buyout will bring to its Canadian customers. In a press release, Lowe’s chief development officer, Richard Maltsbarger, stated the deal would deliver “meaningful long-term benefits to shareholders, customers, suppliers, employees and the communities we serve.”

The careful wording carries significance when considering the recent history of Canadian retail expansions. This is the second time Lowe’s has attempted to acquire Rona (in 2012, its efforts were stymied by shareholder and political considerations). And some Canadians are likely wondering how the Lowe’s rollout will stack up against Target’s failed attempt to win the Canadian consumer in 2014.

However, the Lowe’s strategy has had an advantage over Target from the start, because it has acquired with Rona a highly detailed database of customer behavior that is supported by a wide network of merchants. Rona is a member of AIR MILES, Canada’s largest coalition loyalty program, and this has helped it outsmart Home Depot years ago.

Beating Home Depot

For those unaware, a coalition loyalty program is a rewards strategy representing not one brand, but dozens or hundreds of brands across industries. Shoppers can earn their points by spending with any partner in the coalition, say a gas station and a favorite restaurant, and then redeem them all with another – perhaps plane tickets.

Though commonly practiced in Canada and Europe, coalition programs are relatively new to the United States – the American Express Plenti program comes the closest to representing this model in the U.S. A key difference of the program in which Rona participates is that partners share their customer data; one can learn how its best shoppers act within the walls of another merchant to better understand their preferences and to anticipate needs.

Back in 2005, Rona was a 10-year member of AIR MILES and among the largest home improvement chains in Canada. Sales for the year rose 10.5 percent, to nearly $4.1 billion, and net earnings advanced almost 27 percent. It controlled 15 percent of market share, according to its 2015 annual report.

Still, Rona did not take its leadership position for granted when Home Depot planned an expansion into its trade areas. It knew from ongoing research that whenever a Home Depot entered a Rona market area, its existing stores suffered double-digit sales declines within weeks.

So Rona turned to the insights from its loyalty data and devised an early defense plan to counteract exactly where Home Depot was looking to build its new stores.

First, it identified potentially affected stores by examining where its shoppers lived in proximity to a new Home Depot location. Then, because Rona was a partner in a coalition loyalty program, it was able to work with other retail partners in the same program that catered to similar shoppers. People who regularly shopped Rona might also frequent a specific gas station, for example.

Rona invited these merchants to participate in a campaign wherein they would offer special rewards to customers who visited Rona before and after the Home Depot openings. These partners also distributed coupons to customers to encourage them to return to the chain.

The result: Rona sales did not drop off at all, let alone by double digits. Instead, the size of transactions among customers who used the offers rose by an average of 8 percent. Total sales among loyalty members increased by 5 percent.

Measure Twice

This case study highlights the value of shared data more than a decade ago; just imagine what those insights and new data enabled by recent technologies would accomplish today when paired with a smartphone as a delivery mechanism. The Rona story also emphasizes the insights Target lacked when it entered Canada.

However, in addition to data, Lowe’s is making other, more practical decisions that should position it well:

– Lowe’s has assigned a Canadian to the helm. Sylvain Prud’homme, who was hired as president and CEO of Lowe’s Canada before the Rona deal, will oversea the combined chain. He had formerly headed some of Canada’s most respected retailers, including Loblaw and Sobey’s West. Target, by contrast, had put its U.S. management team in charge of its Canadian expansion, and their lack of market understanding was quickly evident.

– It is staying close to home. Lowe’s will relocate its Canadian head office to Boucherville, Quebec, where Rona is based. Importantly, it also will continue to buy from Canadian suppliers, a crucial decision when navigating different supply chain challenges.

– No name changes. Evidently aware of Rona’s 77-year history and brand integrity, Lowe’s will continue to operate the stores it is buying under Rona’s names. Target entered Canada through the acquisition of Zeller’s, a beloved chain among thrifty shoppers, many of who did not like the brand switch.

– The people factor. Lowe’s said it would keep the “vast majority” of Rona’s staff and management. For maintaining regular shoppers, and professional customers in particular, this is a vital decision. Lowe’s will need to rely heavily on the intelligence of Rona’s management and executives if it wants to better understand the shoppers and stores in the network of its vast new marketplace. In particular, the Rona team will enable Lowe’s to understand the insights its loyalty program yields.

To put it in DIY terms, Lowe’s is measuring twice so it only has to cut at the Canadian market once.

This article originally appeared on Forbes.com, where Bryan serves as a retail contributor. You can view the original story here.

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