The Retail Report

By Christine Esposito | August 9, 2005

From mom 'n' pop corner shops and hardware stores to mass merchandisers and mega home-improvement centers, the retail scene is the first impression a paint manufacturer makes on the end consumer. In the U.S., as more DIY consumers flock to the

For many years, when a U.S. consumer needed to buy paint, he took a short trip into town, parked on Main Street and walked into the local independent paint dealer or hardware shop. But in recent years, mom 'n' pop-type shops have seen many of their DIY customers flock to home improvement mega centers, which are also known as "big boxes." In 1987, U.S. paint, glass and wallpaper stores accounted for 44.2% of retail paint sales, while lumber and building materials outlets accounted for 25.3%, according to Business Trend Analysts, a Commack, NY market research company. By 1997, lumber and building material stores had increased their share to 35.3% while paint stores sales dropped to 40.3%. Hardware stores' and general merchandisers' shares of the market place dropped from 14.8% and 13.4% in 1987 to 12.1% and 9.9% in 1997, respectively.

Many manufacturers acknowledged that some of their DIY customers have been shopping at Home Depot, and other big boxes. However, most contend that their sales are not suffering.

While that may be the case, the surge in home improvement superstores in the U.S. has put a dent in the number of small-sized paint retailers. According to Business Trend Analysts, the number of retail paint, glass and wallpaper shops has been on the decline since 1988 (see Closing Up Shop, below).


Big Boxes Expand Their Territory
According to many paint manufacturers Coatings World spoke with, in markets such as Asia, the Middle East and South America, specialty paint shops control the marketplace. However, as was the case in the U.S. over the past few years, big boxes are beginning to bully their way into these markets. Many of the top mega retailers, including Home Depot and B&Q, are expanding their reach by opening up new stores in new markets.

Last summer, Home Depot announced plans to build nine superstores in Puerto Rico. Six will be built in the greater San Juan area, according to the $24.2 billion retailer.

Now, the company has extended its reach outside North America. In August, the first Home Depot in South America opened in Santiago, Chile. To help ease its way into the Chilean market, Home Depot formed a joint venture agreement with S.A.C.I. Falabella, the largest department store retailer in the country. The accord "is proving to be beneficial in existing start-up in areas such as systems, logistics, real estate and credit programs," according to a Home Depot spokesperson.

At the opening of the shop in Santiago, Home Depot also announced plans to build a second store in Chile. Additionally, Home Depot plans to open a trio of stores in the region later this year. The first will be in Buenos Aires, Argentina.

Although the company is quite active south of the U.S. border, Home Depot is not on siesta in other regions. Its Canadian arm, Home Depot Canada, will open 12 new stores this year; the first of which will be located in Kanata. Others will follow in Ottawa, Calgary, Richmond Hill, Brampton and Etobicoke. This baker's dozen will bring the number of Home Depots in Canada to 54. The company has lofty goals-with just over 620 stores on its roster at the end of fiscal 1997, Home Depot expects to have 1,300 stores open by the end of fiscal 2001.

Second in the home improvement market in the U.S. market is Lowe's, which is based in North Wilkesboro, NC. The company's 1997 sales were $10.1 billion-less than half of Home Depot's. But Lowe's is still a regional retailer. Of Lowe's 449 stores, none are farther west than Lubbock, TX. However, the company will soon expand its territory to the western U.S. Lowe's will invest $1.5 billion to build more than 100 new stores in the western region U.S. over the next three to four years. The first stores will open later this year in Los Angeles and San Diego, CA, Phoenix and Tucson, AZ, and Las Vegas, NV.

Like its roster of shops, Lowe's paint sales have been growing steadily, too. Between 1992 and 1997, the compounded growth rate (CGR) of paint and sundries (+32%) at Lowe's topped the retailer's total sales CGR (+21%). Paint and sundries sales rose from $493 million in 1995 to $791 million in 1997, and now represents eight percent of the company's total sales.


High Road to China
Not all of the big news from the big boxes come from U.S.-based retailers. Two large companies in Europe are planning to test their formulas in the Chinese market. Obi, a German retailing company, is planning to open a home center in Shanghai this quarter. U.K. conglomerate Kingfisher plc also plans to open shop in China. The company, which owns Britain's largest DIY retailer-B&Q -will open a 70,000-sq.ft retail center in Shanghai in June. The shop is a joint venture between B&Q and Shanghai Home-Dec Building Materials.

There are more than 280 B&Q retail stores, in the UK; 254 are supercenters and 30 are warehouse stores, according to the company. B&Q, which plans to increase its warehouse units to 125 by 2003, controls 19% of the UK DIY home improvement products market, according to Kingfisher.

B&Q's sales for the year ended Jan. 31, 1998, were $2.9 billion. During 1998, Kingfisher made an offer to acquire shares in Polish Life Improvement S.A., a leading DIY retailer in Poland. Polish Life Improvement, which has 21 shops in Poland, reported sales of approximately $24.7 million in 1997.

In addition to its desire to take its shops to the Chinese market and expand in Poland, Kingfisher has its sights set on capturing all of Europe. Late in 1998, the company announced that it planned to form a joint venture with Castorama Dubois Investissements SCA.

Castorama, the top DIY retail chain in France with 145 stores, controls approximately 15% of the market. In addition to Castorama's shops in its home country, it has 29 stores scattered throughout Italy, Germany, Belgium, Canada, Poland and Brazil. The company's DIY outlets include Dubois Mat�riaux, which services contractors, and Brico Depot, a chain of warehouse stores. In Quebec, the company operates under the name Reno Depot.

The Kingfisher-Castorama accord will form Europe's largest and the world's third largest DIY retailer. When combined B&Q and Castorama will have a retail chain that stretches through nine countries with more than 440 stores. The two firms estimate sales will exceed $5.9 billion�more than twice that of its nearest European competitor.

Another large home improvement product retailer that has been making strides is Home Centers DIY, a Bnei-Brak, Israeli-based home improvement warehouse chain. The store is described by its president and CEO, Aharon Meidan, as a cross between U.S. retailers Bed, Bath and Beyond and Home Depot. The retailer sells paint, tools, faucets and building materials as well as linens, bathroom fixtures, carpets and lighting. According to the company, its prices are 15-30% below those of neighborhood stores. According to company estimates, paint sales represent about 12% of Home Center DIYs total sales. Home Centers DIY's main competitors are the Ace/Buy& Build stores, small-sized local retailers and paint shops owned by companies such as Tambour, a leading paint manufacturer in the country. Bolstered by new store openings, Home Centers DIY reported 57% and 76% increases in sales and operating income, respectively in 1997.

The company has also has announced plans to open its first store outside of Israel. Through an accord with F. W. Woolworth & Co. Ltd, part of N.K. Shacolas (Holdings) Ltd., Home Centers will open a new store in Cypress in this quarter. Another opening is planned for mid- 1999 in Turkey. A company spokesperson said that as many as 10 megastores will be added in 1999.


Professionals Stick with Specialty Shops
Although many DIYers have been lured to the big boxes by lower prices, professional contractors remain loyal to local specialty paint dealers. According to Business Trend Analysts, in 1995, approximately 46% of professional remodelers purchased their paint in a special stores, while nine percent purchased products at lumberyards and seven percent chose hard-ware shops.

However, home centers are making a push to lure professional to their aisles. And many manufacturers and retailers that depend on the professional contractor are taking notice.

"Big boxes, Home Depot-are all ferocious competitors, and I wouldn't underestimate them," said Adam Janovic, vice president, marketing and finance at Janovic, a New York-based specialty paint retailer that has been in business for more than 110 years.

But according to Mr. Janovic, the mega centers and their warehouse type format are not a threat when it comes to home decorating. "In the niche that's home decorating, they can't compete." He cited a superior sales staff and greater depth of product as two of the main reasons why Janovic stores are better equipped to serve professional contractors.


Stepping Out from the Crowd
In the face of these expanding mega centers, retailers are looking for way to differentiate themselves. At Janovic, a new store design was one way to showcase the difference between its store and a big box�and other paint retailers, large and small.

In May, Janovic completed a four-month, million-dollar renovation of its flagship store in New York City. According to Mr. Janovic, who is a great grandson of Emil Janovic, founder of the paint retailer, the new design will help Janovic stay ahead of the pack. "We wanted to stay well in front of others in the retail paint market. It was our desire to stay ahead of the curve."

But there were other reasons for the remodeling. New York City residents have many avenues in which they can spend their money, and paint is not one of them. "We want to give people a way to spend their disposable income on paint and decor. In New York, we're competing against theater tickets and hi-fi-equipment," Mr. Janovic said.

To sway savvy New York consumers, Janovic set out to make its retail environment as exciting as its surroundings. "We want our stores to be as friendly and interactive as the neighboring fashion stores, like Bloomingdale's and The Gap," Mr. Janovic said. "Many of our customers tell us they like shopping for their homes more than buying clothes, so we wanted the redesigned flagship to have the same glamour and fun of a true specialty store."

Janovic enlisted architect Jennifer Sage who was instrumental in designing the Rock 'n' Roll Hall of Fame in Cleveland, OH. Ms. Sage had two goals for the Janovic project. "Our vision was to bring wit and folly to what can be a stressful process-choosing color for your home. Our secondary goal was to create an environment for learning about color," she said.

"Within the store, the whole theme is color," said Mr. Janovic. What makes the shop unique are the quotes and poems referring to color painted on the walls and the "monumental paint chips that stand like Claes Oldenberg sculptures" on the floor. To top it off, the shop features a rotating display of New York views, according to Janovic.

The heart of the store, however, is Janovic's Color Rotunda. The Color Rotunda displays more than 1,000 shades of paint under four lighting sources, incandescent, fluorescent, natural sunlight and light at different times of the day.

Janovic plans to bring the flagship's new design to its other New York City store. With 17 stores in its chain, Janovic will add another in the Hamptons, NY, a favorite summer vacation spot among celebrities such as Martha Stewart and Ralph Lauren. Both may want to stop by and survey how their paints are selling. Janovic carries Ms. Stewart's line (Fine Paints of Europe) and Sherwin-Williams' Ralph Lauren lines in addition to Pratt & Lambert, PPG's Voice of Color and its own private label.


Selling in Cyberspace Gets Real
But the big news on the retail horizon is no doubt the internet. More and more consumers are choosing to log on rather than stand in line when it comes to buying goods. In fact, one internet service provider, America Online Inc., reported that its members spent more than $1 billion shopping online during the 1998 holiday season. With such promising results, many in this industry are wondering when paint will become part of the wave.

Although most paint and coatings companies have web sites that provide information on company store locations and information on painting, some experts that Coatings World spoke with expressed concerns about selling paint in cyberspace. One draw back may be how color renders on the computer screen.

"The idea of selling paint through a web site or the internet is too premature," said Sandip Mitra of Jenson & Nicholson (India). "However, we are considering this for the future."

At some manufacturers the future is now, and more are getting ready to join the ranks. A quick visit to Nippon Paint's web site reveals the company's online ordering capabilities. Within the company's web site, online buyers can access painthouse.com.sg, "Singapore's first cyber paint shop," according to Nippon. The site offers interior and exterior paint, wood paints, primers, sealers, undercoats and accessories including turpentine, brushes and sandpaper. Paint is delivered cash-on-delivery, 10am-4pm Monday through Saturday. Same day delivery is available if orders are placed before 9am, according to the company.

ThermaCell Technologies, Sarasota, FL, has announced that it will add online ordering capabilities later this year. The company's entire product line of 200 specialty interior and exterior paints and coatings and waterborne and solvent-based ready made color paints sold under the Atlas, Scientific Coatings and ThermaCool banners will be available. ThermaCell has also promised free one-day delivery to a select region of Florida.

At press time, New York-based retailer Janovic had plans in the works to provide online shopping. Samwha Paint of Korea may be eyeing online retailing as well. According to a company spokesperson, there is a plan in place to sell products via the internet, which may be completed sometime this year.

Nurturing the Retail Relationship
Paint manufacturers, too, are helping the smaller shops improve their image, and hopefully boost their sales. Manufacturers have their own way of getting the most from their retail formats. Ideas range from point of purchase store, design and financial counseling such as that offered by Benjamin Moore, to providing custom publications, franchising and more.

At Sico, the top Canadian paint manufacturer, one way the company helps to improve the retail environment is through its Evolution magazine. Sico distributes 800,000 copies of the publication to its customers and dealers, according to Pat Matton, national accounts and Ontario sales supervisor for Sico Coatings.

Pachin of Egypt has started to directly ship products to retailers. Previously the company depended on wholesalers. According to Sherif El Attar, sales and marketing director, "results were encouraging."

Corimon of Venezuela is now franchising its Montana paint stores. Franchising is one way to ensure continued growth in the face of high interest rates, according to the company.

Yasar Paint Group, a Turkish company, has decided to take a more hands-on role in the retail process. The company, which does not own its own retail outlets, has developed a concept it calls DyoShop. According to B�lent Atabay, general manager, Yasas, DyoShops are independent stores that are "under strict control" by the company to ensure better customer service. Yasar plans to increase its number of DyoShops from two to 25 by the end of the year. Yasar has also created VIP Club teams, which provide merchandising services to independent hardware shops selling its Dyo brand.

For two hardware chains, the latest developments in retail come via computer paint matching technology. Ace has recently adopted Paintmaker 2000, a complete suite of color matching software from Datacolor International. Canada's Home Hardware Stores signed an agreement with X-Rite for the company's MatchRite technology. "We are always looking for ways to improve the paint options we offer our customers," Doug Theimann, general manager, paint and home products division, Home Hardware Stores Limited, said in a press statement.

Manufacturers and retailers have a symbiotic relationship. When asked how important that relationship is, Mr. Janovic replied, "It's critical. A good manufacturer is worth its weight in gold." And to a manufacturer, a good retailer is equally as important.

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