| GET THE LOWDOWN ON HOME DEPOT: A SPECIAL REPORT |
| Everything you need to know about the state of Home Depot today.
· Is the company on the cusp of big growth - or big disappointment?
· What kind of growth and market share has Home Depot achieved in Canada?
· What new concepts is Home Depot trying out?
· How are vendors meeting the challenge of greater consolidation?
· How does Home Depot measure up against its toughest competitor, Lowe's?
· What are Home Depot's plans for Canada? What retail concepts will work here?
· What strategies does Home Depot have to beat the competition?
Falling share prices, falling morale, falling profits. Can the new management at Home Depot turn the tide? Of course it can. Find out how in the latest issue of Hardlines Quarterly Report — click here. |
| WTO DEALS BLOW TO U.S. IN SOFTWOOD DISPUTE |
| Vancouver & Ottawa — The World Trade Organization has ruled squarely on the side of Canada against U.S. countervailing duties on Canadian softwood lumber imports: they're "groundless and illegal," says John Allan, president of the BC Lumber Trade Council.
Last week's ruling by the WTO has not deterred U.S. negotiators, however, who are likely to appeal. According to one trade official, the WTO identifies a subsidy component to softwood production and pricing in Canada, just the loophole the U.S. needs to justify continued countervailing duties, which average 27% on shipments that totaled about $10 billion annually before the tariffs eroded business.
Meanwhile, lumber suppliers in Atlantic Canada are feeling frustrated by the latest round of negotiations between the U.S. and Canada. Unlike the rest of Canada, the industry in Atlantic Canada has long been adhering to timber sourcing certification standards that keep it clear of the U.S. concern about unwanted subsidies. Unlike the rest of Canada, where timber rights are held 93% on Crown lands, more than three-quarters of the land in Atlantic Canada is privately held. Stumpage fees are based on a market value assessment acceptable to U.S. practices.
Despite the Atlantic's pricing structures, which date back to the mid-'80s, when the first round of lumber disputes erupted under the fledgling Free Trade Agreement, one in three mills down east is currently closed.
"This proposal is a bad deal for Atlantic Canada and is unacceptable," says Diana Blenkhorn, president and CEO of the Maritime Lumber Bureau, in a prepared release. "This current proposal punishes the only region in this country that has never received an allegation against its market based trading practices." |
| FACING FIRST QUARTER LOSSES, HBC BEEFS UP HOME DÉCOR LINES |
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Toronto, ON — Hudson's Bay Co. saw sales creep up in the first quarter from $1.50 billion to $1.54 billion, but the company's losses deepened from $6 million last year to $34 million in 1Q 2003. Sales increased at Zellers and Home Outfitters, largely due to sales of hardlines, but sales at the Bay declined, hurt by poor Spring weather, SARS and a write down on the discontinuation of the Martha Stewart line.
Sales and revenue increased over the last year by 0.3% to $1.53 billion in the first quarter of 2003. Same-store sales increased at Zellers by 0.2% and decreased by 4.0% at the Bay.
"The hardlines part of our business has increased 3% and certainly outpaced the rest of the company's sales," says Bruce Dinan, senior vice-president of merchandising at Zellers. Really, our results reflect apparel and seasonal businesses that were soft."
Recognizing the growth potential of home décor and furnishings, HBC unveiled three new brands at its annual general meeting last week. They are House & Home, Waverly and SIA.
 The House & Home line, a brand extension of House & Home Television, designed by Lynda Reeves, will feature everything from bedding and bath accessories to décor items for other parts of the house, including the garden. The brand will be introduced exclusively at the Bay this Fall.
Waverly is a line of bath and bedding that will be available at both the Bay and Home Outfitters stores later this year. Waverly décor, a sister brand, features a range of merchandise for the bedroom, kitchen, bathroom and living areas, and is already available in Zellers stores across the country.
 SIA comprises a range of artificial flowers and plants, vases, accessories and candles, encompassing themes designed around particular themes and events, such as weddings and holidays. The brand will be available in Bay stores nationwide by this Fall. |
| RESET DEPARTMENTS BOOST SALES AT HOME DEPOT |
| Atlanta, GA — Extensions of product lines and services are producing positive results for Home Depot, whose officials expressed "new confidence" about the retailer achieving its sales and profit targets for 2003.
During a recent teleconference with analysts, company officials showcased the performance of several departments that have been overhauled. While the chain's same-store sales fell 1.6% in the first quarter, its kitchen and bath departments' comps grew 22%, mainly on the strength of larger, better assorted appliance areas that are being rolled out chain wide.
Double-digit unit sales gains in its line of John Deere tractors (which are generating an average ticket of US$2,000) boosted the same-store sales in its stores' lawn and garden departments.
Some analysts have criticized Home Depot for the turmoil caused by its ongoing efforts to reset many departments with new product lines. Company officials countered that criticism by stating that 15 of 22 reset departments produced sales increases that exceeded the chain's as a whole. For example, resets of cleaning supplies enjoyed a 22% sales gain. When the carpeting department was reset, sales went up 15%.
Nine of 11 departments also reported increases in average ticket sales.
The company also noted that its "core services," which include rental and installation, grew by 36% in the first quarter. Home Depot has identified services as being one of the drivers of same-store sales for the rest of the decade. |
| COUNTRY DEPOT CONVERSIONS PRESAGE WESTERN ROLLOUT |
| Winnipeg, MB — Country Depot, one of the banners inherited by TruServ Canada when it took over Growmark's retail division beginning of this year, has signed a new member dealer. Simon and Caroline Ffrench took over the former FS store (another Growmark banner) in Alliston, ON from Simcoe District Co-operative in early April. This is TruServ's 22nd Country Depot.
But it's also just the first step to expansion beyond Ontario. "Right now, we're converting the Ontario stores, but wait until we roll it out in the West," says Ray Falkenberg, vice-president business development and marketing for TruServ. That move is simply awaiting the necessary distribution channels for Western Canada. "We're busy lining up large animal feed suppliers. There are a number of existing co-op stores that fit the Country Depot format," he adds.
At the recent TruServ Spring dealers' market in Winnipeg, a complete Country Depot store was set up right on the show floor. "It was a huge hit with our existing dealers and many of them are considering adding on a new business," says Falkenberg. |
| CANADIAN TIRE SHARPENS OUTLOOK
WITH 20/20 STORE CONCEPT |
| Toronto, ON — Canadian Tire Corp. is getting closer to unveiling its next generation of stores. Called 20/20, the concept, besides keeping its eye on the consumer (okay, okay, I get it — Editor), endeavours to take back up to 20% of the retail space available from the warehouse side of the store.
The 20/20 strategy goes right back to Canadian Tire's distribution process. The new stores, although only slightly larger than a typical Canadian Tire "A" store, will have at least 15% more retail as the back end is downsized. The company is experimenting in a few stores right now with increased numbers of shipments that will reduce dealers' inventory. Not only does the plan enable these stores to shrink their warehouse space accordingly, it also means higher turns.
Another aspect of 20/20 currently being tested in the two existing Kingston stores, plus one in Belleville, is equipment rentals. However, the notion of rentals is being expanded dramatically beyond heavy duty tools, cleaning and gardening equipment. Under the new program, consumers can rent everything from tents, canoes and other camping equipment to bar fridges and party sized barbecues.
The first four 20/20 stores will open at various times during the Fall. All except one will be located in Ontario: in Kitchener/Waterloo, Pembroke and Markham. The fourth will be a second store in Prince George, BC. |
| INDUSTRY STOCK WATCH |
|
COMPANY |
52-WEEK HIGH |
52-WEEK LOW |
CLOSE FRIDAY |
| Canadian Tire |
35.50 |
26.80 |
34.85 |
| Canfor |
11.70 |
6.83 |
7.70 |
| Costco |
41.35 |
27.00 |
37.25 |
| Goodfellow |
13.99 |
9.88 |
10.25 |
| Home Depot |
42.27 |
20.10 |
32.49 |
| Hudson's Bay |
14.95 |
5.87 |
8.53 |
| Lowe's Cos. |
48.61 |
32.50 |
42.26 |
| Rona Inc. |
17.74 |
11.75 |
17.60 |
| Sears Canada |
25.10 |
13.60 |
15.74 |
| Sodisco-Howden |
1.90 |
1.06 |
1.75 |
| Taiga Forest |
7.00 |
5.85 |
6.95 |
| Wal-Mart |
58.88 |
43.72 |
52.61 |
| West Fraser |
39.46 |
26.27 |
30.50 |
|
| NOTED… |
| The Canadian Hardware and Housewares Manufacturers Association will host its summer golf tournament on Tuesday, June 10, 2003 at the Rolling Hills & Station Creek Golf Clubs in Stouffville, ON, about half an hour north of Toronto. Dinner and golf are $175; dinner alone is just $80. It's for CHHMA members only and it's selling out fast! (416-282-0022) The city of Fredericton ruled 7-5 in favour last week to allow Sunday shopping. Through the rest of New Brunswick, each municipality will be able to vote on its own whether to stay open or not. Home Depot opened until midnight on Thursday before the Victoria Day long weekend. |
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| COMPANIES IN THE NEWS |
| Toronto, ON — Sears Canada has made a deal to buy the Esso Home Comfort service and equipment business of Imperial Oil in parts of Ontario, Quebec, Nova Scotia, and Newfoundland. The arrangement takes effect in late September 2003, when existing Imperial Oil customers in these selected markets will have their service and equipment needs switched to Sears HomeCentral, the retailer's in-home sales and service arm. Details regarding the transition will be sent out to customers over the next few months. The deal allows for lots of cross promotion to let Sears and Esso leverage other products and services.
Vancouver, BC — Canfor Corp. has completed the previously announced purchase of Daaquam Lumber Inc. and Produits Forestiers Anticosti Inc., two privately owned lumber and timber harvesting companies based in Québec City. Daaquam is a lumber manufacturing operation located in Saint-Just-de Bretenières, Quebec, with an annual capacity of 150 million board ft., and timber-cutting rights in the surrounding region. Anticosti holds additional timber rights and has harvesting operations on Anticosti Island.
Toronto, ON — Canadian Tire has added the popular Schwinn line of U.S. bicycles to its sporting goods department, which falls under the aegis of Pamela Griffith-Jones, divisional vice-president, sporting goods. Canadian Tire claims one out of every three bike sales in Canada, but there are no bike racks in front of their stores (Oh, lay off Canadian Tire, already! - Editor)
Atlanta, GA — Home Depot has announced it will buy back up to US$500 million in stock. The open-ended plan will allow the company to repurchase shares on the open market "from time to time." In the same announcement, CEO Bob Nardelli reiterated the company's plan to invest US$4 billion this year to expand and rejuvenate stores. Home Depot has 1,568 stores throughout North America, 36 of which opened during the company's first quarter ended May 4.
Issaquah, WA — Costco saw earnings increase rise 18% to US$153.8 million, up from US$130.4 million in the same period a year ago. Net sales for the quarter rose 11% to US$9.34 billion. Total revenue, which includes membership fees and other revenue, took that number up to US$9.54 billion from $8.62 billion a year earlier. Same-store sales rose 6% in the quarter.
Guelph, ON — With the right promotion, Porter-Cable Delta has found that the combination of a $100 rebate and price reduction managed to double sales for the power-tool manufacturer's framing nailer and compressor combo kit. After a test, the "Incredible Compressor Rebate" program was expanded to include three more items. Sales through the program are expected to exceed $1 million, all flowing through Porter-Cable's MAC Call Center in Apsley, ON.
Marysville, OH — The Scotts Co. will expand beyond lawn care and garden products into the pottery category through a couple of proposed acquisitions. With the purchase of Florida-based Pam Pottery, Scotts will add two pottery lines under the Miracle-Gro name in fiscal 2004, supported by aggressive advertising and merchandising. It has also signed a letter of intent to buy Scan-Pot USA. The entry into the estimated US$1 billion pottery market adheres to a company strategy to grow into new areas of lawn and garden.
London, England — Shareholders have insisted that Kingfisher plc revise the pay packages for its top directors, says an item in Reuters. Kingfisher is not alone: there's a growing wave of shareholder discontent over executives who get handsomely rewarded even when the company's results don't warrant it. |
| PEOPLE ON THE MOVE |
Wendy Montesano has moved over to the buying side at Canadian Tire Corp. as team administrative assistant for the hardware team. She was formerly in corporate communications. Montesano now reports to Ed Johnston, divisional vice-president and general merchandise manager for CTR hardlines. (416-480-3000)
Paul Levesque, COO of Michaud & Levesque Ltd., a True Value dealer in Sturgeon Falls, ON, has been awarded the 2003 Young Retailer of the Year Award. The award, presented by the National Retail Hardware Association in the U.S., recognizes outstanding performance by owners and managers of independently owned hardware and building centres throughout North America. Levesque won in the category of stores under $2 million in sales. His operation includes a V&S Variety and Just Ask Rental along with the True Value banner.
 Robert Walker has been appointed Ontario plywood specialist for CANPLY — the Canadian Plywood Association, effective today. He brings 19 years in wood products promotion and sales to this post, having worked at Metric Forest Products and most recently at Oliver Lumber Co. He will be based in Brampton, ON. (For now you can reach him through head office: 604-981-4178) |
| MARKET INDICATORS |
| Economic activity picked up in the first quarter of 2003, as real gross domestic product advanced 0.6%, says Stats Canada. The increase was the result of strong inventory accumulation and sustained household demand. This was up from 0.4% in the fourth quarter. The Canadian economy outperformed that of the U.S., where GDP advanced 1.9% in the first quarter on an annualized basis, compared with a 2.4% increase in Canada.
With mortgage interest rates at 40-year lows, U.S. home resales stayed strong in April, rising 5.6%, says the National Association of Realtors. They grew to a seasonally adjusted annual rate of 5.84 million units from 5.53 million in March. Sales of new homes were up 1.7% to a seasonally adjusted rate of 1.028 million, according to the U.S. Commerce Department, the third fastest pace since the government began tracking the data in 1963.
Building permits for residential construction in the U.S. in April increased 1.2% over March, and the rate was up 2.8% over the same month a year earlier, says the Commerce Department. Privately owned housing starts, however, were down in April by 6.8% from March to a seasonally adjusted rate of 1,630,000. April's starts were up, though, over April 2002, by 2.7%.
U.S. manufacturers report that orders being placed for the next several months have been picking up, and that could be a good sign for the U.S. economy. A survey of its members conducted by the National Association of Manufacturers found that two-fifths of the 75 respondents saw higher orders in May. By comparison, a similar survey taken last year found 56% of those polled stating that their April orders were off. Of those polled this year, 43% expect their orders in June to be higher than the same month a year ago. |
| OVERHEARD… |
| "It's a great concept. You can rent a mini-beer fridge and a chain saw for the weekend and you're all set." — Rob Gerlsbeck, droll editor of Hardware Merchandising, on the new equipment rental initiative being rolled out by Canadian Tire this Fall. |
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John Caulfield, Contributing Editor
vol. ix, #22 June 2, 2003
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