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Nailing its niche

Ace Hardware's focus on service and convenience has pushed up sales as it competes against big-box chains such as Home Depot.

January 22, 2007|Dave Carpenter | The Associated Press

OAK BROOK, ILL. — Every time he gets on an airplane wearing his gray Ace Hardware work shirt, Ray Griffith hears expressions of concern.

Fellow passengers always want to know if the venerable cooperative is managing to get by OK in the face of competition from ever-proliferating home improvement superstores. It's a question Ace's chief executive finds almost embarrassing, he says, because the retailer-owned company is doing so well.

"All our vital signs are very positive," Griffith said in an interview at Ace Hardware Corp.'s headquarters here, west of Chicago. "And people seem to be almost amazed at that."

A focus on convenience and knowledgeable service has enabled the 4,600-store chain to hold a modest but healthy share of the huge hardware market, providing the impetus for the biggest new-store expansion in its history.

The 83-year-old chain just concluded its best sales year since 1998, with wholesale revenue up 6.5% to $3.4 billion and a record profit exceeding $104 million, based on preliminary figures.

Its stores, about two-thirds owned by independent dealers, racked up almost $12 billion in retail sales in 2006.

Although mega-retailers Home Depot Inc. and Lowe's Cos. are expected next month to report combined sales of about $140 billion in 2006, Ace appears to have outperformed the two leviathans in same-store sales growth for the fourth year in the last five.

In addition, Home Depot is under fire for spotty customer service and sluggish sales in its warehouse-like stores, along with a lagging stock price, which led to the abrupt resignation this month of CEO Bob Nardelli.

Big enough in its own right to make periodic appearances in the Fortune 500, privately held Ace nonetheless embraces a David-versus-Goliath role as protector of the small hardware-store owner.

"We come to work every day on behalf of the entrepreneur," Griffith said. "We have a chip on our shoulder about the big boxes, and we like that. We like being the underdog. America loves the underdog."

Ace has been looking out for individual entrepreneurs since its founding in 1924, when four Chicago-area hardware store owners united to increase buying power and profit.

Ace is not the place for the lowest prices or the biggest assortment of home improvement goods; the big boxes have it beaten in those categories. But analyst Howard Davidowitz says it nonetheless is doing "tremendous" business by emphasizing convenience and by continuing to upgrade the aesthetics of the stores.

"It's not a question of price or they're out of business a long time ago," said Davidowitz, chairman of Davidowitz & Associates Inc., a New York-based retail consulting and investment banking firm. "It's a question of convenience and service.

"Their stores are bright, organized and have the key [product] categories," he said. "They have carved out a niche, and it works."

Ace patterns itself after Walgreen Co., the fast-expanding drugstore chain that battles its own giant rival, Wal-Mart Stores Inc.

The hardware cooperative isn't growing quite as rapidly, but it is opening a new store about every other day -- 188 in 2006, with 180 planned for this year. Half the U.S. population is within three miles of an Ace store. "The opportunity," Griffith said, "is the other 50%."

Much of its trademark red has been removed from store decor, replaced by softer colors such as beige in an effort to appeal to more women. And the high-end Benjamin Moore line and many new colors have been added to its paint section, reflecting that 90% of paint colors are picked by women.

Even its longtime slogan has changed to "Ace is the place for the helpful hardware folks," not man, because of the clientele's gender shift.

Ace is changing the way it advertises, trying a guerrilla marketing campaign because consumers are harder to reach through traditional advertising. It is sponsoring a contest called Dream Ace, with the winner set up with his or her own $1-million store.

In short, Ace is acting increasingly like a retailer these days, not just a supplier of inventory for its stores.

"Home Depot and Lowe's have caused us to be more aggressive with our retail approach," Griffith said. "We're using the scientific side of retailing and we're working harder to reduce costs and gain efficiencies."

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