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Home Hardware CEO Terry Davis is shaking things up for his chain by updating store design and focusing on e-commerce.Glenn Lowson/The Globe and Mail

Terry Davis is dipping into a new toolbox to reshape how Home Hardware Stores Ltd. operates in a fast-changing sector.

The chief executive officer of Home Hardware, based in tiny St. Jacob, Ont., about an 80-minute drive from Toronto, is racing to take on intensifying competition from U.S. titans. In the top spot at Home Hardware since 2014, Mr. Davis has quietly overseen a senior-management overhaul, the introduction of new mandatory operating rules for its store owners, such as updating their store design and rolling out e-commerce, and the naming of a spunky ad agency after 40-plus years with its former shop.

His new toolkit is helping him take on deep-pocketed Lowe's Cos., which last year bulked up in Canada by acquiring Quebec-based rival Rona Inc. for $3.2-billion, as well as industry leader Home Depot Inc.

Read more: Home Hardware CEO is a lifelong do-it-yourselfer

Already in the past year or so, Mr. Davis has ditched about 25 of Home Hardware's roughly 1,100 "dealers" (store owners), an unprecedented move for the 52-year-old retailer. In the past, the company had threatened to cut off a couple of its store owners who wouldn't comply with head-office initiatives, such as adding the latest store finishes and signs, but had never followed through until now.

"Yeah, you can say I'm shaking things up because I'm holding dealers accountable to a higher standard," said Mr. Davis, a 46-year Home Hardware veteran who turned 65 this month as he starts drawing up the retailer's next five-year plan.

"I'm making sure they comply … We had to send a very clear signal that we were serious about it."

In an increasingly tough, margin-thin home-improvement retail landscape, Home Hardware, the third-largest in the Canadian sector after U.S. powerhouses Home Depot and Lowe's, is working to streamline its operations and inject more uniformity, discipline and marketing pizzazz into the business. It's counting on its service-friendly and down-to-earth small-store culture to draw customers from U.S.-owned rivals.

"Terry is a shakeup guy," said Michael McLarney, president of industry publication Hardlines and managing director of the North American Retail Hardware Association Canada. "He's looking to push Home Hardware into the 21st century … He doesn't want it to be so quiet anymore."

The need for a transformation is evident. Annual sales growth in the $45-billion home-improvement retail industry has slowed to about 3 per cent to 4 per cent from twice that pace more than a decade ago, Mr. McLarney's figures show.

Struggling with debt and rising house prices, many young consumers can't afford to buy homes while baby boomers are downsizing, resulting in fewer purchases at home-improvement merchants, Mr. Davis observes.

Even so, privately held Home Hardware expected its sales of about $6-billion to rise 7 per cent last year, the same as in 2015, partly from luring rival store owners to his chain from Lowe's and independent operators, and partly from adding new outlets and boosting sales at existing stores, Mr. Davis said.

At the same time, Home Depot, with an estimated $7.2-billion of sales here, has been making gains at existing stores while Lowe's now is a more formidable player after having acquired Rona, Mr. McLarney said. Lowe's executives "are definitely going to give Home Hardware a run for their money if they manage it properly."

Sylvain Prud'homme, CEO of Lowe's Canada, said aside from converting 40 big-box Rona outlets to the Lowe's banner, the retailer is also putting a push on expanding and upgrading its mid- and small-sized stores.

Lowe's Canada is looking to double the number of its diminutive hardware stores to about 200 in three years, consolidating them under its Ace Hardware banner while updating Rona's mid-size outlets, he said. And Lowe's will aggressively focus on recruiting dealers from rivals, including Home Hardware, he said.

"We are going to put a pretty strong plan together," Mr. Prud'homme said in an interview. "It's a competitive market and it will be for quite a while."

Mr. Davis is borrowing a page from his big competitors' standardization playbook by forcing his store operators to adopt a range of Home Hardware programs, such as store branding efforts, digitized returns claims and e-commerce. By July, the chain plans to offer home delivery of online orders rather than just the current store pick-ups, he said.

"Our competitors coming up from the States have very deep pockets," he said. "These are finely tuned machines that we are fighting against. When we make investments to streamline and become more efficient and try to compete … we can't afford to have dealers saying, 'I like the old way of doing things.'"

In marketing as well, Mr. Davis is making changes. This year, Home Hardware hired as vice-president of marketing Rick McNabb, a seasoned retail executive who in the past headed restaurant chains Swiss Chalet, Harvey's and Milestones at parent Cara Operations Ltd. and whose family for years has been in the Home Hardware business.

In a bold move this fall, Mr. McNabb replaced Home Hardware's long-time ad agency, run by veteran ad man Morris Saffer, with funkier John St. to help draw a younger, urban and more-diverse shopper with digital and social-media pitches.

Mr. Davis said he'd like Home Hardware's marketing to put even more of a spotlight on the store owners and their personal interests to help customers connect with them – and their stores. "This is a nosy culture," Mr. Davis said. "People want to know the behind-the-scenes stuff."

The store owners are stocking more appliances and furniture to help benefit from the decline of Sears Canada Inc., but those categories also are becoming more crowded as Lowe's, Home Depot and others carry those products.

In a slow-growth period for the industry, "everybody is going to be out there jumping all over their competitors to steal their business," Mr. Davis said. "Retail is going to just get ever more vicious."