November 28, 2016 Volume xxii, #45

“A champion is someone who gets up when he can’t.”
— Jack Dempsey, American heavyweight boxer and five-time world champion, 1895-1983)

IN THIS ISSUE:

• Anticipating 50-year anniversary, BMR show focuses on technology

• “Chaos” of gypsum as tariff goes before Tribunal this week

• Analysis: big boxes, mergers, the role of independents, and the rise of e-retail

• Canadian Tire looks to strengthen its retail business with proprietary brands

• PLUS: Lowe’s completes acquisition of RONA shares, Ace Hardware’s third quarter, Wal-Mart profits slip, Lowe’s Canada to phase out corded blinds, Koch Industries eyes Guardian, Spectrum Brands, Tembec, Taymor, retail sales, and more!
  
  

Anticipating 50-year anniversary, BMR show focuses on technology

QUEBEC CITY — Groupe BMR held its latest trade show in Quebec recently. The event used the official theme of technology to drive it, while anticipation around the organization’s 50th anniversary in 2017 was prevalent. According to a company spokesperson, Stéphanie Couturier, with those two notions in mind, “we wanted this show to be a window on the future of our industry.”

In keeping with the technology theme, the main hall of the show, held at the Centre des congrès, offered several new technologies on display, including 3D printers, drones, and a 2.0 store where dealers could experience virtual reality renovation planning and see how RFID chips can be used in stores.

Inside, some 300 exhibitors were waiting to introduce their new products for spring and summer 2017 to 325 dealers, under the BMR, Unimat, and Agrizone banners. This year, instead of a house, the star of the show was a large deck that hosted a wide collection of outdoor furniture and an extensive gardening area complete with living plants. Another big hit was the BBQ Québec booth. “Dealers were very excited to hear about our new exclusive association and everyone wanted to find out more about BBQ Québec’s product line,” Couturier said. (More on this partnership in last week’s edition. —Editor)

To provide dealers with even more information on new products and trends for 2017, this year’s buying show also featured a conference area where speakers from different sectors of the industry gave seminars over two days. The traditional gala evening marked the official kickoff for the festivities for the anniversary year to come. BMR CEO Pascal Houle invited everyone in attendance to raise their glass to celebrate 50 years of success.

“Chaos” of gypsum pricing as tariff goes before Tribunal this week

NATIONAL REPORT — John Adrian is the lumber and agro manager for Rocky Mountain House Co-op Home Centre, located an hour west of Red Deer, Alta. He placed an order for two truckloads of drywall from CGC at Federated Co-operative’s Fall Buymart back in mid-October. The terms included immediate delivery.

But he just got the order last week. Prices are up and shortages abound, all due to a tariff on gypsum drywall that has affected Western Canada. It’s taking its toll on margins—and on the receptiveness of end-users, who must pay up to 60% more than they did three months ago.

The tariff is the result of a ruling on September 6 by the Canadian International Trade Tribunal on drywall from the U.S. being dumped into Western Canada. As the only drywall producer with manufacturing in Western Canada, CertainTeed Gypsum Canada filed the original complaint. The CITT ruled in favour of a tariff to level the playing field. CertainTeed’s own product, which is produced in a facility in Calgary, was not affected by the tariff, but the company did raise its prices by 30% to recapture some margin.

Delivery times now, says Adrian, are running up to seven weeks out. At the same time, demand is way off due to pricing. “The only ones buying drywall are the ones who have to,” he says, noting that his biggest customers now are on nearby reserves, where demand remains high. He’s seen his cost go from an average of $16 per sheet to $21.

Shoemaker Drywall Supplies is a commercial drywall dealer, and part of the WSB Titan group of companies. It has a dozen locations in Western Canada. Doug Skrepnek of Titan sums up the situation in one word: “Chaos.” The increased prices have affected Titan’s business, which he says is down 40% due to high prices and the lack of supply as U.S. product is staying south of the border. “Never in my 40 years in the industry have I seen this much turmoil in the marketplace,” he says.

However, the impact of the tariff can vary from dealer to dealer, depending on their supply relations. One dealer with locations in British Columbia and Alberta who asked not to be named says he buys already from Certainteed. Dealers tied more closely to that supplier are not feeling the impact as much, he says. As for his customers, he notes that the contractors “did a lot of squawking at first,” but the situation has settled down somewhat.

Skrepnek is now preparing for two weeks of hearings that begin today. A ruling will be made by the Tribunal on January 5 and any changes would go into effect January 20. Skrepnek believes the tariff will be lowered significantly as a result of the hearings. “But,” he adds, “if it’s not lowered, it will have a devastating impact.”

Analysis: big boxes, mergers, the role of independents, and the rise of e-retail

TORONTO — With Lowe’s posting results earlier this month that lagged behind its competitor Home Depot, HARDLINES’ intrepid editor Michael McLarney spoke to Business News Network (BNN) about the state of the big boxes in Canada. Lowe’s has been taking the long view in diversifying its holdings, he said, even though that has meant that some swings and misses, such as an ill-fated joint venture with Woolworths in Australia called Masters Hardware.

Speaking to the takeover of RONA, McLarney said that the focus for now is on the back end as Lowe’s continues streamlining its operations in Boucherville, with incorporation of RONA big box stores into the Lowe’s banner to come later. The likely endgame will be the rebranding of all RONA big boxes under the Lowe’s banner, with smaller proximity stores and independent dealers retaining the RONA name.

In the meantime, properties acquired from Target after its Canadian adventure have been re-opened as Lowe’s stores.

However, the big box is only part of the story, says McLarney. Canadian big boxes have to contend with a strong independent presence even more than their American counterparts. Home Hardware, a co-op, remains in the number-three home improvement retail spot. Buying groups like Castle, TORBSA, and TIMBER MART can offer dealer-owners the best of both worlds, gathering independents into a critical mass able to hold their own against the large players, while respecting the autonomy of local ownership and management.

Despite not being a publicly traded company, Home Hardware is beginning to get the attention of Bay Street observers. Would it go public? Not likely, McLarney says, but its size and success position it for future takeovers, such as the acquisition of Beaver Lumber in 1999, which added 138 stores.

Finally, retailers across the industry are shifting to establish themselves as online sales gain increasing market share. Even sectors once thought to be immune to the trend are feeling the pressure to enter the online marketplace. McLarney recalls one retail executive telling him a few years back, people aren’t going to buy lumber and building materials off the internet. “Well, guess what,” he stresses, “they are. What’s going to happen is these stores will become the service centres as this industry becomes more and more of a service industry.”

(Click here now to watch the entire five-minute BNN interview.)

Canadian Tire looks to strengthen its retail business with proprietary brands

TORONTO — With the release of Canadian Tire’s latest quarterly results, CEO Stephen Wetmore admitted that he was not entirely satisfied with results of the company’s Canadian Tire Retail (CTR) business. “Our CTR revenue is not quite in line with our point-of-sales growth, otherwise bottom-line would have been better,” he said in a call with analysts following the release of the company’s Q3 numbers.

“However, as we move forward on our journey, we are spending a significant portion of our time looking well beyond the next quarter to build the types of capabilities and programs for the future,” he continued.

Perhaps offering some clues as to why former CTR President Michael Medline was let go in July, he noted: “CTC is at its strongest when we have a one-company approach.”

Reorganizing the management post-Medline was part of the strategy “to better align existing expertise within the organization” under Allan MacDonald’s leadership at CTR. That included significantly expanding the role of Greg Hicks, who oversees merchandising, automotive, and the retail experience. In addition, automotive was brought in closer to CTR’s other lines of business and is now led by Andrew Davies.

During the quarter, a Consumer Brands division was created, headed up by TJ Flood, who was previously senior vice president of marketing for CTR. In this role, Flood has been tasked with expanding Canadian Tire’s range of private brands, both through development in-house and through the acquisition of other product brands that could complement or extend the company’s existing portfolio. 

CTR’s exclusive brands include Noma lights, Woods camping equipment, Canvas, which focuses on home accessories and décor, the venerable Mastercraft tool brand, and Frank, which features snacks and consumable household products.

“These areas are critical to our strategy as we move forward,” Wetmore added. “We are a product-led company. If we don’t have great products and great people, then we won’t be able to execute our retail strategies.”

DID YOU KNOW…?

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RETAILER NEWS

MOORESVILLE, N.C. & BOUCHERVILLE, Que. — Lowe’s has completed its previously announced acquisition of RONA’s preferred shares. Preferred shareholders will receive CD$24 per share in cash, without interest. RONA has applied to delist its preferred shares from the Toronto Stock Exchange and expects the delisting to be completed in a few trading days. RONA has also applied to cease to be a reporting issuer in each province under applicable Canadian securities laws.

OAK BROOK, Ill. — Ace Hardware Corporation has reported third-quarter 2016 revenues of $1.2 billion, a decrease of $46.5 million or 3.6% from the third quarter of 2015. Net income was $50.2 million for the third quarter of 2016, down $4.1 million from the third quarter of 2015. Same-store sales were up a modest 0.8%, the result of a 2.2% increase in average transaction size. For the first nine months of 2016, retail same-store-sales are up 1.9%.

BENTONVILLE, Ark. — Wal-Mart Stores Inc. saw profits slip and sales miss estimates ahead of the holiday season, even as revenues edged up slightly. Net income of $3 billion in Q3 was 8.2% lower than a year ago. In total, however, revenues rose 0.7% to $118.2 billion. Same-store sales increased by 1.2%. Lower food prices contributed to the weaker sales, while a surge in online shopping boosted overall revenues.

BOUCHERVILLE, Que. — Lowe’s Canada says it will phase out sales of corded window coverings by 2018, citing safety issues for customers. The initiative will include all its banners: Lowe’s, RONA, and Réno-Dépôt. This announcement is the conclusion of a process which began one year ago to comply with Health Canada requirements. “Lowe’s Canada takes the concerns of its customers very seriously, and the safety of products sold by our stores and various banners is our top priority,” said Alain Brisebois, EVP, affiliate dealers and operations central services at Lowe’s Canada.

SUPPLIER NEWS
MIDDLETON, Wis. — Spectrum Brands Holdings’ majority stakeholder says it is considering the merger or sale of some of its holdings with the announcement of its CEO and president’s departure. Omar Asali plans to leave HRG Group in the second half of fiscal 2017 to establish a private investment vehicle that will make long-term investments in private and public companies.

WICHITA, Kan. — Koch Industries, a minority owner of Guardian Industries, announced plans to buy up the remaining 55.5% of the Auburn Hills, Mich.-based glassmaker’s shares. The conglomerate, which first invested in Guardian in 2012, will pay cash for the acquisition. As both companies are private, financial terms of the deal, expected to close in the first quarter of 2017, were not released.

MONTREAL — Tembec posted a $12 million dollar Q4 profit, after taking a loss of $32 million the same time last year. The forestry firm reported earning $0.12 per share, while revenues rose by 4.3% to $389 million. The company attributed the results to a slight dip in the value of the loonie along with a lack of any major maintenance costs. Sales for the fiscal year came in at $1.5 billion, a $100 million gain over the previous year, and profits of $20 million compared to a net loss of $150 million for the year in fiscal 2015.

PEOPLE ON THE MOVE
Derek Jackson has been promoted to full-time sales representative−Northern Ontario for Taymor. After spending four years learning the lumber yard business at Lansing Build-All, Jackson joined Taymor as a merchandiser in 2000, then took a year off to complete his honours degree at the University of Toronto. He returned to his merchandising role in 2008 with the added responsibility of junior sales representative for Northwestern Ontario. He takes over from Don Rennie, who had covered Northern and Eastern Ontario in both retail and new construction channels, and will now focus on the Ottawa Valley and Eastern Ontario.

ECONOMIC INDICATORS
Following four months of little change, retail sales rose 0.6% to $44.4 billion in September on the strength of higher sales at motor vehicle and parts dealers. Sales were up in seven of 11 sub-sectors, representing 65% of retail trade. After removing the effects of price changes, retail sales increased 0.6%. Gains of 0.7% at building material and garden equipment and supplies dealers more than offset the declines in August. Retail sales were up in eight provinces in September. Higher sales in Quebec, Ontario, and British Columbia accounted for most of the increase. (StatCan)

Sales in the U.S. of new single-family houses in October were down 1.9% from September to 563,000 seasonally adjusted. However, year over year, sales are up a healthy 17.8%. (U.S. Commerce Dept.)

OVERHEARD…
“We also made continued progress on the integration of RONA, which remains on track. With RONA, we have fortified our Canadian market position, particularly in Quebec. We are now well-positioned to capitalize on the market’s strong long-term fundamentals.” 
—Robert Niblock, Lowe’s chairman, president, and CEO, on the company’s third-quarter results.

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