On Rebates

HCN solicited thoughts on the patronage dividend from several executives with a front-row seat on the topic.

From Ace's John Venhuizen

"Here is the context. Our goal this year corporately is to have a bottom line of about $100 million. It's a good chunk of money. But when you sum up the collective P&Ls of our retailers just in the United States, it's north of $500 million. Their investment is larger and that bottom line is larger. So on a regular basis, while it's important for the corporation to make money, we very regularly make conscious decisions to leverage the corporate infrastructure and balance sheet, to deliver improved profits to the retail stores, even if it comes at our detriment. Because a 10% increase on a half a billion is a lot more money than a 10% increase on $100 million.

"So think of it this way: If we can drive our retailers' net profit by 10% next year, that's half of the bottom line of the whole corporation. We'll do that every day. It's kind of the trade-offs that we make because the customers are our owners.

"So in light of that: Is the patronage rebate important? Absolutely. But it has to be taken into consideration what their real return on investment is, which is the P&L on the stores.

"It's gotta be looked at as a portion of the total. It's not the end game in and of itself — no way. Our retailers do not build wealth merely because of the patronage rebate. They build wealth because of a successful store model, and the patronage rebate is a component of that."

From True Value's Lyle Heidemann

"Our first focus is helping our retailers grow top-line sales and bottom-line profit.

"There has not been a corporation that has been able to figure out how to open up small boxes. Big-box companies have had a hard time thinking small box. Corporations have a hard time replicating that and getting a return on investment for their shareholders. And I wouldn't have come [to this job] if I didn't think there was a place in American business for the independent hardware store.

"I would say about the patronage dividend, if you look at the total dividend, total credits and discounts that we give them during the year's period of time. For the total company, that averages about 9% of purchases. If you look at the pure patronage dividend, it's 1.5%. Sometimes the patronage dividend check that our members get is a fraction of what they get week in and week out from us. It's what we call the value of True Value, and that is sharing all the things they get from us during the course of a year, independent of getting a check finally in March.

"In the last two years we offered e-commerce, gift cards, credit cards — historically in the co-op model, those were all fee-based. But we believe they are so important in the marketplace today that we have no fees — that we're offering them free to members. Our retailers have the personal connection to the consumer in their marketplace, and we believe we can help them be better retailers."

From Do it Best's Bob Taylor

"At the end of the year every year we take all of our profits, and 90% of that goes back to our members in the form of their year-end rebate, and 10% comes back to our staff in the form of their year-end profit sharing. And that alignment between the two I think in our case is extremely important. Our staff knows that everything they do to drive rebates and be more operationally efficient will allow them to share in that success. So it helps us operate with fewer layers of supervision.

"At the end of the day, our prices still have to be competitive out there. You really have to drive a rebate through the efficiencies that you can gain. If you're not paying interest and you have a low cost of operation and you're directing all the dollars that might be used for advertising back to members, that's what really helps to build a rebate.

"Is the rebate an important component? Absolutely."

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