Hardware Retailing

DEC 2017

Hardware Retailing magazine is the pre-eminent how-to management magazine for small business owners and managers in the home improvement retailing industry.

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HARDWARE RETAILING | December 2017 42 C anada's retail home improvement market grew at a modest but healthy pace in 2016, up 2.9 percent from the year before. Conditions helping this growth included Canada's red hot housing market, low interest rates and aging housing stock—all factors driving renovation sales. And that modest growth has maintained itself in 2017 and is forecast to continue in 2018. Varying economic conditions, not to mention weather, impacted Canadian retailers through last year, while 2017 has proven to be steady, if not exceptional, for most regions. A few exceptions persist: The Greater Toronto Area of Southwestern Ontario has seen healthy growth over the past two years, and despite changes last summer to real estate laws in British Columbia, that province's Lower Mainland around Vancouver also remains strong. As a result, the industry is forecast to grow by a slightly higher rate in 2017 of 3.5 percent. Big-Box Format Makes Big Gains Big boxes enjoyed the greatest sales growth of all the retail formats, thanks both to strong incremental gains by Home Depot Canada and to new stores built by Lowe's Canada in 2016. While Lowe's has built some new stores in 2017, the focus has been on converting some of its RONA Home and Garden big boxes to the Lowe's banner. In fact, the market share of these big-box retailers is now at a record high, accounting for more than one-quarter of all retail home improvement sales. Industry Consolidation Continues Along with Home Depot Canada and Lowe's Canada, Home Hardware Stores Ltd. and Canadian Tire Retail make up well over half of all sales by hardware stores and building supply retailers in Canada. These "Top Four" retailers collectively grew their sales at a rate almost double the industry average last year, driving more consolidation at the top and ensuring that the big players in this industry continued to get bigger in 2016. However, the majority of Canada's home improvement retailers are members of a lumber and building materials (LBM) buying group, offering an effective way for smaller businesses to pool their purchasing power into larger volumes. While affiliation with buying groups helps independent retailers stay competitive, the groups nevertheless faced tough market conditions in 2016. Much of that came in the form of competition from the industry's top retail chains, such as Home Depot Canada and Lowe's Canada. In terms of sales volume, the largest group in Canada is represented by the building center retailers within Home Hardware. Collectively, sales by LBM retailers in Home Hardware exceed $4 billion. That group is followed closely by Independent Lumber Dealers Co-operative, with collective retail sales by its members of $3.8 billion. TIMBER MART and Castle follow, with estimated sales of $2.8 billion and $2 billion respectively. The other noteworthy groups in Canada are Sexton Group, Delroc Industries and Quebec-based Groupe BMR and Pilon Ltée. Challenges to Retailers The list of issues shared by retailers across the country is topped by the insurgence of internet sales. Retailers are looking for ways to create an experience in their stores that ensures they remain a destination for their local markets. Some are doing this through increased customer service and better product knowledge, niches within the store that are carefully tailored to local needs and a strong involvement in community events and fundraising. Finding—and keeping—good employees also looms large as a challenge everywhere. The sense by many young people that retail is a job and not a career choice makes staffing a big concern for many. And competition from other fields is just part of the problem. In many instances, retailers will look to their competitors to poach good people. Finally, creating growth in a relatively stable marketplace puts the onus on retailers to look for ways to steal market share. These conditions are expected to persist into 2018. Canadian Retail Repor t Canadian Retailers Face Challenges, Opportunities Provided by Michael McLarney, Editor-in-Chief, Hardlines Inc.

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