Tonic for tools

There’s disappointment in the tool aisle.

The problem was identified at the Ace spring convention in March, when John Surane, the co-op’s VP merchandising, marketing and paint, explained to members that tool sales at the typical American hardware store were on the decline and have been for some time.

“You know what makes this even worse folks? The hardware store used to be known for tools,” he said. “We have to have a game change. It is an important component of a great hardware store to have a healthy tool department.”

At Ace, Surane quantified the tool decline since 2006 as a double-digit problem. And it’s not just Ace. Home Channel News readers recently weighed in on tool sale woes felt by many hardware stores. As possible explanations for declining market share, readers pointed to bigger and better selections at the warehouse home centers, the rise of the Web as a competitor (as well as inconsistencies with Internet retailers charging sales tax) and an overall decrease in customer knowledge in DIY projects. Some even went as far as to question the judgment of those who pushed more floor space for high-turn consumables and mass products, such as bottled water and paper towels, at the expense of space or focus on the tool department.

Whatever the reasons, research shows a story of dominance among the big players. According to a TraQline study, 73% of fourth-quarter tool sales in 2009 were held by four companies: Sears (29%), Home Depot (20%), Lowe’s (18%) and Walmart (5%). Other home improvement outlets, such as hardware stores, only constitute 5% of the market.

Sears’ dominance in the tool market comes down to the success of its Craftsman tool brand, a fact the folks at Ace haven’t ignored. They’ve partnered with the brand and will start carrying Craftsman tools in every Ace retailer across the country over the next few months. This is the game changer that Surane said was necessary to turn the tide of tool sales.

“America’s most helpful hardware store teamed up with the most trusted tool brand,” he said. “This is gamechanging stuff.”

Surane’s goal for Ace is to drive double-digit growth, at least 10% for 2011 in the tools department, and the Craftsman partnership is a big part of that battle plan.

The new Craftsman line will roll out in two stages. First, as an endcap item featuring about 10 SKUs to help dealers get the brand into their stores quickly. The second is an entire Craftsman store-within-a-store concept, which will feature the full array of Craftsman products.

Other retailers and co-ops aren’t standing still, either. They’re looking for street cred in the tool aisle, and finding it in a variety of places.

Do it Best played the big brand card early last year, when it announced its exclusive licensing agreement with Channellock during its May market. The brand partnership included a line of exclusive Channellock products available only at Do it Best dealers.

The co-op created point-of-purchase displays, as well as print and electronic promotional materials to promote the new licensed products.

And while online competition has been a challenge for tool retailers, Do it Best has embraced the medium by further strengthening its relationship with Channellock online. The two companies have developed an e-commerce site, channellockproducts.com, which gives customers access to all of Channellock’s available inventory through the partnership as well as online resources, while linking to doitbest.com for purchasing.

Tools factor prominently at the National Hardware Show, which is giving increased exposure to power tools. Through an alliance with the Handyman Club of America, a power tool testing area is going to be demonstrating the latest and greatest in a hands-on exercise, said Ed Several, group VP and show manager for the National Hardware Show.

The whole idea is to create excitement for power tools for consumers, as well as retailers. “We’re dedicated to helping the industry grow, so the show is doing its part to help that category,” Several said.

Allen Oppenheimer, owner of Central True Value in Valley Stream, N.Y., said that he’s seen the power tool category take a steady decline, and because of that, he stocks less and less of them on his shelves.

“I’ve pretty much gone to special ordering, instead of stocking them,” he said.

For Oppenheimer, trying to compete against Internet power tool sales is a losing game. While the profit margin for power tools is very low, he has to compete with the full array of products and accessories the online dealers carry. “I’m fairly certain that a lot of these guys are using the manufacturers as a distributor,” he said.

When Oppenheimer’s distributor for snow blowers was insisting he stock a minimum of $10,000 worth of stock for the season, he opted to make up his snow blower sales by using the Internet. Oppenheimer turned his customers to one of the Internet’s largest snow blower retailers. He then offered to assemble them for his customers for $50 to $60.

“I ended up making just as much as if I had sold stocked items, and I didn’t have to spend the money upfront,” he said.

He said in order to make up for lost tool sales, he’s been focusing on smaller sales. He said it’s kept him in business, but it’s not the ultimate solution. One example, he said, is key cutting. “I pay maybe 35 cents for a key, but I charge $2,” he said. And while the profit margin on keys might be greater, it’s not boosting revenues much. “At the end of the day, I’ve only made $20 on key sales.”

A recent market size estimate by the NPD Group showed that specialty retailers, including online tool retailers, have seen a 41.9% growth in the hand tools category from 2007 to 2009. In power tools, the specialty retailer group saw a 4.2% growth for the same period.

One independent retailer to fully embrace the Web is the former Tool King, now ToolKing.com. A previous Golden Hammer Award recipient, ToolKing.com has grown exponentially since it first went online nine years ago. Since then, founder and owner Don Cohen said the company, which continues to operate a retail store in Lakewood, Colo., is seeing what he calls double-digit growth and is the most popular standalone tool site on the Web, he said.

For Cohen, getting to that level was about volume. ToolKing.com features more than 8,000 tool items in its warehouse, and gives its customers access to an additional 15,000 items. “Because of our volume being so much better, we are able to negotiate better pricing than the mom-and-pop stores can offer,” he said.

But the site doesn’t just feature a wide array of hand tools and power tools. Cohen said he also carries all of the accessories for each item, something most brick-and-mortar locations don’t have the space for.

“When you combine customer service, competitive pricing and a large selection, that gives you a significant edge,” he said.

Cohen said that the largest growth category has been in power tools and standing power equipment. “We brought the know-how of the hardware store online,” Cohen said.