RONA’s first-quarter results are a wakeup call for all dealers

RONA had a tough first quarter. Sales were down 4.0%, while same-store sales were down a whopping 12.6%. But guess what? The entire industry had a terrible first quarter. It’s just that RONA has had to bare all because it’s a public company. But don’t kid yourself: dealers across the country are experiencing similar negative results.

It does not take a proverbial rocket scientist to understand why. The first quarter of last year was a strong one, driven by the spillover of consumer activity around the Jan. 31 deadline for the Home Renovation Tax Credit. That economic incentive was coupled with a cold winter that drove seasonal sales, followed by a spring came early. Canada had weathered the economic downturn better than any other country in the Western World. Consumers felt good – almost cocky about their good fortune.

But somewhere around the middle of July 2010, someone pulled the plug on that recovery. Overnight, the economy – and this industry especially – skidded into a decline that has continued to this day. In fact, for most dealers, 2011 is only just starting, and even now consumers lack the confidence to spend.

So RONA’s poor results are nothing if not a bellwether of the industry at large. RONA anticipated these results by laying off dozens of people in operations, merchandising (including one buyer) and at corporate stores. A powerful message to shareholders, and certainly a dramatic one. But more concerning is the imminent departure of CFO Claude Guevin, announced right before the quarterly results were released. Keeping Guevin around for even a bit longer would have sent a more reassuring message to those shareholders – and to the industry at large.

Besides, RONA is not alone. Canadian Tire announced its results on Thursday. How bad were they? Not terrible, by any means, but inventory levels were too high as products for spring just didn’t sell. Regardless, the company chose this week to buy Forzani Group and its 500 Sport Chek stores coast-to-coast. A defiant shot across the bow of Bay St. analysts if there ever was one. Home Depot Canada, which pertinaciously passed over Gino DiGioacchino for the top job in favour of an American, let its top merchant go a few short weeks later. More cuts were made a few days later as new president Bill Lennie continued to clean house, appointing Jeff Kinnaird to replace DiGioacchino.

In the U.S., conditions remain ceaselessly dismal, as housing starts hit new lows and foreclosures continue to suppress existing home sales. But at least down there, dealers are getting used to it. For Canadian dealers, spoiled by a glimmer of hope in the first half of last year, it’s time to get re-oriented to a new kind of retail, one that’s light years away from the double-digit increases that marked so much of the first half of the past decade.

Dealers – both large and small – have to face the new economy and the new consumer with an unflinching eye on gradual, long-term growth, rather than looking for dramatic quick fixes that shore them up from quarter to quarter.

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