TORONTO - The Canadian home improvement industry is lining itself up for some major renovations as American giant Lowe's throws open the doors to its first Canadian stores on Monday.
For shoppers, that could mean lower prices and better service from other big box hardware retailers such as Home Depot as each grapples for market attention.
Some analysts suggest the battle will take a huge chunk of the market away from smaller independents while Rona Inc. (TSX:RON), the largest Canadian competitor, could be acquired amidst the scramble.
"The titans are already battling it out and certainly we're seeing the independent market share being eroded,'' said Wendy Evans, head of retail consultancy Evans and Co. Consultants Inc.
"I still think we can predict some reasonable growth in this industry.''
According to Statistics Canada, September sales were relatively stable for home centres and hardware stores, up about 0.1 per cent.
In the third quarter of 2007, sales were up 1.7 per cent overall in the building materials and outdoor home supplies stores sector, continuing a trend of sales growth that hasn't let up since the first quarter of 2004.
Lowe's has been working away at a strategy to enter Canada for more than two years, carefully plotting its approach in the face of limited prime real estate and a rising Canadian dollar.
"It's a totally different scenario against what we've seen south,'' said Lowe's Canada president Don Stallings of the slumping U.S. market.
He labelled Canadian homeowners as "stable'' and "credit worthy'' in comparison.
"They're spending additional money to improve the home that they've already been living in,'' he said.
Lowe's arrival comes as shoppers push for lower prices as the loonie mingles around the point of parity with the U.S. dollar. The company has responded by launching a campaign which promises that 40 per cent of the products will be at or below its U.S. price tag.
Lowe's has also latched onto some of the weaknesses of its competitors, especially No. 1 renovation retailer Home Depot, by focusing on customer service and shorter line-ups.
A television commercial airing in local markets shows a blonde cashier practising the company's policy which says that every time a line up is longer than three customers (a standard faux-pas in the retail industry), another cashier will open up a new till.
Home Depot Canada appears to have heard that message of better service loud and clear from its customers, according to division president Annette Verschuren.
"The difference between a Canadian customer and an American customer (is that) an American would get up and just scream at you, but then come back the next day,'' Verschuren said, recalling the words of her friend, home improvement television guru Lynette Jennings.
"A Canadian customer doesn't scream -- they just quietly walk out of your store and never come back _ but tell 50 people.''
Home Depot Canada is reworking several of its stores to include a new concept that encourages heightened employee-customer interactivity, more products on display and an open concept that makes finding items easier.
"In our business a lot of it is service and product knowledge,'' said Verschuren.
She said that she doesn't forsee Home Depot engaging in any price wars with Loew's because it intends to focus on better service.
"We see price as an important factor, but it's more than price -- it's the overall value to the customer.''
In between the two American competitors is Rona, the Quebec-based No. 2 retailer, which analysts say could either benefit from the new competitor or be swept up as part of an expansion plan.
"In a way, Lowe's entry into Canada is actually positive for Rona given their strategy is to recruit dealers and to make acquisitions,'' said Kathleen Wong, a retail analyst at CIBC World Markets.
"Many of these independent dealers have been approaching Rona'' because they're "very scared of having to compete with big box retailers.''
Firm figures are hard to come by, but industry estimates suggest that about 47 per cent of the Canadian home improvement market is dominated by the independents: smaller, often family owned locations. That's down about five per cent over the past five years.
The shrinking market share could prove lucrative to the big players as independent owners near retirement and look to sell their business.
While Rona has 77 big box stores across the country it also has its hand in 600 other franchise and affiliate locations or varying sizes.
The franchise agreement helps Rona build up its brand name and in turn gives independent stores the familiarity of a corporate label. It also boosts Rona's purchasing power by requiring franchisees to buy through its eight distribution centres across the country.
But the distribution centres that give Rona strength could wind up being a key reason that Lowe's could eventually make an offer to buy the company, Wong said.
"If Lowe's wants to keep growing in Canada eventually they'd have to build distribution centres,'' she said, noting that it's how the company operates in the United States.
She added that Lowe's biggest hurdle would be deciding what to do with the 600 franchise locations.
Rona's president and chief executive dismissed suggestions that Lowe's arrival could shake-up its market position.
"If we can compete with Home Depot. then we can compete with Lowe's. I'm not very anxious about that,'' said Robert Dutton in a phone interview.
"We will continue to grow with acquisition. We are probably the only one with the financial facilities to do an important acquisition.''
In the short term, Lowe's presence isn't particularly threatening because it's only opening three stores -- in Hamilton, Brantford and Brampton -- but the company is hoping to boost that count to 100 stores in the next few years. Another four locations open in January.
"What we're doing is being very methodical, trying to make sure we've got the right products,'' Stallings said.
"As we acquire these sites some of them are going to be several years before we get open because of all the development that has to take place.''
