This isn't rocket science. It's hardware - hammers, nails, screwdrivers, paint. What could be cutting edge about a business as old and traditional as the neighborhood hardware store?
Plenty. And in this business a lot of the innovations are coming from Fort Wayne, home of Do It Best Corp., a wholesale hardware cooperative owned by independent hardware retailers. With retailing in general falling increasingly under the spell of big-box stores and e-commerce, Do It Best gives the locals running the corner hardware store not just products to sell but the marketing tools they need to be competitive.
For those stores that sign up, a relationship with Do It Best Corp. can even provide an identity, as a "Do It Best" store or a "Do It Center." It's kind of a happy medium blending the advantages of a chain operation with the charm and control of an independent retailer. And the latest twist from Do It Best: hardware sales on the Internet, something a small, local hardware store is unlikely to achieve on its own.
It all adds up to a healthy and growing business. Do It Best Corp. this summer celebrated a major sales milestone, crossing the $2 billion mark for the first time ever and finishing the fiscal year with $2.2 billion. The wholesaler serves some 4,200 stores nationwide, having added 700 through its 1998 acquisition of Our Own Hardware, another cooperative. It's moving up on the No. 2 group of independents, Ace Hardware, which serves more than 5,000 stores and reported sales of $3.1 billion in 1998. The industry leader, TruServ, had 1998 revenues totaling $4.3 billion and more than 10,000 stores sporting such names as True Value, Coast to Coast, ServiStar and Grand Rental Station. Ace and TruServ both are based in the Chicago area.
"The first thing you have to understand about Do It Best is we're a member-owned company. We're not publicly traded and not a family-owned company," says Mike McClelland, the cooperative's president and CEO since 1992. "A member is a retail store. They own our company, and all year long they are our customers. We need to provide them products and services. But at the end of the year they expect a solid return on their investment, and we pay dividends to members in the form of rebate dollars."
It's a profit-sharing sort of arrangement that can be quite lucrative for member stores. "One member in Michigan last year got a check for $765,000," McClelland says. "He had purchased some $7 million of product from us. He used those rebate dollars to buy another store and renovate an existing store."
And that kind of development, McClelland knows, is the key to the long-term success of Do It Best. "Our future is based on helping our members to expand."
INDEPENDENT OPERATORS
Walk into a hardware store or lumberyard served by Do It Best Corp. and one thing is clear from the start: the store is an independent operation. It may say "Do It Best" above the door, but it also is likely to carry someone else's name, like Sullivan or Bender or Russell. Unlike a chain of company-owned and/or franchised operations, such as McDonald's, the member/owners of Do It Best Corp. reveal plenty of their own ideas and personalities in their individual stores.
"Compared to a chain operation, one of the major differences is that a chain operation is largely controlled by corporate headquarters. Headquarters dictates the products and what they are selling for and profits go back to headquarters," McClelland observes. "In our type of operation, independent stores truly are independent. They decide what products they'll supply. We have standards that they must adhere to, but they are independent retailers."
Annual Sales Stores True Value $4.3 billion 10,000+ Ace $3.1 billion 5,000+ Do It Best $2.2 billion 4,200
And that suits people in this business quite well, says Jim Robisch, senior partner in charge of retailing and wholesaling research and consulting at the Farnsworth Group, an Indianapolis firm specializing in the home improvement and repair industry. "Independent hardware dealers are very conservative," he observes.
But that doesn't mean they can't benefit from some cooperative efforts. That's why Do It Best's services go beyond simply providing the products that these stores sell. One of the most visible efforts is the branding program Do It Best offers its members. The program began back when the company was known as Hardware Wholesalers Inc., and offers retailers the opportunity to call themselves "Do It Centers" or "I)o It Best" stores. The program came full-circle last year when Hardware Wholesalers Inc. officially changed its name to Do It Best Corp. to reflect the branding strategy.
"The way it started was back in about 1980 we went to a meeting in Columbus, Ohio, put on by Management Horizons, a consultant in the retail industry," McClelland says. The company hooked up with a consultant named Don Watt, whose other clients through the years have included Steak n Shake, Wal-Mart and Home Depot. "He showed what he would do to take the store and turn it into an advertising asset."
The resulting "Do It" concept had a trial at four stores in the early 1980s, and customers responded well. Do It Best Corp. also began providing private-label products and discovered that shoppers viewed them as a better value, even if they were priced only slightly below name brands.
Pat Sullivan, second-generation owner of Sullivan Hardware Do It Centers in Indianapolis, is a firm believer in the branding program. He calls his stores' switch to the Do It Center concept in the mid-1980s a "turning point" toward greater success. "These programs, coupled with a low-cost operation, are a huge advantage within the industry. There was a study that showed the average first-year sales increase from a vanilla hardware store to a Do It Center is 39 percent," he says.
Do It Best Corp. brings other chain-style advantages as well. "We have retail development specialists and one of their functions is to try to bring together members in a local community. One function is to do some pool buying," McClelland says. "The flip-side is to advertise." For example, Do It Best members in the Indianapolis area this summer have been banding together to buy radio spots, something that otherwise might be prohibitively expensive for small retailers.
NEW TOOL FOR HARDWARE STORES
Another thing the average corner hardware store can't do on its own is venture into e-commerce. But Do It Best Corp. merged into the travel lanes of the Infobahn last month with the debut of what it calls the "World's Largest Hardware Store," an Internet site at www.doitbest.com that's peddling some 70,000 hardware and building products.
Nearly half of all households have computers, McClelland notes, and consumers last year bought $15 billion worth of goods on-line. "Three years ago, Amazon.corn didn't exist, but today that company dominates the book category over the Internet. We want to help our member-retailers dominate the on-line hardware category."
The site offers not only products but do-it-yourself advice and project tips, including articles and video clips. Orders are shipped from Do It Best's retail service centers across the country. For items that can't be shipped via UPS (such as some building materials), customers are directed to a nearby Do It Best store that can arrange delivery.
"For any store that signs up, you have a web site and if people enter from your web site and shop and buy something, the store gets a 12 percent commission or rebate and that customer is yours for life," Sullivan says. Members who are part of the Internet venture also collect customers in nearby ZIP codes who enter through the main Web address.
BATTLING THE BIG BOXES
The competitive environment in which Do It Best members operate shares some similarities with other retail sectors, but has some significant differences as well. Like stores that sell appliances or books or hobby supplies, hardware stores have watched so-called "big-box" retailers move into their neighborhoods. But in the business of hardware, these big boxes haven't lived up to the other nickname often applied to giant chain stores: "category killers." It's tough these days to find an independent bookstore or a local variety store on the courthouse square, but the local hardware store is anything but dead.
How can this be? As it turns out, corner hardware stores and such big boxes as Home Depot, Lowe's and Menard's are not as direct competitors as those outside the industry might guess. Ellen Hackney, communications director at the Indianapolis-based National Retail Hardware Association and Home Center Institute, says the overall industry can be divided into three distinct segments: hardware stores, home centers and lumberyards/building-materials vendors. View it as a continuum and hardware stores are on one side, lumberyards on the other, with the big-box home centers holding the middle ground.
"There are 44,000-plus units, and about half are hardware stores," she says. The industry as a whole had estimated sales totaling $145.3 billion last year, she says, with about $22 billion at hardware stores, $71 billion at home centers and $52 billion at lumberyards and building-materials outlets. It may seem like hardware stores are being squashed by the others, but Hackney says it's not an apples-to-apples comparison because many hardware stores don't sell high-priced building materials or big-ticket power tools. In general, the product count at hardware stores is significantly smaller than at home centers, about 15,000 compared to about 45,000.
Sales in all three segments have been growing and are expected to continue expanding, even though store numbers are not. "There has been a decline of about 10 percent in the number of hardware store units in the last 20 years, but often for reasons other than competition from large chains," she says. For one thing, they often are family businesses and sometimes don't survive retirement. And the decline in stores isn't limited to the hardware segment. "Home centers and the lumber and building materials segments are also seeing a leveling off, and we anticipate something of a decline in units in those segments."
One reason the little guys are still in good health is that a lot of people get lost in the big stores. "About half of the American population likes to shop in larger stores. The other half would prefer to shop in smaller stores, where it's easier to get in and get out and get more attention," McClelland says.
"In more and more surveys, one of the main reasons people don't like to shop big-box stores is the security issue," he continues. "They don't like to be in a large parking lot. They want to park close to the store."
Also, customers often feel they get better service in a smaller store, which may have such things as screen-repair or tool-rental programs. "The big boxes don't like to sell anything that takes a lot of time," McClelland says. Choosing paint colors and mixing paint can be time-consuming, and while the home centers sell custom-colored paint, they may not be able to spend as much time with each customer. "A lot of times our members' largest-selling department will be the paint department. The employees are willing to spend time."
"Our product mix is similar" to that at a chain store, Sullivan says, "but because of the convenient size of the store and the help we provide, we've been able to coexist. Most of our customers also shop the big chain stores."
Proof that smaller stores have a solid niche is the move by Home Depot, the biggest player in the business, to open its own chain of smaller stores, called Villagers Hardware. "It's literally taking a larger approach to a market that has been well served by independents," Robisch says.
In any case, it's the profit that matters more than anything, and in this department hardware stores are doing just fine. "We see hardware stores getting bigger and the average sales per store are growing," says Hackney, whose organization conducts a member survey on the cost of doing business. "Stores are more productive and more profitable. The top hardware stores' performance figures are as good as and in some cases better than the big chains'."
THE HARDWARE MAN
Mike McClelland joined Hardware Wholesalers Inc. 25 years ago. "I was an assistant in our personnel department. I spent seven years in human resources and in the early 1980s got involved in our sales area. I was made vice president of sales in 1981 and in the mid-80s assumed responsibility for marketing. I became executive vice president in 1987, and president and CEO in 1992."
The hardware chief was born and raised in Logansport, earned a bachelor's degree from Ball State in 1969 and a master's from Saint Francis College in 1972. But his interest in the business of building started long before that.
"I've always enjoyed building things, even as a kid," he recalls. "A lot of times we didn't have much money so we would take old crates apart and straighten up the nails to reuse them."
Now that he sells nails, he still enjoys home improvement. "It's very enjoyable. I had a lake cottage and built a deck on it and put on vinyl siding," he says. More recently he helped do some work at a home in Bloomington that his son bought. Of course, he bought the supplies at local Do It Best member stores.
"One of my other hobbies is working on old cars," he says. He fixed up a 1956 Corvette and currently is looking for a 1965-or-so Corvette to work on. He also has a vehicle a good bit more rare. "I have a 1951 Willys station wagon. The company that made it was Willys Overland Corp., which made Jeeps during World War II."
BUILDING A HISTORY
Do It Best Corp. was the creation of a Fort Wayne native named Arnold Gerberding, who was born in 1900 and got into the hardware business immediately after high school. He got a job at Pfeiffer Hardware in Fort Wayne, then worked as a buyer at Schafer Hardware in Decatur. He became intrigued with the growing power of dealer-owned cooperatives, which had sprung up in the early years of the century and had become quite numerous by the 1930s.
Gerberding began to dream of launching his own dealer-owned cooperative, and began signing up members, aiming for an initial goal of 75. In June 1945, a group of early investors gathered in Fort Wayne to form the new corporation, which Gerberding wanted to call Royal Hardware Co. to suggest quality and distinction. He was outvoted, however, and the corporation took on the more generic name Hardware Wholesalers Inc., which it held until it became Do It Best Corp. just last year.
"Arnold Gerberding was the founder and was president for 20 years," McClelland says. "My predecessor, Don Wolf, became employed here in 1947 and was president from 1967 until 1992." Though the company joined the billion-dollar club only in the past decade, McClelland gives a lot of credit to the example set by Gerberding and carried on by Wolf. "After Mr. Gerberding retired I asked him what was the secret to his success. He said, 'In 20 years I never told a lie to anybody.' And Don Wolfs focus was the customer and how can we grow the company so we can provide more for our members."
McClelland carries on a business philosophy that he acknowledges may sound old-fashioned and corny to some: "Our philosophy is to serve others as you would want to be served," he says. "People always help each other and will drop what they are doing to help a member."
He recalls a story he used to tell before he had climbed the ladder to the top rung: "If I walk into my office and there are three messages on my desk - one says call a member, the second says call the president of the company and the third says call my wife - I'd always call the member first, and then depending on what kind of mood my wife was in when I left the house I'd either call the president or call my wife."
He rattles off other philosophies that he thinks have made the company the success that it is today. "We've always been a very riscally conservative company. We're a $2 billion company, yet we have no debt."
"One of their claims to fame is that they have the cleanest balance sheet in the industry," agrees Robisch. "It's a well-run company, and very ethical - almost squeaky clean."
McClelland also recalls being moved by a 1992 Fortune magazine article titled "Dinosaurs?" The article examined how many of the industrial giants of 20 years earlier had become practically irrelevant because their leaders had become complacent. "It was the most important article I've ever read."
Complacency is not a problem at Do It Best Corp. New ideas such as the Internet venture continue to flow from corporate headquarters, members continue to change stores into Do It Best or Do It Center outlets, a seventh distribution center is opening soon while an eighth is in the works, and sales keep growing. The $2.2 billion recorded in the just-ended fiscal year is a 16.5 percent increase, or $308 million, over a year earlier.
There's plenty, of opportunity for continued growth, McClelland says, some through adding stores and members and a lot through demographic trends. "We see great growth opportunities from the Baby Boom population. And more than 50 percent of the homes in America are more than 30 years old," and thus are prime candidates for home improvement. "Our goal is to double our volume today by the year 2006."
