John Caulfield, Contributing Editor
vol. x, #46, November 15, 2004

IN THIS ISSUE: • Retail association closes its doors • Sodisco-Howden gets friendly bid from CanWel • Rona profits soar in 3Q • Ace's results measure up • Lowe's lends helping hand at Christmas

* * * * * * NOTE: Dollar amounts are stated in the currency of the country from which the story originates. — Michael McLarney, Editor & Publisher * * * * * *
"Pessimist: one who, when he has the choice of two evils, chooses both." — Oscar Wilde
MISSISSAUGA, Ont. — In a surprise announcement last week, the Canadian Retail Hardware Association sent out a release saying it has ceased operations, after 98 years serving independent hardware dealers. The Canadian Hardware and Building Materials Show, once owned and operated by the CRHA, will continue — with a new name and venue — under the auspices of trade show organizer Messe Frankfurt Inc.Talking on his cell phone, former head of the CRHA, Bob Elliott, said, "There's still a need for an organization like this. We just ran out of time to put it together." The CRHA had historically relied on the annual trade show for the bulk of its revenue. In fact, in its heyday in the early '80s, CHS was drawing more than 700 exhibitors and earning the association in excess of $800,000 in profit. But consolidation within the retail home improvement industry caused decline in overall buying influences, sending attendance at the show into a spiral over the past several years. In 2003, a partner in the show, the Lumber and Building Materials Dealers Association of Ontario, pulled out of CHS and started a show of its own in February 2004, just a week after CHS. The split led to further deterioration of the show, with only about 150 exhibitors on hand. Many expected it to be the last Canadian Hardware Show, until on the last day, CRHA announced the signing of a letter of intent with Messe Frankfurt Inc., an international trade show company that organizes some 100 shows worldwide. Under the planned new partnership, the show was renamed, new partners were solicited, and a new venue booked. Unfortunately for the CRHA, the deal with Messe Frankfurt never got past the signing of a letter of intent to work together, and the CRHA's bank couldn't wait any longer. "We were working on an agreement to close the letter of intent and Frankfurt didn't sign fast enough to provide the cash flow," says Elliott. Meanwhile, however, the German organization did begin establishing itself here. It paid the wage for CRHA's trade show exhibitor salesperson, Lynn Cronin, invested in some marketing of the show, and paid the deposit on the new venue — the Toronto Congress Centre. At the same time, CHS was renamed H2X Canada — Hardware and Home Improvement Expo + Conference. By the time the CRHA was forced to close its doors, all vestiges of the Canadian Hardware and Building Materials Show were gone, leaving CRHA in no position to negotiate any rights to the former Canadian Hardware Show, even under the letter of agreement. "They paid us very little for that," Elliott says.
ATLANTA — With the demise of the Canadian Retail Hardware Association, a tentative new partner in that association's trade show will go it alone. Messe Frankfurt Inc., whose North American headquarters are here, will mount the renamed show, H2X Canada — Hardware and Home Improvement Expo + Conference, February 19-22, 2005 at the Toronto Congress Centre."We were certainly sad to see an association that's been around [almost] 100 years disappear, says Roland Bleinroth, president of Messe Frankfurt North America. "It was as surprising for me as it was for you." With CRHA, his organization had attempted to re-invent the ailing show with a new name. It also recruited the Paint and Decorators Association as a stakeholder, which will have a décor show of its own concurrent with H2X. "This is an attempt at renewal and to do something different than before," Bleinroth explains. "But it's not been received as enthusiastically as I'd hoped," he admits, with exhibitor signups falling short of expectations. He's further concerned about response from the industry to the new show, now that it will have no Canadian partner. Nonetheless, Bleinroth remains positive, and says he's committed to the new show in 2005, which has 46 exhibitors signed up so far. The décor side of the event has another 23.
MONTREAL — Sodisco-Howden Group has approved an offer from national building materials distributor CanWel Building Materials for the purchase of all outstanding Sodisco-Howden shares. At a price of $3.25 per share, the offer represents a premium of 65 cents, or 25% to the closing price of $2.60 for the shares of Sodisco-Howden at the end of trading on November 9.The deal was fully supported by Sodisco-Howden's board of directors. Currently, a major investor is Participations Paribas, headquartered in France. The takeover by CanWel provides the needed buyer for such an exit, and rewards remaining Sodisco-Howden shareholders for their patience as Bay Street failed to value the stock according to the company's rising fortunes. CanWel's all-cash offer is worth a total of $65.21 million, based on the fully diluted value of the available shares. CanWel went public last spring, raising a war chest of $43.5 million. In addition, a new line of credit worth up to $200 million was structured on September 30. Combine that with a healthy year to date (third-quarter earnings reached $3.8 million on sales of $179 million), and Tom Donaldson, president and CEO of CanWel is confident of that the investment will be a sound one. "We're very comfortable with the debt load that this kind acquisition will entail," he says. As Canada's only publicly held hardware wholesaler, independent of any co-op structure, Sodisco-Howden remains something of an industry anomaly, one that has attracted it a lot of negative press. However, it's enjoyed more than a year of profitable results — despite new competitors — and fill rates that consistently exceed 95%. At its fall dealer market, held two weeks ago, aggressive marketing plans were announced to support Sodisco-Howden's two licensed banners, Pro and Ace. "What attracted us to Sodisco-Howden was the quality of the people and the quality of the organization," says Donaldson. CanWel had 2003 sales of $540 million, while Sodisco-Howden's wholesale sales reached $485.4 million in 2004. The deal is expected to close by the end of the year.
TORONTO — Since 2002, the sales of hardware, home improvement and renovation products has grown by more than 8% per year.Big boxes, including Home Depot, Rona Home and Garden, and Kent Superstore, have grown from zero in 1992 to more than one-fifth of the industry in 2003. Last year alone, big box sales accelerated at 12.3%, well above the industry average of 8.2%. When Home Depot came to Canada just over a decade ago, they promised to put as many as 50 of their large-surface warehouse stores across Canada, and nobody in the industry could imagine how the market could support that many. Yet, by next year, Canada will have more than 200 big boxes — and by 2006 they'll represent one-quarter of this market. While new formats grow, more traditional store types are facing tougher competition than ever before. Home centres and building centres have seen their market share erode only slightly, but the biggest losers have been smaller hardware stores. Their share of the retail home improvement market has dropped dramatically over the past five years. (All this data is drawn from "Retail formats battle it out: market share by store type," a special industry report that appears in the latest issue of Hardlines Quarterly Report. HQR is our sister publication, offering analysis and research on issues affecting the retail home improvement industry today. Call us for details or click here for more info —Michael)
MOORESVILLE, N.C. — Lowe's Cos. has recently launched an in-store promotion whose goal is to help raise funds, through customer purchases, for Habitat for Humanity International's ongoing home-building activities.Between November 7 and December 12, Lowe's stores will have "Homes for the Holidays" displays at each checkout counter. Customers can make a donation in any amount to Habitat, and the clerk will add the donation to the customer's receipt. Lowe's will collect the gifts and forward them to Habitat for Humanity International, which will use the donations to build houses in partnership with its affiliates in 100 countries throughout the world. Lowe's, the industry's second-largest dealer, is the national underwriter of Habitat's Women Build program. The program encourages and empowers women to get involved in the construction of Habitat houses. Women crews have built more than 350 Habitat houses in the United States and the number continues to grow. This year, Lowe's donations helped fund and build 131 Habitat for Humanity houses, including 116 Women Build homes.
TORONTO — Canadian Tire Corp. has posted a healthy third quarter, with net earnings of $69.4 million, an increase of 17.2% over $59.2 million in 2003. Even excluding non-operating gains and losses, net earnings were $66.2 million, an increase of 14.2%.For the first nine months, net earnings were $191.1 million, up 23.1% from $155.2 million in 2003. Excluding non-operating gains, net earnings were $178.3 million, up 18.1% from $150.9 million last year. In the Canadian Tire Retail business, sales by Canadian Tire dealers were up by 3.9% to $1.62 billion. Same-store sales increased by 1.2% during the quarter. Pre-tax earnings for the quarter were $1.5 million from last year's $4.2 million. The company attributed the positive results to strong customer response to promotions and growth in the tools, car care and accessories, and outdoor living categories, which include pool equipment and patio furniture. Some seasonal categories, on the other hand experienced "softness." During the quarter, CTR opened two new Concept 20/20 stores, bringing the total number of Concept 20/20 stores to 18. A total of 321 of CTR's 455 stores are now new-format stores, including the Concept 20/20 stores.
BOUCHERVILLE, Que. — Rona inc. reported third-quarter net earnings of $43.5 million, up 80.7% over the same period last year, due, the company says, to higher same-store sales, the expansion of the corporate and franchised store network and the recruitment of affiliated stores. The company is also enjoying higher operational efficiency, in part thanks to rationalization of its acquisition of Réno-Dépôt in 2003.Rona's consolidated net sales include sales generated by its distribution centers and corporate stores, as well as Rona's share of sales and royalties from franchise operations. Consolidated net sales for the quarter reached $1.01 million, a 35.4% increase over last year. However, as Rona's store base grows, more and more net sales are being generated at the retail level. Since early 2004, corporate and franchised store sales have accounted for 70.1% of Rona's total net sales, compared with 61.6% for the same year-ago period. Retail sales for those corporate and franchised stores jumped 46.1% to $724.0 million in the third quarter. Part of the growth came from the integration of the 20 Réno-Dépôt and The Building Box stores, whose results have been included in Rona's results since August 2003. The Building Box stores in Ontario have been doing business under the Rona Home & Garden banner since April 2004. During the 3Q period, same-store sales increased 9.8%.
BROOKLYN, N.Y. — The Strober Organization deepened its market penetration into the Southeastern United States last week when it finalized its agreement to acquire Moore's Lumber and Building Supplies, a pro dealer with 19 yards in six states that generated $185.3 million in sales in 2003.Strober did not disclose the terms of the deal, which a company spokesperson, Brenda Mickiewicz, said had been in negotiation for six months. Fred Marino, Strober's CEO, was unavailable for comment, as was Jim Cavanaugh, president of Hope Lumber & Supply, the Oklahoma-based pro dealer whose parent company, Rooney Holdings, had acquired Moore's in 1997 in a joint venture with Watermill Ventures, an investment firm based in Waltham, Mass. Fifteen of Moore's stores, located in Virginia, Maryland, Ohio, Tennessee, North Carolina and West Virginia, will now be managed by The Contractor Yard, a 26-yard division of Strober based in Charlotte, N.C. Strober had acquired the Contractor Yard chain from Lowe's Cos. in January 2004. Ben Phillips, The Contractor Yard's CEO, was unavailable for comment, and Hardlines could not determine at press time how Moore's current senior-level management would be integrated into this management structure. Strober's Mickiewicz says that one Moore's vp, Cal Saunders, is staying on with The Contractor Yard in the new position of vp-administration and human resources. Moore's other four stores, all located in New York, will report to Strober's CEO Bob Gaites. Strober now operates 90 stores in 15 states. Its projected sales for 2004 are $1.1 billion, which would make this company the 16th-largest home improvement retailer in the United States. And it appears that Strober isn't through expanding, either. In a prepared statement, Marino says his company "has aggressive growth objectives, and this acquisition further positions the company to achieve these goals."
OAK BROOK, Ill. — Co-op hardware wholesaler Ace Hardware Corp. watched sales to its dealer members climb by 5.5% in the third quarter. A 5.1% increase in domestic sales, together with a whopping 18.4% surge in international sales, pushed Ace's activity through its warehouse to $811.2 million, up from $768.8 million in the third quarter of 2003. And even though third-quarter earnings were flat, they were in line with company expectations, due to increased investments at the retail level. Year-to-date sales were $2.47 billion, an increase of 6.4% over sales of $2.32 billion for the nine-month period in 2003. Earnings year-to-date were up 5.9%, to $86.7 million. The company expects to exceed the $100 million in annual earnings it achieved in 2003. During the third quarter, 38 new Ace stores were opened.Ikea is making a foray into pet accessories. According to U.K.-based DIY Week, products will include baskets, bowls, leads and animal toys. The retailer is currently testing the program in 20 of its stores worldwide. TROY, Mich. — Kmart Holding Corp. has announced the launch of a new credit card. Called Kmart Rewards, the rewards program offers cash rebates on purchases. It has no annual fee, and offers $10 off the first card purchase of $50 or more and a $10 reward for every $250 in account purchases thereafter. HSBC North America, through its retail services division, is managing Kmart's new credit card program. OAK BROOK, Ill. — Ace Hardware Corp. has gotten top ranking among hardware and lumber co-operatives in the National Cooperative Bank's latest list of America's 100 highest revenue-earning co-ops. Ace placed seventh overall, up from sixth spot in 2002 (rankings are based on 2003 revenues). Six hardware and LBM businesses made the list, accounting for a total of $8.9 billion in total revenues. NEW YORK — Target Corp. posted quarterly revenue of $10.9 billion, up 11% from $9.8 billion a year earlier, driven by a 4.5% increase in same-store sales. Quarterly profit rose to $537 million, compared with $302 million a year earlier. This included a $203 million gain on the sale of its Mervyn's retail subsidiary, with 257 stores and four distribution centers, to an investment group and its credit card receivables for a total of about $1.65 billion.
Brad West has joined Jeld-Wen of Canada Ltd. as corporate sales manager. He oversees Ontario and Eastern Canada, working from his office in Cobourg, Ont. West was formerly a buyer with Castle Building Centres Group ... Neil Ash operates as sales manager for Western Canada. He was previously Jeld-Wen's general manager of distribution.
Retail sales for October were $342.1 billion, up 0.2% from September and up 7.6% from October 2003, according to the Commerce Department. Excluding automobiles, retail sales in October were $264.1 billion, up 0.9% from last month and up 8.5% from one year ago.Wholesale inventories in September were $319.3 billion, up 0.5% from August and up 9.8% from one year ago, says the Commerce Department. Sales were $276.9 billion, up 0.6% from last month and up 14.5% from September 2003.
Housing starts were down in October, reports CMHC, dropping from 237,900 to 225,000 at a seasonally adjusted rate in October. October urban starts decreased 4.0% to a seasonally adjusted annual rate of 196,500 units, with a slowdown in both single and multi-family sectors. Urban single detached starts fell by 4.2% to 102,200 in October, while urban multiple starts decreased 3.8% to 94,300. The estimated number of seasonally adjusted annualized starts in Canada's rural areas was 28,500 units.Prices in Canada's new housing market continued to rise in September in response to healthy demand from home buyers, says Stats Canada. According to the New Housing Price Index, the price of new homes rose 5.8% in September, compared with the same month last year. This was down slightly from the 6.0% annual increases registered in July and August and the 6.2% increase registered in June.
The U.S. Consulate General in Toronto invites Hardlines subscribers (including manufacturers, agents, distributors, builders, developers) to join an official trade delegation from Canada that's going to the International Builder's Show in Orlando, Fla., January 13-16, 2005. As a member of this delegation, you will enjoy savings on your registration fees and earn VIP status that gives you assistance during your stay from a member of the U.S. Consulate staff and representatives of the U.S. Department of Commerce. For registration and fee information visit:
"The driving factor in today's shopping experience is what's good for kids." — Bill Morrison, president and CEO of TruServ Canada, underscores the importance of the entire family — and especially children — in buying decisions. He was speaking recently at a breakfast seminar hosted by the Canadian Hardware and Housewares Manufacturers Association.

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