Home Hardware isn’t worried about big-box U.S. competitors.
HOME HARDWARE CEO UNFAZED BY CONSOLIDATION AMONG DIY GIANTS
If you want to get a chuckle out of Home Hardware chief executive Terry Davis, ask him why the company has kept its headquarters in St. Jacobs, Ont.
Each year, thousands of visitors flock to the village along the Conestogo River, a 15- minute drive from Kitchener-Waterloo, to attend the country’s largest year-round farmer’s market.
Across the street, a towering new Home Hardware store sprouted last year and a short distance away, in the heart of Mennonite country, is a 1.5- million- square- foot distribution centre, along with a mock showroom and Davis’s own office.
It’s a testament to Home Hardware Stores Ltd.’s rural roots, with its stores a fixture along main streets in small communities such as St. Jacobs.
Davis becomes serious when the discussion turns to the competition. He isn’t intimidated by the machinations of Home Depot Inc. or Lowe’s Cos Inc., which recently closed a deal to buy Quebec’s Rona Inc. The U. S. giants, with substantially more money, have been building anchor stores in suburban plazas, as they seek to dislodge Home Hardware from the minds of amateur and professional handymen.
But Davis doesn’t believe his militia of dealers needs to open supercentres to keep up. Prime urban real estate doesn’t support a low margin industry like home improvement, he said.
Home Hardware has an 80,000-square-foot building centre in Gananoque, Ont., but many stores are less than 10,000 sq. ft.
Nor is Davis about to change Home Hardware’s unique corporate structure to match its competitors. “The only investors we have in this company are the dealers that we serve,” said Davis, who has been with the company since 1970 and, in the top job since May 2014, is only the third CEO in the company’s history.
Even though Home Hardware markets itself as a cooperative and behaves like one, it is legally a “privatelyowned wholesale company,” with each dealer acting as a shareholder with an equally weighted vote. Each store retains its profits, and at the headquarters Davis and his team diligently try to cut costs to keep them happy.
“When you have that total control of a company, it is going to do what you want it to do,” he said. “You are running things.”
Davis believes the Lowe’s purchase of Rona worked in Home Hardware’s favour, due to Lowe’s strategy of putting stores on the territory of existing Rona dealers. On average, two stores open under the Home Hardware banner every month, the majority of which are absorbed from competitor defectors.
“If they don’t like who they’re with, it makes sense for them to move to another company,” Davis said, adding most independent owners go into business because they like to be in control.
“You are going to have a culture clash when the majority of the company you belong to is owned by somebody with a corporation mindset where the control comes from far away, not your office at the back of the store.”
Now might be an advantageous time to prey on Rona, according to Morningstar retail analyst Jaime Katz. She said Lowe’s has its hands full integrating Rona, and the brand is going through a turnaround as it tries to recover its profit margins.
As it stands, all the major home improvement players in Canada are in a tight race for the lead in market share. Home Depot is ahead of the pack, with a 15 per cent share, according to industry newsletter Headlines. Next is Lowe’s with 13 per cent, Home Hardware with 12 per cent and Canadian Tire Corp. retail (sales only of hardware and home improvement products only) at 11.5 per cent.
And in terms of revenue, Home Hardware’s store network keeps within reach of the competition, recording nearly $6 billion in sales last year.
Canadian Tire’s 498 stores under the namesake banner reported $ 6.4 billion in revenue last year (it now has 501 stores), and that figure includes products beyond the industry category. Lowe’s Canada has 541 corporate and dealer- owned stores with combined revenue of around $ 6 million. Home Depot Canada has 182 stores in the country, but it does not disclose its geographical revenue breakdown.
‘ YOU ARE GOING TO HAVE A CULTURE CLASH.