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Bulking Up for a Hardware Battle

Associated Press

When the family-run Power Townsend hardware store here heard that the goliath of home improvement was moving to town, owner Mike Wall decided to ignore the pundits and take Home Depot Inc. head on.

Instead of scaling back, as some experts recommend when so-called big-box stores move in, or folding, as at least one other local hardware store did before Home Depot broke ground in Helena, Wall went big.

He doubled his store’s floor space and started work on a new five-acre lumberyard, a project that was underway as Home Depot began taking form this summer just across from Wall’s store on Interstate 15.

“You’ve got to be as big as Home Depot to compete against them,” Wall said. “You can compete. It’s just not easy.”

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Wall knows he’s taking a big gamble. Even with his expansion project, Home Depot’s store is still more than twice as big. Home Depot also has deep corporate pockets and a formula proven in 1,600 stores across the country.

“They’re not here to compete -- they’re here to put you out of business,” Wall said of Home Depot. “They’re not nice people.”

It is a fairly common sentiment of local business owners when such giants as Home Depot or Lowe’s Cos. move to their towns.

The National Retail Hardware Assn. estimates that the number of hardware stores in the U.S. has fallen to about 20,000 from more than 25,000 in the late 1980s.

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In the last few years, the average size of home improvement stores has grown about 10%, while the number of independent mom-and-pop stores continues to fall.

Walt Johnson, a spokesman for the hardware group, said some closures occurred because the owners were near retirement and didn’t want to make new investments to stay competitive.

Others, however, probably closed because of the pressure from large national stores, he said.

“Obviously, competition has gotten a lot tougher in the last 20 years, prompted by discount stores and the big boxes,” Johnson said.

And more often, those stores are either Home Depot or Lowe’s. The two retailers accounted for about $84 billion in sales last year.

Since 1998, the 25 largest retailers’ claim on industry sales has risen to 53% from 42%, according to a hardware association report.

It means independent stores such as Power Townsend, founded in 1867 and owned by Wall’s family since the 1940s, often struggle to figure out how to compete.

Home Depot said that all of the retailers can coexist and that the company had no intention of trying to force hometown retailers under.

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“Never have we set our sights on a certain guy and said, ‘We want to put them out of business,’ ” Home Depot spokesman John Simley said.

Johnson and John Haka, managing director of the Midwest Hardware Assn., say there is still room for independent stores to compete, but they may have to change tactics.

“The independents need to focus more on their market, more on their niches,” Haka said. “That’s usually the way to do it.”

Larry Bowman owns Owenhouse Ace Hardware, a 124-year-old Bozeman, Mont., hardware store that has been competing against Home Depot for almost a year. Business has been better than Bowman thought it would be.

“It’s kind of like a new restaurant; everyone goes there to try it,” he said. “Some people like it, but others say they like the restaurant they’ve always been going to.”

Unlike Wall, Bowman decided to keep everything pretty much as is, and even postponed plans for a large expansion.

Al Norman, an industry activist from Massachusetts who is critical of big-box stores, believes there is little hope for small hardware stores competing against the giants.

“I’ve unfortunately met far more unemployed hardware store owners than I would like,” said Norman, author of “Slam-Dunking Wal-Mart.”

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Now that the national chains have run out of major cities in which to build, they are starting to target towns as small as 25,000 residents.

“Some of these hardware store owners will tell you that ‘I’ve got a little customer base, they’ll stick with me,’ ” Norman said. “But the record is pretty clear -- the hardware industry has been devastated by these big guys. That’s why they are called category killers. They operate like a steamroller.”

Home Depot’s Simley said his company’s research has found that big-box stores take less money away from other stores than most people think. Instead, consumers spend money normally earmarked for travel or other luxuries on home improvements at Home Depot.

“The point of competition is to make money, and you would assume that money into my pocket is money out of yours, but that isn’t necessarily the case,” he said. “We find we are winning over spending dollars from categories that are way outside of retail.”

Wall doesn’t buy it, and is banking on key improvements and expansions to stay competitive.

He said he is part of a purchasing cooperative, a group of 4,500 independent hardware stores known as Do It Best that helps him buy materials as cheaply as Home Depot.

He said he was also hoping to keep contractors with his store’s drive-in lumberyard, which features a drive-through checkout line. And he said he was going to stock more specialty wood, offer product lines not available at Home Depot and continue to offer delivery.

“People say we’re crazy,” Wall said. “But this is it. This is all we’ve got, we’ve got to make it work. This is our company, and it’s got to survive.”


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