Ace incites optimism
Whether it’s their geographic market, operating strategy or support from lenders and co-ops, there are plenty of variables that distinguish between a retail company that thrives and a retail company that merely survives.
Meet Costello’s Ace Hardware, where a thriving mind-set and aggressive growth are a function of all three variables, and even a few more.
Every retail location has its particular challenges to growth. For Costello’s Ace Hardware on densely populated Long Island, N.Y., those include intense retail competition, high property costs and scarcity of available land to develop from the ground up.
But as a high-performing retailer — and former Home Channel News Golden Hammer award winner — Costello’s Ace Hardware adapts to its market, while turning weaknesses into strengths. For one, it understands the Long Island population that feeds the company’s 15 stores.
“We feel that we have a market that can support independent stores, and as we find the right locations, we just keep going for it,” said Michael Costello, president of the family business founded by his father, Vinnie Costello. Two more stores are expected to open this spring — one in Smithtown, N.Y., and one in East Islip.
The company has maintained an aggressive growth strategy even throughout the long economic slowdown, opening a minimum of one store per year. One reason for the growth mind-set, he said, were programs and funding opportunities arranged through the Oak Brook, Ill.-based Ace Hardware co-op. “I think one of the biggest programs that helped our expansion and still does is the Branching Out Program. Vendor-funded, it helps offset some costs of inventory. It’s huge. Without it, we’re not able to be as aggressive as we have been,” he noted.
He also described the ability to get funding in exchange for future stock, to help update inventory and retrofit interiors. Costello will take advantage of that option in at least one store this year.
According to Ace Hardware Corp.’s executive VP and CFO Dorvin Lively, whose duties include business development, Costello’s Ace is not alone. In 2010, the Ace board approved programs making loans available to stores willing to branch out — loans that would be paid back over time out of member dividends.
“We have some businesses that are well established, and they are looking at this as a good time to go ahead and grow and take some market share,” Lively said.
The co-op as a whole opened up 101 stores in the United States in 2010, just slightly ahead of its open-store pace in 2009.
“Frankly, one of the problems for investors who want to open up a new store is being able to get financing,” Lively said. “It always comes down to finding the right person for the right place and if they’ve got the money, or are able to get financing.”
In today’s environment, Ace’s Branching Out program takes on added importance, Lively said. And back on Long Island, Costello seconded the motion.
“One of the things we are hostage to is the available real estate,” Costello said. “It’s very costly to go and buy a piece of property, or lease a piece of property, and build your perfect box in every place. So what we have is an assortment of different-sized stores, which brings a lot of challenges to the business.”
The company’s original store opened in 1973 at 2,500 sq. ft. — that’s one-twelfth the size of Costello’s largest store. The company’s two new stores will measure 10,000 sq. ft. and 8,000 sq. ft. when they open. Both are located in strip malls.
On a recent Thursday afternoon at Costello’s Ace’s Garden City Park store, also located in a strip mall, Home Channel News saw a customer base that ranged from senior citizens to a group of teenage girls. A sunny open entrance area led the shoppers into a main aisle of bin specials (a lot of cleaning supplies) and branched into its core departments with packed shelves.
“We don’t want to lose our hardware store identity,” said Costello, who described the big categories as paint, tools, plumbing, electrical, hardware, and lawn and garden.
The go-to-market strategy has to be sharp on Long Island, which has seen intense big-box competition, especially with the expansion of Lowe’s about four years ago. “We really have to be more on the offensive against the big boxes, and that’s the key to what we want to stress in some of our marketing.”
One way for Costello’s Ace to get the message out is to aggressively use in-store signage to promote independent exclusive items — in other words, things you can’t get at the warehouse home centers. Scotts has a new line in this area, and Benjamin Moore paint will also help in the effort to differentiate the stores’ products. In a similar way, the stores will identify products that are Made in the USA, he said.
When asked about the challenges of an expanding retail footprint, Costello focused on the positives. “When we were four, five or six stores, we weren’t thinking about buying a container-load of anything,” Costello said. “It was out of the question.”
Not anymore. By sharing products across 15 or so stores, it becomes much easier to take chances with merchandise. “When we ask ourselves, ‘Can we sell this? Can we afford to invest in this?’ — it becomes much easier to say, ‘yes.’ ”
The economy is one of the variables out of the control of any hardware store retailer. And for that reason, macroeconomic data are not an obsession.
Still, Costello expects the overall economy to begin turning around. The company was up slightly in 2010, despite a stall in the fall and the fourth quarter. But this year, intense winter storms have led to lines out the door at times.
“Our January 2011 is off the charts,” he said. “I think it’s going to make for a very strong spring.” e
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Building up, branching out
Dorvin Lively is the newest member of Ace Hardware Corp.’s upper-echelon management team — the Ace CFO hired three years ago was promoted to executive VP in January 2011.
Lively talked to Home Channel News about the co-op’s role as a growth engine, and the independent retailer’s fastest routes to high performance. He offers a credible vantage point, and brings a background equally fluent in retail shelves and balance sheets.
Lively was a professional accounting fellow at the Financial Accounting Standards Board in the early 1990s. He later became a senior VP and corporate controller at Toys “R” Us before moving on to Maidenform Brands, and then to Ace Hardware in 2008. In addition to overseeing all financial-related activities of the Chicago-based co-op, Lively looks over retail operations, business technology, retail training and business development.
For independent hardware stores, there are no shortcuts to success, he believes. But there are fundamentals. The following represents some of his free advice along these lines.
On common denominators of a successful retailer:
“There’s not a cookie-cutter answer to what makes a store successful. But for the sake of argument, it always comes down to a few basics. You’ve got to have the right products in the store. You’ve got to have the right amount of inventory. And then you’ve got to have the right people who are willing and eager to serve your customer when they come in the door. You can almost say that that’s the price of entry, and then you begin to differentiate yourself from there.”
On the opportunity for business-to-business customers:
“We believe that in most situations a store owner should try to drive some level of b-to-b business. In almost every small town in America, schools, churches and even local municipalities — they all need hardware-related products; they need things we sell in our stores. It can be the local plumber, handyman guys. We believe that that’s a huge opportunity that in some cases our stores aren’t capturing. Now there are some that do, and they do very well. But this is a point we’ve really been emphasizing in the last year or two.”
On the Craftsman brand’s rollout at Ace stores:
“Last year, we negotiated with Sears to have the exclusive rights to that brand in our channel. It’s not easy to just say, ‘OK take these SKUs and stick them in the store.’ There would be duplicate SKUs, Ace brand maybe, and stores have different footprints. So, it has taken us awhile to develop what we think is an ideal set for most of our different types of stores. We spent quite a bit of time in 2010 getting what we thought was the right set for a suburban market. We’ve been working on different sets for smaller, more urban markets. It’s been a slow process, but we’re really pleased with it. We have a lot of stores that have Craftsman now, and a lot more stores that are just starting to roll it out.”
On Ace’s SAP business IT implementation:
“We spent the last three months working with our retailers and getting feedback, trying to help improve the system, and I think we’ll continue this throughout the year. We knew that there would be what we call ‘optimization’ — or getting it to work the way it was intended. With IT systems, there’s always something that you’d like to do better. I think getting our system stabilized was a huge effort in 2010 as we went live. Now, the focus is optimizing that even more. We needed to modernize our systems internally, partly because we had a lot of old, home-grown systems that were 20 or 30 years old. We need technology to be more efficient and more productive. We want to open more stores and help our existing stores grow, and this implementation is going to give us the backbone to be able to do that.”
On the role of the co-op:
“We at Ace believe that we differentiate ourselves from some of our competitors out there — on the co-op side — in being able to be more than just a wholesaler, but to give our stores the lowest possible cost on the goods and be able to provide them with services and operating methods that help make them better. There will be some that believe they’re good enough, and they don’t need that help. But most of our stores are single-store operators, a very high percentage. And for many of them, it’s always good when you get outside your box and see how somebody else does things. And we do. That’s just one way we help them.”
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Lehman’s Hardware reopens
Lehman’s Hardware, a 56-year-old store that closed after a Feb. 28 flood, will reopen on March 5, according to a notice on its website.
Located in Kidron, Ohio, an hour south of Cleveland, Lehman’s is comprised of several pre-Civil War era buildings that took on 3 ft. of muddy water when a flash flood swept through the area. Local residents — the store serves a large Amish population — helped with the clean-up effort and damage repair.
Lehman’s has posted photos and video footage of the damaged store on its website, along with a invitation to their “massive flood sale,” which runs all month.
“In most cases, the boxes are wet, but the product is undamaged,” said Glenda Lehman Ervine, one of the owners.
Sorry to hear about Lehman
Sorry to hear about Lehman being flooded. Every industry member anywhere close to Kidron should visit this store. Amazing. Serving the Amish, you'll find non-electric products you didn't know still existed. Bob Vereen