Ace shines its SPOTLIGHT on consumers - Ace Hardware's business strategy - Brief Article

Home Channel News, Sept 17, 2001 by John Caulfield

Ace Hardware's 'Vision 21' business strategy is being refined to send a more compelling marketing message about its members' stores and what they sell to a broader customer base

Last April, Ace Hardware chairman Howie Jung told dealer-members attending the co-op's spring market in New Orleans that the company's ultimate goal under its Vision 21 strategy is for its 5,100-plus dealer-members to "dominate" the convenience segment of the retail home improvement market.

The five "cornerstones" of that strategy -- entrepreneurism, category management, sharp retail pricing, customer-service management and employee training -- are what Ace believes will drive more business into its members' stores and produce 5 percent same-store sales growth this year alone. Ace officials pledged that the co-op would commit to measuring with greater precision and utility, the effectiveness of the programs it has devised as part of Vision 21.

Since that pronouncement, the dynamics of the market have changed, to say the least. The wave of dealers who have defected from rival TruServ over the past several months has washed up, in many cases, onto Ace's shores. And the potential expansion threat from Home Depot's much-ballyhooed hardware store format, Villager's Hardware, has dissipated now that Depot appears to be focusing its attention on developing "urban" home centers that may include some Villager-like attributes.

But Ace's mandate remains the same, and it's still a tall order whose achievement could determine the success of the buying group, especially after a first half of 2001, during which Ace's wholesale sales fell nearly 4 percent, and its net income plummeted 32 percent.

As of mid-August, Ace had approved 1,781 of its members' stores as operating within the guidelines of Vision 21. From January through July, Ace's wholesale sales with those Vision 21 stores were up 7.4 percent compared to last year, vs. a 7.8 percent decline in wholesale sales to non-Vision 21 stores.

"These numbers continue to give credence to the strategy," said Ray Griffith, Ace's executive vp-retail, in an interview with NHCN during last month's National Hardware Show.

Earlier this year, the co-op put the breaks on sign-ups for Vision 21 because it feared that more members would want to participate than it could handle. Now, Griffith said that Ace is ready to start soliciting members to the program again, and it won't be shy about using this program as an enticement to lure strong TruServ dealers into its fold.

"It's never been a numbers thing for us, but if we had a 3,000-store kick-butt hardware operation that acted more like a chain, we'd really be something else," he said.

Creating a new retail image

Griffith and other Ace officials have stated that Vision 21 is about improving dealer productivity -- customer transactions in an Ace store average about $13 -- and reducing dealer costs. It's worth noting that customer counts at member stores had been declining at an average rate of 1 percent per month for several months prior to Ace's convention in New Orleans, and first-quarter same-store sales were up only 1.5 percent.

On the other hand, members that participate in the co-op's Discovery program -- which develops merchandise assortments based on what's sold best for the buying group's strongest members -- have seen average sales increases from 10 percent to 16 percent in the first year and from 6 percent to 14 percent in the second.

Discovery, which is into its third year and second revision, is an integral cog in the Vision 21 machine, and one on which several other programs hinge. The following stories on Ace Hardware take a closer look at some of the co-op's newer initiatives and how they are being executed at the service of its Vision 21 strategy.

Ace is trying to create a new retail image for its dealer-members -- through its advertising, its store design and its customer services -- that appeals to a much broader cross section of consumers than has typically shopped its stores. The co-op's latest tag line -- "This is My Ace" -- cuts both ways, and it suggests that the co-op and its membership need to operate more as a unit to achieve the kind of market domination of which Jung spoke.

For example, Ace president Dave Hodnik told members last spring that the co-op has to do a better job measuring its performance against Home Depot and Lowe's. So why, Griffith asked rhetorically, shouldn't members let Ace competitively shop 75 percent to 80 percent of the products they sell? Apparently, more dealers are responding "why not?" According to Griffith there has been an overwhelmingly positive response to the company's "Ace Retails" pricing and margin improvement plan which, if fully implemented, is projected to increase the co-op's annual profit by $325 million.

More profit would translate into higher patronage dividends for members, which Ace hopes will lead to more new store openings. Last year, Ace helped 141 members negotiate $28 million in financing for new stores. Around 1,300 members operate more than one store, with four owners for every five stores. Ace wants to increase that ratio to four owners for every six stores.