John Caulfield, Contributing Editor
 vol. x, #3 January 19, 2004

IN THIS ISSUE: * Totem plans second contractor yard * Home Depot goes big — and small * National Hardware Show faces lawsuit * TSC beefs up management, poised for further growth * Lowe's looks for mid-sized markets * Bering straight on cross-over, specialty sales

* * * * * * MARK YOUR CALENDAR FOR THESE INCREDIBLE EVENTS IN 2004: • Cologne International Hardware Fair/Practical World, March 14-17 (including the Amazing Hardlines Canada Night Reception, kindly sponsored by Koelnmesse); • Our mind-blowing Meet the Buyers Seminar on April 28; • International Hardware Trends, two seminars by Hardlines at the National Hardware Show in Las Vegas, May 10-13; • Industry Update and Networking Event, Toronto, June • The Hardlines Conference Series, September 8-9, including the Hardlines Gala Dinner on the evening of September 8.
"Success is a journey, not a destination." — Vince Lombardi
ATLANTA — Home Depot executives used the broadcast of a conference it held for analysts and investors on last Friday to trumpet improvements to its front-end operations in 2003, and to reveal how investments this year in information technology are expected to streamline the receiving and tracking of inventory into its stores.During the conference, company officials touched on a wide range of topics — including store modernization (for which it will spend $810 million of their capital expenditure budget of $3.7 billion in 2004), merchandise resets and global sourcing, international expansion, installed sales and selling to builders — all of which funnel into three fundamental strategic tenets: to enhance its core business with the goal of increasing transactions and average sales; to extend its business with new formats, categories and services; and to expand into new businesses where Depot currently has minuscule market penetration. The company estimates that its revenue for fiscal 2003, which ends on January 31, will total $64.5 million, representing an 11% increase over the previous year. It expects its sales in 2004 to grow between 9% and 12%. Officials raised their earnings per share estimates for 2003 to $1.86, or around 18% higher than in 2002, and projected that earnings per share in 2004 would rise 10% to 14%. Home Depot opened 175 stores in 2003, and will open 175 in 2004 — including 25 stores that previously had been scheduled to open in 2003. It will open 14 new stores in Canada, but does not plan to open any Expo Design Centers in either Canada or the U.S. in 2004. Home Depot officials commented repeatedly on their company's investment in technology, and how it has produced significant improvements to profitability, productivity and people management. Its Front-End Accuracy & Service Transformation (FAST) program introduced a new, more sophisticated point-of-sale system throughout the chain last year. Store managers now have at their disposal an electronic workload management system to help them prioritize and schedule the tasks of their associates. In the second quarter of 2004, Home Depot intends to roll out what it's calling its Back-End Automation and Re-Engineering program, or BEAR, which will include wireless scanned receiving and data capture capabilities, and a bar-code optimization process that will be linked to the stores' POS systems and eventually be integrated with vendors' databases. "You should expect us to continue to invest in technology, modernization and our associates, " said Home Depot chairman Bob Nardelli.
Amidst the evolution of the National Hardware Show into a new home in 2004, NHS is faced with stiff competition from the American Hardware Manufacturers Association, which is launching a show of its own in Chicago — and now a lawsuit against rival Reed Exhibitions, which owns NHS. The AHMA Hardware Show will be held in Chicago's McCormick Place, traditionally the home of NHS before Reed made the decision to move the show, based in part on rising costs and falling attendance.The AHMA suit, which seeks some $10 million in damages, claims Reed has inflated its exhibitor numbers and damaged AHMA's position. According to Robert Cappiello, vice-president of the National Hardware Show, AHMA's lawsuit is "absolutely without merit — front to back." The suit contends that Reed inflated costs to exhibitors through cost-shifting of free goods and services, and that Reed demanded and received kickbacks. AHMA says Reed infringed on its trademarks, and that it continues to promote false and inflated exhibitor and attendee information and statistics for their 2004 show. However, Cappiello insists he has signed contracts for all his exhibitors, which totalled 1,717 last week. "I really think this a desperation move," he continues. "The industry has figured out that we have a better deal, a better show." Tim Farrell, president and CEO of the AHMA, disagrees. "Concerning 2004, we're winning," he says. "We have virtually every leading brand manufacturer in our industry across product categories, and the exclusive support and endorsement, and commitment of full attendance and participation from our industry's buying organizations." However, an examination of exhibitor lists from both shows failed to turn up a number of major vendors, including Bosch, Black & Decker, Makita, or Newell Rubbermaid. Tim Farrell took over recently as head of the AHMA from his father, Bill Farrell, who remains as vice chair of the association. The lawsuit was filed by another son, William Farrell Jr., a partner at Gardner, Carton & Douglas, which acts as outside general counsel for the AHMA. It's may be too early to tell which show will be the winner, but so far NHS, which will be held May 10-12, 2004. is being unabashed about its numbers. As of the end of this past week, it had 1,717 exhibitors registered for Las Vegas, filling almost 400,000 sq.ft. of space. In fact, it is looking for additional space in the host venue, the Sands Convention Center, to accommodate demand. "We're not interested in playing a numbers game with a company who admitted to promoting false and inflated exhibitor information and statistics by including "undecided participants,' which they continue to do," says Farrell. AHMA won't release the number of exhibitors that are registered for its show, but they are listed on the AHMA's website. A quick count indicated close to 450 exhibitors.
BOUCHERVILLE, QC — Watch for another major play by Rona Inc. in the second half of 2004. That's the message from Robert Dutton, Rona's president and CEO. In an interview with Hardlines, he explains that a large acquisition could materialize in Western Canada, and/or the signing of a major dealer out West. Dutton points out that 50 dealers from the West attended the retail distributor's dealer show back in November, and the opening of Rona's new Calgary distribution center in the spring all reflect the company's growing focus on building its presence west of Ontario. Rona established itself in Western Canada with the acquisition of Surrey, BC-based Revy Home Centres, and have recently been rebranded Rona stores. Rona also bought Réno-Dépôt, a chain of 20 big boxes in Quebec and Ontario, in a deal that closed last September, adding about $836 million in sales and bringing Rona's 2003 sales to almost $4 billion.
LONDON, ON — Bill Wilson, formerly vice-president and general manager of Sodisco-Howden Group's Howden Division, has joined TSC Stores as merchandise director. He's just the latest in a list of former Howden people who have beefed up the ranks of TSC over the past two years. And it's all part of a strategy, says TSC president Roy Carter, to strengthen an already well-run company to reach new levels of growth. Wilson, a 30-year veteran of Howden, takes over the position formerly held by Dave Street, who was merchandise manager of TSC — and a partner — until the company was sold off last year. Street will take a hiatus, then return on a contract to help guide TSC's merchandising team, especially on the seasonal side. Carter says the expansion of management gives the company the expertise to keep growing. Sales have increased more than 30% over the past three years, and sales for the current fiscal year, which began in September 2003, are already up more than 16%. Sales last year exceeded $80 million, and Carter says he's targeting $90 million this year. In addition, the company plans two more store openings this year, Essex, ON in March and Goderich, ON in September, which will bring TSC's store count up to 23. He also wants to open three stores by spring 2005, and will begin scouting out locations next month. Other Howden alumni now working for the Ontario-based farm and hardware chain are Rick Larochelle, wholesale operations manager; Warrren Parr, TSC's purchasing manager; Randy Chenier, working for Parr as purchasing assistant; Lois Stacey, warehouse supervisor; and Bill Gunton, a junior buyer. TSC has also tapped King Allaster, who served as CFO of Howden for many years, on a contract basis.
CALGARY — Just one week after opening its 14th building centre, Totem Building Supplies has revealed to Hardlines that the Alberta-based home improvement retailer has begun to develop a new contractor sales office. The site, which is in the process of being secured, will be the second office in the chain devoted strictly to pro customers. The first one is attached to Totem's head offices, also in Calgary. Totem, with sales of about $225 million, is one of Canada's top 10 home improvement retailers, and one of the largest truly independent chains extant in the country. Its customer base largely DIY, but it also services a strong contractor customer base with its outside sales force. The new contractor sales office is expected to be open by fall 2004.
HOUSTON — August Charles Bering III, who over the second half of the 20th century transformed his father's lumberyard here into one of the industry's unique hybrids, died of kidney failure at the age of 90 on January 7. His legacy is the three-unit Bering Home Center chain, a retail company that is constantly reinventing itself to compete in this sprawling, amorphous market, where there are now 24 Home Depots and 19 Lowe's within a 30-mile radius of Houston's downtown location.Bering ran the company from 1943 until he semi-retired in 1993. During that period, he took over what, at the time, was a single conventional lumberyard and added a hardware store in 1957, gifts in the '60s, housewares in the '70s and coffee and gourmet products in the 1980s. "Since my dad died, I've had time to reflect on what I've learned from him, and I've come to realize that if we had stayed a lumberyard, we would not be here today," says August Bering IV, the company's CEO and owner, in an interview with Hardlines. The Bering's chain sells a full complement of hardlines and home improvement products in all three stores, but last year the dealer discontinued the lumberyard operation at its headquarters store to allocate more room to furniture and gifts. It has also expanded its baby products department over the past six months. A store in San Antonio that Bering's purchased in 2000 has made a name for itself over the years for its tea room — complete with chef. The company did not release its sales, but Hardlines estimates that Bering's generates about $26 million annually from those three outlets.
ATLANTA — Still playing with its retail formats, Home Depot is opening both big and small stores. A Home Depot outlet in the Atlanta area has been renovated, and offices that once were home to its now-merged Eastern division have been turned into selling space. The reno has added 40,000 sq.ft. of retail, bringing the store's size to 176,000 sq.ft. in total, compared with the typical Home Depot store, which weighs in at around 115,000 sq.ft. plus another 20,000 sq.ft. for its garden center. The result is Home Depot's second-largest store (the biggest one is in Seattle). Meanwhile, a store opens next week in Brattleboro, VT, which, at 65,000 sq.ft., is among the smallest in the chain. But unlike the other small stores, this one is not a new-concept "urban" store, designed for downtown markets. Rather, it's a traditional format, and expected to be much the same as the former Villager Hardware store in New Jersey, which was converted back to a regular, albeit downsized, Home Depot, after the Villager experiment was terminated. The new Brattleboro store, which opens January 22, will be the third Home Depot store in Vermont. A fourth store in the state is scheduled to open in Bennington sometime in the future. Home Depot spent more than $4 billion upgrading existing stores in 2003 and plans to open 175 new stores in fiscal 2004.
MOORESVILLE, NC — Lowe's Home Improvement Warehouse plans to open 150 stores in 2004, with a focus on metro markets like New York and Atlanta. But it appears that the industry's second-largest dealer, in its ongoing quest to establish itself as a national retailer, is not forsaking midsize markets, or those that fill in its presence in larger ones, at least on the basis of its expansion plans.Lowe's is building a 134,000-sq.ft. store on 13 acres in Glen Carbon, IL that will open later this winter. Although the community is within the metropolitan boundaries of St. Louis, it has a population of only 10,500. The store has encountered some local opposition because of its proximity to a Home Depot, a Sears Hardware and a Goshen Do-It Best. The town of Hadley, MA, in the west central part of the state 22 miles north of Springfield, was scheduled to vote on Saturday, January 17, on whether to rezone an 18-acre plot along busy Route 9, which is currently being used as part of a bison farm, and allow Lowe's to build. Last month, the town of Madison, MI, near Jackson, approved plans for Lowe's to build 130,000-sq.ft. store across the street from a Wal-Mart there. The Lowe's would be part of a 25-acre development that will include a 16-screen movie theater complex. The retailer has also presented a proposal to the planning commission in Wheeling, W.Va., for a 165,000-sq.ft. store on 15 acres, which could begin construction this summer. This store would be part of the proposed Wheeling Gateway Center. Lowe's is looking at virtually every market, large or small, into which it might expand, and that size may be less important to the company right now than market share — and making sure it can go head to head against Home Depot in many of these markets.
Canadian Tire 42.60 27.85 41.99
Canfor 11.68 7.60 11.45
Costco 39.02 27.00 37.07
Goodfellow 15.00 9.75 14.75
Home Depot 37.89 20.10 34.94
Hudson's Bay 12.97 7.75 12.15
Lowe's Cos. 60.42 33.37 52.89
Rona Inc. 31.80 11.75 29.50
Sears Canada 21.50 13.60 16.92
Sodisco-Howden 3.35 1.30 2.93
Taiga Forest 8.10 6.30 7.80
Wal-Mart 60.20 46.25 53.48
West Fraser 39.99 29.25 37.73
ST. JACOBS, ON — On the eve of its 40th anniversary, Home Hardware Stores Ltd. managed to reach a record-breaking $3.8 billion in sales through its nearly 1,000 dealers in 2003. Thanks in part to the acquisition of 105-store Beaver Lumber in 1999, this is double its volume of only six years ago, when retail sales hit $1.9 billion.VERNON HILLS, IL — Time's up, and Wickes was only able to round up 50.8% of noteholders to exchange their notes, far below the 90% hoped for. That leaves Wickes seriously short of cash in the event of a liquidation. MONTREAL — Domtar Inc. and Gogama Forest Products Ltd. have formed a 50-50 joint venture to create a fully integrated sawmill, kiln, and planer operation in Northern Ontario. Gogama brings the Ostrom Siding sawmill to the new company while Domtar contributes a dry kiln and its stud planing line at Nairn Centre. The planing line will be modernized at a cost of $2.6 million. SAINTE-MARIE, QC — Bath products manufacturer MAAX Inc. had sales of $160.2 million in its third quarter, up 4.7% over $153.1 million in the same quarter a year earlier. Net income totalled $8.3 million, compared with $9.8 million. The decline was due in large part to $4.7 million in non-recurring items. Not including these non-recurring items, net income grew by 15.7% to $11.4 million or $0.47 per share, and the net margin rose to 7.1% from 6.4%. BERLIN — Retail giant Metro Group will move ahead with plans to implement radio frequency identification tagging in its stores. About 100 of its top suppliers will begin attaching RFID tags to pallets and packages of goods headed for 10 Metro central distribution warehouses and 250 stores beginning in November. The company wants the system in all its 800 German stores by 2007. CHICAGO — Kmart Holding Corp. has acquired a 1.5-million-sq.ft. warehouse it had previously leased in Manteno, about 50 miles south of Chicago.
Charleston, SC — George MacConnell, who spent 25 years running Georgia-Pacific's distribution division, has been named president and CEO of Terranova Forest Products, a subsidiary, based here, of Terranova S.A., a Chile-based forester.From June 2000 through early 2003, MacConnell, 56, had been CEO and chairman of Denver-based USBuild, which provides products and labor to large production builders. He also did consulting work with FMI Capital and was involved with developers who were trying to start up a whole-house building operation in Denver called Cohen Brothers Homes. Financing for that venture fell through, says MacConnell, which is why he decided to accept Terranova's offer. MacConnell is taking the reins of a company whose parent makes solid pine interior doors, finger-joint pine and medium-density fiber molding. Over the next three years, the Chilean plantation that the parent company operates is expected to yield "substantially more product," and MacConnell says he's been charged with finding more buyers for that product in North America. "We need to identify what those markets are and to figure out the logistics," MacConnell told Hardlines. He expects Terranova's primary customers to be distributors and OEM suppliers. He added that Terranova's products would have an advantage in the market because they have been certified by the Forest Stewardship Council.
Wayne Westbrook has been appointed director of sales, consumer markets for OSRAM Sylvania. A seven-year veteran of the company, he was formerly national marketing manager for consumer markets. He replaces Eric Roberts, who left at the end of 2003. (905-671-5617)Wickes Inc. has elected James O'Grady, Wickes president and CEO, to the company's board of directors, following the resignations of Claudia Slacik and Jon Hanson from the board. The company says it had no disputes with the resigning directors. (847-367-3552)
Retail sales rose in December, says the U.S. Commerce Department, but not as robustly as expected. Overall sales were up 0.5%, and not including auto, they were up only 0.1%, compared with a gain of 1.2% in November. However, year over year, sales were up 6.7% and total sales for 2003 were up 5.6% from 2002.For the third quarter of 2003, large retail corporations with assets of US$50 million and over reported sales increases overall of 3.7% from the previous quarter and up 8.9% from 3Q 2002, the Commerce Department's Census Bureau reports.
The value of building permits dropped for the third month running in November, says Statistics Canada. Builders took out $4.1 billion worth of permits, down 3.9% from October, and down 5.0% from the month before. However, housing permits edged up 0.4% to $2.8 billion, driven mainly by multi-unit projects. The value of permits for single-family homes declined marginally from September's record level of $2.0 billion.Investment in Canada's non-residential building construction remained virtually unchanged in the fourth quarter, down only 0.3%, reports Statistics Canada. However, the dip follows a record level in the previous quarter, and is up 5.7% from 4Q 2002 to $6.6 billion. For the year, non-residential construction produced a total annual investment of $26.0 billion, an increase of 5.7% from 2002. Even after the record-breaking sales levels of 2002, Canada's housing market increased again in 2003, as the number of homes sold increased 3.8%, says the Canadian Real Estate Association. A total of 307,505 new and existing homes were sold, and records were set in a number of markets, including Vancouver, Toronto and Montreal.
At the Canadian Hardware Show on February 1 in Toronto, delegates can stick around at the close of the show to join in a "Super Bowl" Party right on the premises. It will be an innovative way for delegates and exhibitors to network, without missing the big game. Cost is only $25. For more information, contact CHS at 905-821-3470.

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