John Caulfield, Contributing Editor
 vol. x, #5 February 2, 2004

IN THIS ISSUE: * Home Depot leads way to increased proprietary products * IRLY dealers to decide their future: TruServ offers one alternative * Franks Nursery, Calloway's feel the heat from big box L&G * Rona gains momentum in Western Canada

* * * * * * NOTE: Dollar amounts are stated in the currency of the country from which the story originates. — Michael McLarney, Editor & Publisher * * * * * *
"How far you get in life is not as important as how you got there." — Far East Fortune Cookie Co. (This editor relies on a lot of takeout food when on deadline)
WINNIPEG, Man. — Rona Inc., Canada's number-two home improvement retailer, is making waves in Western Canada with the recent signing of its first independent dealers there (see story below). However, recruitment of individual dealers is just one way Rona is committed to growth; it also seeks operations it can purchase outright.IRLY Distributors, based in Surrey, B.C., is unique in being a buying group of LBM dealers that has its own distribution facility. It's also unique by virtue of the fact its membership of 54 dealers with 82 dealers, mainly in British Columbia and Alberta, has remained relatively stable for more than a decade. However, that uniqueness — and that stability — could be put to the test if either IRLY's board should elect to sell its DC and/or its membership should choose to join forces with a larger retail organization. Enter TruServ Canada, which includes in its ranks a number of IRLY dealers who get their hardlines through the Winnipeg-based co-op wholesaler (TruServ Canada severed its ties with TruServ in the U.S. more than a year ago). TruServ's Ray Falkenberg, recently promoted to vice-president, sales, operations & member relations (see "People on the move," this issue), and Wilf Gerhardt, TruServ's manager of sales and operations for Western Canada, hit the road last week to present their case for being an alternative source of hardware supply. Joining them were Ron Marchetti and Dave Morton of Castle Building Centres Group, who accompanied the TruServ team to share information on how it currently supports the LBM needs of many existing TruServ members. "Since TruServ is one of our suppliers, it made sense for us to accompany them on this," says Marchetti. IRLY, TruServ and Castle already share an affiliation under the umbrella buying group, Reliance. According to Bill Morrison, president and CEO of TruServ Canada, about 10 IRLY members are also TruServ dealers, "and there are other IRLY members who have expressed interest in attending these meetings," he adds. "We believe we have a compelling offer on the hardware side of the business, and with Castle, a great source of supply on the LBM side," Morrison adds. "Together, we have a great one-step solution."
ATLANTA — Home Depot has aggressive plans to keep expanding its Ridgid line of proprietary power tools. New products will include higher end compressors and tool boxes aimed at the pro market, expected to hit stores before mid-year. A variety of other products are planned for the last half of the year, as well.By broadening its assortments with the Ridgid brand, Home Depot continues to strengthen its offerings through proprietary brands, products that are not strictly private label, but are nonetheless exclusive to Home Depot. The Ridgid line is made by a partnership between Emerson Electric Co. and the One World Technologies unit of Hong Kong's TechTronic Industries. But Home Depot is not alone. Private label and proprietary brands are considered an important way to differentiate from competitors — and a way to increase margins on already competitive products. Both Orgill and Ace Hardware are committed to beefing up their private label offerings. Orgill opened a buying office in Shanghai last year, and Ace expects to have one of its own in place in the Far East by sometime later this month. Rona Inc. has also been beefing up its private label program, which now accounts for about 10% of Rona's total sales, and is expected to grow to as much as 15-18% in the next couple of years.
TROY, Mich. & FORT WORTH, Tex. — Two of America's leading lawn and garden retailers — Frank's Nursery & Crafts and Calloway's Nurseries — continue to go through operational and management changes that reflect the competitive volatility of this sector. Bruce Dale, who took over as Frank's CEO in April 2003, resigned that post suddenly last week. The beleaguered retailer, with 170 stores in 14 states, has hired a turnaround specialist, New York-based Abacus Advisors, to run the organization temporarily. Frank's has also negotiated an amendment to its line of credit with Kimco Capital Co., which will allow the dealer to borrow up to $45 million. Through three quarters, Frank's reported losses of $10.5 million. It has become increasingly difficult for specialty lawn and garden dealers to compete with big box dealers such as Home Depot, Lowe's and Wal-Mart, whose stores usually include nursery departments of 16,000-30,000 sq.ft. But Dale won kudos for shifting Frank's merchandise mix away from ancillary products like crafts, and giving more emphasis to live goods, gifts and floral arrangements. Neither Dale nor the company offered an explanation for his sudden departure. The Associated Press quoted Frank's CFO, Alan Minker, as stating that the retailer plans to introduce new product lines that include patio furniture and grills to complement its lawn and garden merchandise. Minker said that merchandise accounts for 60% to 70% of the company's sales, which through the 40 weeks ended November 2, 2003 were $248.3 million. When the Nasdaq Small-Cap Market exchange opened on Jan. 30, Calloway's stock was no longer listed. Nasdaq removed that stock from its listing because the retailer's shareholder equity had fallen below the exchange's $2.5 million requirements. Calloway's has stated its intention to go private, a move company officials estimate will save the chain $500,000 a year. Last fall it filed a Schedule 13-E-3 with the Securities and Exchange Commission to terminate its standing as a public company and to begin repurchasing its outstanding stock at 90 cents per share. The 26-unit dealer, which operates under the Calloway's, Wolfe Nursery and Cornelius Nursery banners, lost $4.8 million on $47.3 million in sales in the fiscal year that ended September 30, 2003.
CARSTAIRS, Alta. — Murray Pound wants more retail business, and he believes Rona Inc. is the company that's going to help him get it. Pound owns Lumber One & Hardware Too, a building center in this community about 30 minutes north of Calgary. But he didn't feel the store had much caché with the influx of new homeowners who commute to Calgary, where the Rona name is well known, thanks to the presence there of three Rona Home & Garden stores and one Rona Home Centre. So after about four months of discussions, Pound left Allroc and signed with Rona. "We realized that this was the direction we wanted to take our business in," says Pound. His store, which did about $2 million in sales last year, has a customer base that's only about 30% DIY right now. He'd like to get that up to about 50%. Besides enjoying higher margins on the retail side, he sees it as a way to "break out from the competition." Lumber One's conversion follows on the heels of the switch by Newton Enterprises, a two-store operation near Calgary, a week earlier, which drew attention for being the very first independent dealer west of Ontario to sign with Rona. The latest conversion involves adding about 50% more floor space, which will make it almost 6,000 sq.ft. in size. The store will add a paint boutique, a signature department for Rona, while the seasonal department will double in size and new categories, such as a coffee bar and DIY library, will be added. "It's not going to even look like the same store when we're done," says Pound.
FORT WAYNE, Ind. — Ed Zoller, who for the past four years has been the vp-hardlines purchasing for the buying group Do-it Best Corp., resigned from that post officially on January 23. The 54-year-old Zoller worked for the co-op nine years in various capacities, including retail division specialist, regional manager of the co-op's Northeast and Southeast divisions, and the manager of its Retail Plus member consulting program. Zoller, an MBA whose career includes stints with a retail home improvement dealer and a plumbing distributor, plans to use the next two or three months to consider his options, including those that might take him outside of the industry. Zoller said he would seek counsel from an executive and long-time associate whom he described as a "career guru," but whose name he declined to provide. He noted, though, that he's probably leaning more towards opportunities in sales and marketing, and pointed specifically to a move made by former Do-it Best colleague, Dave Davis, who is now an executive with Aubuchon Hardware, the Massachusetts-based retail chain, as the kind of career change that appealed to him. Zoller and his wife, Vicky, would also prefer to live in the southern half of the U.S. When Zoller met with his staff on January 16 to tell them he was leaving, one of the reasons he gave, in the form of advice, was that workers, if they can, should "re-pot" themselves every decade. Zoller told Hardlines that he had been getting feelers from headhunters and other companies since last summer, and his decision to resign "came into focus" in early January. He said the co-op's president, Bob Taylor, was "extremely considerate" in trying to find another fit for him within Do it Best. "But I had decided my next move should be outside the company."
ST. JACOB'S, Ont. — Home Hardware's credit department is now online. While just over half of the co-op wholesaler's network of 1,000 co-op dealers across Canada have internet access, head office is not deterred. In fact, the new initiative is expected to speed dealer acceptance of the wireless world. Through its dedicated "intranet" system, called Home Xtra, dealers are now able to make claims and process returns electronically, reducing processing times from days and weeks to instantaneously. "It's suitable for dealing with all of our claims," says Tony Krotz, dealer education manager of Home Hardware Stores Ltd., "and that should encourage a lot of dealers to get on the internet." Krotz says about 50 dealers are already on the system, as part of a beta test that actually began last fall. Home is supporting the rollout with a series of three-day seminars at each of its three distribution centers across the country, in Debert, N.S., St. Jacob's, Ont., and Wetaskiwin, Alta. The program is being headed up by Ron Harwood, manager of Home's credit and returns department.
LAFAYETTE, Calif. — Central Garden and Pet, the marketer and distributor of consumer and professional pet and garden supplies perhaps best known for its Pennington Seed brand, has agreed to acquire the assets of New England Pottery, a Foxboro, Mass. company that is the largest supplier of decorative pottery in the Northeast and Mid-Atlantic states. New England is also a major distributor of Christmas lighting and other seasonal fare. Central has agreed to pay $69 million for new England Pottery, whose annual sales are around $75 million. In a prepared statement, Glenn Novotny, Central's CEO, said New England Pottery would be a good strategic fit with Central's Norcal Pottery brand. New England's founders will continue to run that company for Central, he said. For the fiscal year ended Sept. 30, 2003, Central's sales rose 6% to $1.15 billion, and its earnings increased 21.4% to $34.6 million. The company is projecting an increase in net income in 2004 of between 16% and 21%.
Falcon Lake, Man. — According to Greg Nichol, who owns Lumber One Building Supplies Ltd., a Sexton dealer in this town in eastern Manitoba, he's selling "nothing!" Like many parts of Canada and northern parts of the U.S., Falcon Lake has been hit by incredibly cold weather over the past week, with temperatures here reportedly the second-coldest in the world. Last Tuesday the thermometer dropped as low as -41 C (-42 degrees Fahrenheit). "On days like this, we even give the hot chocolate away," Nichol adds.
Canadian Tire 43.32 27.85 41.00
Canfor 12.79 7.60 12.25
Costco 39.02 27.00 36.94
Goodfellow 15.65 9.75 15.55
Home Depot 37.89 20.10 35.47
Hudson's Bay 12.97 7.75 12.82
Lowe's Cos. 60.42 33.37 53.55
Rona Inc. 31.80 11.75 30.55
Sears Canada 21.50 13.60 17.50
Sodisco-Howden 3.35 1.30 2.93
Taiga Forest 8.10 6.30 7.80
Wal-Mart 60.20 46.25 53.85
West Fraser 39.99 29.25 36.30
NASHVILLE, Tenn. — Tractor Supply Co. reported a 4Q net sales increase of 18.5% to $388.5 million from $327.9 million last year. Same-store sales increased 9.6%, versus last year's increase of 6.2%, reflecting strong sales of livestock and pet products, continued growth in seasonal, hardware and tool categories. Net income increased 32.7% to $16.9 million, compared with net income of $12.7 million in the fourth quarter of 2002. During the quarter, the company opened two new stores, relocated six existing stores and closed one store. For the year, net sales increased 21.7% to $1.473 billion, compared with $1.210 billion in 2002. Same-store sales increased 7.0% for the year. The company opened 31 new stores in 2003.BURNABY, B.C. — Taiga Forest Products saw sales for the three months ended December 31, 2003 rise 20% to $244.0 million, while earnings were $1.82 million, compared with $364,000 last year. For the nine-month period, sales were $808.7 million, with earnings of $6.8 million, up from sales of $702.9 million and earnings of $8.5 million last year. The prior year included the reversal of a $13.6 million countervailing and anti-dumping duty accrued liability. MEMPHIS, Tenn. — When Orgill hosts its Spring Market February 12-14, the event will be held in Orlando, Fla. for the first time since 1999. It's also moving into a brand new one-million-sq.ft. convention center there. According to Steve East, Orgill's director of advertising, "Tampa became too small and we took every square inch of that building. Our plan is to go back to Orlando for the next few years in the spring." Hoffman Estates, Ill. — Sears Roebuck earned $2.7 billion in the fourth quarter ended January 3, up from earnings of $848 million a year earlier. The results include a pre-tax charge of $791 million from early debt retirement and a pre-tax gain of $81 million from the sale of its National Tire & Battery business. Quarterly revenue rose 3.6%, while same-store sales fell 2.1%. VANCOUVER, B.C. — After a long struggle under bankruptcy protection, Doman Industries has submitted a new restructuring plan to get out of creditor protection. That restructuring will leave the Doman family, which founded the company in 1955, without an ownership stake. Under the plan, Doman's unsecured bondholders will convert about $750 million in debt into new equity in the revamped company. Another $250 million will be refinanced in secured notes. Existing shareholders of Doman will not get an equity stake in the restructuring. TORONTO — Sears Canada reported net earnings for 2003 of $134.7 million, up from $52.2 million in 2002. Annual operating earnings totalled $140.9 million, compared with $138.7 million. Total revenue for the year was $6.22 billion, down from $6.5 -billion the year before. Same-store sales for the year were down 4.6%. For the quarter ended January 3, Sears had net earnings of $96.9 million, down from $134.4 million. Glenview, Ill. — Illinois Tool Works earned $286.9 million in its fourth quarter, up from $227.9 million a year earlier. Sales rose to $2.63 billion from $2.43 billion. Revenue that was not generated through acquisitions, often referred to as organic sales, increased 0.4% after falling 2.9% in the third quarter. ITW acquired five companies during the fourth quarter, adding annual revenues of $32 million. Fourth-quarter net income increased to $283.3 million from $223.0 million. ATLANTA — Georgia-Pacific Corp. and KoCell LLC, a wholly owned subsidiary of Koch Industries, have signed a letter of intent for Koch to acquire Georgia-Pacific's non-integrated fluff and market pulp operations for $610 million, which includes assumption of $73 million of debt. The sale, which is subject to regulatory approvals, is expected to be finalized 1Q 2004. The estimated after-tax cash proceeds will be $535 million. Georgia-Pacific will use proceeds from the sale to repay debt. CHICAGO — Blaming high costs, the National Restaurant Association may be the next group to pull its trade show from McCormick Place and move to another city, possibly Las Vegas. That's where the National Hardware Show has moved for the first time this year.
Jim ThorogoodSASKATOON, SK — Jim Thorogood, head of Totem Building Supplies, was awarded the Industry Achievement Award for 2003 by the Western Retail Lumber Association during its recent show and gala. As head of the 14-store chain that figures prominently in the Alberta market, Thorogood has grown the company into one of the 10 leading home improvement chains in Canada. Totem had sales last year of about $225 million. (Picture courtesy of Raylene Design Studio)
Tractor Supply Co. has appointed Edna Morris to its board of directors. The addition of Morris, age 52, expands the board to 10 members and increases its independent membership. Over the past three decades, Morris has served in numerous management and leadership capacities in the restaurant industry, most recently as president of Red Lobster, a chain of 675 seafood restaurants.Tom Donaldson has been appointed president of CanWel, replacing Bernie McSherry, who retired on January 13. Previously, Donaldson was vice-president and general manager for Western Canada. He has been with the LBM distributor more than eight years and was with Emco Distribution prior to joining CanWel ... Other changes at CanWel: Rick Royce, previously vice-president commodity sales, is now vice-president sales ... Andrew Allen has been named director of applied management. He was previously director of flooring products ... Rocco Di Pasquale no longer with CanWel. With a new boss in place (former Home Outfitters general manager Bill Morrison), TruServ Canada has aggressive growth plans, which include newly expanded roles for two of its key executives. Tony DiEmanuele has been promoted to vice-president, business development and growth, leading all growth activities of the company. He will create a national growth team and develop a "National Growth" charter. He will be headquartered in TruServ's Kitchener, Ont. office. (519-893-8383) ... Ray Falkenberg has been named vice-president, sales, operations & member relations. Ray will create the national sales team, the national store support organization, and store project groups. He will be headquartered in the Winnipeg, Man. office. (204-453-9643) Roger Detter has been appointed senior vice-president and general merchandising manager at Sears Roebuck, where he will be responsible for home fashions, hardware and paint, lawn and garden, recreation and automotive. Formerly vice-president, general merchandising manager, full line stores for Sears' Western region, he reports to Mark Cosby, president, full line stores.
According to the Congressional Budget Office, the U.S. government will spend $477 billion more than it takes in during fiscal 2004, which ends March 31. But the deficit is expected to fall to US$362 billion in 2005. "At 4.2% of the nation's gross domestic product, it would represent a smaller share of the economy than the deficits of the mid-1980s and early 1990s," CBO said.
Retail sales fell 0.3% in November to $26.3 billion, after remaining essentially flat in October (+0.1%). This is a bigger drop than expected by many analysts. Even though the majority of retailers experienced sales increases in November, lower demand for motor vehicles pulled down total retail sales. Excluding sales by motor and recreational vehicle dealers, retail sales advanced 0.6% in November. Cumulative retail sales for the first 11 months of 2003 were 3.3% above those in the same period of 2002.Wholesale trade in November dipped 0.1%, says Statistics Canada. While seven of the 11 wholesale groups tracked showed increases, including household goods, lumber and building materials were among the categories that dragged the overall rate down in November. Wholesale inventories fell 0.3% in November, after a sharp rise in the previous month.
Hardlines will host a special Networking Lunch for North American vendors to meet Europe's top buyers. It will be held at the International Hardware Fair/Practical World fair in Cologne, Germany on Monday, March 15. For more details, call Bev Allen at 416-489-3396 or

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