Orchard Supply Hardware And The Mediocrity of Millionaires

Today I learned that the Orchard Supply Hardware store near me is closing.

Some 4300 people* are losing their jobs. A chain of growing and seemingly profitable hardware stores, serving well their communities, is being liquidated.

OSH, as it’s known, has 99 stores in California, Oregon and Florida. If you don’t live in those states, you may wonder why this matters to you. But it does.

For this is not about globalization, or low-skilled immigrants stealing 4300 jobs. Instead it’s Wall Street; it’s about a few rich guys who need to make their numbers.

When I talk about Dreamland, I often say that our opiate epidemic grew from our destruction of community, in many ways, all across America. The demise of Orchard Supply Hardware, announced last week, is the kind of thing I’m talking about.

OSH was a place where the community came, where people bought things with which they built their homes and yards.

The store had a rare combination in hardware these days: great customer service and smaller stores. That meant you could actually find the things you needed. This earned it $600 million in sales last year. OSH, which is owned by Lowe’s, was expanding.

OSH is a chain but people I know feel like it’s their local hardware store. I didn’t buy hardware anywhere else. With all the crappy chain stores and chain restaurants we Americans have to tolerate stomping all over our country, here was one that people actually wanted to shop in, and felt close to.

It seemed that behind OSH was a creative idea: position it as an alternative in a world where customers are moving away from big box stores they have to drive for miles to get to. Smaller stores, easier to get to, alert and knowledgeable staff.

Sadly, Lowe’s backed off this inventive positioning of OSH in July when it hired Marvin Ellison as CEO.

Ellison was the CEO of JCPenney. There, he ran the company into its worst quarter ever. In his last quarter, the company lost $69 million and its stock hit an historic low. In his three years there, JCP shares dropped by more than half. For that record, he was compensated with $10.8 million in cash and stock in 2017, then hired this year to revitalize Lowe’s.

You may wonder: What about that record makes this guy worth hiring anywhere?

You may wonder: What company looking to rebound in this retail environment would hire anyone from JCPenney?

Another question that may occur to you is, why does Lowe’s feel in such a hurry to boost its stock price? Well one reason, apparently, is that a big chunk of Lowe’s stock has been purchased by Bill Ackman, an activist hedge-fund investor, who is hankering for change and wanted Ellison.

Why anyone would listen to Ackman’s advice on business is an interesting question. His hedge fund has lost half its value in the bull market of the last three years.

Ackman is the guy pushing things to go fast at Lowe’s. And he’s the reason the former CEO, a guy with some long-term vision, was booted.

Here’s why: Ackman’s hedge fund once had $20 billion, but as investors have pulled out amid its poor performance, the fund now has only $8 billion. Of that, he’s betting $1 billion on Lowe’s stock to rise, and quickly, to staunch the investor exodus. (For more, watch this CNBC interview.)

Thus, Forbes wrote, “The Lowe’s clock is ticking. And with Ackman as the timekeeper, Marvin Ellison is a man in a hurry.”

First idea: liquidate a growing and seemingly profitable chain of stores and its 4300 employees. Double down on big-box retailing just as consumers are rejecting it.

Mind you, this has nothing to do with improving the long-term viability of Lowe’s as a business.

But I guess if I’d lost as much money as Ackman has, I’d be in a hurry to earn it back, too.

Still, you know, Ackman and Ellison might take a moment. Common folks are paying the price: the employees, the contractors and communities that rely on those stores.

In corporate America — as we’ve swooned over it, exalted it, praised its wealthy leaders for making themselves lots of money — the clear hunch I have is that, really, a lot of the fellows at the top are not that good. It’s mediocrity on parade a lot of the time, insulated from results, from any whiff of merit pay, and from the consequences of their failures, particularly as they are felt in towns across America.

I spoke to a guy at my OSH store who said he had worked for the company for 20 years. Here’s how he was told the news: On the afternoon of Tuesday last, company officials suddenly shut the store, escorted the remaining customers out, assembled the staff, and let them know their jobs were ending; the store was closing Oct. 20.

“Today you’re Orchard Supply Hardware. Tomorrow you belong to liquidators,” he said they were told.

Within a couple days, “Everything Must Go” signs were all over the store.

You may wonder: How is that okay?

Here’s Ellison: Lowe’s is “developing plans to aggressively rationalize store inventory, reducing lower-performing inventory while investing in increased depth of high-velocity items. Exiting Orchard Supply Hardware and rationalizing inventory are the driving force behind the changes to Lowe’s Business Outlook.”

So they’re going to stock stuff that sells well. Brilliant idea.

But why does that mean OSH must close? Why not sell it to someone who actually gives a damn about Americans and their communities, and who has the creativity and energy to run such a company?

(NOTE: A Lowe’s spokeswoman emailed me this morning (8/29) with this response to the columns, saying that OSH was not profitable:

We are working hard to make this transition as smooth as possible for our associates and our customers.  We will be retaining our associates through the store closure process and are encouraging them to apply for open roles at Lowe’s stores, where they will receive priority status. Associates will receive job placement assistance, and we will be providing eligibility for severance. 86 percent of Orchard locations are located within 10 miles of a Lowe’s store.

The decision to exit Orchard was based on the need to focus growing our core home improvement business and deploy our capital to more profitable projects. Orchard’s 2017 earnings before interest and taxes (EBIT) was a -$65 million on sales of approximately $605 million.*)

Instead, Marvin Ellison, escaping JCPenney, decided within less than two months to close 99 stores and lay off 4300 people.

All because? Well apparently Bill Ackman has lost a lot of money in bad investments.

As I’ve traveled the country, I’ve learned that the cost of losing Main Street has been incalculable – yet we bow to the free market as if we have no choice. That’s what’s happening here.

The good news? Lowe’s stock price has gone up a few bucks – so I guess we can all breathe easier.

This move will harm Lowe’s in the long run. I know sales are going online, but hardware will always be different. Customers need that contact with sales staff who know their stuff. Even contractors say that. (See a video about contractors’ opinions on OSH closing.)

OSH formed in 1931. Many years later it was bought by Sears, whose glory days were well behind it, looking to spruce up its home-improvement position. Owned finally by a hedge fund, Sears apparently did what Sears is now known for as a hedge-fund property – it muddled through. (Read an LA Times story here.)

Finally, it spun the company off, but not before saddling it with enormous debt. Naturally, that debt crushed OSH into bankruptcy within two years. This is how Business Insider described it:

“In 2005, Sears Holdings – by then run by hedge-fund guy Eddie Lampert – announced that it would extract a special dividend of $450 million out of OSH, and that OSH would borrow the money to pay this dividend.

“In January 2012, in typical private-equity manner, the now heavily indebted OSH was spun off to the public; 18 months later, in June 2013, OSH, buckling under this debt that Sears Holdings had put on it, filed for bankruptcy.”

In bankruptcy, OSH was bought in 2013 by Lowe’s, which, under then-CEO Robert Niblock, did some great things. Above all, it remodeled OSH stores. Funny what happens when you invest as if for the long run. The staff now seemed motivated. The store came to life; so apparently did the chain. In Pasadena, it became one of the city’s biggest sales-tax generators

Until that day in July when OSH’s parent company hired a guy from JCPenney at the behest of a hedge-fund owner losing money in a bull market.

You may wonder at it all.

If so, here’s a petition to make yourselves felt. Please share it, and this article, if you like it.

  • (Correction: I originally noted the number of OSH employees as 5400. A Lowe’s spokeswoman informs me that the correct number is 4300 and I’ve made that correction throughout.)

38 Comments

Filed under Business, California, Southern California

38 Responses to Orchard Supply Hardware And The Mediocrity of Millionaires

  1. w guest

    Excellent article!

    Quick note — the 4300 employee figure has been updated in the article except for the sentence: “First idea: liquidate a growing and seemingly profitable chain of stores and its 5400 employees. Double down on big-box retailing just as consumers are rejecting it.”

  2. Concerned Employee

    As a OSH employee. Lowe’s (at least here in Florida) has really done nothing to help with employee assistance. They tried to not pay us out things that their “closing letter” promised (but eventually decided to do it as I assume they didn’t want a lawsuit). We have tons of Lowe’s stores in Orlando and associates in my store have applied to them and got denied… not “priority” status like stated. Lowe’s is just a bunch of lies to the OSH associates.

  3. C Whetsell

    To bad Lowe’s felt they couldn’t stand the competition Orchard would bring by putting them up for sell, or maybe closing just the bottom 10 the adjusting as needed. Easier to lay off thousands of people. Orchard was our neighbors and our children’s job some of them their first job etc. Lowe’s called a meeting and that was that for them no warning, it’s just so sad but the joke on Lowe’s is I wouldn’t have gone to their locations anyways hate their stores and locations to far away. I will support my Ace and True Value neighborhood stores.

  4. D

    I was smart to leave OSH when I did. The idiot from Harley Davidson, who NEVER EVER SHUT UP ABOUT THAT, was an awful addition to the company. The rest of the “leadership” team was a joke, not competent. It’s Ok that they’re shutting this down. The staff were mostly mediocre. I was happy to hear the news. Now, any remaining good staff are forced to go find good jobs.

  5. kurt

    i worked for Orchard Supply Hardware for 2 years. most of the people had more than half there earth lives vested into that company. its a damn shame that a 1/2 hour conversations could destroy so many lives. pretty pathetic. thank you parent company

  6. JJ Fotography

    Great post Sam. The situation is an old one. In the early 90s I was commissioned sales at Circuit City, where you could count on us knowing our stuff. Best Buy moved into CA, changing the industry standard to min wage employees with no knowledge. A few years later, CC closed.

    10 years later, when Target owned Mervyns, used the profits to remodel Target stores, then cast off Mervyns. Private equity picked up the devalued company for a steal, then moved money around, straddling it with debt. The resulting bankruptcy screws vendors and employees with claims, paying pennies on the dollar.

    My advice to OSH employees: quit if you can get another job, don’t help the liquidators who profit on the demise. If you can’t line up a new job, work until the bitter end so you can collect your unemployment benefits.

  7. Stay Morgandorfor

    Sadly, it not just the company it’s the customers as an associate I have come face to face with people who would come into the store and demand a better deal on items you would generally don’t give out. Customers day in and day out abuse the system of cheating and lying thru their teeth on how the “product” does not work or how associates does not show how to work a product. And yet they walk as if they just got off of a boat of Harvard or Yale with great expectations for my associates and I to kiss their behinds as if we owe them everything people like that should not be allow ro treat us like that. And yet with a straight face the company has the nerve to give us pitiful resources and the back up we need to avoid people who abuse the system instead of standing up for us the associates. Who come to work everyday and provide excellent customer service and yet we get treated like the dog feces under a shoe disgusted and must be removed. So if you do come to our store and expected to recieve quality service don’t be surprise that you get what you deserve. Like the saying says what comes around goes around.

  8. Debra

    I have worked at Osh for 7 years in that time I’ve been through the mismanagement of Sears running things, to Osh running the show and finally to Lowes hand in the business. As someone who also worked for Lowes prior to being with my “Osh family ” the consideration of store personnel towards the community and each other was unsurpassed in caring. At Lowes my hours never stayed the same, many times had to work with less than 8 hours between shifts. When someone has to work 2 jobs to make ends meet a bouncing schedule is very hard to have any sort of life. Most mgmt doesn’t care about the sales people, if they are knowledgeable or just a body on the floor. I will miss my Osh family. There is going to be a great void in good hardware service. Luckily there are plenty of Ace and True Value stores for customer service.

  9. Frank

    Ackman put a guy named Johnson in JCP. He stopped promoting. History of the current CEO prior to JCP was HD. Johnson destroyed JCP and Ellison appears to have stabilized it but apparel is still off. Suspect he has a hardware and home improvement mindset. Sadly small format doesn’t work very well in suburbs.

  10. call me sparky

    The company lost it’s way. They wanted to be “UP SCALE” they wanted sexy with robots and all. They closed all their commercial accounts. Many of those accounts had been loyal customers for 50 years! They came into the store to purchase supplies put them on the counter to find out then and there their account was closed. It was a montra we can’t compete with Home Depot and the commercial business isn’t our market. During that time our product mix changed. With the philosophy we don’t cater to business to business and we lost just about every plumber, every handyman,every painter that ever did business with us. The spiral was in full swing. The problem with the loss of commercial business we no longer stocked the supplies DIY home owners wanted either. You can have the best customer service in the world but without the products you can’t solve the customers needs,wants, or desires. We were left grasping at straws. Laura Ashley garden accessories, fairy garden trinkets and we even resorted fidget spinners and the end of that fad. OSH killed the cash cow for a fast buck on fads with higher profit margins. No one asked why those products have higher profit margins! They have more risk! I’ve worked there a long time, NEVER has a buyer or merchant asked our opinion on the product mix for their department. MBWA was not even in upper managements lexicon. Come on now, stores in Florida and California??? They once tried putting stores in Ohio only to fail a year later. A store in the heart of the tourist area of San Francisco with all the hotels but not having commercial business isn’t going to make it. I hate to see it go I’ve lost my job of the last 20+years but spare me the LOWES is the bad guy here. OSH was in control of OSH and they screwed up to where they were a dead man walking for a LONG TIME. If I were in charge of Lowes I’d cut off the tumor too.

    • samquinones

      Thanks for the very thoughtful comment. Very sorry you and so many others will be losing their jobs.

    • Proud Oshlander

      Thank you for this article and support.
      since our new president and most of corporate came from Lowe’s you would think they would have fired some of our buyers (especially in seasonal!) That continued to bring in this overtly priced crap! ($100 lanterns, $70 trunks, $639 truck ice chests etc…. ) year after year. While trying to convince us how wonderful this CRAP is and expect us to sell it. I’ve still have some of this “decor” from 3 patio seasons ago.
      I love OSH and take pride in my departments, I’m heartbroken this icon is closing. As my 14th patio season comes to an end, my heart breaks for my team, OSH family and our customers.

  11. Jacob foiada

    It’s a sad reflection of how we don’t value service over price. Every “corporate” owned Orchard was a neighborhood local store. We were never viewed as corporate because of the quality of employees and their commitment to the customer experience and involvement in their community . It’s too easy to add an item to your shopping cart on your phone now. It’s a case of too little too late. The only solace I have is Lowes will eventually succumb to their own failed business values. I hope the hedge fund pansy hurts.

  12. Andrea carlos

    I started working at Osh my senior year of high school 22 yrs ago!!
    I appreciate all the kind words and support from our customers and fellow associates!! It breaks my heart and leaves me in disbelief to know they won’t exist anymore. It doesn’t feel right. I also understand business’s, they do what they need to do, just never thought it would happen to OSH!
    There have been many responses to this article, some good, bad, and indifferent. But we need to stop bashing and pointing fingers. The truth is there are thousands of people going to be unemployed in a few short months. Let’s band together spread our love and support by helping and encouraging the employees of Osh. WE can be the neighbors helping neighbors.
    OSH has always been known for there customer service. Don’t let that die out because Osh won’t be hear. The good will out weigh the bad. Stay as positive as you can through these rough months ahead. Be a community and connect with each other. Thank you for all the wonderful years OSH!! Napa0370 rocks!!!

  13. Sandy Vandenberg

    Actually, the CEO and Leadership team were brought over from Lowes. So, yes the leadership has it’s faults, and some stores were struggling, but all advertising and promotions ended and all decisions went through Lowes. Who in their right mind would hire this guy with such a poor record? Who were these Senior Leadership people trying to run the neighborhood hardware store? Not hardware people. Just numbers people.
    Orchard was known for service even if it was for a 25 cent washer, the service pervailed. Not any more, all cut throat to make a buck.

  14. Danette W

    I’m a former Vacaville OSH employee, for 7yrs until we lost our jobs… I’m saddened and surprised about Lowe’s. I hope my friends that are still at our other Orchards rethink ,Lowe’s as your future employer..

  15. Sad for Orchard

    While, as an employee of Orchard, I appreciate many of the sentiments in this article and agree that the loss of Orchard and other companies like it are a disservice to the communities they served, the fact is Orchard was not profitable-period. That is why we are closing. This is due to Orchard executive leadership making bad decision after bad decision, and Lowe’s leadership’s lack of leadership and courage to change it. We opened new stores in terrible locations before focusing on getting the model right in the existing stores. We didn’t move quickly enough to establish an online presence. We moved away from having sales every week, but left our prices high, and make no mistake, people stopped shopping us as a result. It was irresponsible of Lowe’s former leadership to allow this to happen, but now Ellison had no choices left but to close the business down. As a publicly traded company, he has that responsibility to the shareholders and it was the right decision, as painful as it is.

  16. Jian Huang

    OSH’s customer service is head and shoulders above any other home improvement chain store. Somehow, OSH has managed to maintain a “community feel,” which is very rare here in a big city like LA. The people at OSH seem to care about their customers as people. They’re helpful and knowledgeable. The lady at the nursery gives me suggestions on plants that will do well in the shade, the guy at the tools area helps me find saws and wood pieces for the necklaces I make. It’s not something you get at a big box competitor say…Home Depot…where the service is often impersonal and robotic at best.

    I hope the employees know how much I appreciated having them in the community. Thank you for the heart you’ve all put into your work. It didn’t go unnoticed.

  17. samquinones

    Thanks so much to you OSH employees for writing in. I want to thank you and your colleagues for being part of my community. I remember the very friendly service I received at my OSH store that really cemented my loyalty to it. Always taking the time, asking if I needed help. Usually knew what they were talking about. There was also a brightness to the store as well, a welcoming feel that seemed like it should be part of any retail venture.

    This was in great contract to my experiences at Lowe’s and HD, where the employees usually walked around afraid to make eye contact with customers. I remember distinctly my first time in HD, thinking this can’t be good business. I wandered about looking for someone, anyone to help. As one contractor said in a video I linked to, those box stores sold the material, but what their staff don’t know are solutions to your fix-it problems. This from a contractor…..

    Anyway, I’ll be very sad to see your store close. I know I’m many others share that feeling.

  18. Kathy

    When the housing disaster happened back in 2008, my brother and I had a conversation that ended like this: the crux of the matter is CARE – Wall street doesn’t care, (about the “little guy”) but they should. One trader at the time said he was embarrassed to be earning ONLY $300,000./year. BERNIE has many good ideas.

  19. Kristine Levesque

    OSH filled an important retail position. Lowe’s should have been sold, and OSH kept, instead of trying to compete against Home Depot with more growth than Lowe’s. Filling a hedge fund crooks pockets in the short term will come around and bite Lowe’s sooner than later.

  20. Brennan O'Brien

    I was an employee at OSH. When a friend who worked there convinced me to take a job there, I had been a happily semi retired res/rem contractor with 35 years experience.
    It was a fun, if not lucrative job. With my experience, working at the workbench, with a decent set of tools and the mission of helping our neighbors was a great way to spend some time. My fellow employees included a master locksmith, a former aerospace engineer, an electrician, and a plastics wizard. Between the group of us, we could solve most any problem someone had. In short, management hired a diverse skill set to find solutions to any problem likely to wander in the door.
    Since the news of the closure, we are sad to see the loss of our little community, but equally we are sad to see the loss to our community. Our little store was a significant source of tax revenue to our little town, and a solution to local residents’ problems is now going to cost them much more than it once did.
    Lowes stock went up seven percent on the day OSH was closed down, I’m sure the genius who help drive JC Penny into the dirt vested some serious stock options that day; but he hurt the long term profitability of his company and destroyed something that took a long time to build up.
    As the late great Anne Richards said ” It takes a carpenter to build a barn, but any jackass can kick one down”

  21. jennifer

    i work there. 13 years this November. We are closing November 2nd. im a single mom. only income. its so messed up. i found out on the phone. was off that day. then the news broke hour later. wish us luck. it has been hard. im in southern california

  22. Mark J. Goluskin

    I have only worked there for 2 years and while there have been a couple of strange decisions at the corporate level, we the staff did our very best to make the experience something different than going to either Home Depot or Lowe’s. We took time to help our customers. We built relationships that will not be had at a big box store. And we are being kicked to the curb. BTW, there is no assurance of anyone actually getting a job at Lowe’s. We will just be given “priority” when applying. A very sad time.

  23. I left the sole proprietorship to work for a company that mimic my business that was stable and secure and I embraced it. Love the family but not Lowe’s!!!

  24. Sylvia Gutierrez

    So sad to see Orchard close I come here because I get help for things if I go to Lowe’s or Home Depot NOBODY INCLUDING THE MANGERS KNOW A DARN THING.
    You roam around trying to get help I finally found a store with educated and carrying employees where thy don’t call me a customer they call me a NEIGHBOR which was always a feeling of community
    Well hopefully these employees get hired by TruValue or Ace and carry on I care tradition.
    Because if Sylvia is looking for help I won’t be going g to Lowe’s it Home Depot.
    Good Luck to all my friends and “neighbors” that Loews decided to fire I hope I see some of you st TruValue it Ace Hardware.
    Who else cares?????
    Sylvia Gutierrez

  25. Jose Mendez

    All too true. Lowes did have the rt. idea and were led astray by the need for empty dollars to satisfy a few who couldn’t appreciate actual value to country and community because they are just that shallow. The idea behind O.H.S. would have been the way Lowes would have achieved its goals while at the same time giving the American public something they could honestly use and depend on. Home Hardware Happiness . Sounds like family. All families.

  26. That’s an excellent article. I had no idea why the OSH was closing. Thank you for connecting the dots.

    • Danny Elkins

      I truly do not understand all the hate for Lowes here, and it shows true business illiteracy. Lowe’s bought this company out of bankruptcy in 2013. If not for that, you would have been liquidated 5 years ago. Lowe’s gave OSH the opportunity to revamp its business model, a new lease on life, and a chance to add value to the Lowes brand as a stand-alone division. Instead, your executive team continued to run your chain of stores into the ground, to the tune of s $65 million LOSS last year alone. The negative impact on all the people this will cause is very sad, BUT blaming Lowe’s and it’s new CEO is wildly misdirected. The blame rests on the OSH executives that were charged with running the Orchard portfolio in a responsible and PROFITABLE manner.

      • Howard hodge.

        Laws should be in place to protect against this happening.

      • puddintane

        You are sadly mistaken as there was another investor that Lowe’s out out bidded 5 years ago who is strong and thriving as OSH would have been had they bought them.

      • B Ulrich

        Clearly you didn’t really read the article. People were told on the same day in some cases. Those same workers are expected to help bury the dead, i.e., selling as much inventory as possible and yet the liquidators are running the show. OSH according to Lowes, “No longer exist.” No corporate to call, no one to complain to, or to ask questions from the customers. Job placement, is a total joke. There are more employee’s at the distribution center than Lowe’s has jobs for. Not to mention the pay for working at Lowe’s is lower and benefits are less. And there is no “placement assistance.” Severance is if you agree to stay, regardless of condition until the very last day. So how is one to look for something else? You can blame OSH for poor management etc., but Lowe’s crept in and skulked about secretly calling all the shots. Changing the dynamic of the Brand looking for a Pottery Barn demographic. Ridiculous. We will move on, hopefully to something better, but one should at least blame Lowe’s where blame is due. Big money, corporate greed and kowtowing to Stock Holders will be the downfall of Mainstreet and eventually this country. So sad.

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