John Caulfield, Contributing Editor
vol. xi, #23, June 06, 2005

IN THIS ISSUE: • Taiga readies to launch IPO • Shakeup at Lowe’s spurs Canadian expansion rumours • Rona gets first Nova Scotia dealer • B&Q opens first Korean store • Is Home Depot buying U.S. independent? • Ace trucks run on soybeans • Home Depot sues contractor in New Brunswick • Menard’s forced to file * * * * * *

“Abstain from beans.” Plutarch (Greek author, circa 45-125 A.D.)
BURNABY, B.C. Taiga Forest Products Ltd., one of Canada’s leading building materials distributors, is another step closer to reorganizing under an income fund type structure following the filing of a preliminary prospectus for an initial public offering. The offering will be of stapled units, under its new name of Taiga Building Products Ltd. A secondary offering of stapled units will be issued by its major shareholders, Berjaya Group (Cayman) Ltd. and 3Cs Investments Ltd.A syndicate led by BMO Nesbitt Burns and CIBC World Markets will handle the offering. The “new” Taiga will use the net proceeds of the initial offering to reduce debt, but will not receive any of the proceeds of the secondary offering. Taiga’s move to convert to an income fund type structure mirrors a similar move by one of its chief competitors, CanWel Building Materials. This distributor, which sells a broader range of building materials than Taiga, converted to an income fund on May 18. Like Taiga, CanWel issued both a primary and secondary share offering, raising a total of $125 million. That offering has been done successfully and last Friday CanWel was able to complete its plan of arrangement to convert from a corporate entity into an income fund, complete with the necessary court and regulatory approvals. The Taiga IPO is conditional upon completing its conversion to an income trust. The size and pricing of the offering has not been determined, and will depend upon market conditions at the time of the offering. But based on Taiga’s results for its year ended March 31, 2005, Taiga expects that its cash available for distribution to holders of the stapled units would be approximately $36.5 million, based on a 95% payout ratio, and assuming a $50 million treasury offering.
BOUCHERVILLE, Que. Brady Building Supplies, a former AWARD member, has joined Rona inc. as an affiliate dealer. A week earlier, 50 of AWARD’s 52 members voted to join with Tim-BR-Marts Ltd., the Calgary-based building supply buying group. Ozzie Wyle and Lyman Oickle, co-owners of Brady, which is located in Liverpool, N.S., chose to join Rona. As an affiliate member of Rona, Brady joins a network of 566 other affiliate and corporately owned stores, part of an aggressive recruitment drive by Rona, which so far has focused on Western Canada and Southern Ontario. While there is already one Rona Botanix garden centre in Nova Scotia, Brady becomes the first home improvement dealer in that province.The remaining AWARD dealers have between now and December 31, 2005 to decide individually whether to adopt the Tim-BR-Marts affiliation – and the TIM-BR Mart brand – for their operations. One dealer that has remained loyal to AWARD – despite rumours of its own defection to Rona – is Chester Dawe Ltd. in St. John’s. As the largest dealer in Newfoundland, with estimated sales of more than $70 million, it would be a prime candidate for takeover by Rona. However, according to Phil Budden, president of Chester Dawe, his company will maintain its affiliation with AWARD. But that loyalty won’t extend necessarily to the new Tim-BR-Marts affiliation. While other AWARD members have adopted the TIM-BR Mart signage already, Chester Dawe, with eight stores in Newfoundland, is a very strong brand in its own right. Budden is fiercely proud of Chester Dawe’s independent status. “There is a very strong role for regional independent players,” he says, “and that’s certainly the case here in Newfoundland.” His company was a founding member of AWARD back in 1981, and he wonders aloud why the group had to fold. “I think it’s sad and a shame that it won’t continue. The regional presence of a buying group served the members well. That’s the reason AWARD was founded in the first place.”
MOORESVILLE, N.C. — The announcement last week from Lowe’s Home Improvement Warehouse that Dale Pond, the retailer’s senior vp-merchandising and marketing, will retire effective June 30, has triggered a shakeup at the senior management level – and added fuel to rumours of possible Canadian expansion.Pond, 59, joined Lowe’s in 1993 as the chain’s senior vp-marketing, and he was promoted into his current title in 2003. The company gave no hint at its May 27 shareholders meeting that its chief merchant was planning to leave, and gave no specific reason for the timing of his decision. Robert Niblock, Lowe’s president, chairman and CEO, called Pond “a great asset” and thanked him for his contributions to the company’s growth and prosperity. Lowe’s experienced explosive growth during Pond’s tenure, expanding to US$36.5 billion in revenue and US$2.18 billion in earnings from 1,087 stores in 48 states in 2004. When Pond joined, the company had US$4.5 billion in sales and US$131.8 million in earnings from 311 stores in 20 states. After stints with several retailers – including Payless Cashways, Montgomery Ward and HomeQuarters Warehouse – Pond found a home at Lowe’s, which embraced his strongly held beliefs in the power of branding and database marketing. In the process, Pond helped Lowe’s create an image for itself and its stores as the cleaner, brighter, friendlier and less-frenzied alternative to its rival Home Depot. That clean, bright image is a competitive edge Lowe’s would likely try and offer if it in fact expands to Canada. The company has been hinting at making a play to become a more international player, even as its chief rival, Home Depot, sets up offices in China and sniffs out opportunities in Europe. A move by Lowe’s into Canada would thrust it into an already fiercely competitive marketplace, where both Home Depot and Rona are battling for retail supremacy. Nonetheless, such a move would represent a cautious first step that would keep Lowe’s first international stores close to home. Meanwhile, the retailer is moving to fill the gaps left by Pond’s departure. Taking over his role will be Larry Stone, a 36-year company veteran who is Lowe’s senior vp-operations. In his new capacity, the 53-year-old Stone will oversee the company’s merchandising, marketing, store planning and development. This shift is something of a surprise because Stone has had very little merchandising experience during his tenure at Lowe’s. Nick Canter, 54, who currently manages Lowe’s operations in its North Central division, will replace Stone and assume the title executive vp-operations. He is also responsible for Lowe’s commercial and installed sales businesses, which the retailer has identified as two of its growth engines. Canter previously has served as a merchant for building materials and millwork. By announcing his retirement, Pond will walk away from a job that paid him US$575,000 in salary in 2004, plus US$1,042,786 in bonuses and US$1,135,000 in deferred stock awards. At the end of last year, Pond owned 431,020 of Lowe’s common stock.
ATLANTA — Competitors and suppliers are stating that a deal is in the works for Home Depot to acquire Williams Brothers Lumber, a Suwanee, Ga.-based pro dealer with 18 yards, all in Georgia. Last year, Williams Brothers shipped 315 million board feet of lumber to its customers, and generated US$444 million in revenue, a 53.1% increase over 2003. The company has more than 1,100 employees and a fleet of 220 delivery vehicles. Both dealers declined to comment about whether they’ve entered into an acquisition agreement, or even if they’ve been talking about one. Spokesman Jerry Shields reiterated Home Depot’s standard response that “we don’t comment on speculation and rumor.” Jerry Johnson, Williams Brothers’ chairman, said that “it’s all speculation and I can’t say anything about it.” He declined to comment as well about whether there have been any negotiations between his company and Depot. The industry has been flush with rumors about Home Depot buying its way into the pro side of the business for a number of years. Indeed, Home Depot’s May 2004 acquisition of White Cap Industries gave Home Depot a substantive foothold into that sector, although White Cap caters as much to commercial accounts as it does residential builders and remodelers. And there was a lot of talk — none of it substantiated — about Home Depot’s interest in buying Builders FirstSource, which became moot when BFS decided to take itself public. If it were to acquire Williams Brothers, Depot would be adding another arrow to its pro-focused quiver. In 2004, for example, it installed its Pro Initiative program — which beefs up products and services specifically for contractors — to 207 stores, bringing the total number of Home Depots with this program to 1,563. (An estimated 35% of Depot’s US$73.1 billion in revenue last year came from pros.) The company will add the Pro Initiative to 165 stores in 2005. In addition, its Home Depot Supply division currently operates five subsidiaries — Apex Supply Company, Your Other Warehouse, The Home Depot Supply, Inc., White Cap Industries, Inc. and HD Builder Solutions Group — that support its business with these customers. Last year the company reported that its “services” revenue — essentially its installed sales, which are handled by captive installation companies and subcontractors — rose 28% to US$3.8 billion.
SEOUL, Korea — B&Q, Great Britain’s largest home improvement dealer, opened its first store in Korea on last week, in this city’s Guro district.The Korea Herald, the country’s leading English-language newspaper, reports that the 8,250-square meter store is offering 35,000 SKUs, 85% of which are sourced locally. The store employs more than 200 people, said David Williams, president of B&Q Korea Ltd. The store is located in the basement of a hypermart called Lotte Mart, which opened simultaneously. Williams estimates that B&Q’s store is selling into a 10 trillion won (US$9.9 billion) home improvement market. He added that B&Q intends to open stores across South Korea. News of B&Q’s expansion into Korea broke only days after its parent company, Kingfisher plc, reported that B&Q’s sales in China for the three months ended April 30 increased 38.7% to 44.1 million British pounds (US$80 million), and that its same-store sales for the quarter grew 4%. B&Q entered China in 1999, and now operates 22 stores in that country. It plans to open 12 more stores there this year, and another 80 by 2009. Asia is one of the bright spots for Kingfisher, which reported that its overall quarterly sales from B&Q and Castorama, which operate a total of 600 home centres in nine countries, increased 2.2% to 1.94 billion pounds. Same-store sales for these stores declined 5.6% and profits fell 15.6% to 125.9 million pounds.
TORONTO Canadians love their donuts: Canadian Tire Corp. ranks number two among Canadians – second only to Tim Hortons – as most respected company in Canada, says a report by Leger Marketing for Marketing magazine. In the magazine’s first-ever Corporate Reputation Study, home improvement retailers fared well overall. Home Depot Canada ranked number 11, followed immediately by Home Hardware in 12th position, while Rona clocked in at the number-24 spot. Mass merchants fared well, too: Sears ranked third overall, right behind Canadian Tire, and the Bay and Zellers had 14th and 16th place respectively. Wal-Mart was down at 41st place.SAINT JOHN, N.B. Meridian Construction, a large contractor that has built a number of retail outlets, including a Home Depot in Sydney, N.S. and a Wal-Mart in Grand Falls, N.B., has left many of its sub-contractors unpaid. The bad press is spreading to the likes of Home Depot itself. Roger Plamondon, vice-president of operations for Canada East at Home Depot, has had to go on record to explain that his company has paid all its bills. He pointed out in a CBC interview that the $2 million owing to subs on the Home Depot project are the responsibility of Meridian, which faces further lawsuits from Home Depot itself, and from Strescon, Ocean Steel and Kent Building Supplies. NEWBERRY, Ont. Monte McNaughton, store manager, McNaughton Home Hardware Building Centre, has garnered an award in the 2005 Young Retailer of the Year program. When McNaughton’s father first bought the business in 1988, sales were $400,000. With Monte’s help, annual sales now top $12 million in the town of 500 residents. The success is due, in part, to the many niche departments and categories the store offers to draw traffic from the larger surrounding cities. A recent revamp of his flooring department brought sales from $20,000 in one year to $125,000 in the first month of January 2005. The store also sells and installs custom kitchen packages, averaging three or four sales per week. HOFFMAN ESTATES, Ill. Kmart stores will start carrying Craftsman tools, part of a move by Sears Holdings Corp. to feature the private-label brands of Kmart and Sears in each other’s stores. A rollout of gift displays of Craftsman tools will take place in 365 Kmart stores in time for Father’s Day. The display will feature about 10 Craftsman products initially, merchandised in a gift display, including a laser level, ruler, floor jack, and a cordless screwdriver. Some Kmart stores are also carrying Sears’ own brand of Kenmore appliances, as well as Craftsman. OAK BROOK, Ill. Ace Hardware, the dealer-owned buying group, is slowly but surely entering the hybrid transportation market as a way to reduce rising fuel costs related to its delivery of products from its distribution centres to its members. The company recently completed a six-month test at its Princeton, Ill. distribution centre, where it’s using a blend of diesel fuel and crop oil (such as soybean) to power trucks it leases from AG View FS and Ryder Transportation Services. EAU CLAIRE, Wis. A federal judge in Milwaukee has ordered Menard’s to file reports that provide detailed demographic breakdowns of its 27,000 employees at its 200-plus stores and its headquarters here. The U.S. Equal Opportunity Commission said that Menard’s, the third-largest home improvement dealer in North America, admitted in court in May that it had not filed reports, which are required by law, for the years 2000 through 2004, according to the Associated Press. Menard’s has been the target of a number of legal complaints and lawsuits of late. Last month, the company pleaded guilty to a misdemeanour water pollution charge. And Internal Revenue Service ruled recently that the dealer owed US$5.9 million in back taxes and penalties. BENTONVILLE, Ark. Wal-Mart Stores reported May’s net sales reached $23.42 billion, up 9.3% from US$21.43 billion a year earlier. Sales by Wal-Mart stores were up by 9.1% to US$15.7 billion, and Sam’s Club was up 4.4% to US$3.06 billion. International sales jumped 13.6% to US$4.66 billion. Same-store sales at Wal-Marts and Sam’s Clubs grew 2.5% in May, compared with a 6% increase last year. Year to date, retail sales grew 9.8% to US$96.07 billion, with same-store sales up 2.9%.
Annette Verschuren, president of Home Depot Canada, and president of Home Depot’s Expo Design Centre division, has been named “2005 Distinguished Canadian Retailer of the Year” by the Retail Council of Canada. The award will be given tonight during the RCC’s annual convention at a dinner in Toronto.Kevin J. Skelly has been named director of retail marketing for ICI Canada, the paint and coatings manufacturer. In his new position, Skelly is responsible for all consumer marketing programs for ICI’s major retail channels including, Home Depot, Canadian Tire, Rona and Wal-Mart. He will also oversee domestic colour marketing for ICI Canada and be a member of the global ICI Marketing Group, helping steer the organization’s colour output around the world. Prior to joining ICI Canada, Skelly was manager of marketing for the Para Paints brand at Sico … Darrin Noble, who was formerly director of retail marketing at ICI, has assumed the newly created position of director of marketing and innovation for both the trade and consumer markets. (905-738-7320)
OTTAWA Canada's economy grew at an annualized rate of 2.3% in the first quarter of the year, reports Statistics Canada. However, despite a positive start to the year, with a 0.2% increase in both January and February, economic output declined 0.1% in March, due mainly to a drop in motor vehicle production. In the U.S., the economy grew at an annualized rate of 3.5%.
Construction spending in April was US$1,066.9 billion, up 0.5% from March and up 8.2% from April 2004. Total non-residential construction spending was US$463.7 billion, up 0.6% from March and up 2.3% from one year ago.

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