World powers seminar

World powers seminar

Bob Vereen, Hardware Journal’s US correspondent

Leading retailers from around the world discussed their future plans at the World Powers Forum 2002, organised by AHMA at the National Hardware Show® in Chicago.

As part of its educational program at the Chicago Hardware Show, the American Hardware Manufacturers Association (AHMA) conducted an internationally-focused forum to exchange ideas on how participating and competing successfully in today’s global hardware/home improvement industry can be achieved.

The forum also discussed current trends in manufacturing, distribution and retailing, as well as the required “know-how” and the skills needed. It included a panel of industry executives from around the world, discussing their views and perceptions on doing business globally led by John Herbert, managing director of the pan-European home center association, BHB and Pierre Charron, vice president in charge of hardware purchasing from Rona (Canada).

Herbert should be well-known to Hardware Journal readers from his appearance at a national Mitre 10 conference a few years ago and he was profiled in the April 2002 issue. Most recently in his career, he managed the upscale Knauber chain in Germany, retired from there and for a year headed Home Depot’s EXPO Design division. Not wishing to move to Atlanta, he returned to Germany where he became head of BHB, which has expanded from its German origins to include retailers from other European countries.

International retailing
According to Herbert, significant challenges face the world’s retailing giants, and unless they cope with these changes, the consequences can be harmful. He pointed out that although European chains are sizeable in their own countries, Lowes’ sales alone exceed those of the top 10 European chains collectively, and Depot’s sales overwhelmingly dominate most of the world chains collectively.

“If companies are to grow,” Herbert explains, “they must do more to educate the consumer.” Efforts are being made by most good chains, but those efforts must be expanded and made more productive, he adds.

He also warns that in mature markets, retailers must roll out new store concepts to grow – and noted that Depot is taking the lead with its urban store format, pro stores for contractors and newly announced garden shop experimental units. Its Expo Design division is its most widely publicised alternate format. Other chains around the world are beginning such experimentation.

Herbert believes there are three regions of the world where there is still room for original-concept expansion Ñ Asia, South America and Eastern/Central Europe. European chains are far ahead of US chains in their international expansion efforts, and have learned that they must tailor stores to local markets – in format, product selection, and service levels. This is a lesson Home Depot learned too late and the reason why it pulled out of both Chile and Argentina when its US-style stores did not meet with customer acceptance. He says German retailer OBI, now operating in nine countries, is a perfect example of tailoring stores and formats to individual differences.

Industry consolidation is another threat facing retailers, a trend which also will have major impact on vendors. Herbert expects to see a major reduction in the number of German chains within the next five years, and ultimately expects there to be only 3-4 major players throughout Europe. Looking into the future, he prophecised that the merger of B&Q and Castorama, owned by Kingfisher, is just the first of many such amalgamations.

Despite the impact of such consolidations, he still sees a strong role for “local champions,” smaller firms which are better able to adapt to the product and customer-preferences of local markets, citing Knauber, the chain for which he used to work, as a classic example of being able to compete by differentiating itself from the larger chains.

Country reports
Shen Yong Lin of Home Mart China, whose parent company operates department stores, supermarkets and shopping malls in addition to its home centers, is planning an aggressive expansion, despite the competition from B&Q and OBI, both of whom also recently announced major expansions.

With nine stores in Shanghai at the moment, Home Mart is planning another 40. Lin says one essential element in serving the Chinese market is to provide consumers with DIY education. As a result classes and clinics are a mainstay in Home Mart stores.

In Ireland, Woodies, a subsidiary of the Grafton Group, operates 14 stores whose sakes average about nine million Euros each. Stores are approximately 40,000 sq. ft. in size, including garden centers. Decorative items account for 29% of sales, gardening, 27%, and DIY, 22%.

These stores carry up to 30,000 SKUs and are catering to a young market – 61% of Irish residents are under 39 years of age. Woodies’ own private brands are becoming increasingly important. To reach consumers, the company publishes two consumer magazines, which reach more than 50% of all households. The company believes it can double in size to approximately 25 units.

Pierre Charron, vice president of hardware purchasing for Rona of Canada, is bringing supermarket experience to this diversified retailing/distribution business. Serving 540 stores, it generates $2.3 billion in sales. The retail stores account for more than $3 billion in sales. Rona stores enjoy 13% marketshare. One hundred and thirty of its 540 stores are corporately owned.

It goes to market in numerous ways. Some Rona stores are big-boxes; others are as small as 2,000 sq. ft. showrooms. Charron emphasises that in Canada, 75% of the marketplace is not sold through the big boxes, a fact vendors sometimes forget. Rona’s 13% marketshare is followed by Depot and Home hardware, each with 12%. Reno-Depot has 3% marketshare. “We have several goals,” says Charron. “One is to do $5 billion in three years; the other to build our market share to 18%.”

Simo Manner, executive vice president of RautaKesko, the Finnish giant doing 6.2 billion Euros overall, says his company is heavily into food, agriculture and machinery sales, in addition to its DIY venture, which owns a 37% marketshare. The firm operates as K-Rauta in Sweden, Finland and Latvia with stores stocking 20-30,000 SKUs. Stores do 716 million Euros in sales. It has a total of 45 K-Rauta stores and 100 smaller Rautia stores.

With 10 stores now in Sweden, it plans to add another 15. It expects to grow its three stores in Estonia to five, and its one store in Latvia to 10 ultimately. In Lithuania, it recently purchased 51% of a chain of five stores, which also serves 50+ franchised units. In all these markets, it also serves independent retailers to varying degrees.

Service Lagging At Home Depot?
Poor customer service is getting to be a problem at Home Depot. The decline in service is even causing CEO Bob Nardelli to address the problem publicly as well as internally. He discussed the problem recently at an investment analysts’ meeting. John Herbert, the home centre executive who worked for Depot’s Expo Design western division for a year, said recently he worried that Depot’s “marvelous culture” might be at risk under current conditions, and he appears to be right.

Nardelli lays the blame to the stock’s price decline, since many employees are stockholders because of a generous stock option program. Their stock ownership helped create the Depot “culture” because ever-rising stock prices created happy employees. With Depot’s stock price down some 35%, employees have seen their holdings shrink in value. The company also has been changing many of its ways under the former GE executive’s management:


  • Departure of many long time executives (many now very wealthy)
  • Consolidation of buying from regions into Atlanta
  • More centralised control in other activities and less autonomy
  • Industry attention shifting from Depot to competitor Lowes
  • Changes in long time operational methods
  • It’s also reported that the company is using more part-time employees now and not as many tradesmen who knew product and could offer sound advice.Just how bad is the problem? For a period this summer, the Atlanta Better Business Bureau suspended Depot from membership because it failed to respond promptly and properly to hundreds of consumer complaints. The company since has improved its response time, the Bureau acknowledges.

    Depot says it is boosting employee training, restocking stores at night in order to improve customer service, and taking other measures. Nardellli installed the night time stocking concept to make the stores safer as well as to improve customer service, but the concept obviously hasnÕt improved service, as complaints continue.