Ace warns dealers of rivals' rollouts

Home Channel News, May 24, 1999 by Jason Gonzalez

Sears Hardware and Villagers Hardware to be great challenge to the co-op stores

ORLANDO, FLA. -- If subtlety is a soft whisper, then Ace Hardware's message to dealer-members at the coop's recent Spring Convention here was an earsplitting boom-box blast.

In decisive tones, one Ace official after another told dealers to prepare for what may be the greatest competitive threat they have ever faced: the nationwide rollout of hundreds of Home Depot Villager's Hardwares and Sears Hardwares.

Ace implored its members to act aggressively and embrace the full package of the co-op's operational, marketing, technological and store growth programs.

"We have never faced the likes of what Home Depot will put together [in Villager's Hardware]," said Ace president and CEO David Hodnik. "Do we need to change our strategy? Absolutely not. Do we need to accelerate our efforts and execute retail initiatives faster than ever before? Absolutely."

Unlike the big-box competitors that Ace dealers have co-existed with for two decades, the Sears Hardware/Villager's Hardware challenge is expected to occur on their own small-store, smaller-market turf.

"It is an imposing threat to our business," said Bill Loftus, Ace's executive vp-retail. "It is a competitor that can potentially attract every single customer that comes to your store."

Though urgent and at times defiant, Ace's message was far from desperate. The co-op's 1998 results indicated that it was still growing and in a strong competitive position, Hodnik said.

Wholesale sales to Ace's 5,100 retailers grew 7.3 percent to $3.12 billion. Retail sales totaled nearly $14 billion. Ace's Contractor Center dealers grew to 280 by year-end 1998 and reported combined retail sales of $1.4 billion. (As of May 1, there were 300 Contractor Centers.)

International sales grew 14.2 percent in 1998 to $216 million. Take Canada out of the equation and Ace's foreign sales grew at an even quicker pace -- 22 percent, said Paul Ingevaldson, senior vp-international and technology. Ace's Canadian business, despite its growing diversity 1998 sales to Beaver Lumber accounted for 75 percent of its north-of-the-border business, vs. 100 percent the previous year -- remains somewhat unsettled until a buyer for Beaver finally emerges, Ingevaldson explained.

Ace Hardware's call to action came amid its 75th anniversary celebration. Starting at the spring market and continuing throughout the year, Ace and its dealer-members are coordinating anniversary promotions at the corporate and store level.

But while the co-op recognized its long and storied history, there was the clear sense that it is heading into a new era and that a better appreciation of these challenges is required. Ace encouraged dealers to welcome technology and the opportunities it can provide.

"The pace of retailing is changing, and we all have to change or suffer the consequences," Loftus said. Ace encouraged dealer-member to develop one-to-one marketing programs by utilizing database technology. The co-op is getting all of its dealers onto the Y2Kcompliant Pace 5.0 operating systems. It is also taking a tougher stance on its less technologically inclined members.

To a surprise ovation from the audience, Ingevaldson told all Ace dealers that they had until Jan. 1, 2001 to get signed up on its Acenet 2000 EDI system. After that, he said, dealers will he charged additional fees for paper versions of information that is otherwise available electronically. Roughly 60 percent of Ace's current membership is online with Acenet.

Jordan Short, president of Short & Paulk in Tifton, Ga., was one of the dealers who favored nudging along the other 40 percent. "You have to keep up with technology," he said. "You can't keep doing things the old way."

Another dealer, Chris Baker of Irvine Ace Hardware in Irvine, Calif., predicted that over the next decade, "the bulk of our business will be done over the Internet or whatever advancement comes after that." Dealers will have to be able to provide interactive services, he added.

Ace also pledged to step up its partnership programs with dealers. During the convention, Ace announced the launch of a new capital stock lending program designed to give certain dealer-members access to their equity investment in Ace in order to open new stores or acquire competitors. The program offers loans at below-market rates, seven-year terms and no payments until maturity.

The co-op made it clear that it needs both new stores and conversions and additional sales to existing dealers to maintain its momentum through 1999. The urgency of the messages delivered during the convention, said Hodnik, was meant to act as a wake-up call.

"There are over 2,000 PHD and Player dealers now," said Hodnik, referring to the acronyms -- Premier Hardlines Dealer and Premier Lumber Yard Retailer -- used to describe Ace's high-performing members. "But we have 5,100 members. We need them to become more passionate about being Ace retailers."