Getting along with the neighbors

Home Channel News, Nov 6, 2000 by Anita Stackhouse-Hite

Smaller dealers find that traffic, shopping synergy follows when big boxes move in

In 1994, when Wal-Mart opened a 147,000-squarefoot, 24-hour super store next to Poultry Electric Motor and Hardware in Winchester, Tenn., the long shadow it cast could be seen as a dark cloud hovering ominously over this independent dealer. But Poultry Electric's owner, Tom Steele, now says he sees a rainbow with a pot of gold glistening at its end. "My business has quadrupled since they came here, and my gross doubled," he said.

Poultry Electric, a typical hardware store whose specialty is selling and servicing electric motors for poultry farms, had been at its current location for less than two years when Wal-Mart opened its store 200 yards away. Yet, since early 1995, Poultry Electric has managed to coexist with its big-box neighbor.

Its success illustrates what a growing number of small and regional dealers are finding out: Competition from a warehouse-size retailer is not necessarily a bad thing. In fact, some dealers that sell many of the same products seem to seek out big-box neighbors. For example, in Milltown, N.J., Blinds To Go is about to open a 5,000square-foot store that's literally in the same parking lot as a huge Home Depot and Target.

And in a bizarre twist, Kline's Valley Nursery, an independent specialty dealer in Turlock, Calif., which has been in business for 44 years, decided to close next January after its owner, Richard Kline, couldn't convince Home Depot to allow Kline's to relocate its garden center to a retail complex that includes a new Depot outlet. "[Depot] can't carry the broad selection and can't provide the service like we do," Kline told the Modesto (Calif.) Bee in September. "They can't answer some people's questions and can't supply the specifics like we can. I would build right next to Home Depot if I could."

Crate & Barrel and The Container Store have taken this trend even further by co-developing same-site locations. Their fourth project opened recently in Dallas. "The results have been outstanding at our same-site locations," said Melissa Reiff, vp-sales and marketing for The Container Store. "We have pretty much the same demographic with less than a 5 percent merchandise overlap. Evidence shows that when the two stores are side-by-side they do 15 percent to 20 percent better."

This trend embraces both one's rival and its customers without fear. This store-location strategy is postulated on the belief that working with competition instead of against it is the best way to satisfy more consumers' demands.

It might be stretching things to say that Home Depot and Lowe's are "working together" when they open stores near each other, and spokespeople for each company are still using 1990s language when they say that they aren't "afraid" of competition. But these and other retailers have opened outlets near -- sometimes even next to -- Wal-Mart, which generates tremendous customer traffic for each dealer's stores and speaks to the synergistic opportunities these couplings presents.

Alternative strategies

Like all store-location strategies, this big-store/small-store approach is not without its limitations. Recently, NHCN intercepted Tom and Nora Garstka of Palmdale, Calif., as they were about to get in their car to drive 50 yards or so from a Lowe's to a Target on the other side of the parking lot. "We're going to look for a phone at Target," Nora said, "even though it annoys me to have to go there. The service is terrible, not from the employees but from management. It was so bad I had to report the manager to upper management."

The Garstkas were on their way back to Target because Lowe's didn't have the phone they wanted. The couple, though, purchased a gallon of concrete paint at Lowe's and ignored the shopping option presented by the Dunn-Edwards Paints outlet that is located only a 60-second walk from the warehouse home center's front door. "It's a matter of convenience," she explained. "We're busy people, and time is of the essence."

Ironically, Tom is in the dental equipment repair business, and the couple owns Teams Sports Locker, a sporting goods store that is across the street from a competitor. "Not a problem," Tom said. "It's all in the service. Ours is outstanding."

Service is the oxygen that has kept Poultry Electric alive, too. When Wal-Mart opened behind this store, it was only 5,000 square feet. "I figured that if Wal-Mart was coming, I'd better expand," said Steele, who increased the size of his outlet to 20,000 square feet. "We figured they'd be good for business because we had created our own niche. Plus, we provide our customers with knowledgeable service. My employees don't say, 'that's not my department.'" Steele and his wife, Donna, now run an operation with 12 employees, three more than the staff in the smaller outlet.

Poultry Electric's expansion increased its storage space and made room for a rental center, something that Wal-Mart doesn't offer. The expansion also allowed the company to increase its fastener display to 90 linear feet, which Scotty Steele, Tom's 25-year-old son, claims is one of the largest in the country. "Believe it or not, Wal-Mart buys from us," he said.