US News: Home Depot Gets Convenient

How many times have you noticed unused parking spaces in big-box parking lots and thought how wasteful that is? Bob Vereen reports on Home Depot’s experiment with convenience stores…

Under CEO Bob Nardelli’s latest diversification effort, Home Depot is testing a way to convert some of that wasted space into new sales-producing ventures which also provide a convenience to its customers, especially the trades people and contractors who patronize its orange-bannered big boxes. At four Depot locations surrounding Nashville, Tennessee, the company has opened a “convenience” store on the parking lots, selling gasoline and a limited selection of packaged and ready-to-eat food items (hot dogs, sausages, sandwiches, etc). Convenience stores in the United States are a substantial business on their own, racking up gasoline sales, plus selling a thousand or more other items, ranging from newspapers and magazines to hot coffee, cold soft drinks, health and beauty aid sundries, candy, miscellaneous sundries, etc.

Caption: Exterior view of the handsomely designed Home Depot convenience stores on company parking lots

By contrast, Home Depot’s test stores are much more limited in their merchandise offering, relying on snacks, candy, some food items and hot and cold drinks that consumers and trades people might want to consume immediately, or later while on the job. The result is a store that is smaller, cleaner, easier to shop in and, most importantly, easier to manage than a conventional U S convenience store. It is also vastly different from the parking-lot gas stations dotting the landscape of some supermarket parking lots as well as those being operated by Wal*Mart. These other gas stations are simply that, they are not designed to be entered by customers. A customer walks up to the approximately 15 x 15 foot building, asks for cigarettes, or perhaps a candy bar, or simply pays for gas. It seems logical, then, that Depot’s version of the parking lot convenience store might generate more sales and provide more “convenience” than those run by Wal*Mart or supermarkets.

Depot’s stores are handsomely designed inside and out, with wide, angled aisles and no unnecessary clutter. The angled aisles lead to a back-of-the-store checkout, encouraging full exposure to its impulse inventory of candy, snacks, etc. The angled aisles and low fixtures also discourage shoplifting because store personnel can keep the entire small sales floor under surveillance. Inside, the stores feature the very latest in coffee, cappuccino and cold drink dispensing machines, a marked contrast with those in older, traditional convenience stores. They make it seem as though the refreshments would be closer to Starbucks’ quality rather than just simply “coffee.”

Caption: Modern equipment imparts a quality look to drink offerings

The bright, dramatic graphics are another feature which sets these stores apart from conventional convenience stores. They make the stores far more attractive and emphasize the lack of clutter in contrast with other stores. Depot shaves a penny off gas prices charged by nearby stations, but holders of Home Depot credit cards can save an extra 3 cents a gallon by using that card, a technique also used by other parking-lot stations.

These convenience stores are just one more example of the diversification efforts Nardelli is introducing into Home Depot. When he took over 5 years ago, he quickly realized the company was nearing saturation in its conventional store format. Opening more stores in existing markets will only cannibalize sales in existing stores, and there are few, if any, major markets untouched by Depot. Nardelli has already announced plans to enter some smaller markets, but seems now to be concentrating on trying to dominate the wholesale/commercial side of the business, as Depot now dominates the retail side. His acquisitions of Hughes Supply and more than 20 other firms over the last few years, now make the company the dominant player, by far, in the heretofore disorganized industry.

 

i>Caption: Handsome, giant graphics provide dramatic interior décor

With these new convenience stores being tested, it would seem that if Depot can generate a reasonable sales volume, the units could be profitable. Depot’s biggest expense had to be constructing the building and buying the inside dispensing equipment. Staffing costs would be minimal – one, or maybe two, people can handle the sales flow. Occupancy costs would be non-existent, since the stations occupy unused parking spaces. Not all of Depot’s nearly 2,000 store locations might justify adding such a convenience store, but even adding 500 to 1,000 such units could become quite a nice addition to corporate sales for the company.

And the world will know how the experiment is paying off, by how quickly Home Depot expands the concept – or doesn’t!

CAPTIONS Pic: Gas Station exterior.jpg Depot Front.jpg This is the Depot store lot in Nashville on which this convenience store is located Inside1.jpg Inside2.jpg Fuel Offer.jpg Customers can save three cents a gallon by using the Home Depot credit card

Ace Goes International

(A summary of a report by Murray Armstrong, President of Ace International, a division of Ace Hardware, delivered during Practical World in Germany)

Ace Hardware, America’s largest hardware wholesaler, is aggressively pursuing sales around the world. According to Murray Armstrong, President of Ace International, the division responsible for international sales, the company now supplies retailers in 70 countries. Speaking at a seminar held during Practical World in March, he said the firm got its feet wet internationally when it began serving a single store in Guam in 1975. It established its international division in 1991.

Today, it is serving 4,800 stores, including those in the 70 countries. Its international dealers account for $1 billion in retail sales annually with the international division growing at a 20% annual rate, he said. This far exceeds the growth rate of its domestic business. In 2005, the company opened 10 new international accounts, which operated 140 stores. The company is now focusing on supplying chains in various countries, not signing up individual stores. In some cases, it is successful in bringing new venture capitalists into the industry, who recognize that Ace, with its systems, sources and international know-how, can help them quickly become a significant factor in their home country.

Ace also has been successful in penetrating some segments of the European market. It recently announced a new relationship in Greece, for example. Europe, with its already established hardware/home center market, has proved difficult for outsiders to penetrate. Ace today operates with 15 distribution centers in the US, plus one import warehouse and four export-consolidation distribution centers. These export-consolidation centers and the import warehouse enable the company to lower shipping costs by consolidating orders from various manufacturers for each international account.

It also has an Ace global distribution center in Hong Kong. Its slogan, ‘Ace – The Helpful Place’ – is being adopted by many of its international dealers, as is its newest store design and layout. The company is enthusiastic about future international growth, due to the growing acceptance of DIY in many markets previously not embracing it. There are growing middle classes of consumers in more and more countries, as well as growing home ownership. Mortgages are now available in many countries where they previously had been unavailable, which is stimulating home ownership.

In many of the world’s markets, consumers have not been able to enjoy shopping at convenient, self-service, fixed-price stores with broad inventories. Ace’s assortments and services help local retailers better serve these growing consumer markets by providing products and services that help them grow.

By Bob Vereen
Australian Hardware Journal’s US Correspondent