John Caulfield, Contributing Editor
vol. x, #47, November 22, 2004

IN THIS ISSUE: • Done deal: Homecare and Tim-BR-Marts unite • Home Depot & Lowe's: big boxes make big gains • Kmart buys Sears • CanWel aims to keep customers with Sodisco takeover • Hudson's Bay combines management teams • Cologne creates Asian sourcing show • TruServ U.S. replaces buying team • Canadian Tire signs Debbie Travis

* * * * * * NOTE: Dollar amounts are stated in the currency of the country from which the story originates. — Michael McLarney, Editor & Publisher * * * * * *
"There is the greatest practical benefit in making a few failures early in life." — Thomas Huxley (English biologist, 1825-95)
ATLANTA and MOORESVILLE, N.C. — Home Depot and Lowe's continued their assault on the home improvement market in the third quarter, racking up sizeable gains in revenue and profit, and projecting more of the same over the following three months and into 2005.For the three months ended October 29, the results for both companies were as follows:
Home Depot   Lowe's
$18.772B Revenue $9.064B
13.1%  Chg. v. 2003 16.2%
$1.371B net income $522M
14.8%  Chg. v. 2003 15.5%
4.5% same-store growth 5.2%
38 store openings 35
Through nine months, Home Depot earned $3.96 billion, an 18.1% increase over the same period a year ago, on sales of $56.282 billion that rose 13.3%. Lowe's nine-month earnings jumped 14.4% to $1.681 billion, on revenue of $27.914 billion, which represented an 18.3% increase. Home Depot's average ticket through nine months increased 7.4% to $55.11 per transaction. In the third quarter, the company's appliance sales rose 40%, and its services business increased 26% to $957 million. The company also opened its 1,000th Tool Rental Center. Its stores in Mexico achieved double-digit same-store sales growth in the quarter. Its recent financial performance prompted Home Depot to raise its earnings-per-share growth estimates for the full year to 19-20%, from 14-17%. Lowe's expects to open another 56 stores in the fourth quarter, during which its sales are expected to rise by between 16% and 17%. Bob Tillman, Lowe's CEO, told investors that record housing turnover rates are driving his company's business. "I'm confident that demographic and psychographic trends in the U.S. will support our growth, and [the] growth of the home improvement industry, for many years to come."
CALGARY & MISSISSAUGA, Ont. — After months of speculation, two major Canadian buying groups have finally merged. Members of Western-based Tim-BR-Marts Ltd. and Homecare Building Centres Ltd. in Ontario, both existing members of the umbrella group Matreco, have agreed to become one entity.Homecare, which operates as TIM-BR Mart Ontario, represents 150 stores in Ontario. Its larger, Western counterpart has 153 stores and represents about $1.2 billion in sales, more than double the Ontario group's sales. The super-sized Tim-BR-Marts Ltd. will represent more than 340 stores with annual purchases exceeding one billion dollars. With sales at retail of nearly $2 billion, the group will rival the country's largest buying group, Independent Lumber Dealers Co-operative in size.The group will be headquartered in Tim-BR-Marts' Calgary office and be specifically responsible for negotiating major commodity buying programs. Tim Urquhart, currently president of the Western organization, will remain at the helm of the combined group. Don Nash, currently president of Homecare, will remain in Mississauga, Ont., operating out of a pared down office as executive vice-president. The Ontario regional office will be responsible for negotiating the Ontario vendor programs and all of the TIM-BR MART retail marketing programs. The new group will include Commercial Independent Dealers Inc. (CID), the commercial buying group division of Homecare in Ontario. Anticipated benefits of the consolidation include increased buying power, lower overhead costs, and stronger support for the TIM-BR MART retail and brand, which is widespread in Ontario, but slowly gaining ground across Canada.
HOFFMAN ESTATES, Ill., and TROY, Mich. — Kmart Holding Corp., the recovering discount chain, is merging with Sears, Roebuck & Co., the struggling department store retailer, in a deal valued at more than $11 billion.The combined company, to be known as Sears Holding Corp., would be the third-largest retailer, in sales, in the United States (behind Wal-Mart, Home Depot and Target), with $55 billion in annual revenue, 2,350 full-line stores and 1,100 specialty stores. Both chains will continue to operate under their respective brands, although the corporation's headquarters will be in Hoffman Estates, where Sears is headquartered. Kmart will maintain a "significant presence" in Troy, Mich., its headquarters city. The merger is expected to close by March 2005.The organizational chart may be the most intriguing element of this deal. Edward Lampert, Kmart's chairman, will be the chairman of Sears Holdings' 10-person board, which will include seven members from Kmart, and three from Sears. Alan Lacy, Sears' chairman and CEO, will be vice chairman and CEO of the newly formed company. Aylwin Lewis, Kmart's president and CEO, will become president of Sears Holdings and CEO of Kmart and Sears Retail. Sears' executive vp and CFO, Glenn Richter, will hold similar positions at Sears Holdings. William Crowley, Kmart's senior vp-finance, will be executive vice-president, finance and integration of Sears Holdings. Both companies' boards have approved this agreement, which calls for Kmart shareholders to receive one share of new Sears Holdings stock for each Kmart share. Sears' shareholders can choose $50 in cash or half a share of Sears Holdings stock. (That's the portion of the deal valued at $11 billion, representing a 10% premium over the stock price's close on Tuesday, November 16.) In a prepared statement, Lacy said this merger would "greatly strengthen both the Sears and Kmart franchises by accelerating the Sears off-mall growth strategy and enhancing the brand portfolio of both companies. This will clearly be a win for both companies' customers, while significantly enhancing value for all shareholders. We will have a total combined store base of nearly 3,500 stores and the leading service organization in the industry, capable of a major expansion to serve the needs of existing Kmart and Sears customers." Of course, it remains to be seen how many of these stores Sears Holding keeps open or closes to shore up its profitability. Kmart, which went into bankruptcy in 2002, recently posted its fourth consecutive quarter of net earnings gains. As part of its restructuring strategy — which saw the company close nearly 600 stores and lay off 57,000 employees — Kmart recently agreed to sell 50 stores to Sears for $575 million. Since emerging from Chapter 11 in May 2003, its stock price has risen to $101 per share, from $15. Sears, on the other hand, reported lower sales and an $867 million net loss through the first nine months of 2004. Company officials expect the merger eventually to reduce the new company's operating costs by $500 million per year. The companies expect to realize about $200 million in incremental gross margin from "revenue synergies" by capitalizing on cross-selling opportunities between Kmart and Sears' proprietary brands and by converting a "substantial number" of off-mall Kmart stores to the Sears brand in addition to the 50 Kmart stores Sears acquired earlier this year. The merger will not affect agreements to carry home and fashion lines including Martha Stewart Everyday, Lands' End and Sesame Street, the companies said.
Under the merged operations of Kmart and Sears, Edward Lampert, the chairman of Kmart, will be the chairman of Sears Holdings. Lampert, 42, is a Yale graduate and former Goldman Sachs executive, who at the age of 26 started his own hedge fund. He also owned part of the Texas Rangers baseball team when George W. Bush was part-owner.Lampert's company, ESL Investments, owns 15% of Sears' stock. He's also Kmart's majority shareholder, having gained control while Kmart was in Chapter 11. Ranked 142nd on Forbes' list of richest Americans, he has a net worth of $1.7 billion. In January 2003, he was kidnapped in Greenwich, Conn., and held hostage for a day.
VANCOUVER — The recently announced takeover of Sodisco-Howden Group by CanWel is good news for Sodisco-Howden and its shareholders. However, the deal is expected to have a potentially negative impact on CanWel's dealings with existing customers — some which compete directly with Sodisco-Howden.Tom Donaldson, president of CanWel, says that in an industry that has been beset with consolidation among both manufacturers and retailers in recent years, CanWel wants to be positioned as a consolidator on the distributor side, hinting at the possibility of more acquisitions.Though he wouldn't comment on just how the two businesses will be integrated until after the deal closes at year's end, he hopes to keep the two businesses distinct enough to enable CanWel to continue serving its wide range of retail customers across Canada. "Hopefully, the CanWel value proposition will be very strong for anyone in the retail home improvement industry in Canada." Jos Wintermans, president and CEO of Sodisco-Howden, agrees. "It will be business as usual at Sodisco-Howden under the new organization," he says, adding that "It's a very good strategic move for CanWel and for us." So far, no changes have occurred. Home Hardware Stores is one of CanWel's largest customers, doing close to $100 million per year to supply its 400-plus building centers. Asked if that relationship will continue, Walter Hachborn, president of Home Hardware, says, "Right now, it's blowing in the wind. That's like saying, 'no comment'." However, he adds, "We imagine we'll continue to do some business with them." But he wants to let the situation "settle down" before his company makes any firm decisions. Rona is estimated to do similar volumes with CanWel, and that company's relationship with CanWel is also under scrutiny. However, according to company president and CEO Robert Dutton, no changes are planned, at least until after the Sodisco-Howden purchase closes. The status quo continues at Home Depot Canada, as well. "We don't do a lot of business with CanWel, but there's no change in the relationship there," says Nick Cowling, a spokesperson for Home Depot Canada. The CanWel offer has been approved unanimously by Sodisco-Howden's board of directors. The CanWel Offer is open for acceptance until December 21, 2004, unless extended or withdrawn by CanWel.
CHICAGO — A new order is emerging at TruServ Corp., only days after the forced resignation of its former CEO, Pamela Forbes Lieberman. Under the direction of senior vice-president and chief merchandising officer Steve Mahurin, the co-op wholesaler announced last week that it is re-organizing its merchandising and supply chain operations. The re-organization, which includes replacing most of the existing buying team, marks the latest move to re-position TruServ as a rock-solid wholesaler following recent years of financial turmoil."The merchandising department has been realigned as the last piece of our efforts to get this company back on track and leap-frog the competition to become 'first in class' among co-ops," says Mahurin.Mahurin joined TruServ back in the spring, coming over from Home Depot. Since then, he's wasted no time bringing the mindset and best practices of his big box experience to bear, leading an overhaul of the product line review process and assessing the organizational structure of the company's merchandising and supply chain organization. "The co-op channel has been paying too much for product, so we're streamlining assortments and lowering costs to help the members," he says. With a new sourcing office of its own in the Far East (see issue #42, October 18/04.—MM), Mahurin is reducing the overall number of merchants, and beefing up support for the buying team with a stronger merchandising staff that will be responsible for day-to-day administrative duties. Some 22 positions are in the process of being replaced. He intends to raise the overall level of sophistication of TruServ's merchandising team, even as he trims it to eight, plus support staff. These will include hires from other retail sectors as well as within the industry, including two promotions — so far — from within, which he declined to name as of yet. "The end result will be a smaller group of merchants with the experience to make decisions and implement them quickly," says Mahurin.
COLOGNE, Germany — When Koelnmesse GmbH switched two of its shows to biennial frequency, the giant trade show company sought a way to fill the off-years with an event that would serve the industry — and generate revenue. The result is the first-ever Asia-Pacific Sourcing show.Practical World, the International Hardware Fair, is the largest show of its kind in the world. However, it announced this past year it will only be offered every other year. There will be no Practical World show in 2005. A similar scenario has been established for gafa, the garden and outdoor show that has also switched to every other year. This new Asian sourcing event will replace those two shows in the off years. Spoga, the sporting goods, camping and lifestyle show, which was historically held concurrently with gafa, will remain an annual event, while offering an expanded selection of products that had been part of gafa in the past.Practical World has been showcasing a growing contingent of Asian suppliers in recent years, so the new show is a logical evolution. It will feature Asian manufacturers of tools, locks and fittings, builders' products and DIY supplies, gardening equipment and accessories, barbecues, camping and sports equipment, interior décor, and seasonal items. (For more info on Asia Pacific Sourcing, click here.)
TORONTO — Hudson's Bay Co. is reorganizing its leadership team, combining the merchandise, marketing and store operations of its Home Outfitters, Zellers and Bay divisions under one Hbc operating structure. The move takes effect February 1, 2005. The Bay and Zellers will continue to operate with its own brands and market position, but they'll be supported and merchandised by a single, common and integrated structure. Under this new structure, Marc Chouinard, currently president and COO, the Bay and Home Outfitters, will become president, Hbc Merchandising Group, with responsibility for merchandise and marketing. Thomas Haig, currently president and COO, Zellers, will also move into a new role as president, Hbc Stores and Specialty Divisions.BENTONVILLE, Ark. — Wal-Mart's earnings were up 12.7% the third quarter, to $2.29 billion, from $2.03 billion a year earlier. Sales reached $68.52 billion, up 9.5% from $62.48 billion a year earlier. Same-store sales were up by 1.7% across Wal-Mart's U.S. divisions. The Wal-Mart division's same-store sales were up 1.3%; Sam's Club was up 4.0%. The international division remains an area of rapid growth for Wal-Mart, with sales increasing by 18.0%. Year to date, sales rose to $203.01 billion from $181.84 billion a year ago. Earnings hit $7.10 billion, up from $6.33 billion.TORONTO — Television design maven Debbie Travis has been signed by Canadian Tire to front a new eponymous line of home products, starting with paint, which will be launched next spring. The Debbie Travis branded collection "will combine inspiring styles and designs with Debbie Travis' signature approach to providing simple, stylish and imaginative design solutions," according to a prepared release. The deal reflects Canadian Tire's focus on differentiating itself with exclusive products and brands and marks a move to dominate in the fast-growing home décor business. SAN FRANCISCO — eBay, the online auction service, is going after holiday sales more aggressively, by launching a shopping catalogue of its own. The 32-page catalogue will be mailed today to millions of eBay customers, representing the users of the services of some 125 million eBay online sellers. DORTMUND, Germany — Tired of discos? Go to Wal-Mart to find love — and pick up a jug of milk cheap. That's what's happening at one store in Germany every Friday evening, where Wal-Mart workers will greet you with a glass of sparkling wine and fresh oysters. Get your picture taken and added to a "singles bulletin board." Then look for love — and low prices. MINNEAPOLIS — Waters Instruments Inc. had first-quarter net sales from continuing operations of $6.7 million, comparable to the same quarter a year ago. Net income from continuing operations reached $374,000, down from $466,000.
David Beck has left Tim-BR-Marts Ltd., where he had served as head of store planning, to join Langtry Industries. He's now western sales manager for Langtry's Lily Fasteners division, stationed in New Westminster, B.C. (800-665-6605)Lowe's has promoted Jim Frasso to senior vice-president store operations for its Southeast division. Frasso previously served as regional vice-president of the company's Florida region. He joined Lowe's in 1994 and has more than 28 years of retail experience. He replaces Greg Wessling, who will retire at the end of 2004, completing a 30-year career with Lowe's.Guardian Building Products Distribution Canada has announces the appointment of Ian Morrison as Ontario sales manager. With more than seven years of industry experience, he will complement Guardian's existing sales team.
Retail sales in October were up by only 0.2%, reports the Commerce Department. That follows a much healthier increase in September of 1.6%. Slower sales in the automotive sector were the main reason for October's low rise. Excluding vehicle sales, retail sales were up by 0.9%. However, building supply and garden stores were among the sectors reporting lower sales.Housing starts in October were 2,027,000, up 6.4% from September and up 2.2% from October 2003, according to the Census Bureau. The value of building permits reached 1,984,000, down 0.7% from last month and down 1.5% from the same month one year ago.
The average price of a resale home in Canada in October was $252,619, up 8.4% over the same month last year, says a report by the Canadian Real Estate Association. Some markets are expected to cool next year, however, including Toronto's, as the average cost of a home is expected to rise at a 3.5% rate, just ahead of inflation. The average price of a resale home in Toronto by the end of next year is forecast to reach $329,000, up from a forecast $318,000 for the end of 2004
ForestLeadership will host its 2005 Conference, Partnerships towards Sustainability, March 1-3 in Toronto. The event will feature plenary sessions, breakouts, the ForestLeadership Awards Gala Dinner, an exhibit area and a spouse program. For more info,
"The combination of Kmart and Sears is extremely compelling for our customers, associates and shareholders as it will create a powerful leader in the retail industry, with greatly expanded points of distribution, leading proprietary home and apparel brands and significant opportunities for improved scale and operating efficiencies. The merger will enable us to manage the businesses of Sears and Kmart to produce a higher return than either company could achieve on its own." — Edward Lampert, Kmart's chairman, in a prepared release. He will be the chairman of Sears Holdings under the merger of the two retail companies.

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