Paint and Home Decor - market data - Brief Article - Statistical Data Included

Home Channel News, May 21, 2001

Home decor continued to be many dealers' fastest growing category in 2000. And paint has been one of the more potent weapons in those dealers' home decor merchandising and marketing arsenal, as painting remains the most popular home-improvement activity among homeowners nationwide. Indeed, five of Sunset Books' 15 best-selling titles specifically address home decor projects.

Two high-profile retailers - Sears and Home Depot - accelerated the expansion of their respective home decor formats, The Great Indoors and Expo Design Centers. Depot's former executive vp, Jim Inglis, opened four large home decor stores, called Dekor, in Georgia. And Lowe's added a designer label -- Alexander Julian -- to a line of home decor products that include wallcoverings and paint, and complements the floorcovering sold in its stores under Laura Ashley's designer brand.

The category's prospects got a boost last year when Berkshire Hathaway, the investment arm of financier Warren Buffett, paid $1 billion to acquire paint manufacturer and retailer Benjamin Moore. However, that deal accentuated ongoing consolidation within this section that was further evinced by PPG Industries' acquisition of 35-unit New Dean & Barry and by the formation of Professional Paints, a Denver-based operation which, through a management-led leveraged buyout on Aug. 11, acquired four regional dealer/manufacturers -- Frazee Industries, Kwal-Howells, Parker Paints and General Paint in Canada -- from Williams plc in the United Kingdom. Combined, PPI's four companies operated 238 stores that generated $360 million in revenue in 2000.

Sherwin-Williams, the industry's largest specialty paint chain, solidified its market position by opening 92 new stores and generating $3.2 billion in net sales in 2000, a 6.1 percent increase over 1999. Comp-store sales for the chain rose 3.7 percent, and its operating income jumped 9.2 percent. However, business in last year's fourth quarter sagged for this company. Raw material prices kept rising. Last year, Wal-Mart stopped marketing a paint line under Sherwin-Williams' Thompson brand. The paint maker lost its licensing contract with Ralph Lauren to rival ICI. Another of its retail clients, HomeBase, decided to drop paint entirely as part of the conversion of its stores to House2Home outlets.

Christopher O'Connor, Sherwin-Williams' CEO, told investors last month that his company "[isn't] counting on economic improvement" in 2001. Nevertheless, this year Sherwin-Williams expects to open 60 stores, which would bring its total to 2,548 units.

Co-ops embrace decor

The Lowe's-Alexander Julian nexus was one of several examples of cross-branding within the home decor category. Another was Disney Colors -- developed by Sherwin-Williams and Walt Disney Co. -- a 168-sku paint line that is grouped under five Disney themes: Mickey and Minnie Mouse, Winnie the Pooh and Tigger, Buzz Lightyear and Woody, Cinderella and 102 Dalmations. The paint maker launched the line at the Hardware Show last August, and signed Wal-Mart stores as its first customer. It expanded the Disney Colors line to Menard, Villager's Hardware, Sears, Ace Hardware, TruServ and Do it Best Corp.

The Hardware Show also served as a venue where a number of paint suppliers exhibited their latest coatings and tools for faux finishing, which Terry Horan, vp-consumer marketing for Rust-Oleum, heralded as "the hottest thing going in paint."

Dealer-owned buying groups are particularly active in this category. Last October, Do it Best offered a stylish Paint Solutions specialty department program to its dealer-members. And in early 2001 the co-op teamed up with 70-unit retailer Floor to Ceiling to develop a program called Home Interiors, through which the co-op's members can order a full line of flooring, kitchens, bath vanities, window treatments and wallcoverings. Floor to Ceiling would handle fulfillment.

TruServe has more than 900 dealer-members with Paint Shop departments in their stores. And earlier this year the co-op struck an agreement with Duron Paint and Wallcoverings to make certain Duron-branded paint products out of its Cary, Ill., plant available for distribution to its members.

Specialty dealers react

As more home improvement dealers expanded their assortments of home decor products last year, that strategy has placed them more directly into the line of fire of established specialty retailers which are doing new things in their own right.

Crate & Barrel, for instance, opened a new prototype in Chicago in January 2000 that it called CB2, a 9,000-square-foot unit that's aimed at the 20- to 30-year-old urbanite, featuring lots of storage and organization items, iMac colors and an overall retro look.

Ikea, the world's largest home furnishings retailer, with more than 160 stores in 30 countries, last year added stores in San Diego and Emeryville, Calif. A second San Francisco Bay location is in the works, along with a future unit in Palo Alto. Ikea is also planning to replace its older store in Tustin, Calif., with a gigantic -- 320,000-square-foot -- unit in Costa Mesa. However, it reportedly has run into anti-growth advocates protesting its attempts to open a similarly-sized store in Massachusetts.