| HARDLINES CELEBRATES 10TH YEAR WITH CHS BREAKFAST SPONSORSHIP |
| TORONTO — Hardlines has signed an agreement with the Canadian Hardware and Building Materials Show to sponsor the Grand Opening Industry Breakfast on the opening day of the show, February 1, 2004.
The event will kick off another chapter in the legacy of this important buying show - the only trade show that has a mandate to serve the entire $29.6-billion retail hardware/home improvement industry on a truly national basis. The event also ties in with Hardlines' own celebration - of its 10th year in operation.
"The readership of Hardlines includes the key retail buyers in this industry," says Bob Elliott, President of the Canadian Retail Hardware Association, which owns CHS. "These are the very people whose attendance marks the success of CHS."
To celebrate the enduring legacy of CHS, your faithful editor and publisher, Michael McLarney, will emcee a celebration of the show and its contribution to the industry over the years. In addition, the Grand Opening Breakfast will pay tribute to many of the individuals who have made their mark in hardware/home improvement retailing over the years. |
| RETAIL GIANTS BUOYANT AFTER BIG 3Q GAINS |
| SPECIAL REPORT — In recent months, consumer confidence in the United States has been on a roller coaster. But that trip has been a joyride for the industry's two largest home improvement dealers, Home Depot and Lowe's, whose respective stores seem to be benefiting from ongoing mortgage refinancing trends that are freeing up cash for home improvement projects. It could also be argued that the heated-up competition between the two giants is actually strengthening both camps by keeping them more focused on their customers' needs.
In the three months ended October 31, each chain reported sizable gains in their sales and profits, and both vowed to continue their aggressive store-opening strategies. Home Depot was a bit more upbeat than Lowe's in predicting what its fourth-quarters numbers might be, but what seems clear is that both business models can claim to attract a wide range of home improvement shoppers.
Atlanta-based Home Depot generated in excess of US$16.60 billion in sales during the latest quarter, or 14.7% more than the same period in 2002. Sales from its stores opened more than one year, which has been the company's Achilles' heel over the past two years, rose 7.8%, its highest same-store sales gain since the fourth quarter of 1999. And Home Depot's earnings shot up 22% to US$1.15 billion. Through nine months, Depot earned US$3.35 billion, or 12.6% more than in 2002, and its sales for this period increase 10.3% to US$49.69 billion.
In its latest quarter, Depot saw increases in its customer transactions (up 9.4%), which company officials said were abetted by the self-service checkouts that have been installed into 760 stores and accounted for 40 million of the 313 million sales transacted during those three months. The company's average ticket also rose by nearly 5% to US$52.10 per shopper. In the quarter, Depot opened 36 new stores (including its 100th unit in Canada), bringing its total to 1,643. And one key component of the company's business strategy - installed sales - increased 45% in the quarter.
Bob Nardelli, Home Depot's chairman and CEO, attributed his company's financial performance to its investments in technology and store remodeling, and claimed that his company increased its market share during the quarter. Still, Lowe's business continues to expand, too. Perhaps the strongest barometer of that growth was the Mooresville, NC-based retailer's 12.4% increase in same-store third-quarter sales, which was the highest percentage gain in the company's history, according to its chairman and CEO Bob Tillman. Through the first nine months of its fiscal year, same-store sales were up 6.5%.
In the third quarter, Lowe's earned US$452 million, or 33.3% more than its profits in the comparable period in 2002. During the most recent quarter, its overall sales jumped 23.5% to US$7.92 billion. Through nine months, the chain's sales increased 17.4% to US$23.90 billion (which is more than Lowe's generated for the entire 2002), and its earnings grew 27.5% to US$1.47 billion. Its average ticket in the third quarter topped US$60 per transaction for the first time in Lowe's history. |
| RETAILERS SEEK PRODUCT PERFORMANCE TESTS |
| TORONTO — CSA is seeking more profile in North America as a standards tester of choice, effectively competing against Underwriters Labs, the testing standard in the U.S.
Both organizations are harmonized under NAFTA, but each has traditionally considered UL the organization for the U.S. and CSA for Canada. However, CSA is no longer a government agency, and is seeking to brand itself more universally - and, in turn, build revenue - by establishing itself as a truly North American standards body.
And now, thanks to two of North America's largest hardlines retailers, CSA's role in product testing is taking on a new dimension.
Both Lowe's and Canadian Tire have approached CSA to conduct "performance tests" on a range of products in their stores. The need from the retail side comes from the fact that so much product is sourced offshore that, despite adherence to compliance standards under either UL or CSA, the standard of quality from an end-user's perspective may be lacking.
According to Grant Carter, CSA's vice-president of marketing and communications, these retailers recognized the benefit of using CSA because it has established credibility among both manufacturers and consumers. "Even though no mark is put on the products after this kind of testing, retailers are confident in our 85 year-plus history of expertise in testing," says Carter. "Especially as more and more product is coming from offshore, this testing will ensure that this stuff is of the highest integrity, so as not to disappoint their customers."
The new testing program, tentatively called "Consumer Product Evaluation for Retailers," is in a start-up mode right now with Canadian Tire and Lowe's, but Carter expects it to roll out early in 2004. He says there's huge growth opportunity in this kind of testing, especially in plumbing, electrical, gas related products and personal protective equipment - and it's growing by 20% a year.
As an example of the kind of testing that might be done under the new program, a retailer could ask for a number of barbecues from competing suppliers to be evaluated for things such as heat consistency over various parts of the grilling surface, or even on how many pieces are left over after assembly.
CSA's new mandate is getting from heavyweight guidance from some of the retailers themselves. Greg Thomas of Alliance International LLC has joined the board of directors of CSA, along with other retailers such as Paul Straus of Home Hardware Stores Ltd., and David Grubbe, former CEO of TruServ Canada, who has been active within CSA since before his retirement from that co-op wholesaler. |
| DESPITE SELLOFF RUMOURS, SODISCO PLANS AGGRESSIVE ACE ROLLOUT |
| MONTREAL — Despite rumours that it was to be sold off last week (how did we miss that one?—Editor), Sodisco-Howden Group is enjoying business as usual as it prepares to give a big push to its Ace banner program throughout English Canada.
The rollout in Quebec, completed last month, involved converting 75 Sodisco-Howden customers, including all of its Ferplus and Bâtitout stores, to Ace. Now, says Sodisco-Howden president and CEO Jos Wintermans, the publicly traded wholesaler is mounting an offensive to drive the program in the rest of the country.
Sodisco-Howden purchased the shares of Ace Hardware Canada Inc. from Ace Hardware Corp. in Oak Brook, IL in February, 2003. The deal gives Sodisco-Howden's independent dealers who sign on with Ace access to a wide range of Ace programs and private-label products.
Paul Ingevaldson, senior vice-president international and technology for Ace, is pleased with the progress the banner is making in Canada, since Ace itself retreated from this market. "It's been going very well," he notes.
Wintermans expects to have about 200 Ace stores by the end of 2004. |
| DISTRIBUTORS SOURCING THE FAR EAST,
VENDORS BEING LEFT OUT |
| SPECIAL REPORT — The pricing demands of retail distributors have forced vendors to move farther and farther into the Orient in search of low-cost production to meet those demands. But now that mandate to "get closer to the source of supply" finds the distributors themselves going east more and more - putting the role of the vendor at risk.
The recent news that Ace Hardware Corp. would replace National Manufacturing with their own private-label hardware line was met with a mixture of opportunistic delight bound up in concerns that Ace's move is anti-American and will cost more jobs back home.
However, in the end, the potential to source product cheaper - up to 25% cheaper, in this case - will likely prove too attractive for most independents trying to compete against large-format competitors.
Paul Ingevaldson, senior vice-president international and technology for Ace, admits a trend is emerging of retail customers bypassing raditional vendors, many of whom simply go to a foreign source themselves. "The trend is to get away from third-party deals and go direct."
In fact, the trend to move closer to the source of supply began with retailers such as Wal-Mart and Home Depot, which have led the way in sourcing products themselves out of the Far East. According to a recent article in the Toronto Star, Wal-Mart accounts for about 10% of all imports by the U.S. from China. Canadian Tire has had offices in Hong Kong and Seoul for decades. "We're looking at offices in Shanghai and Beijing," says Mark Foote, president of Canadian Tire Retail.
"If you can't operate in the Far East, you're cooked," he says, "especially if you're in the retail branded product line."
Others are following at a rapid rate. Ace will open its first Asian office early next year, while B&Q in the UK. already has one, and Orgill put one in place in Shanghai back in the spring.
The Memphis-based wholesaler has had an office in Tapei for many years, but the Shanghai office puts the company in the heart of what Ron Beal, senior vice-president and general manager of Orgill's hardware division, calls the "centre of the new China."
In fact, in many cases, Taiwanese suppliers are establishing factories of their own in China. "A considerable amount of product in Taiwan is now being produced in Mainland China," says Beal.
The push to get product cheaper is coupled with the rising importance of private labels and proprietary brands. Companies such as Canadian Tire and Home Depot and are increasingly able to develop these brands directly with the factories themselves.
Foote at Canadian Tire believes two of the three best-known brands in power tools in Canada are private brands: Craftman by Sears, Canadian Tire's own Mastercraft, followed by Black & Decker. However, he adds, "retail brands are enormously important, and a growing area for Canadian Tire."
However, many of those brands, although nationally known, are in fact proprietary, including Schwinn and Raleigh in sporting goods, and the company's own Yard Works and Persona lines in garden and kitchenwares respectively. Ridgid and Ryobi at Home Depot are examples, as well.
Marc Dufresne, executive vice-president of purchasing and logistics at Rona Inc., admits that his company is placing greater importance on products from the Far East, "But we believe as much as possible in sourcing Canadian products," he adds. However, Rona's private-label lines have grown by more than 15% since last year to about 1,500 SKUs today. Private label now accounts for about 10% of Rona's total sales, and Dufresne sees it growing to as much as 15-18%. |
| TRUSERV CANADA STRENGTHENS ALLIANCE WITH CASTLE |
| WINNIPEG & MISSISSAUGA — In a bid to strengthen their respective positions amidst a flurry of consolidation in the Canadian marketplace, co-op wholesaler TruServ Canada Cooperative Inc. and LBM buying group Castle Building Centres Group Ltd. have announced a new program to provide more sourcing options for independents.
The latest announcement builds on a long-standing strategic alliance between the two organizations. TruServ, a full-line hardware wholesaler based in Winnipeg, maintains only a licensing arrangement with its counterpart in the U.S. and shares none of the U.S. co-op wholesaler's financial woes. It has been a preferred supplier to Castle's 255 member stores across Canada for almost a decade. But the agreement came with restrictions, including, at one point, the requirement that Castle dealers co-brand with the True Value banner.
The deal never really worked to the full satisfaction of both sides, admits Pro Wylie, president of Castle. The new agreement simplifies things, offering a more straightforward wholesale arrangement that gives Castle dealers a choice of whether to join True Value or simply use TruServ on a supply basis. It also reduces up-front costs and builds in a provision for rebates to Castle dealers based on volume of purchases. |
| CANADIANS SPEND MORE ON REPAIR AND RENO |
| OTTAWA — Canadians spent more than ever on fixing up their homes last year, says the latest report from Statistics Canada. On average, homeowners spent $2,910 repairing or renovating their homes in 2002, about 9% more than they did in 2001 and about 58% higher than the average of $1,837 in 1998, which was a decade low.
Roughly two-thirds of the expenditures were devoted to contract work, while the remaining one-third represents materials purchased by the homeowners themselves. The split in how homeowners spend their renovation dollars remains unchanged from previous years.
A total of $23.4 billion was spent by homeowners buying materials or paying contractors for repairs and renovations in 2002, an increase of nearly 11% from 2001, and about 75% higher than the decade low of $13.4 billion in 1996. (NOTE: Stats Canada figures indicate homeowner expenditures, and not total hardware and home improvement sales at retail. For full details on the size of the Canadian market at retail, you'll want to check out our Retail Report CD — MM) |
| INDUSTRY STOCK WATCH |
|
COMPANY |
52-WEEK HIGH |
52-WEEK LOW |
CLOSE FRIDAY |
| Canadian Tire |
42.60 |
27.85 |
37.02 |
| Canfor |
10.95 |
7.20 |
8.65 |
| Costco |
39.02 |
27.00 |
34.11 |
| Goodfellow |
13.00 |
9.75 |
12.10 |
| Home Depot |
37.89 |
20.10 |
35.66 |
| Hudson's Bay |
12.97 |
6.81 |
11.38 |
| Lowe's Cos. |
60.42 |
33.37 |
57.51 |
| Rona Inc. |
26.90 |
11.75 |
25.66 |
| Sears Canada |
21.50 |
13.60 |
19.95 |
| Sodisco-Howden |
3.35 |
1.15 |
2.84 |
| Taiga Forest |
8.10 |
6.00 |
7.55 |
| Wal-Mart |
60.20 |
46.25 |
54.81 |
| West Fraser |
39.05 |
29.25 |
32.50 |
|
|
| COMPANIES IN THE NEWS |
| MONTREAL — RONA Inc.'s earnings more than doubled in the third quarter, reaching $24.1 million. This marks an increase of 102.5% over the same period a year earlier. Rona president and CEO Robert Dutton said the growth was organic, in a prepared statement, attributing the increase to aggressive marketing and rigorous management. During the quarter, Rona completed the acquisition of Réno-Dépôt, whose accounts were consolidated with Rona's on August 28, representing 32 of the 91 days in the quarter. However, the company says this acquisition had a minimal impact on 3Q results. Consolidated net sales (i.e., sales through the warehouse and retail sales from its corporate stores) for the quarter were $748.3 million, up 18.7%. Not counting the Réno-Dépôt acquisition, sales increased 5.3%. Net earnings for the nine-month period were $56.8 million, up 67.0% from $34.0 million a year earlier. Consolidated net sales for the first nine months of the year reached $1.92 billion, up 7.1%. Retail sales for all franchised and corporate stores jumped 24.3% to $495.7 million during the quarter, up from $398.8 million. Same store sales rose 4.5% in 3Q.
MOORESVILLE, NC — In a move that will change the company completely over to the big box format, Lowe's Cos. has entered into an agreement with The Strober Organization, based in Brooklyn, NY, to sell 26 commodity-focused yards operating under Lowe's The Contractor Yard banner. Stober's has 45 stores in seven states, from New York through to Virginia and west to the Mississippi, and US$463 million sales, following a couple of years of acquisition. The deal is expected to close by the end of the year. Strober claims this deal will make it the seventh largest pro dealer in the U.S.
VANCOUVER, BC — Canadian Forest Products has received certification of tracts of land in the northern interior of British Columbia, under the CSA's Sustainable Forest Management standard. The latest audits put Canfor's Houston operations in the Morice Timber Supply Area and the Fort St. John Timber Supply Area Pilot Project under the SFM standard. The two certifications will add about 1.8 million cubic metres of Canfor's annual harvest to existing certifications, resulting in a total of 8.5 million cubic metres, or 91% of Canfor's total, being certified to sustainable forest management standards under either CSA or SFI.
BARRIE, ON — For the first time next year, Can-Save will host its annual Buying Expo outside of its own warehouse. Due to an increase in volume and attendance, the Ontario-based building materials wholesaler will hold the event in the Barrie Curling Club on June 17, 2004.
ATLANTA — Home Depot will extend its support of the Olympics and the Paralympics to 2008, renewing an agreement that was set to expire next year. The giant retailer has been investing heavily in its support of sporting events, including the sponsorship by Home Depot's Canadian division of NHL hockey. Home Depot will also increase its employment program for Olympic athletes, providing them with full pay for a flexible 20-hour work week.
TORONTO — Staples Business Depot and Grocery Gateway have announced an online partnership for product deliveries in the Greater Toronto Area and Southern Ontario. A small range of office supplies, such as toner and scissors, are now available through Grocery Gateway's website www.grocerygateway.com. Additional products will be added over the coming months. Staples joins Home Depot Canada and the LCBO as companies using Grocery Gateway's network of delivery trucks to ship products.
BRANTFORD, ON — The Nu-Gro Corp. has completed the sale of its commercial Ice Melt business in Tillsonburg, ON to the Kissner Group, Cambridge ON. Nu-Gro also entered into a supply agreement with Kissner related to the packaging of consumer Ice Melt products. Nu-Gro's brand names include CIL, Wilson, Vigoro, Pickseed, So-Green and Plant-Prod. Through its subsidiaries in the U.S. and Canada, the company makes controlled-release nitrogen raw material for the fertilizer industry worldwide.
DUSSELDORF — The Henkel Group reported a substantial 12.4% increase in operating profit for its third quarter to 172 million euros, as sales rose by 3.8% to 2.4 billion euros after adjusting for foreign exchange effects. In the first nine months of 2003, the Henkel Group realized sales totaling 7.1 billion euros and an operating profit of 520 million euros. Sales at the Consumer and Craftsmen Adhesives business sector in the third quarter rose by 8.3% over the prior-year figure after adjusting for foreign exchange effects.
OAK BROOK, IL — Fast-food giant McDonald's is taking bold steps to leverage its brand into other areas. It's launching a massive product licensing initiative called McKids, with everything from action-oriented toys and interactive videos and books to casual clothing (extra-large sizes, I expect — Editor). In what is yet another aspect of its ongoing effort to revitalize the company, none of this stuff will be sold in McDonald's restaurants (maybe a clue there — Editor), but they're trying to get it into Wal-Mart, Toys R Us and Target by next spring. |
| PEOPLE ON THE MOVE |
|
Eric Peterson, a 10-year veteran of Home Depot, has been named president, strategic markets, based in Atlanta. In this new position, Peterson will be responsible for optimizing operations, in-store merchandising, store prototypes and human resource strategies within targeted growth markets. Peterson most recently served as Division President of the company's Northwest division based in Seattle, WA. Before that, he was vice-president merchandising for Home Depot Canada... Home Depot will also combine its Northwest division into its Western division. Bruce Merino, president of the Western division, will take the helm in the existing Orange County, CA facilities.
|
| MARKET INDICATORS |
|
Housing starts are expected to reach 204,100 units in 2004, after reaching a 14-year high in 2003, says CMHC. Consumer confidence and low mortgage rates combined with recovering employment growth, are considered important factors in the buoyancy of the market, which is expected to remain strong into 2004
The Consumer Price Index rose only 1.6% in October, showing signs that inflation is at its lowest level since June 2002. Lower prices for electricity, gasoline, clothing and automobiles all helped, said Statistics Canada.
Residential construction in the U.S. reached its highest level in 17 years, says the Commerce Department. Housing starts reached 1.96 million units seasonally adjusted, up 2.9% from September. October's high marks the strongest month for residential starts since January 1986. Single-family starts were strongest, at a record high pace of 1.62 million units, up 5.7% from September. Multiple starts, namely apartments, condos and other multi-family dwellings, declined by 3% to 319,000 units seasonally adjusted. |
| NOTED... |
| Industry newsletter Forest Certification Watch will present its 2004 Certification Watch Conference March 28-April 2, 2004 in Vancouver, BC. The fifth annual conference will address issues such as the linkages between State or Provincial-level forest policy and certification; certification of non-industrial private forests in the U.S. and Canada; sustainable management and certification of the boreal forest; and responsible procurement policy and implementation. It will be preceded by a field tour and a training session. For more information, please contact: 1-877-273-5777 or info@CertificationWatchConference.org. |
| HARDLINES EDITOR PROVIDES INSIGHTS FOR A&E |
| NEW YORK — When A&E broadcasts its special installment on the rise of retail giant Home Depot next week, one person interviewed for the program has followed the retail giant's growth - warts and all.John Caulfield is a seasoned journalist who has been tracking the company - and the entire home improvement sector - for more than two decades, most recently as Managing Editor of Hardlines. He's also a former editor at Home Channel News, and has written two books on Home Depot - "Home Depot: Preparing for the Next 25 Years," and "Selling to a Very Different Home Depot".
His "inside track" on the Home Depot fast track to success made Caulfield a natural to be interviewed for the A&E program "Biography," when it airs an episode on Home Depot on November 26 at 8 p.m. EST, as part of a week-long series called "Shop Till You Drop."
Caulfield enjoyed ongoing access to the company's founders, Bernie Marcus and Arthur Blank, and to other key Home Depot executives, as the retailer rose from its humble beginnings in California more than 25 years ago to a chain of 1,643 outlets and 300,000 associates today. |
|
John Caulfield, Contributing Editor
vol. ix, #45 November 24, 2003
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