John Caulfield, Contributing Editor
vol. x, #29, July 19, 2004

IN THIS ISSUE: • Sodisco-Howden bolsters support to buying groups • TruServ in U.S. deals with stock payout issues • Damman gets help from Ace • eBay thieves target home improvement retailers • Tractor Supply reports record results

* * * * * * SUMMER PUBLISHING SCHEDULE: As in years past, we will publish only twice during August. There will be no Hardlines on the following dates: August 2, 16, and 23. We'll publish on August 9 and 30. But, hey, the halls and corridors of the World Headquarters remain a teeming, seething hub of activity, as we get ready for the Hardlines Conference Series on September 8 & 9. — Michael * * * * * * NOTE: Dollar amounts are stated in the currency of the country from which the story originates. — Michael McLarney, Editor & Publisher * * * * * *
"Anybody who goes to see a psychiatrist ought to have his head examined." —Samuel Goldwyn
TORONTO — Sodisco-Howden Group is renewing its efforts to stay connected with its customer base. In an exclusive interview with Hardlines, Sodisco-Howden president and CEO Jos Wintermans indicated that service levels are high and sales to key customers, namely some of Canada's key buying groups, are up, despite new competition, namely from the new distribution initiative, Quincaillerie Matreco Hardware (QMH).And since the company is no longer hamstrung by being in a "quiet period," he says communication with dealers will continue to improve as well. One of Sodisco-Howden's key customers remains Tim-BR-Marts Ltd. in Western Canada. "Our dealers are much happier now with how product is getting into their stores," Urquhart says. And, he notes, there's less concern surrounding the future of Sodisco-Howden. "The dealers' only complaint is over out-of-stocks, but the fill rates have improved dramatically over the past year." However, even as Tim-BR-Marts strengthens ties with Sodisco-Howden, its affiliated groups, TIM-BR Mart Ontario, Quebec Groupe BMR and, in Atlantic Canada, AWARD, have established their own distribution network, QMH. AWARD Distribution Ltd. was set up by AWARD, in partnership with BMR under the QMH distribution deal, as an alternative source of supply for AWARD dealers. However, according to Wintermans, Sodisco-Howden's year-to-date shipments to AWARD dealers are up, and any notion that ADL would replace Sodisco-Howden outright is premature, he suggests, adding that Sodisco-Howden maintains a strong relationship with the AWARD members and that both sides "are talking." The reason for that relationship, Wintermans says, is "service related." Meanwhile, QMH is shipping hardlines to TIM-BR Mart Ontario on a regular basis. According to Don Nash, QMH is the preferred hardware supplier, "the horse we're backing," at TIM-BR Mart Ontario. QMH is now shipping almost $1 million per month in product to Ontario, he notes. Down east, ADL offers a limited selection of about 6,000 SKUs, versus some 55,000 from Sodisco-Howden, and the mix in the ADL warehouse is reportedly skewed to builders' hardware. "It's in the dealers' best interest for AWARD and Sodisco-Howden Group to have a strong relationship," Wintermans concludes. "As far as I'm concerned, Sodisco-Howden has turned the corner," Urquhart says.
CHICAGO — The turnaround of TruServ Corp. appears to be nearly complete, with lifting on July 6 of a moratorium on dealers' stock redemptions.Since March 2000, TruServ had suspended the redemption of all stock investments of shareholders who chose to leave the dealer-owned co-op following significant financial losses in 1999. However, the company still faces some hurdles, including confusion and disgruntlement from some dealers, and an outstanding lawsuit . According to Barbara Wagner, TruServ's treasurer, the "Kennedy Action," which involves about 38 former dealers, is still pending and deals partially with stock redemption issues. That stock redemption, which totals about $36 million, will be paid out to approximately 3,100 former dealers. Payments will be made in instalment notes representing five annual payments. These commence December 31, 2004, effectively making the term of the notes being issued 4.5 years, says Wagner. Because the TruServ stock is not traded, a dealer can only cash out upon quitting the co-op — or in certain instances when closing one of a group of stores. However, dealers will face a loss on the value of the stock, and that value can only be determined upon leaving.
CHARLOTTETOWN, P.E.I. — The development of a new subdivision here in Prince Edward Island's provincial capital is providing a boost to Schurman Building Supplies. The development, which began last fall, involves the erection of homes on 81 lots. Mike Simms, general manager of Schurman, says about 40 are expected to be up by the end of this year.And every one of them is being supplied with all materials through the Charlottetown store, which is only five minutes from the new subdivision. But the economy on the island has been relatively strong, and that, combined with high commodity prices, has resulted in two consecutive quarters of healthy increases. Schurman, which has five stores and estimated sales of $34 million, is currently in negotiations to be taken over by J.D. Irving, which also owns Saint John-based Kent Building Supplies. The deal is expected to close on or around August 9.
MADISON HEIGHTS, Mich. — Damman Hardware will emerge from Chapter 11 protection on July 23, after a U.S. Bankruptcy Court judge this week approved a reorganization plan that includes converting Damman's 12 remaining stores to a format provided by Ace Hardware Corp., the buying group Damman joined last fall.The 84-year-old Damman, whose stores range in size from 15,000 to 29,000 sq.ft., has already converted its store in Livonia, Mich., and plans to start converting two more units later this month, although eight of its stores won't be changed over until 2005, according to a report in the Detroit Free Press. The Oak Brook, Ill.-based Ace was Damman's largest unsecured creditor. Damman's, once a member of the buying group TruServ Corp., filed for bankruptcy protection on January 12, although its business had been eroding for three years. In 2003, it reported a $1.8 million loss on $37.5 million in sales. During its reorganization period, it closed five stores and sold another two pieces of real estate to raise cash to pay off some of its debt. It emerges from Chapter 11 with a new $8 million credit line from Boston-based LaSalle Retail Finance. As part of its reorganization plan, Damman's will now receive its inventory from Ace's distribution network, as opposed to having products it bought through Ace shipped directly to its stores by manufacturers. Ownership of the post-bankruptcy Damman's will not change. The Damman family will retain a 44% stake, with 56% owned by employees through a stock program. The company employs 257 workers.
CHICAGO — A mother and son who owned pawn shops here pleaded guilty on July 14 to an elaborate scheme through which they paid thieves to "boost" products from several home improvement stores. The products were then resold for a considerable profit, on eBay, the electronic auction site.The Chicago Tribune reports that Laura Wasz, 52, and her son Bruce, 33, worked with crews of thieves who stole products like kitchen appliances, snow blowers and tools from Home Depots, Expo Design Centers and Great Indoors outlets across the country. Those thieves fenced those products, at 30%-40% of their retail value, through the Waszes, who then hawked the merchandise on eBay. Prosecutors estimate that the retail value of the stolen goods totaled $400,000, and that the Waszes made around $2.5 million in subsequent resales. The Tribune reports that during the nearly two-year scheme, Bruce Wasz concluded in excess of 6,800 eBay auctions, and 6,700 auctions were attributed to his mother, prosecutors said. Eight other defendants had previously pleaded guilty. The son could face five years in jail, and the mother four years. Prosecutors also are calling for the defendants to repay $2 million in cash they garnered from the scheme.
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MISSISSAUGA, Ont. — Castle Building Centres and BMF Marketing and Design have entered into a five-year agreement in which BMF will design and implement a Store Development Program which includes image development, store and yard design, fixturing, communication, and in-store merchandising for dealer upgrades and to attract dealer conversions. BMF's executional arm, Burlington Merchandising & Fixtures, will create in-line merchandising sets and design feature displays in conjunction with Castle vendors. In the rollout phase, BMF will provide site-specific store design and on-site setup support for Castle members. Mike Frame, Castle's business development manager — central region, will coordinate the program nationally. Castle represents more than 260 locations across Canada.VANCOUVER — In addition to the signing of TimberTown Building Centres (see the scoop in last week's issue—MM), Tim-BR-Marts Ltd. has added the following new members: Miracle Lumber Mart in Beausejour, Man., Katjumac Building Supplies in Virden, Man., Johnson's Building Supplies in Yellowknife, N.W.T., We-land Modular Homes in Evansburg, Alta., Vanguard Inc. in Spruce Grove, Alta., and B.H.L. Building Supplies in Sylvain Lake, Alta. Western Canada-based Tim-BR-Marts has more than 160 member stores. NASHVILLE, Tenn. — Tractor Supply Co., the largest retail farm and ranch store chain in the United States, reported net income for the second quarter of $31.4 million, up from $27.4 million for the same period in 2003. Net sales increased 17.0% to $525.9 million, from $449.4 million. Same-store sales increased 10.0%, versus last year's 1.2% gain. While gains were strong across all categories, same-store sales were especially strong in equine, animal and pet products. Net income for the first six months of fiscal 2004 was $35.2 million, compared with $27.5 million. Net sales increased 18.4% to $856.5 million and same-store sales increased 10.9%, versus last year's 2.1% gain. During the first six months, Tractor Supply opened 25 new stores and relocated eight. (Tractor Supply's chairman, Joe Scarlett, will be one of the featured speakers at our Hardlines Conference Series, September 8-9. Book now—Self-promotional Mike) TORONTO — In what may be the first example of classical arts funding by a big box company, Home Depot Canada has taken a major sponsorship role in the funding and promotion of a new Shakespearean summer theatre. Called Shakespeare Works, it's being mounted at the eponymously named Home Depot Theatre. The first season features "Romeo and Juliet." TORONTO — Sears Canada's first free-standing, off-mall department store in Canada will also be the first full-line Sears store for the province of Prince Edward Island. The store will be located in the provincial capital of Charlottetown. It's scheduled to open in the summer of 2005. Besides a standard array of private and national brand merchandise, the new 108,000-sq.ft. store will offer specialty services, provided to licensees, which include a portrait studio, travel office, hair salon, watch repairs, optical, keys and engraved gifts, greeting cards and alterations. In Prince Edward Island, Sears currently has 16 catalogue merchandise pick-up locations and two dealer stores. CHICAGO — Grainger, the industrial distributor, reported record sales of $1.3 billion in the second quarter, up 7% versus the prior year's second quarter. Net earnings were up 19% to $66.6 million, also a new quarterly high. Sales for the six months ended June 30 were $2.5 billion, up 7%. Net earnings increased 19% to $129 million, versus $108 million in 2003.
At Sodisco-Howden Group, Gary Yokuvouskis has been named regional sales vice-president, expanding his former role as regional sales manager for Western Canada with the national hardware distributor. In his new position, Yokuvouskis will handle both the West and Ontario, which was formerly handled by Leslie Duczek, who is taking maternity leave.Tractor Supply Co. has unveiled a succession strategy with the promotion of current president, Jim Wright, to the post of CEO, effective October 1, 2004. Joe Scarlett, the company's current chairman and CEO, will continue to serve on a full-time basis as chairman of the board. Wright, 54, joined Tractor Supply in 2000 as president and CEO. Sears, Roebuck and Co. is looking for a new president of its retail business, following months of disappointing sales at its namesake department stores and will take the search outside the company. The move comes after the retailer parted ways with Mark Cosby, president of the full-line stores, who left last week "to pursue unspecified opportunities." His position is being eliminated. The new retail president position is broader than Cosby's role, and will include responsibility for both the existing department stores and the new Sears Grand stores that the retailer is opening away from its traditional mall base. Sears expects to have about 70 off-mall stores by the end of next year, including 12-14 Sears Grand locations and a new, mid-sized format that was announced with Sears' planned acquisition of up to 61 Kmart and Wal-Mart stores.
Retail sales for June were $331.9 billion, down 1.1% from last month, marking the biggest decline since February 2003. However, they were up 6.3% from the same month one year ago. Excluding automobiles, retail sales in June were $256.7 billion, down 0.2% from May but up 8.3% from June 2003, says the Commerce Department.The Commerce Department reports that the drop in wholesale prices in June marked the biggest decline in a year. Prices fell 0.3%, as energy and food costs retreated. The unexpected drop comes after wholesale costs shot up in the prior two months.
Inflation crept up in June as consumers paid 2.5% more than they did in June 2003 for the goods and services included in the Consumer Price Index basket. The 12-month increase in the all-items index excluding energy, rose to 1.6% compared with 1.3% in May.

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