Home Depot's growth will focus on wholesale, services side

NEW YORK-In a presentation yesterday to investors and analysts, Home Depot unveiled its growth targets for 2010. Over the next five years, the company expects to open up to 500 more stores. But it also plans to become America's largest diversified wholesale distributor and become number one in services. It also intends to increase dramatically. The news, delivered by Home Depot CEO Bob Nardelli, underscores what Hardlines has identified in recent months: increasing maturation of the big box home improvement market has Home Depot turning to other channels to maintain growth. The openings, at fewer than 100 per year, are considerably less than the rate of openings Home Depot has maintained in recent years-usually 175-200. In fact, during Nardelli's first five years with Home Depot, 941 stores were opened. (At the peak of its growth curve in the early '90s, the world's number-two retailer was opening a new store every 36 hours.) So scaling back its anticipated openings makes sense. No surprise then, that the emphasis is turning to Home Depot's wholesale business, including its commercial and industrial side. That, plus at-home services and its direct-to-consumer channels, will provide the most dynamic growth over the next five years. Nardelli said this strategy would enable the company to maintain growth of 9-12% annually, continuing the strong growth of the past five years, which totaled 76% from the time he took over the company. "Over the next five years, The Home Depot expects to maintain and grow its leadership position in home improvement retail worldwide," said Nardelli. "At the same time, we expect to become the nation's largest diversified wholesale distributor, become number one in services and will dramatically increase our direct-to-consumer channels. Our 2006 initiatives demonstrate that we are well on our way to accomplishing our 2010 goals." The increasing do-it-for-me trend continues to drive double-digit growth in Home Depot's services business. By 2010, the company expects that 5-6% of its sales will come from services, considered a $110 billion market opportunity. Home Depot is also banking on its "direct-to-consumer channels", namely its online initiatives. Leading the charge is homedepot.com, but its high-end Expo concept, which is losing ground as a retail entity, is gaining momentum through two specialty high-end sites, 10 Crescent Lane, which focuses on furnishings and décor items, and Paces Trading Company, (PacesTrading.com), a specialty site focused on high-end lighting products for more affluent consumers. These enterprises are generating impressive results, says Home Depot. The online business attracts much larger average transactions than in-store, as shoppers can enjoy low- or no-cost delivery on large items such as snow blowers. Online sales doubled last year, and more than three million shoppers visited the company's online properties each week company wide. Home Depot believes that its direct-to-consumer division has the potential to grow into a billion-dollar business by 2010.

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RONA's installed services will expand in West

BOUCHERVILLE, Que.-Installed services, though lagging behind its major competitor, Home Depot Canada, will continue to be important for RONA in 2006. The program is running in its stores in Ontario and through its big box stores, and about 35 traditional stores, in Western Canada. Watch for the installed side to be rolled out to traditional stores in Western Canada over the next two months, however. RONA has been gearing up for a widespread installed sales program for some time, but the news that Home Depot is banking on wholesale and at-home services as a key part of its growth strategy (see lead story, this issue-MM), makes RONA's timing all the more apt. In Quebec, installed sales will be up and running between March and July, beginning with doors and windows, then flooring, and finally kitchens. This business represents about 0.5% of RONA's sales, compared with Home Depot, which generates about 6% of sales from installation services. Sylvain Morissette, spokesperson for RONA, says the network will be built locally. "As for the Installation program, we will use small local vendors depending on the area, and also we look for larger install companies to look after larger regions." CLARIFICATION: RONA's neighbourhood, or proximity, stores will play an important role in the company's expansion plans. These stores feature some big box features, but squeezed into 40-50,000 sq.ft. RONA's urban store in Richmond, B.C., reflects some of the neighborhood store's elements, although, at 75,000 sq.ft., it's closer in size to a traditional big box. Those neighbourhood stores will open this year in Alberta, in Spruce Grove (40,000 sq.ft.) and Leduc (52,000 sq.ft.). In Manitoba, a neighborhood store (50,000 sq.ft.) in Winkler will open Jan. 27, 2006.

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Technology drives innovation buyers seek

SPECIAL REPORT-Advances in lithium ion (Li-Ion) batteries-which provide better energy-per-weight ratios than conventional rechargeables-are fuelling competition among manufacturers who want to capture the lucrative professional and high-end consumer market for cordless tools. Milwaukee has been touting the benefits of Li-Ion batteries in its 28-volt cordless tools for about a year. Now it's adding four new tools to the line-up: a rotary hammer, right-angle drill, job-site radio, and metal cutting saw, all of which will be introduced to the Canadian market in the second quarter of this year. Milwaukee will be up against DeWalt's new line of 36-volt cordless tools, which was unveiled last week in Markham, Ont., and is also expected to hit Canada later this year. DeWalt partnered with A123Systems to develop a new generation of lithium ion batteries, which, it says, will increase productivity and efficiency on the job-site. The new line will include a hammer drill, reciprocating saw, circular saw, impact wrench, rotary hammer, jigsaw, flashlight, and combo kits.

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TruServ will treat Pro banner differently

WINNIPEG-The re-organization of CanWel's Sodisco-Howden acquisition has meant some recent changes, including renaming that business as CanWel, Hardware Division. The hardlines distributor's designated banner program, Pro, has also undergone some changes, being managed now by TruServ Canada within a new alliance between TruServ and CanWel. Pro joins TruServ's existing stable of dealer programs, which includes its fast-growing Country Depot banner, plus V&S Variety, a junior department store/general store format. But it's also in with TruServ's flagship, True Value, which competes directly, in format if not geographically, against Pro. "We recognize the distinctness of the banners and the need to focus on brands," says Bill Morrison, president and CEO of TruServ Canada. "The Pro brand needs a focus," he says, which will be the objective of TruServ's merchandising team, headed by Terry Derraugh, vice-president merchandising. And even though Pro and TruServ have product mixes and target customers in common, Morrison says the two brands are distinct, and those distinctions must be recognized. Here, Morrison has taken a page from the book of grocery giant Loblaw's, which managed a number of banners, including Supercentre and Loblaw's. "Loblaw's challenge-different stores attuned to different demographic segments of the market-resulted in the need for different programs and different brand support." Ace dealers, who have been hanging in throughout the changes, are getting the attention they deserve, Morrison adds. "We start with the customer and spent the last several weeks listening and seeking to understand where those dealers want to take the business."

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Builders show breaks attendance records

Orlando, Fla.-The International Builder Show solidified its ranking as one of the nation's largest trade shows last week, when the four-day event drew 105,263 attendees, a 3.3% increase over 2005, and a record total for this convention. According to data released by the National Association of Home Builders, which sponsors the show, this year's event also cracked records for net exhibit space sold (967,000 sq.ft.), and total space used (1.5 million sq.ft.). The Orlando/Orange County Convention & Visitors Bureau estimated the economic benefits to the community from the show would top $122 million. This was also the most people the Orange County Convention Center has ever drawn for a trade show, which was a double-edged sword because this facility did not have anywhere near enough parking to accommodate both this show and another event for surfing equipment that was occurring simultaneously in another hall. Several exhibitors said that traffic on the floor during the first morning of the show was unexpectedly light. But as the convention progressed, most booths and aisles were jammed with builders, distributors, dealers, manufacturers and other industry officials. Several manufactures-including Kohler, Whirlpool, and Andersen Window-took gargantuan booths that tested attendees' tolerance for sound and commotion. Several dealers turned their exhibit space into showcases for their suppliers' products: both Lowe's and Home Depot had enormous exhibits swarming with visitors, in which a wide range of preferred vendors made presentations about their products at different times during the day. This was the second year that Ace Hardware's LBM division allowed vendors to show product in its booth. Amy Pellerito, who runs this division for Ace, said exhibiting at IBS "is all about the brand, to tell people that we have a network of over 800 lumber dealers." She noted that Ace's percentage increase in sales in 2005 was its highest since 1999, and she attributed that partly to the co-op's re-entry into commodities distribution.

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