Innovation is the star of latest Home Hardware market

ST. JACOBS, Ont. — Home Hardware dealers who attended the company’s spring market, which ran here April 15-17, were hungry for new products in new categories to expand their assortments and create excitement in their stores.

A special focus on higher-end items was reflected across all categories. As an example, Bill Ferguson, dealer support manager for Home Hardware Stores Ltd., pointed to new lines of premium-end consumer products, such as Weber’s Genesis barbecues.

“Ten years ago, we sold a barbecue for $165 and we wondered if we could sell the tank as well,” he explains. “Now that consumers are getting a bit older and have fought with the older grill, they’re ready to step up to the next level.”

The trend is evident by the inclusion of several new items into the product mix, such as Weiser’s next generation of keyless and self-keying locksets, and premium quality washers and dryers from manufacturers such as LG Electronics.

Ferguson added that dealers are also responding enthusiastically to Home Hardware partnerships that add value to their relationship with customers, including the loyalty program Aeroplan, which the company launched in March, and an ongoing association with Mark Cullen to promote green gardening.

About 5,600 dealers and staff, representing  about 80% of Home’s 1,000 stores, walked the market, which saw record attendance this year.

As for the word on the floor, Ferguson noted that dealers continue to enjoy healthy growth, despite the widely-reported slowdown in the construction and real-estate markets. “The industry still looks very buoyant, and it’s still being fuelled by all the life-style shows,” he says.  Potential for growth also exists within the demographic of young consumers who, thanks to a strong youth employment market, are beginning to move out of the nest into their own homes.

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RONA announces three more big boxes in the Montreal region

BOUCHERVILLE, Que. — RONA inc. has announced plans to open three new big-box stores in the Greater Montreal Area. Construction of a RONA L’entrepôt is already under way in Pierrefonds, and will open this summer. Before that time, construction of two more stores will begin — a Réno-Dépôt in Candiac and a RONA L’entrepôt in Brossard on the South Shore. The Brossard project represents the relocation of an existing store, on Taschereau Blvd., to a shopping mall in a busy sector of the city.

These three projects represent a total investment of nearly $75 million and will create more than 325 jobs. RONA already operates 40 big-box stores in Quebec. The company plans to open a total of 15 big-box and “proximity” stores this year.

The Pierrefonds store, which broke ground in fall 2006 at 3933 St‑Charles, is an 80,000-square-foot outlet that’s owned 100% by RONA. The layout will be based on the new RONA big-box concept, with three separate zones: a seasonal and gardening zone, a renovation and interior decoration zone, and a zone for construction materials and basic products.

It will be joined by a 100,000-square-foot Réno-Dépôt in the Carrefour Candiac mega-mall, at the intersection of Highways 15, 30 and 132. It’s slated to open in spring 2008. The corporately owned store will be based on RONA’s new Réno-Dépôt big-box concept, which was introduced last fall in its Rimouski store. (Check out our latest issue of Hardlines Quarterly Report for a full report on this store. Click here for more info! — Editor)

Finally, the current Brossard store is being relocated to the new Quartier Dix30 commercial zone at the southeast corner of the junction of Highways 10 and 30, for an opening in late 2007. The new store, like the existing Taschereau location, will be co-owned by RONA and a group of RONA dealer-owners.

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TIM-BR MARTS creates new field support team

CALGARY — In an effort to drive increased support for its existing programs, TIM-BR MARTS Ltd., the giant LBM buying group, has formed a team of managers to work with its members. Called dealer development managers, they will be charged with strengthening relations with existing TIM-BR MART members, rather than recruiting new dealers.

The new team will be responsible for ensuring TIM-BR MART retail members and their staff maximize TIM-BR MART marketing programs and other initiatives, such as flyers and in-store POP, as well as a dealer intranet site and TSG non-core programs for its commercial and industrial members. The team will also increase awareness and usage of the Moneris POP system, TIM-BR MART gift cards, the group’s private-label credit cards, Air Miles, Homeplans and TIM-BR MART’s involvement in the SpanCan hardware buying organization.

“TIM-BR MARTS’ retail services team is focused and working hard on delivering new and innovative ways for our members to increase sales and profitability,” says Steve Stremecki, vice-president for TIM-BR Marts.  “I believe you will agree that it is an exciting time to be a retail member of TIM-BR MARTS Ltd.”

The team is headed up by Jon Irwin as national dealer development manager. Irwin has been with the group for 15 years, most recently responsible for store design and merchandising. Reporting to him regionally is Paul Pettersone, who has been appointed dealer development manager for Northern and Eastern Ontario. Formerly a dealer representative for both Homecare Building Centres and Le Groupe BMR, he joined TIM-BR MARTS in December 2006. Gary Yokubouskis is dealer development manager in Western Canada. Most recently he was with CanWel, and then Madero Distribution.

Rick Houghton has moved over from Guardian Building Products, where he was branch and business development manager, to become dealer development manager for TIM-BR MART’s commercial and industrial members. (See “People on the move” for more appointments from TIM-BR MARTS — Editor)

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New wood preservative launched in Canada

TORONTO — More than 100 homebuilders, architects and housing industry professionals attended the launch of a new wood protection product called BluWood, which has been used in place of regular construction-grade lumber and sheathing at the Eden Oak Homes’ Vellore Park, a housing development just north of here.

Designed to protect all types of construction wood from mould, fungus, moisture and insect infestation, BluWood first hit the U.S. market six years ago, after many years of development by WoodSmart Solutions Inc. of Boca Raton, Fla. Earlier this year, Ontario-based wood treater Shelburne Wood Protection purchased exclusive rights to treat and market BluWood in Canada.

The BluWood process is not conventional pressure-treating, but a two-part dipping process that infuses both a water-repellent, semi-permeable film and a fungicide and insecticide called Perfect Barrier DOT Wood Preservative.

Vellore Park is the first complete housing project in Canada to use BluWood, which will also be used on housing projects in Toronto and Ottawa this summer.

Alpa Lumber of Mississauga, Ont. has an agreement with Shelburne to supply the product to builders in the Greater Toronto Area and also Ottawa, but Shelburne will be looking for additional retail and lumberyard distribution in the months ahead, according to Erwin Leonov, vice-president for Shelburne/BluWood Canada’s operations.

“We’ve had two or three good meetings with Lowe’s Canada and we’re very hopeful of getting the business,” Leonov said, indicating that Lowe’s were familiar with the product from the U.S. “We certainly see this product as getting distribution through all the major Canadian banners, but it will be an evolving process and we’ll have more to announce as we go along.”

For now, the Shelburne plant will provide product for all Canadian customers, but BluWood is looking to establish or contract wood treatment facilities across Canada to handle the process, Leonov said.  BluWood will soon be under production in Abbotsford, B.C. and a second, undisclosed, B.C. facility will follow soon after, he said.

Leonov estimated BluWood would add “about $1.25 to $1.50 per square foot” to the selling price of a 2,000 square foot Canadian new home.

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Home Depot Canada admits to tough competition

TORONTO — Speaking recently to a group of manufacturers at a breakfast meeting held by the Canadian Hardware and Housewares Manufacturers Association, Gino DiGioacchino, vice-president merchandising for Home Depot Canada, admitted that the competition has been getting tougher over the past few years.

Both RONA and Canadian Tire, said DiGioacchino, have made big improvements to their stores and their assortments. “And Home Hardware — wow — what’s up with them? They’ve woken up!” he added, referring to the dealer-owned co-op’s quiet, but highly effective, retailing strategy. “Retailers in Canada have really gotten sharper.”

The increased competition, DiGioacchino said, not only gives the customer more choice, but “it only makes you better.”

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McLarney named NRHA Managing Director

The North American Retail Hardware Association Canada (NRHA Canada) has named Michael McLarney as its new managing director.

McLarney has been a fixture on the Canadian retail hardware scene for more than 20 years. He is best known for his current role as editor and publisher of Hardlines, the weekly electronic newsletter for the retail home improvement industry, and through his leadership in running the annual Canadian Hardlines Conference. Both these ventures are operated by McLarney and his business partner, Beverly Allen, through their Toronto-based company, Hardlines Inc.

While serving as managing director of NRHA Canada, McLarney will continue his involvement with Hardlines Inc. and manage NRHA Canada out of the Hardlines’ World Headquarters.

“We felt that this opportunity to manage and represent NRHA Canada was a very good fit for us,” McLarney says. “It provides us with one more way to deliver information and services to Canada’s home improvement industry, and that is what Hardlines has always been about.”

In his dual role with NRHA Canada and Hardlines, McLarney says that there are many synergies that can be utilized to the benefit of Canadian hardware retailers, but he is quick to point out that both entities will operate separately. “I think it is very important for the industry to understand that, while representing NRHA Canada, Hardlines will remain as the independent voice and source for breaking news within the industry that it has always been,” McLarney says.

To reinforce the distinction, McLarney will step away from his day-to-day duties as editor of Hardlines. He will be replaced by Vicky Sanderson, who has extensive experience covering the home enhancement industry from both a business and consumer perspective. (see Appointments)

Under McLarney’s leadership, NRHA Canada will seek to heighten its profile throughout Canada and make more Canadian home improvement retailers aware of the information and training services the association provides to its members.

“We will look to maintain a very high profile by attending industry shows, visiting retailers around the country and ensure that NRHA Canada takes a more prominent role in our Hardlines Conference and the National Hardware Show – Canada.”

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Lowe’s foresees profitable Canadian startup

MOORESVILLE, N.C. — Lowe’s first international expansion will be in Southern Ontario later this year, and the company expects those stores to be profitable quickly.

While the world’s second-largest home improvement retailer hopes to have as many as 100 stores here over time, its initial foray will land fewer than 10 before the end of this year. Even though those stores will be clustered in the Greater Toronto Area of Southern Ontario, their limited number will pose some challenges from a distribution standpoint. “Our focus is on the GTA now,” Gary Bridgeford, executive vice-president business development for Lowe’s Cos., told a meeting of business analysts late last year. “But over the next couple of years, our goal is to get a significant store count and be able to scale from a logistics standpoint.”

Robert Niblock, chairman and CEO of Lowe’s, pointed out that a number of parallels exist between Toronto and many larger U.S. cities, which experience higher sales than some stores in secondary markets. He said he expects greater volume from these Toronto-area stores, as well.

In fact, he added, “We expect just about all our Canadian stores to make money in year one.”

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New home construction gets slow start, picks up in March

OTTAWA — Bad weather adversely affected Canada’s housing market in the first quarter of this year, as seasonally adjusted starts were down more than 10% for the period, reports Canada Mortgage and Housing Corp. However, despite the quarterly drop, by March starts were on the rebound, with the seasonally adjusted annual rate of urban starts climbing 9.1% from February to 177,900 units. Urban multiple starts rose 12% to 92,700 units in March, while single starts increased 6.2% to 85,200 units.

Increases occurred in all regions except the Atlantic. The Prairies led the way with a 26.2% increase, followed by British Columbia at 11.3%, and Quebec with 10.5%.  In Ontario, urban starts remained relatively flat. Urban multiple starts increased in all regions except in the Atlantic and Ontario, while urban single starts were up in all regions.

Rural starts were estimated at a seasonally adjusted annual rate of 33,000 units in March.

Actual starts in rural and urban areas combined, were down an estimated 8.8% in the first quarter of 2007 compared to the same period in 2006. Actual starts in urban areas alone were down an estimated 10.3%. Actual single starts in urban areas were 16.3% lower than they were a year earlier, while actual urban multiple starts were down 5.3%.

And while March showed a definite upturn, building intentions of contractors for the next few months are not as positive. Canada’s record-setting pace of construction intentions came to an abrupt halt in February, as the value of building permits plunged to its lowest level in a year, down 22.4% from February 2006.

Rising costs of both home construction and financing could further dampen the housing market through the remainder of the year. In fact, CMHC forecasts that starts will be down to 209,500 from 227,395 in 2006.

The cost of new housing was up 0.5% in February from the previous month. On a year-over-year basis, contractors’ selling prices for homes were up 10%, just below the 10.1% registered in January.

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Blake’s initiatives pay dividends for Home Depot stores

TORONTO — A move to tidy up its stores and return to more orderly, merchandising driven presentations is just one of Frank Blake’s initiatives that’s paying off.

Blake, who was appointed chairman and CEO of Home Depot in February, has been pushing for the return to such basic tenets as empowering associates with the product knowledge to take care of customers, and improving the shopping environment.

The latter initiative has special resonance for Home Depot’s Canadian stores, which are faced with the imminent arrival of Lowe’s. Other initiatives being urged by the head office in Atlanta include increasing product availability, avoiding out-of-stocks, and finding and developing exciting new products.

Home Depot is also putting more focus than ever on the contractor customer. “The other great segment of our customer base is the pro,” Gino DiGioacchino, vice-president of merchandising for Home Depot Canada, recently told a group of manufacturers at a breakfast meeting held by the Canadian Hardware and Housewares Manufacturers Association.

“Serving that customer is a big focus for Home Depot,” he said. But price alone cannot be successful in wooing the pro, he added. The retailer intends to keep building loyalty by developing support for its installer business.

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Lowe’s next Canadian location is east of Toronto

TORONTO — Lowe’s Canada has received the go-ahead for a store in Belleville, Ont., a mid-sized community almost two hours east of Lowe’s Canadian head office in Toronto. A re-zoning request was approved last week, giving the world’s second-largest retailer the go-ahead to break ground on its fifth store in Canada. According to the Belleville Intelligencer, the store will be 142,000 square feet in size, slightly larger than Lowe’s standard footprint of 138,000 square feet, and have parking for 700 cars.

Lowe’s has been so tight-lipped about its plans for Canada that even senior merchandising staff have been kept in the dark about when or where stores will open. Four other sites have been confirmed so far: one in Metro Toronto’s west end, the other three in Hamilton, Brampton, and Brantford, Ont. The latter stores will all be west of Toronto. Belleville, which is east of the city, already has a Home Depot.

Hardlines had originally estimated that Lowe’s would begin opening stores here by August 2007. Based on the rate at which Lowe’s Canada has been obtaining approvals for its sites, those openings are now expected to occur later in the fall.

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TIM-BR MARTS rolls out energy awareness program

NORTH VANCOUVER — TIM-BR MARTS Ltd. has developed a program to promote energy awareness among its member dealers. Called EnerGrade, the program provides members with resources and training tools to help their customers make informed choices about energy efficient and ecologically friendly renovations. The EnerGrade program is also designed to help homeowners navigate various government energy efficiency rebate and incentive programs, and facilitate installation of projects by qualified contractors.

One of the key programs that EnerGrade will tap into is the ecoENERGY Retrofit for Homes program, a federal program of the Office of Energy Efficiency that had been cancelled and then resuscitated under a new name early in 2007. Under the program, funds will be available to more than 140,000 homeowners contemplating an energy efficiency upgrade.

ecoENERGY will be launched this Wednesday, April 11, by The Honourable Gary Lunn, Minister of Natural Resources Canada, at Standard Building Supplies, a TIM-BR MART dealer located here.

“It’s really about educating our dealer-members about the importance of taking a holistic approach to energy efficiency and the sale of energy efficient products,” says Steve Stremecki, vice-president, retail at Calgary based TIM-BR MARTS Ltd. “And since we have 611 locations across the country we are a really good vehicle for the government to send their message and to promote their program.”

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New RONA store emphasizes décor

SCARBOROUGH, Ont. —  More focus on décor products displayed in discrete boutiques, more private label and premium products, and enhanced signage and lighting define the new RONA Home & Garden that opened here last week.

The new store is 103,892 square feet, and includes a 14,564 square-foot drive-through lumberyard, and a 4,000 square-foot greenhouse that will operate all-year round.

Better lighting, revamped signage and high-gloss flooring all contribute to a prettier, more female-friendly shopping environment, reflecting the company’s bid to prepare for the arrival of Lowe’s. While store management suggested that the store design perfectly balances lumber and building materials with décor and paint assortments, the added emphasis on softlines appeared to come at the expense of the LBM department, which was missing some core products such as cedar planks.

Local demographics are reflected in the stores’ bilingual signage in Chinese and English, and approximately 60% of the store staff is fluent in Chinese.

The store will also include a number of floating staff, who will be available for customers who need “project assistance.” Borrowing a page from the Lowe’s playbook, the move is part of a focus on providing better customer service.

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Quebec renovation market remains strong

MONTREAL  —  Quebec’s renovation market is showing continued strength, according to Renovex, a quarterly survey by the Building Materials Retailers Association of Quebec (ADMACQ). In the fall of 2006, for the second consecutive time, four out of five Quebec households said they intended to do DIY renovations, or hire a contractor for a project.

The Renovex ADMACQ index has been moving upward since it was established in March 2004, at which time 76% of households surveyed said they intended to do reno work. The proportion of people doing work themselves remained above 50% for all of 2006, indicating the need for expert advice from retailers for consumers.

“The Renovex ADMACQ index is constantly moving upward, since the first measurement was established in March 2004, at which time 76% of the households surveyed said that it was their habit to renovate, engage in construction or do-it-yourself projects,” says Donald O’Hara, president and general manager of ADMACQ.

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Canadian Tire names new vps following shake-up

TORONTO – Recent defections and a promotion have spurred a number of personnel changes at Canadian Tire Corp. Pamela Griffith-Jones has left the retailer, and her role as vice-president of the leisure products division, to join Sears Canada as vice-president and chief marketing officer. In her new position, she will lead Sears’ marketing organization, which includes developing the Sears brand and its private-label products. Replacing Griffith-Jones is Canadian Tire vp Todd Sharman, who has stepped in as vice-president of leisure products.

Tony Whitehouse, who had been line of business director for tools at Canadian Tire, has joined Loblaw as senior vice-president of hardlines. His role has yet to be filled at Canadian Tire. T.J. Flood and Steve Noble remain in place as line of business directors for kitchens and consumables and for electrical and home organization respectively. John Jobin continues as line of business director for décor and repair.

Last, but by no means least, our old friend Tony Kuczynski has been promoted to vice-president of automotive for Canadian Tire Retail. Most recently vice-president of store operations and commercial sales for Canadian Tire’s PartSource business, Kuczynski was well known in this industry as the driving force behind Ace Hardware Canada’s dealer recruitment efforts a decade ago.

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Vendors make contact with buyers at Hardlines event

MONTREAL & TORONTO – Vendors got a chance to meet face to face with Canada’s top buyers at Meet the Buyer events hosted by Hardlines in both Toronto and Montreal last week. Senior buyers from Home Depot, RONA, Home Hardware Stores, TruServ Canada and Hbc (Zellers) were represented in Toronto. In Montreal, buyers from RONA, Home Depot and Pro retail services were on hand to talk about their latest merchandising initiatives.

In Toronto, Alim Esmail, senior merchant for hardware at Home Depot Canada, shared the latest retail innovations being offered through that retailer’s stores, and the impact they will have on vendors, as well as identifying the need for more cohesive merchandising programs developed in tandem with vendors. His comments were echoed in Montreal by Sylvio Pintal and Anne Legault, district sales merchants for Home Depot.

Jim McDonald, hardlines merchant for Hbc, spoke to vendors in Toronto about the opportunities for providing product for Zellers’ convenience hardware assortment. Zellers stores are geared to the female shopper and vendors should look new ways to serve that customer, he said.

The Toronto event was rounded out by presentations from Ken Robb, buyer for hand & power tools and hardware, TruServ Canada; and Andrew Pantelides, LBM product manager for Home Hardware.

In both Toronto and Montreal, RONA’s merchant for electrical, Eric Cantin, announced details of a new vendor procedure that will be launched in April. This program will require all vendors, both new and existing, to go online to register their company and products. Vendors must satisfy a set of requirements and provide competitive information that will remain on file regardless of who assumes the buyer role for that category.

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RONA CEO says he’ll increase focus on ICI customer

TORONTO – RONA sees big potential in the business-to-business sector inside its stores, and wants to increase its share of sales to the industrial and building maintenance market.

Speaking at the recent CIBC World Markets Retail Conference, Robert Dutton, president and CEO of RONA, was accompanied by EVP and CFO Claude Guevin, and Stéphane Milot, the newly hired senior director of investor relations.

With $5.7 billion in retail sales in 2006, RONA is firmly entrenched as Canada’s number-two home improvement retailer, after Home Depot Canada. But recent acquisitions have focused on dealers that are strongly contractor oriented, such as Matèriaux Coupal in the Montreal area, and Curtis Lumber in Burnaby, B.C. Now, through a new division of RONA created last year called “RONA Pro Services”, the company intends to streamline its services to its pro customers. That focus will distinguish two sides of the business: the building and renovation trades and industrial-commercial-institutional (ICI) customers, especially in existing RONA categories such as plumbing and HVAC.

About 12% of RONA’s sales are currently in HVAC and plumbing (8% and 4% respectively), and RONA’s executive team stated that the plumbing, HVAC and ICI market in Canada is worth about $11 billion, providing lots of growth potential for RONA.

Earlier this year, RONA made its first outright acquisition of a wholesale distributor, when it bought Noble Trade, a plumbing and heating supply wholesaler with 19 outlets in Ontario that serves a commercial and professional customer base.

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TruServ Canada to work with First Nation communities

WINNIPEG – TruServ Canada has entered into a wholesale agreement with Wasaya Group Inc. of Thunder Bay, Ont., which works to acquire viable businesses that can make money while maintaining the traditional principles and values of First Nation communities in Northern Ontario. Under the agreement, TruServ will supply product in concert with Wasaya Group, and will also provide retail training programs for the community-run stores.

“We are extremely grateful to have the opportunity to supply the Wasaya community stores with our program,” Dave Leonzio, national business development manager for TruServ Canada, said in a prepared statement. “We have been working hard to make sure the agreement fits the kinds of business models in the Wasaya communities. We have taken the time to visit most communities over the last year and believe the program fits the individual needs of each community.”

The first three communities to sign under the new agreement are Muskrat Dam, Big Trout Lake, and Summer Beaver, Ont.

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Home Depot creates “Innovation Centre”

MISSISSAUGA, Ont. – In an effort to hasten reset times in its stores, Home Depot Canada has created a virtual store where its merchants and their vendors can work together on new merchandising and planograms.

The so-called Innovation Centre will give the Home Depot merchandising team a place “where they can rip apart merchandising and try new sets and planograms, perfecting their methodology without disrupting a store,” said Gino DiGioacchino, vice-president of merchandising for Home Depot Canada. He spoke last week to a room full of vendors during a breakfast meeting held by the Canadian Hardware and Housewares Manufacturers Association.

DiGioacchino likened the new facility to a “playground” for the merchants. Right now, he said, “it can be painful to go into a store to do a reset.” In the new Innovation Centre, vendors can work with the merchants to create and evaluate a new reset before taking it into a particular store.

The new facility, attached to Home Depot’s LBM distribution centre in the north end of Mississauga, just west of Toronto, is modeled after a similar concept created by Canadian Tire Corp. about four years ago. That hardlines mass merchant turned its former DC in the north end of Toronto into a “Retail City”, complete with a store within a store, a variety of fixtures, and training rooms. DiGioacchino admitted to borrowing the idea from Canadian Tire for Home Depot, and to hiring away Canadian Tire’s retail services person who worked on the concept in the first place, John Ferrera.

The Innovation Centre, which was built with money from Home Depot’s vendors, will open officially later this spring. With it, DiGioacchino wants to see reset times shortened from as long as 12-24 weeks down to eight weeks. “And I’m adamant about this,” he added.

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New Quebec buying group looks beyond core membership

MONTREAL — A buying group comprised of Pro and Ace dealers in Quebec is growing gradually, and opening its doors to other potential members, including unaffiliated dealers and those from other banners.

Groupe Mat Plus emerged last September from the restructuring of Servimat, the LBM division in Quebec of CanWel, Hardware Division. At that time, Servimat’s director of lumber, Daniel Thibault, left Servimat, which was itself restructured. (It now continues under another CanWel operation, Chalifour. Thibault is now general manager of Mat Plus.)

When Mat Plus was created, it was the brainchild of just four dealers, including Carl Strulovitch of Probex Building Supplies in Roxboro. Shortly after its formation, the group had to pitch its offering in a series of regional meetings to roughly 180 other former Servimat customers, mainly Pro and Ace affiliates. They all came on board, says Strulovich. “They saw it as a positive move.”

The deal makes even more sense given Mat Plus’s further affiliation with Calgary-based TIM-BR MARTS Ltd. In fact, the addition of Mat Plus gives TIM-BR MARTS a foothold in Quebec. That province had represented a gap in the group’s coverage of the country since it split in fall 2005 with Longueuil-based Groupe BMR. Formerly, BMR and TIM-BR MARTS had an alliance under the umbrella buying group Matreco.

“So now we have the best of both worlds,” Strulovich adds. “It’s a win-win situation.”

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Atlantic Canada looks for growth in renos in 2007

MONCTON, N.B. — While homebuilders and contractors in Eastern Canada are expected to feel the effects of the softening housing market in 2007, the industry is betting that renovation construction will contribute to a healthy year, according to Don Sherwood, president of the Atlantic Building Supply Dealers Association. (See story below re: Canadians’ renovation intentions.)

“On the business side of things, I sense the retailers are very positive and are stocking up on their inventories,” says Sherwood. “Some did complain about just-in-time inventory practices among wholesalers as they watch their turns closely. And so dealers are forced to source from more than one supplier, as price volatility is so high.

“What we’re spotting there, as commodities move around a bit, is the wholesalers being a little cautious.”

“We still see 2007 to be a reasonable year, and most dealers are budgeting increases of between 3% and 5%. But the business is moving more and more from new housing to the renovation market in Atlantic Canada.” The focus there will be on improving gross margin and getting away from buying business simply on price, adds Sherwood.

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Big U.S. building products distributor sets up shop in Canada

MISSISSAUGA, Ont. — PrimeSource Building Products Inc., a major U.S. distributor with 34 warehouses across the country, is setting up shop in Canada. Like a number of U.S. suppliers, the market north of the border has garnered increased attention with the expansion of Lowe’s here. PrimeSource is already listed in the U.S. with majors such as Lowe’s and Home Depot. Now it wants their business in Canada, which represents a market roughly the size of California.

PrimeSource has a foothold in Canada already. It’s managed to get listed with Lowe’s Canada. To get ready for that business, and the anticipated business from other key customers, a new facility is being readied in Mississauga, Ont. The 120,000-square-foot office and distribution centre will start accepting product by April or early May, says Phil Brown, general manager of PrimeSource for Canada. Brown, who was formerly general manager for Weyerhaeuser in Ontario, expects to start pushing PrimeSource’s presence in Canada aggressively once the distribution is in place.

PrimeSource specializes in fasteners, but also has a private-label lines of tools, including pneumatics, plus a full assortment of building products. Customers include traditional building centres, and a specialty tool and fastener dealers.

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New study: bath renos top the list for Canadian homeowners

TORONTO — More than one in four Canadian households (27%) say they plan to do home renovation and/or remodeling work during 2007, according to a new survey by global market research firm Synovate. Activity will be greatest in Atlantic Canada and the Prairies, where one-third of all households report their intention to fix up homes.

This means that up to 3.5 million Canadian households could be upgrading their homes this year. These improvements include anything from installing new bathroom fixtures to upgrading the kitchen or creating additional living space by finishing the basement.

But the bathroom was the most popular reno, cited by nearly half of all Canadians surveyed. Among those planning bathroom renovations, the most popular items include new faucets (54%), sinks (49%), and lighting (49%), followed by bathroom cabinets (44%), vanity areas (40%), shower heads (40%) and bathtubs/whirlpools (34%).

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U.S. moulding distributor follows Lowe’s to Canada

ZEELAND, Mich. — Empire Co., one of America’s largest regional distributors of moulding and other millwork products, will distribute outside of the United States for the first time as a supplier for Lowe’s Cos., the warehouse retailer that is gearing up to open its first dozen stores in Ontario.

Empire has sold to Lowe’s for more than a decade, and will likely distribute to that dealer’s Canadian operations from its 200,000-square-foot plant in Zeeland, one of seven facilities it operates in the U.S., according to the Grand Rapids (Mich.) Press. Tom Highley, Empire’s president, told the newspaper that following Lowe’s north could reap big dividends for his company down the road, as Lowe’s has been talking about placing 100 stores here eventually.

He added that this move is part of his company’s larger strategy to expand its market penetration through home centres and pro dealers.

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Loblaw posts first annual loss in 19 years

TORONTO, Ont. — While Loblaw Cos. lost $219 million in 2006, sales of general merchandise, which includes housewares, posted gains over the prior year across all regions of the country.

The company cited lack of “structural agility and vigour to address its changing environment”, along with losses connected to the closure of 19 stores in Quebec as factors contributing to the poor performance. Its annual report also identified changes in how food retailers compete and in consumer habits as obstacles to success over the last fiscal year, adding that the company’s own structure also hindered growth, because it was “more complex and less responsive than it should have been.”

The company also alluded to problems related to restructuring in 2005, which saw the reorganization of merchandising, procurement and operations groups, the establishment of a new national head office and store support centre in Brampton, Ontario, and the relocation of general merchandise operations from Calgary to that centre. But those changes proved problematic, disrupting inventories and adding costs—issues the company says have now been resolved.

Moving forward, Loblaw says it will open fewer stores with smaller footprints and cut prices on food. It will also increase its product mix of the President’s Choice brand to 35% from 25% and pump $50 million into its promotion. Increased focus will also be put on the Joe Fresh apparel line, which the retailer expects to grow into a $1 billion business within two years. It has also recently launched a marketing campaign to increase visibility of apparel and home-related products among the home improvement media.

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RONA will launch new vendor listing procedure

BOUCHERVILLE, Que. — In an effort to create a more disciplined relationship with its suppliers, RONA inc. has developed a new basket of “tools” to help its vendors be more efficient.

“This is industry best practice,” says Eric Cantin, the electrical merchandiser at RONA who spent the last eight months spearheading the project. “We’re going to do it with everyone.”

The process, a first for North America, will be available for download online by vendors beginning in April. It will lay out a series of steps by which to prepare for selling to one of the country’s largest home improvement retailers. Too often, says Cantin, vendors are ill-prepared, not knowing enough about their own category — or about RONA itself. The new program intends to change all that. It will offer a checklist of steps for preparing for a meeting with a RONA buyer, including important market information. “Do you provide EDI?” asks Cantin by way of example. “If not, go back to your office.”

According to Cantin, some of the inspiration for the process stemmed from his personal involvement in past buyer events, including Hardlines’ own Meet the Buyers, where vendors may have only 15 minutes to make the right impression. “But if you’re prepared, 15 minutes is plenty of time for a buyer to find out if there’s interest in your product. With this, you’re going to have everything you need to know before meeting us.”

(Eric Cantin will introduce this new program at our incredible Meet the Buyers seminars, March 27 in Toronto and in Montreal, in co-operation with ADMACQ, on March 29. For details, please call Isabel directly at 416-489-3396 or click here for more info.)

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Optimism overcomes bad weather at Moncton show

MONCTON, N.B. — The performance of this year’s Atlantic Building Materials Show, held March 1-3, reflects, in many ways, the performance overall of the industry down east.

Although it’s still early to get feedback, says Don Sherwood, president of the Atlantic Building Supply Dealers Association, which owns the show, he takes a clue from how the exhibitors felt at the end of the show. “We had a smooth move-out, indicating that the exhibitors were in a good mood. And we had a lot of requests for additional space next year,” he adds, despite the fact that the show was held at the beginning of March, instead of at the end, as in years past. “We’re hearing early reports that they like it earlier in the month.”

The event remains a strong selling show, as more than 1,200 dealers attended the show — despite the threat of bad weather. “The weatherman got us with all the hype on a storm in Ontario,” says Sherwood. “Flights were cancelled from [Toronto International Airport] early Thursday, yet most of our delegates were in Moncton.”

The storm never really materialized. “We received a dusting of snow on Friday evening and the sun was shining and the snow melting by show time on Saturday. Nevertheless, many headed for home early Friday in advance of the weatherman’s predictions.”

As the only trade show for the industry in Atlantic Canada, it once again proved an excellent networking opportunity, with 830 people at the meet-and-greet on opening night, and 450 at the chairman’s gala.

Nest year the dates are March 13-15, “and I can forecast a snow storm already,” says Sherwood sardonically.

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Quebec publication celebrates anniversary with dealer draws

LONGUEUIL, Que. — Louis-Jacques Laferté, a dealer in Drummondville, Que., has won a second draw in a contest that celebrates “50 Years of Quart de Rond“. The magazine is the publication of record for the Building Materials Retailers Association of Quebec, ADMACQ. A total of eight gift certificates worth $500 each are being awarded throughout the year.

ADMACQ is an association of business people bringing together retailers, manufacturers, wholesalers, and distributors of building materials and hardware products.

Laferté himself “is a long-time member of ADMACQ and a loyal reader of Quart de Rond,” says association executive vice-president and Quart de Rond editor Donald O’Hara. This draw was sponsored by Maia Home Products Inc., while other sponsors of the anniversary campaign are RDTS, AFA Forest Products Inc., and les Centres de formation en transport routier de St-Jerôme and Charlesbourg (CFTR & CFTC).

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Ides of March brings big RONA recruitment drive

BOUCHERVILLE, Que. — RONA inc. launched a recruitment campaign last week in anticipation of the coming renovation and gardening season. Candidates were sought for nearly 3,500 positions in a job fair conducted right in 200 of RONA’s own stores.

RONA’s biggest recruitment needs are in Quebec, where it is the market leader. About 2,000 jobs must be filled there. In Ontario, about 300 people are needed while close to 1,000 positions are available in Western Canada. Candidates were invited to seek jobs in 72 corporately owned big boxes, which operate under the RONA L’entrepôt, RONA Le Régional, Réno-Dépôt, and RONA Home & Garden banners. More than 100 proximity stores also participated.

Students, retirees, and renovation and gardening enthusiasts are being sought in the hiring spree. In fact, to assist students, RONA grants scholarships of up to $500 a year, provided the student employees meet program requirements. RONA also offers flexible working hours to allow students to continue to work when they return to school in the fall.

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Depressed lumber prices affect CanWel’s year-end

VANCOUVER — CanWel Building Materials Income Fund had fourth-quarter revenues of $192 million, down from $208 million for the same period in 2005. The results reflect lower commodity prices.

“For the year, lumber prices decreased by 15% and OSB by 38%,” said Tom Donaldson, president and CEO of CanWel Building Material Income Fund, in a release. “Despite 2006 being a challenging period for the Fund due to the continuing weak wood-based commodity products, we managed to maintain and, in most cases, improve our margins,” he added.

Gross margin during the fourth quarter of 2006 was 11.7% or $22.4 million versus 12.2% or $25.3 million in 2005. EBITDA for the quarter was $5.1 million, down from $5.7 million for the fourth quarter of 2005.

For the twelve-month period ended Dec. 31, 2006, CanWel’s revenues were $911 million, compared with $1.0 billion in 2005. Gross margin for the year was $97 million, versus $102 million in the prior year. EBITDA for the period increased to $27.5 million, or 3.0% of sales, versus $26.5 million, or 2.6% of sales, in 2005.

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Sourcing show brings Asian factories to Europe

COLOGNE, Germany — Tenny Lo and Maria To have a factory in Jiangmen City, in China’s Guangdong province. They also have sales offices for their company, Lotos Enterprises Ltd., in Hong Kong. But with no customers in Europe, they decided to participate in Asia-Pacific Sourcing, a trade show held here March 4-6.

Lotos sells fryer pots, barbecue grills, smokers, and patio coolers. Tenny and Maria had brought a few samples to the show, including a giant 90-litre pot, and crammed everything into a 10-foot booth. Aside from some flyers, they had no materials or signage, just a book for signing orders. When Hardlines spoke with Tenny and Maria on day one of the show, they were tentative about their prospects. Traffic was light initially, and competition was intense: more than 660 exhibitors from China — mainly China — as well as Taiwan, Korea, and India were exhibiting.

But the show ended up attracting 8,300 visitors, as buyers, agents, and importers from 60 countries walked the aisles of Asia-Pacific Sourcing. “Metro and OBI — all of the big buyers are here,” said Hans Kampen, project manager for APS and its big sister, Practical World, the International Hardware Fair/DIY’TEC, which returns March 9-12, 2008. He expects the show to keep growing in favour of hardlines. “For the future, we will put more emphasis on hardware, including appliances,” he said.

And what became of Tenny and Maria at Lotos Enterprises? On the last day of the show, Hardlines went back in hopes of seeing that their fortunes had taken a turn for the better. They were so busy, with about eight people crowded in and around their tiny booth, pens in hand, that Hardlines couldn’t even get close to them.

Giving them a cheery Hardlines wave, your intrepid reporter decided instead to go and interview some German beer.

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Proposed law would ban import of illegally harvested wood

WASHINGTON — A bipartisan group of American congressmen introduced a bill this week that, if passed, would prohibit the United States from importing any wood products coming from timber logged illegally.

The U.S. International Trade Commission estimates that as much as 30% of U.S. lumber imports come from either suspect or illegal sources. But the concern in Congress could be seen to be as much about foreign competition as it is about logging improprieties. ITC notes that a lot of this wood first gets funneled through China. From there, it is eventually exported to other countries.

The American Forest and Paper Association, a trade group that represents U.S. forestry interests, estimates that illegal logging costs U.S. companies $1 billion in lost exports annually.

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More movement at Lowe’s Canada buying office

TORONTO — Lowe’s attracted a lot of attention last year when it built up its new buying team in Canada. The companies it managed to garner talent from included Wal-Mart, Shoppers Drug Mart and Canadian Tire. But early this year, that team began to see some restructuring when Ron Krochuck, then merchant for lumber, plywood, panels and outdoor storage, left the company. He has since been replaced by Gonzalo Abarca, who came over from Weyerhaeuser Canada. There, he had served on a regional basis as a tactical product manager with experience in appearance wood products, including pine products and mouldings.

Now, Hardlines has learned that Peter Bowes has departed from Lowe’s as well. Bowes, formerly from the vendor side, most recently with Freud Canada, was one of four directors of merchandise. Bowes was in charge of hardware, power tools, outdoor power, appliances, and home environment. No replacement has been named, and Ben Mauceri, vice-president merchandising at Lowe’s, is reportedly covering off Bowes’ duties in the interim.

Lowe’s Canada has announced its intention to open up to 10 stores in Ontario before the end of 2007. So far, four have been confirmed, with openings expected to begin sometime after the middle of the year.

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RONA pro events attract regional contractors

ORILLIA, Ont.  —  More than 800 contractors attended two RONA contractor shows held here last week. Many arrived on buses arranged by participating RONA dealers in the region. Participants visited displays set up by 40 exhibiting vendors, showing mostly building materials and power tools. They were also fed a hot dinner, given gift bags, and entertained with hotly-contested log cutting and nail driving contests.

“It’s a chance to build relationships between this customer base, our vendors and our stores,” said Scott Wilson, RONA’s regional manager, affiliate stores, Ontario. “Plus we were able to demonstrate the strength of the RONA network in Ontario.” Both corporate-owned (Cashway and RONA Home & Garden) and affiliate (independent) RONA stores participated equally in bringing contractors out, Wilson observed. This is the first year that RONA has run multiple contractor shows, after a successful pilot event held last year in Chatham.

When the final one wraps up in Kingston, on March 27, RONA will have run a total of five of these shows in Ontario, attracting 2,000 contractor participants.

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Strong economy, succession strategy drive IRLY’s growth

SURREY, B.C. — The addition of a new member to the ranks of  IRLY Distributors reflects the viability of this small West Coast buying group, even as the threat looms from consolidators such as RONA, and other, larger buying groups.

IRLY is exceptional among buying groups in that it also has a warehouse that supplies both LBM and hardware. Groupe BMR in Quebec is the only other group that operates in this fashion. IRLY has managed to maintain a loyal base of customers, especially west of the mountains, whom wholesalers in Central and Eastern Canada often can’t adequately supply. In fact, IRLY’s separate hardware distribution business, Western Hardware, operates successfully as a fill-in supplier to more than 100 dealers, mainly in British Columbia.

One of those customers was Griff Building Centres, a dealer in New Westminster, B.C., who decided recently to join IRLY, in part due to a desire to expand the store’s front end with the broad range of hardlines IRLY delivers.

The addition of Griff brings the total number of IRLY members to 43. That’s down slightly from last year, admits the group’s general manager, Garry Anderson. While one dealer decided to exit the business on his own, other members have defected to the likes of RONA, attracted by the offer of a payout for a business that often has no other succession opportunity. But one of the group’s initiatives is to confront the issue of succession, says Anderson, and in the past year two other members found buyers within IRLY’s own ranks. “A lot of our dealers are getting on and thinking of retiring. They don’t have any kids that want to get into the business, and that’s kind of sad,” he says.

IRLY dealers have benefited from a strong economy, despite depressed lumber and plywood prices. Anderson estimates that sales overall were up by about 8% in 2006; he anticipates that the year ahead will be at least as strong, although he says poor weather means the first quarter is behind last year’s.

“The province is doing well and our dealers are feeling that pretty well across the board.”

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Sourcing show brings factories to the West

COLOGNE, Germany – Asian factories are the Mecca for many Western retail buyers and vendors alike. Now Mecca has come to the West, in the form of a sourcing show in the heart of Germany.

Asia-Pacific Sourcing, held last week by Koelnmesse, is an every-other-year alternative to its giant Practical World-International Hardware Fair-DIY’Tec. APS, now in its second year (it first ran in 2005), is one-third larger than its inaugural edition — and much more buff. Exhibiting factories have increased by 20% to 700. The unadorned 10-foot booths that typified the first year of the show have been replaced in many cases by larger, more extravagant stands that are common at shows like Practical World and the National Hardware Show.

The show may only be a fraction of the size of Practical World, but it represents the bulk of Asian suppliers who appear there. An entire floor of Hall 11 is devoted to companies from China, while a second floor features stands from Taiwan, Korea and India. Attendance is up at this year’s show, as well, although attendance is still largely from European and British visitors.

Traffic was surprisingly high, even on the last day, with about 8,300 visitors from 60 countries, comprising buyers from some of Europe’s biggest retailers, such as OBI, B&Q and Metro, as well as agents and vendors (including some from Canada) looking for new lines or factories of their own.

APS is also “last man standing” in Western Europe, as similar sourcing shows in Dusseldorf and Nuremburg have folded.

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Exclusive interview: Home Depot’s Annette Verschuren (Part 2)

TORONTO — Now in charge of both Home Depot Canada and Home Depot Asia, Annette Verschuren has her hands full. She’s rapidly building a strong team at Home Depot’s Beijing office (see last week’s issue—Editor), but Home Depot’s office here in Toronto has also seen some changes in recent months.

Besides recruiting Harry Taylor, the vice-president brought up from the U.S. to take over everything from real estate and operations to asset protection and logistics, she has been putting more emphasis on the merchandising team. Gino Digioacchino is probably the most visible vp-merchandising that Home Depot Canada has had since Eric Peterson filled that role at the beginning of the decade.

A familiar face at Hardlines’ own Meet the Buyers events in the past, Digioacchino spoke most recently at a conference held by Home Depot for more than 1,100 of its installers. In addition, two new positions were created last year to better address Home Depot’s evolving merchandise mix.  John DeFranco was named divisional merchandising director – hardlines  and Karol Allen, divisional merchandising director – soft lines.

The recent refit of Home Depot’s newest concept in Mississauga, Ont., reflects a strong emphasis on new merchandising ideas. That store design, admits Verschuren, is a response to the imminent arrival of the first Lowe’s store in Canada sometime later this year. “But we’ve been changing and fine-tuning our merchandising for the last 24 months,” she notes. (For a full tour of this innovative new store, check out our latest edition of Hardlines Quarterly Report—Editor).

Every major old store in the Canadian chain will be reset like the Mississauga outlet by the end of this year. “The excitement of bringing new products and new services to the people is what drives the success of our stores,” says Verschuren.

A merchandising-driven approach, she adds, simply makes sense, as it harkens back to the roots of the company. “Arthur [Blank] and Bernie [Marcus] always drove that,” says Verschuren. Canada has more merchants in the field than her counterparts in the U.S., she adds. “They are the go-betweens for the merchants and the operators. They identify what’s needed on the shelves, so we can make changes to the merchandise and the resets.”

The Quebec market, which suffered the loss of a charismatic — and bilingual — evp, Roger Plamondon, in the middle of last year, remains strong. Even though Home Depot is still the number-two player there, growth is in double digits, notes Verschuren, adding that the current regional vice-president of Canada East, Jeff Kinnaird, “is getting his arms around it.

(Next week: part 3 of the now-epic Hardlines Exclusive Interview with Annette Verschuren!)

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Lowe’s recognized for promoting conservation

MOORESVILLE, N.C. — The U.S. Environmental Protection Agency and Department of Energy have named Lowe’s Cos. the recipient of its 2007 Excellence in Energy Star Performance award, for the dealer’s marketing and promotional efforts in helping reduce greenhouse emissions.

Lowe’s has received this award five consecutive years, primarily for its sale of energy-efficient products — notably in its stores’ appliance departments — that are Energy Star-rated. The two agencies cited Lowe’s marketing campaign last fall, in particular, which highlighted a nationwide “Save Energy, Save Money” education day on Sept. 30, 2006, during which Lowe’s stores offered free energy-saving tips and demonstrations.

Bob Geller, Lowe’s senior vp-marketing and advertising, said in a prepared statement that over the course of a year, products with Energy Star ratings purchased from Lowe’s save customers more than $3.8 million on their energy bills.

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Exclusive interview: Home Depot’s Annette Verschuren

TORONTO — Wanna do business with Home Depot in Asia? Better get the boss’s name right, then. Wen Shi Rui. That’s how you say Annette Verschuren’s name in Mandarin. Wen Shi Rui. Translated, it means “warmth, poetry, and wisdom”.

Once again, faithful reader, you heard it here first.

Verschuren, who built Home Depot Canada into one of the country’s leading home improvement retailers, is taking her merchandising and operations skills to Beijing to head up the Asian division. Home Depot recently bought up The Home Way, a chain of 12 stores in six Chinese cities. To ensure successful expansion there, however, Verschuren had to build her teams — both in China and in Canada.

That’s why she spent several months wooing Home Depot China’s new president, Yves Chen. “We worked since September to land him. He ran 64 hypermarchés and had great success at Carrefour. What’s neat about him is his international perspective, having worked for Carrefour in France as well.”

His first language is Mandarin, second is French, and third is English, she notes. “I’m a big believer in country leadership.”

China, she points out, is a very old and very sophisticated culture, which tends to be underestimated by Westerners. She expects to have positive results because so many of the people on her team are Chinese. In fact, Home Depot’s strategy of using local talent has already helped the company integrate into new cultures, as evinced by its success in Mexico and — with Verschuren herself at the helm — Canada.

Verschuren wants to start at the store floor level with the Home Way locations, by improving the merchandise mix and making the store experience more positive. She says Home Depot has to offer a more manageable environment, which will include increased customer service — and she wants the installed piece to work.

“The trick is to do the integration now and decide what Home Depot will look like in China, and go forward with an aggressive growth plan.” For starters, she says, the model being used by B&Q, Home Depot’s only Western-based competitor there, is just too big. Those stores (B&Q has 58 stores in 26 cities in China) weigh in at 160,000 square feet. They are not yet making money, she adds.

On the home front, she has been shoring up her team to manage Canada while she shuttles back and forth between Toronto, Beijing and Atlanta (she spends six or seven days out of every month in Asia). Harry Taylor is the vice-president brought up from the U.S. to take over a diverse portfolio, one that in the U.S. would have vps for each duty. Here, however, Taylor personally manages real estate, operations, construction, asset protection and logistics. “I want him to leverage all these divisions to work together more closely,” says Verschuren.

Will the Asia venture be a replay of her moonlighting stint running Expo Design Centers for Home Depot a couple of years ago? No way, says Verschuren. “At Expo, I was spread too thin; I had 23 direct reports then.” Having Taylor on board gives her someone she “can really rely on.” In the process, she has reduced her direct reports in Canada to seven.

Nor does she have any plans to move to Asia. “That was not part of the deal,” she says.

(Next week: part 2 of the Amazing Hardlines Exclusive Interview with Annette Verschuren!)

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Home Hardware’s partnership with Aeroplan takes off

ST. JACOB’S, Ont. — Not to be left behind in the race to shore up market share in the face of Lowe’s much-anticipated entry into the Canadian marketplace, Home Hardware continues to launch new marketing initiatives to build customer loyalty.

In the past few years, it has introduced a gift card program, beefed up its private label line, enlisted garden guru Mark Cullen and expanded its green product line. Now the company has launched a partnership with Aeroplan, making it the only home improvement retailer in Canada to offer Aeroplan to its customers.

Under the partnership, customers at any Home Hardware, Home Building Centre, Home Hardware Building Centre and Home Furniture store can accumulate points that can be redeemed either for travel or for Home Hardware Gift Cards.

“We’re excited that customers who already travel a lot and don’t want to redeem points for that will be able to use them for the purchase of Home Hardware décor and renovation products,” says Rob Wallace, promotional events manager for Home Hardware.

Contractor customers at Home stores will now have the choice of participating in the Top-Notch loyalty program for pro customers, under which they can redeem points from purchases for products, or the Aeroplan program.

“It’s going to be attractive to a variety of customers,” says Wallace, “and gives us another tool for attracting a strong customer base.”

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Home Depot maps out recovery plan

ATLANTA — Significant investment in its retail stores, its products and its people is the centrepiece of Home Depot’s plan to recapture and expand its dominant position in the retail home improvement market.

In a Feb. 28 web cast that might prove to be one of the most important in the company’s 28-year history, Home Depot’s chairman and CEO Frank Blake, along with key members of his senior management team, laid out where Home Depot would focus its attention and money over the next four years. In essence, the plan calls for a return to Home Depot’s retail roots, and could be seen as a rejection of the diversification strategy that former chairman Bob Nardelli had pursued.

Blake placed his company’s new objectives within the context of a slumping housing industry that is not likely to rebound until the latter part of 2007, at the earliest. The downturn would continue to tamp down the retailer’s profitability, as Home Depot projects that its sales in 2007 would be flat and its earnings per share would be off by between 4% and 9%.

Home Depot intends to invest $2.2 billion in its business in 2007, including:

• $260 million in merchandise resets, as well as new pricing and sourcing initiatives;
• $275 million in logistics, including forecasting and distribution. Between 2007 and 2010, the company will spend $900 million on logistics and $500 million on technology;
• $360 million to recruit trade specialists to work in its stores, something that distinguished Home Depot from its competitors in the 1980s;
• $415 million on programs to encourage more pro customers to shop in its stores, including volume discounts and direct shipments to jobsites (details about which were not disclosed); and
• $865 million to maintain and improve its stores’ physical plant.  By 2010, 87% of Depot’s stores will be at least five years old, so the company has redoubled its efforts to stave off their deterioration.

Home Depot plans to open 115 new stores in 2007, and 300 – 400 units between now and 2010, at which point 25% of its stores will be located outside of the United States. Carol Tome, Home Depot’s CFO, said the company wants to buy the 13% of its 2,163 existing stores it currently leases. Blake added, somewhat cryptically, that his company is working on new store formats “every day”, even though only days earlier, Home Depot announced it would close its experimental Floor Stores.

Blake said acquisitions aren’t a priority for Home Depot right now, although the day before the presentation the company did announce the acquisition of GSI General Materials division of Waukesha, Wis.-based Geo-Synthetics, Inc. (see Companies in the News).

Home Depot projects that HD Supply will generate 15% of its revenue in 2007, from 12% in 2006 — if it holds onto this business unit, as the company is exploring options that could include a spin-off or a sale of HD Supply. In fact, the day after its presentation, the Financial Times of London reported that three teams of private equity firms were considering bids for HD Supply, which could fetch $11 billion. The newspaper said Blackstone, Kohlberg Kravis Roberts, Leonard Green Partners and Texas Pacific Group comprise one consortium; while Bain Capital, Carlyle and Clayton Dubilier & Rice have also teamed up, as have Thomas H. Lee Partners, Goldman Sachs and CCMP.

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CMHC to rethink presence at International Builders Show

ORLANDO — For the first time ever, the Canadian Mortgage and Housing Corp. had a presence at the Canadian Pavilion at the International Builders Show held here last month. The move was designed to give Canadian companies a higher profile at the show, explains Rita Patlan, senior trade consultant for CMHC International.

“This was the first time that we had booth space. Usually we go to support clients who are at the show, but we’ve never had a physical presence,” says Patlan.

The CHMC booth in the Canadian Pavilion, in which 35 companies participated, offered 20-minute timeslots for product launches, installation how-to seminars and product-knowledge demonstrations.

But competing with other retail giants, such as Lowe’s and Home Depot, proved to be a formidable task. “It’s not easy to compete with other players who have humungous exhibits that take up a lot of space and make a lot of noise,” says Patlan. “Some of the exhibits went almost 40 feet up in the air. It’s hard to have an effect in that kind of environment.”

As a result of this year’s experience, the CMHC will rethink its strategy for presence at next year’s show.

Overall, Canadian presence at the show was down, from 165 companies in 2006 to 136 in 2007. Robert Gryson of the Canadian Export Development Corp., which helped organize the Canadian pavilion, thinks there are several reasons for the drop. “Some companies didn’t go back because they just felt the show wasn’t tailored to their needs — they weren’t meeting the people they wanted to meet.”

As well, he says, the strong presence of representatives from the Eastern U.S. at the event dampened the enthusiasm of Western-based companies who felt the audience was too regional. The downturn of the housing and construction may have been a further reason for numbers to drop, says Gryson. Another factor, he adds, was location. “I think people are tired of Orlando. When the show moves to Las Vegas in 2009, I think you can expect to see a big come-back.”

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Acquisitions drive RONA earnings in 2006

BOUCHERVILLE, Que. — RONA, Canada’s second-largest home improvement retailer, was able to increase its net earnings for 2006 by 8.8%, due in large part to its aggressive ongoing acquisition strategy. Net earnings for the year reached $190.6 million while consolidated sales (sales generated by RONA’s distribution centres and corporate stores, as well as the company’s share of franchised sales) increased 13.1% to $4.55 billion.

The numbers, which mark the company’s 16th straight year of record results, reflect the recruitment of 37 dealers, representing close to $200 million in annual retail sales, as well as acquisitions representing more than $300 million in additional retail sales. Organic growth, i.e., consolidated sales excluding major acquisitions, was 6.0%.

RONA’s sales by all its stores were nearly $6 billion.

Although results for the year were strong, the last quarter felt the impact of a slowdown in the economy in Eastern Canada and warm weather in November and December. Although sales were up 13.2%, on par with the annual result, profits were up only 1.3% to $38.1 million. Same-store sales for the quarter were actually down by 0.7%, being negatively affected by the softness in lumber prices, which fell about 11% during the quarter. For the year, same-store sales were up 1.3%.

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Conference strengthens relationship with Home Depot installers

TORONTO — A three-day conference held last week by Home Depot Canada offered some 1,100 installers from across the country business and product knowledge seminars, as well as team-building exercises.

Even though the attendees are independent operators, Home Depot treats them like partners, providing information and tools to run their businesses better. The aim, says Mike Clements, director of Installation Services for Home Depot Canada, is to “drive a consistent quality experience in the home.”

Results suggest that the strategy is paying off. According to Clements, the installed business grew by 28% in 2006 (vs. Home Depot Canada’s overall estimated growth of 9%). And 2007 is starting out strong. “In the first week of our fiscal year, (Home Depot’s year-end was Jan. 28), we did 5,100 installs across Canada. That’s phenomenal.” For the first three weeks of the fiscal year, he adds, business was up 37%.

To support that growth in 2007, Home Depot has committed to add 54 service people in the field across the country. They will serve as the liaison between the stores and the installers.

Clements says a number of installation companies are growing as quickly as the Home Depot business. “Prime your business for growth,” he encouraged the installers during a presentation. And, as these companies grow into strong regional players, he wants to buy them. He expects those acquisition opportunities to emerge within the next two years.

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New members at Castle, Sexton boost ranks of independents

NATIONAL REPORT — While the industry’s two behemoths (Home Depot and RONA) were announcing their annual results last week, Sexton Group and Castle Building Centres were making gains of their own. Winnipeg-based Sexton recruited Mackenzie Interiors in Mackenzie, B.C. and Moneys Worth Liquidators in Bible Hill, N.S., helping the group to maintain membership of 285 dealers.

Steve Buckle, vice-president at Sexton, admits that a number of members left last year, “but more people joined.” Membership now stands at 285, five more than a year ago.

Castle’s 10 new dealers are located in seven provinces and one territory, and reflect the company’s national reach. The new members are Leo’s Building Supplies, Olds, Alta.; B.A.’s Carpentry & Building Supplies, Black Duck Cove, Nfld.; Home Choice Building Centre, Sydney, N.S.; Tricon Design, Morinville, Alta.; Centre de Renovation Baie-Comeau, Baie-Comeau, Que.; True Value Hardware, Valleyview, Alta.; Umingmak Supply, Rankin Inlet, Nunavut; The Home Improvement Warehouse, Calgary; and Perth-Andover Building Centre, Perth-Andover, N.B.

The recruitment of CSR Building Supplies in Concord, Ont., represents Castle’s renewed efforts to grow its commercial dealers. “This is really the beginning of our effort to move into the commercial business,” says Ken Jenkins, vice-president of Castle.

Both groups have been vulnerable to the recruiting efforts of RONA. Last year, Sexton gave up Curtis Lumber, a major player in British Columbia’s Lower Mainland, while Castle just lost Stephens Building Supplies, which has three locations in Nova Scotia. However, the group continues to develop services to support the independent, including its new Castlecare program, which bundles the group’s non-retail services under one brand. “We’ve got a lot of good things going on in the marketplace,” says Jenkins.

Both Sexton and Castle are members of the umbrella group, Reliance. The other members are Delroc, IRLY, Co-op fédérée, Federated Co-op, and TORBSA. Together, they represent more than 1,200 members and about $4.4 billion in sales at retail.

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TIM-BR MARTS builds retail team with new hires

CALGARY — TIM-BR MARTS Ltd. has created a new position — director of marketing — that will be filled by Dave Morton, who was Castle Building Centres’ national marketing manager for eight years.

Morton will focus on building the TIM-BR MART retail brand through development and delivery of marketing and advertising tools and initiatives nationally, regionally and in local retail member markets. Morton will also manage TIM-BR MARTS Ltd.’s Ontario office.

At the same time, Jake den Hollander comes aboard as manager, Southern and Western Ontario. He’ll work with TIM-BR MART retail members to maximize marketing resources, including the dealer intranet, gift cards, private label credit cards, Air Miles, Homeplans, SpanCan and other merchandising initiatives. Den Hollander joins TIM-BR MART from RONA.

“Both David Morton and Jake den Hollander will play integral roles in our new Retail Services Division,” Steve Stremecki, vice-president, retail for TIM-BR MARTS Ltd., said in a prepared statement, adding that this would be the first of several new appointments and initiatives.

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Home Depot reports earnings decline in 2006

ATLANTA —Home Depot reported last week that its net income for the year ended Jan. 28, 2007 declined by 1.3%, to $5.76 billion, on revenue of $90.8 billion that was up 11.4% over the same period a year ago.

In the fourth quarter of that fiscal year, Home Depot’s earnings plummeted by 28%, to $925 million, primarily due to lower gross margins and the impact of the downturn in the U.S. housing market. For example, the company incurred double-digit declines in same-store sales in markets that were hardest-hit by that downturn, such as Los Angeles, Miami and Sacramento.

However, most of the plusses in Home Depot’s financial performance last year came from its pro-oriented HD Supply division, which the company previously announced it wants to sell or spin off. HD Supply’s sales jumped by 162%, to $12.1 billion, and its operating income soared by 151% to $800 million. In contrast, sales from its 2,147 retail stores increased only 2.6%, to $79 billion, the stores’ operating income was flat, and their comp-store sales were off 2.8%.

Despite opening 105 stores last year, its total customer transactions were flat at $1.33 billion.

Frank Blake, the company’s chairman and CEO, said that long-term improvement in Home Depot’s financial performance at retail would rest with its renewed focus on associate development, customer service, upgrading the shopping environment and product assortment, and “becoming the number one destination for our pro customers,” who account for just 2% of its transactions but 30% of its revenue. To that end, the company recently added two regions and has placed greater operational authority in the hands of its local regional managers, says Joe DeAngelo, the company’s COO.

Blake reiterated that Home Depot is primarily a retail business, and some positive glimmers came from the appliance category, in which Home Depot’s market share nationwide increased to 10.5%. Less positively, the company continued to see softness in other big-ticket items, like kitchens, flooring and millwork.

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Atlantic Wallboard and CGC form alliance

SAINT JOHN, N.B. — Atlantic Wallboard LP and CGC Inc., a subsidiary of USG Corporation, have formed an alliance. Under the partnership, Atlantic Wallboard will operate a new 300,000-square-foot gypsum wallboard plant here that will have a production capacity of 390 million square feet. The facility is expected to begin production in fall of 2007.

United States Gypsum Co. will also allow AWL to exclusively manufacture USG Sheetrock brand wallboard products for sale and distribution throughout the Maritime Provinces, Quebec, and the northeastern United States. CGC will also purchase all of the output from this plant to bolster its leading market position.

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ILDC members small in number, big in sales

AJAX, Ont. — While the home improvement industry sits on tenterhooks awaiting the next step in its ongoing consolidation, one group of dealers remains fiercely independent — and determined to meet consolidation on its own terms.

With just 25 members, the Independent Lumber Dealers Cooperative is Canada’s smallest buying group in terms of members, but one of the largest in terms of sales. Collectively, ILDC members, who include Kent, Canac-Marquis, Turkstra, and Star Building Supplies, had an increase in sales in 2006, says Andrew Battagliotti, general manager of the group. Sales by the group totalled $2 billion in 2005.

While Battagliotti says it’s too early to say just how large an increase his group enjoyed in 2006, he did reveal that increases were experienced by all members across the country — in spite of a continued softening of commodity lumber prices.

Meanwhile, the companies, which are typically leaders in their markets, are making their own efforts to consolidate. In 2005, Kent bought up fellow member Schurman, making it the leader in the province of Prince Edward Island in one fell swoop. More recently, Canac-Marquis, Kent and Star have all opened new outlets of their own.

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TSC considers regional office in Milton

LONDON, Ont. — TSC Stores, the Ontario-based chain of farm and hardware stores, has aggressive plans for expansion, both provincially and even nationally.

To implement those plans, a new executive team was put in place last summer, headed by former Canadian Tire vice-president Dave Roussy as president and CEO and Greg Hicks, whom Roussy brought along to serve as his COO. Neither has moved to TSC’s London offices, choosing instead to make the two-hour commute several times a week while working from a small interim office in Toronto.

Plans are now afoot to replace the Toronto location with a regional office at the company’s Milton store, when it opens.

Even as it expands, the company has no plans to move its distribution from London, says Hicks, unless it has difficulty recruiting people.

TSC currently has 31 stores. Hicks says eight more will be added this year. The company plans to double that number, to 80 stores, by the end of 2010, a move that will take the chain beyond Ontario’s borders.

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Home Depot ponders fate of HD Supply

ATLANTA — The Home Depot has hired Lehman Brothers to evaluate the long-term future of its $12 billion HD Supply business, which provides products and services to professional and commercial customers.

The giant retailer said it is exploring several options for HD Supply, which has nearly 1,000 locations and 26,000 employees. These options might include its outright sale, its spin-off or an initial public offering of that business.

In a prepared statement, Frank Blake, Home Depot’s chairman and CEO, said that his company had been reviewing HD Supply since November, and is considering its possible separation from that business so that it can focus on its 2,159 retail outlets, which last year generated more than $78 billion in revenue.

Blake and his management team will meet with analysts and investors on February 28, at which time HD Supply will be a major topic of discussion, although the company said it would not talk about these developments in detail until its board of directors approves a definitive transaction.

A week ago, Home Depot agreed to add David Batchelder, a principal with Relational Investors, to its board of directors, and said that four of its long-time directors would step down. Relational has been urging Home Depot to sell off HD Supply and concentrate on its retail business to improve the value of its stock price.

Home Depot’s former chairman and CEO, Bob Nardelli, spent more than $7 billion to expand HD Supply through myriad acquisitions. And the single biggest question that the retailer and its financial advisor must ask now about any possible sale of all or part of that business unit has to be: to whom?

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Home Depot, RONA launch new merchandising concepts

TORONTO — Home Depot Canada is facing pressure as RONA inc. establishes its brand name outside of Quebec, and as it faces the imminent arrival of Lowe’s stores in Canada. So it has been revamping and expanding its product lines.

The latest incarnation of Home Depot in Canada features a range of merchandising, signage and customer service concepts new to Home Depot — all focusing on improving the store’s connection with customers.

But innovation is not unique to Home Depot. RONA, its biggest competitor, is heating up competition in Quebec with a new format for its contractor-oriented Réno-Dépôt stores. A new-look Réno-Dépôt in Rimouski has features that sharpen the store’s focus on the contractor, while attempting to broaden its appeal to the female shopper.

(For a virtual tour of the newest store formats in home improvement retailing, see the latest edition of Hardlines Quarterly Report. Click here for more info — Michael)

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Mood at Builders Show belies softness of housing market

ORLANDO, Fla. — The International Builders Show, the annual event for America’s builders and their trade partners, attracted just over 104,000 attendees during its four days last week, slightly less than the record 105,623 people who came to last year’s show, according to the National Association of Home Builders, which owns and manages the event.

An estimated 1,900 exhibits were crammed into 1.6 million square feet in two huge halls in Orange County Convention Center. The mood of suppliers was surprisingly upbeat, given the ongoing softness in the country’s housing market. Most of those interviewed by Hardlines are hoping the market will start turning around by mid-year. But it is obvious that builders are using this hiatus in their business to look for new ways to improve their operations. One of the best-attended seminars at the show, for example, was one that provided tips on training job-site field supervisors.

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