USA update
Home Depot is expanding its store network
Home Depot is building new stores again at a slower rate
Home Depot is building new stores again at a slower rate
 
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Ace Hardware reports Q1 results and small tool company wins case against Sears
HNN Sources
Home Depot is opening new bricks-and-mortar stores; Lowe's is buying two companies that serve owners and managers of rental properties; Ace said Q1 same store sales fell; Reliance Worldwide is buying Holdrite to build a strong foundation in the North American new construction market; LoggerHead Tools has a legal win against Sears; and the National Hardware Show in Las Vegas has just ended for another year.
Home Depot building stores again - slowly

Big box retailer Home Depot is adding six stores this year, resuming modest expansion as it continues to outpace the troubled US retail sector. "We haven't opened a US store since 2013," chief financial officer Carol Tome told the Atlanta Journal Constitution (AJC).

Three of the new stores are in the US - locations in Florida and Texas are already open, while another is planned in Louisiana.

Ms Tome spoke with the AJC after Home Depot reported that sales rose 4.5% to USD23.9% in the company's first quarter.

The company virtually froze expansion during the housing crash and recession, trimming costs and avoiding the kind of over-reach and painful retreat suffered by many retailers.

Now, Home Depot still won't build and open a new store unless number-crunching warrants the investment, Ms Tome said.

In assessing sites, the company looks at data including the number of households in the area, the average spending of those households and the presence - or absence - of competitors like Lowe's, Ms Tome said.
There's a lot of math [involved].

But the math says there are still areas where Home Depot sees a "void", a spot where an extension of the big box brand would do well. Ms Tome said:
There aren't many of those voids, but there are a few.

Despite adding only a handful of stores, Home Depot has steadily grown revenue for the past several years.

Home Depot recently reported that its sales per square foot of store space had climbed 4.6% from a year ago. Yet by that measure Home Depot is still well below its most efficient year of 1999, Ms Tome said.
I want to get back to that peak. We have to just continue to do what we do.

Company officials said they expect to end 2017 with sales about 4.6% higher than last year.
Lowe's buys maintenance company

Lowe's Home Improvement said it has agreed to buy two companies that sell products to apartment building managers and owners, in moves aimed at diversifying its business beyond DIY homeowners.

The retailer said it would pay USD512 million for Maintenance Supply Headquarters, which sells appliances, flooring, lighting and other supplies primarily to apartment complexes.

Lowe's said that in November it bought Central Wholesalers, an apartment supplier.

The two firms primarily serve owners and managers of rental properties and other multifamily buildings.

Lowe's has been working to make itself a go-to source for professional customers, such as contractors, who regularly place bigger orders than the average customer. Pros make up a relatively small portion of Lowe's shopper base, but the company has said the pro business is growing faster than the DIY home improvement market.

The surge of apartment building development all over the US presents a particularly large opportunity for the company's pro customer business. Richard Maltsbarger, Lowe's chief development officer and president of international, told the Charlotte Observer:
With the growth of multifamily (construction) that has occurred over the last decade, as well as what will occur going forward, it gives us a great chance to access the more than 30% of Americans who rent their place of residence.
First quarter results

Lowe's recently reported that net sales increased 10.7% to USD16.9 billion in the first quarter compared with the previous corresponding period (pcp). However, that figure fell short of analyst expectations of USD19.5 billion, according to Thomson Reuters data.

Comparable sales increased company-wide by 1.9% and by 2% in the US. It had Q1 earnings of USD602 million, compared to net earnings of USD884 million in the pcp. Robert Niblock, Lowe's chairman, president and CEO, said in a statement:
A solid macroeconomic backdrop, combined with our project expertise, drove above average performance in indoor projects. We also continued to advance our sales to pro customers, delivering another quarter of comparable sales growth well above the company average.
Ace same store sales dip in Q1

Ace Hardware reported an increase in net income and a dip in comparable store sales during the first quarter. In this quarter, the retail co-operative posted net income of USD28.3 million versus USD26.1 million in the period a year prior. This represents an increase of USD2.2 million or 8.4%.

The company noted that comparable store sales reported by the approximately 3,000 Ace retailers who share daily retail sales data decreased by 0.2% versus the same period a year before. The company stated the slight decline resulted from lower customer traffic.

Retail revenues from Ace Retail Holdings (ie. corporate-owned stores) were USD52million in the first quarter of 2017. This was an increase of USD1.4 million, or 2.8%, from the first quarter of 2016. The increase was the result of new retail stores that have been added from the previous corresponding period (pcp).

Within these stores, same store sales decreased 3% compared to the first quarter of 2016.

Overall revenues were USD1.24 billion, an increase of $1.4 million or up 0.1% from the pcp.

Wholesale revenue was flat with the year earlier at USD1.19 billion while retail revenue increased to USD52 million from USD50.6 million. Operating income was USD31.2 million versus USD28.8 million in the period a year previous.

Ace added 16 new domestic stores in first quarter of 2017 and cancelled 21 stores. This brought the company's total domestic store count to 4,358 at the end of the first quarter of 2017, an increase of 56 stores from the first quarter of 2016.

On an international level, Ace added 30 stores in the first quarter of 2017 and cancelled 21, bringing the worldwide store count to 5,003 at the end of the first quarter of 2017.

John Venhuizen, Ace president and CEO, said:
I'm delighted to report an 8.4% increase in net income, a double digit jump in accrued patronage dividends for our owners and surpassing a global store count of 5,000 stores in the quarter. While revenue improved, our increase fell short of our expectations. And despite the obvious temptation, I'll resist pinning the blame on the less than favourable weather.
Reliance is acquiring Holdrite

Reliance Worldwide Corp (RWC) has diversified its business with an acquisition that exposes it to the North American new construction market. The company will purchase Securus, trading as Holdrite, for USD92.5 million. The deal will be funded by debt and completion is expected by end of June.

Holdrite has generated over 20% revenue growth in the past three years and remains a market leader in many of its product categories. The acquisition also offers additional R&D and innovation capability.

The transaction provides the existing Reliance business with a strong foundation in the North American new construction market and the means to grow sales of EvoPex and SharkBite 2XL. Conversely, the company's experience in retail distribution should support future growth for Holdrite products through this channel.

Holdrite provides engineered products and services such as water heater accessories, fittings restraints, fire stop systems, secondary pipe support and acoustic isolation to plumbers and contractors.

Over 98% of the product sales are in the US and Canada, largely through wholesale distributors. Holdrite has a manufacturing facility in Tennessee and distribution centres in Tennessee and Nevada.

Holdrite currently generates a small portion of sales through The Home Depot and Lowe's and there may be scope for Reliance to expand its presence with both retailers.

Related:
Supplier update: Lowe's stocking Reliance products - HNN
Supplier update: Billion dollar market cap - HNN
Jury rules for small tool maker

Almost five years after suing Sears Holdings for knocking off its wrench invention, a company based in the Chicago suburbs has prevailed. A jury in a US District Court in Chicago has ruled that Sears and tool supplier Apex Tools willfully infringed on the patents of LoggerHead Tools, awarding it USD6 million in damages.

Dan Brown Sr. and his son, Dan Jr., run LoggerHead together. The company's main product is the Bionic Wrench, which the elder Mr Brown invented after watching his then-teenager struggle to loosen nuts on a lawnmower with pliers.

The creation, which adjusts like pliers but grips like a wrench, was an immediate hit when it debuted in 2005. The Bionic Wrench sold almost 10,000 units during the opening minutes of its debut on QVC, the home shopping network, and flew off shelves at Sears and Ace Hardware. The product was also honoured by the Chicago Innovation Awards in 2006. Its success did not go unnoticed.

In 2012, a LoggerHead customer approached Dan Sr. and mentioned that he'd seen a Bionic Wrench at Sears - but instead of the tool's trademark green packaging and accents, this one had a red-and-black motif affiliated with Sears' Craftsman brand. Was LoggerHead now making private-label wrenches for Craftsman, the customer asked? It was not.

The real Bionic Wrench, which is manufactured in the US, costs USD24.99. The knockoff, called the MaxAxess was made in China by Apex, and cost USD11.99 at Sears.

In addition to violating Dan Sr.'s patent, the MaxAxess also threatened LoggerHead's business model. Dan Brown Jr told Chicago Business:
We only sell patented products. Because they're patented, we think we can get a value-added price, which allows us to pay more to manufacture in the US.

There was no way LoggerHead could stay in business by halving its price.

Of course, suing not one but two corporate behemoths is a daunting task for a small business. Sears booked USD22.1 billion in sales in 2016. Apex was purchased by Bain Capital in 2013 for an estimated USD1.6 billion.

LoggerHead, which has sold about two million wrenches since 2005, isn't quite in the same league. Dan Jr. said:
We knew we had strong intellectual property, but we also knew this was going to be a David vs. Goliath battle and that getting to a jury trial would be difficult.

The Browns spent a lot on five years of legal costs, according to Dan Jr. In the end, though, he said both he and his father are thrilled with the result.

Sears noted that the court previously dismissed Loggerhead's fraud claims and that the retailer was defended and indemnified by Apex on the patent claim. Nonetheless, the company said in a statement that it was "disappointed in the jury's finding".
Suing and being sued

Sears is also suing a major tool vendor that it says refused to honour its contract with the retailer. The lawsuit follows on from the threats that Sears CEO Eddie Lampert made in a blog post recently.

Mr Lampert said One World Technologies was trying to "embarrass" Sears and "take unfair advantage" of the retailer by changing the terms of its supplier agreement or threatening to cancel its contract with Sears altogether.

One World Technologies is a subsidiary of China-based Techtronic Industries that manufactures power tools and other products under the Craftsman brand.

The lawsuit claims that the tool vendor threatened to cancel its contract with Sears because of concerns about the retailer's financial stability unless Sears agreed to cut back its orders, the Chicago Tribune reported.

Sears says it has always paid its suppliers on time and claims One World Technologies is trying to take advantage of negative rumours and media reports about Sears' viability to change the terms of its contract.

Mr Lampert said One World planned to file a lawsuit against Sears "as they seek to embarrass us in the media to force us to let them out of their contract. But Sears has nothing to be embarrassed about - we have lived up to our word under our contract, and we will take the appropriate legal action to protect our rights and ensure that One World honours their contract."

Mr Lampert said Sears had helped One World "build a formidable presence in the tool industry" over their nine-year relationship. He said Sears had paid the company more than USD868 million since 2007.
2017 National Hardware Show

Organisers of the National Hardware Show in Las Vegas, Nevada (USA) said that over 30,000 industry professionals, including more than 2,600 exhibitors, attended this year's event.

New Product Launch and Inventors Spotlight were once again popular areas to find up-and-coming products. One product that attracted attention was the Snapatite, a plastic multi-use utensil that includes a spoon, fork, knife and bottle opener.

First-time exhibitor, Monkey Rung is a ladder accessory tool that can connect on just about any type of ladder.

The NRHA Village Stage stayed busy with a number of speakers that discussed a variety of topics. The keynote speaker on the first day was Dr Kit Yarrow, with "Decoding the New Consumer Mind". Her presentation is based on a book of the same name, which discusses how consumers have changed their shopping habits over the years. Dr Yarrow said:
The No. 1 thing customers say they want is omnichannel retailing. Customers say they prefer to go to a store, but it's just so complicated to get there. Bring technology into the store to help customers understand what they are about to buy.

The second day's keynote speaker was retail expert Mary Walter with "Your Remarkable Service Advantage". She spoke about how independent retailers can set themselves apart through personalised customer service. Ms Walter said:
Protect yourself by exploiting your local knowledge. Make things easy for customers. Provide easy checkouts and fast returns, and make it easy for customers to find things in your store. Make sure to provide that human connection-you win in this area, and you have an advantage no one can touch.

Caribou Jack's Trading Co. in Soda Springs, Idaho, was announced as the winner of the Reimagine Retail program, which is sponsored by the National Hardware Show. It will give owner Robert Lau and his staff USD100,000 to build an in-store cafe, where they can host in-store BBQs and cooking events, and provide a space for locals to use at no charge.

The North American Retail Hardware Association (NRHA) recognised its Young Retailer of the Year honourees the night before the show opened. These innovative retailers are 35 years old and younger and are helping grow their businesses, continuing their hardware education and contributing to their local communities.
HNN Sources


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