John Caulfield, Contributing Editor
vol. xi, #35, September 19, 2005

IN THIS ISSUE: • Home Depot’s Tom Taylor focuses on high end • IT remains important at every levels • RONA opens “urban” big box in B.C. • Katrina sharpens need for timber • True Value increases global sourcing • Ace renews Madden’s contract • Costello gets Home Depot compensation • Losses force Kingfisher to restructure * * * * * *

“What a long, strange trip it’s been.” —The Grateful Dead (American rock band, from “Truckin’ ”)
SPECIAL REPORT–Home Depot will use new media to change radically the way customers—especially young ones—access consumer information. That was just one of the messages given by Tom Taylor, Home Depot’s new executive vice-president of merchandising and marketing, to the audience of retail and supplier executives at last week’s Hardlines Conference, held at the Hilton Suites Hotel in Markham, Ont.“Satellite radio and the Internet, for example, will become a critical element of our marketing campaign,” said Taylor, who recently replaced John Costello in Atlanta as top merchant with Home Depot, which currently spends more on marketing and communication than any other U.S. retailer in the industry. Home Depot leaves four billion “impressions” annually on consumers, said Taylor. Those hits come through various marketing devices, including 10 million mailers, sponsorship of eight out of 10 network home improvement shows, an in-store “inspirational” magazine, and programs to welcome new homeowners to neighbourhoods which Home Depot services. The company is also seeking out marketing partnerships with organizations such as CARP, the Canadian Association of Retired Persons. In-store, consumers can expect to see a new focus on high-end items, a decision based on Home Depot data that suggests that the top 20% of American consumers have had 51% of the income gain of the last 20 years. But it’s not just the well-heeled consumer who wants more premium products, says Taylor. “The demand for premium products is increasing,” he says, “even among the less affluent.” He points to such categories as barbeques, in which all types of shoppers are prepared to spend more. But the pro market is also an important one for Home Depot, one that the retailer sees an opportunity to expand tremendously. “Pro is two times the size of DIY. In terms of reaching pro customers, we have a have a long way to go. The approach will in part revolve around acquisition strategy. We have an appetite for acquisition in supply sector. Thirty percent of transactions are pro but certain segments of that market don’t find Home Depot appealing.”
CONFERENCE REPORT–Retailers who want to survive will have to use information technology to capture, analyze and make use of data about their current—and potential—customers. That was the message delivered by retail and industry analysts speaking at the Hardlines Conference last week. “The companies that have raised their IT spending as a percentage of their expenses from 1.5% to 3% or 4% are the ones who will live,” said Albert Plant, a noted retail management consultant and advisor to RBC Royal Bank. He cited a report by Kubas and Associates that indicated 45% of customers who shop at Home Depot for hardware products also went to look at RONA, while a full 60% who looked at RONA also looked at Home Depot. This imbalance, he stressed, underscores the importance of tracking potential sales lost to customers. Retailers need to be much more aware of general trends that might affect business, said Plant. As an example, he pointed to new trends in immigration, under which the waves of Europeans who came to Canada after World War II have been replaced by South Asian and Middle Eastern newcomers. Advances in technology make it much more accessible, even for the independent. Kim Emmerson, owner of Emmerson Castle Lumber in Haliburton, Ont., emphasized during his presentation the importance of maintaining a cutting edge in technology. It keeps him competitive, and enables him to better serve his DIY and contractor customers, he explained.
RICHMOND, B.C. – RONA Inc. opened a new big box store in Richmond last week in this predominantly Chinese-language community. And even though it bears the RONA Home and Garden big box banner, it offers some refinements on the standard format.The first store of its kind in Western Canada, it bears a number of characteristics of RONA’s “regional” concept, a mini-big box popular in Quebec. There, the largely dealer-owned stores weigh in at anywhere from 65,000 to 95,000 sq.ft. in size, smaller than a full warehouse store, but much larger than a traditional format. The stores advanced and refined the “boutique” approach to merchandising departments (called “RONA Zones”), an approach that has been incorporated in other RONA formats, including the smaller Home Centre and Building Centre stores in rural and secondary markets. The Richmond big box, however, tries for a more urban feel and a more convenient shopping experience. International symbols are being used wherever possible, in place of the written word, to help the ethnically diverse customer base find their way areound. Wider aisles, improved signage and brighter lighting have been incorporated to make navigating the store simpler. The RONA Zone concept at this store, with its separate, fully decorated departments, include a Colour Centre, Lighting Boutique, Kitchen Boutique, Décor Zone, Seasonal Zone and flooring, moulding, and windows and doors. The store also has an indoor, drive-through lumber yard.
CONFERENCE REPORT–Achieving growth today is increasingly difficult because consolidation has already shaken out the weaker players. That, says Al Meyers, vice-president of business development for Dallas-based Retail Forward, leaves the retailer with no alternative but to take growth away from other retailers.Making that job even more difficult is the fact that retailers are losing consumer dollars to travel, recreation and healthcare, he told participants at the annual Hardlines Conference last week. But good retailers understand how to create growth at any part of the business life cycle, insists Meyers, in part by understanding what makes the store brand, brand, social values or culture different from the competition.
VANCOUVER – The cross-border feud over softwood lumber continued last week, as the United States appealed a World Trade Organization panel report that ruled against it in the dispute. At the same time, a U.S. lumber industry group called the Coalition for Fair Lumber Imports launched a court challenge to the NAFTA dispute process, calling it biased against U.S. timber producers. But by later in the week, Washington officials were suggesting that exemptions to duties on Canadian softwood might actually help the U.S. economy in the wake of Hurricane Katrina. Meanwhile, Madison’s Canadian Lumber Reporter published its opinion that the hurricane Katrina will not have a hugely positive effect on Canadian forest companies.
ATLANTA — Home Depot’s recently departed chief merchant will receive close to US$1.5 million in total compensation over the next two years. In a filing with the Securities and Exchange Commission, the retail giant disclosed that John Costello, who resigned as executive vp-merchandising and marketing last month, is “entitled” to two years of salary, based on an annual base rate of US$725,000. Costello will also continue to be eligible for the company’s benefits during that period, and be vested for equity awards for the next three years. In 2004, Costello received a salary of US$675,577, a bonus of US$725,000, other compensation of US$115,576, and restricted stock awards of US$2,448,000. Without disclosing the amount, Home Depot said in its latest filing that it would pro-rate Costello’s 2005 bonus, which it would pay out in 2006; and accelerate vesting of restricted stock and options to allow Costello to purchase shares of the company’s common stock he received when he was hired. Surprisingly, Home Depot does not intend to hold Costello to any non-compete restrictions.
DENVER – At its latest dealer market, being held this week, executives at True Value Company laid out some of the strategies for new lines and assortments. Steve Mahurin, senior vice-president merchandising, stressed to members the importance of global sourcing to remain competitive. “We now have a sourcing office in Shanghai,” he said. “This office will help us improve our sourcing capabilities as well as our speed to market.” True Value also has two consolidation warehouses, one in Shanghai to cover factories located in Northern China, and one in Yantian for factories in Southern China. Sales of globally sourced products have increased by more than 20% under Jim Richardson, True Value’s vice-president of Global Sourcing, and gross margin from globally sourced products has increased by almost 40%. The global sourcing initiative has enabled True Value to expand its private-label products. Last year, the co-op wholesaler introduced a cordless tool program under the Master Mechanic name. At this latest show, Mahurin announced the launch of Master Mechanic corded power tool line. “These tools were designed and positioned to compete against other mid-tier private-label brands, such as the Sears Craftsman line and Home Depot’s Ryobi brand,” he said. Fill rates continue to improve, Mahurin said. “While 95.8% is not something I would write home about,” he admitted, “it is an improvement over the past years’ performance.” His near-term goal is to get that rate up above 96%.
TORONTO – The sale by Sears Canada Inc. of its credit and financial business will net shareholders with a one-time cash dividend of about $2 billion. The dividend is the results of proceeds related to the sale of Sears’ Credit and Financial Services business to JPMorgan Chase & Co., which is expected to net approximately $2.2 billion in after-tax proceeds. Sears is also working on cost-savings initiatives to be completed through 2008. When fully implemented, they are expected to result in at least $100 million in pre-tax annualized savings.SAGUENAY, Que – Former Wal-Mart employees got support from the Quebec Superior Court when it overturned two Quebec Labour Relations Board decisions that supported Wal-Mart’s decision to close store after the employees were unionized. Following the closing of the Wal-Mart in Jonquière in April, management let go more than 100 workers who had succeeded, after a long struggle, in securing union certification. Wal-Mart announced the closing while negotiation of an initial collective agreement was still underway. LONDON – Europe’s biggest DIY retailer, Kingfisher Plc, announced a whopping 23% drop in 2Q profits, driving it to seriously revamp its operations. That includes the announced closing and downsizing stores in its British DIY chain B&Q. The company plans to revamp its stores in the style of Ikea, and has also announced it will axe 400 office jobs. Sales were actually up slightly for Kingfisher, reaching £4.08 billion, up 3.3% from £3.95 billion in the first half of the previous year (+1.8% in constant currency). However, profits fell in constant currency to £289.1 million, from £367.3 million. As a result, B&Q will close 22 stores and around 16 of B&Q's larger Warehouse stores will be converted to a new mini-Warehouse format, as that format continues to outperform the rest of B&Q’s stores. QUEBEC CITY – Home Depot Canada rolled out its annual consumer energy awareness promotion, “EnergySmarts”, Canada-wide last week, in association with the Ministry of the Environment and the Clean Air Foundation. The campaign is designed to promote energy consumption awareness and consumer participation. ATLANTA – Home Depot has launched a new paint colour palette named Colores Origenes, aimed at its growing Hispanic consumer base. Research done by the company shows that painting is one of the most common home improvement projects undertaken by those consumers, 59% of whom speak Spanish all the time. GLENVIEW, Ill. – Illinois Tool Works Inc. continues its vertical integration efforts with the acquisition of St. Jude Polymer Corp., a PET and polyethylene plastic recycling company. It will supply plastic to ITW’s strapping manufacturing operations within its Signode division. St. Jude’s management team, including president Steve Babinchak and vice-president Frank Petrachonis, will stay on. MINNEAPOLIS – Waters Instruments, Inc. had 4Q net sales of US$11.4 million, up 46.7% from US$7.8 million for the same quarter in the prior year. Net income for the quarter reached US$674,000, from US$751,000. For fiscal year 2005, the company had a profit of US$850,000 on net sales of $32.6 million, which were up 34.8% over the prior year.
Robert Dutton, president and CEO of RONA inc., is this year’s recipient of the Henry Singer Award, which is awarded annually by the Canadian Institute of Retailing and Services at the School of Business, University of Alberta. The award, which recognizes exceptional leadership in retailing and services and community contribution, will be presented at a ceremony in Edmonton at the Westin Hotel October 6, 2005. Mike Crockford has joined Johns Manville as territory manager for British Columbia. Formerly with RONA, he is based in Langley, B.C. (1-800-561-0943) Dave Powell has been appointed manager retail sales for Bosch Power Tools, reporting to John McKay, vice-president and general manager of the power tools division. Powell was formerly national account manager with Black & Decker. (905-826-6060)
Sales of existing homes in Canada set a new monthly record in August, according to the Canadian Real Estate Association. Seasonally- adjusted sales activity reached 30,114 transactions in August – 4.8% higher than the previous month – and 3% higher than the previous peak in June.Expanding construction companies added 32,000 jobs in August, making it the seventh straight month of gains, according to Statistics Canada. Most of that growth came in Quebec and Alberta. At the same time, housing starts dropped to 201,000 units in August, down from 242,600 units in July, according to CMHC, defying analysts who forecast 230,000 starts.
Retail sales for August were $350.1 billion, down 2.1% from July, but up 7.9% from one year ago. Excluding automobiles, retail sales in August were $274.9 billion, up 1.0% from July, and up 9.4% from one year ago.
“Lowe’s is a very good competitor. They pay attention. In preparation, we have to make sure Canadian stores are up to snuff. But in the end, we are our own toughest competitor.” –Tom Taylor, Home Depot’s new executive vice-president of merchandising and marketing, on the announced expansion by its biggest competitor into the Canadian market. He was speaking to an audience of retail and supplier executives at last week’s Hardlines Conference.

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HELP WANTED Alexandria Moulding, a family owned multinational company founded in 1943, based in eastern Ontario, is searching for a: DIRECTOR OF SALES (Competition 2005-016) Ideal candidates possess appropriate University education or equivalent, and a minimum of 15 years of experience in managing a national sales department of a wood moulding distribution organization or related business. Excellent communication, organizational and leadership skills are required. Bilingualism is a strong asset. The new incumbent, reporting to the General Manager of the Canadian operations, will recruit and manage a sales team; provide training, budget and hands on support in the field. Your understanding of the dynamics of sales, marketing, profit & loss, distribution, manufacturing and inventory will facilitate organizational efficiency. You will ensure complete customer satisfaction through pro-active interaction with key clients. Alexandria Moulding is an equal opportunity employer and offers competitive compensation. Only individuals selected for interviews will be contacted. Interested individuals shall send their résumé to: Alexandria Moulding Inc. Human Resources Department - Competition 2005-016 95 Lochiel Street East Alexandria (Ontario) K0C 1A0 Fax (613) 525-0807 E-mail: (09.19_10.03) ********************************************************************************** BRAND MANAGER—TORONTO Due to their growing list of successes our client, a GTA-based brand dominant needs to add a marketing performer to their current Marketing team. You’ll facilitate and execute the marketing strategy for a brand including launches, line extensions and collaborating with the sales team. This involves true brand management including brand/line reviews, packaging and merchandising, and assisting with brand strategy development. Achieving market penetration, profitability targets and classic consumer products brand management are your goals. Tell us about your product management successes as a Product Manager or APM. Great career upside potential and an excellent team of individuals to work with, in addition to a competitive compensation package. Please contact Wolf Gugler in complete confidence, quoting file PM-05. Wolf Gugler & Associates Limited, (888) 848-3006. Email: Web site: (09.19_10.03) ********************************************************************************** The How-To People are looking for the 10 best Recruiters in Canada.   The greatest story in the Canadian hardware business today is still being written...and the most exciting chapters are yet to come. If you feel you have what it takes to play a role in the implementation of RONA's strategic development plans in recruiting and building relationships with new dealers from coast to coast, we want to hear from you. Now. Especially if you have experience in the hardware, building materials and home improvement industry, the ability to interpret financial statements and present budgets, and strong communications skills, planning and organizational skills. If you can see yourself succeeding as one of 10 new RONA Development Managers, please send your résumé without delay...and in total . If selected for an interview, we'll reply with a detailed job description and contact you in regards to this step forward in your career. (09.12_09.26)  

********************************************************************************** Xtreem Sales is a well established sales agency in the hardware industry. Rapid growth is creating a need for expansion outside of Ontario. We are looking for successful and motivated agencies in the hardware and grocery industries to sell existing product lines.

Confidential inquiries to John Frizzell at (519) 762-9966 or (09.12_09.26)  



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