Ace buyers turn to sellers for advice - Ace Hardware asks members about electrical matters - Brief Article

Home Channel News, May 1, 2001 by John Caulfield

Co-op's electricals/lighting assortment informed by feedback from members

Last month, Ace Hardware distributed the first edition of its "Ask Ace -- Energy Experts" newsletter, which provides the co-op's members on the West Coast with information relevant to California's energy crisis and how dealers can respond with products and services. Included in the first newsletter was a list of more than 750 "energy conservation" items available to dealers.

A few years ago, Ace, wearing its distributor hat, probably would have come up with this list on its own. But under its Vision 21 strategy that has the buying group thinking exclusively in retail terms, Ace is turning to its membership for market reconnaissance and advice.

"Many of the things we're working on relate to the West Coast energy crisis, and what's great is that the stores are telling us what we should be doing," said Darren Fischer, one of Ace's two electricals and lighting buyers.

In early 1998, electricals was the second category, after paint, to be incorporated into Ace's Discovery program, which develops product assortments based on what has sold most profitably for the co-op's strongest dealers.

This summer, Ace plans to go back into the electricals category and update that assortment using comprehensive data from members' stores and from vendors that weren't available to the co-op during its first go-round.

"We'll take a look at the original Discovery sets and ask if we have everything to complete a project, not just whether we have the best sellers," said Tom Woods, who handles electricals and lighting for use "outside the wall." Fischer noted that assortments would need to be adjusted so dealers can meet building code requirements which, in some cases, have been rewritten.

The co-op wants its dealers to be able to respond to market conditions more urgently. So it wasn't surprising that, during its spring convention in New Orleans last month, the co-op was promoting a gas connector with an auto-shutoff feature that California's legislature was about to mandate for use throughout the state.

Commitment to inventory

Finding new products is critical to the growth of a mature department such as electricals and lighting that contributed 12 percent to Ace's $2.95 billion in wholesale sales in 2000 -- or $354 million -- from its 5,011 dealer-members. That was down a percentage point from the previous two fiscal years, according to the buying group's 10-k report to the Securities and Exchange Commission.

Fischer, 28, has purchased electricals for five of his seven years at Ace. He currently handles light fixtures, building wire, wiring devices and other "behind the wall" basics. He cited the growth potential of low-voltage and landscape lighting (which was a big seller for Ace in 2000), as well as in solar-powered lights, in which Ace "has taken a real leap forward" in terms of inventory commitment.

The 35-year-old Woods has been purchasing electricals for five of his 13 years at the co-op. While he doesn't think Ace is "missing" anything, he does think its assortments could "go deeper" in such products as telephones.

"In some of the smaller rural markets, our dealers are the only show in town, and they can be a phone destination store," he said. "A few years ago, Panasonic wouldn't even look at Ace; now, we're offering a Panasonic program" which, Woods explained, plays into the higher-margin upscale, "decor" niche of the category.

Woods pointed specifically to extension cords as another example of this trend. "Consumers are looking for higher-quality products. When dealers were selling the cheapest extension cords, no one made money. Now Ace is offering cords with special features that are sold at a higher ticket, and consumers come away with a better product."

Vendor consolidation

Increasing dealer profitability through better-managed departments is a defining principle of Vision 21. Last year, Ace helped dealers increase their profits by 2.5 percentage points on the products Woods buys. He pointed to an exhibit of audio-visual accessories in one vendor's booth at the convention and said that an eight-foot display of those products alone has been found to account for 6 percent of the profit from a store's entire electricals department.

But to sustain dealers' margins, Fischer said that Ace's expectations of its vendors have changed considerably in recent years, as consumers who are exposed to Home Depot and Lowe's place more emphasis on price when deciding where to buy product. "That puts a lot of pressure on us," Fischer said. "We're already very competitive, but there's always room for improvement."

About 200 vendors supply 5,500 skus that Fischer purchases for dealers, which represent about half of the department's total mix. However, he noted that 14 of those vendors account for around 80 percent of the wholesale sales generated by this group.

For Woods, three vendors -- Energizer, Duracell and GE Lighting -- make up 50 percent of the wholesale sales of the products he buys, and 13 vendors account for 90 percent.