Orchard Supply Hardware: 2015 Retailer of the Year

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Orchard Supply Hardware: 2015 Retailer of the Year


San Jose, California-based Orchard Supply Hardware, the 2015 Hardware + Building Supply Dealer Retailer of the Year, describes itself as a company that wants to change the conversation about home improvement retailing.

How? By listening to the customer. By offering something different. And it definitely helps to have a conversation piece like the upscale, 40,000-sq.-ft. “neighborhood format” concept store format.

Orchard Supply executives talk passionately about being the first choice for repair and maintenance, for paint and for anything to do with the backyard. And its new format store earlier this year was honored with the Retail Design Institute’s National Award for the large format store.

But more than that, the retailer — a stand-alone division of Mooresville, North Carolina-based Lowe’s — is bringing ambitious plans to the West Coast. The 78-store chain is on pace to reach its three-year plan of $1 billion in annual sales and a fleet of 100 stores by the end of 2017, leading the industry from San Diego to Seattle.

And it starts with the store. Orchard Supply goes to market with a clear strategy: to fill the underserved space between the corner hardware store and the warehouse home center. That’s where the company’s 30,000-sq.-ft. to 40,000-sq.-ft. prototype comes into play.

“The store design is a crucial part of the strategy, because we want to change the conversation about hardware retailing,” said Bob Tellier, president. “This is not your hardware store where you look for one or two items. You come in to have a conversation and solve problems and have an exciting place to shop.”

In early April, Orchard Supply opened three brand new locations, all in California: Woodland Hills, Cerritos and Irvine. A week later it converted three existing California stores to its new “neighborhood format” — Sand City, Milpitas and Foster City. Three more were slated for re-grand openings as this article went to press: Pasadena, South Pasadena and Granada Hills.

By the end of the year, 65% of the Orchard Supply store base will be contained in the new, award-winning “neighborhood” format. That’s a long way from 2011, when only one store out of 80 sported the new look and feel. Also at the end of the year, the company’s focus will shift from remodeling mode to new-location mode.


Background and structure

Orchard Supply Hardware, which dates back to 1931 and its formation as a farmers co-op, has seen more than its share of ownership and management changes in the past decade. Under the ownership and management of Sears Holdings, the top post was held by Rob Lynch (now CEO of Lumber Liquidators) and then by Mark Baker, a former Home Depot executive.

Most recently, Lowe’s purchased the company out of bankruptcy proceedings in September 2013. Initially, Lowe’s executive Richard Maltsbarger was installed as president. In January, the stand-alone nature of Orchard Supply became more pronounced as Lowe’s promoted Tellier to run the Orchard business.

The relationship with Lowe’s has been positive and supportive, Tellier said. And the decision to elevate longtime Orchard merchant Tellier to the post of president is seen as a clear message in San Jose that Lowe’s is allowing Orchard to be Orchard.

“Even though we share ideas and we share information, there is no one from Lowe’s on-site here in San Jose,” Tellier said. “ Lowe’s was clear: They bought us because they like our concept, and we were a great alternative to their big-box stores. They agreed with our strategy. They’ve done everything they’ve promised, and they’ve been very supportive. We couldn’t have done it without them.”

So far, that cooperative spirit does not include sharing of brands. Though Orchard does carry Craftsman, closely identified with Sears, it doesn’t carry Lowe’s brands such as Kobalt. Conversely, there are no Orchard brands on Lowe’s shelves.

“On the merchandising end, our strategy, our customer base and our merchandising philosophy are quite different than Lowe’s,” Tellier said. “They provide a full project solution to customers, and we’re a repair and maintenance, paint and backyard company.”

He added that Orchard Supply actually competes with Lowe’s in many markets — “friendly competition,” he added.

Ultimately changing the conversation about hardware retailing involves changing the customer experience. At Orchard, a key part of that involves the phrase “lifestyle merchandising.” Tellier describes Orchard Supply’s business model as evolving more and more to an off-the-shelf merchandising style. The stores strive to create an atmosphere where consumers can see the products in their natural state — the way they would be used in their homes or their backyards.

“Our mission is to connect with our customers,” he said.

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