Distributors Job One: Keep on trucking
Not many distributors will look back at 2008 as the glory days of two-step distribution. But a handful of companies on the HCN Top 150 Distributor Scoreboard showed revenue growth in 2008 over 2007. It was growth fueled by expansion in some cases, refocused priorities in others, or just plain, old-fashioned execution on a company’s existing business model.
As evidence of the difficult environment for distributors, none of the 10 biggest distributors showed an increase on the 2009 list. The biggest company to boost revenue is Memphis-based Orgill, at the No. 12 spot, and the 2009 Golden Hammer Retail Partner of the Year.
$50.86 billion Combined sales of the 2009 Distributors Scoreboard, down 9.1% from 2008.
Of the 150 companies, only 15 show a year-over-year revenue increase.
The independent hardware store helped lift Orgill, and that theme played out at Houston-based hardware co-op Handy Hardware Wholesale, and also Prince Distributing—two other gainers on the list.
Talking about the 2008 sales growth, No. 34 Handy Hardware’s Mickey Schulte pointed to several factors for the company’s 9.4% gain to $255 million—adding members (about 100 new stores), natural growth, some rising prices and revamped housewares and outdoor categories. “Part of it was we worked our ever-loving tails off,” he added.
Based in Marshfield, Wis., No. 104 Prince Distributing showed a revenue gain of 14.9% to $70.8 million. “We had a fantastic 2008,” said Dennis Wessel, who along with Jay Emling is co-owner of Prince.
Excluding building products, the company’s sales for products including pet, bird feed and lawn and garden were up 23% in 2008, he said.
Hardware stores that want to compete with big boxes on staples have their work cut out for them, said Wessel, who believes opportunities exist for those independents who seek to specialize. “Where the hardware stores can do extremely well, and where we have done well in the Midwest, is expand the pet department and the feed department. These people need those products,” he said.
DISTRIBUTOR SCOREBOARD METHODOLOGY
The Top 150 ranks traditional wholesale (two-step) distributors by total wholesale sales (with ties broken by sales growth). The research for the project was conducted by HCN’s sister company, Chain Store Guide. Individual companies were contacted by phone or fax; every effort was made to gather information directly from top-level executives. Data were prepared by CSG senior editor Arthur Rosenberg and HCN managing editor Michael Moran Alterio. Most of the information in the Distributors Scoreboard is therefore self-reported by privately held companies. Some distributors choose not to provide data about their operations or sales. HCN estimates data for these companies, based on editorial research, historical performance and in comparison with similar companies operating in the same area. All estimated data are noted as such in the footnotes. A deep historical data set on these companies and others is available on HCN’s Premium Top 500 Retailer Scoreboard on CD. For ordering information, please contact Michael Moran Alterio at (212) 756-5235 or visit homechannelnews.com/researchdata.aspx.
The independent farm store—the farm store category was a bright spot on the 2009 Top 500 Retail Scoreboard with 9.2% overall growth—is an ideal target for distributors such as Orgill, Prince and No. 81 Hutchison of Adams City, Colo., which also posted a sales gain on the Top 150 list.
15 Number of the Top 150 distributors showing revenue increases in 2009.
Hurricane Gustav created instant demand for building materials in Louisiana in 2008, and that certainly boosted sales at No. 109 Hardware Distribution Warehouses of Shreveport, La. But it’s not the key reason that president and CEO Kenny Beauvais pointed to when asked to explain the company’s growth.
“Last year was a very, very good year in the building materials part of our business that has been going through a good bit of expansion in the past two years, especially in commodity building material products,” he said.
He points to his company’s efficient warehouse and delivery system as an advantage, particularly in tough times. “Through our warehouse system, we can service customers with less than truckload quantities in order to stay in stock, but offer the ability for folks to keep their inventories low, and that’s a niche and an advantage,” he said.
Closer to the top of the list, No.3 Bluelinx Holdings posted first-quarter 2008 sales of $2.78 billion, down 27.5%, and the trend continued into the first quarter of 2009. Sales dropped 43% to $407.1 million.
In the company’s most recent earnings conference call, CEO George Judd reiterated the company’s focus on reduced operating costs in a tough market.
2 Number of years Ace has topped the Distributors Scoreboard.
“On the customer front, there has been over 500 customer locations that have closed or consolidated since the peak,” he said. “And we have to remember that peak is now over 39 months ago.”
Describing distribution as a “regional specialty business,” Judd pointed to Phoenix and Las Vegas and parts of California as “very, very weak.” On the upside, the Northern Mid-Atlantic around Washington, D.C., has measurably improved, he said.
“I feel we’re in the trough year for the housing correction,” Judd said. “And although the quick and strong rebound is not predicted, I do feel the worst is just behind us.”
Smith & Hawken to close
Smith & Hawken, the industry’s first upscale gardening retailer, will close its doors by the end of the year. Although the 56-unit chain had been struggling for months, the announcement by parent company Scotts Miracle-Gro came as a surprise to many employees, according to several media reports.
Store liquidation sales, which are being run by a third party, began yesterday.
“We would have preferred to sell the Smith & Hawken business in order to protect jobs and keep the retail franchise intact,” said Scotts Miracle-Gro CEO Jim Hagedorn in a July 8 filing with the Securities and Exchange Commission. “Unfortunately, the combination of a weak economy and the lack of scale proved too great to overcome.”
The Marysville, Ohio-based company, better known for fertilizers and pesticides than teak benches and English gardening shears, paid $72 million (including $14 million in debt) for Smith & Hawken in 2004. In the ensuing years, Scotts tried to boost revenues by broadening the brand’s merchandise and inking deals with True Value and Target, among other initiatives.
Last year, Scotts brought in Pat Farrah, one of Home Depot’s original founders, to turn the company around. Farrah closed a number of stores and made cuts in staffing and salaries, but the chain continued to lose money. In the fiscal quarter ending March 28, sales at Smith & Hawken fell 23%.
At an investors conference in February, Hagedorn said he was inclined to sell Smith & Hawken for a reasonable offer. But until that point, Scotts intended to “run it hard.” The strategy included job cuts and 25% pay cuts.
At the same conference Farrah talked about the difficulty of selling the business. “We didn’t sell it because we couldn’t sell it,” he said. “And ‘Can’t sell it’ means, I’m not writing a check for someone to take it.”
Scotts expects to incur charges of $25 million in connection to the closure of the business.
Tomato plants pulled from retail shelves
Home gardeners may end their tomato-growing season a little early this year, as a deadly pathogen that attacks tomato plants has been found in retail nurseries from Maine to the Carolinas. Home Depot, Lowe’s and Wal-Mart have removed tomato plants from their shelves in several northeastern states, although many consumers may already have infected plants growing in their backyards.
Called “late blight,” the pathogen is not a new disease, according to Meg McGrath, professor of plant pathology at Cornell University. The Irish potato famine of the 1840s was blamed on the same fungal infection. But the cool and wet month of June in the eastern United States created unusually favorable conditions for the organism, which spreads through airborne or waterborne spores. And instead of being contained to commercial nurseries, who typically see it at the end of the growing season, evidence of late blight was detected during late June in a garden center in Ithaca, N.Y.
“As far as we known, it’s never shown up in the retail centers before,” said McGrath. By the first week of July, reports of late blight were coming in from every state between Ohio and Maine, along with Florida, Alabama and the Carolinas. Many of these sightings occurred at big-box retailers, most of whom use an Alabama grower called Bonnie Plants as their tomato plant supplier.
Dennis Thomas, general manager of Bonnie Plants, confirmed that his growing operation supplies tomatoes (along with other containerized vegetables and herbs) to Home Depot, Lowe’s, Wal-Mart and Kmart. The company got word about the late blight case in New York State on June 26, according to Thomas. “As soon as we heard, we asked [state authorities] to inspect us,” he said. Since then, inspectors in New York, New Hampshire, Maine, Pennsylvania and New Jersey have visited their greenhouses; none have found any plants infected by late blight, Thomas said.
“You can’t blame any one vendor,” Thomas said. This pathogen has been around forever.” Other “host” plants that carry the same pathogen — and can spread it to tomatoes — include potatoes, celery, petunias and a weed called bittersweet nightshade.
As a precaution, Bonnie Plants has removed all tomato plants from Home Depot, Lowe’s, Wal-Mart and Kmart stores in New York, New Jersey, New Hampshire, Vermont, Massachusetts, Connecticut and Maine. The grower operates on a consignment, or pay-by-scan arrangement with its big-box customers, so the company is responsible for the merchandise until it is sold.
Wal-Mart is offering customers a full refund on their tomato plants if they return them or their receipts, according to a spokesperson. Home Depot has modified its existing one-year plant return policy, given the situation. “We’re not asking customers to bring the [diseased] plant back to the store,” Sarah Molinari told Home Channel News. The Atlanta retailer will also relax its receipt requirement. “We’ve instructed our store managers to work with customers on this,” Molinari said.
AState of Massachusetts advisory bulletin recommends digging up infected tomato plants, placing them in plastic bags and throwing them in the trash. McGrath, the plant pathologist from Cornell, said that fungicidal sprays might prevent the disease but little can be done once the symptoms — brown lesions or fuzzy white growth on stems — begin to appear.