Striking a balance - Ace Hardware's Ace Retails program helps co-op stores - Brief Article - Statistical Data Included

Home Channel News, Sept 17, 2001 by Lisa Girard

'Ace Retails' gives members a heads-up on retail prices they can charge against competition

More than a year after launching Ace Retails -- a program designed to streamline and consolidate pricing at Ace Hardware's 5,000-plus member stores -- the company reports that participating outlets are on track to improve gross margins by 2.7 to 5.3 percentage points annually.

"On a $1 million store, that's adding $60,000 to $70,000 to the bottom line, which is quite an impact," said Ace retail-pricing supervisor Chris Huot, who helped develop the program. Between 75 percent and 80 percent of Ace's stores are using the system to some extent, with about 800 of those stores using it exclusively he added.

Under Ace Retails, the company benchmarks off the leading competitor in a particular market and gives stores a recommended price range for each product. The philosophy is this: Ace stores may not match the competitor's price, but they should give a fair price-to-value ratio to the customer.

The idea was born two years ago, when Ace management set out to study the pricing structures of other retailers, including big boxes and smaller local outlets nationwide. As part of the research, Ace conducted a six-month study with Arthur Andersen Consulting to determine where Ace dealers were in relation to the marketplace.

"As we started to look at today's market and the increased competition from Home Depot and Lowe's, and started to talk to Ace dealers across the country we knew we had to modify what we were doing," Huot said.

Since Ace Retails was launched in spring 2000, a four-person pricing staff has been analyzing competitive information and has done a complete review of each Ace department. In addition, staff members are using services from outside agencies, conducting physical audits, reviewing flyers and beginning to experiment with using the Internet to track prices.

"That took a year to do and to roll out without overwhelming the retailer with price changes," said Rich Lynch, Ace's corporate retail development manager. "Now we're identifying key categories that we want to go back through and revisit."

In some cases, Ace Retails means raising prices on certain products, especially blind items that are found more readily at a local hardware store than at a big box, to maintain overall margins. Other times it means lowering prices to be more competitive with surrounding stores. For example, if Home Depot is selling a package of G.E. light bulbs for $1.29, Ace's pricing staff will suggest that its stores be within a range of that price, although maybe slightly higher.

Lynch said that one of the keys to Ace Retails is recognizing that markets change across the country "What they are trying to accomplish is to offer pricing on about 80 percent to 90 percent of a retailer's products so the retailer can then concentrate on the 10 percent to 20 percent that may be specific to his or her market," he said.

The new pricing goes directly into every retailer's computer system. The prices are sent in the form of a "hot-sheet" record, and the retailer is free to use or discard the suggestions. If the dealer decides to use them, he then processes the hot sheet and reprices the items.

Bob Harrell , who owns an Ace store in Naples, Fla., said that Ace Retails has helped him to be more competitive with stores in his area without cutting into profits. "If you've got to drop some prices in some areas, you can raise some others a little bit," he said. "You can raise products like hose washers, repair parts for plumbing fixtures and drill bits that you need to get at a hardware store."

The program has not only made Ace stores more competitive in certain areas but has created more uniformity within the dealer network. In the past, one store would offer a product at a price below Home Depot, another would be even and yet another would come in above. Now there are guidelines which allow Ace stores to be consistent.

Mike Cripe, who owns Ace stores in Braidwood and Wilmington, Ill., adopted the program to establish consistency between them. "Even within a department, you'd get rolling changes," he said. "A consumer would come in to look at spray paint. He'd look at 10 different cans and they'd have different prices. Now they're the same."

Also, Ace-branded product has varied in price from store to store and sometimes costs more than national brands. According to Huot, people expect to pay less for a store brand, but not too much less. "If the private brand is $10 and Ace is $2, they would think it's junk. There has to be consistency" he said.

Cripe agreed that the key to the program is finding the right balance and is pleased with the results he has gotten since putting in the new prices in April.

For example, Cripe used to sell just one or two wheelbarrows a year because he wasn't even close to the price offered by competing big boxes. With Ace Retails, he lowered the price and has sold six since May He has also dropped the price of a standard "For Sale" sign from $1.19 to 89 cents. "The margins are still good at that price," he noted.