Starting at the top

About eight months from now, Lyle Heidemann is going to look back on 2009 with a critical eye. Whether he likes what he sees—or not—will depend largely on three key goals for True Value’s performance:

Sales growth that compares favorably to the competition;

An end-of-year patronage dividend consistent with recent years; and

Expansion of the Destination True Value format to some 100 locations, either new or remodeled.

As president and CEO of True Value, Heidemann has stated that part of his job in 2009 will be to promote the kind of retail best practices that can guide store owners through tough times. In a difficult 2008, True Value’s wholesale sales were $2.0127 billion, down 1.4% from 2007. Despite the decline, True Value’s numbers are relatively strong compared to the rest of the home improvement industry—and other hardlines distributors have outperformed the big-box retailers, too.

“None of us know how good or bad the economy is going to be this year,” Heidemann told Home Channel News during an interview at the co-op’s Chicago headquarters.

The are a lot of questions about the economy, but over the years—at least since his departure from Sears in 2003—Heidemann has been very clear about his belief in the future of the neighborhood hardware store. In the HCN interview, he hammered again on that theme: “I’m very encouraged by the hardware industry,” he said. “There is still room for neighborhood hardware stores that provide great service.”

Home Channel News: Two things people often point to in a downturn are that it forces you to focus and it allows an opportunity to gain market share. Agree?

Lyle Heidemann: I think you’re a better manager in a down economy than in an up economy. You can’t make as many mistakes in a down economy. And you clearly have to do things that are very, very customer focused. You can’t take your eye off of what’s important to the consumer.

HCN: In a tough year, does your job as the CEO get tougher? And how does it change?

Heidemann: I do think we are accountable to help our members think about how to approach a down economy. From my vantage point, this is the fifth recession that I worked through. And I am operating on the assumption that we will get through it. Taking the experience that we garnered from the last four recessions and recognizing what are some of the lessons learned, here is what we are sharing with our membership: The economy is challenging. But don’t fall into the trap of trying to operate yourself to death.

HCN: How would you do that?

Heidemann: Do you have to cut some operating expenses? Absolutely. But do not cut out those expenses that are noticeable by the consumer. Take out payroll, but not during peak selling hours. You don’t cut back on marketing in tough times. Maintain the level of service. Maintain the level of inventory—particularly in the A and B items and items that are important to complete projects.

HCN: Is there a market share opportunity?

Heidemann: Customers are still spending money during a recession. Are they spending as much? The answer is no, but when they come to your store, they are still time starved. They’re still looking to complete a project. If you’re not in stock, they will find someplace else. If you give poor service, they will find someplace else. If you’re not continuing to communicate to them through marketing, they will find someplace else. I think there is clearly room for the neighborhood hardware store, but it has to be a good hardware store.

HCN: What is a good hardware store?

Heidemann: They understand the assortment needs of approximately two to three miles around their store. They know their customer demographics. They provide great customer service and knowledgeable customer service, They’re fairly priced over the entire assortment.

And if we were selling gas, customers know what’s a competitive price for gas. There are items in a hardware store that are no different than a gallon of gas. On those items our good stores are competitively priced, and they’re fairly priced on everything else that goes along with good service and convenience. They’re well-lit stores. Stores that are in stock. Depth of inventory is very good. A female would feel comfortable shopping in, along with the male. All the attributes of a successful hardware store revolve around our five Ps: people, product, place, price and promotion.

HCN: What about the idea of developing a special niche?

Heidemann: If you’re going to open up a brand new store and didn’t have a history in that market, then I would probably stick to a core hardware store. I think as you learn the market and you understand your customer and your competition, that’s when you enter your niches that you can differentiate yourself from someone else. But most of our stores have been around a few years and in some cases have developed niches across generations.

HCN: What’s your view of the stimulus package (the American Recovery and Reinvestment Act)?

Heidemann: I haven’t read the 1,100 pages, so I’m probably not as knowledgeable as all of our congressmen and senators are. I do think there are some elements that will help the economy. I personally believe that the most important thing is stimulating American businesses that employ the people in this country. That’s where the numbers come from. Until we see business hiring people and growing—you don’t come out of recession until you start seeing unemployment decreasing.

HCN: Seen any good stores lately?

Heidemann: I just saw five member stores in the Oregon area—all five were very strong. None were exactly the same, even though they were all within an hour of one another. And they all had pretty good traffic on a Tuesday afternoon.

I’m in retail stores all the time. You’re always learning. Whether it’s in your industry or not in your industry, you can always see new ways to connect with customers. I probably walk a grocery store every weekend. And they are probably closer to trends because they have consumers that shop that store on a very, very regular basis. You can see what they’re doing from a pricing standpoint, from a merchandise assortment standpoint, from an arrangement standpoint. There are disciplines there that are very applicable to running a very successful hardware store.