Tool power: despite lower margins to compete with big boxes and online catalogs, power tools remain a key component to a dealer's profitability - How To Sell Tools

Prosales, Dec, 2002 by Rich Binsacca

To illustrate the power of his extensive tool line at a recent contractor night, Mike Brackin brought in an old Chevy from a junkyard and asked the pros in attendance to guess how long it would take to cut it in half with a recip saw.

While Brackin's two-minute stunt may have created some buzz for Homco, a one-yard, $20 million operation in Flagstaff, Ariz., his inventory and competitive pricing of tools generate something more substantial: $400,000 in annual tool sales. "We're committed to selling tools," says Brackin, Homco's second-generation owner. "And we sell a lot of them."

While margins on tool sales have declined in the face of competition from big-box retailers and catalogs, they still can have a significant impact on a dealer's overall success. Margins for bits, blades, and other tool accessories remain high, for instance, while competitive pricing on drill motors and power saws leads to traffic in other areas of the store. "It gets people in the door," says Brackin, and from there customers see that tools aren't the only products priced to sell.

Tool sales also help generate some interest among DIYers looking to replicate a journeyman's nail bags. "Our primary focus is on the contractor side, but our pricing enhances our image among consumers who want pro-oriented product lines," says John Miller, director of the Stores division for Star Lumber & Supply, a five-location, $100 million dealer in Wichita, Kan.

Consumers, in fact, may account for an equal amount of a pro dealer's tool sales, though they purchase tools for different reasons. "Pros Use the daylights out of their tools, and we can usually talk them into buying a new one instead of trying to repair what they bring in from the field," says Brackin. "Consumers just want the newest thing."

Taking the Initiative

When big-box retailers and catalogs began threatening Doug Hamshaw's tool sales, the president of Hamshaw Lumber, a single-yard, $26 million operation in Keene, N.H., went on the offensive. "I wasn't going to cede business to someone else," he says. "Tools are a good line for us, and I wasn't going to give it up just because they appeared to be lower priced."

While other independent dealers cut their tool inventories, Hamshaw broadened his selection, lowered margins, and began an informal price-matching policy against mail-order tool catalogs. "It gave us an opportunity to compete, as well as to keep selling tool accessories, which are higher margin items," he says. "I didn't want to lose both parts of the [tool sales] business."

Hamshaw and his staff also educated themselves on what they see as subtle differences in the sales methods of some catalog and online tool retailers. For instance, Hamshaw warns customers of tactics such as shipping charges, symbols that mark tools as "reconditioned," and model numbers that neglect to indicate the year a tool was made, which may not include new or comparable features to the tool Hamshaw has in stock.

Hamshaw has since formalized the company's price-matching guarantee, allowing buyers a 30-day window to take advantage. Few do, and the real benefit is customer loyalty. "Once they get past the perception that you are more expensive than a catalog, they can focus on the priority of finding the tool they need without shopping around," he says.

Like Hamshaw, Brackin and Miller have taken the initiative to compete with big box retailers and catalogs for tool sales by adjusting their inventories to include complete lines of a few pro-oriented brands. "We have at least one of everything our tool suppliers offer," says Brackin, who provides pros and consumers with an outlet for both popular and harder-to-find tools.

Partners in Power

While refining their inventories to a few trade-oriented brands, pro dealers also have partnered with tool manufacturers to leverage co-op promotional dollars and brand awareness in their respective markets. "Come Christmas time, we're first in the general public's mind as the place to buy power tools," says Hamshaw. "That just logically leads to more business."

Manufacturers may have tightened their promotional budgets recently, but that hasn't stopped dealers from taking advantage of the strong brand recognition that some tool makers enjoy. Brackin, for instance, offers tool packages as raffle awards at local and dealer-sponsored events (including the car-cutting stunt), regardless of the vendor's financial involvement.

He also uses manufacturers to help educate his staff and customers about new tools. "We learn about the product during the demonstrations they host," says Brackin. "Then we can talk intelligently about them with our customers."

The biggest benefit, however, is how Brackin's tool suppliers service their brands at the store. "They clean up the displays, educate and train our sales team and customers, and work with us on upcoming promotions," he says. "All of that helps us turn inventory faster."

New Niches

Earlier this year, Star Lumber & Supply increased its tool sales commitment by purchasing an independent dealer of commercial/industrial tools, equipment, and fasteners. The deal was a departure for Star, which operates three full-line home-improvement outlets and a smaller, pro-based yard in the Wichita area, in addition to a contractor sales division with manufacturing and distribution capabilities.