Warehouse home centers taking Canada by storm - Illustration - Industry Overview - Statistical Data Included - Brief Article

Home Channel News, May 21, 2001 by John Caulfield

A strong economy helped large and small dealers cope with market consolidation, especially in Ontario and Quebec

When Canadian Tire announced in January 2001 that it planned to open 52 stores over the next three years, that news culminated a remarkably active year for this country's home improvement industry, which had been dominated by its largest hardlines retailer.

With a new president in place and a chainwide remodeling and remerchandising program halfway complete, Toronto-based Canadian Tire remains a focal point of an industry that once was ruled by dealer-owned buying groups for smaller hardware stores and lumberyards, but increasingly has become dominated by warehouse home centers crowding their way into the 10 metro markets of this nation of 30.4 million people.

In 2000, Canadian Tire generated $3.86 billion Canadian (US$2.5 billion) in revenue from its 440 stores, with about 40 percent coming from their sale of home improvement products. All told, Canadians purchased an estimated C$24.7 billion in home improvement products from all retail outlets, which represented a healthy 7.5 percent increase over 1999 totals, according to NHCN estimates that are based on industry consensus.

Canadian-based dealers and suppliers have benefited from a strong economy -- the country's gross domestic product rose 8.4 percent in 2000, according to Statistics Canada -- and a robust home building market that has churned out 184,374 new single-family home starts in the last two years, according to the Canadian Mortgage and Housing Corporation. John-John D'Argensio, an economist with CMHC, said that home building in most urban centers was particularly strong. As a result, for the first time since it has been tracking the industry, Clayton Research, a market research firm, found that contractor sales represented more than 50 percent of the industry's total in 2000.

The industry's 25 largest retailers captured more than two-fifths of that total on the strength of a 7.5 percent gain to an estimated C$10.5 billion. And as has been the case for the last few years, the industry's largest players are creating much of its vitality. Home Depot Canada, Reno-Depot Revy Home Centers and the dealer-owned buying group Rona proceeded with their aggressive store-opening programs, with Toronto being the primary battleground. But with the exception of Rona, none of these companies is opening stores at the pace they projected a year ago, which raises questions in some industry watchers' minds about whether Canada's home improvement field is reaching a saturation point.

Indeed, several leading companies spent much of last year consolidating what they already operated and solidifying their market positions. For example, Home Hardware, the industry's largest dealer-owned buying group, expected to complete the integration of the 136 Beaver Lumbers it acquired in 1999 into its operations by the end of 2001. Home, whose wholesale sales from 1,100 members were relatively flat last year, has offered to sell the Beaver stores to independent dealers that are either current members of the co-op or would join the organization.

The hardlines distributor Sodisco-Howden -- whose wholesale sales fell 0.3 percent to C$422.3 million last year but whose earnings increased 19.1 percent to C$12.9 million -- completed a repositioning of its store banner and marketing programs and the integration of two wholesale companies it acquired. Sodisco now has around 750 of its 1,500 dealers flying the Pro Hardware and Pro Home Centre banners. The company is better able to serve those dealers across Canada out of the operations of Vancouver-based Smith Barregar and Kitchener, Ontario-based Weber Supply, which Sodisco bought in April and July of 2000. In addition, dealers now have access to 75,000 skus through an electronic catalog the distributor launched last year.

The Quebec-based Rona reported that its gains last year -- a 33.3 percent increase in wholesale sales to C$1.318 billion and 22.5 percent jump in net income to C$18 million -- were attributable in part to its acquisition of the 66-unit Cashway Building Centers chain, which over the past 15 months Rona been converting to its product and banner programs. (Rona reported last year that it spent C$320,000 to convert the first five stores.)

Adding sizzle to the steak

Rona stated in March that it intended to spend more than C$100 million this year to open six more big-box stores. Its first in Ontario opened March 28, and the co-op used that occasion to debut an entirely new concept, called Home Solutions, which has been laid out and designed to encourage customers to view their shopping experience as entertainment. Rona's retail division president Rick Blickstead said that his company took its cue from Disney when it organized different departments within the 130,000-square-foot Home Solutions as "worlds" to be "visited."

"I think this industry needs more of this kind of thing," said Michael McLarney, the editor and publisher of Hardlines, an electronic newsletter covering Canada's home improvement industry.