Hardware Zone
Big-box reign marches on: consolidation bolsters hard goods verticals - Annual Industry Report Top 150: Hardlines - hardware, office supplies, automotives, toys, sporting goods - IllustrationDebbie Howell
The battle between the category specialists and broad-line retailers played out in five core hardlines categories last year, with specialty chains seeking new ways to compete and differentiate themselves from the big-box chains.
And as many found out in the last year, such differentiation isn't always easy given the immense sales volumes of established players such Wal-Mart, Sears, Kmart and Target in hardware, office supplies, automotives, toys and sporting goods.
However, some of the category specialists surpass these chains in revenue in their respective categories, as well as in the combined five-product segment. The overall leader is The Home Depot, with its dominance in hardware adding up to more than $30 billion in sales from its U.S. stores last year. No. 2 is Wal-Mart, with an estimated $30.8 billion in U.S. sales among those categories, followed by Lowe's at $15.2 billion in hardware-related goods.
In terms of specific category dominance, Wal-Mart is considered the largest U.S. toy retailer, surpassing $6.74 billion generated by Toys "R" Us. Office Depot leads in office supplies, while AutoZone controls the automotives niche.
Evolving expertise of the specialists has prompted some broadliners to scale back in hardlines, including Kmart with its growing focus on softlines. Target carries a minimal assortment in automotive and hardware as a shopper convenience. Wal-Mart has shown no signs of retreating, however, proving a formidable rival to the specialists with its everyday low-price positioning. Strong, stable categories for the discounters are toys and office supplies.
Sears maintains an advantage in hardware with its Craftsman brand, despite difficulties in growing sales overall. The expansion of its Tool Territory concept has provided some insulation from the inroads made by home centers in the tool segment. In addition, Sears is considered the largest seller of fitness equipment and appliances, though it is losing share in the latter category due to an increased appliance focus by the home centers and Wal-Mart.
Home Depot and Lowe's, which dominate hardware sales, control about 15% of the larger $500 billion home improvement market. The growth of the home center as the preferred hardware format has led to intense rivalry between these chains, with Lowe's ambitiously expanding while Depot searches for alternative forms of growth given it is nearing U.S. saturation.
Both have intensified their emphasis on exclusive brands and worked to make their stores more female-friendly, adding new decor-related categories and softening up the look of the store with less utilitarian fixtures in some departments. Lowe's has been considered the leader in this area, though Home Depot is targeting more women with a rollout of its Designplace initiative, which features carpeted seating areas and vignette displays.
With both, there has been a recent trend to slightly shrink the size of the store. Lowe's now has two size prototypes, while Depot is experimenting with a smaller urban store concept in markets such as Chicago and suburban New York. In contrast, home center chain Menards is heading the opposite direction, with plans to open its largest store of 225,000 square feet next spring.
Though the DIY consumer business has held up despite the economy, home centers continue to emphasize niches that set them apart from the discounters and add new revenue. Installed sales, special orders and programs targeting contractors are a growth segment for both Lowe's and Depot.
This search for new revenue streams is especially pronounced in toys, due to heavy dependence on holiday sales. Toys "R" Us and K*B Toys have expanded to new channels in an effort to make their businesses more year-round in nature. TRU has set up toy shops in Albertsons and Giant Food stores, while K*B teamed with Safeway. Other partnerships include K*B at Sears and CVS, while FAO has opened toy boutiques inside some departments stores operated by Saks Inc.
TRU also debuted a new format last year, its Geoffrey concept that combines elements of Toys "R" Us, Babies "R" Us and Kids "R" Us into one. The four stores are positioned as retailtainment destinations, with features such as party rooms, styling salons and photo studios run by independent providers.
A dichotomy in the merchandising strategies for automotive parts is growing between the specialists and broadliners. While tire or express lube services are key businesses for WalMart, Sears, Sam's Club and Costco, repair parts are generally left in the hands of the specialty chains. Accessories have become more of a focus than commodities like motor oil due to the broad selections offered at chains such as AutoZone and Advance Auto Parts.
Even with an extensive parts assortment, the specialists as well have been adding impulse-oriented accessories to drive sales. AutoZone, for example, has set up a section called The Red Zone that features a changing array of impulse goods, from STP oil treatment to glow-in-the-dark floor mats.
Office superstore retailers remain the dominant force in the office products industry even though the nation's soft economy made it difficult for the three leading chains, Office Depot, Staples and OfficeMax, to generate same-store sales growth. Warehouse clubs Costco and Sam's Club didn't make it any easier for office superstores by continuing their expansion and maintaining aggressive pricing on their limited assortments. As the office retailers look to increase future sales and profits, the consensus among them is to operate smaller stores. All three have pared down their prototypical store size to reduce occupancy and operating costs. Despite the challenging sales environment, office superstore chains were able to increase profits last year.
The situation was a little different for the sporting goods specialists. Again, the soft economy was largely to blame for weak sales growth, but unseasonably warm and dry weather in Western states hurt results for retailers that operate there. Retailers such as WalMart, Sears and Kmart are frequently consumers' top choice for sporting goods ranging in price from entry-level items at Kmart to treadmills costing more than $1,000 at Sears. Full-line sporting goods chains such as Gart Sports and Dick's emerged as clear leaders in the category, with Dick's approach to merchandising helping it generate industry-leading results while Gart and The Sports Authority will attempt to integrate their merchandising scheme in the wake of their recent merger.
Top Volume Leaders Hardlines * CHAIN 2002 2001 % CHG Home Depot (1) $31,386 $28,762 9.12% Wal-Mart (2) 30,804 29,658 3.86 Lowe's (3) 15,200 12,634 20.31 Sears (4) 12,500 12,475 0.20 Kmart (5) 9,000 10,600 (15.09) SALES, IN MILLIONS, OF ... * HARDWARE, OFFICE SUPPLIES, AUTOMOTIVES, SPORTING GOODS AND TOYS ( ): Decline or loss Source: Company reports, analysts' estimates and DSN Retailing Today research. (1)Includes sales from Expo Design Centers, alternative formats; excludes sales related to installation, special order, lawn and garden, building supplies, lumber and millwork (2)Includes Sam's Club (3)Excludes sales from installation and special orders, lawn and garden, building supplies, lumber and millwork (4)Includes sales from full-line department stores and hardware stores (5)Sales decrease related partly to closure of underperforming stores Top Specialists (1 of 5) DIY Hardware Retailers CHAIN 2002 2001 % CHG Home Depot Stores (1) $52,698 $48,451 8.77% Lowe's Cos. 26,491 22,111 19.81 Menards 5,515 5,236 5.33 McCoy's Corp. 452 450 0.44 Meek's Building Centers 330 315 4.76 SALES IN MILLIONS ( ): Decline or loss Source: Company reports, anlaysts' estimates and DSN Retailing Today research. (1)Figures for domestic stores only Top Specialists (2 of 5) Toy Retailers CHAIN 2002 2001 % CHG Toys "R" Us Stores, U.S. $6,743 6,877 1.95% K*B Toys 2,060 2,030 1.48 FAO Inc. (Formerly Right Start), 460 247 86.23 SALES IN MILLIONS ( ): Decline or loss Source: Company reports, analysts' estimates and DSN Retailing Today research. Top Specialists (3 of 5) Office Supply Retailers CHAIN 2002 2001 % CHG Staples (1) $11,596 $10,744 7.93% Office Depot (2) 11,357 11,082 2.48 OfficeMax 4,776 4,626 3.24 SALES IN MILLIONS ( ): Decline or loss Source: Company reports, analysts' estimates and DSN Retailing Today research. (1)North American retail sales were $7,166 million in '02, up from 3.6% from $6,914 million in '01 (2)North American retail sales were $5,804 million in '02, down from $5,843 million in '01 Top Specialists (4 of 5) Auto Parts Retailers CHAIN 2002 2001 % CHG AutoZone (1) $5,326 $4,818 10.54% Advance Auto Parts 3,288 2,518 30.58 Pep Boys - Manny Moe & Jack (2) 1,757 1,766 (0.51) CSK Auto Corp. 1,507 1,439 4.73 O'Reilly Automotive 1,312 1,092 20.15 SALES IN MILLIONS ( ): Decline or loss Source: Company reports, analysts' estimates and DSN Retailing Today research. (1)FY ended 8/02 (2)FY ended 7/02 Top Specialists (5 of 5) Sporting Goods Retailers CHAIN 2002 2001 % CHG The Sports Authority 1,427 1,416 0.78% Dicks Sporting Goods 1,271 1,074 18.34 Gart Sports Co. (1) 1,051 936 12.29 Academy Sports & Outdoors 950 738 28.73 Big 5 Sporting Goods 667 622 7.23 SALES IN MILLIONS ( ): Decline or loss Source: Company reports, analysts' estimates and DSN Retailing Today research. (1)Merged with The Sports Authority 2/03
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