Scotty's returns to its roots - Brief Article

Home Channel News, Feb 5, 2001 by Brae Canlen

Retailer abandons its bargain format experiment

WINTER HAVEN, FLA. -- Scotty's, the 115unit regional chain, is abandoning its bargain-outlet experiment and reverting back to a hardware and home center format. Although a fraction of its stores will continue to sell closeouts and $1 items, the Florida retailer has decided to "return to its hardware roots," according to the 77-year-old company.

The retailer announced its decision on Jan. 17 in conjunction with the news that Do it Best Corp., the dealer-owned buying group, has taken Scotty' s into its fold. A two-part conversion process is already underway at the chain's headquarters store, where a team of specialists in information technology, purchasing and logistics from Scotty's and Do it Best is matching sku numbers and product lines. "Once we make the matches, we should be able to do the rest [of the stores] electronically, said Phil Koenig, who is heading up the effort for Do it Best.

Scotty's decided to join a buying group so it could expand its product offerings to 68,000 items from 17,500; in other words, it is taking on Do it Best's warehouse assortment. Scotty's president and CEO Tom Morris told NHCN that he liked the idea of using Do it Best's warehouse in Lexington, S.C., to supply his stores with the new inventory. "It made no sense for us to bring all these products to our distribution center," Morris said. "We're going to significantly increase our assortment without any significant increase in our costs." Morris said Scotty's would also benefit from the year-end vendor rebates that the co-op distributes, which he described as a potential "second profit" for his chain.

Morris initiated contact with Do it Best and visited several of its dealer-members before joining the co-op. One dealer visited was the 25-unit Gill-Roy's Complete Hardware in Michigan which, coincidentally, has consistently been among the annual recipients of the largest rebates doled out by the buying group.

Scotty's announcement, however, came as a surprise to industry observers and even to its own store management, which was informed about the decision by fax, according to Alan Quick, the manager of Scotty's store in Savannah, Ga., who had just been transferred from its outlet in Tampa, Fla. "I assume that we'll be hearing more about their plans in the next few weeks, but right now you probably know as much as I do," he said.

Scotty's spent most of last year undergoing a chainwide conversion to its bargain-outlet format. The concept, first introduced in January 2000, divides a store's selling floor into five separate units that sell closeout merchandise, products for $1 or less, home fashions, flooring and hardware. During that period, Scotty's also reduced its store count from 142 units.

However, the format wasn't working in rural markets, according to Morris. "It worked quite well in the metro markets, but not in our smaller stores," Morris said. "We needed the space to support our pros." Although contractors make up 70 percent of the customers in some of Scotty's locations, the chainwide breakdown between DIYers and pros is 70 percent to 30 percent, according to Morris.

Scotty's will retain the Bargain Outlet format in 15 of its biggest stores -- 50,000 to 70,000 square feet -- most of them located in the Orlando and Tampa metro areas. "The larger facilities have enough room to do both," said Morris, referring to the bargain and hardlines/ building materials format. The remaining 100 stores vary widely in size, from the 49 smallest units which average 10,000 square feet and will become straightforward hardware stores, to 51 stores which average 40,000 square feet and will be conventional home centers, according to Morris. Fifteen underperforming stores were closed last year, he confirmed.

Scotty's isn't planning interior redesigns in the immediate future. "There will be [revised] planograms, but I don't call that remodeling," Morris said. Morris is looking at some of Do it Best's retail programs, however: Scotty's may open some rental centers, and Morris is particularly interested in the commercial program with its CD-ROM catalog. "My [salespeople] don't have that to sell to their accounts today," he noted.

Morris wouldn't specify what purchasing commitment he made to Do it Best, other than to say he expects to order "tens of millions" in dollars of inventory. This would undoubtedly eclipse the buying capabilities of other co-op members, the largest of which -- R.P Lumber Co., a 22-unit dealer in Illinois and Missouri -- made $51.5 million in total purchases from Do it Best in 2000.

"I thought my head caved in," joked one Do it Best retailer, describing his reaction to Scotty's announcement. "I'll bet there's a lot of nervous [co-op members] right now.

Scotty's, whose sales figures dropped to $500 million in 1999 from $610 million in 1996, has no cause for worry, according to Morris. He believes that Scotty's can coexist with Home Depot and Lowe's, both of which have expanded aggressively in the state. "We'll do fine and they'll do great," Morris said. "And fine is fine with us."