Big Three Private Label Expansion, Regional Offerings Drive Category

Discount Store News, August 10, 1998

Even though hardware has shown little growth as regionals cut skus and Sears and Home Depot prosper at the expense of discounters, hardware remains a basic $5 billion business.

At discount, hardware has shifted from being a destination department to one of carefully pruned offerings of the best-selling, often impulse items, such as surge suppressers for computers and home entertainment centers.

Kmart did an about-face last October and resurrected its BenchTop private label tool line, expanding it to power and carpenter tools as well as mechanics hand tools.

For consumers looking just for price, Kmart also is importing directly from China a line of inexpensive mechanics tools called ToolSmart.

Target also has taken the private label route in tools, introducing its DuraBuilt line of carpenters and mechanics tools and tool chests.

Light bulbs also is becoming a private label business. Target has gone the furthest in this pursuit, bringing out specialty bulbs to compete with GE offerings. Target merchandises its private label light bulbs against General Electric.

In private label bulbs, Kmart has brought out its American Fare line, which it aggressively merchandises alongside General Electric.

Wal-Mart, despite its major push into Popular Mechanics private label goods, holds the line on two hardware subcategories, power tools and light bulbs.

In light bulbs, it is sticking with GE, and for power tools, it still remains largely wedded to Quantum, a special makeup line from Black & Decker.

At regionals, Sylvania has gained a niche market against GE because small chains find they can make better margins and price more aggressively without a GE price comparison from WalMart to combat.

In merchandising their private label hand tools, both Kmart and Wal-Mart salt their offerings with national brands. They promote the price advantage of their private label versions of tools from such companies as Stanley, Wiss, Channel Lock, Crescent, Zircon and Vise Grip.

The technique gives the appearance that the chains are still offering national brands, even though they have greatly reduced the numbers of such products.

In addition to private label offerings, Wal-Mart sprinkles its tool program with no-name, generic tools that it imports directly from Asia. Alltrade, a line of Chinese import tools, has gained so much ground that it is almost a national brand.

Through all of this, Stanley continues to lose shelf space, even though it is producing some of the private label offerings.

In paint, Martha Stewart Everyday has established its presence in the hardware department at Kmart stores with a selection of 256 muted hues. Kmart doesn't have an exclusive on the Martha Stewart line, which is manufactured by Sherwin-Williams, and so Sears also has rolled out the MSE paint line to more than 800 full-line stores.

Sears continues to press discounters by expanding its chain of about 255 freestanding hardware stores, including its Orchard Supply Hardware division in California, toward its goal of 500 such units.

And added hardware competition for discounters comes from Home Depot, which announced earlier this year plans to launch a test of "convenience" hardware stores in 1999. These units are expected to be about 35,000 sq. ft. Home Depot finds that many consumers dislike tramping through a 1l0,000-sq.-ft. home center for hardware, and it wants to capture more of the $55 billion in sales that flow to neighborhood hardware stores.

Regional chains such as Ames still maintain viable hardware departments with decent growth. But to do so, Ames has cut back on technically based hardware applications in favor of basic convenience and impulse items, including surge suppressers.

Bi-Mart keeps sales churning in its hardware department by turning to step-up products, such as under-cabinet fluorescent lights for kitchen and bath, and then promoting them better in circulars and membership coupon books.

Despite the competition, discounters still move huge quantities of basic products, such as hammers, screwdrivers, paint and sundries, lawn & garden chemicals and impulse items such as batteries. As a result, discounters will remain in the hardware business. And they will continue to fine-tune selections to generate increased sales and to keep the department a profit center.

                      HARDWARE PRODUCTIVITY

Dept. Size (Sq. Ft.) 2,485
Sales Per Sq. Ft.    $200.40
Initial Markup       39.65%
Gross Margin         34.77%


Source: DSN Research


                       HARDWARE % OF TOTAL
                           STORE SALES

Accessories 1.20%
Paint       0.95%
Hand Tools  0.29%
Power Tools 0.26%
Other       0.10%


Source: DSN Research