John Caulfield, Contributing Editor
vol. xi, #21, May 23, 2005

IN THIS ISSUE: • NHS rocks in Las Vegas • Home Depot, Lowe’s battle bad weather in 1Q • Home Depot will close some Expo stores • TSC gets new equity partner • Home Hardware “guru” will have own garden line • CanWel reports record results • Nelson rejoins Tim-BR-Marts • Housing market to stay strong • Garden sector faces challenges to grow * * * * * *

“It is the mark of an educated mind to be able to entertain a thought without accepting it.” Aristotle
LAS VEGAS — Throngs of dealers, distributors, traders and other visitors streamed through two halls (one with aisles spanning 1,700 feet) at the 60th annual National Hardware Show, which concluded here on Thursday. They came to view the latest and greatest in home improvement fare being offered by more than 3,200 exhibitors, the most to participate at this event since 1999, and significantly higher than the 2,000 that exhibited at last year’s convention.“Some shows just have a buzz, and this is one of them,” said Rob Cappiello, industry vice-president for Reed Exhibitions, the show’s manager. Using pre-registration and hotel reservation figures as his guide, Cappiello said he “hoped” that, when the final tallies were in, they would show that attendance (excluding exhibitors) hit 17,500, compared to around 7,300 in 2004. Registration at the first day of the show, however, suggested that attendance might fall somewhere between 11,000 and 12,000. Cappiello noted specifically that the number of international and lawn and garden exhibitors this year grew by 15% and 29%, respectively, over 2004’s convention, which was the first that Reed managed independently after severing its long-standing management partnership with the American Hardware Manufacturers Association to relocate the show from Chicago. The exhibit space that Reed sold this year in the Las Vegas Convention Center and in the Sands Expo & Convention Center (where lawn and garden vendors were housed) was up 39% over last year, to 681,191 sq.ft. In 2006, Reed intends to consolidate the show into the Las Vegas Convention Center, said Cappiello, with lawn and garden in the south hall; hardlines and international exhibitors in the central hall; and housewares, plumbing, electricals and gourmet exhibitors in the north hall. (The 2005 event was the first time that the Gourmet Housewares Show combined with the Hardware Show.) Cappiello projected that Reed will book 850,000 sq.ft. of exhibit space for next year’s event, scheduled for May 9-11. It was also a magnet for the Canadian industry, with buying teams from every major – and many key regional – retail groups on hand. “From a Canadian perspective, it’s a very good show,” said Paul Crawford, managing director of King Marketing in Richmond, B.C. “All of the Canadian buyers are here.” Attracting visitors from countries as far afield as Germany, New Zealand, China, India and Chile, the show was also an important spot for making new contacts. “We met a lot of new potential customers, so it’s good for us,” said Gaetan Martel, executive vice-president of RCR. “It’s a lot better than the old Chicago show.” The tool category, in which B&D remains a major player, was especially vibrant at the convention, with several suppliers — including Kawasaki, Dodge (with its “Hemi” brand) and Positec (through its Rockwell and Worx brands) — launching multi-product power tool lines. Indeed, one of the distinguishing features of this year’s show was the sheer number of new vendors in several categories — work gloves, lighting, decorative bath, lawn and garden — vying with more established suppliers. Cappiello said that Reed Expo has been actively soliciting smaller and mid-sized vendors to participate in the show.
ATLANTA & MOORESVILLE, N.C. – North America’s two largest home improvement dealers pointed to a cold wet March to explain their sub-par sales performances for the first quarter of their respective fiscal years. Same-store sales for Depot increased only 2.1% in the quarter, while Lowe’s comps rose 3.8%. Lowe’s though, reported a healthier quarter in terms of profit growth (see chart), although it missed its performance estimates with analysts. “We believe that weather was the single largest factor that prevented us from achieving our initial comparable sales and profit targets,” Robert Niblock, Lowe’s CEO, told analysts during a teleconference call. “Spring came late in the Northeast. That hurt store traffic in March." Niblock said project-related lumber sales suffered, although sales of appliances, kitchen cabinets and Lowe’s installation services performed better during the period. During this three-month period, Lowe’s opened 27 new stores, while Home Depot opened 21. In the quarter, Home Depot’s services business increased 16%. In separate company news, Depot announced that it would deploy SAP, the computer software provider, for retail merchandising and supply-chain applications as the retailer’s next step to transform itself “into a more information-based company,” said chief information officer Bob DeRodes. Over the past three years, the chain has spent more than US$1 billion overhauling its information technology infrastructure, according to Information Week magazine.
Home Depot
Revenue (in US$bil.)
% chg. v. ’04
same-store sales
Earnings (in $mil.)
% chg. v. ’04
LONDON, Ont. – TSC, one of the country’s most aggressive regional hardlines retailers, has forged a partnership with TD Capital Canadian Private Equity Partners, giving the company an important infusion of cash to further its growth plans. The newly formed partnership will operate under the name TSC Stores L.P.TSC is a specialty farm and hardware retailer with 25 stores in Ontario. TD Capital Canadian Private Equity Partners is an investment group of TD Capital, the private equity arm of TD Bank Financial Group. TDCCP bought out two of TSC’s partners, John Kropp and Gordon Illes, taking an equity position in the company. The third partner, Roy Carter, remains as TSC’s president and CEO. While Kropp will pursue other interests, Illes will return after a brief hiatus to oversee TSC’s new-store development. “It’s a huge opportunity for TSC, and for TSC’s employees, to harness the potential of the company to expand in Ontario – and beyond,” says Carter. Adding new stores and expanding into new markets is key to TSC’s strategy. While no new stores are being added this year, four have already undergone major renovations, and two more will be refitted before year’s end. By 2006, the company wants to start opening at least six stores a year. Carter says out-of-province expansion is also in the cards within the next two to three years, though he wouldn’t specify which direction that expansion would go.
ATLANTA — Home Depot disclosed last week that it is closing 15 of its 54 Expo Design Centers, and converting five more to the company’s traditional warehouse home center format.Four of the Expos to be closed are in Texas, three are in Illinois – including its units in Chicago’s Lincoln Park, Schaumburg and Aurora, two are in Michigan, and one each is in Colorado, Georgia, Kansas, Massachusetts, California (in Concord), and Ohio. Newsday further reported that the Expos in East Elmhurst and Commack, N.Y., would be converted to Home Depots, as will the Expos in East Palo Alto, Calif., and one each in Michigan and New Jersey. The company stated that it recorded US$86 million of expense in the first quarter related to the anticipated disposition of its interest in the underlying real estate and US$20 million of expense related to inventory markdowns. The retailer claimed that its remaining 34 Expos are profitable and will remain open.
LAS VEGAS – While Americans spend an average of US$500 per year on their gardens, they are just as likely to spend that much or more on pizza in a year. According to Bruce Butterworth, research director for the National Gardening Association, retailers must meet the challenge of raising awareness of gardening as a pastime – and an investment.And despite the apparent growth in popularity of the category, annual spending in garden plants, tools and accessories has grown modestly– only about 4.5% compound growth annually over the past five years. Citing results from a recent survey conducted by the NGA, Butterworth offered his insights into the lawn and garden market as part of a panel of international experts that spoke at last week’s National Hardware Show, held here May 17-19. The panel, sponsored by Hardlines, was just one part of a larger conference series that ran concurrently with the show. It was also one of the best attended, as retailers and vendors from around the world sat in to hear from Butterworth and his fellow presenters, Friedericke Sandt, president of Planto, a German manufacturer of garden tools and accessories; and Rob Lunan, manager of garden and gift lines at Lee Valley Tools, a Canadian retailer and catalogue seller of specialty hardware, tools and gardening products. The panel was moderated by Hardlines’ own contributing editor, John Caulfield. The flatness of the market, is a challenge for lawn and garden retailers, but a bigger challenge may be the consolidation within the industry, Butterworth said. Big boxes, including Home Depot, Lowe’s and Kmart, now account for 60% of the market. And while these retail giants can be applauded for raising awareness of the category through their advertising efforts, they are also responsible, Butterworth said, for “dumbing down” the category. To combat that, “we need to keep developing new plants, new techniques and new garden styles” to inspire gardeners and would-be gardeners. Sandt and Lunan both agreed that the best way to differentiate from discount sellers is by offering quality products. Consistent adherence to quality will reinforce a brand’s own identity, they said.
ST. JACOBS, Ont. – Home Hardware’s recently announced partnership with gardening expert and television personality Mark Cullen (see April 25 issue–MM) is aimed at enhancing the national co-op’s strategy for growing its member dealers’ share of the lawn and garden category. Cullen will work with dealers to educate staff on merchandising, retailing and caring for live goods to ensure customers get expert advice and high-quality merchandise. As part of the partnership, Home Hardware has introduced Mark’s Choice, a line of premium lawn and garden products developed by Cullen exclusively for Home Hardware. The first products in the line are Mark’s Choice garden hand tools. Other new products will be rolled out over the next few months, and again in spring 2006.In addition to developing the Mark’s Choice products, Cullen will work with Home Hardware to create new lawn and garden products and help expand its live goods selection by working with Home’s buyers to source products. Home Hardware plans to support the relationship in advertising, flyers, promotions, POP materials and its in-store magazine.  
VANCOUVER – CanWel Building Materials Ltd. had record sales in the first quarter – $228 million, up 82.9% compared to $125 million for the comparable period in 2004. Net earnings before costs associated with the integration of the recently acquired Sodisco-Howden division were $1.08 million. That’s down slightly from $1.1 million in 2004. Even though 1Q is not traditionally a strong quarter, the British Columbia, Quebec and the Atlantic regions all reported strong revenue growth, the company reports. Sales in Ontario and Manitoba felt the brunt of bad weather there. Lower commodity prices also had a negative impact on results. Total revenues from lumber and building materials, including the Sodisco-Howden results, increased for the quarter by 32.6% versus the same period of 2004. For the fiscal year ended December 31, 2004, sales for CanWel and Sodisco-Howden, together, totaled 1.07 billion. CanWel has also completed its plan to convert to an income trust. According to the plan, common shares of CanWel have been exchanged for units of CanWel Building Materials Income Fund. The Fund commenced trading on May 18, 2005 under the symbol CWX.UN on the Toronto Stock Exchange.OTTAWA – Residential construction will taper off in 2005, reaching 216,400 units, a decrease of 7.3% from 2004, says the latest Housing Outlook Report from CMHC. Despite the fall off, the year is expected to clock in with the third-highest level of housing starts in 17 years. In 2006, residential construction will continue to slow, says the report, but will remain strong by historical standards. Housing starts will drop 7.5% to 200,200 units next year. A slight increase in mortgage rates, eroding pent-up demand, slower employment growth, and waning spill-over of buyers from the existing home market are all considered factors that will help cool the market this year and next. Existing home sales will register their second best year on record, with 441,100 units in 2005. Although this represents a 4.3% decrease from the previous year, it still constitutes the second-highest level on record. According to the report, a rise in new listings will help keep resales above the 400,000 mark for each of the next two years. However, the rising price of houses over the past three years, and an expected rise in mortgage rates, will push mortgage carrying costs higher, resulting in a gradual easing in demand. CALGARY – Nelson Lumber/SRI Homes has rejoined Tim-BR-Marts Ltd. The company, once one of Tim-BR-Marts’ largest and most loyal members, left the group more than three years ago to join Winnipeg-based Sexton Group. Nelson becomes the first dealer to rejoin Tim-BR-Marts, on the heels of the group’s attempts to consolidate the buying group landscape in Canada. Tim-BR-Marts merged the operations of its sister group, Homecare (TIM-BR Mart Ontario), at the end of 2004. TORONTO – Hudson's Bay Co. has updated nine of its Zellers discount department stores to incorporate the features of the latest Zellers prototype. They are in Brantford and Windsor, Ont.; La Salle, Chateauguay, and Ste-Foy, Que.; Saint John, N.B.; Dartmouth and Sydney, N.S.; and Red Deer, Alta. The prototype stores, which now number 176, are typically 100,000-plus sq.ft., all on one floor. They feature wider aisles, improved lighting, in-store signage, and other features that may include, depending on the store: grocery sections called Neighbourhood Markets; a new Diner restaurant that features take-out meals; a pharmacy and hair salon. MEMPHIS – Hardware wholesaler Orgill is riding high on its newly minted status as a truly national player. Orgill’s recent installation of a distribution center in Utah gives the wholesaler the infrastructure needed to supply independent dealers right across the country. Last year, Orgill added 1.3 million sq.ft. of warehouse space. Sales last year were up a healthy 16%, while sales by existing dealers were up 12% (Orgill does not disclose its profits). SHANGHAI – Metro A.G., the world’s number three retailer, is taking advantage of looser rules over foreign ownership in China to increase its share of a joint venture there. At the same time, Wal-Mart announced the opening of its 46th store in China, a supercenter in the nation’s capital of Beijing. Metro has assumed 90% ownership of its joint venture with its Chinese partner. Metro, Germany’s largest retailer, is jockeying for share of the exploding Chinese consumer market with U.S.-based Wal-Mart and French retail giant Carrefour S.A. Wal-Mart’s first store in the Chinese capital of Beijing, opened last week. Located in western Beijing, the supercenter, Zhichunlu Wal-Mart, covers an area of 18,000 square metres and stocks around 20,000 items. BOISE, Idaho – At the end of last week, Boise Cascade Co. decided to cancel an initial public offering, which was intended to raise US$400 million. The firm had already lowered the price of the shares earlier in the week. However, adverse market conditions, including increasing paper prices, were thwarting the company’s efforts. NEWTON, Iowa – Maytag Corp., struggling to defend its brand against Asian competitors and tough customers like Home Depot, has entered into a definitive agreement to sell all its outstanding shares to an investor group led by the private equity firm Ripplewood Holdings LLC, which wants to acquire all outstanding Maytag shares in a cash merger for US$14 per share, for a deal worth approximately US$2.1 billion.
Michael Brossard, the man behind Rona’s successful bid for the Olympic sponsorship contract, has been promoted at Rona inc. to the position of senior vice-president, marketing and development. He now reports directly to CEO Robert Dutton … Trevor Pocluyko has been appointed regional director – Eastern region. He will be responsible for Ontario’s big box stores, including the ones in the Toronto area,. He reports to James Jones, vice-president operations, Eastern Canada. (514-599-5100)
Retail sales edged up 0.2% in March to $30.4 billion, says Stats Canada. Despite March’s marginal gain, retailers experienced their strongest quarterly sales increase in just over three years. Sales advanced 2.4% in the first quarter of 2005, thanks to robust spending by shoppers in January and February.Wholesale sales rose 0.5% in March to $39.1 billion. Sales rose in three of the seven sectors, led by personal and household goods, which were up 4.0%. Declines were observed in the building materials sector, down by 1.1%. In the first three months of 2005, the value of wholesale sales rose to $116.5 billion, up 1.5% from the previous quarter. This increase was attributable in part to the strong performance of the personal and household goods sector, which posted quarterly growth of 5.4%. For the first quarter, building materials showed an overall gain of 2.9%.

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