Pete Ryan

Every week, Martha Konantz receives a flyer in her mailbox from Menards, the third-largest home improvement retailer in the U.S.

Konantz lives in Winnipeg, Manitoba, where her family’s pro dealer business, North American Lumber, is based. Menards stores in International Falls, Minn., and Grand Forks, N.D., regularly lure shoppers from Manitoba with their low prices and broad product assortments, and send delivery trucks north all the time.

North American Lumber’s yard in the Transcona suburb of Winnipeg also competes with Home Depot Canada and Rona, Canada’s two largest home improvement dealers. Yet North American—whose locations average about 4,500 square feet in retail selling space—has outlasted all kinds of competition during its 106 years in business. It perseveres today on the strength of the product knowledge and advice its associates provide to customers, and on the close relationships between its stores and the communities they serve, says Konantz, the fourth-generation family member running this company. It recently acquired its 21st yard, near Moose Jaw, Saskatchewan.

In many ways, the retail home improvement industries in Canada and the United States are alike. Dealers on both sides of the border grapple with industry consolidation, big-box competition, fickle customers, and succession planning decisions. But Canada’s retail pie (at just under C$40 billion (US$40.7 billion as of late September) is a sliver of its U.S. counterpart, and far more dispersed geographically.

National giants Home Depot Canada and Canadian Tire battle it out with a handful of strong regional dealers for dominance in Canada’s 10 urban centers. But this landscape is also dotted with small, often rural retailers that in the U.S. seem like an endangered species but in Canada still number in the thousands.

Small and midsize independent stores and yards—“more ‘twigs’ than branches,” quips Steve Littlefield, the former director of marketing for software provider Progressive Solutions—keep from becoming kindling by cultivating different niches. North American Lumber has a home-building division that constructs between 60 and 80 homes annually and transports them to their owners’ land. Specialty dealers also abound, most noticeably in the roofing and drywall categories. Winroc has 34 drywall branches in Canada and nine in the U.S., supported by its Allroc buying group.

To be sure, Canada’s retailers and distributors haven’t experienced the housing-related nosedive that decimated so many of their brethren in the U.S. And their markets’ remoteness often protects rural dealers from competitive encroachment. U.S. dealers looking to Canada for best practices will find that logistics factor into just about every metric, technology is the great equalizer, and buying groups enable most to compete in a market that, with Home Depot and Rona controlling nearly one-third of retail sales, is far more concentrated at the top.

While four of Canada’s metropolises—Toronto; Montreal; Vancouver, British Columbia; and Calgary, Alberta—rank among North America’s most populous, distributors operating here are just as likely to be servicing dealers, contractors and homeowners in one-traffic-light towns.

“Doing business in Canada is like Montana or North Dakota: miles and miles of nothing to nowhere,” laughs Cam White, president and CEO of Taiga Building Products, the Burnaby, British Columbia-based distributor. At 3.85 million square miles, Canada is 15% bigger than the United States but has just 34.9 million citizens vs. 314.4 million in the U.S.

But dealers’ expectations about service are high, no matter how small and remote they are. So Taiga, with more than 200 trucks, guarantees delivery within 48 hours of any order. To ensure it could follow through on this promise, Taiga updated its systems a few years ago with software that improved its tracking and order management functionality and flexibility.

The good news for distributors like Taiga is that multi-unit independent dealers have been shifting toward centralized inventory management. But LBM distribution remains a tough business. Over the four decades White has been in this industry, he’s seen the number of major distributors shrink from around 40 to four.

As distributors consolidate, some rely more on third-party and common carriers to reach customers in certain areas. “You have to leverage every opportunity you can with your carriers,” explains Richard Brouillette, vice president of distribution and logistics for Boucherville, Quebec-based Rona, a buying group that handles shipments to its 830 affiliated dealer-members through 17 DCs. Rona also has more than 75 corporate-owned warehouse home centers that it uses as hub-and-spoke distribution points and cross docks for members’ inventory. Those spokes can stretch as far as 1,500 kilometers (932 miles). Rona’s TruServ Canada division in Manitoba even ships to dealer-members located in Nunavut, Canada’s northernmost territory, home to just 32,000 people spread over 725,000 square miles.

IT Levels the Field

Several sources stated that Canada’s home improvement dealers have lagged the U.S. in their embrace of technology. But a growing number of dealers of all sizes have concluded that the only way they can compete with the giants is through efficient, web-enabled systems. “Connectivity is a big deal,” says Littlefield, “and has leveled the playing field to where there’s no inherent disadvantage” for small companies.

One dealer profiting from technology is Moffatt & Powell, a London, Ontario-based dealer whose six stores total only 26,500 square feet of retail space but generate about C$40 million in sales. A typical 115,000-square-foot Home Depot in Canada, in contrast, averages C$31 million in sales.

The store footprints, of course, don’t take into account the three acres of outside lumberyard and 22,500 square feet of covered storage that support each of Moffatt & Powell’s locations. This independent dealer also has Rona’s purchasing and marketing clout behind it.

But Moffatt & Powell’s ace in the hole is its state-of-the-art POS system, says co-owner Nancy Powell. About a year ago, the company integrated Progressive Solutions’ bisTrack software with TimeClock Plus cloud technology. Its instantaneous reporting “really changed the way we look at sales and wage ratios,” says Powell, and made Moffatt & Powell more responsive and flexible in managing its employees’ work hours.

Collective Clout

Moffatt & Powell has flown Rona’s banner since July 2010. Rona’s “strong national marketing and distribution programs” have helped this dealer reduce its inventory in some categories and add products to others, says Powell.

Buying groups are more visible in Canada than in the U.S. Nearly 1,100 hardware stores, home centers, building centers and furniture stores nationwide are affiliated with the buying group Home Hardware Stores, which has had a long-time strategic and information-sharing alliance with Do it Best Corp. in the U.S.

In August, Brand Finance, a leading brand valuation consulting firm, ranked Home Hardware 39th on its Top 50 Canadian Brands list. And buying groups continue to become more pervasive through acquisitions, most recently Vancouver-based Tim-BR-Mart’s purchase of another group, Irly Distrbutors, as well as the hardware division of the wholesaler CanWel Building Materials Group.

Even multi-location regional dealers see value in banding together to enhance their buying prowess. The most prominent organization in this category is the Independent Lumber Dealers Co-Operative. It represents 20 dealers, including Kent Building Supplies of St. John, New Brunswick. Kent is a 38-unit dealer that’s part of the J.D. Irving conglomerate.