Canadian companies find strength in unity

Home Channel News, May 24, 1999

A strengthening economy, low unemployment and booming home-building activity helped boost Canada's sales of home improvement products in 1998 by 8 percent to an estimated $19.5 billion Canadian dollars (US$12.48 billion).

Retailers expect 1999 to be more of the same, although housing starts are expected to level off somewhat before picking up again in 2000. Housing starts should hit 137,000 units this year and 144,700 in 2000, compared to 137,439 in 1998, according to the Canada Mortgage and Housing Corp.

As market leaders Canadian Tire and Home Depot Canada continued to expand in 1998, many retailers and distributors spent last year forging alliances to build their strength in the face of these competitors.

Canadian Tire, whose retail store sales increased 7.5 percent to C$3.44 billion (US$2.22 billion) in 1998, has been converting smaller units to 57,000-square-foot stores. The company plans to replace, relocate and open 45 stores in 1999. The 43-unit Home Depot Canada, with C$1.87 billion (US$1.2 billion) in 1998 sales, plans to open 13 stores in 1999.

The Atlanta-based Home Depot bought Molson Cos.' remaining 25 percent stake in Home Depot Canada in 1998, though it is still restricted from opening stores in the province of Quebec until 2004. However, Home Depot opened its first store in the province of Saskatchewan in 1998, and has announced plans to open its first store in the Atlantic provinces as well as bring its Expo Design Center concept to Canada -- by 2001.

Dealers' anxiety about these aggressive growth plans was evident in the April 1998 merger of Revel-stoke, Canada's fourth-largest home improvement retailer, with Lansing Buildall, Toronto's largest independent retailer. The move gives Lansing greater leverage to expand in Ontario, and this strength, combined with Home Depot's strong presence there, "creates a barrier to entry for a third player in the market," according to John Kitchen, Lansing's president.

Ace Canada is another one of several companies that formed pacts last year designed to improve its competitive position. The subsidiary of U.S.-based buying group Ace Hardware signed deals in 1998 to supply 150 Growmark stores in Ontario, 95 dealer-members of the A.W.A.R.D. buying group in Atlantic Canada, and dealers buying through the Manitoba-based buying group Sexton.

Ace Canada had its first full year of operation in 1997, and grew in 1998 to 65 members from about 10, with membership expected to grow to between 120 and 130 dealers in 1999, according to Wolf Gruber, its president.

Since early this year, Ace Canada -- along with Rona and Home Hardware -- has been one of the companies rumored to be a potential buyer for Molson Cos.' Beaver Lumber division, which also strengthened itself by forming 50-50 joint ventures with other independent lumber dealers.

Alliances and other major changes on the Canadian landscape include:

* Hardlines distributor Sodisco-Howden signed three-year supply agreements with dealer-members of the Independent Lumber Dealers Co-Operative (ILDC) in Ontario, Quebec and the Maritimes provinces. Sodisco -- which many in this country had labeled dead in the water three years ago -- also revived the Spancan buying group as Spancan (1999) Corp., and made the ILDC -- a group of Canada's regional home improvement dealers -- an equal buying partner;

* Sexton, the Manitoba-based buying group, struck a deal with Ontario-based buying group Torbsa to form an umbrella buying organization called National Alliance Buying Group, with more than 250 dealer-members;

* Vancouver-based buying group Tim-Br-Mart signed licensing agreements with A.W.A.R.D. and the 150-dealer Homecare Building Centers to allow these members to use the Tim-Br-Mart name on their stores. (All three are part of the Matreco organization.)

* In September 1998, England's B&Q merged with France's Castorama, which in 1997 had purchased Molson's stake in Montreal-based Reno Depot Canada's fifth-largest retailer. Reno-Depot had a strong year in 1998, and the mergers should give the retailer considerable advantages in negotiating with its suppliers, according to its president Yves Archambault. By the end of 1999, Reno-Depot expects to be capturing 18 percent of all home improvement sales is Quebec and nearly one-third of what's sold in greater Montreal, according to Archambault.

* Quebec's leading buying group Rona -- which changed its name in 1998 from Le Groupe Rona Dismat -- began rolling out a new midsize- and small-market format called Le Renovateur Regional, which combines features of a warehouse home center with several "boutique" departments. Rona plans to operate a total of 10 of these stores in Quebec by the end of 1999, and to open 15 Regional stores and 20 of its L'entrep6t warehouse stores in Ontario during the next few years.

* British Columbia-based Thunderbird completed the transformation of its 11 home centers into kitchen and bath centers, as it defends its market share against the expansion of Revy and Home Depot in Vancouver.