John Caulfield, Contributing Editor
vol. xi, #28, July 11, 2005

IN THIS ISSUE: • Home Depot buys fastener supplier • BMR back in business following warehouse fire • Women spend big bucks at building centres • Big boxes attract outdoor living shoppers • Koelnmesse tightens link with China show • Taiga rethinks conversion strategy • Pro dealers still tops with builders * * * * * *

“An honest man’s the noblest work of God.” — Alexander Pope (1688-1744)
LONGUEUIL, Que. A fire that broke out last Tuesday has destroyed Groupe BMR’s warehouse here. But the privately owned wholesale buying group is already back up and running from makeshift offices nearby. The blaze, which started at around 5 p.m. on July 5, burned into the early hours of the morning, resulted in two injuries and forced about 100 people from homes surrounding the building. The injuries were minor, notes Dunc Wilson, director of hardware for BMR. Both people are back on the job, having suffered only superficial burns. Members of the BMR board met the following day at a Montreal hotel to map out a strategy for coping with the fire. The hardware distribution centre and head offices were razed by the fire, while the company’s building materials distribution facility, at the back of the property, and its fleet of trucks, were untouched. That hardware warehouse and offices were a recent addition to BMR’s infrastructure, representing a $3.2 million expansion in early 2003, and a serious investment in BMR’s own hardware wholesaling operations. That investment resulted in the formation of Quincaillerie Matreco Hardware, which ships hardlines to dealers beyond BMR’s own membership of 125 stores. While the cause of the fire remains unknown, a number of people onsite say that a chlorine tank, which fell off a skid while being moved by a lift truck, may have been the culprit. As of today, however, BMR has relocated its offices to a space near the existing warehouse, and product is being shipped through a combination of methods. Another warehouse, in nearby Boucherville, will provide some backup distribution, while a number of suppliers will operate on a direct ship basis with many of BMR’s customers in the interim. “We’ve recovered pretty well with our team and our supplier partners,” says Wilson, “so we’ll be back in business [today].”
TORONTO Home Depot has signed an agreement to acquire Brafasco, an industrial supplier of fasteners to the manufacturing and construction markets. Based in Brampton, Ont., it has 21 branches in Southern Ontario and three in the United States – in Michigan and Illinois. Brafasco will become part of Home Depot Supply, under Ron Turk, president of Home Depot Supply Canada, and be connected to Home Depot’s U.S. Retail Trade division, a unit of Home Depot Supply.Brafasco joins the growing ranks of acquisitions by Home Depot on both sides of the border that are aimed at bolstering its growing professional customer business. Back in January, Home Depot’s Canadian division purchased Litemor, a commercial lighting supplier based in Montreal. The Brafasco acquisition gives Home Depot Supply an expanded product line – and an estimated $25 million in sales – and will leverage Home Depot’s sourcing capabilities. Terms were not disclosed and completion of the transaction is subject to customary conditions. The deal is expected to close in a matter of weeks.
SPECIAL REPORT While big boxes remain the destination of choice for moderately sized purchases, women who shop for home improvement products tend to spend the most at building centres and lumber yards.According to the latest “Women in Home Improvement” an ACNielsen report in Hardlines’ sister publication, Hardlines Quarterly Report, when it comes to small purchases of between $11 and $20, women prefer big boxes and building centres almost equally (16% and 15% respectively). For moderately sized expenditures of $21-$50, 42% of respondents chose a big box to shop at, versus 37% who chose building centres. However, on purchases of $51-$100, the gap narrows again, as 27% of women chose a big box, and 25% chose a building centre. For big-ticket items ($101+), women chose building centres most, with fully 20% shopping there, versus 14% for big boxes and 7% at the neighbourhood hardware store. Canadian Tire proves it really is the store women prefer to “start with,” rather than end up at for big purchases, as 27% of women polled spent $11-$20 there. However, when it comes to spending more than $100, only 5% of respondents chose Canadian Tire, compared with 14% for big boxes and 20% for building centres. “Women in Home Improvement” is an exclusive survey of 7,800 women across Canada by ACNielsen. It appears in the latest issue of Hardlines Quarterly Report. For more information, or contact Isabel Bisong:; 416-489-3396.
BURNABY, B.C. Once the domain of real estate and energy sectors, income trusts are catching on with other sectors, as well. The building materials industry is just the latest to jump on the bandwagon, with the recent successful conversion of CanWel Building Materials Income Fund raising $125 million in an IPO. Taiga Forest Products Ltd., a major competitor to CanWel, has itself been pursuing a corporate structure as an income fund, but market conditions have forced the company to alter its conversion strategy somewhat. The principal elements of the original conversion transaction previously included the exchange of all outstanding Taiga common shares for stapled units of Taiga Building Products (“New” Taiga) and the concurrent treasury offering of stapled units by New Taiga and secondary offering of stapled units by Taiga’s two key shareholders. The company will go ahead with its plan to convert to an income fund-like trust, but based on current market conditions, the board has withdrawn its planned treasury offering of stapled units by the new company, to prevent “an unacceptable dilution to existing shareholders,” according to a prepared release. The secondary offering, by Taiga’s two major shareholders, has also been put on hold. One of those investors, 3Cs Investments Ltd., has withdrawn completely from the secondary offering. Taiga is continuing discussions with the other investor, Berjaya Group (Cayman) Ltd., regarding its desire to proceed with the secondary offering of stapled units. Based on Taiga's financial results for its fiscal year ended March 31, the transaction without a treasury offering would give New Taiga available cash of $36.3 million for distribution. After a holdback of $4.0 million (89% payout ratio), that distributable cash would total approximately $32.3 million and represent approximately $1 per New Taiga stapled unit. The proposed changes to the transaction are subject to regulatory and court approvals. If the secondary offering of stapled units proceeds, New Taiga intends to file an amendment to its preliminary prospectus dated June 2, 2005 as soon as practicable.
COLOGNE, Germany Starting in 2006, the China International Hardware Show will be operated by Practical World, the hardware and building materials show owned by international trade fair organization Koelnmesse GmbH. The two trade fairs recently signed a new contract pledging to intensify their cooperation in the future. Practical World Asia is the Asian spinoff of the world’s largest hardware show, International Hardware Fair/Practical World. It has operated in conjunction with CIHS in recent years. But starting in 2006, Koelnmesse will officially have equal rights as the joint owner of the event, which will be re-named “China International Hardware Show powered by Practical World.” “Combining the decades of experience gathered by the global market leader with CIHS’s outstanding knowledge of the market has made Practical World Asia/CIHS a major player in the world’s most dynamic market and lent it a highly international character,” said Oliver P. Kuhrt, executive vice-president of Koelnmesse. “By strengthening this cooperation, we are laying the foundation for further increases of exhibitors, visitors and exhibition space. That will bring major benefits for our customers in this booming economic region.” This year, Practical World Asia will be held in Shanghai from October 11-13, in tandem with CIHS for the third time. More than 1,500 companies are expected to exhibit, occupying almost 58,000 square metres of exhibition space – a 20% increase over last year’s show – in five trade fair halls at the Shanghai New International Expo Center. An estimated 38,000 visitors will flock to the two trade fairs over the three-day period. While most will be from China, about 15% will come from abroad, representing around 100 countries. In addition, the 49th World Hardware Convention, the international conference of the International Federation of Hardware and Housewares Association (IHA), will be taking place in Shanghai prior to PWA / CIHS. The IHA is an international organization for the global hardware industries. It currently has around 31,000 members from 17 countries. Visitors can register online for both shows free of charge at
NATIONAL REPORT — Custom homebuilders in the United States, which specialize in meeting the individual needs of buyers, expect the same treatment from suppliers. Catering to those individual needs, says a national survey, appears to be the best way that dealers catering to builders and contractors can compete.The survey, whose full results will appear in the September issue of ProSales magazine, polled 500 custom builders around America about their buying preferences. The survey found that more than 70% rated pro dealers “good” or “very good” for delivery, and two-thirds gave these dealers the same high rating for product knowledge and “overall service.”However, while pro dealers continue to get the bulk of these builders’ purchases in such commodities as lumber, drywall, housewrap and roofing, it is just as likely for these builders to diversify their sourcing with a wider range of suppliers, particularly for interior products like lighting, carpeting, tile and appliances. Pro dealers with showrooms definitely have a competitive leg up, as more than 70% of the builders polled said they regularly send their clients to suppliers’ showrooms. There is no doubt that pricing plays a role in any builder’s choice of supplier. But 71% of those polled said that service trumps price every time in their selection. Surprisingly, 80% of the builders polled said they don’t rely on pro dealers for installation services. But nearly half say they are likely to in the future, a response that no doubt reflects current labor volatility. And many custom builders adamantly resist buying from or sending clients to warehouse home centers. In fact, big boxes were named by at least one-quarter of the builders polled as places where they shop in only five of 36 product categories: tools and fasteners, lighting, locksets, caulks and adhesives, and shelving and storage.
STEVENS, PA Big boxes remain the destination of choice for outdoor living expenditures, says a new study from Unity Marketing. With sales of $65.8 billion in 2004, the outdoor living market for goods ($43.2 billion) and services ($22.6 billion) is huge and growing rapidly, says Pam Danziger, president of Unity Marketing and author of Let Them Eat Cake: Marketing Luxury to the Masses as well as the Classes. The big box retailers are turning their marketing might to capturing a greater share of consumers’ expenditures on the garden and outdoor living. With strategies tied to improved quality and diversity of garden plants, along with better trained sales staff and a wide selection of garden tools and accessories, the big boxes are challenging the independent specialty garden centers that depend upon the loyalty of their traditional shoppers for their livelihood. While garden centers retained their market share leadership in terms of overall sales of garden goods and services in 2004, (43% market share in outdoor living goods vs. 32% market share among the big boxes), when shoppers are asked where they made outdoor living purchases in the past year, some 80% reported shopping for plants at big boxes, as compared with only 52% who bought plants in garden centers. The independent garden centers are losing their edge in the outdoor living market as shoppers turn more frequently to home center stores for their outdoor living needs. Garden centers must become more sophisticated and more knowledgeable about their core shoppers in order to maintain their loyalty and support in the coming years, Danziger explains. The consumer insights study, Outdoor Living Market, 2005: Understanding and Predicting Consumers' Passion for the Outdoor Living Lifestyle, provides details of a survey among 1,000 home owners with incomes of $25,000 and above. The Outdoor Living Market, 2005 report can be ordered at
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COLUMBUS Ohio Home Depot has been forced to stop using the term “lowest” to describe its prices, thanks to the National Advertising Division of the Better Business Bureau. According to AdAge, the ruling counters Home Depot’s claims of “Lowest Prices, Guaranteed.” Those prices are achieved, not necessarily by offering the best price off the shelf, but by Home Depot’s policy of matching another retailer’s price and beating it by 10% if the Home Depot price is not, in fact, already lower. The claim, therefore, says the NAD, would discourage price comparison shopping.MOORESVILLE, N.C. Lowe’s plans to build a 1.4-million-sq.ft. $80 million distribution center on 238 acres in Rockford, Ill., that would employ an estimated 500 people. As of last week, the deal was in the final stages of municipal approval. NEW YORK Building Materials Holding Corporation has managed to increase its credit limits with a group of lenders. The amended credit agreement increases BMHC’s revolving credit facility to $300 million and adds two years to the maturity date. The amended agreement also provides a new term note of $75 million. In addition, the rate of interest on an existing $125 million term note was reduced by 0.25%. MONTREAL Second quarter sales for Richelieu Hardware jumped by more than 9% to $7.4 million, pushed by increased sales in the U.S. and Canada. Consolidated sales reached $92.6 million, up 13.8% million over the same period last year. BOCA RATON, Fla. Eljer Plumbingware Inc. has been purchased by a division of Sun Capital Partners, Inc., a private investment firm that specializes in leveraged buyouts and investments. Dallas, Tex.-based Eljer, which makes kitchen, bath, and plumbing products for the residential and commercial markets, was bought from Jacuzzi Brands. LAKE FOREST, Ill. Even George Forman can’t seem to help Salton Inc., which received a warning from the New York Stock Exchange last week that its shares may be delisted because of low market capitalization. Fearing it may slip into bankruptcy, investors have been wary of the small-appliance maker in recent months. And last month, Salton missed an interest payment, causing further concern about its solvency. BENTONVILLE, Ark. Wal-Mart will raise its stake in the Japanese affiliate Seiyuto by 50% this year, further boosting its presence in the Japanese market. Japan’s fourth-largest retailer will become a subsidiary as Wal-Mart increases its share of the company, which has lost money for three years running, from its current 42.4%, as it continues to expand in the Asian market.
Lowe’s Cos. has named a 12-year company veteran, William Edwards, to become its senior vice-president store operations for its North-Central Division, The promotion fills a slot left vacant by Nick Carter, whom Lowe’s recently named its executive vp-store operations for the entire chain. Edwards, 45, has 23 years’ experience in retailing. Most recently, he served as Lowe’s regional vp of the company’s Richmond. Va.-based Mid-Atlantic Division. His career with Lowe’s has been primarily on the operations side.Amar Doman, chairman of CanWel Building Materials Ltd., has been nominated as a Pacific region finalist in the Ernst & Young Entrepreneur of The Year 2005 Awards. As a finalist for “best-in-class,” he was chosen for his “business leadership skills, determination and vision.” Now in its 12th year, the program considers nominees in a number of business categories before selecting finalists. Judging will take place October 3 to determine regional finalists for the Awards contest. At Do it Best Corp., Robert Schmelz has joined as e-commerce manager. He will manage all business-to-consumer online retail e-commerce programs and be responsible for the website. Schmelz will oversee online order fulfillment, site design and development, and online marketing, merchandising and new program development. He will also assist Do it Best Corp. members with the development of their online retail operations. He was most recently with Innotek Inc.
Housing starts dropped 5% in May, reports Canada Mortgage and Housing Corp. The seasonally adjusted annual rate of urban starts, which was affected by a decrease in multiple starts, fell to 188,800 units in May. Single starts edged up 0.2% to 96,200 units, building on a gain in April. The rising value of housing in Canada slowed in the second quarter in all major cities across the country, reports real estate company Royal LePage. The average price of a detached bungalow reached $262,845 – an increase of 7.1% over the second quarter of 2004. The value of a standard condominium was up 6.5% to $183,397. The value of a typical two-storey home rose 5.9% year-over-year to $318,290.
Wholesale inventories in May were $350.1 billion, up 0.1% from April and up 10.4% from one year ago, says the Commerce Department. Sales were $295.5 billion, virtually unchanged from April, but up 7.3% from May 2004. Unemployment fell from 5.1% to 5% as employers added 146,000 workers to their payrolls in June, says the Labor Department. However, the gain was less than forecast, due to cuts in factory jobs. The June increase follows a gain in May of 104,000 jobs. The June jobless rate was the lowest since 9/11.
Why should you subscribe to our sister publication, Hardlines Quarterly Report? The answer is simple: to keep up on the latest industry statistics, like the size of the industry, how fast the big boxes are growing, and how the market breaks out by region and by store type. Next issue, we begin releasing our results of our industry wide survey of home improvement retailers in Canada. PLUS: the Amazing Buying Group Org Chart™.
When we wrote last week about the possible sale of GSW, the stated sales and profits were for the company's first quarter, and not for the year. My apologies.— MM

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