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Best Buy may rollout new appliances stores

BY HBSDEALER Staff

A chain of California kitchen and bath showrooms may lead Best Buy into the home-remodeling business, according to comments made at the Oppenheimer & Co. Consumer Growth Conference on July 9. The Minneapolis-based company, known as one of the leading retailers in consumer electronics, told analysts it plans to double its revenues to $80 billion by 2013.

Those plans may involve a nationwide expansion of Pacific Sales, a California subsidiary that sells high-end appliances, plumbing fixtures and home furnishings in a showroom setting.

Mike Vitelli, executive vp-customer operating teams at Best Buy, gave several examples of new business models that will contribute to the $80 billion goal, because they are “completely different or outside of the Best Buy box.” One of them was Pacific Sales. “We believe [it] has opportunity across the country as well,” said Vitelli, whose division is responsible for merchandising and product assortment.

Best Buy purchased Pacific Sales in January 2006 for $410 million. The 14-unit chain, known for luxury brands like Sub-Zero, Miele, Toto and Viking, has since expanded to 22 units that sell to builders, contractors, designers and consumers.

“We have been taking market share [in appliances], and we stepped back and tried to reinvent the business for us,” said Ryan Robinson, Best Buy’s senior vp, CFO and treasurer, speaking to analysts at the Oppenheimer conference.

“We did it through assortment differentiation. A number of key vendors, including LG, Samsung, Siemens and Electrolux all viewed Best Buy as an ideal North American market entry partner and helped us create market differentiating offers for our partners.”

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Menards plans further Missouri stores

BY HBSDEALER Staff

Menards plans to forge ahead with its second and third home improvement stores in Missouri, according to local media reports.

According to the Columbian Missourian newspaper, Menards store project manager Donald Lairmore told the newspaper that construction is expected to begin on the Columbia big-box site by the end of July.

Menards entered the state of Missouri last year with its first location in St. Joseph, Mo., on the northwestern border of the state with Kansas.

Menards also recently announced plans to go forward with a further store in Sedalia, Mo. That 162,000-square-foot plan is slated to go under construction later this summer, according to the Sedalia Democrat newspaper. Sedalia is located in the west-central part of the state.

Both locations are expected to be open in 2009.

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Fitch offers outlook on housing market

BY HBSDEALER Staff

Financial pressures will continue to mount on the nation’s largest home builders this year, forcing them to make further cuts in staff and overhead to remain profitable, according to Fitch Ratings, a New York-based ratings agency for credit markets.

But the company’s most recent report on the construction sector predicts that most of the industry’s top home builders have enough liquidity to pull through a prolonged downturn, even one that stretches into the back half of 2009.

Other findings and forecasts from the 167-page research report:

• First-quarter 2008 revenues decreased for all 14 home builders tracked by Fitch. The declines ranged from 18.7 percent for NVR to 61.9 percent for Lennar. On average, revenues decreased 38 percent in the quarter.

• The absence of investors — especially property “flippers” — continues to negatively affect builders’ orders. Fitch predicts that cancellation rates will rise sharply in the second quarter of 2008, compared to the previous year, because many buyers are unable to sell their existing homes.

• Since the early 1960s, it has taken anywhere from 13 to 42 months to realize a cyclical trough in housing inventories. This downturn is in the midst of its 20th month.

• California, Florida, Arizona and Nevada have the highest rates of home foreclosures.

• In Fitch’s most likely scenario, single-family housing starts will not bottom out until late 2009. The first markets to recover will be Texas; the greater Washington, D.C., area; and the Southeast (excluding Florida).

• Smaller builders have been much more constrained by their banks this year, while large, privately held companies still have sufficient credit and have, as a back-up, obtained revolving credit facilities. Many builders continue to raise cash by large land sales, tax refunds and public equity offerings. Eleven of the 14 top home builders have cash reserves of $100 million or more.

• In the decade ahead, Fitch expects more consolidation in the home builder sector, with large builders acquiring private, mid-sized companies, Regional or multi-regional builders will become national players. A few national or near national builders may permanently exit secondary markets and become multiregional companies.

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