Get Smart: Retail roundtable
For connecting to customers, McLendon Hardware in the Seattle and Tacoma area deserves special mention. Before it was a 107,000 square-foot home center, one of the five McLendon Hardware stores was a Kmart. Before it was a Kmart, a hospital stood on the same site. “A lot of people in the area were born in the old hospital,” said Mike McLendon, corporate secretary. “So everybody comes back in and wants to show us their baby pictures of when they were born there.”
Not every company can benefit from a site’s history, but McLendon and a diverse group of retailers and pro dealers recently sat down with Home Channel News to talk about making connections with future customers and finding business success in tough times.
The roundtable discussion took place during the Pinnacle Technology Conference, the user-group meeting for systems provider Activant. But technology served as just one of the topics of interest. From Washington state, New Jersey, Nova Scotia and Ohio, a common trait shared by all the executives was a desire to improve their business in difficult market conditions.
The participants were:
David Bohl, president of Kibler Lumber, Mt. Orab, Ohio, a five location lumberyard and hardware member of the Do it Best co-op.
John Askin Jr., vp-finance for The Standard Group, a Tinton Falls, N.J.-based distributor of exterior building materials.
Mike McLendon, corporate secretary for McLendon Hardware, a chain of six retail hardware stores and one commercial lumber yard, based in Renton, Wash.
Shane MacIsaac, information systems manager for Central Home Improvement, five large retail locations and two satellite stores in Nova Scotia, Canada.
Ken Clark, editor in chief of Home Channel News.
Ken Clark: Thanks for participating today. One of the major interests of our readers are the things that retailers or distributors are doing to thrive in today’s market. We’re all here at a technology conference, so obviously, we believe in the power of technology. But what are some of your strategies in place to help you through the current economic situation.
Mike McLendon: We recently did a survey with the Farnsworth Group, they gave us some interesting facts. Things we didn’t know about ourselves, as far as the customer was looking at us. They thought of us as a hardware garden center. We do garden, and we do a lot of it, but it just wasn’t our main focus. So it may change our thinking a little bit about what we’ve been doing in the past.
Clark: Has that led to anything that you will change, anything specific?
McLendon: Not at this very moment. It’s leading to the plans that we’re going to change. The people they polled said they thought we should have more locations. For us, the question is: what does that mean? In our marketplace or somewhere else? They viewed us being higher priced than the Lowe’s and the Home Depot, which we already know. But what do we do about that? Is that an important factor for us to be viewed as having “lower” price? We were already competitively priced, but can we take any of their customers by being a lower-priced image? That’s the question.
John Askin: We made our biggest technology investment in fact this year, [we] were in beta with a warehouse management software on Falcon. Looking at where the economy was going, I sat back and said our inventory is our biggest asset outside of our people. And this manages our inventory to a much higher level than anything else I’ve seen. When I actually went and saw this product at a competitor who is not far from me on a different platform, it scared me to death what he could do and how efficient he was. I said we need this. I want to get inventory under control, know where everything is, why it’s there, how long it’s been there. It’s a lot of work on both ends, but in the long run, we can grow without having to add people or staffing, pare down our inventory and also broaden our product offering.
Clark: How big was the investment?
Askin: A couple hundred thousand dollars. All in. It was a significant investment. This is all brand new stuff. The fax machine was modern technology to all my guys. (Laughter.)
No more lost special orders, no more an hour for a guy looking to find stuff. We’re looking to use it as a customer service tool as well. Plus, you constantly do a true cycle count, and you’re going to have more accurate inventories. The right quantity, the right place, the right time.
David Bohl: We’re a Do it Best member, and we just rolled out the Do it Best card. We think it will be able to target our market better. It allows you to send out a letter and $5 coupon to your customers when they make a $50 purchase. So it gets them back in the stores. It will send a birthday card to them. End of the year, you can set it to give them an end of year rebate. It’s kind of like the supermarket customer card. I think you’re going to see more of it across the industry, because we have to target the market. Instead of sending out circulars to everybody in a certain area, we’re going to have to target who buys paint from us, who buys this and that, and target them with e-commerce or direct mail.
McLendon: Mailing is the biggest cost of the advertising. We’re using the gift card more and more. It’s becoming a bigger and bigger piece of the pie. And also becoming a bigger and bigger headache to manage, because there is fraud to guard against.
Askin: With iNet, we don’t mail the biggest customers their statements anymore. They can see all their transactions. It’s taking a lot of phone calls out of the equation and improves customer service. And that’s where we’re heading, customer service. What can I do to be ahead of the game because the pricing war is going to happen no matter what, and I don’t want to get caught just being the lowest priced guy out there.
Clark: It has been repeated by the biggest retailers that a key to success is reducing costs in ways that the customer does not notice. Are there any thoughts on that concept?
Shane MacIsaac: Service, selection, quality, price is number four. That’s our philosophy. If you provide the customer good service, quality product and a choice of selection, you’re going to win the customer every time. That’s our philosophy. That hasn’t changed and that will never change. That’s our brand.
Clark: Canada isn’t experiencing the market corrections that businesses in the United States feels. As you look at the American market, do you expect to make adjustments eventually?
MacIsaac: We haven’t seen the downturn in the economy yet, but six to eight months after anything happens this way it eventually impacts us. We have the opportunity to be proactive and look at ways to improve our business before something might hit us.
We’re kind of in a special situation, the population is declining. I don’t know how familiar you all are with Alberta, but that’s where all the oil is, so everybody East is moving out West for higher paying jobs. We’re making use of technology because the gene pool to hire from is pretty shallow these days.
McLendon: If you’re looking for a common thread, it’s trying to find employees who will stay with you that you want to stay with you. Like he mentioned, it’s a gene pool thing. It’s downright very hard to find a good person to fill a position of a good person who just left.
Clark: So what are the strategies out there for recruitment and retention?
MacIsaac: We’re implementing a bonus program, where if you find an employee and they stay with us for six months, the person who found them gets a bonus.
McLendon: It’s so difficult to find people. So if you go shopping in another store, and you get this fellow waiting on you and he’s providing great service, sick your H.R. on them. You always have to be looking.
Clark: What about new business opportunities. Is there an advantage being small?
Bohl: We just expanded into kitchen installations. We made an effort to redesign all of our stores with our kitchen and cabinet displays. We hired some designers, augmented our staff and we’re now starting to install kitchens as well as install the cabinets. It seems to be working out pretty well for us. We have Lowe’s in our markets, and one big Lowe’s in a market with 5,000 people in town. At least for the limited time we’ve been doing it, we think it’s an advantage for us.
McLendon: We just started doing cabinets, but we don’t install. I’ve sort of thought, it takes a person to focus on it, I don’t have the time or the expertise, I’m going to have to find a person to drive that program.
Bohl: It’s very important if you do install to hire your own in-house people. One of the dangers we see, if the customer sees something wrong, or thinks he sees something wrong with just one of the cabinets, everything can kind of grind to a halt. Probably 80 percent of the time, you’re in-house guys can resolve those issues without you having to reorder cabinets and resetting the timetable. We just had this happen last week. There’s this problem, the customers see it, they get worried. But our people took care of it without having to re-order anything. They glued it back together, and everything was fine in that particular case. But if you subcontract it, and they’re just installing it, they might tell the customer “who sold you these junk cabinets?” Then you’re caught in a catfight.
Askin: We’re the largest independent in the state. We’re the last of the independents really for what we do. And we’ve been looking for new opportunities since about 2000. We used to be Standard Roofing. We took roofing out of our name, and we’ve broadened into areas we’ve never dreamed. Five or six years ago we didn’t sell a wood window, now it’s the third highest line we have. Another thing we’re looking at is high end. We’re in a part of the country that still has it, and we’re finding the economy does not affect the high end. If Donald Trump wants this in his house, he’s getting that in his house and the economy doesn’t matter.
Bohl: You’re really talking high end. (Laughter)
Askin: There are people higher than him. But there are people out there. We just quoted somebody $200,000 for windows on an addition on his house. An addition! That’s where we’ve been branching and trying to get into that market. That’s why we’ve branched out to go into these niches where they’re going to want more service. The guy who beats us up for a nickel a square, we lose sometimes.
MacIsaac: We’re kind of like the Home Depot of Nova Scotia. We’re orange. We were orange before they were. Basically, everything you can put in the house, we sell it. Lawn and garden, l u m b e r, installed kitchens. Our largest stores are 50,000 to 100,000 square feet, but in the last three years, each store we’ve opened up is 15,000 and in smaller rural areas. What we do now is feed the smaller satellite stores locally from our five larger stores. So that’s kind of how we’ve changed. We call it our A store and our B store, and we’ve stopped building our A store and started focusing on our B market, where we can put a 15,000- to 20,000-square-foot store. We don’t need to maintain a lot of inventory in these stores, we don’t need to maintain a lot of displays in these stores, because the larger store is half hour, 45 minutes away.
McLendon: The philosophy behind building our larger stores was to build a collection of smaller stores within that large building. So every one of our stores you can walk in and are encouraged to circle the entire store. We’re attracting the homeowner and the couple to go through the stores.
Clark: How would you describe employee education as a strategy today?
Askin: It’s constant. We bring in the managers, train them and they go out. I go to the branch and sit down. At 4:30 we’ll close, for the next half hour I put Falcon up and say, OK what don’t you do? What’s the problem? We walk through it and say, ‘OK. You can do this, you can do that.’
Clark: Would all four of you consider your business doing well, currently?
Bohl: For us, no. We’re in ground zero of subprime. In our area 40 percent of customers in the past three years financed their home in sub-prime. In Ohio, in the rural area surrounding Cincinnati, a lot of our customers drive 20 to 40 miles into work each day and back. So they’re paying $3.50 a gallon for gas and their making 12 bucks an hour, and you can see how that math adds up. A couple independents in our market closed, including a 138-year-old company Fisher Lumber in Wilmington, Ohio.
Clark: Your company has been around since 1895. How do you look at the big picture and fight back?
Bohl: Well, we look at the big picture, but circumstances and events do tend to overwhelm us at times. For example, we have five locations, and we had two Lowe’s drop into two different locations last year. We had the down-turn in the economy, and now three of our locations in towns of 7,000 or 8,000 people have a Lowe’s drop in to those markets. So that radically changed the consumer side. It typically doesn’t change the contractor’s side, but in this market, we have contractors who are scaling down their custom home building and they’re much more desperate for business.
Clark: Do you have a strategy for that perfect storm of competition, location and economy? What do you do?
Bohl: You have to look at the reality of your situation now. You have to look at the lines you’re carrying. You have to lower your inventory, and look at what you’re selling, what you can’t sell. Can you have a lighting display for instance? Well, probably not, if Lowe’s has a giant lighting display. So you carry the basic products. You have to rationalize inventory. You have to keep your service level up. We have not gotten rid of any outside sales staff. They are more commission-based so that’s helpful. It doesn’t cost as much to retain them. But you still have to get from point A to point B in this market. And it is a struggle to get there.
Askin: Once you let them go, you lose that market share. Our sales are mixed, but they’re down, their sales are down and their commissions are down. We’re not dying. If we were roofing and siding only we’d probably be out of business. But we’re down, and I’d say we’re probably at 2004 levels right now. It’s not where we want to be.
Bohl: If we knew where the bottom was. (Laughter)
Askin: If we knew where the top was it would be a lot easier, too.
Home Depot to close 15 stores
Home Depot will close 15 underperforming stores, the company has announced, and remove 50 future openings from the new store pipeline. The closings will include layoffs of about 1,300 employees.
The closings, at locations in the Midwest and Northeast, will generate approximately $547 million in pre-tax charges in the company’s first quarter. The company will release first-quarter results on May 20.
The stores to be closed are as follows:
• Store no. 2015 in East Fort Wayne, Ind.
• Store no. 2032 in Marion, Ind.
• Store no. 2310 in Frankfort, Ky.
• Store no. 379 Opelousas, La.
• Store no. 2819 Cottage Grove, Minn.
• Store no. 6901 East Brunswick, N.J.
• Store no. 6904 Saddle Brook, N.J.
• Store no. 6171 Rome, N.Y.
• Store no. 3702 Bismarck, N.D.
• Store no. 3874 Findlay, Ohio
• Store no. 3865 Lima, Ohio
• Store no. 4552 Brattleboro, Vt.
• Store no. 4932 Beaver Dam, Wis.
• Store no. 4933 Fond du Lac, Wis.
• Store no. 4913 Milwaukee, Wis.
Home Depot said in a statement it still intends to build 55 new stores this fiscal year, including 36 new stores in the United States.
As for other stores in the works, the company said it has “determined that it will no longer pursue the opening of approximately 50 U.S. stores that have been in its new store pipeline, in some cases for more than 10 years. Accordingly, the company will record a charge of approximately $400 million related to capitalized development costs and ongoing obligations associated with those future store locations.”
“This is a continuation of our disciplined approach to capital allocation that we outlined last year,” said Frank Blake, Home Depot chairman and CEO, in a statement. “We will invest in our core retail business, in this case our existing stores, which drive our most profitable sales. Our capital efficiency model will also provide improved returns for our shareholders through dividends and share repurchase.”
Home Depot added that investments in existing retail stores will continue to include “maintenance, merchandising resets and other initiatives to improve all elements of the customer’s shopping experience.”
The company reiterated that its total capital spending for the current fiscal year is projected to be approximately $2.3 billion, down from $3.6 billion last year.
Sherwin-Williams earnings fall in the first quarter
Sherwin-Williams saw earnings fall in the first quarter of 2008, but the worldwide paint and coatings giant is still seeing strength in international sales.
Earnings fell 30.3 percent in the first quarter to $77.9 million from $111.8 million in the same period last year. Net sales grew just over 1 percent to $1.78 billion from $1.76 billion in the same period last year.
The stronger net sales were in large part due to strong Global Group sales, as was the case last quarter. Favorable currency rates and eight acquisitions since last year’s first quarter helped aid international sales, according to the paint company.
In the company’s retail Paint Stores Group, net sales were $1.031 billion in the quarter, 1.9 percent lower than in last year’s first quarter. Sales were weak due to “soft architectural paint sales and weak sales in non-paint categories partially offset by improved industrial maintenance product sales.”
Same-store sales decreased 6.5 percent compared with last year, and earnings decreased 31.9 percent. Earnings were weaker because of increased product and freight costs, the company noted.
The company’s Consumer Group, which includes paint products like Dutch Boy, saw sales decrease 4.8 percent in the quarter to $286.9 million. The sales decline was due primarily “to soft DIY demand at most of the segment’s retail customers.” Earnings in the Consumer Group were down 23.7 percent due to higher raw material costs, as well as a lower volume of movement at the company’s distribution centers.
The Global Group’s net sales increased 14.8 percent to $461.9 million due to market share gains, selling price increases, favorable currency translation and acquisitions. Earnings for the Global Group increased 21.7 percent to $7.7 million.
“Paint demand in the domestic new residential, residential repaint, DIY and commercial markets was weaker during the first quarter than we had anticipated at the start of the year,” said Christopher Connor, chairman and CEO of Sherwin-Williams. “We continue to be pleased with the strong sales improvements of the foreign business units in our Global Group and the continued growth they have been achieving in the architectural, industrial maintenance, OEM and automotive finishes product lines.”
Connor also noted that the Paint Stores Group opened 17 new stores in the first quarter and closed 23 “redundant stores.”