John Caulfield, Contributing Editor
vol. xi, #44, November 21, 2005

IN THIS ISSUE: • Canada’s big buying group shuffle: • Industry rocked by ILDC/TIM-BR MARTS alliance • Why TIM-BR MARTS didn’t join SpanCan • Commercial group merges with TIM-BR MARTS • CanWel solidifies deal with TruServ • BMR overcomes odds, adds members

Oh yeah, and lest we forget… • Lowe’s and Home Depot had their results • RONA turns show into giant store • Koch to buy Georgia-Pacific * * * * * *
"Too bad that all the people who know how to run the country are busy driving taxicabs and cutting hair."-George Burns
TIM-BR MARTS & ILDC form hardware buying group
CALGARY & AJAX, Ont.–Canada’s two largest building materials buying groups have formed an alliance to buy hardware jointly. The groups, TIM-BR MARTS Ltd., which serves about 360 stores across Canada, and Independent Lumber Dealers Cooperative, which represents about 150 stores, but only 24 member companies, both represent almost $2 billion in retail sales apiece. And both compete, not only for market share, but for members. Now, they have formed a new buying group, Independent Hardware Dealers Association, a buying group that will negotiate hardlines purchases with vendors.While ILDC already has a buying arrangement with CanWel Hardware under the SpanCan buying group, that group will remain intact for now (see backgrounder in following story). The two groups have different mandates in that SpanCan (ILDC and CanWel Hardware) negotiates warehouse shipments for ILDC members, with CanWel serving, essentially, as the distributor for the ILDC members. However, IHDA (TIM-BR MARTS and ILDC) was formed to negotiate hardlines direct shipments for members of both groups. According to Tim Urquhart, president of TIM-BR MARTS, those direct ships account for about half of his members’ hardlines purchases, so volumes could be significant. While both sides indicate that the merger provides better clout for the independent vs. the big boxes and large chains, ILDC and TIM-BR MARTS have, in the past, been known to compete for members. TIM-BR MARTS lost a couple of smaller members to ILDC in recent years, namely J&H Builders Warehouse in Saskatoon and Dauphin, Man.-based McMunn and Yates. But the biggest blow was the loss of TIM-BR MARTS’ largest member, Totem Building Supplies, to ILDC about two years ago. (Totem was eventually sold to RONA.) “I guess any buying groups can be construed as serious competitors to one another,” says Tim Urquhart, president of TIM-BR MARTS. But, he adds, his group and ILDC are not direct competitors, in most cases. ILDC members tend to be in metro markets, while TIM-BR MARTS dealers are typically in smaller cities and towns. More importantly, he says, “They are responsible competitors. They recognize that everyone has to make a profit, relying on good service, quality products and not just selling on price.” He adds that Sault Ste. Marie, in Northern Ontario, is the only market with a direct conflict. There, Soo Mill and Lumber is the ILDC member, competing against Lyons TIM-BR MART.
BACKGROUNDER: How a CanWel-TruServ-ILDC-TIM-BR MARTS-SpanCan-IHDA alliance makes sense, and how it doesn’t
SPECIAL REPORT–TIM-BR MARTS Ltd. has formed a buying alliance with another buying group, ILDC. The new group is called Independent Hardware Dealers Association. The deal makes sense, as there are only two other hardware buying groups in the industry. The first is Mutual, which counts as its members mainly two-steppers such as TruServ Canada, Groupe BMR, Federated Co-op, and TSC Stores. (The exception is Castle Building Centres, which has a separate arrangement with vendors within the Mutual negotiations.) The only major two-stepper not in Mutual is Sodisco-Howden, recently renamed CanWel Hardware by its new owner, CanWel Building Materials.The second group is SpanCan, which has only two members: ILDC and CanWel Hardware (formerly Sodisco-Howden Group). When ILDC, the elite buying group of 24 big building supply dealers, sits at the negotiating table with key hardlines vendors, it does so with CanWel Hardware at its side. In these negotiations, CanWel Hardware serves as the distribution centre for ILDC members. CanWel Hardware is also the major hardlines supplier to TIM-BR MARTS. So wouldn’t an alliance between ILDC and TIM-BR MARTS be further cemented by their mutual relationship with CanWel Hardware? In fact, wouldn’t it just make sense for TIM-BR MARTS to join the existing SpanCan coalition? No, and here’s why: CanWel Hardware is still flush with another key alliance–the landmark deal that puts its banner dealers, Ace and Pro–in the hands of TruServ Canada. But the arrangement goes beyond just handing off the headache of managing flyer programs and image programs to TruServ. The two companies, one a division of a publicly held income trust and the other a member-owned co-op, will sit down together to hammer out collective vendor agreements. In fact, TruServ’s executive team was in Montreal most of last week meeting with key vendors. So here’s the crux of the biscuit: the future of both SpanCan and Mutual depend on whether TruServ chooses to remain in Mutual or go independent. By leaving Mutual, the next step for TruServ would be to join with CanWel Hardware in the SpanCan organization. From there, it would be logical to envision the emergence of a new group that combines SpanCan (CanWel Hardware and ILDC) with IHDA (TIM-BR MARTS and ILDC). But, and this is a big but: CanWel Hardware’s parent company, CanWel Building Materials, does a lot of business with two key competitors of Pro, Ace, and True Value. Almost half of CanWel Building Materials’ building materials sales last year went to Home Hardware and RONA. These companies would look askance at a deal that ties CanWel Hardware to closely to its competitor, TruServ, within an alliance like IHDA or SpanCan. And that’s why CanWel chairman Amar Doman is distancing his hardware distribution company from any type of banner support–or recruitment–that would pit CanWel Hardware against CanWel Building Materials’ all-important LBM customers. Normand Dumont, evp of merchandising for RONA, says purchases by his company from the LBM distributor have dwindled to about half their former levels since CanWel announced its takeover of Sodisco-Howden Group. However, he is content to take a wait-and-see attitude to CanWel’s next steps. “I told Amar that this is a yellow light for us. But Amar’s assurance to us is okay for now.” By coincidence, the ILDC members were in Montreal this past weekend, in the same hotel that hosted the RONA members for its fall market. While ILDC’s LBM negotiations took place, the hardware meetings, which would have been undertaken with CanWel Hardware under SpanCan, have been put on hold. According to Andrew Battagliotti, general manager of ILDC, the SpanCan group will remain intact, at least for now. “As things stand, yes,” he notes. “Over the next few days, the new association of TIM-BR MARTS and CanWel Hardware will have to determine where they stand.” But, he adds, until that time, “SpanCan is very much active.” What does Bill Morrison, president and CEO of TruServ Canada have to say about all this? After all, his choices over the coming weeks could radically alter the landscape of Canadian home improvement retailing and distribution. ”This deal is a work in progress,” says TruServ Canada CEO Bill Morrison. “We’re starting at ground zero and evaluating for 2006, 2007 and beyond to make the best decision.” He says he expects to have an answer within a few weeks. “It’s such an important decision. Count on us to do it right.”
CanWel-TruServ alliance meets with vendors
MONTREAL–A strategic alliance between CanWel Hardware (formerly Sodisco-Howden Group) and Winnipeg-based TruServ Canada Cooperative Inc. finds the two groups now sitting down together with key vendors, allies against a common big box foe. However, not only is TruServ taking over management of CanWel Hardware’s Pro and Ace banners, but it is being charged with leading vendor negotiations. The aim is to position CanWel Hardware as a pure distribution company, a hardlines counterpart to its parent company, LBM distributor CanWel Building Materials. This distribution role will better enable both CanWel divisions to supply customers across a range of banners and regions.Meanwhile, vendors for both CanWel Hardware and TruServ are being evaluated to determine which ones best suit the new alliance. But TruServ president and CEO Bill Morrison doesn’t like to call the process one of rationalization “We prefer to call it vendor optimization. We share common vendor categories and it’s an opportunity for vendors to become more important and broaden their business. We’ll be buying more effectively and efficiently.” Tom Donaldson, president and CEO of CanWel and CanWel Hardware echoes Morrison’s sentiments. “The success of both companies rests on the success of the independent dealers and we have a commitment to being customer-centric. We’re going to buy better and sell better.” Morrison believes the dealers, even those from competing banners, will see the value of the new alliance. “It’s the way to compete against the big boxes,” he says. “Our intent is how to serve the independent better and bring them closer to the same level of supply service [as big boxes and corporate chains].”
RONA pushes private label at latest show
MONTREAL–Innovation was the theme at the latest RONA dealer show, held here this past weekend. That innovation included the product offerings, which were strictly new products from about 300 key vendors. But innovation was also reflected in the layout of the show. Gone were the typical 10-foot booths filled with products and eager regional reps. Instead, the entire show was mounted in the form of a giant store, with products arranged in merchandised departments, just as a dealer would expect to see them in their own store.And instead of dealers wandering around on their own to visit vendors, they were taken in groups of about 10 dealers or managers, who were shown the benefits of each department and the merchandising innovations on hand. Power tools was among the departments that particularly reflected the private-label theme. A new private-label line was even introduced at the show (more on this next week–MM). Others included a special-order flooring set, the paint zone, and a very cool kitchen and bath range. The flooring includes hardwood, engineered products, laminates and rugs. The program will feature the added service of installation, at least in the big box stores at the outset. In fact, the 40-foot special-order department will be part of all RONA’s big boxes being constructed from now on. The bath furniture and fixtures include a new high-end private label line called “The RONA Collection.” This brand, featured in a number of categories, represents for RONA the chance to offer better quality and imaginative designs. “Customers can be very trendy and fashionable at an affordable price,” says Normand Dumont, executive vice-president of merchandising for RONA. The paint department puts all four lines available in each store side-by-side along the back wall of the department. Along that wall are a series of high tables with stools. This setup gives the customer all colour choices in one area, rather than grouped by brand, while the tables give them a place to sit and make colour choices. RONA typically carries Sico, CIL, and its own RONA brand, along with a regional brand, such as Laurentide in Quebec and Behr in the West. The paint department will expand to feature other décor elements, says Dumont. They will include wallpaper and window treatment samples, plus moulding and trim. “It will become a décor decision centre eventually,” he says.
TIM-BR MARTS forms commercial division with TSG signing
CALGARY–The Signature Group, a buying group of five large independent gypsum supply dealers, has agreed to merge with TIM-BR MARTS Ltd. after less than two years in existence. The merger is effective Jan. 1, 2006.For TIM-BR MARTS, it marks just the latest in a series of efforts to consolidate the buying group arena in Canada. At the beginning of this year, TIM-BR MARTS Ontario joined forces with TIM-BR MARTS. Then, in the summer, the group announced it had signed an agreement to welcome the AWARD group of Atlantic Canada into its fold. Although its membership is small, TSG’s buying power is already considerable, and five companies, with 28 locations, are expected to add $225 million to TIM-BR MARTS’ sales volumes of $1.7 billion. TSG’s members are Beauchesne Group, Coastal Drywall, Commercial Construction, Commercial Drywall, Costa Building Supplies, Distribution Ste-Foy, Mat DeConst D.L., Ontario Acoustic Supply, Patene Building Supplies, and Watson Building Supplies. A new commercial division has been formed within TIM-BR MARTS, effective Jan. 1, 2006, which will cater specifically to the needs of its new commercial dealer members, under Steve Stremecki. Doug Skrepnek, who helped found TSG and served as its general manager, is leaving TSG to become a dealer himself. He will assume an ownership position with Watson’s Building Supplies in Woodbridge, Ont.  
BMR overcomes hurdles to rebuild warehouse, dealer base
QUEBEC CITY–The latest BMR dealer show, held here two weeks ago, offered more than just new products and programs. It offered a new sourcing option for about two dozen independents in attendance, more than half of them AWARD members. They were looking for a new affiliation in the light of all the changes occurring from their supply side. By the end of the show, 12 of them, all former members of AWARD, had signed on with BMR. Those dealers: one in Charlottetown, the AWARD member in St-Pierre, five members in New Brunswick, and another five in Nova Scotia. The dealer base for this privately owned buying group and wholesale supplier continues to grow despite a year of bad luck. First, the group lost a major customer in the form of AWARD Distribution Ltd., a supply experiment for Atlantic dealers that was part of a new distribution initiative, Quincaillerie Matreco Hardware. QMH had BMR shipping hardlines from its Longueuil, Que., warehouse into ADL’s own small distribution centre in the Halifax area, to be forwarded to AWARD members throughout Atlantic Canada. That business was worth about $5 million to BMR, says Yves Gagnon, president of BMR. The closing of ADL marked the beginning of the end for AWARD, and for Matreco. Then, four months ago, that warehouse burned to the ground, forcing the group to re-organize at a smaller warehouse in nearby Boucherville. Finally, QMH’s other customer, TIM-BR MART Ontario (Homecare Building Centres) merged with its sister group in Western Canada, TIM-BR MARTS Ltd., which sources its hardlines from CanWel Hardware (formerly Sodisco-Howden). TIM-BR MARTS, TIM-BR MART Ontario, AWARD, and BMR were all members of the umbrella buying group Matreco. Even after all these setbacks, BMR is back on its feet, says Gagnon. The distribution centre in Boucherville, once used only for import products and some cross-docking, has been expanded and outfitted to meet the hardlines capacity of the burned out Longueuil facility. But the dealers’ hardlines purchases are up 40% over last year, and with more than $32 million in hardware sales generated by his dealers at this latest show, he expects that percentage to keep rising.
Home Depot vs. Lowe’s: retail giants reap third-quarter gains
ATLANTA & MOORESVILLE, N.C.—Home Depot and Lowe’s, the industry’s two largest home improvement dealers, reported sizable leaps in revenue and profit during the three months ended October 30 and October 28, respectively.Lowe’s reported a quarterly same-store sales gain of 6.2%. Robert Niblock, chairman, president and CEO of Lowe’s, said his company showed positive same-store gains in all 20 of its product categories and in 19 of 21 geographic regions. For the fourth quarter, which ends Feb. 3, 2006, Lowe’s projects that it will open 63 stores and grow its quarterly sales by 22%. For all of fiscal 2005, Lowe’s estimates that its sales growth will fall between 17 and 18% over 2004, and that it will have opened a total of 150 stores. At Home, Depot, fiscal 2005 sales growth guidance was lifted to between 10 and 12% from 9-12%. The company increased its earnings per share growth guidance to 17-18% from 14-17%. In the fourth quarter of fiscal 2005, Home Depot expects to open its 2,000th store and its 50th in Mexico. But new-store expansion appears to be less of a driving force behind Home Depot’s financial performance than installed sales and its diversification into commercial supply. During the third quarter, the performance of Home Depot’s “services” business — i.e., its installation program — increased 21% to $1.2 billion, and was particularly strong, according to the company, in HVAC, kitchens, countertops, windows and roofing/gutters. In addition, during this last quarter, Home Depot completed key acquisitions on the commercial front: the White Cap division bolstered its presence in California and Hawaii through the purchases of West Tool Inc. and Wire Products of Hawaii. Home Depot also closed a deal to acquire National Waterworks, which supplies water and wastewater transmission products. National itself expanded in the quarter through its purchase of Florida-based Magnum Pipe. Home Depot’s more aggressive interest in the commercial sector appears to be fueling rumors that it could be a leading candidate to acquire Florida-based Hughes Supply, the giant plumbing wholesaler. Through the first nine months of fiscal 2005, Home Depot’s net income increased 15% to $4.55 billion on sales that grew 10.2% to $62 billion. During that same period, Lowe’s sales rose 16.2% to $32.4 billion, and its earnings increased 24.5% to $2.1 billion.
VANCOUVER–The Futura Corp. has acquired 906,100 units in CanWel Building Materials Income Fund, increasing Futura’s holdings to 1,923,005 units and 8,033,168 exchangeable partnership units. This represents approximately 29.7% of the total outstanding units of CanWel. Futura says it may, from time to time, buy or sell additional units of CanWel.ATLANTA–A division of Koch Industries has agreed to pay $48 per share in cash to acquire Georgia-Pacific, the consumer and building products giant. That tender offer, which includes assuming G-P’s nearly $8 billion in debt, has a total estimated value of $21 billion. The price offered for G-P’s stock was 39% higher than its closing price on Nov. 11. Georgia-Pacific, with nearly $20 billion in annual sales and 55,000 employees, would continue to operate under its own name as a privately held, wholly owned subsidiary of the Wichita, Kan.-based Koch, which is acquiring the supplier through its Koch Forest Products division. This deal would make Koch the country’s largest privately owned corporation. CHICAGO–True Value Company, the dealer-owned buying group, continued to send out mixed signals about its long-range financial health when it reported a 77.9% decline in its third-quarter earnings (which it defines as net margin), to $2.96 million, on wholesale sales that grew only 2.6% to $486.8 million. Through nine months ended October 1, the co-op’s revenue was down 0.5%, to $1.54 billion, and its net margin fell 22.8% to $25 million. MONTREAL–Tembec’s consolidated sales for the fourth quarter were $834.2 million, down from $981.3 million in the same period last year. Tembec generated a net loss of $134.9 million in the quarter, way down from a profit of $90.7 million a year ago, and deepening from a net loss of $142.5 million in the previous quarter. BENTONVILLE, Ark.–Sales were up by 10% in the last quarter for Wal-Mart, to $75.4 billion, but profits were up only 4%, its smallest in four years, as hurricanes forced store closings in a number of areas in the Southern United States. Net income rose to $2.4 billion, up from $2.3 billion during the same period last year. Same-store sales were up 3.8%. DUNCAN, B.C.–Western Forest Products Inc. suffered a net loss for the third quarter of $12.5 million, deepening from a net loss of $37.2 million during the same period a year earlier. For the first nine months of 2005, that loss was $55.0 million. The results for the quarter reflect weaker lumber and pulp markets and a stronger Canadian dollar. In addition, the company recorded a $7.2 million charge in the quarter for severance costs with respect to the previously announced closure of its Silvertree sawmill operation, which took effect in October 2005. During the quarter the Company reached agreement with TimberWest Forest Corp. to end a saw-log supply arrangement. TimberWest paid the Western $15.0 million cash to end the agreement. In other news, Western has reached a definitive agreement to acquire Cascadia Forest Products Ltd. from Brookfield Asset Management Inc. for approximately $120 million. TORONTO–Sears Canada Inc. has completed the sale of its credit and financial services operations to JPMorgan Chase Bank, N.A., a wholly owned subsidiary of JPMorgan Chase & Co., for CD$2.3 billion. As part of the transaction, Sears Canada and JPMorgan Chase have entered into a long-term marketing and servicing alliance with an initial term of 10 years during which Sears Canada will receive annual performance payments from JPMorgan Chase generated through credit sales, the opening of new accounts and sales of financial products.
At TIM-BR MARTS Ltd., Steve Stremecki has been promoted to vice-president–commercial. He will head up a new commercial division within TIM-BR MARTS, which will be created Jan. 1, 2006, to cater specifically to the needs of its new commercial dealer members (see story elsewhere in this issue–Editor). Stremecki was formerly director of business development at TIM-BR MARTS. Prior to that, he was U.S. operations manager for Sexton Group, and before that, he was with BPB Westroc in a variety of positions, culminating in the role of vice-president of marketing for North America. At Lowe’s Cos., Matthew V. Hollifield has been promoted to senior vice-president and chief accounting officer. Hollifield, 39, will report to Bob Hull, Lowe's executive vice-president and CFO. Hollifield joined Lowe’s in 2002 as vice-president of corporate accounts payable. Before that, he was with Century Furniture Industries as CFO. He replaces Ken Black, who has announced his plans to leave the company to pursue other career opportunities. Arthur B. Learmonth, president of Maytag Services business unit, has been promoted to the position of acting president of the Maytag Appliances business unit … David R. McConnaughey, 49, vice-president, Maytag All-Brand Service in Maytag Services, has been promoted to the position of acting president, Maytag Services, replacing Learmonth. Both Learmonth and McConnaughey will report directly to Ralph F. Hake, Maytag chairman and CEO.
Wholesale sales of household goods were down 5.3% in September, according to Statistics Canada. It’s the steepest monthly decline since October 2004.
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