Time to buy a hardware store
A sense.
A feel.
It’s the moment a hardware store operator knows an acquisition is the right move – and it’s about to happen.
“There was one particular deal that I felt extremely confident about. I knew our culture and systems would add value from day one. There was just a feeling I had as I walked the store, drove the neighborhood, and interacted with staff.
“The owner was a great operator but very much focused on working in the business vs. working on the business. As soon as we agreed on the price, I knew based on the opportunities I had identified that I had a lot of margin for error.
“The seller was happy with the terms. I was happy. That turned out to be the fastest payback of any deal we had done previous or since.”
Who said that? – Michael said that. And he has bought plenty of hardware stores.
The “Michael” is Michael Wynn, president of Sunshine Ace Hardware. He’s our first buying expert.
He’s well-known in the hardware industry and runs a high volume, multi-segmented business currently serving the West Coast of Florida from Tampa to Marco Island.
His business includes traditional convenience hardware stores but also includes a strong commercial segment, gift stores, stand alone paint and decorating, along with one of the largest assortments of fishing tackle in Florida. Since January of 2022, it has also launched a home services division.
Sunshine Ace has many stores, and they are often in the mood to buy. Like now.
“Currently we have 13 locations, but have growth plans for four new locations over the next 24 months,” said Wynn recently.
Ready, Set, Grow
The Sunshine Hardware store president revealed what has guided his company’s growth to buy stores.
“When reflecting on our company’s growth, there are three primary factors that have driven our expansion,” he said.
“First, expanding opportunities for our team members. Seeing them grow and seeing their families prosper honors my grandfather’s legacy of always putting people over profit.
“Second, the communities we serve become stronger as a result of the resources and leadership we invest in them. Being part of that impact and hearing the gratitude from customers honors our core value of ‘Caring for our neighbor.’
“Third, by growing the business we honor our role as stewards of the lifetime of hard work my grandparents laid as a foundation for future generations. Staying true to our core values while continuing to find success, helps me believe my grandparents are still watching over us and proud of the job we are doing,” said Wynn.
But how does an independent small business retail hardware owner decide when the time is right for an acquisition?
The Sunshine president said that normally these opportunities are cultivated over a number of years.
You build what he called, “a foundation of trust; that you will not only honor the legacy that this business represented in its community, but also those associates who helped grow the business and have the long standing relationships with their customer base.”
Also, it’s important to let the seller set the timetable.
That could evolve through a natural desire to retire and enjoy the fruits of their labor or health issues or financial issues can be a catalyst.
“Either way,” said Wynn, “my message to a potential seller is very consistent: ‘Call me when you are ready to talk and give me a chance to arrive at a price that is fair to both of us. If we can’t come to an agreement, I will do everything in my power to help you find a successful buyer and meet your desired financial goals.’ Fortunately, there has never been a need for a second call.”
Buyer be-care
With any purchase decision, there can be positive outcomes, challenges, surprises, or all of those.
“The lesson that remains one of my most painful to date was one that involved ego,” said the Sunshine president.
“We bought a great business, with a loyal commercial base that had been carefully built over decades. The store was named after the owners and had tremendous brand equity. However, this was early in our expansion and I felt overly confident in our systems, our brand, and our knowledge as a larger multi-location enterprise,” he explained.
“We changed the name to Sunshine immediately versus leveraging the brand customers already loved. We remodeled the store in the first six months, drawing additional attention to new ownership and failed to carefully protect assortments that were tailored to the community,” he said.
“Finally, I was so concerned about protecting the return I had promised owners, I failed to invest in sufficient overhead to help the acquisition and remodeling process to go as smoothly as it needed to,” he said.
“We lost business and we lost loyal customers. However, we learned valuable lessons and have never repeated those mistakes since,” said Wynn.
Purchasing pointers from Michael Wynn.
When you buy a well run business, said Wynn, “be slow to act, don’t get greedy and don’t let your ego drive your decisions. Take time to get to know the community and the customers before making any remodel or assortment changes.”
He advised that you invest in the team you acquire and reward their loyalty to the community they serve.
“When we acquire a business, we give them full credit for the tenure they had with the previous business. Ask: Have they been with the company for 10 years? Then they are treated as if they worked for Sunshine for 10 years and receive maximum PTO benefits,” he said.
Invest in the community as if you live there. Donate generously as a locally owned business would.
That financial sweet spot
And from a financial point of view, there is a sweet spot, a certain ROI number, that you need to be at when thinking of buying.
The Sunshine president said for them it’s a 3.5 to 4 year pay-back period.
Maybe you’re thinking of expanding your hardware business and buying another hardware store.
Wynn thinks it’s important to review the financial model, culture strategy, and best practices for your business before expansion.
If you have not developed financial discipline, a purposeful culture and a return on equity that rewards you sufficiently for the capital, he said, then you are putting yourself at risk, and growth is only going to exaggerate the existing weaknesses in your business.
Also, he said, keep in mind that, “many sellers in our industry do not always have the best records or data to support the purchase price they feel is appropriate. Be ready to get creative and find ways to uncover value that they may not readily be able to prove.”
You want them to get a fair price for their business even if it means you are paying more.
“Taking this approach will help them become advocates for you as a trusted acquisition partner as they share the selling experience with their friends in the industry,” he said.
Okay now, is it time to consider buying another hardware store?
“Don’t get caught up promoting the acquisition and putting a spotlight on your expansion,” he said. “Now, when we acquire a well run business, there is no press release and we purposely try and keep the news of an ownership change to a minimum.”
Wynn said: “I love hearing customer comments that reflect on how proud they are to be ‘shopping with the same family-owned business they did when they were a kid.’
“Leverage that brand equity you purchased and let customers have their feelings of nostalgia.”
Where there’s a Will
Here’s our second buying expert who knows a little something about acquiring hardware stores.
Will Aubuchon, president and CEO of The Aubuchon Company, runs a fourth generation family-owned company with more than 100 locations.
When buying a hardware store, he said, you first need to decide between opening a brand new store vs. buying an existing store.
“Adding a new store in a mature market is a hard road to travel,” he said. “Some mature markets are ‘over-stored,’ begging the question ‘does the world need another hardware store?’”
Benefits of acquiring an existing store: More mature sales on day one and an existing customer base.
There are really two types of stores to acquire, he said, “the high-performing stores with a well known brand and reputation; or a more well-worn store that needs an infusion of investment.”
The first example will require more goodwill; whereas the second will require more investment. But both can work.
Aubuchon said that the process of buying a store “can be quite winding and indirect. It can take anywhere between several months and several years depending on the comfort of the seller.”
The vast majority of us, he said, “are in the business of buying and selling hardware, not businesses – everyone has a different comfort level with the process which really impacts the timeline.”
Though the component parts of the process are largely the same, the overall timing and feel of each acquisition is quite unique.
Steps to “the buy”
The component parts of buying a hardware store, said Aubuchon, include, “getting to know each other and agreeing on a ballpark valuation so as to not waste anyone’s time.”
Also he mentioned “Boots on the ground” in terms of seeing the operations, oftentimes in disguise.
And then agreeing on a more formal valuation and occupancy.
He said there is an announcement dinner and one-on-one meetings with each employee to answer questions and address concerns. Then the closing several months later in order to ensure proper preparation for a smooth transition.
“As for occupancy, we prefer to exclusively secure occupancy through a lease with a landlord,” the CEO said. “We do not own any property. That's just our preference.”
A good argument can also be made to buy the business and property.
“One thing I have found is that dealers that own their property value the idea of being a landlord moving forward. Similarly, we value landlords that have been prior dealers and operators as they have a sensitivity to our industry needs,” he said.
Aubuchon pointed out what he sees as the biggest challenge to buying a store: Maintaining continuity with sales.
“When valuing a business,” he said, “you’re assuming historical sales will not only continue, but grow through other initiatives and investments. However, there is always the risk of sales declining due to the change in ownership.”
Minimizing this risk should be a top priority for someone thinking about buying a store. This risk is particularly challenging right now as the industry is normalizing and coming off of pandemic highs.
Ways to minimize sales declines?
Aubuchon said: “Minimize merchandising changes on day one. Stay focused on making sure replenishment and ordering is working well. Closely monitor and check-in with key customers.”
And of course, he said, “stay in close contact with store leadership and the team on whatever issue may come up.”
