TruServ Corporation

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TruServ Corporation

8600 West Bryn Mawr Avenue
Chicago, Illinois 60631-3505
U.S.A.
(773) 695-5000
Fax: (773) 695-6558
(800) 621-6025
Web site: http://www.truserv.com

Cooperative Company
Founded: 1997
Employees: 6,000

Sales: $4.5 billion (1998 est.)
SICs: 5100 Wholesale Trade Nondurable Goods; 5251 Hardware Stores; 5261 Retail Nurseries & Garden Stores; 5531 Auto & Home Supply Stores; 5211 Lumber & Other Building Materials; 7350 Misc. Equipment Rental & Leasing

TruServ Corporation is the largest 100 percent member-owned cooperative in the $145 billion do-it-yourself industry, with its members operating hardware stores, lumber yards, home centers, and equipment rental stores. Formed on July 1, 1997, by the merger of Cotter & Company and ServiStar Coast to Coast Corporation, TruServ supports more than 10,500 independent retailers in the United States and 65 other countries. The retail names making up the TruServ cooperative are: True Value; ServiStar Hardware, Lumber Yards and Home Centers; Coast to Coast Hardware; Coast to Coast Home & Auto; Grand Rental Station; Taylor Rental Center; Home & Garden Showplace; and Induserve Supply. TruServ also manufactures exclusive brands for its retail identities, including paints, brushes and rollers, spray paint, and cleaning supplies.

Company Roots 1855-1910

The companies that combined to form TruServ Corporation were deeply rooted in the wholesale hardware business. Hib-bard Spencer Bartlett & Co., a hardware wholesaler that eventually developed the True Value name, was founded in 1855. American Hardware & Supply Company, the precursor of ServiStar Corporation and the first wholesale hardware cooperative in the United States, was established in 1910, and Coast to Coast Corporation grew from a wholesale hardware cooperative formed in 1928.

In 1910, harness was a big hardware seller and there were only 46 states in the Union when 20 hardware store owners from western Pennsylvania, West Virginia, and Virginia came together. The hardware industry was made up of hundreds of small independent stores whose owners bought their merchandise from various wholesalers, such as Hibbard’s.

The men who met in Pittsburgh that day were looking for a way to cut their costs and keep their prices competitive. They decided to form a nonprofit cooperative that would serve as their own wholesaler and distributor. As members of a co-op, they could pool their buying power to negotiate better prices for hardware from manufacturers and then sell the merchandise with a small markup to themselves and other hardware dealers who owned the shares of the co-op. The annual profits that were not invested in the company would be returned to the dealer-owners at the end of the year. And they could reduce costs by consolidating their distribution, operating, and promotional activities into one company.

The company’s charter was approved and the first stockholders’meeting of American Hardware & Supply Company was held on October 25, 1910. The company began operating out of a warehouse in Pittsburgh.

Company Building: 1911-48

Over the next 20 years, American Hardware demonstrated that a low-cost cooperative wholesaler made sense in the hardware business, and by 1929 sales were just over $1 million. Others liked the concept and followed American’s lead. In 1928, the Melamed brothers of Minneapolis, Minnesota, established a franchise-store cooperative that would become the Coast to Coast Corporation.

Meanwhile, Hibbard Spencer Bartlett & Co., which was not a cooperative, was increasing its marketing activities throughout the Midwest. In 1928, the company published its first “Toy Parade” consumer catalog and invited dealers to its first Toy Show, and in 1932, Hibbard’s introduced a new private-brand line of hand tools under the True Value label. To help dealers increase sales, Hibbard’s developed a kit of marketing aids, introduced a Dealers’Service Department, and set up a model store at its headquarters where dealers could get marketing suggestions.

During World War II, Hibbard’s tried a new approach by opening nine company-owned stores using the True Value name. The company’s regular customers did not like the competition, and Hibbard’s closed the test stores after the war.

The fourth company in the TruServ history, Cotter & Co., came on the scene in 1948. The company’s founder, John M. Cotter, started in the hardware business a few years after American Hardware & Supply Co. was incorporated when, at the age of 12, he went to work in a neighborhood hardware store in St. Paul, Minnesota. After high school Cotter worked as a salesman for a regional hardware wholesaler, then in his own hardware store, in Eau Claire, Wisconsin. In his mid-20s, Cotter went back on the road, eventually working for a Chicago-based merchandising group.

In the late 1940s, competition from discount stores and other chain operations caused independent dealers to increasingly turn to low-cost distributors. In his review of Edward R. Kantowicz’s biography of John Cotter in Chilton’s Hardware Age, Jim Cory explained that Cotter “stumbled on dealer-ownership by accident.” He had noticed, as a young salesman, that “the best, the busiest, the cleanest hardware store in every town... belonged to Our Own Hardware Co.,” a Minnesota-based dealer-owned cooperative.

At a convention of Our Own early in 1947, Cotter began chatting with Bill Stout, the general manager of American Hardware. Wrote Kantowicz, “Cotter and Stout, talking long into the night, looked up the Hardware Age dealer listing for Illinois, Michigan, Iowa, and Indiana and determined that there was room for a dealer-owned wholesaler in Chicago.” By that time, there were some dozen hardware cooperatives around the country, serving small and widely separated regions, and their share of the market was tiny. Ace Hardware, the largest of the cooperatives, had sales in 1948 of $10 million. Hibbard’s, in contrast, dominated the Midwest with sales of over $28 million.

A few months after his talk with Stout, John Cotter and 12 hardware dealers founded Cotter & Company in Sycamore, Illinois, and the new wholesale cooperative opened for business in January 1948. Operating out of a rented warehouse in Chicago, Cotter & Co. offered “... hardware merchandise at attractive prices, a barebones warehouse operation, semi-annual dealer markets, consumer advertising, and merchandising help for the retailer...,” according to Kantowicz. Cotter went back out on the road, spending six months visiting Midwestern dealers to convince them to put up the $1,500 it would cost to buy shares in his co-op.

The Hibbard’s Takeover: 1950-62

From its experience with the True Value test stores during World War II, Hibbard’s had learned the value of having stores buy everything from one wholesaler with a complete merchandising and operating plan. In the 1950s, Hibbard’s acquired several smaller wholesalers around the Midwest and started a voluntary chain of franchise dealers who bought most of their merchandise from Hibbard’s and used the company’s True Value ads and promotions. In 1956, the company reached record sales volume of $33 million.

Deciding to concentrate on the True Value franchise, Hibbard’s stopped selling to thousands of small accounts and laid off many of its salesmen. The company ended the decade with a chain of nearly 1,000 dealers and four distribution centers, with stores from the Appalachian Mountains to the Rockies, and sales of $19 million.

But Hibbard’s underwent another change as well during the 1950s. As it bought up rival wholesalers, the company went after their real estate, not their hardware business. Eventually it reached a point where all its net income was coming from real estate and other investments, with the hardware business some years actually operating at a loss. In 1962 the board of directors decided to liquidate the hardware business, which had been around for more than 100 years, and establish the company instead as a real estate investment firm.

John Cotter had been busy acquiring and raiding smaller rivals in the Midwest and outside the region, and Cotter & Co. had surpassed Hibbard’s in sales volume in 1960. Cotter had also been keeping a close eye on happenings at Hibbard’s, and had figured out what was happening with the company’s hardware business. In 1961 he secretly indicated that he was interested in buying Hibbard’s assets. Although nothing came of that approach, when the Hibbard board decided to sell, Cotter & Co. was their first choice.

Cotter wanted access to the True Value dealers before other wholesalers recruited them. According to Kantowicz, the Hibbard’s takeover was one of the best-kept secrets in business history. During the summer and fall of 1962 John Cotter and a small number of his top people met secretly with Hibbard’s directors and a handful of senior-level employees to hammer out the deal, using code names throughout the process.

Company Perspectives

Our Goal is Simple. To help customers improve, beautify and repair their #1 investment —their home. And to maximize our Member stores’profitability and growth by aggressively providing cost-effective, innovative products, programs and services.

The final price for all of Hibbard’s assets was $2.5 million, including $2,500 for the True Value trademark. Cotter and Hibbard’s announced the sale the day after Thanksgiving, and most of the 400 Hibbard’s dealers agreed to become shareholders in the Cotter & Co. co-op. Not only were dealers allowed to continue to use the True Value name, Cotter & Co. members decided to add that name to all their stores. Cotter’s acquisition of Hibbard’s increased the company’s sales 56 percent and, for what was certainly one of the true values in business history, gave Cotter a brand name that would become its national identity.

Fine Tuning Store Programs: 1960s-80s

Cotter & Co. honed its True Value advertising and store programs, setting a model for low-cost distributors and helping to keep independent hardware retailers competitive with discount and chain stores. In 1966, the company’s sales topped $100 million and it was the largest hardware distributor in the country. Cotter’s success and the company’s methods were felt beyond the Midwest.

In Pennsylvania, American Hardware moved into a new facility in rural East Butler, a town north of Pittsburgh, in 1960, and expanded its inventory, hired new personnel, and implemented new procedures. In 1965, the company, with 450 members and sales of around $18 million, began to expand through a series of acquisitions. In 1977, the company instituted its ServiStar advertising program, planning to create a voluntary chain of owner-dealers. By the end of the 1970s, after 15 years of expansion, American had increased the number of members to 3,500 and had sales of slightly over $300 million. Sales volume at Cotter and Co. topped $1 billion in 1979.

American’s ServiStar program was completely voluntary. When American introduced the ServiStar concept, the approach was simply to get the ServiStar sign in the window. As American president Larry Zehfuss explained in an article in the October 1983 issues of Chilton’s Hardware Age, “We’d go in, sign the store, show the dealer how the program worked, and tell him to call us if he had any problems.”

But following a share-of-market analysis that showed the company was getting only a small percentage of the ServiStar dealers’purchases, American increased its sales staff and went after those purchases, implementing an array of marketing and merchandising services and expanding the ServiStar private label program to include plumbing and electrical departments, even brooms and garbage cans, along with the more familiar paint and paint sundries. In the process, American became the first hardware cooperative to establish a customer service department.

Over the next several years, dealers’average purchases increased substantially, and by 1983, some 2,100 of American’s owner-dealers displayed the ServiStar sign and accounted for 70 percent of the company’s sales. That same year, consumer recognition of the ServiStar name topped 50 percent. Aiming to increase that recognition to 90 percent by the end of the 1980s, the company began making large advertising investments ($10 million in 1985), using magazines, newspapers, circulars, and television ads to actually sell the product. In 1987, the company had sales of $ 1.1 billion, and nearly 4,000 hardware, lumber, rental, and home and garden centers across the country. In 1988, in recognition of the growing diversity of its business, American changed its corporate name to ServiStar Corporation.

John M. Cotter died in 1989, at age 85, having built Cotter & Co. into a $2.1 billion company with over 8,000 members. A wheeler-dealer, a master politician, a born manager, and a champion of dealer-ownership, Cotter witnessed and contributed to a major transformation of the hardware industry during his 73 years in the business. But another transformation was occurring in the industry as independent, neighborhood dealers began losing customers to giant home improvement chains such as Lowe’s and Home Depot, and Sears began opening freestanding hardware and paint stores that were smaller than the superstores but larger than most independents and offered well-known brand names.

Competing with the “Big Box” Chains: 1990-95

The introduction of the giant chains combined with a recession in the housing market sent the independent dealers and their wholesalers scrambling. Trying to preserve membership as well as gain new members, the cooperatives focused on new services and leaner operations.

Cotter & Co., where John’s son Daniel was president and CEO, stressed regionalization, adding thousands of items to their merchandise offerings to meet the needs of different geographic markets. The company, along with other hardware wholesalers, also targeted the home remodeling market.

ServiStar expanded westward, gaining members in the Northwest and Rocky Mountain states, and strengthened services for its different niche markets. Some 200 of the co-op’s members who operated garden centers as well as the many hardware and lumber center dealers who sold lawn and garden merchandise had been complaining that the company was not meeting their needs in terms of products, especially plants, or advertising. After looking at their complaints, ServiStar developed a complete marketing campaign called Home & Garden Showplace geared to retailers who operated garden centers. In 1990, the company opened the prototype Home & Garden Showplace store, in Amherst, New York, near Buffalo.

In July 1990, ServiStar merged with Denver-based Coast to Coast to form a $1.8 billion international co-op. Coast to Coast, the company founded by the Melamed brothers in 1928, and its parent company, Amdura, had been in bankruptcy proceedings and had lost about 200 of its 1,000 stores when ServiStar bought it for $25 million. The company, with dealer owners primarily in the Midwest and West, operated two types of stores: Coast to Coast Total Hardware and Coast to Coast Home and Auto, selling automotive merchandise from mufflers to waxes to tires. The merger was a boost to both companies; after one year, sales rose 16 percent and profits rose 46 percent.

In 1993, ServiStar Coast to Coast added to its rental business with the purchase of the 288 franchise units of Taylor Rental Corp., a subsidiary of The Stanley Works. Each qualified franchisee was offered a licensing agreement from the co-op, with a reduction in pricing averaging 12 percent. The Taylor stores and the company’s 260 Grand Rental Station locations made ServiStar the largest general rental chain in the United States.

As the superstore home center chains continued to grow, the presidents of the four largest hardware co-ops met “to help members fight the chain stores,” Dan Cotter explained to National Home Center News. Presidents from ServiStar Coast to Coast, Ace Hardware, and Hardware Wholesalers, Inc. joined Cotter. To avoid antitrust accusations, the presidents did not discuss pricing or a “co-op of co-ops,” but as a result of the sessions, both Cotter & Co. and ServiStar Coast to Coast individually began exploring merger opportunities. Each independently identified the other as the best match.

But merger was not the only route for expansion. Both companies were also moving into other countries. In 1994, Cotter established True Value International, an independently-operated division based in Georgia, to serve stores outside the United States. ServiStar, which had opened its first store outside the U.S. in 1971, in Bermuda as an executive perk, also had numerous members in other countries.

A New Company: 1996 and Beyond

In July 1996, Dan Cotter and Paul Pentz met privately to discuss the possibility of merging the two co-ops. In December, the joint boards unanimously approved the merger and proposed it to their membership. In January 1997, the two presidents addressed the companies’conventions, and beginning in February, more than 6,000 retailers attended a series of over 500 town hall meetings across the country to answer questions and address concerns.

In March, Cotter’s Tru-Test facilities produced their first batch of ServiStar paint, and in April, the merger received 95 percent approval from the memberships. The new corporation, headquartered in Chicago, was officially created on July 1, 1997. Dan Cotter was named chairman and CEO, and ServiStar’s president Paul Pentz delayed his retirement to become president, COO, and a director.

The history of TruServ has been the history of the hardware industry over the past 150 years. It included distribution innovations, bitter rivalries, novel marketing and sales techniques, community involvement, and retailer raids. But primarily it was the story of independent hardware retailers joining together to be more successful at selling while maintaining their service, product knowledge, and personal involvement in the community—the traditional strengths of the hardware retailer. The creation of TruServ was the most recent step in this long history, and whether it would withstand the competition of the “big box” stores remained unknown. But based on past experience, the odds looked good.

Principal Divisions

True Value; ServiStar Hardware, Lumber Yards and Home Centers; Coast to Coast Hardware; Coast to Coast Home & Auto; Grand Rental Station; Taylor Rental Center; Home & Garden Showplace; and Induserve Supply.