Rona to shut 11 stores, cut 925 staff

Rona said Thursday it is building the foundation for improved profitability by closing 11 money-losing stores in Ontario and B.C., cutting more administrative jobs and trimming its marketing budget.

Eight of the store closures are in Ontario and three are in British Columbia.

Six Ontario stores in Mississauga, Windsor, Woodbridge, London, Huntsville, and Collingwood will close in October and two Ontario stores in Toronto and Aurora will close in December. The three B.C. stores in Duncan, Kamloops and Abbotsford will shut down in October.

About 800 jobs will be eliminated by the closure of the stores, which together generated $130 million of annual sales.

Rona (TSX:RON) also said 125 more administrative jobs will be cut across Canada on top of the 200 announced last February. About 50 jobs are based at its headquarters in the Montreal-area while the remaining positions are based in Toronto, Calgary, Vancouver and Winnipeg.

Marketing spending to be cut

The Quebec-based home renovations retailer will also dramatically reduce its marketing spending by ending all sponsorships, including at the Olympics, reducing television advertising to focus on cheaper radio spots and focusing more on its weekly flyers.

After years of efforts to address eroding profits, newly installed CEO Robert Sawyer said his restructuring plan creates a simplified business structure and a more agile company, and it should be the last cost-cutting exercise needed to turn the company around.

"It's enough of restructuring," he said in an interview. "Going forward, we're there to do business. We're there to increase our sales, and we're there to give satisfaction to customers."

The restructuringplan is meant to help the company adjust to a tough economy that doesn't show much improvement.

Sawyer, who came from Metro Inc. (TSX:MRU), said he will use his experience in the grocery business to revamp Rona's flyers by offering attractive discounts to lure customers to the stores.

"The flyer is the No. 1 item to be a traffic builder so we're going to try and be better in our program of flyers and [by] having aggressive prices, we'll try to attract you," he said.

Turnaround efforts failed

Sawyer said he decided to close the stores, particularly in Ontario, because years of effort to turn them around has failed, in part because there is too much retail square footage available.

Rona will also look to convert a few of its 63 big-box stores outside of Quebec to the discount Reno-Depot brand. The banner of 18 stores in Quebec that offer limited selections of cheaper items has proven to be more successful.

Last week, Rona announced plans to sell its commercial and professional market division for about $215 million.

The company is aiming to reduce annual operating expenses by $110 million $70 million more than was forecast in February but it will record up-front costs and accounting measures in its second quarter.

Rona said it will record $220 million of adjustments related to the restructuring during the quarter, of which $195 million will be non-cash items.

The company plans to reinvest 30 per cent of the cost savings in the remaining business, mainly to reduce prices and fund some renovations to about 50 stores.

The efforts should improve Rona's margins above six per cent, said chief financial officer Dominique Boies.

'Shrinking for growth'

The retailer has been struggling for years because of weak consumer spending amid slow economic growth and concerns about unemployment. It rebuffed a takeover bid last summer from U.S. rival Lowe's and faced the departure of its veteran CEO. Rona also dodged a shareholder revolt by replacing much of its board of directors.

"What we're really seeing here is another case of Rona shrinking for growth," said Derek Dley of Canaccord Genuity.

He said the latest moves represent a reversal of its prior direction by closing stores and selling the professional and commercial division which it identified as a core growth area only two years ago.

"This, to me, shows that they're just not able to compete on the big-box level with the likes of Home Depot and Lowe's in those key markets anywhere outside of Quebec," Dley said from Vancouver.

On the Toronto Stock Exchange, Rona's shares gained 76 cents at $10.47 in Thursday afternoon trading.