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“Not armies, not nations, have advanced the race; but here and there, in the course of ages, an individual has stood up and cast his shadow over the world.” — Edwin Hubbell Chapin
(American clergyman and author, 1814-80) |
| THE LOWE-DOWN ON CANADA’S NEWEST
HOME IMPROVEMENT BIG BOX |
 TORONTO —Just 11 years after Home Depot arrived in Canada, its chief competitor has announced it will follow suit, even though no store openings are planned until 2007. By then, Lowe’s Cos. expects to roll out up to 10 stores, starting with the Greater Toronto Area. It wants to fine-tune the Canadian model there before rolling out as many as 100 eventually. The man in charge is Doug Robinson, president of Lowe’s Canada, whose first experience in Canada was running Beaver Lumber Co. for its parent, Molson, before it was sold off to Home Hardware Stores in 1999.Robinson has reportedly been working quietly for Lowe’s for the past several months, developing an international expansion strategy that will start with the Canadian invasion. Canada is ready for Lowe’s, he says, adding that 400,000 transactions were identified last year by Canadians in Lowe’s stores in the U.S.
The competitive advantage it intends to bring – and which has worked effectively for it in the U.S. – is its bright, clean stores that appeal to female shoppers and give it an edge in its battle against Home Depot. Nevertheless, Lowe’s faces some distinct challenges here. First, Home Depot has got a big head start, with a presence in all 10 provinces through more than 120 big boxes. Rona inc. has 65 big boxes of its own, along with almost 500 traditional hardware stores and building centres. Rona’s multiple store formats and varied ownership model – including many dealer-owned big boxes – gives Rona a unique edge.
Another strong retail brand is Home Hardware, which represents more than 1,000 stores Canada-wide. And while not a direct competitor, the presence of Canadian Tire, whose retail division represents 465 stores and total sales in 2004 of $6.5 billion, just makes the retail landscape all the more crowded.
Industry observers have also questioned Lowe’s ability to secure good retail sites, which need anywhere from 10-13 acres to accommodate more than 100,000 sq.ft. of big box plus the space for a garden centre and parking.
Yet Lowe’s is doing a lot of things right in the U.S., providing a tough competitor there for Home Depot. The company’s first-quarter sales reached US$9.91 billion, up 14% from the previous quarter, while Home Depot’s sales, at US$18.97 billion, were up only 8%. Lowe’s same-store sales during the quarter were 3.8%, vs. Home Depot’s at 2.1%. So expect those retail smarts to come to Canada, as well. |
| CANWEL INVITES OFFERS TO PURCHASE PRO BANNER |
VANCOUVER — CanWel Building Materials has revealed firm plans to deal with its Pro banner, which it inherited through the acquisition of Sodisco-Howden Group at the end of 2004. It’s looking for a buyer. When the Sodisco-Howden purchase was first announced, the fit seemed like a good one: a building materials distributor adding the weight and diversity of national hardlines distribution, plus additional LBM distribution in Quebec.But Sodisco-Howden also owns two retail banners – Pro and Ace – both of which compete with some of CanWel’s best customers, namely Home Hardware and Rona. Those dealers have operated under a cloud of uncertainty until Friday, when CanWel unveiled the first step in a strategy to ensure the future of those banners – with the release of a request for proposals.
“We have now formalized that process,” says Tom Donaldson, president of CanWel and Sodisco-Howden. “We have sent packages to interested parties and many of them have formally declared their interest. Once we have qualified who are the serious bidders for the Pro banner, they will be able to formalize their proposals and get back to us by the end of June.”
More than 500 independent hardware and building supply retailers across Canada operate under the Pro Hardware. Sodisco-Howden supports the banner program with a line of private label products, advertising and marketing programs, and an electronic catalogue. Approximately 200 more dealers, operating under the Ace banner, will continue to be managed by Sodisco-Howden, in association with Ace Hardware Corp. in the U.S.
Amar Doman, chairman of CanWel, adds that he wants to see this proposals process move along quickly. “I don’t want this to drag out. The dealers have waited six months already,” he says emphatically.
Qualified bids will be considered on the basis of three things: the “value proposition” they add to the Pro dealers; the security of the Sodisco-Howden revenue model, i.e., continued use of Sodisco-Howden as a supplier; and the offering price, if any, of such a partnership.
 What’s actually for sale? The rights to the Pro banner, says Donaldson. The Ace banner will remain in the hands of Sodisco-Howden. But any deal for Pro must ensure that Sodisco-Howden continues to supply the banner. So any group with its own distribution may end up working out a kind of joint venture with Sodisco-Howden. Doman says bids from companies that do have their own distribution would certainly be considered. “Who knows what that strategy might be, but we can certainly look at that.”
The country’s largest hardlines distributors, aside from Sodisco-Howden, are Home Hardware and Rona. But some buying groups manage their own banners as well, and many of them include Pro dealers in their ranks. They, too, will receive packages from CanWel.
What about outside of the country? Could this be an opportunity for Ace to try once again to establish a presence in Canada? Doman would say only that they “haven’t disqualified any suitor,” and invites anyone that may have been overlooked to contact CanWel.
“CanWel’s core business is building materials and hardware distribution,” says Donaldson. “The Pro Hardware brand belongs in the hands of a group who understands branding at the retail level and can increase the value proposition to dealers and consumers.”
CanWel converted to an income fund on May 18, 2005. |
| LOWE’S IN CANADA: IS HOME DEPOT’S VERSCHUREN WORRIED? |
TORONTO — The surprise announcement that Lowe’s will come to Canada with up to 10 stores by 2007 means the world’s second-largest home improvement retailer will follow its nemesis, Home Depot, on an international expansion path. And while the president of Home Depot’s Canadian division (who is also president of the Expo division) is not worried, nor is she cavalier about the news. “Home Depot has always been very respectful of every competitor it has,” says Annette Verschuren, in an exclusive interview with HARDLINES. “And it has more than one in Canada already,” she adds, referring especially to a couple of retailers that don’t have parallels to the competitive landscape Lowe’s is used to in the U.S. “Don’t underestimate Home Hardware and Canadian Tire in Canada.”
Verschuren says that a healthy respect for those competitors, and the likes of Rona inc., which already has 65 big boxes of its own, keeps Home Depot on its game. “I think [competition] is actually important to get ahead of the customer.”
Lowe’s expects to open 6-10 stores in its first year, in the Greater Toronto Area (Home Depot already has 35 there) with plans to roll out up to 100 nation-wide over time. Home Depot is planning 20 openings and one relocation this year, for a total of 137 by the end of the year. Rona plans 6-10 big box openings of its own this year, and another 6-10 openings of traditional building centres.
Verschuren questions Lowe’s ability to “greenfield” its expansion in Canada, citing the difficulty in finding good real estate. In so doing, she has been hinting at the possibility of an eventual takeover of Rona inc. by Lowe’s. Although Rona’s varied store formats would make such a takeover unwieldy for Lowe’s (and it has spent recent years unloading its traditional building centres in the U.S.), the inference has had the effect of undermining the value of Rona’s shares, which were trading as low as $24.70 on Friday before closing at 24.90, down from a 52-week high of $27.10. |
| BUILDERS FIRSTSOURCE LAUNCHES PUBLIC STOCK OFFERING |
| DALLAS — The pro dealer chain Builders FirstSource last week filed with the U.S. Securities and Exchange Commission to offer 7.5 million shares of common stock to the public. The company, with 62 yards and 50 manufacturing facilities, expects the selling price to be US$16 per share, and will use the estimated US$110 million in net proceeds from that IPO to pay down part of a new US$350 million line of credit it negotiated in February.This offering, however, has been structured to keep the control of the company in the hands of its current owners and shareholders. The IPO’s five underwriters can purchase up to 1,687,500 shares of new common stock.
The fifth-largest pro dealer in the U.S. generated US$2.06 billion in sales and US$51.6 million in net income last year, the latter being considerably higher than in the previous four years. Through the first quarter of 2005, BFS reported an US$18.9 million loss on sales of US$509.3 million that were up 18.6%. Its yards generated an average of US$32.6 million in sales in 2004, and the company got one-third of its revenue last year — US$680.4 million — from manufactured products. Sales to the 10 largest production builders rose to US$451.8 million in 2004 from US$260.8 million in 2001. |
| OVERHEARD… |
| “We won’t preclude any option, but our primary means of expansion is through greenfields, organic growth.” – Doug Robinson, president of Lowe’s Canada, in reply to a question from the press about a possible eventual takeover of Rona inc. |
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| LOWE’S FACES TOUGH COMPETITION FOR
THE FEMALE SHOPPER |
| TORONTO – The anticipated arrival of Lowe’s Cos. to the Canadian market is turning the retail home improvement industry on its ear. One of Lowe’s key strategies in the U.S. has been its success appealing to the female shopper. But a new survey from Hardlines Quarterly Report suggests it will have a tough time duplicating that success here. Retailers here are already focusing effectively on the female shopper. And with good reason: according to “Women in Home Improvement,” a new survey conducted by ACNielsen Canada for HQR, women continue to be a driving force in both what and how home improvement projects are undertaken. Women, either singly or jointly with a significant other, are involved in 45% of the decision-making as to where to shop. That’s a significant increase from 2001, when the level was only 35%, says the report. While Lowe’s has managed to differentiate itself from Home Depot in the U.S. with bright stores that cater to women, the world’s second-largest home improvement retailer will find that both Home Depot in Canada and Rona are already strongly entrenched with the female customer, the report indicates.
Hardware stores have been the biggest losers, while big boxes continue to appeal most strongly to women. Meanwhile, the efforts of one of Canada’s leading hardlines retailers, Canadian Tire, to woo women more effectively, is beginning to show positive results, according to the findings of the survey.
(“Women in Home Improvement,” a survey by ACNielsen Canada exclusively for HARDLINES, appears in the latest issue of Hardlines Quarterly Report, which is published by Hardlines. For more information, contact Isabel Bisong at 416-489-3396, or isabel@hardlines.ca.) |
| COMPANIES IN THE NEWS |
| BOUCHERVILLE, Que. — Rona inc. has received the okay from the Competition Tribunal to keep a store in Sherbrooke, Que. The store was part of the acquisition of Réno-Dépôt by Rona in September 2003, and the only location that the Competition Tribunal insisted that Rona sell off, since there was a Rona L’entrepôt there, as well. Unable to find a buyer, Rona was off the hook finally when Home Depot announced the installation of a store of its own in Sherbrooke. MISSISSAUGA, Ont. — Castle Building Centres Group has added the following members: Baker Lake Contracting & Supplies Ltd., Baker Lake, Nunavut; Liverance Lumber, Lion’s Head, Ont.; Okanagan Home Mart, Vernon, B.C.; T – Murray Exteriors Inc., Ruthven, Ont.; Tignish Co-op Pro, Tignish, P.E.I. Castle, a national LBM buying group, represents some 250 independent dealers representing more than $900 million annually.
CHICAGO — Sears Holdings Corp. suffered a loss in its first quarter , its first quarterly filing since the buyout by Kmart of Sears, Roebuck and Co., which formed this new retail entity and the third-largest retailer in the U.S. Quarterly revenues were US$7.6 billion, or US$12.8 billion after including results from Sears for the full quarter. Sales fell 2.3% at Kmart stores, as bad weather cut into seasonal sales. Revenue at Sears stores was up 0.5%, thanks to an increase in its home service business.
MOOREVILLE, N.C., — This fall, Lowe’s Home Improvement Warehouse will broaden its in-stock assortment of major appliances when it adds digital kitchen appliances bearing Samsung’s brand to its 1,100-plus stores in the U.S. Lowe’s will initiate the program in September by stocking Samsung’s side-by-side and bottom-mount refrigerators. The appliance category is one of Lowe’s fastest-growing sectors. Last year, it accounted for US$4.08 billion in sales, or 11% of the retailer’s total revenue.
OAKVILLE, Ont. — Moen has made its entry into the luxury market with a new brand for upscale kitchen and bath décor, “ShowHouse.” Targeting specialty kitchen and bath outlets, the brand features eight different lines, including three complete powder room collections, a full kitchen and bath suite, and a line of kitchen and prep faucets. In Canada, Ted Harrison, Moen Canada’s director of brand development, is managing the line. Moen is part of Fortune brands based, in Lincolnshire, Ill.
VANCOUVER — West Fraser Lumber won a victory in the softwood lumber dispute with the U.S. when a NAFTA panel ordered the U.S. Department of Commerce to revoke the anti-dumping duty order against the company. As a result of last week’s ruling, West Fraser is entitled to a refund of more than US$24 million, plus interest, on moneys deposited since May 2002. In making its ruling, which confirmed an earlier finding that West Fraser does not dump lumber into the U.S., the NAFTA panel rejected U.S. claims that West Fraser was not entitled to a refund. The United States has 30 days to comply with the NAFTA panel’s ruling. |
| PEOPLE ON THE MOVE |
| CHICAGO – A former Sears exec has been named president and CEO of True Value Co. Lyle G. Heidemann left his role as executive vice-president and general manager of home and off-mall stores at Sears, to fill the position vacated when Pamela Forbes Lieberman was forced to resign by True Value’s board of directors in November, 2004. Tom Hanemann, a True Value board member, has served as interim CEO since Forbes Lieberman's departure and will remain on the board. |
| MARKET INDICATORS |
| The seasonally adjusted annual rate of housing starts was 218,800 units in May, down 5.0% from 230,400 units in April, reports CMHC. The seasonally adjusted annual rate of urban starts fell by 5.8% to 188,800 units in May, due to a decrease in multiple starts. Single starts edged up by 0.2% to 96,200 units. Multiple starts, on the other hand, were down 11.3% to 92,600 units in May.While prices for new housing increased 0.6% from March to April – the largest monthly gain since June 2004 – the year-over-year increase was 4.9%, the lowest since February 2004. Stronger market conditions, combined with increased costs for building materials and labour led to higher prices for new homes. Land value increases were a factor in six of the 21 metropolitan areas surveyed. The New Housing Price Index (1997=100) rose to 127.7 in April.
Although the value of residential permits rebounded in April, this gain was offset by the first decline in three months in the non-residential sector. As a result, the overall value of building permits issued by municipalities fell 2.6% to $5.0 billion in April. Year over year, construction intentions in April were 8.9% higher than the average monthly level in 2004.
Employment rose for the second consecutive month, with the addition of an estimated 35,000 jobs in May. This leaves employment up by 90,000, or 0.6%, so far this year, similar to the increase over the first five months of 2004. The unemployment rate remained unchanged at 6.8%, as more people entered the labour force. |
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John Caulfield, Contributing Editor
vol. xi, #24, June 13, 2005
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(01/05)
