Business

The War for Your Home

D’Arcy Jenish October 16 2000
Business

The War for Your Home

D’Arcy Jenish October 16 2000

The War for Your Home

The big-box renovation giants are locked in a death struggle to dominate Canada’s suburbs

Business

D’Arcy Jenish

They are both 44, energetic, youthful looking, and immensely proud of where they came from. Annette Verschuren is a former Cape Breton farm girl raised by Dutch immigrant parents. John Kitchen is the son of a Toronto building supplies merchant who likes to say he grew up with “sawdust in my veins.” Despite very different backgrounds, their career paths have brought them face-to-face as rivals in one of the hottest retail batdes in the country—the fight to dominate the $25billion a year home-improvement market. Verschuren is president ofToronto-based Home Depot Canada while Kitchen is Ontario vice-president of Surrey, B.C.-based Revy Home Centres Inc. He turned up the heat late in September with newspaper ads declaring his company “proudly Canadian” and American-owned Home Depot as “hardly Canadian.” Verschurens response: “This thing will be won by providing great service, not negative advertising.”

Southern Ontario is the principal battlefield in this war between suburban big-box stores—some the size of football fields—which typically carry over 50,000 different products, everything from nails and lumber to Jacuzzis and chandeliers. Retail analysts say the victors will be the companies with the deepest pockets, especially since two Quebec-based homeimprovement giants—Europeanowned Réno-Dépôt Inc. and dealer-controlled Rona Inc.—are moving into the Ontario market.

And what happens in Ontario will determine what happens in hardware retailing across the country, the analysts say. They

predict that only two of four big-box companies will survive, and both will become national chains dominating Canadas suburbs. “I believe the vicious fighting will be wound up within two years,” says Markham, Ont.-based retail consultant Richard Talbot. “It’s not going to be a long battle.”

It will be a costly one, though. The big-box companies are scrambling to acquire land and build stores, particularly in Toronto and the surrounding suburban belt stretching from Oshawa west to Oakville and north to Barrie, an area that is home to around 5.3 million people and some of the most expensive real estate in the country. A home-improvement centre usually has up to 600 parking spaces out front and sits on about four hectares of land.

In two Greater Toronto locations, Home Depot and Revy have opened giant stores right across the street from each other.

Who’s who in home improvement

The clash of the big-box titans is primarily among four groups (coloured blue). Analysts predict only two will be left standing. Their sales and those of key hardware chains:

Reno Depot (mci Building Box) Montreal 11 in Que $600 million 1M4~~1~! Home Hardware (md. Beaver Lumber), St. Jacobs, Ont. -~ 1,095 in all provinces and territories **. $2 9 bil~ I IOfl Home Depot Canada,Toronto 60 in seven provinces (except RE.I., N.B., Nfld.) $2 3 bdhon (est.) Rona (mci. Rona Cashway), Boucherville, Que.~: 495 fl Oflt., Qije., N.B., N.S. $2.1 billion Canadian Tire, Toronto 438 in all provinces,Yukon, N.W.T. $1.7 billion* Sodisco-Howden Group (Pro and Do-It), St-Bruno-de-Montarville, Que. . 1,500 in all provinces, Yukon • $1.4 billion Revy Home Centres (mci Lansing Buildall) Surrey BC 56 from B C to Ont. $786 million TruServ Canada, Winnipeg 594 in all provinces, Yukon, N.W.T. $700 million

Elsewhere in the region, they have sites less than a 10-minute drive apart and, in one case, Réno-Dépôt is opening between them under its Building Box banner. Some analysts say the race for locations has led to overbuilding and that closures are inevitable. “You have to wonder what kind of consumer demand is going to support these stores,” says Canadian Retail Hardware Association president Robert Elliott.

Even some executives with the big-box hardware chains say southern Ontario may not be able to absorb all the new stores. But they all believe they can carve out niches in a large and expanding market. For one thing, they say, Canadas economy is booming. Equally important, do-it-yourself homeowners have become more numerous and ambitious over the past decade. Many people now prefer to install their own ceramic tiles, lay hardwood floors or remodel a bathroom rather than hire a contractor. “There’s been a shift in the psyche of the homeowner,” says Home Depot’s Verschuren. “People are choosing to invest more in their homes.”

Warehouse-style stores are also growing fast, insiders say, because they attract far more female customers than traditional hardware and building supply oudets. In addition to basic products such as lumber, plumbing and electrical goods, they carry many items for finishing a home—such as paint, kitchen cabinets and light fixtures. And all are trying

to make their stores more appealing to women. Rona, for example, incorporates four to six decor boutiques to break up the big-box format of long rows of merchandise stacked on shelves from the floor to the ceiling. Revy uses female actors in radio ads and reserves parking spots near the front doors for expectant mothers as well as those with young children. “Women are usually the decision-makers in home improvements,” says Kitchen. “Give them a store where they feel comfortable and they drive that shopping.”

The most aggressive combatants are operating at fever pitch. “Here we grow again,” declares a bright, boldly lettered sign above the receptionist at Home Depot Canada’s Toronto head office. The list of 13 new stores opening in 2000 includes, among other places, Halifax, Laval, Que., Mississauga, Ont., Winnipeg and Saskatoon. By year end, Home Depot will have 67 stores open, each employing an average of 200 people. It has oudets in all provinces except New Brunswick, Prince Edward Island and Newfoundland. But their turns will come by the end of 2004, Verschuren says, when Home Depot plans to have 132 stores in Canada. “Our strategy has been to cover the major markets, then move to smaller ones,” says Verschuren. “Canadians love our concept, so we haven’t got to the finish line.”

Home Depot created a buzz within the industry earlier this year by opening its first Quebec store in Laval, a Montreal suburb, contrary to a previous agreement with Réno-Dépôt

Business

to stay out of the province. The U.S.-based giant acquired its Canadian foothold in 1994 by taking over Aikenhead’s Home Improvement Warehouse, an Ontario chain, from Montreal-based Molson Inc., which also controlled Réno-Dépôt. As part of that deal, Home Depot could not go into Quebec. That changed in 1998 after Molson sold Réno-Dépôt to Groupe Castorama of France, which is in turn controlled by the British hardware conglomerate Kingfisher PLC. Home Depot’s Laval store, Verschuren says, has been hugely successful, racking up Kitchen: he turned up 17,000 sales in its first four days of operation and attracting 5,000 contractors to an openingweek reception. “It’s been like a runaway horse,” she says. “It’s just so exciting.”

But Home Depot’s foray into Quebec has brought its former corporate sibling charging into Ontario. Réno-Dépôt, which traces its roots back to 1933 and a single Montreal building supply business that stood on the site of its current head office, now operates 11 warehouse-style stores in Quebec, all but two in the Montreal area. The company will open Building Box outlets in Toronto and Cambridge this fall, and in Brampton and Mississauga at year’s end. It also has

national ambitions, and will

É Price and selection likely target the West first.

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are not enou§n, says with the big-box formula of

D > Dl* 1 *. J selection, price and service

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offering consumers nearly as

for service and advice. much choice as a specialty

store. Sylvain Toutant, vicepresident of marketing and development, says the company is well known in Quebec for its huge selection of Christmas decorating goods, and uses them to create spectacular in-store displays. Réno-Dépôt’s corporate connection to Castorama and Kingfisher—two of Europe’s biggest hardware and homeimprovement companies—provides access to a Europeanbased buying group that scans the globe for merchandise. “Everybody’s talking about selection,” says Toutant, “but it’s a big umbrella, and how you use selection defines your strategy. ” Réno-Dépôt is the second Quebec-based home-improvement chain to invade Ontario. Rona Inc., founded in 1939 by hardware merchants Rolland Dansereau and Napoleon Piotte, who created the company name using the first two letters of their given names, controls about 35 per cent of the Quebec home-improvement market through a network of 380 mosdy small to medium-sized oudets, including 21 bigboxes. The company launched its Ontario expansion by

opening a 145,000-square-foot warehouse-style store in the Ottawa suburb of Nepean in 1998 and last March paid $50 million for 61 Cashway Building Centres. It will open its first Toronto-area big-box in March, 2001, and will erect another five in southern Ontario next year.

Rona president Richard Blickstead says the company has introduced enough innovations to stand out in a crowded market. Each store has a drive-through lumberyard, which allows customers to place an order, pick up their goods and pay for them without leaving the vehicle. Rona also has in-store horticulturists plus landscape and interior designers to advise homeowners who are planning projects, inside or outside. “Price and selection are not enough,” says Blickstead. “Customers are looking for service and advice.”

The Quebec companies are coming into southern Ontario behind Revy, which is based in Western Canada, where it operates 35 mid-sized stores, ranging from 10,000 to 50,000 square feet, and 10 big-box oudets. Revy came east in May, 1998, by acquiring Lansing Buildall, a nine-store Torontoarea chain. Kitchen, whose late father, William, founded Lansing in 1951, convinced the new owner to keep the Lansing name because of its customer recognition (“You’d think a family named Kitchen would know a thing or two about renovations,” chirp its radio ads). He has opened four Revy warehouses in the Toronto area and acquired property for another four big-box outlets in southern Ontario.

Kitchen is taking an in-your-face approach to Home Depot, whom he refers to in conversation as “the competition.” His series of nationalistic newspaper ads included one with an image of a cow, a headline saying, “They’re milking us again,” and small type explaining that Home Depot’s Canadian profits inevitably flow south to head office in Atlanta. He also made the decision to open Revy big-boxes across the street from established Home Depots. “We intend to go after as big a share of the market as we can,” says Kitchen. “We’re not obnoxious enough to think we’re going to knock out Home Depot. But we dream about it.”

The big-boxes have put many smaller, independent

competitors out of business, experts say, but they have not driven all of them out. Far from it, in fact. Flome Hardware Stores Ltd., based in the village of St. Jacobs, 100 km west of Toronto, where it was founded in 1964, is now the largest chain in this sector of the retail industry with almost 1,100 outlets and sales last year of $2.9 billion (including Markham, Ont.-based Beaver Lumber, which it acquired in 1999), compared with Home Depot’s $2.3 billion. Chief executive officer Paul Straus says the company was created by a group of 126 independent merchants who felt threatened by an influx of larger competitors like Kmart, Towers and Woolco, names that have since disappeared from Canadian retailing. Home Hardware has flourished, Straus says, because its dealers own their stores, which range in size from 1,200 to 40,000 square feet, and maintain close contact with customers. “No one knows the market better than people working in the community every day,” he argues.

Home Hardware plans to stick with small and medium-sized stores, says Straus, and most retail analysts would agree with that strategy. The field of giants, they say, is already too crowded, and casualties are inevitable. Home Depot has had a big head start in the race to build a national chain, while Réno-Dépôt’s corporate parents have the financial resources—combined annual sales of about $23 billion—to withstand a war of attrition, or to purchase a competitor. Outside observers say Revy and Roña are most vulnerable—the former because it is a subsidiary of Vancouver-based West Fraser Timber Co. Ltd. and could be sold off, the latter because it is really a chain of smaller traditional hardware stores that has moved into warehouse-style outlets. “We’re going to have an all-out war,” says consultant Talbot. “But it’s going to end with two national brands.” For now at least, consumers can expect very competitive pricing in the grand cathedrals of home improvement. ES]