JAMES F. HALPIN : Building a Better Warehouse : HomeClub Chain’s New Boss Has Work Cut Out for Him
James F. Halpin talks above the scream of buzz saws and the pounding of nails at HomeClub Inc.’s corporate headquarters in Fullerton.
It seems appropriate that the sounds of construction, rather than piped-in music, should ring through the halls of HomeClub’s nerve center. For the chain is where many contractors and homeowners alike go to to find lumber and nails--as well as Christmas lights, garage doors and daffodils.
The construction noise was the result of changes ordered by Halpin, who is already making an imprint after two months on the job as president of the membership home-supplies company.
HomeClub, a unit of Natick, Mass.-based Waban Inc., introduced the latest twist to the home-center concept that developed during the postwar boom in suburban tract home construction in Southern California. HomeClub and its archrival, Home Depot, are warehouse-type stores offering a wider variety of items than an ordinary home center at discount prices.
Their stores look like warehouses, with concrete floors, open rafters and merchandise stacked on pallets to the ceiling.
The formula has spelled trouble for some home-supply chains that haven’t adopted the warehouse concept. Citing competition from HomeClub and Home Depot, National Lumber & Supply Inc., a small chain of home-supply stores in Southern California, was forced to file for Chapter 11 bankruptcy protection earlier this year.
Facing fierce competition in the industry, Halpin has more than his share of challenges ahead. He is the fourth HomeClub president in five years.
Halpin joined HomeClub in May from his job as president of BJ’s Wholesale Club, a chain of membership discount department stores in the East. He was vice president and general merchandising manager of the chain from 1987 to 1989. From 1982 to 1987, he was vice president and senior merchandise manager of the Zayre Stores Division of Zayre Corp., an East Coast retailer.
In a recent interview with Times staff writer Chris Woodyard, Halpin discussed his plans for HomeClub’s continued expansion and what he views as the key ingredients to the success of home center chain.
Q. What is your impression of the home center industry in Southern California?
A. I’ve been in retail for 20 years. Right now I’m entering the most exciting phase of my career. We have 62 stores. Home Depot has 120. And the country could hold 1,500. It’s a $100-billion industry that’s wide open.
Q. What about other, non-warehouse home centers?
A. There are a lot more home centers. But they are typically 30,000-35,000 square feet. But the format I’m talking about is the power format of 110,000 to 140,000 square feet. You walk downstairs in our Fullerton store and I’ll build you a house.
Q. Why does the warehouse formula work so well?
A. Because of what you are giving the customers: wide selection, price, some service and (products that) are always in stock.
Q. Why is that more efficient than a smaller operation?
A. It’s a one-stop shop and we have lower gross margins.
Q. Competitors charge that the warehouse-type home centers are too big, impersonal and that it’s difficult to find a particular item.
A. We’re making them more personal. What we’re all doing is evolving to more service. As our volumes grow, we can throw off more gross profit dollars and add service without increasing our prices.
Q. How do you make it easier to find things?
A. We have people who will help you find it. We have a projects center. We have a computer that will help you design an entire kitchen. We’re moving more and more toward that in the power format.
Q. But home centers have been around since World War II. What makes the warehouse concept so exciting all of a sudden?
A. Let me compare it to another industry. There have been toy stores since the beginning of time. Why is Toys R Us exciting? Isn’t that what we are? Aren’t we the Toys R Us of the building supply industry?
Q. How do you judge what the best size for a store should be?
A. We’re learning. At one point, we opened them up at 80,000 (square feet) and thought that was optimum. Then we went to 110,000 and thought that was optimum. Over time, we’ll evolve to 140,000-square-foot stores. We’ll get bigger nurseries and bigger lumber yards. As our volumes grow . . . we’ll have to keep on increasing the size of the building.
Q. What are the most profitable centers of a home center store?
A. Kitchen cabinets, any custom goods. Your margins are better but you eat them because you have to offer a lot of service.
Q. Is there a particular part of your stores that is more profitable than others?
A. No, the overall format makes money. For example, at Price Club, what is their most profitable area? It is their hot dog cart. Does that mean everyone should put in hot dog carts? No. Price Club makes money because of its overall format.
Q. Aren’t profit margins extremely low in the home center industry?
A. They are extremely low for us and for Home Depot. One of the things that has validated our concept is the industry had higher profit margins.
Q. Has the trend been toward a “low-price every day” concept? What is the advantage of that?
A. Consistency. You know, we do a big business with contractors. They have to know what the Sheetrock is going to cost every day. It can’t be $2.99 one day, $4.29 the next day, so that they run over to Builders Emporium. It’s a convenience, and it’s real. Why do people run ads? They run ads to disguise their high prices. They run loss leaders to hook (customers) in. (Home Club’s strategy is to) give them a low price every day . . . and let them do all their shopping with us rather than getting their drywall from us, screws from somebody else and a Stanley tape (measure) from somebody else.
Q. What are the disadvantages of the every-day low-price policy?
A. The thing that can happen is someone can sell things below cost or have loss leaders that make you seem high-priced.
Q. What are the advantages of having a membership store?
A. Lower prices, because typically your members will spend more. The higher average transaction reduces your operating costs, therefore reducing your need for gross margins. It takes almost as much time to ring up a $20 sale as it does to ring up someone spending $50. By having membership, we have a more committed customer. They are spending more.
Q. What are the disadvantages of membership?
A. Some people (who aren’t members) think they can’t come in. It’s not true. Anyone can come in; it’s just that non-members pay 5% more.
Q. What do you think of HomeClub’s concept of having the store open to both members and non-members?
A. I’m not sure. I’ve only been here two months. I’m studying it.
Q. Are you happy with the way the format has worked?
A. HomeClub has got to do a better job of service. I believe these formats have to do a better job of servicing customers. I grew up with two rules. First, the customer is always right. The second rule is that, when the customer is wrong, go back to number one. The way you’re successful is giving the customer what they want. The customer in this business wants service and needs service. We are trying to expand the do-it-yourself market. I’m trying to get (the customer) to do projects that he never thought he could do. You probably never thought you could build a deck. I want us to have the level of service that will talk you into building a deck. If we can get you to build a deck, we may get you to build a garage. And once you build a garage, we’ll get you to put on a roof. I want to expand our customer’s base of knowledge, and I need service to do that.
Q. Isn’t it hard to find employees with that kind of expertise?
A. They come trained. This is a wonderful place for some of our senior citizens--a retired carpenter or a retired plumber. They can come to us and work and do the training. They can work at the project desk. Some of them can look at a key and cut it with their eye; they don’t need the machines.
Q. Doesn’t that increase your costs by spending on training?
A. There is training that has to be done. We spend a lot of money on training. But what we have to our advantage is the volume that we’re doing. When you look at these units doing $25 million or $30 million (a year in sales), there’s enough gross margin there to train people.
Q. Would you describe yourself as a hands-on manager?
A. Yeah. It’s the only style I know. . . . On weekends, I’ll travel stores in jeans and a T-shirt. Since they don’t know me, if I’m happy with the store, I stop and introduce myself and have a nice meeting with the store manager. If I’m not happy, I won’t introduce myself. And the reason I don’t introduce myself is that, hey, I want my first meeting with this store manager to be a pleasant one.
Q. How can you tell if you are reaching the customer’s needs?
A. One of the things you need is state-of-the-art computers to keep spinning information for you different ways. I believe that, in the long term, we merchants have to change our thought process. Typically, all merchants want to think about is whether a particular item is profitable. I don’t care about the item. I don’t want to know about the item. I want to look at our customers.
When I was at BJ’s--BJ’s is like a Price Club--we discontinued cheesecakes in Hialeah, Fla., because we were only selling five cheesecakes a week, so they weren’t profitable. I got a call from the owner of a restaurant. He said, ‘I’ve been buying five cheesecakes a week from you for the last year and you discontinued them. Why are you doing that to me?’ I pushed a button on the computer. He was doing $120,000 of business a year with us. Now, was that cheesecake profitable? I would say it certainly was. So we have to go beyond looking at the profitability of the item. We have to look at the profitability of our customers.
That’s why I’ll study our contractor, our roofer or our plumber to find out how to enhance their business. If I have a contractor coming in once a week, I have to figure out what he needs. I have to start looking at the plumber as a business, and not only look at sales of a particular item.
