Lessons from Las Vegas
Las Vegas — What happened in Vegas will not stay in Vegas — especially not the products purchased, the leads generated, nor the business best practices that were shared by retailers during the National Hardware Show.
Some 30,000 industry professionals spent three days in the desert for the show, the highlights of which depend completely on the taste of the attendees.
But certainly one highlight was when four successful hardware and home center operators spent an hour on the Village Stage sharing their challenges, strategies and future plans. Ranging in size from three to 36 locations, the dealers varied in scope and location but shared common approaches to customer service, the vendor community and pricing.
One of the largest dealers in the group, Rocco Falcone of Rocky’s Ace Hardware, operates 33 stores in Massachusetts, Connecticut, Rhode Island, New Hampshire and Florida. The family-owned operation has been in business for 85 years. “We service the hell out of our customers,” Falcone said. “The big boxes say they’re going to give good service, but they really don’t.”
Doug Gregory from Morrison Terrebonne Lumber in Louisiana spoke of the special handling his pro customers receive. “Our contractors are very dependent on our guys to help them run their business,” said Gregory, who recently partnered with CNRG. When asked about common misconceptions about his business, Gregory mentioned the perception that smaller independents charge higher prices.
Others agreed. “Our staff also believes that, so I get them out to price shop other stores,” said Ron Cicuttini, who represented three Home Hardware stores in Ontario.
Scott Parker, owner of 18 home centers primarily in Texas, pointed out that his outdoor lumberyards aren’t air conditioned, which lowers his cost of doing business. “We can be very competitive [on price],” he said. But Parker pointed out the necessity of variable pricing and the many factors that go into it.
“What we want to sell a product for is determined by the market, not what we want to sell it for,” Parker said.
All the retailers gave a shout-out to their vendors, co-ops and distributors. “If you’re really loyal to your suppliers, they’ll reciprocate,” Cicuttini said. “That’s paid dividends for us.”
During a keynote presentation at the North American Retail Hardware Association’s Village Stage, former Walmart executive Michael Bergdahl described the importance of risk-taking in the early days of Walmart and for the modern hardware store. “In the early days of Walmart, Sam Walton took risks and nine out of ten times, he failed,” said Bergdahl, who was director of people for the Bentonville, Ark.-based retail giant.
Companies that encourage employees to take risks, and accept the good along with the bad, are the ones that are most likely to win, he said. “You will take risks as a merchant. Some time, you will hit a home run.”
Buyers and retailers come for many reasons, one of which was articulated by Dan Fesler, CEO of St. Paul, Minn.-based Lamperts: “You have to take a look at what’s out there every once in a while.”
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Short on Facebook. Long on community.
Something is wrong on Wall Street.
The whole financial community is aflutter over Facebook shares, which stumbled out of the blocks as a publicly traded company last month.
But that’s not the problem. The problem is that the company’s market capitalization is completely out of whack with acceptable notions of corporate significance and meaningful contributions to society. The value of Facebook shares multiplied by the number of those shares is — at last tally — an amazing $87.33 billion.
For comparison’s sake, let’s look at the market caps of some of the companies tracked on the official Home Channel News Stock Watch:
• Builders FirstSource, the largest publicly traded chain of lumberyards, $378 million — that’s million with an “m,” not a “b;”
• Masco, diversified home product manufacturer and brand developer, $4.50 billion;
• Stanley Black & Decker, maker of tools and owner of an iconic brand that has lasted for generations, $11.71 billion; and
• The Home Depot, the world’s largest home improvement retailer, $75.25 billion.
These are companies with any number of the following: a) large plots of real estate in well-trafficked cities, suburbs and rural areas; b) sophisticated systems to profitably deliver products to consumers; and c) a capacity and knowledge to make things to be used in or around the house.
Facebook does none of these things. Instead, it offers invitations to play Mafia Wars or view an endless series of baby photos, all very similar in nature. (Note to parents: I’m not talking about your baby’s photos.)
From Silicon Valley, one can almost hear the protest: “But Facebook has billions of users.” To them I say: “Come on. The Atlantic Ocean has billions of users, too. That alone doesn’t make it a big business.”
Here’s an extreme viewpoint from one of our valued readers: “Facebook is a monumental waster of people’s time and creates nothing of lasting value.” I just posted this comment to the Home Channel News Facebook page.
But unlike most magazine editorial boards, at Home Channel News, we’re not just going to lament the state of the world. We’re doing something about it.
We’re creating an online network that does something useful, meaningful, practical and, yes, even profitable for its registered users. It exists right now at HardwareStoreConnect.com.
Hardware Store Connect is a professional network for hardware store owners and operators. Right now, discussions are focused on important topics, from the growing threat of competition from Walmart, to the hardware co-op’s role in the success or failure of the independent member.
Users can cut to the chase — posting their questions to the group in a designated Q&A area, or even posting a question to our hand-picked panel of experts.
There aren’t a lot of baby pictures.
If you’re a hardware store owner or operator, we hope you can give it a try. And tell us what you think.
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Winning the fight against Amazon.com
Offer exclusive products, make the most of your retail brands online and accentuate the positives of your store touch points.
Those items are high on the project lists of home improvement retailers desperate to counter the threat of pure-play online competitors that price-cut them on their very selling floors via the magic of mobile communications. Leading the assault is Amazon, which in its 18-year history has left its tire tracks on retail segments, including books, electronics, music and office supply. The Seattle-based online retailer now has its sights set on home improvement, as evidenced by its debut at No. 10 on the HCN Top 300 in this issue.
Amazon sent holiday shivers down the spines of traditional retailers last year with the introduction of a Price Check app that allowed Christmas shoppers to scan a bar code — or merely take a picture of a product — and get a 5% lower price (up to $5) from the online player. “Showrooming,” or using Home Depot and Lowe’s as the place to examine a new drill before ordering it online for less, is one of a pair of bogeymen Amazon unleashed on the brick-and-mortar set. The other is its ability to sell products minus sales tax.
The latter monster appears ready to be vanquished. Retailers, including Walmart, Target and Home Depot, joined with the Alliance for Main Street Fairness to challenge the issue in several states, and Amazon has relented. The online retailer has signed sales tax pacts with seven states, including Texas and Nevada in May, and is in talks with five others. And while Amazon has long skirted the issue by supporting an unpassable federal online sales tax law, its aggressive expansion of fulfillment centers — 30 new facilities in 2011 and 2012 — should dull the controversy. A physical presence entails charging sales tax in most states.
It’s the monster No. 1 that home improvement retailers will be wrestling with for some time to come as they re-examine and reshape their business models to engage a digitally empowered consumer base. All those new DCs are evidence of Amazon’s success in conquering new categories. First-quarter sales reported by Amazon rose 35% to $17.4 billion, with sales of general merchandise — including home improvement — up 43% to nearly $8 billion. The company added 28,000 employees in the past year, a 75% increase in payroll, in large part to staff the DCs and gird for more orders.
“For any of the big companies, the challenge is to become better than the pure-play online retailers are,” said Lowe’s board member Leonard Berry, professor of marketing at Texas A&M University. “It’s not only a worthy venture, it’s an essential one.”
Former Home Depot chief marketing officer John Ross, who now studies the habits of mobile and online shoppers as CEO of Atlanta-based Shopper Sciences, said the battle is regular retail’s for the winning.
“It’s lame for retailers to be whining about showrooming,” Ross said. “Their charge is to offer best product at the best price. That’s what they are there for. In reality today, the trade radius of the store is global. If they are just looking at the local DMA for business, they’re not living in the 21st century.”
Juggernaut though it may be, Amazon is not likely to repeat in home improvement what it accomplished in books and music. Home improvement, especially when one considers the varied business mix of a Home Depot or Lowe’s, is a complex and segmented marketplace not completely penetrable by an online pure-play.
Whereas 6% to 7% of electronics and small appliance shoppers check out products in-store before purchasing online, only about 2% to 3% of home improvement shoppers currently partake in showrooming, according to a study by NPD Group, a Port Washington, N.Y.-based consumer researcher. Some product categories, such as lumber, are exempt from the trend, while others rate moderately on NPD’s showrooming index. Power tools hit the high end at 9%.
“The impact is pretty low right now,” said Kevin Gilbert, director of home improvement at NPD.
While Amazon’s brief history illustrates it is willing to stretch to gobble up anything in its path, home improvement could prove too big a meal to swallow. “The question is, how does [Amazon CEO] Jeff Bezos think about the home improvement world?” said retail analyst Colin McGranahan of Sanford C. Bernstein & Co. in New York City. “It’s a $300 billion to $400 billion category. It dwarfs electronics. What is he after?”
McGranahan estimates that only 20% to 25% of what’s sold in a home improvement big box is currently vulnerable to Amazon’s online sales machine. “Power tools, lighting, ceiling fans — Amazon will play well there,” he observed. “But it’s hard to ship somebody a door. Quikrete would be a tough equation to make work.”
Jim Robisch, director of retail research at the Farnsworth Group, an industry consultant based in Indianapolis, believes that only about half of home improvement retail’s business will ever be within reach of Amazon‘s outpost off the information superhighway. “Contractors are not going to buy online, and even specialty contractors like to take their customers to a showroom to look at options,” he said.
Still, Robisch believes Amazon will become a significant player in the industry. “There are plenty of people who like to go to stores, but they’re dying away. It’s becoming second nature to buy everything online,” he said. “So for traditional retailers, this is a distribution issue. They’ve got to get the cost out of the distribution, not the product. Delivering to the end user is where they’re going to get beat.”
Texas A&M’s Berry said traditional retailers will work hard to improve efficiencies, cut waste, and demand exclusive products and low prices from suppliers in response to discount online competition. Ultimately, he sees them moving into digital commerce in a big way, while adhering to their core values of informed customer service.
“The physical retailer will become a multichannel retailer,” Berry said. “The Lowe’s, Home Depots and Menards can no longer afford to think of themselves exclusively as bricks retailers. They need to say to consumers, ‘We’ll do business with you any way you want to work with us.’ ”
Ross, who spent more than a decade at Home Depot, thinks traditional retailers will prevail because of the specialized knowledge they have of their businesses and customers.
“Home improvement stores are not item factories, but project factories. It‘s a unique draw,” Ross said. “The advantages brought to the party by online are limited.”
Amazon’s upselling proposition — the “You might also like” addendum to a sale — does not fully translate to the home improvement category. “If I buy a faucet, I won’t be needing another one for a while, so the Amazon model is laughably off in this case,” Ross pointed out. “The stronger Amazon gets in this category, the more the home improvement guys will invest in online. They will be the ones to figure out how to do it right.”
The MyLowe’s initiative knocks loudly on this door, forging ongoing home improvement relationships with customers by tracking their purchases and projects, as well as home details, such as floor plans, decorative styles and yard size. The value of such information can transcend a single customer. “If one homeowner moves out, another moves in,” Ross said. “The history of that dwelling remains with the retailer. It will know when the new owner needs a new roof.”
Amazon is on a mission to rule the retail world from its cyber-charged selling platform in Seattle. It helped cause the demise of such chains as Borders, Circuit City and Tower Records. Expensive retail real estate is unnecessary to its business, so its return on invested capital is more than double that of the average retail chain. According to a recent report in Harvard Business Review, Amazon’s market value is about $100 billion — or roughly that of Target, Sears, Best Buy, Nordstrom, Macy’s, Staples, J.C. Penney and Kohl’s combined.
Amazon is the 300-gazillion-pound gorilla sitting in the middle of your selling floor, and it isn’t going anywhere. But the behemoth may be denied run of the house in home improvement centers if penned in by a latticework of artful customer initiatives woven with the customer insights of experienced marketing associates.
Ross, for one, is betting on the Lowe’s, Home Depots and Menards. “As they learn to harness their customer base,” he mused, “we will enter a golden age of home improvement retailing where they will leave the Amazons in the dust.”
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