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Ace Hardware evolves to stay competitive

The buyers co-operative has pushed its 4,800 independent store partners to remodel and modernize.

By MARK ALBRIGHT
Published March 28, 2005

Home Depot and Lowe's have tested the survival skills of the corner hardware store. Ace Hardware, though, continues to grow slowly, but steadily.

The company, with headquarters in Oak Brook, Ill., serves as a buyers co-operative for 4,800 independently owned hardware stores, including 360 in Florida. It is big enough to rank third in do-it-yourself home improvement sales of $13-billion at retail in 2004.

If the Ace stores were one company, it would be the nation's 21st biggest retailer, ranked right behind Federated Department Stores Inc Ray Griffith, 51, takes over as chief executive next month, and in a St. Petersburg Times interview explains why Ace is a changing place.

What has changed in the hardware business over the past decade?

The number of independent hardware stores has been declining and the 10 major buying co-operatives has shrunk to two. The misperceptions linger about the neighborhood hardware store: that they are mom-and-pop businesses, they are not modern, they are a man's store, they are high-priced and have mostly hard-to-find widgets. That may be true of some hardware stores but they won't be in business very long today because the customer today doesn't want to shop there. We have worked hard to make our stores the exact opposite of all those misperceptions. And we have built great brand awareness.

Studies have shown that after 18 years of ads, 80 percent of American adults link John Madden with "Ace Is the Place with the Helpful Hardware Man." Considering that you only spend $30-million a year on advertising nationally, that's quite a feat. Is he as demonstrative live as he is on Monday Night Football?

John talks with his hands. I remember one speech he gave our retailers when he knocked over a potted plant, the microphone stand and almost destroyed the podium. He's a very big man. So when he hits something, he hits it pretty hard.

How has Ace changed in the past few years?

We morphed from a wholesaler to being more of a retailer. To support our brand position as the "Most Helpful Hardware Store on the Planet," we have made massive efforts to encourage our retailers to remodel, install better lighting, create wider aisles and become more knowledgeable in the disciplines of retail so they have the right goods when customers want them. The training for retailers is far more extensive and it's available for everything from unloading a truck to running a store.

You introduced incentives to coax your retailers into adopting 15 measurable standards of training, lighting and other store features to match your brand promise. Your retailers are independent entrepreneurs. How did they react?

I won't say there hasn't been resistance. But our goal was to have 1,100 stores signed up the first year and we have 1,870. Our goal is 400 more this year. We've only lost about 30 owners as a result of the growth strategy. If they decide not to support the brand, we'll keep selling them product. But we'll ask them to take down the Ace sign. The retailers that have joined the program so far account for 80 percent of all our sales.

You've begun a three-year plan to expand the Ace network in new ways. How did that get started?

For years co-operatives in this industry grew by stealing the other guy's retailers. We decided to grow by getting more multistore ownership and new investors into the business. We have 3,600 owners and 4,800 stores. But our largest owner has 78 stores. More than 100 own a half-dozen.

What type of owner are you attracting?

They are younger, in their late 30s or early 40s, well-educated, interested in a new way of life, running their own company and making money. It is a business mentality not seen in every hardware store in the country.

What's the attraction?

We're comparable to a franchise opportunity; we just have not done a good job of selling it. Typically our retailers need $300,000 to $350,000 in equity or a total investment of about $1.2-million. The average Ace store does $2-million to $2.3-million in revenue a year.

That puts a new hardware store owner in the direct line of fire of Home Depot and Lowe's. Is that a good place to be?

Spending on the home continues to rise. But the number of hardware stores is declining because so many retailers refuse to stay up-to-date, reinvest in their stores or make them relevant to the customer. Traffic patterns change, but they don't move where the people live.

Don't the big boxes dominate places where people moved?

A lot of people don't want to shop a big box store. They are time-starved. They want convenience and to get in and out fast. They highly value knowledgeable customer service. Today 50 percent of the U.S. population lives within 3 miles of an Ace. That means half the population does not. We think we can add 1,100 new stores within three years.

The percentage of women shopping Ace stores rose from 30 to 40 percent in the past decade. Your research found 60 percent of single female homeowners mow their own lawn. What are the implications for the future hardware store?

Women are a lot more involved in do-it-yourself than a decade ago. They make most of the purchase decisions. They don't want that nostalgic, old hardware store experience. They want wide aisles, better lighting and advice. But they don't want to be talked down to.

That also means different merchandising, yet most Ace stores sell only a few types of faucets. Why are they all in boxes?

We've been doing it poorly. We promoted our first woman buyer in plumbing last year. She persuaded us all the faucets need to be displayed so you can see them. You need the right finishes. Men just buy brass or chrome. Women are looking for brushed nickel or bronze. They love home decorating quizes. So we've developed a brochure to determine how to match paint colors to your personalty. We also added 2-foot-square paint samples you put on the wall to see what it looks like in different light.

You also offer other niche products because many Ace hardwares are not just hardware stores.

They aren't. We've got one store in Gallup, N.M., that has a pawn shop. Our stores in Saudi Arabia are as big as a Wal-Mart and carry jewelry and high-end cutlery. Some domestic stores have kids' play areas or do-it-yourself libraries. This year for the first time we're offering our retailers Carhartt garden or work apparel, the products to stock an entire paint ball department, bird houses, air purification equipment and garage organizing systems.

What is the significance of your opening a buying office in Hong Kong?

Two things. There are a lot of opportunities to buy internationally because we stock Ace stores in 70 countries. China is ramping up its manufacturing capacity like you cannot believe. To compete in today's environment, you have to import. Most patio furniture today, for example, comes from China. If you are not playing in that game, you cannot serve your retailers and you turn off their customers.

How did you get in this business?

After college I started out as a management trainee at Osco Drug and worked my way up from managing stores. That took me to nine states. I was the chief executive of one of the other co-ops.

How about your childhood?

I grew up from age 13 on a Southern Illinois farm. My father retired from GE and wanted to be an entrepreneur. We raised hogs, cattle and baled hay. I learned how to survive and that I did not want to be a farmer.

Mark Albright can be reached at albright@sptimes.com or 727 893-8252.

[Last modified March 28, 2005, 14:57:31]