With Canadians continuing to spend record amounts on fixing and improving their homes and gardens, a battle is raging among the big-box stores operated by Atlanta-based Home Depot, Quebec-based RONA and thousands of independent hardware stores for the more than $40 billion in annual sales.

"The market is very strong," says retail analyst John Winter of John Winter and Associates in Toronto. "Canadian home improvement is a huge market that has been recognized by the big-box stores in the U.S."

Home Depot Canada, the country's largest big box-store operator, announced this month it plans to open 18 more stores in 2006. RONA will build another 40 stores across Canada in 2006 and 2007. Another major U.S. operator, Lowe's, plans to enter the Canadian market next year.

"I have no doubt that the big-box stores will continue their strong growth," Winter says. He adds that the struggle for market share is driven by steadily increasing annual growth in home-improvement retail sales across Canada.

This year, Canadians are expected to spend more than $43.6 billion on renovating their homes, a 7.1-per-cent increase from last year, according to the Canada Mortgage and Housing Corp.

Spending at home centres and hardware stores jumped 71 per cent between 2001 and 2005, according to Statistics Canada. Last year, spending on specialized building materials and garden stores - a mainstay of the home-improvement market - rose by 15 per cent.

The steadily increasing sales in the Canadian market convinced Lowe's, which is based in Moorseville, N.C., to announce it will open six to 10 stores in Toronto in 2007.

In the United States, Lowe's is the second-largest home-improvement business with annual revenue of $43.2 billion US and 1,225 stores.

The company's long-term plans potentially include as many as 100 stores in Canada, according to the company's website.

But Lowe's will not be able to easily dislodge Home Depot from its dominant position in the Canadian home-improvement market, Winter says. "Lowe's is going to have a big challenge to match the network Home Depot has been able to build in the last decade."

In 2005, Atlanta-based Home Depot operated 138 stores in Canada with annual sales of $5.5 billion.

The company opened its first Canadian store in Toronto in 1994. Its new stores will include nine in Ontario, four in British Columbia, three in Alberta and one each in New Brunswick and Quebec.

Home Depot's arrival turned Canada's home-improvement and hardware market upside down, Winter says, because there was far less competition here than in the U.S.

"Independent stores have been hurt by the big-box stores. But there is still a market for them - on the arterial roads," he says. "It's a fragmented market that is still changing."

Despite Winter's optimism about the continued viability of the independent hardware store owner, Boucherville, Que.-based RONA predicts the number of independent stores in Canada will fall by 30 to 40 per cent within the next 10 years.

"It is almost inevitable," says RONA spokesman Sylvain Morissette. "Succession is a big problem. It is difficult to find someone to manage the business."

When RONA was researching the Canadian home-improvement market several years ago, it discovered that 60 per cent of independents were ready to sell their stores because they couldn't find anyone to manage their business.

"They'll also find it harder and harder to maintain their profitability in the face of stiff competition and increasingly demanding customers," Morissette says.

Morissette predicts the home-improvement market will follow the same pattern that occurred in the food industry 10 years ago with the majority of retail sales concentrated by a few large companies and far fewer independent stores.

Currently, there are about 5,000 independent hardware stores in Canada, representing about 50 per cent of the market, he says.

RONA, which moved into the Ontario market in the 1990s, accelerated the consolidation of the home-improvement market with the acquisition of Cashway Building Centres, along with adding Revy and Revelstoke brands in Western Canada, Lansing in Ontario, Reno-Depot in Quebec, and Totem Building Supplies in Alberta.

The company expects to add 20 stores in 2006 and another 20 in 2007.

There are more than 600 franchised, affiliated and corporate stores of various sizes under the RONA brand, Morissette says. He adds that the acquisitions added $2 billion in sales and took retail sales from $1.3 billion in 2000 to more than $5 billion in 2005.

Morissette's prediction about the demise of the independents doesn't faze Paul Strauss, vice-president and CEO of Home Hardware, the 1,019 independent dealer-owned co-operative based in St. Jacob's.

"I don't know where they get their numbers," he says, adding that the company's network of stores will remain as strong as ever. "There have always been big boxes. Home Hardware grew in response to the first big boxes in Canada - Kmart and Towers."

"It (Home Hardware) started because large corporate stores were seen as a threat to the smaller independents. There was concern the large stores were going to put the independents out of business."

Strauss says the company's strategy remains unchanged. "Home Hardware provides quality goods at competitive prices and services to our members. We have more home-improvement outlets than anyone else in Canada."

Home Hardware sales were more than $4.3 billion last year, Strauss says. He adds that in the first three months of 2006, sales were up 11 per cent over last year, with furniture sales alone increasing 34 per cent.

Last year, Home Hardware spent $75 million expanding its distribution centres in Ontario and Alberta, as well as opening 13 new stores and starting expansions at 50 other store locations.

"Every dealer can use our distribution centre as their warehouse," Strauss says. "There is no need to have 60 types of hammers unless they serve a market that needs 60 hammers."

Winter agrees with Strauss about the role of independents although he also believes the big boxes will continue to chip away at them. In order to survive, independents will need to cater more to the markets they serve, as well as exploit the advantages they have over their big-box competitors.

"Their survival depends on their capacity to meet the specific needs of customers who live within two to three miles of the store. But they have to work at taking advantage of their strengths. If the strip mall is open until 9 p.m., the independent hardware store can't close at 7 p.m. and expect to get customers," he says.

(Charles Wyatt can be reached at wyatt@businessedge.ca)