John Caulfield, Contributing Editor
vol. xi, #18, May 2, 2005

IN THIS ISSUE: • Patience, patience: Buyers’ message • TruServ market pushes best practices • Zellers will sell more big ticket items • Home Depot rolls out floor stores • True Value reports 1Q • Sears completes buyout of furniture, electronics group * * * * * *

“On matters of style, swim with the current, on matters of principle, stand like a rock.” Thomas Jefferson 
TORONTO Industry intelligence. Good pricing. Innovative products. These are important for any vendor attempting to do business with Canada’s top hardlines retailers. That was a message repeated by many of the buying executives who spoke at the Hardlines Meet the Buyers Breakfasts in Toronto and Montreal last week. But the expectation shared by all the buyers was that vendors have patience. Getting through, making contact, is not enough. In Toronto, buyers from Sears Canada, Canadian Tire Corp., and Home Depot Canada represented the major retailers. An overview of one of Canada’s fastest growing independents, London-ON based TSC Stores, was offered by that company’s merchandise director, Bill Wilson. He was followed by David Nisbet, who heads up Mutual Hardware, the national hardware buying group of which TSC is a member. Another Buyers Breakfast was held two days later in Montreal (more on that next week–MM). But just breaking through requires determination and lots of homework. One of the key tips each retail buyer reiterated was the need for new vendors to be up on their knowledge of the industry overall. “Market intelligence. This is really important,” said Scott Urie, national merchandise manager at Sears for Craftsman, home and electronics, Sears Canada. “It’s important to know the size of the market and how your product fits in.” He stressed the need to understand the retailer itself. “You have to know about Sears,” he stressed. “Our target customer is women and their families.” Even for vendors selling to Craftsman, a strong brand aimed at the man, he said, “Ask yourself how your product fits in.” Urie summed up the concerns of many of the buyers represented over both days. “Know your channel, know your product, know your competitor.” John DeFranco, division product manager for lawn and garden at Home Depot Canada, noted some of the initiatives that his company is moving ahead with, including installed sales and tool rentals, the latter of which will be in all Canadian stores by year’s end. The commercial-industrial side is also growing rapidly. Home Depot Supply is part of the retailer’s strategy to grow its business-to-business channel. The recent acquisition of Litemor, a commercial lighting supplier, reflects Home Depot’s focus on B2B. DeFranco noted that his category, seasonal, is growing within Home Depot to the point that the company is fast becoming one of the top 10 garden retailers in North America – opening up a huge opportunity for manufacturers in that sector. Home Depot is at the forefront of a number of technologies to streamline the supply channel. DeFranco said compliance with UCC – the international data bank that synchronizes international product codes – is important for vendors, as is familiarity with EDI and other technologies. “You can impress a buyer in a presentation by showing that you have the electronic and technology issues resolved.” Do you have to be a major supplier to deal with a major retailer like Home Depot? The answer is probably yes – most of the time – but not always, especially if you offer something unique. “The smaller and medium-sized companies – these are often the ones bringing the innovations.” (Next week: highlights from our amazing Montreal Buyers Breakfast!)
WINNIPEG The recent TruServ Spring Market offered the dealer-owned co-op’s members a number of innovations designed to build all three of its key banners, namely True Value hardware, V&S Variety and Country Depot farm and rural. In fact, each of these programs currently has a “best practice” store in the field, serving as a lab to help fine tune methods for dealers to raise the bar on a number of benchmarks, including customer traffic, average basket size and customer closure rates. According to Ray Falkenberg, vice-president business development and marketing for TruServ Canada, the stores are generating “outstanding results,” which, in turn, managed to generate a lot of interest among dealers attending the market. The purpose of the Best Practice program, says Falkenberg, is to arm independents in smaller communities to combat the arrival of large-surface stores, especially Wal-Mart and Superstore. “We find if you do nothing when these people move to town, your sales go down as much as 40%,” he says. However, the stores that are following TruServ’s best practices are managing to stabilize sales in the face of new big box competitors. Three stores are currently being put to the test: a True Value in Nepawa, MB; a V&S in Morden, MB; and a Country Depot in Kingston, ON. Changes have been made to store layouts, with wider aisles, power aisles, and brighter signage. Product mixes have been adjusted, with emphasis on seasonal products (the 2004 Christmas season proved very successful, says Falkenberg). “Dealers have to compete with the big guys,” he says, “getting traffic up and average basket size up are important measures. Dealers also have to learn how to increase the percentage of people walking into the store who actually end up buying.”
TORONTO A pilot program selling large appliances in Zellers stores has gotten the stamp of approval by parent company, Hudson’s Bay Co., for a full roll out.The so-called “Big Ticket” departments, currently in place in 51 Zellers mass merchandise stores across Canada, offer an expanded assortment of appliances, mattress sets and furniture. The program was extended to an additional 27 stores this past weekend, while another 19 will get the upgrade by the fall. Originally launched at Zellers stores in October 2004, the Big Ticket initiative was piloted in Manitoba, Quebec and Ontario. Three different combinations of Big Ticket departments are being introduced: nine stores will sell a small assortment of appliances, 83 will offer an enhanced merchandise selection, including appliances and mattress sets, and five will offer a full selection of appliances, mattress sets and furniture. The merchandise assortment combines private label and brand name appliances, including GE, Frigidaire and White Westinghouse. “The consumer response to Big Ticket merchandise at Zellers has been strong,” said Gary MacDonald, senior vice-president, Hbc and general manager, stores, for the Zellers division. “We're experiencing above average sales increases in these departments."
DALLAS — Home Depot has finally decided to expand its fledgling Floor Store concept. Last month, the giant home improvement retailer opened five flooring specialty outlets in Southlake, Mesquite, Fort Worth, north Dallas and Lewisville, Tex. A company spokesman told the Atlanta Journal Constitution that these stores, which average around 14,000 sq.ft., would serve as “feeder” units for Home Depot’s 45,000-sq.ft. Floor Store in Plano, Tex., which opened in 2000. Home Depot operates another test Floor Store in Margate, Fla.In related news, the U.S. Remodelers subsidiary of U.S. Home Systems has expanded its kitchen and bathroom refacing service agreements with Home Depot to seven additional markets — Austin, Dallas, Houston and San Antonio, Tex.; Grand Rapids, Mich.; Salt Lake City and Reno, Nev. — in which U.S. Remodelers will sell, furnish and install kitchen and bathroom refacing products. Home Depot has about 140 stores in these markets. U.S. Remodelers’ product lines will be offered in all of the markets, except for the Dallas stores, which will only offer the U.S. Remodelers kitchen refacing products. U.S. Remodelers will begin offering its products in these markets in the second quarter of 2005.
CHICAGO True Value Company reported revenue of $503.6 million for the quarter ended April 2, 2005, an increase of 0.8%, or $4.2 million, from $499.4 million for the same period a year ago. Net margin for the quarter was $2.6 million, an increase of 24% versus $2.1 million a year ago. “Following a stabilized 2004, first-quarter revenues and earnings were up slightly, driven by improved same-store sales and our continued focus on operating efficiencies,” said Tom Hanemann, True Value’s president and CEO. “Our merchandising team continues to drive assortment enhancements and price reductions for the co-op and membership.” The member-owned wholesale hardware co-operative reported sales of $2.0 billion in 2004, to its approximately 6,000 independent retailer locations worldwide.
A story last month about compensation paid by Home Depot to its top executives in 2004 included some incorrect information. The retailer increased the total compensation (which includes salary, bonuses, stock options and other payments) for Frank Blake, its executive vp-business development and corporate operations, by 31.8% to $4,011,081. John Costello, Depot’s executive vp-merchandising and marketing, received $4,077,381, representing a 29.3% increase over 2003. Dennis Donovan, its executive vp-human resources, received a 15.1% bump to $5,324,162. And CFO Carol Tome received a 21.9% increase to $3,995,928.
The National Hardware Show in Las Vegas, May 16-18, will once again offer a comprehensive conference program. Join Hardlines, in conjunction with the Presidents Council, for a world-class retail panel, “Global Retailers: Best Practices from Around the World,” on May 18 at 3 p.m. Panelists are: John Herbert, general manager of the European association of DIY retailers; and Robert Collins, Director of International Sales and Retail Development, Ace Hardware Corp. Harald Lux, head of Emil Lux in Germany, which includes OBI, has also agreed to join us. If that wasn’t fantastic enough, we also have a commitment from Jim Lowe, director of strategic research at Focus DIY plc in the U.K, to participate. This innovative event will be followed by an international reception from 4:30-5:30 p.m. For more info, click here .
TORONTO Sears Canada Inc. has completed the acquisition of Cantrex Group Inc., including its wholly-owned subsidiary Corbeil Electrique Inc. Cantrex is said to be Canada’s largest buying group for independent merchants in the furniture, appliances, electronics, computers, floor covering and photography equipment sectors. It serves more than 1,000 retail outlets across Canada. The purchase is part of Sears Canada’s plan to further leverage its supply chain services in the furniture and appliances sectors and to sell to a wider range of independents. Corbeil Electrique is a specialty appliance retailer with 23 franchised stores and five company-owned outlets, all located in Quebec and the Ottawa Valley. TROY, MI Frank’s Nursery & Crafts Inc. has received approval from the United States Bankruptcy Court for the Southern District of New York to commence solicitation of votes for approval of its Second Amended Chapter 11 Plan of Reorganization, thereby enabling it to complete its Chapter 11 restructuring. The company has finished winding down its store operations, following a series of “going out of business” sales and the sell-off or rejection of substantially all of its leasehold interests. The company will hold onto about 42 parcels of real estate, which will be developed under the reorganization. TORONTO Home Depot Canada, in partnership with the Clean Air Foundation and the Government of Canada's One-Tonne Challenge, is offering again this year a “Mow Down Pollution” lawn mower recycling and rebate program. Customers can turn in their old stinky lawn mowers for a rebate of up to $100 on the purchase of a reel mower or electric mower. This year, Home Depot will donate $10,000 in lawn and garden care supplies to the municipality whose citizens have turned in the greatest number of old gas lawn mowers to Home Depot between April 28 and May 8, 2005. SAN FRANCISCO Building Materials Holding Corp., one of America’s leading pro dealers, saw its net income jump to US$21.1 million in the three months ended March 31, compared with US$4.2 million for the same quarter a year earlier. Revenue during this period increased 37.4% to US$572.9 million, from the company’s BMC Construction subsidiary, which provides turnkey shell construction installation for builders. BMHC’s lumberyard, division, Idaho-based BMC West, reported a 20% sales gain in the first quarter, to US$330.7 million, and a doubling of its operating income to US$28.9 million. TOWSON, MD Power tools and faucets drove Black & Decker’s financial performance in the three months ended April 3, during which the company’s net income rose 71.7%, to US$148.7 million, on revenue that increased 39% to US$1.52 billion. During the quarter, the company’s power tools and accessories segment, led by its DeWalt line, increased its sales by 50%. The company reported that industrial cordless power tools sales were “particularly strong.” B&D also benefited from a 25%-plus gain in sales of Price Pfister-branded plumbing products, which helped boost the overall business in its Hardware and Home Improvement segment by 9%. OAK BROOK, IL Ace Hardware Corp. has signed a 10-year extension to its business agreement with Ace Israel that will continue supplying the Israeli retailer’s 25 hardware stores and building the Ace brand in that country. The signing took place today at Ace Hardware’s corporate headquarters here. The Ace Israel Group first allied itself with Ace in 1993 and, at that time, operated four stores. The company has since grown the business to include 25 hardware stores in cities such as Tel Aviv, Jerusalem and Haifa. A 26th store is planned to open later this year in Afula. WASHINGTON A growing movement to get Wal-Mart’s 1.2 million American workers organized by unions now has the support of political know-how. Paul Blank, one of the leaders of the movement, was formerly national political director for Howard Dean, Governor of Vermont, who ran for leadership of the Democrats. With Blank in charge, the union-organizing movement against Wal-Mart has all the sophistication of a political campaign, with website, volunteer recruitment, etc.
Vasken Altounian is joining Delta Faucet Co. in Indianapolis as executive vice-president – sales and marketing. Vasken will depart his current role as president of Delta Faucet Canada, which he has held since April 1999, Effective June 1st … Rod Pullen will assume the role of president – Delta Faucet Canada in addition to his role of president of BrassCraft Canada … Aaron Jarosz has been promoted to the position of key account manager at Delta Faucet Canada. He will be responsible for The Home Depot Canada account. A Delta veteran since 1999, he has served in various sales roles associated with The Home Depot during the last 6 years.
Retail sales enjoyed a hike in February of 1.7% to $30.4 billion, says Stats Canada. That’s the first time consumer spending has topped the $30 billion mark. February’s gain followed an even healthier increase of 2.1% in January. All retail sectors, except general merchandise stores, showed higher sales in February, including a 2.4% gain in the building supplies sector.

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