Two dealers changing approach to their market

Home Channel News, May 1, 2000 by John Caulfield

Their responses have become predictable.

To hear some independent dealers tell it, they've never lost a customer to a big-box competitor, at least not for long. No matter which dealer one asks, and no matter where that dealer is located in the United States, the answer to the question "what happened after [fill in the blank] moved into your neighborhood?" is invariably the same, as if it were scripted and passed to dealers around the country.

"Well," say the dealers, in interview after interview, "we lost 40 percent of our business in the first year after that warehouse opened next door. But shoot, most of my customers came back because they got frustrated by the service over there." Oh, and by the way, those big boxes now send their customers over to the independent dealer's stores "when they don't have what shoppers come in for, because they know we'll have it."

In a market where the three largest home improvement chains -- Home Depot, Lowe's and Menard -- opened 266 new stores and captured 35 percent of the industry's $166 billion in retail sales last year, customer loyalty is always in doubt, as are the claims of superiority by independents about their stores' customer service and product assortment. We've entered the land of lowered expectations, where survival is viewed as victory, and "growth" is seen as being able to open your doors each morning.

That's not to say that all is lost but for a handful of mega-chains. Indeed, this issue of NHCN reports on one dealer, surrounded by implacable foes, that has succeeded by approaching the market in an entirely new way; and another retailer, once dominant in its market, that is rolling the dice with a new store format.

As correspondent Michelle Breyer reports on page 1, Rochester, N.Y, has been hostile territory for independent dealers for more than two decades. But where stores large and small have fallen, Penfield Hardware still stands. though not exactly as it started 90 years ago. Its owner, Dave Meng, realized 15 years ago that he'd have to find a new way to deflect the assault from the area's two giants, Home Depot and homegrown Chase-Pitkin. He moved his operation's specialty from selling hardware to selling handyman services. Those services became so popular that 40 homeowners have even entrusted duplicates of their house keys to Penfield Hardware so that its repairmen can let themselves in to fix things while the homeowners are at work.

Pergament Home Centers was launched 65 years ago as a family owned paint store. It grew, in the 1970s and early 1980s, into a 40-unit home improvement chain that ruled the roost on Long Island, N.Y Home Depot's arrival and expansion in the New York metropolitan area -- combined with an ill-advised leveraged buy out and revolving-door corporate management -- stranded Pergament in that desert known as anonymity. "Are they still in business?" was what a friend asked me when I told him I was going to interview Pergament's new owners.

My honest answer would be "I'm not sure yet." Pergament's game plan (see page 1) is fundamental: shrink the stores' size to make them easier to shop than Home Depot's. Lay out the merchandise to expose customers to better sellers -- paint, furniture, housewares and lighting -- and to give higher-turning secondary products a better chance of selling. Put the headquarters and distribution operations on a strict diet from past spending excesses.

Pergament's owners convinced me that they are sincere in their efforts to turn the company around. They know better than any-one that Lowe's and, probably, Villager's Hardware are just waiting to complicate their stores' future recovery.

Early results of Pergament's strategy have been positive. But now the hard part -- perseverance -- begins.