Ace dealers divided over OurHouse role - Brief Article

Home Channel News, March 6, 2000 by Monica Toriello

Some worry that the co-op's Internet partner is a competitor in high-tech's clothing

OAK BROOK, ILL. -- Ace Hardware insists that its relationship with e-commerce partner OurHouse.com is just beginning to benefit the co-op's dealer-members. But some of those members are skeptical at best and are worried that OurHouse may actually be competing against them.

OurHouse has raised a total of $115 million in debt and equity funding to date, with more than $5 million coming from the buying group. Ace and OurHouse officials insist that the relationship makes perfect sense, because it blends a strong retail environment with online expertise. OurHouse, they say, will help Ace dealers build their own Web sites, which will link to OurHouse.com. In-store kiosks will also link to OurHouse.com, allowing dealers to offer more than what they carry in stock.

A letter dated Jan. 31 bearing the signature of Ace's president, Dave Hodnik, told Ace dealers that the development of the in-store kiosk "has been a learning process," but that he expects a rollout to occur in the third quarter of 2000. The first prototype of the kiosks will be shown at Ace's dealer show in Atlanta next month.

But the Ace-OurHouse business model is still a hard sell to some Ace dealers, who feel that the $5 million-plus investment could have been put to better use. Virgil Cox of Houston-based Cox Hardware and Lumber feels the relationship isn't designed to benefit Ace dealers over the long term. Under terms of the agreement, dealers will get 14 percent of the gross sales originating from an in-store kiosk or through the dealer's own Web site until December 2000. After that, the terms will be re-evaluated.

"So who will really benefit from the return visits? Not the dealer," Cox said. "I think from Ace's standpoint, this relationship with OurHouse is rather ill-defined." Randy Livingston, owner of Tassajara Valley Ace Hardware in Danville, Calif., concurred.

"It hasn't yet been explained to me how OurHouse.com is going to help the independent Ace dealer," Livingston said. "The co-op recognized that it needed to be in e-commerce, so it brought in a third party. But now, how do you tie in that third party with 5,000 Ace dealers? I think they're still trying to figure it out."

Half-price sale questioned

One move that didn't go over well with some Ace dealers was a low-price promotion on 10 items that ran on OurHouse.com for 10 days in early January. A Black & Decker mouse sander and polisher, model No. MS500K, that normally retails in stores at about $49, was being sold on OurHouse.com for $24.99. The mouse sander was among 10 items OurHouse.com offered at half-price as a tie-in to its Citrus Bowl advertising campaign. Along with a $10 coupon for first-time customers and free shipping for merchandise under 50 pounds, one dealer from a competing co-op was able to purchase three sanders for approximately $65 -- an amazing deal.

"Those are about $42 each when I order from my co-op," said John Fix III, owner of single-unit Cornell's True Value in Eastchester, N.Y., who gladly took advantage of the offer. Fix would have bought more items if customers weren't limited to three purchases each.

Both Ace and OurHouse downplayed the pricing issue. Low-price promos, they said, are a given in the e-commerce world, and such offers will help rather than hurt Ace's dealer-members.

"The key is building a brand on the Web, and you have to differentiate your site from others -- giving consumers the ultimate retail experience," said OurHouse spokesman Jon Hatris. "Our post-Citrus Bowl promotion did just that and thankfully, many of these consumers are coming back again and again. The majority of Ace dealers completely understood our intentions and supported the promotion." Harris declined to give specific sales or traffic figures.

Ace spokeswoman Ann Marie Hickey confirmed that Ace has no control over Our House's pricing. But she noted that OurHouse's marketing campaign has already benefited Ace.

"Every time OurHouse execs make a TV appearance, or every time OurHouse is mentioned in the media, the Ace brand inevitably comes up," she said.

'Us vs. Them' mentality

The Ace-OurHouse partnership does have its supporters among Ace dealers. David Ziegler, co-owner of 10-store Ziegler's Ace Hardware in Elgin, Ill., is "very encouraged" by Ace's relationship with OurHouse and sees the strategy as smarter than the paths being taken by the other co-ops that have chosen to develop their Internet initiatives themselves.

"There's no way that an independent dealer could successfully enter the e-commerce ball game, and I'm glad Ace has partnered with some people with expertise," Ziegler said. "We can ramp up faster that way. We might have been left in the dust otherwise."

Ziegler concedes that pricing issues may not have been fully resolved yet, but he expects they will be within a short time. "And it's not unusual for a few dealers to get all uptight about [pricing]." Ziegler said one of the greatest challenges of this undertaking is eliminating the "us vs. them" mentality and getting dealers to understand the opportunities that are tied with its OurHouse partnership.