RENOVATIONS: Wooing the reluctant do-it-yourselfer

They have little interest in renovating, and try to avoid redecorating.

Yet Rona Inc. chief executive officer Robert Dutton is counting on these reluctant do-it-yourselfers to help the home improvement chain rebound from the recession.

Mr. Dutton's challenge is to woo those shoppers who see renovating as a chore – a group he can't afford to ignore. They represent 24 per cent of the population but, more importantly, 26 per cent of spending in a home improvement retail sector estimated at $36-billion a year.

As he races to lure these customers who stayed away or scaled back in the downturn, he's also preparing for life without the aid of federal home renovation incentives. The federal tax credit scheme, launched a year ago, generated an impressive $130-million of sales for Rona last year. But it expires tomorrow.

He's buoyed by the fact he can depend on a core group of reno enthusiasts. Now he needs to entice that other group of people who see such projects as a need rather than a pleasure.

"We can demystify renovations for them," Mr. Dutton says. "The fact is that renovations can be easy. Sometimes they think it's a problem. We have to show them that we have the services they need to facilitate their projects."

To try to satisfy their needs, Mr. Dutton is boosting the retailer's array of lower-cost, higher-margin private label products; adding new categories ranging from furniture to work wear; appealing to women with style co-ordinated home decor lines; and focusing more on do-it-for-me installation services rather than just do-it-yourself merchandise, often in stores that are a fraction of the size of its big-box outlets.

Who are these hesitant consumers? Dubbed "modern families," they're couples aged 35 to 54 with children, Rona's research has found. They're cost-conscious, unfamiliar with the renovation landscape and looking for inspiration.

Mr. Dutton feels an urgency to reach out to these shoppers. He thinks they can be swayed to spend between 5-per-cent and 7-per-cent more by 2012. Last year alone, 40 per cent of these modern families spent at least $5,000 on a reno project – two-thirds more than the amount shelled out by the average Canadian household, its research found.

Still, the strategy carries risks. He's expanding into categories such as work wear that puts him in the crosshairs of specialists such as Canadian Tire's Mark's Work Wearhouse, says Wayne Hood, retail analyst at BMO Nesbitt Burns. Chief rival Home Depot Canada couldn't entice consumers with its apparel offerings and ditched them about two years ago.

Rona also has lots of company in trying to court the reluctant reno shopper. All retailers in the sector are adjusting their offerings to cater to these shoppers' more-modest remodelling needs, Mr. Hood says. "Rather than a $20,000 kitchen remodel, maybe you do a $7,000 kitchen remodel."

Home Depot now touts a bathroom update for less than $300, rather than a dream kitchen, says Peg Hunter, vice-president of marketing. It's starting to take its more practical pitch to new Canadians: Last weekend, Home Depot drew overflow crowds when, for the first time, it held workshops at its stores in Cantonese (in Richmond, B.C.), and in Hindi and Punjabi (in Brampton, Ont.). Store staff advised on how to paint a room for $99, and the participants asked for more seminars, she says. "We have to show them projects that they can achieve with realistic budgets."

Rona also is offering more practical advice. Its stores have dedicated employees, called project guides, to help shoppers navigate the different departments for their single project, rather than sending them to different staff in the various sections.

Mr. Dutton is betting on a service strategy targeted to the all-important woman shopper and highlighted by a concept called Rona by Design. Patterned after the prêt-à-porter fashion world, it presents home furnishings in a "ready-to-wear" format. It brings together key elements from different departments and product categories and presents them in three suggested style themes for reno projects.

The importance of women shoppers isn't lost on Mr. Dutton. They drive most decorating decisions, and fork out – at $58 a shopping trip – about 5-per-cent more than men, his research found. Last year, Rona started testing such women's clothing as shirts and pants to get them to spend even more.

"They're a more experienced shopper, they're more curious," he says.

Already apparel sales have hit about $1-million of sales, and Mr. Dutton thinks he can double that in two years, partly by expanding into men's wear.

And he thinks Rona has an edge in drawing these modern families – and women – with its increasing focus on downsized outlets. As little as one-eighth the size of a superstore, they can also yield better returns for Rona in an age of rising land and construction costs, he says.

Younger shoppers are increasingly shifting to smaller stores because they're faster and easier to shop, and can provide personal service, he says. Women are attracted to them, which is part of the thinking behind Rona having launched its first specialty paint and interior design outlets late last year. Already, more than 70 per cent of their customers are women, he says.

"Time is very important for the modern family," Mr. Dutton says. "They prefer a traditional store with services, people who know them and give them personal service."

(prepared by Marina Strauss/Globe and Mail - Jan 30, 2010)



What investors should know

STOCK

Rona's shares fell in the recession but have begun to recover as the outlook for the economy, and the housing market, improves. Anthony Zicha, an analyst at Scotia Capital, recommends that investors buy the stock. "While Rona's multiple has significantly rebounded from trough levels, we believe that there is further room for expansion given the strength of the current recovery." Analyst Keith Howlett at Desjardins Securities is also keen about the stock, with a "buy" rating and target price of $17.50. Rona will probably make accretive acquisitions in 2010, he says in a report this week. "We expect the share price to also anticipate such acquisitions."

RESULTS

Last Monday, Rona released its growth plans for the next two years, targeting that its market share will rise to 20 per cent from 17.5 per cent of the estimated $36-billion home-improvement retail industry. It expects annual earnings per share to gain 10 to 15 per cent, and annual same-store sales to grow at 2 to 2.5 per cent. "We believe the company will focus heavily on acquisitions and recruitment [of independent store operators] as its internal growth objectives are relatively modest," Mr. Zicha writes in a report. Mr. Howlett reduced his 2010 estimate to $1.23 a share from $1.34.

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KEY CONSUMER SEGMENTS

FAMILIES WITH RENO PASSION

• Represent 13 per cent of population and 24 per cent of spending.

• Families with children.

• Ages 35 to 54.

• They constantly renovate their home.

• Renovating = fun.

• Shop at big-box stores.

EXPERTS

• Represent 28 per cent of the population and 24 per cent of spending.

• Couples without children.

• Age 45 and over.

• Mostly experts at renovating.

• Shop at big-box and smaller stores.

MODERN FAMILIES

• Represent 24 per cent of population and 26 per cent of spending.

• Ages 35 to 54

• They view renovating as an obligation/need rather than fun.

• No particular interest in renovating or decorating.

• Shop in smaller stores.