Ace incites optimism

BY By Ken Clark

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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