Aggressive Growth Plans

Bob Vereen reports on a major campaign underway to expand and revamp Ace Hardware…

Under new leadership for the first time in more than a decade, the world’s largest hardware wholesaler, Ace Hardware, is setting out an aggressive new growth strategy for the next three years. Whether it will be able to accomplish its goal will depend on how willing some 3,800 independent retailers will be to give up some of their independence. Those 3,800 retailers currently operate more than 4,800 stores.

An early version of Ace’s modernization efforts showing a Color Centre – note departmental signage, an improvement over earlier signage effortsAHJusnews01May05

Ray Griffith, who became Ace’s CEO on April 1 this year, wants to add 1,100 new, modern stores to its nationwide network by 2008. The goal, he said, is to offer consumers cleaner, brighter, more customer-friendly stores in both new and old locations. He firmly believes there is a role for hardware stores to play as a “convenience” option to big-boxes such as Home Depot, Lowes, Menards and Wal*Mart.

Griffith’s background includes a stint as Chief Executive Officer of Coast to Coast, a hardware wholesaling franchise operation which, for many years, successfully recruited investors to open small stores with a unified chain look, primarily in smaller towns.

However, Ace is different since it seeks out and signs up successful independent retailers as member-owners. These stores achieved their success in a variety of store sizes and formats and with widely varying marketing and merchandising approaches.

They built their businesses by the force of their personalities, independence and unique merchandising philosophies. Many, of course, kept changing and modernizing as needed over the years, but most continued to build their business by emphasizing their own individuality, with a heavy emphasis on personal service.

For the past few years, Ace has been encouraging its dealers to open new stores by offering up to $215,000 in merchandise credits. These credits are used to fill a new store, and present its vision of the proper merchandise mix, store layout, computer systems, pricing and employee training. This was the heart of its Vision 21 modernization program inaugurated several years ago.

According to Griffith, turning Ace into a powerhouse national chain that looks the same everywhere, is key to competing with the big boxes. Walgreen – America’s largest drug store chain – is growing rapidly by internal expansion, not by acquisition, and Griffith thinks Ace can do the same. Walgreen, however, is a corporate chain with top-down managerial power, not a cooperative comprised of 3,800 individual owners with their own ideas of how to succeed in their local markets.

OLYMPUS DIGITAL CAMERAA sign emphasizing Ace’s rental program

Griffith spearheaded Ace’s earlier effort to “standardize” and improve Ace’s public face. In 2000, he gathered dealer groups at its annual meeting/trade show for brainstorming sessions, asking what it would take to get dealers to sign onto a plan to modernize and unify Ace stores. The resulting plan, Vision 21, met with remarkable success. With it, Ace converted 2,500 of its 4,800 stores to upgrades, which Ace helped by providing the merchandise credits, as well as working out bank agreements to provide attractive terms for new store loans and remodellings. It also presented achievement awards to compliant stores.

However, 1,600 stores so far have resisted the modernization/ standardization efforts. And Ace also discovered that nearly 550 of its units did not even want to identify themselves as Ace stores by using the name in any way. Those not using the name, no longer enjoy all the financial benefits Ace-identified stores receive.

Griffith said all new stores are to be at least 12,000 sq ft in size, considerably larger than the average Ace store of 9,000 sq ft today. In fact, there are many older Ace member-dealers operating stores of 5,000 sq ft or less, particularly in urban areas and very small towns. Griffith said dealers who signed up for Vision 21 are enjoying greater sales gains than the average Ace dealer – 4% in 2004, compared with a 1.5% increase for those not participating.

Less publicized, but equally contentious for some dealers, is Ace’s insistence on greater control of products and brands in dealer inventories. This again perhaps reflects Griffith’s Coast to Coast experience where the head office selected the products and brands so that advertising and assortments were common amongst all Coast to Coast stores. Individually, Coast dealers could supplement and diversify their selections by buying from other wholesalers, but there was far more uniformity in inventories than amongst any other group of hardware stores. Some industry observers think other wholesalers could benefit by being able to sell items to Ace dealers that are no longer “approved” lines. They wonder if Ace will really not stock as broad an inventory and assortment as previously, or if it will simply concentrate its marketing efforts more on “approved” lines.

One of Ace’s more modern stores, located in a strip centre in a suburban, midwestern town

Another consideration will be the future role of brand franchises amongst Ace dealers. Some very powerful brands are marketed on a restricted basis through select dealers, and those dealers have built up strong sales promoting those brands. It would seem that Ace would not want to interfere with those distribution agreements.

Griffith, whose career ranges from his Coast to Coast experience to a stint with ServiStar Coast to Coast, when ServiStar acquired Coast, wants to avoid the kind of upheaval that decimated the former number one wholesaler, Cotter & Co, when it merged with ServiStar Coast to Coast and became TruServ. In the process, it suffered severe financial and operational problems, losing thousands of retailers – many to Ace.

To avoid upsetting younger and more aggressive dealer-members, Griffith has formed a “Progressive Ace Leader” advisory council of dealers aged 40 years and under. It is this next generation of owners that Ace realizes it must satisfy, as it seeks to grow.

By Bob Vereen, Hardware Journal’s US Correspondent