John Caulfield, Contributing Editor
 vol. ix, #21 May 26, 2003

* Lowe's, Home Depot report earnings * Rona completes second share offering * TSC's farm niche has room for expansion * Sunday openings a hot topic in New Brunswick * Vendors get deadline for item sync from big boxes * Kingfisher completes buyout of Castorama shares

"As soon as people are old enough to know better, they don't know anything at all." — Oscar Wilde
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.
Special Report Home Depot and Lowe's, North America's largest home improvement dealers, reported profit gains on modest sales increases during their respective first quarters. Those reports gave some investors and analysts reason to believe that Depot's efforts to defend its market position against Lowe's recent encroachments might be succeeding. First, the numbers: Home Depot generated US$15.1 billion in the three months ended May 4, a 5.8% gain over the same period a year ago. Same-store sales were off 1.6%, but profits jumped 5.6% to US$907 million. Lowe's surprised many company observers when it reported that its same-store sales in the first quarter increased only 0.1%. Total sales grew by 11% to US$7.2 billion and net income rose 22% to US$421 million. Both companies blamed cold and wet weather for their same-store sales softness. And while Depot officials spoke approvingly about sales of John Deere-branded tractors and mowers, Lowe's admitted that its stores' mower sales faltered because they hadn't been stocking a mid-priced product. On the day Lowe's reported its quarterly performance, May 19, its stock fell by 9% to US$40.40 per share. After Home Depot released its numbers, the stock traded furiously and ended the day up US$2.60 to US$30.67 per share. Lowe's stock price fell another US$1.30 per share.

Boucherville, QC Rona Inc. has completed a share offering on the Toronto Stock Exchange. The money will be used to pay off some debt and finance the acquisition of Réno-Dépôt Inc., a deal which is expected to close by late Summer, as well as future acquisitions.

The deal has floated another 11,183,572 common shares into the market, with 7,770,000 of them issued from treasury and 3,413,572 sold by ITM Entreprises S.A. The shares were priced at $16.75, adding $130.15 million to Rona's coffers. ITM, the French-based co-op retail conglomerate of which Rona is a member, had previously held 14 % ownership in Rona. By selling off shares, the group has reduced its ownership by half to about 6% or 7%. The syndicate of underwriters, comprising BMO Nesbitt Burns, National Bank Financial, Scotia Capital, RBC Dominion Securities and Desjardins Securities, have an option to purchase up to 1,165,500 more shares at the offering price for up to 30 days following the closing of the offering. This additional purchase will cover over-allotments and provide for market stabilization. If the over-allotment option is exercised in full, total gross proceeds to Rona will reach $149.67 million.
London, ON With same-store sales up 6% year to date, TSC Stores, a chain of 21 hardware and farm centres across Ontario, has proven its format can fare well against big boxes - and anyone else, for that matter. And with four of those 21 locations having been added just last year, and two more planned for the fiscal year ahead, the company has no concerns about continuing to stay strong. "All our stores are up over last year," says Roy Carter, president of TSC. "So including the initial sales from the new stores, our total sales year-to-date are up more than 15% over last year." That increase follows a 12% gain over the year before. The company's fiscal year ends August 31, and a new store is planned for Leamington, ON sometime this Fall, with another site being considered in either Goderich or Essex for Spring 2004. TSC has been experimenting with a hardware "store within a store" at Prout's, a Castle building centre in Forest, ON. Here, TSC has been operating the store's front end on a joint-venture basis with Prout's with a hardware boutique called "Villager." Carter says hardlines sales at Prout's have tripled since the concept was put in place, and both parties have committed to run with it for another year. However, Carter says he wants to keep testing the concept before considering rolling it out to other building centres.
Schaumburg, IL More than 400 industry professionals from over 250 companies were in attendance for the 14th annual Hardlines Technology Forum, held April 27-30 in Phoenix, AZ. Attendees included representatives from Home Depot, Sears, Target, Wickes, TruServ, Do-it Best and Orgill. This year's HTF included more than 30 breakout sessions on topics ranging from XML, bar coding, e-business strategies, AS1/AS2 solutions and electronic data interchange. The event was put on by the American Hardware Manufacturers Association and sponsored by Sterling Commerce, Stratix Corp. and QRS Corp. Speakers included Jim Tompkins, president of Tompkins Associates. He said the current problem with supply chains is a proliferation of SKUs, a trend that is driven by demanding consumers. "It is possible to reduce inventory while improving service and increasing SKUs. It's not relevant when you ship, but when the customer receives. You have to synchronize demand and have agile response," he said. Some companies have lean manufacturing operations but fat supply chains, Tompkins added. "DCs should flow product, not store it. Make sure all suppliers have Internet connectivity and do not treat all customers the same." During the conference, item synchronization guidelines were released by Home Depot. Item sync is the electronic transmission of price and product information from the manufacturer to the customer. Despite the high cost to vendors, it assures that trading partner systems are in sync and contributes to more accurate exchange of information throughout the supply chain process. As Home Depot's Mark Healy noted, "Beyond direct benefits, item synchronization is the foundation for all forms of electronic collaboration." The Home Depot will be sending a letter to its vendors asking them to register with UCCnet and meet industry data synchronization standards by the end of 2003, Healy said. Home Depot's other focuses for technology in 2003 are electronic partner communication for special orders, self checkout system, EDI over the Internet, and back-end automation and re-engineering requirements for receiving. Healy also mentioned the development of a supplier web site,, which will store all documents/letters, timelines and links.
National Report May is National Home Improvement Month in the U.S. and home improvement retailers continue to be buoyed by evidence that homeowners are still engaging in remodeling, maintenance, and room additions, despite rising unemployment in many parts of the country. Remodeling expenditures, which increased 2.5% to US$163 billion in 2002, are expected to grow by more than 7%, to US$175 billion, this year, according to the National Association of Remodeling Industry. Each year, more than one million homes in the U.S. undergo major remodeling or renovation, according to NARI estimates. The Remodelers Council of the National Association of Home Builders polls more than 600 remodelers quarterly, and found that remodeling activity in the first three months of 2003, while still below what it was in the first quarter of last year, is showing steady signs of recovery. "Especially encouraging is that future expectations and backlogs of remodeling jobs in the pipeline are so strong," says NAHB chief economist David Seiders. "Current additions, alterations and maintenance and repair work ordered by home owners ascended to very healthy levels at the beginning of this year, and professional remodelers are quite optimistic that conditions in this sector will continue improving."
Moncton, NB When Home Depot opened its first store here last month, it was not shy about leveraging New Brunswick's legal Sunday openings, something that retailers have been slow to adopt wholeheartedly. However, once Home Depot was open for business, Kent, its competitor across the street, was quick to follow suit. In fact, when Home Depot opened in Moncton on April 24, Kent was ready. A week earlier, it held a "soft" Sunday opening, with the store open in the afternoon for "Irving associates" (since one in three New Brunswickers are employees of one of Irving Group of companies, the net was cast very wide). Canadian Tire in town started opening on Sundays as of May 4. Meanwhile, the issue of whether to have Sunday shopping year-round or not continues to be a hot topic of debate for the rest of the province, one that goes before Fredericton city council today. According to a report in the Daily Gleaner, the Fredericton Chamber of Commerce did a study that shows more than 80% of retailers want the flexibility to open Sundays. Fredericton has Sunday shopping from May to January in the downtown tourist areas and from August to January in the rest of the city.
Canadian Tire 35.45 26.80 34.01
Canfor 11.70 6.83 7.70
Costco 41.35 27.00 34.77
Goodfellow 13.99 9.88 10.25
Home Depot 44.78 20.10 30.54
Hudson's Bay 14.95 5.87 10.01
Lowe's Cos. 49.99 32.50 39.87
Rona Inc. 17.70 11.75 17.07
Sears Canada 25.10 13.60 15.93
Sodisco-Howden 1.90 1.06 1.75
Taiga Forest 7.00 5.85 6.80
Wal-Mart 58.88 43.72 52.00
West Fraser 39.46 26.27 30.05
St. Jacobs, ON Home Hardware Stores has been rolling out its Home Xtra intranet project to dealers over the past several months, and now has about 350 dealers on the system. As the dealer base gets the computer savvy it needs to access this online service, Tony Krotz of Home Hardware expects to unveil a series of promotions to get more dealers involved. Xtranet provides number of dealer-specific amenities, including product lists, pricing updates, and store identity guidelines for Home's signage and logo programs. As Xtra rolls out, Krotz anticipates the introduction of additional services, such as electronic claims systems for defects and shipping damage, recalls, etc. Burnaby, BC Taiga Forest Products Ltd. completed the fiscal year ended March 31, 2003 with sales of $912.7 million, up 7% from $854.3 million in 2002. Earnings for the year were $7.8 million, an increase from $6.2 million a year earlier. Sales for the first quarter were $209.9 million, a 2% increase over $206.5 million for the same period last year. The net loss for the quarter was $647,000, versus earnings of $719,000 last year. Toronto Canadian Tire Corp. has hired a new service provider to manage its card payment processing for the company's retail businesses. As part of the agreement, Moneris Solutions will also provide Canadian Tire with card payment processing for its Canadian Tire Direct online and its catalogue business. The seven-year agreement will affect Canadian Tire's $7.2 billion in annual retail sales. Fort Wayne, IN – Growing customer demand for home décor has resulted in the introduction of a new, comprehensive program for Do it Best dealers at the company’s May Market. Everything from retail design, advertising and training comprise the program, aimed at helping dealer members drive up their sales of paint, cabinets, bath and flooring, through a partnership with Floor to Ceiling Corp., which will add more than 40 specialty vendors to the company’s list of suppliers. Oak Brook, IL Ace Hardware Corp. reports it's on track to meet its goal of opening one million sq.ft. of new retail space in 2003. In the first quarter alone, 20 ground-up Ace stores opened, comprising a total of 256,800 sq.ft. In that period, another 23 stores converted to Ace from other co-ops. The company also plans to open a new one million-sq.ft. distribution centre in Placer County, CA in the first quarter of 2004. It will replace an existing facility in Rocklin, CA that's half that size. Montreal, QC Domtar Inc. will temporarily cease operations at its White River Sawmill on June 23. The company blames a housing oversupply in the North American market, as well as U.S. duties on softwood lumber exports for "difficult market conditions" which have driven down prices. The White River sawmill is expected to stay shuttered for six months. Sacramento, CA It's beginning to look a lot like … your supplier's Christmas stand. That's what a federal jury here sang last week when it ruled that Home Depot and a China-based manufacturer had illegally knocked off a patented stand manufactured by Decorations for Generations, which the jury awarded nearly US$13.6 million. Home Depot denied that the imports and their packaging were meant to be confused with Decorations' line. The retailer intends to appeal the verdict. London, England Kingfisher plc has completed the acquisition of the minority shares in Castorama. As a result, Kingfisher now owns 100% of the issued share capital of Castorama and holds, directly and indirectly, 158,951,894 Castorama shares, representing 99.57% of the issued share capital voting rights. Through Goldman Sachs International, Kingfisher purchased the outstanding shares from Castorama Dubois Investments at the unit price of 67 euros. As a result, Castorama has been delisted from the French stock exchange. Atlanta, GA "Project Roadrunner," a new initiative by Home Depot to cut costs, means the merchandising service companies that come into its stores will get treated more and more like poor old Wyle E. Coyote. By cutting back on the number of service contractors allowed in its stores, Home Depot hopes to save on the commissions it pays these contractors. However, they work on behalf of Home Depot's vendors, and these vendors are concerned that the move will result in a restriction of trade. Lowe's implemented a similar "vendor service consolidation program" about a year ago.
At Home Depot Canada, Peter Vernon has been appointed new store merchandising manager. With a background that includes serving as a Home Depot store manager in British Columbia and positions with Beaver Lumber, he was most recently divisional product merchant for power tools. He will be transitioning into the position over the next few weeks … Joe Allen will take over Vernon's power tool duties, moving from his current position as divisional product merchant for hardware. Allen has more than 10 years of combined Home Depot experience in both merchandising and operations … Ron Cleary has been appointed divisional product merchant for hardware, taking over from Allen. He was formerly district manager for the Ontario East District. A 10-year veteran of Home Depot, he has also worked for Bargain Harolds. All appointments report directly to Giles Bowman, vp merchandising. (416-609-0852) Jean Fobert has joined Mirolin Industries Corp. as national retail account manager. She was formerly with Pyrene as national accounts manager. (416-234-6285) Patrick Brown has been promoted to Ontario sales manager at T.S. Simms & Co. Ltd. He has been with the company for seven years as a sales rep. He was formerly with Tremco and Lansing Buildall (416-458-2926)Luc Papineau has joined Simms as a sales representative in Quebec. He was formerly with Henkel, LePage and Tremco. He is based in Trois Riviéres. (1-800-561-9100) Troy, MI Kmart Management Corp. named two general merchandise managers as part of the company's push to improve merchandising efforts as it seeks to improve sales. Robert Atteberry and Joyce Dillon have both been appointed vice-presidents, general merchandise managers. Atteberry was formerly divisional vice president, merchandising, for home goods and Dillon was divisional vice-president, merchandising, of toys, sporting goods and electronics … Peter Whitsett, divisional vice-president of merchandising food and consumables, will assume responsibility for drugstore operations.
Retailers posted their strongest quarterly sales results of the last 12 months with a 1.8% advance in 1Q 2003 over the fourth quarter of 2002. Retail sales have generally been increasing since the fall of 2001, following the September 2001 slump and a period of essentially flat sales that began in April of that year. The composite leading index rose 0.1% in April, continuing a series of small gains since the Summer of 2002. Household demand continued to grow enough to offset weakness in manufacturing, where export demand has slowed. Wholesalers sold a total of $36.6 billion worth of goods and services in March, down 0.5% from February. This decrease in sales follows a 0.2% decline in February. First-quarter sales were up 2.1% from the fourth quarter of 2002, and up 8.6% from the first quarter of 2002. The hardware, metals, plumbing and heating sector was up 4.5% in the first quarter.

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