Do it Best Corporation

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Do it Best Corporation

P.O. Box 868
Fort Wayne, Indiana 46801-0868
U.S.A.
(219) 748-5300
Fax: (219) 493-1245
Web site: http://www.doitbestcorp.com

Cooperative
Incorporated: 1945 as Hardware Wholesalers, Inc.
Employees: 1,305
Sales: $2.2 billion (1999)
NAIC: 42131 Lumber, Plywood, Mill work, & Wood Panel Wholesalers; 42132 Brick, Stone, & Related Construction Material Wholesalers; 42133 Roofing, Siding, & Insulation Material Wholesalers; 42139 Other Construction Material Wholesalers; 42171 Hardware Wholesalers

Founded in 1945 as Hardware Wholesalers, Inc. (HWI), Do it Best Corporation is one of the largest dealer-owned cooperatives in the United States. From an initial membership of 75 hardware and building and lumber supplies dealers, the cooperative by 1999 had grown to include more than 4,200 member-retailers throughout the United States and 38 foreign countries. Do it Best distributes some 70,000 different hardware and building supplies items from six regional service centers (RSCs). A seventh RSC was scheduled to open in October 1999. In fiscal 1999 (ending June 30) Do it Best reached $2 billion in sales for the first time.

Origins and Dealer-Owned Cooperatives: 1900–45

Hardware Wholesalers, Inc. (HWI) was founded in 1945 by Arnold Gerberding as a member-owned cooperative. It was established to serve independent hardware and building materials dealers. By combining the purchasing power of its members, HWI helped the independent dealer face intense competition from discount stores, warehouse outlets, and big chain operations.

Born in Fort Wayne, Indiana, in 1900, Gerberding went to work for the Pfeiffer Hardware Co. after graduating from high school. After several years he took a job with Schafer Hardware Co. in Decatur, Indiana, at the urging of his uncle, who was the firm’s treasurer. Schafer was a small hardware wholesaler that served both hardware and building materials dealers within a 100-mile radius.

Gerberding spent nearly two decades with Shafer, primarily as a buyer. During the 1920s and 1930s, the wholesale middlemen, also known as jobbers, dominated the flow of goods from the manufacturer to the local retailer. The jobbers not only added a layer of expense for the independent retailer, they also controlled the retailers to some extent.

The independent hardware dealers, who were facing growing competition from national catalog and retail chains such as Sears and Montgomery Ward, fought to be competitive by forming associations and using the pooled resources of the group to buy directly from manufacturers. These groups typically tied themselves to a “cost-plus” store that would act as a buyer for the group, then sell merchandise to the associated stores at cost plus a standard handling fee. Using another model, Ace Hardware, formed in 1925, gained combined strength through a franchise of stores that all carried the same name and products.

While working for Shafer, Gerberding developed his own vision for creating a dealer-owned company. Dealer-owned cooperatives had been springing up around the country to break the power of the wholesalers over the independent dealers. The first hardware cooperative wholesaler, Franklin Hardware Co. of Philadelphia, had appeared in 1906. The first truly dealer-owned cooperative was the American Hardware & Supply Company of Pittsburgh, founded in 1920. It was soon followed by others. There were nearly two dozen such cooperatives by the end of the 1930s, but most did not survive.

By the early 1940s Gerberding realized he had to leave Shafer to pursue his vision of establishing a dealer-owned company. Influenced by the ideas of William Stout, head of the American Hardware & Supply Company, and George Hall, founder of the Hall Hardware Company, Gerberding joined the Auburn Hardware Company of Auburn, Indiana, in 1943 as its general sales manager. Auburn Hardware was one of the wholesale operations that operated on a cost-plus basis.

From 1943 to 1945 Gerberding contacted several area dealers to explore the possibility of creating the organization that became Hardware Wholesalers, Inc. (HWI). He left Auburn Hardware in 1945 and founded HWI on June 28, 1945. A group of independent dealers became the heart of the organizing board of directors of the new company.

The original organizing plan for HWI called for finding 75 dealers to become members. Each member was asked to invest $1,000 by purchasing 20 shares of common stock in the company, with an initial payment of $50 and the balance due upon call from the board of directors. When the meeting to incorporate was held on June 28, 1945, there were 96 subscribers. Nearly half of the new members turned out to be lumber and building materials dealers, with the rest being independent hardware dealers. This mixture became a defining characteristic of HWI and a source of strength for the firm in its early years.

Becoming Established: 1945–55

The directors decided to locate HWI in Fort Wayne, Indiana, not only because that was Gerberding’s home town and the home of the businesses of several of the board members, but also because it was the region’s rail and truck center. Moreover, Fort Wayne was a rapidly growing community, and it was an ideal place to locate a wholesale distributor to the independent hardware and lumber dealers serving a growing number of homeowners.

An office and warehouse site were selected. Three additional warehouses were added in 1946. All of the early warehouses were small, and the company’s equipment was primitive. The company displayed merchandise at various state hardware and lumber shows that were usually held in January and February, and the company’s truck did not have a heater.

Acquiring merchandise also posed a problem for the fledgling firm. It faced opposition from the established wholesalers, who would “blackball” merchants and manufacturers who dealt with dealer-owned organizations. Fearing retaliation, some members joined HWI under fictitious names. There was also a shortage of hardware and building materials following the end of World War II. For many years HWI had to deal with secondary manufacturers, until its growth attracted the interest of the leading companies.

Although faced with many difficulties, HWI saw its revenue increase from $171,069 in 1946 to $546,275 in 1948, and membership increased from 75 to 112 dealers. In 1947 the firm constructed its first warehouse facility in Fort Wayne. From 1952 to 1966 the facility would be expanded through six additions. In 1948 HWI moved its merchandise market from local meeting halls to its new warehouse in conjunction with an open house that allowed the members to see and use the new facility as well as view the increasing range of products. The merchandise markets were held in the warehouse until 1955, when a huge tent was erected on the company’s parking lot.

The Second Decade: 1955–66

By 1955 HWI was an established and rapidly growing regional wholesale distribution company. It served more than 200 member hardware and lumber dealers and offered several major lines of hardware products. In 1955 revenues were nearly $3 million, and rebates to members amounted to nearly $170,000.

During the next decade HWI would acquire more major lines of manufactured goods, expand its building materials business, recruit more members, expand its member services, and increase its warehouse space. By 1966 revenues reached $31.5 million, rebates to members were $1.2 million, and the number of members reached 619.

As HWI began to expand beyond the immediate Fort Wayne area, it used commercial carriers to ship products. In 1955 it created its own fleet, initially consisting of two trucks, to make deliveries. The drivers were paid a percentage of the value of products they hauled rather than an hourly wage. As the company began to use larger trucks, an incentive program was introduced, and HWI’s drivers were among the best paid in the United States.

In 1964 the company replaced its punch-card system with an IBM computer to handle data. The computer enabled HWI to expand its member services and, perhaps more importantly, offer its members variable pricing based on margins specified by the members themselves.

Expanding Vision: 1967–72

HWI entered its third decade with new leadership. Its founder, Arnold Gerberding, retired on September 30, 1967, at the age of 67. He remained an honorary executive vice-president and consultant to HWI until his death in 1977. The directors appointed Don Wolf, one of their own employees, to succeed Gerberding. Wolf, who worked his way up the ranks of HWI to merchandise and sales manager before his appointment, would lead HWI for the next 25 years.

Company Perspectives:

We will continue to adapt to the times, the competition, and the demands of our customers. We will continue to drive down member costs on price-sensitive items, enhance advertising and store design programs, better equip our staff in order to help our members, and more. At the same time, we will continue to hammer away at operating costs so we can provide our members the largest rebates. That’s truly our secret for success, along with the quality of our staff.

The 1970s brought more competition for independent hardware and building materials dealers. Established chains such as Sears were expanding their hardware and remodeling departments. Discount store chains such as Kmart, Wal-Mart, and Target, which had appeared in the 1960s, were beginning to flourish. Specialty discount stores that focused on one category of product highlighted another aggressive retail concept. A variety of other retailers were starting to carry housewares and home hardware items.

Perhaps the biggest competitive threat to HWI came from the new lumber, building supply, and hardware cash and carry stores. These giant retail centers were the forerunners of “big box” stores that boasted no-frills, super-discount prices in a warehouse setting. Other competition came from regional buying groups that were growing and seeking to become national in scope, including Ace Hardware and True Value, among others.

In order to meet these competitive threats, Wolf believed that HWI needed to grow beyond a one-warehouse company. The firm preferred to remain independent, although the possibility of merging with another company existed. In order to grow, HWI needed to formalize its planning process and articulate the concepts it stood for. As its basic operating philosophy, HWI adopted the slogan, “Serving others as we would like to be served.”

At first the board of HWI resisted the development of regional centers, because it would double HWI’s cost of operation and exposure. Financing was also problematic, as HWI did not have a strong cash position at the time. Previous warehouse expansions, which were on a much smaller scale, had been financed by selling bonds to the members. The new facility was ultimately financed by the Lincoln National Life Insurance Company, based in Fort Wayne, through industrial revenue bonds.

Cape Girardeau, Missouri, was selected as the site for the new 300,000-square-foot facility. The city was strategically located to serve the southern and western regions as well as the St. Louis area. Two years before the facility opened in 1971, HWI began recruiting stores in the St. Louis area, so that Cape Girardeau would be immediately profitable when it opened.

HWI grew dramatically in the early 1970s, and a new distribution center was built in Dixon, Illinois, to service the Great Lakes region and, especially, Chicago, Minnesota, and Wisconsin. Again, new members were recruited in the region before the distribution center opened in 1974. In 1977 another distribution center was built in Medina, Ohio, that became HWI’s highest volume distribution facility.

To keep up with HWI’s growth, additional distribution centers were built in Waco, Texas, in 1980; in Lexington, South Carolina, in 1986; and in Woodburn, Oregon, in 1991. These six large distribution centers—the Fort Wayne warehouse was closed in 1980 following a labor dispute—served more than 3,500 members in the United States and several other countries in the 1990s.

HWI enjoyed dramatic growth throughout the 1970s. Sales reached $455 million by the end of the decade, and the number of members increased to nearly 1,000. Home-building and remodeling, in addition to do-it-yourself maintenance, was the fastest-growing retail market of the decade. Home centers—retail stores that joined hardware with lumber and building supplies—played an important role in HWI’s growth in the 1970s and beyond.

By 1976 HWI’s merchandise market events had become too large for Fort Wayne, and they were moved to Indianapolis. These three-day events gave members a chance to view new products and take advantage of sales and special deals from vendors. Members could also take the time to meet with HWI staff to discuss areas of concern and new merchandising ideas. Members usually left the events with a six-month marketing plan.

Do it Center Revolution: The 1980s

HWI’s sales more than doubled in the 1980s, from $470 million in 1981 to over $1.1 billion in 1990, and membership increased to over 3,000. It was a decade of tremendous growth in the hardware and lumber and building supplies industry, as retail space increased overall by 50 percent. Discount chain stores expanded rapidly, and “big box” stores exceeding 100,000 square feet, such as Home Depot and Builders Square, opened.

HWI’s members were able to keep pace, though, and several members more than doubled their number of stores. In fact, most of HWI’s growth came from established members selling more products and buying more from HWI. During the 1980s HWI was committed to creating a total retail marketing strategy for its members. Its “Do it Center” program helped “ignite the resurgence in hardware retailing,” according to the National Home Center News, and HWI was named Hardware Merchandiser of the Year in 1985 by Hardware Merchandiser magazine.

The Do it Center concept was developed by merchandising expert Don Watt, who had first impressed CEO Wolf and other HWI people with his presentation at a 1978 industry convention. The Watt Group, headquartered in Toronto, Ontario, was recognized as the leading design and communications group in North America. At the invitation of Don Wolf, Watt attended all 27 of the HWI district meetings in 1979. At each meeting Watt made a one-hour presentation on worldwide marketing trends and modern merchandising. Six months later he returned to HWI headquarters with a two-hour slide presentation that revealed the similarities among contemporary Sears, HWI, Ace, and True Value stores. As a result, HWI retained Watt to develop an innovative marketing concept that would set HWI apart from its competition.

Watt came up with the Do it Center program, which included bright, aggressive colors and signage to create a warm and exciting atmosphere. Floor layouts included “power aisles” that allowed customers to take a short walk and see all of the store’s departments. Similarly, employees could easily walk the power aisles to see who needed service. Seasonal and new items were displayed at end caps, the end of shelving units dividing departments.

For some dealers, the new program was too much of a change. However, the concept was tested in 1981, and the results from the first store were good. When four stores were tested, sales in each of the stores increased by 50 percent in the first year. More importantly, the concept was a hit with customers and employees alike. Customers responded positively to features and sales. Employees took pride in working in such an innovative environment, and Do it Centers became a favored place to work.

The Do it Center program was introduced at the fall market in 1982. With many of the dealers remaining skeptical and others wanting to adopt only part of the program, HWI headquarters established strict mandatory guidelines for opening a true Do it Center. Still, it was difficult to convince all of the members, and it was agreed that members who chose not to participate in the program would not be penalized in any way.

Recognition, Growth, and Leadership in the 1990s

HWI’s sales nearly doubled again in the 1990s, from $1.1 billion in 1991 to more than $2 billion in fiscal 1999 (ending June 30). At the beginning of the decade HWI was already competing successfully with the big chain discount and warehouse stores. Management guru Tom Peters, author of In Search of Excellence and Liberation Management, was so impressed with HWI’s performance that he changed his keynote address at the Home Center Trade Show at McCormick Place in Chicago in 1989 to focus on the strength and dynamics of such dealer-owned organizations as HWI.

Like many other industries, the wholesale hardware, lumber, and building materials industry was affected by globalization. In the 1990s HWI led international cooperation efforts among dealer-owned firms in the formation of Interlink, a global association of dealer-owned companies. After HWI began working with the two largest dealer-owned organizations in Canada, an organization called Alliance was formed in 1993 to pool buying power and develop programs for members across North America.

Don Wolf stepped down as CEO in 1992 and retired in July of the following year. As part of a planned succession, executive vice-president Mike McClelland became president and CEO of HWI in October 1992. Bob Taylor, who owned five Do it Center stores in Virginia Beach, Virginia, became chairman.

HWI celebrated its 50th anniversary in 1995. “Serve others as you would like to be served” continued to be the company’s guiding philosophy. When McClelland became president, he added a mission statement: “We’re going to make the best even better.” That year HWI separated its sales and marketing division into two divisions, with marketing covering advertising, retail merchandising, store design, special events, and communications. Sales would focus on domestic and international sales.

Through its Canadian joint venture, Alliance, HWI had positioned itself as a total North American buying group. McClelland indicated he wanted to eventually form a holding company with the two Canadian partners, Home Hardware Stores and Le Groupe Ro-Na Dismat, and merge into one company with three marketing identities. The group engineered 35 “common buys” in the first half of 1995 and entered into 200 “common alliances” with manufacturers.

A new store format, Do it Best Vision, was introduced in October 1995. The flexible program allowed smaller retailers with limited resources to buy into Do it Best with varying degrees of financial commitment. Do it Express, which focused on quicker customer service, was introduced in 1996. The company expected that 80 percent or more of its members would choose one of the three available store programs: Do it Center, Do it Best Vision, or Do it Express. In addition, HWI offered its members three private label brands: Do-it, Do-it Best, and Master Touch.

HWI initially established its web site in May 1996. Later in the year it made its catalog of 61,000 products available on CD-ROM as well. In 1997 HWI contracted with the Internet division of QVC to sell some 4,000 to 5,000 products over the Internet, making them available to an international market. However, none of the firm’s private label brands, which members felt gave them a competitive advantage, were offered over the Internet. In May 1998 the firm’s INCOM Distributor Supply division debuted a new web site for members. A full-fledged e-commerce site, billed as “The World’s Largest Hardware Store,” was launched in July 1999. It offered more than 70,000 hardware and building products and featured an online encyclopedia of how-to advice and project tips.

In October 1997 HWI and Our Own Hardware Co., Inc., announced they intended to merge and form a single co-op. At the time HWI had 3,500 members, while Our Own Hardware had 900 members. HWI’s annual sales for fiscal 1996 (ending June 30) were $1.6 billion, compared to $218 million for Our Own Hardware. The proposed merger was quickly approved by Our Own’s members, and the two co-ops officially became a single buying group effective January 1, 1998. By the end of the year HWI had fully integrated former Our Own members.

HWI officially changed its name to Do it Best Corporation on March 16, 1998. The new name better reflected the co-op’s membership, which included hardware stores, home centers, and building supply stores—the entire home improvement retail sector. The Do it Best retail identification program, first introduced in 1996, included the name in HWI’s private-brand products, truck fleet, and company web site. HWI had encouraged members to adopt the Do it Best retail identity.

Sales for fiscal 1998 reached $1.9 billion, a five percent increase over fiscal 1997. The firm ended the year with about 4,000 members, including about 900 that joined following the merger with Our Own Hardware. Not counting purchases from new members, sales were relatively flat, reflecting the rest of the industry. In August 1998 the company broke ground for a new distribution center in Montgomery, New York. Scheduled to open in October 1999, the company’s seventh distribution center had 360,000 square feet, which could be expanded by an additional 125,000 square feet of warehouse space if necessary.

Toward a New Century

For fiscal 1999 Do it Best reported a 16 percent increase in sales, which topped $2.2 billion. For the future, the company planned to reassert its focus on helping members identify and implement new marketing strategies, as well as to expand its retail development staff for the benefit of its member-retailers. At the end of the century Do it Best had signed up more than 1,000 stores to implement its Do it Best or Do it Center retail designs. After five years the Do it Best Rental Center program had its 500th member join the program. Following Mike McClelland’s exhortation to “make the best even better,” Do it Best was committed to expanding member services—such as the recently introduced guarantee of 100 percent customer satisfaction with its private label products—and to remaining focused on operating efficiencies.