John Caulfield, Contributing Editor
vol. xi, #20, May 16, 2005

IN THIS ISSUE: • Sales up, profits down at Canadian Tire • Rona’s same-store sales near 5.8% in 1Q • TruServ wants grocery customers • Home Hardware signs “garden guru” • Weather dampens Ace’s results • Sears looks for buyer for Orchard stores • SPECIAL PRE-SHOW ISSUE: NHS IN LAS VEGAS * * * * * *

“The safest course is to do nothing against one's conscience. With this secret, we can enjoy life and have no fear from death.” Voltaire (French author, humanist, rationalist, & satirist, 1694 1778)  
TORONTO — Canadian Tire’s net income for the first three months of its fiscal year declined by 13.7%, to $35.3 million, on revenue of $1.6 billion that was up 8.7% over the same period in 2004. The company’s retail sales increased 4.8% to $1.15 billion, and its same-store sales rose 2.5% over the same quarter a year ago. The retailer said that its stores’ sales were strongest in housewares, tools, car care and accessories, and electronics/home office. Sales in the automotive parts category declined due to weakness in Canada’s automotive aftermarket in Canada. Wayne Sales, Canadian Tire’s CEO, said that the company’s earnings were impacted negatively by two factors: product shipments to Canadian Tire stores that did not keep pace with retail sales; and by “non-operating factors,” including the $5.3 million cost associated with the early redemption of a medium-term note. The company also reported a $4.3 million increase in its advertising expenses for the quarter. Shipments of products to Canadian Tire’s stores were lower than in the first quarter of 2004, partly because of the timing of store openings, but also because dealers have been reducing their inventories to get them more in line with seasonal demand. This year, Canadian Tire plans to open 20 stores, the majority of which will be to the specifications of its new Concept 20/20 format, and to retrofit another 12 to 15 stores to that format. At the end of the most recent quarter, Canadian Tire operated 458 stores, including 29 20/20 units and seven Canadian Tire/Mark’s Work Wearhouse combination outlets.
MONTREAL — Recruiting new dealers and generating more business from existing members helped boost Rona Inc.’s first-quarter financial performance, which saw the buying group’s consolidated revenue jump 9.1% to $716.9 million, and its earnings rise by 26.9% to $14.2 million.Robert Dutton, Rona’s president and CEO, said those gains were the result of a 4.8% increase in same-store sales at its members’ outlets, as well as “expansion of our corporate and franchised networks.” During the quarter, Rona finalized its $100 million acquisition of the 14-unit Totem Building Supplies, whose financial results will be included into Rona’s starting in the second quarter. During the quarter, Rona’s wholesale sales grew by 10.3% to $417 million, while its retail sales increased 8% to $477.8 million. Cash flow from its wholesale sales rose 15.1% to $14.9 million, and by 13.9% to $22 million from its retail sales. The company also completed a 2-for-1 stock split. On May 4, Rona entered into an eight-year agreement that guaranteed its sponsorship rights for the 2010 Olympic and Paralympic Winter Games, as well as its sponsorship of the Canadian Olympic Team in Turin, Italy, in 2006; in Beijing, China in 2008; in Vancouver in 2010, and during the 2012 games, whose venue has yet to be determined. Rona’s investment in cash and products for those sponsorships is valued at $68 million.
WINNIPEG –Today, retailers from grocery to pharmacies are increasing their ranges of hardware and general merchandise. While other groups look for ways to fight back against this blurring of retail lines, Western-based co-op hardware wholesaler TruServ Canada just wants to sell them more product. Grocery chains are aggressively expanding their general merchandise assortments, led by Loblaw Cos., which flies the Great Canadian Superstore and Loblaws banners. The addition of hardlines, housewares and kitchenwares is seen as a counter-offensive against Wal-Mart’s expansion into food and grocery. But that counter-offensive has also created a new customer base for TruServ, which already supplies hardware, soft goods and general merchandise to True Value hardware and V&S variety banners. “We’ve developed a program where we can deliver a complete hardware assortment,” says Dave Leonzio at TruServ Canada. “We can provide a basic general merchandise package to small and medium sized grocery stores.” Started in January, the program is still in its preliminary stages, says Leonzio, with a test in Big Way Foods in Tuelon, MB. In addition, 12 of TruServ’s V&S stores in Alberta are carrying groceries. “The program gives these dealers, which are serving small-town markets, categories of product to put in their stores that they didn’t have before, so their customers don’t have to go down the street to get that item.” Pharmacy is another retail sector that TruServ is pursuing. In fact, for the past three years, the company has been supplying general merchandise to three V&S stores in New Brunswick that also carry the Pharmasave drug store banner. The experience has given TruServ some insights into what kinds of products work in that kind of retail environment. “It helps us understand a little better what a pharmacy can be,” Leonzio says.  
BARRIE, Ont. – Can-Save, the specialty distributor located here, has been doing some corporate self-examination lately. The company, which specializes in house wraps, kitchen packages and doors, gradually added lines as customers asked for them over the years. But by doing so, it found itself straying further from its LBM roots – and creating confusion in the minds of some customers.As a result, Can-Save has done a re-evaluation of its positioning, which resulted in a tightening of its offerings. Over the past 18 months, it has wound down its hardlines, jettisoning line after line, to return to three core categories, its specialty LBM products – mainly membranes – plus its door division, which has grown rapidly over the past three years, and a kitchen division. “If it doesn’t fit into either of those three categories, then we get rid of it,” says Larry Koza, who with his brother Cully, is co-owner of Can-Save. The expansion into more lines occurred over time, in an opportunistic, rather than strategic, way, Koza says. As customers asked for new lines, Can-Save would take advantage of the opportunity to increase business with those customers. Products included everything from sandpaper and batteries to caulking. “Anything we could get our hands on, we’d take on. But not any more.” The kitchen program has got some unique features, which exemplify Can-Save’s mandate to add value to its role as a supplier. The program has 2,000 SKUs, and five designers are on staff, with nine sales reps on the road – all to give the independent dealer the support they need. At the heart of the program is the establishment of a sense of trust with dealers looking for a reliable, service-driven supplier. To solidify those relationships, potential new dealers are invited to get a tour of Can-Save’s facilities, then get dinner and stay overnight, courtesy of Can-Save. About 14 tours a week are conducted. In fact, no new account will get credit from Can-Save until they’ve taken the tour. “Every dealer has had a bad experience with a kitchen sale,” explains Koza. To head that off, a strong relationship with each dealer helps that dealer understand how Can-Save can help him deliver a kitchen installation – without the headaches. The focused strategy has paid off, as fewer hardlines have enabled Can-Save to increase sales overall, backed by training and product knowledge in its core categories.
SAN JOSE, Calif. — Orchard Supply Hardware, the venerable, 74-year-old hardware store chain based here, will be sold or spun off as a separate, publicly owned company, by Sears Holding Corp., which has owned the 82-store Orchard since 1996.Sears Holding, the Hoffman Estates, Ill.-based corporate entity formed when Kmart and Sears Roebuck & Co. merged, is pruning its operations to focus on its department-store business and its off-mall growth strategy through Sears Essentials and Sears Grand. For example, Sears has announced that it would sell Land’s End, the catalog clothing dealer, for which Sears paid $1.9 billion in May 2002. Sears didn’t comment on the timing of its decision to sell Orchard, except to state that it was “pursuing alternatives to provide Orchard Supply Hardware with the capital to grow its store base.” To handle the Orchard deal, Sears has retained Citigroup Global Markets and Lehman Brothers as financial advisors. Ted McDougal, Sears’ vp-public relations, told HARDLINES that this decision would not affect Sears Holdings’ 163-unit Sears Hardware operations. In April, the company disclosed that it had added appliances to another 27 Sears Hardware outlets in seven states, bringing the total number of those stores offering appliances to 115 units. Earlier this year, it launched its first Sears Hardware stores in Canada, as well. Nine years ago, Sears bought Orchard — then a 61-unit operation — for $415 million, and attempted to meld Orchard with Sears Hardware. The two dealers never really meshed, though, partly because Orchard’s stores, which range from 41,000 to 60,000 sq.ft. and stock 45,000 SKUs, are much larger and better assorted than Sears Hardware units, which, at 22,000 sq.ft., are less than half the size on average. Several years ago, Sears experimented with using Orchard’s store format model to expand a number of Sears Hardware in the Northeast to as large as 55,000 square feet. Gary Balter, a retail analyst with UBS, was widely quoted as estimating that Orchard would fetch $300 million – well below the price Sears paid for it. He also suggested that Home Depot and Lowe’s might be potential buyers. That speculation makes some sense, in that both big boxes are already testing smaller-format versions of their own stores. However, Home Depot has been moving more aggressively into the pro sector. It may also have its eye on bigger fish than Orchard, as rumors persist that Home Depot covets B&Q, the hardware and home improvement division of U.K.-based Kingfisher, despite denials of any impending deal by Kingfisher officials. (See story elsewhere in this issue)
LONDON – According to Kingfisher CEO Gerry Murphy, his chat two weeks ago with Bob Nardelli, head of Home Depot, was strictly “routine.” He admits he also spoke with executives from Lowe’s, in what were just state-of-the-industry discussions. Nevertheless, the meetings, combined with the drop in Kingfisher’s share price, fueled rumors that they may once again be the target of a takeover bid. The cost of taking over Europe’s largest home improvement retailer, based on its current share price, would be close to 6 billion pounds. But there are some deterrents to making it a plum acquisition for either Home Depot or Lowe’s. Strict employment rules in France, which favour unions, and where B&Q has a strong presence with its Castorama stores, combine with the weakness of the U.S. dollar against the euro. However, B&Q has a strong presence in China. With the recent takeover of 14 OBI stores there, it now has 36 stores in total. Home Depot, despite having offices there, has zero stores in China.
SPECIAL REPORT – The biggest industry show in North America is only a week away. The 60th edition of the National Hardware Show takes place in Las Vegas, May 17-19, and in only its second year at its new location, the show is sold out. More than 3,100 vendors will be on hand, filling 680,000 sq.ft. in both the Sands Convention Center and Las Vegas Convention Center. Hardlines will be front and centre at this year’s show with the educational and networking events you’ve come to expect from Hardlines! Here are some things you should put on your networking calendar in Las Vegas…We start off with “What's Hot in Lawn & Garden,” Tuesday, May 17 at the Sands Convention Center. Time: 2-2:45 p.m. Come learn more about the factors driving lawn and garden sales in the U.S., in North America and around the world. Featuring: Panelists are Bruce Butterfield of the National Gardening Association, Friedericke van Sandt of Planto, a specialty manufacturer in Germany, and Rob Lunan, manager of garden and gift lines at Lee Valley Tools. John Caulfield, contributing editor of Hardlines, will moderate the panel. The Canadian Hardware and Housewares Manufacturers Association will host its annual Maple Leaf Night/Soirée Feuille d'érable on Tuesday, May 17, at the Curve Night Club-Aladdin Resort & Casino. Time: 5:30-8:00 p.m. More than 100 vendors are already signed up to rub shoulders with Canadian Tire, Fedco, Home Hardware, House of Tools, BMR, Sears, TruServ, TSC, Zellers, and more. For more info, contact: CHHMA, 416-282-0022. Hardlines, in conjunction with the Presidents Council, present "Global Retailers: Best Practices from Around the World," Wednesday, May 18 at the Las Vegas Convention Center. Time: 3-4:30 p.m. Featuring: a world-class retail panel: John Herbert, general manager of the European association of DIY retailers; Robert Collins, Director of International Sales and Retail Development, Ace Hardware Corp.; Harald Lux, head of Emil Lux in Germany; Jim Lowe, director of strategic research for one of the leading home improvement retailers in England, Focus DIY. Michael McLarney, Editor & Publisher of Hardlines, will serve as moderator. Hardlines, in partnership with the National Hardware Show, presents an International Reception at the Las Vegas Convention Centre (immediately following the "Global Retailers" panel). Time: 4:30-5:30 p.m. Want to connect with buyers from the U.S., South America and overseas? This will be the absolute best place in Las Vegas to do it! For more info, click here. If you want to meet some top international buyers one-on-one, you should definitely sign up for “International Buying Day,” organized by the Presidents Council, on Monday, May 16, the day before the show starts officially. The Buying Day is designed to provide an efficient forum for suppliers who want to expand their market share. Because of the individual appointment format, the Buying Day is limited to 40 suppliers, who will have individual meetings with the following participating retailers: B&Q - U.K.; Focus DIY – U.K.; Globus – Germany; Homebase – U.K.; Komeri – Japan; and Sodimac – Chile. Cost is US$2,000 per vendor. click here to receive more details.
ST. JACOBS, Ont. – Home Hardware Stores will announce next week its formal partnership with well-known garden guru Mark Cullen. Cullen, whose family’s business, Cullen Gardens. was merged recently with Sheridan Nurseries, is a well-known columnist and syndicated radio gardening expert. The strategic partnership will tie in with Home’s increased focus on both the garden category and the female shopper to whom that category caters.OAK BROOK, Ill. — Ace Hardware, the industry’s largest dealer-owned buying group, would just as soon forget about the first three months of this year, when its profits fell 12.6% to US$14.6 million, on wholesale sales of $798.8 million that inched up 1.2% to US$798.8 million. Inclement weather, higher energy costs, a drop-off in consumer spending and a later scheduling of its spring dealer convention all contributed to Ace’s sluggish financial performance, according to Ray Griffith, the co-op’s president and CEO. HOUSTON — Garden Ridge, the home décor dealer with 35 stores in 13 states, has emerged from bankruptcy protection under Chapter 11 with a reorganization plan that a Delaware court approved late last month. That plan could move forward after unsecured creditors agreed to accept a distribution of preferred stock. The company, based here, can operate with a $25 million equity investment by Three Cities Research, a New York-based investment firm, and an $80 million credit line from Bank of America and GE Capital. BENTONVILLE, Ark. – Wal-Mart reported a 14% increase in first-quarter earnings, which grew to $2.5 billion from $2.2 billion during the same period a year earlier. Sales hit $70.9 billion, up 10% from $64.76 billion. Total revenue including sales and other income grew to $71.7 billion, up from $65.4 billion. Same-store sales were up 2.9%. MINNEAPOLIS – In its first quarter ended April 30, Target’s earnings reached $494 million, up 15% from $432 million a year earlier. Sales were up 13%, rising from $10.18 billion to $11.48 billion. Same-store sales were up 6.2%.
Canada’s housing market stayed buoyant in April, as the seasonally adjusted annual rate of housing starts reached 230,400, up 5.5% from 218,400 units in March, according to CMHC. Urban starts were slightly higher than starts overall, as they rose 5.6% seasonally adjusted to 200,400 units in April. Multiple starts led the way, climbing 8.1% to 104,400 units. Single starts increased 3.1% to 96,000 units on a seasonally adjusted annual basis. For the first four months of 2005, actual urban starts were 5.4% lower than in the same period of 2004. Year-to-date single starts fell 9.7%, and multiple starts eased 1.2% compared to the same period last year. New housing prices in March rose 0.4% from February, while the 12-month rate of increase remained the same, at 5.1%. Increased costs for building materials and labour, along with favourable market conditions, led to the increase, says Statistics Canada. Land value increases were a factor in 8 of the 21 metropolitan areas surveyed.

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