Home d,cor's second tier positioned for growth - House2Home, Dekor - Brief Article

DSN Retailing Today, Sept 3, 2001 by Mike Duff

NEW YORK -- Despite the economy, the home decor segment remains perhaps the most dynamic in retailing, and two of its newest players, House2Home and Dekor, are positioning themselves for market development.

As the smallest player in the channel, Dekor maybe getting backing from some of the largest retailers in the world. A story in London's Financial Times has Britain's Kingfisher Plc and Germany's Hornbach each taking a stake in the Atlanta-area chain--a rumor Dekor has neither confirmed nor denied.

The upmarket chain, founded by former Home Depot employees, operates three stores in Atlanta's suburbs. Nora DePalma, a spokeswoman, noted that a fourth store, in Nashville, Tenn., is on schedule to open in the first quarter of 2002. New cash or no, the company wasn't yet discussing where it would open additional stores. "Anything like that we like to keep close to the vest for competitive reasons," she said.

Kingfisher and Hornbach have operated under an ongoing alliance. Kingfisher, a retail and real estate company, is in the process of spinning off its Woolworth operation in the United Kingdom. In July, the company announced it would concentrate on its do-it-yourself and electrical retailing. Observers have been speculating that it intends international expansion. Kingfisher sold its health and beauty chain, Superdrug, to Dutch drugstore chain Kruidvat. Hornbach Holding operates four companies--principally Hornbach-Baumarkt-Aktienge-sellschaft, which operates about 80 DIY retail markets and garden centers with nearly 70 in Germany.

During a second quarter conference call, HomeBase chairman and ceo Herbert Zarkin, declared the conversion process from its original home center format to its new House2Home decor store prototype essentially complete. The company is now entering a new phase of development that will allow it to build on the core strengths of the new format.

Although most House2Home stores have been open for less than three months, some important measurements had been established:

* The average store will do between $14 million and $16 million a year;

* The average ticket is a bit over $60;

* House2Home customers have made the store a regular stop, visiting about once a month.

Impacted by renovation costs, HomeBase lost $37.6 million, or $1.00 per share, for the second quarter vs. net income of $1.4 million, or $0.04 per share, in the last-year period. Sales were $144.8 million vs. $407.1 million for 84 HomeBase stores in operation during the quarter.

The House2Home chain now consists of 42 stores in California, Nevada and Arizona. Executives noted that they had more success than they expected in disposing of former HomeBase locations that weren't slated for conversion. The extra cash had helped the company lower its levels of borrowing.

Now, the company is looking at some proposed tweaking--concessions to the economic climate--such as boosting advertising levels and pushing price in its media efforts. The company also will expand stronger segments, including bed and bath and furniture; scale back some disappointing ones such as party goods; and experiment with new ones like wine and gourmet food.

Management is happy with consumers acceptance of House2Home Zarkin emphasized. "Despite the timing of this economic downturn, I'm more convinced than ever that we did the right thing," he said.