Independent Retailer’s Recovery Guide

The stakes are high for the nation’s independent retailers. And the competition is fierce. Stores around the country are fighting for their share of the housingmarket recovery in a highly promotional shopping environment.

The world’s biggest players — Home Depot and Lowe’s — have shown impressive sales and earnings growth in recent quarters. How impressive? Consider that Home Depot has cleared a billion dollars in net earnings — that’s bottom-line profit — in each of its last four quarters, and six out of its last seven. Both chains have put together their best back-to-back quarterly comp-store sales numbers in years (HD: 7.4% and 10.7%; LOW: 6.2% and 9.6%).

And then there’s Amazon.com, Internet shopping, the show-rooming trend and a shopping public increasingly wired and increasingly willing to buy online.

In the face of such challenges, independent hardware stores, lumberyards, and farm and ranch retailers are asking, and are wise to ask: “What is to be done?”

The first answer, according to the experts, is play to your strengths. The independents have — and have always had — the advantage of local market knowledge, nimbleness and community connections. They are real advantages and must be exploited. But there’s much more.

What follows is a collection of strategies, tactics and ideas that HCN has gathered and edited from a wide range of industry sources over the course of many months. We’re calling it “The Independent Retailer’s Recovery Guide,” because “survival” is too low a bar for the proud independents.

Do the math

The old saying “knowledgeis power” has modern relevance to one of the keys of competitive retailing: price optimization. Understanding price sensitivity and managing your store’s price image are big elements of success.

One company that spends a considerable effort in this regard is Memphis, Tenn.-based Orgill. “We call it market-driven retail,” said Phillip Walker, director of marketing for the distributor and a former operator of Walker Hardware in North Carolina. There are few items — about 2% — in a store that fit into what Orgill’s retail scientists describe as the highest level of price sensitivity. These include staples like a gallon of paint and an Arrow T50 staple gun.

It’s also surprising how few products determine the entire store’s price reputation.

“We have found that 6% of a retailer’s items in a store typically make up your price image in a local market,” Walker said. “The remaining items represent your margin opportunity.”

It’s crucial to compete on that sensitive 6%, he said. “You don’t need to be to the penny, but you need to be in an acceptable range.”

Don’t be afraid, but be “productively paranoid”

In describing Ace Hardware’s plan to improve customer service — even after receiving a customer service award from J.D. Power and Associates for the seventh straight year — CEO John Venhuizen used a phrase laced with meaning: “productively paranoid.” That’s how he described the co-op’s mind-set in the face of industry challenges and competition.

He told HCN that hardware stores have always been challenged by competition, and they always will. “So what weapons are we using to compete against the big boxes? We believe very much in sticking to our knitting,” Venhuizen said. “We need to sell stuff in our stores that you can’t get everywhere else. It’s got to be local, higher quality — it’s got to be differentiated and relevant to the customer.”

Keep it stocked

Big Jo True Value Hardware is a 13,500-sq.-ft. hardware store that has been battling and winning against both Home Depot and Lowe’s for years. All three sit within 2 miles on the same street in Santa Fe, N.M., and Big Jo regularly wins the local community’s support as best hardware store in town. 

Co-owner Rick De Baca offers this advice on how to compete with a big-box store: “Always keep your customer service a level up, as that is what True Values are known for, and keep your inventory levels up, too,” he said. “Don’t decrease your inventory levels when a big-box store comes to town, as you don’t want to be out of something.”

Stand for something

Rocky’s Ace Hardware, the 2013 HCN Retailer of the Year, does a lot of things right. Around the holidays, the 32-unit chain adds to its list with its annual Holiday Pet Food Drive.

Here’s how president and CEO Rocco Falcone describes it: “The drive has become an annual tradition here at Rocky’s. It’s a fantastic opportunity for concerned individuals to help innocent animals without having to make a separate trip to their area animal shelter or Humane Society.”

The event, which collected 6,500 lbs of food last year, creates traffic, builds morale in the store and builds awareness in the community.

Answer the phone carefully

The store phone rings. Caller ID recognizes the caller as the big box down the street. On the receiver, somebody is asking for a price on a lawn mower, a staple gun or a wheelbarrow.

“When that happens, and it does happen,” said a Texas farm, ranch and hardware store manager, “I just say: ‘Why don’t you invite your customer to come on over to our store, and I’ll show them what we have.’ ”

Rack up impulse sales 

There is a large body of reporting on the beneficial impact of carefully placed and promoted impulse items. All the national co-ops, as well as Orgill, emphasized the concept at their recent conventions. One, it’s a service. Two, it’s a convenience.

Get into pet

The average pet owner spends $630 on pet food per year, said Bill Hancox, director of marketing insights and analytics for Chicago-based True Value. Pet sales across retail have grown at a clip of about 3% per year, even through a major recession. And no single retail channel dominates the pet market.

The co-op pointed to data from Mintel that shows Petco and PetSmart have 27% of the market share for pet food. That leaves the lion’s share up for grabs in a category that, including supplies, is expected to reach nearly $60 billion in 2017. (Source: Mintel)

“There’s no reason that our stores can’t get their share of this business,” Hancox said during a presentation titled “How Pet Can Be a Winning Business for You” at the co-op’s 2013 Fall Reunion.

Get mobile

Williams Lumber and Home Centers is one of a growing list of independents that are making the most of tablets to improve communications and take payment.

Frank Trippi, IT director at the eight-unit dealer in New York’s Hudson Valley, described the benefits this way: “It allows our outside sales associates to create orders on the road.” The company’s particular solution, the Epicor Eagle Tablet POS, allows Williams to offer “a register at every job site,” Trippi said.

Embrace change

“The retailer who says, ‘I’m going to do it the way I used to do it 20 years ago,’ — they’re falling behind,” said Mike Dawson, retail division manger for Yakima, Wash.-based Horizon Distribution, recently named Farm Mart Distributor of the Year by Denver-based PRO Group.

Define your target

At Orgill, the advice given to customers is consistent: Define who your target customer is before you do anything. “We consider retail a three-legged stool: it’s price, assortment and customer service,” Walker said. “But it all starts at the very beginning: the retailer has got to define the target customers.”

Decisions that affect all three of the legs of the symbolic stool are shaped by the target audience, whether it’s the DIYer, the contractor or whoever.

“Own your mile”

That’s the stand-out advice Shep Hyken gave to the Ace dealers at their convention — and it’s also a chapter of his book: “Amaze Every Customer Every Time.” The mile isn’t meant to be a measure of distance — it’s an area where an organization can excel better than anybody around. Think “niche.”

“The big boxes do a great job, and the only way to compete against them is to stay in the lane in which you are the best, and don’t try to be what they are,” Hyken said.

Finding a niche is purely a matter of market demand — rental, MRO, janitorial supply, farm and ranch for rural markets. “I wish there was a silver bullet,” said Orgill’s Walker. “But everyone seems to be working their own niche in their own market.”

Be a leader

At the first-ever Leadership Development Institute Conference hosted by Do it Best Corp. last month, Scott Post of T&M Hardware of Elwood City, Pa., took away a key analogy from the realm of athletic competition: “Develop the individual for the success of the team.”

There are no limits to leadership styles. And while General Patton was known for his leadership, it was a different approach to getting the best out of people that struck Post as admirable. He was particularly impressed by one presenter (Rick Davis) who explained that self-control is the key ingredient to leading people. As a leader, “your goal is to speak the words your team needs to hear to grow,” Post said, in way of recapping. “Your actions are the ones that need to be seen for others to grow.”