John Caulfield, Contributing Editor
vol. xi, #37, October 03, 2005

IN THIS ISSUE: • Nardelli wants more action in China • Sexton hire puts focus on membership • TruServ’s Morrison: independents must be tech-savvy • Home Hardware’s Straus: new products drive traffic • How international will Lowe’s grow? • Ace makes paint deal with U.K. retailer • Universal enters Trus-Joist partnership * * * * * *

“Little things affect little minds.” —Benjamin Disraeli (British Prime Minister, 1804-1881)
SPECIAL REPORT–Home Depot’s chief executive is excited about the rate of expansion of his company worldwide, with successes in markets abroad. Canada, for example has become the market leader north of the border, with $5 billion in sales, and will open 20 stores this year. Mexico will be a $1 billion business by year’s end. But Nardelli was frank about his expectations in Asia, where the company opened offices over a year ago, but have yet to open a store.Nardelli is pleased with the performance of the company overall, which will see a total of 175 openings (1,953 as of last Tuesday, marking the addition of some 700 stores under Nardelli’s aegis). “We’re still opening a new store just about every 48 hours.” Perhaps to avoid the experience in Chile, where, in the mid-’90s, the retailer actually pulled out after only a few short years, Nardelli is trying to follow the success in Canada as Home Depot develops a strategy in the Orient. After all, that model has worked well so far. “The [success of] the Canadian model,” he says, “gave me the confidence to move into Mexico.” However, Asia is proving a tough nut to crack. “I’m disappointed that we’re not there sooner,” says Nardelli. Like Canada and Mexico, he would prefer to make an acquisition to get established quickly in China, but attempts to buy up an existing chain there “just didn’t pencil.” He admits he may have to undertake greenfields expansion. In the meantime, Home Depot will invest US$15.5 million in developing an operation that will spearhead its operations in China. Called The Home Depot (China) Building Material and Home Improvement Co. Ltd., the operation is expected to be established in Shanghai, where it will sell hardware, décor and building materials at both the retail and wholesale levels, reports the Shanghai Time. As for opportunities in Europe, Nardelli is less enthusiastic. He calls the market there very crowded and badly in need of consolidation.
WINNIPEG–Mark Henderson has joined the LBM buying group, the Sexton Group Ltd., in a newly created position of vice-president. Effective immediately, Henderson will work closely with, and report to, Bob Mondy, vice-president and general manager of the Sexton Group. Henderson’s initial focus in his new role will be getting to know the concerns and needs of Sexton’s 247 members, located mainly in Western Canada. He will be charged with tailoring existing and new strategies to meet these needs, while participating in all key supplier negotiations. Like other groups representing independents, Sexton is facing competition from big boxes, as they expand into ever smaller markets, and from RONA, which is aggressively recruiting independents. Henderson will lead the development and implementation of a membership growth strategy for the Sexton Group. Henderson, a well-known and well respected figure in the industry, began his career in home improvement in 1967 with his family’s business, G. Henderson Distributors. He grew with the business, assuming progressively more responsible positions until taking over the leadership role in the company in 1985. In the late 1990s Henderson Distributors was sold to Jeld-Wen, and Mark Henderson became CEO and chairman of the board of Jeld-Wen of Canada. He held that role until 2003.
MARKHAM – As big boxes bring new formats to secondary markets that have traditionally been the domain of the smaller player, independent retailers will have to continue to reinvent themselves to survive and flourish. That was the message delivered by Bill Morrison, CEO of TruServ Canada, to an audience at the Hardlines Conference, held here recently. Morrison suggested that shoppers in rural and suburban markets want the same wide selection and sophisticated product lines found in larger urban markets. When it comes to consumers, he added, “small town doesn’t mean small time.” Retailers who want to grow in the current market must also invest in the technology that will allow them to analyze, and respond to, consumer spending habits, says Morrison. “The big boxes have an incredible understanding of the customers, and independents need the same understanding so they can compete on that level.” He further suggested that the declining price of customer tracking systems make information gathering an affordable option for merchants of any size. Despite having witnessed first-hand the challenges of a family-owned lumber business, Kim Emmerson still believes that the independent dealer constitutes a “vital, profitable and necessary part of the retail home improvement business.” Owner of Emmerson Castle Lumber in Haliburton, Ont., Emmerson represented the voice of the independent dealer on the podium at the Hardlines Conference. Size does contribute to success for the smaller independent, says Emmerson. “The days of the mom and pop store are [gone], so you have to be big enough,” he says, “but if you were to grow into a 65,000 to 100,000 sq. ft. store, perhaps your service levels would drop.” Emmerson concurs with Morrison on the need to invest in technology. He uses technology in his store whenever it will enhance operational efficiency or heighten the experience of the consumer. These include a computer-assisted design program to provide customers with a three-dimensional house and kitchen plans, and a database of some 15,000 people in his trading area.
ST. JACOBS, Ont. – While new formats and enhanced categories remain important ways that Home Hardware’s dealers remain competitive, what gets customers in the door more than anything is new products, says Home Hardware’s vice-president and CEO, Paul Straus.Straus is excited about the success of programs such as the Mark Cullen line of gardening tools, a seasonal lines with the imprimateur of the popular TV and radio host. But there are no plans to spin off L&G under its own banner, the way Home Furniture is growing as a separate entity, selling furniture, home entertainment and white goods. Rather, it’s just one more way to make a customer’s trip to the hardware store more enticing. After all, Straus points out, the co-op model for hardware has been very successful. In fact, he admits, his organization was approached by a group of dealers in the food sector, wanting Home to launch a grocery co-op. “They asked us to develop a food/grocery banner, but it’s not in the cards,” says Straus. Instead, all efforts are focused on enhancing the role of the traditional hardlines dealer. And nothing brings in customers more than new products. “You’ve got to find new ways to get people into your store,” he says. Products such as a “Storm Station” from Black & Decker–an all-in-one radio, 12-volt recharger for cell phones, radio, and detachable flashlight–plus LED Christmas lights for the holiday season and a textured stone finish called Texstone, are among the innovations Straus is counting on to keep customers coming back. But, he warns, “If you kept selling the ‘same-old same-old’, you’d still be selling square nails.” (He quickly adds that Home does sell square nails, but as a specialty item for refurbishing antiques or for a more rustic look when installing barn boards.)
CHICAGO —Officials for Mooresville, N.C.-based Lowe’s Cos. revealed that the industry’s second-largest dealer is looking at opening stores in other countries outside the United Stated and beyond Canada, where Lowe’s plans to open between six and 10 stores by 2007, and as many as 100 eventually.However, Lowe’s officials didn’t reveal which countries the company was evaluating, or provide any timetable for international expansion, during a four-hour meeting with analysts here where, for the most part, Lowe’s restated previous estimates about its store growth and projected financial performance. Expansion is just one way the retailer intends to drive growth. According to Greg Bridgeford, executive vice-president of business development, “Three key strategies that will drive our future growth include continuing to pursue domestic storing opportunities, developing solutions for do-it-for-me customers, and exploring international growth opportunities. We are interested in those opportunities where an optimal business model will capitalize on our strengths and afford us profitable growth." Lowe’s execs reiterated that it would open 150 stores this year, and between 150 and 160 in 2006 and 2007. That represents approximately 12% square-footage growth in 2006 and 10-11% expansion in 2007. While same-store sales over the coming year are forecast at 5%, sales from these new footprints are expected to drive an overall sales increase of 13-14% in fiscal 2006, and an additional 14-15% increase in 2007.
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TORONTO–Amidst a backdrop of a day of service at a park and community center in Toronto’s east end, Home Depot Canada president Annette Verschuren issued a challenge to other companies to pitch in. In partnership with Volunteer Canada, Verschuren gave Home Depot’s commitment to work together towards establishing the largest corporate volunteerism initiative in the country. The retailer will donate 18,000 hours of service, and encouraged corporate Canada to provide a total of 150,000 hours of volunteering. This model of corporate volunteerism is patterned after the Corporate Month of Service in the U.S.GRAND RAPIDS, Mich. — The building materials distributor Universal Forest Products has entered into a partnership where it will offer Trus-Joist engineered wood products to Universal’s customers in the Southeastern U.S. Boise, Idaho-based Trus-Joist is owned by Weyerhaeuser. The financial terms of its agreement with UFP were not disclosed. SAN DIEGO — Lawsons, a U.K. chain of eight lumber and building materials stores serving greater London, has signed a licensing agreement that gives it exclusive rights to sell Ace Hardware Corp.’s Ace-branded paint. Lawsons has also agreed to convert its stores’ paint departments to Ace’s “Color Your Life” merchandising and display format. This is the first time Ace has done business in England. WASHINGTON – The U.S. Justice Department will review the proposed takeover of Maytag by its biggest competitor, Whirlpool. Together, they would control a large portion of the U.S. heavy appliance industry, causing concern by anti-trust officials. The acquisition is valued at about US$1.7 billion. MONTREAL – Richelieu Hardware enjoyed consolidated third-quarter sales of $88 million, up 2.4% from $86 million a year earlier. Distribution sales accounted for 12% of total sales in the quarter, while the company had sales of $77 million in Canada, up 2.1% over the same quarter of 2004. Sales of hardware products to retailers grew 9%. NEW YORK – A number of retail merchants groups have banded together to sue Visa and MasterCard, as well as a number of banks, over the high cost of merchant fees for credit card transactions, claiming collusion to set high rates. The suit could be worth tens of billions of dollars. COLUMBUS, Ohio – Wal-Mart may buy up the Tommy Hilfiger line. It’s having money troubles and Wal-Mart is running up against Target, so such an acquisition would certainly help Wal-Mart appeal to a more up-market consumer, which is where Target dominates. AMERICUS, Ga. – To provide rapid disaster recovery for families who lost homes in Hurricane Katrina and Rita, Lowe’s Cos. is working with Habitat for Humanity International in a hurricane rebuilding program called “Operation Home Delivery.” Habitat’s five-day, round-the-clock homebuilding campaign is in concert with NBC’s “Today” show and Warner Music Group, and took place Sept. 30 at Rockefeller Plaza in New York. Simultaneous builds went on in Jackson, Miss., and Los Angeles. Volunteers and supporters expected to complete framing for more than 60 new homes that will be transported to the Gulf Coast region.
At Sears Canada Inc., Alain Masse has been appointed president and general manager, Cantrex Group Inc. He was most recently national general manager, consumer electronics, photography and computers with Cantrex. Masse succeeds Claude Senechal, who is retiring after 33 years at Sears. Cantrex is a Canadian buying group for independent merchants in the furniture, appliances, electronics, computers, floor covering and photography equipment sectors, with more than 1,300 retail outlets across Canada.
New home sales in the U.S. dropped almost 10% in August, down from a record high in July, reports the U.S. Commerce Department. Sales fell to an annualized rate of 1.237 million units, however they were up 6.2% from August 2004. This was compounded by a report from the Conference Board indicating a drop in its consumer confidence index to its lowest level in two years, to 86.6 this month from 105.5 in August.
“Home Depot has automated check-outs in about 70% of U.S. stores and will have the feature in 46 Canadian stores by year end.”–Tom Taylor, Home Depot’s new executive vice-president of merchandising and marketing, to an audience of retail and supplier executives at last week’s Hardlines Conference, held at the Hilton Suites Hotel in Markham, Ont.

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