Ace Hardware Corporation

views updated May 18 2018

Ace Hardware Corporation

2200 Kensington Court
Oak Brook, Illinois 60523-2100
U.S.A.
Telephone: (630) 990-6600
Fax: (630) 573-4894
Web site: http://www.acehardware.com

Private Company
Incorporated: 1928
Employees: 5,180
Sales: $3.18 billion (1999)
NAIC: 44413 Hardware Stores; 42171 Hardware Wholesalers

Ace Hardware Corporation is the second largest dealer-owned cooperative in the United States. The co-op pools buying and promotions for its 5,100 local hardware, home center, and lumber stores located in all fifty of the United States as well as in 65 foreign countries and territories. Ace’s emphasis on service and modern retailing techniques has helped locally owned and operated Ace retail stores confront intense competition from such home improvement powerhouses as Home Depot and Builders Square. The co-op manufactures its own line of paints and also supplies other products under the Ace brand.

The 1920s-70s: Ace’s Years as a Wholesale Buying Cooperative

The Ace Hardware organization was founded in the early 1920s, when Richard Hesse, Frank Burke, Oscar Fisher, E. Gunnard Linquist, and William Stauber united to form a purchasing and advertising partnership among their Chicago-area hardware stores. Their combined buying power enabled the store owners to negotiate lower prices on merchandise purchased from wholesalers. The partners adopted the Ace name in 1927, and incorporated the following year.

Within two years, Ace had evolved into a wholesaling organization, purchasing directly from manufacturers and storing merchandise in its own Chicago warehouse. This move further reduced costs by cutting out the “middlemen” wholesalers, thereby giving Ace members the choice of a competitive edge (they could reduce retail prices) or fatter margins (They could maintain their prices and enjoy higher profits). Frank Burke served briefly as president of the organization, and was succeeded by Richard Hesse in 1930. Hesse served in that capacity for more than four decades, until the end of 1973.

For its first half-century of operation, Ace was essentially a conventional wholesale group, and its profits were shared by its shareholders. The group’s low-cost purchasing and distribution methods quickly attracted new members and some franchisees. During its early years, use of the Ace name was recommended but optional; it would later become mandatory for new affiliates. President Hesse expanded services to associates, including a semi-annual dealer convention featuring products and promotions available through the wholesaler. Those meetings continued through the 1990s. By the mid-1930s, the organization had 41 dealer/members and sales of more than $650,000. Growth was so strong, in fact, that the expanding roster of affiliates necessitated doubling warehouse capacity during that decade.

The postwar era saw the dawn of America’s “do-it-yourself” (DIY) revolution. Industry analysts have attributed the spectacular growth of this market to several factors. First, the generally high cost of new homes drove consumers into widely available, but sometimes neglected, existing homes. The high charges exacted by repairmen and contractors impelled homeowners to attempt home repair and improvement projects on their own. Also, the emergence of new tools and products that were easy to use furthered the trend. Finally, some observers of the DIY movement have credited the more intangible, but undoubtedly strong, sense of satisfaction attained by consumers who completed a project themselves while saving money at the same time.

On the strength of growing DIY sales, Ace’s nationwide revenues increased to $25 million by the end of the 1950s. The organization opened its first distribution centers beyond the bounds of Chicago in 1969. A California facility served the expanding West Coast membership, and an Atlanta warehouse promoted growth in the south. These were the first of 14 retail support centers that came into being across the country by 1994.

Before he retired in 1973, co-founder and long-time president Richard Hesse sold Ace to its member-dealers, thereby forming a dealer-owned hardware cooperative. Purchase of a minimum stake in Ace was required for membership, and dealers contributed a percentage of their co-op purchases to a national advertising fund. Under this new scheme, Ace’s profits were returned to its dealer-owners through cash or stock rebates at year’s end. The company opened its fourth distribution center in Toledo, Ohio, and moved its expanded corporate headquarters to Oak Brook, Illinois (a western suburb of Chicago) that same year. By 1976, when ownership of Ace had passed completely to its dealers, the organization’s sales volume had reached $382 million. From that point on, Ace’s board of directors was always made up of dealers.

The Growth of the DIY Movement in the 1970s and 1980s

Arthur Krausman succeeded Hesse as president in January 1974 and advanced to chairman of the board in 1980. During the ensuing years, Ace’s member services expanded to include training and education, merchandising, computerized inventory control, insurance, and store layout. The continuous addition of new members during the 1970s necessitated the establishment of new warehouses and distribution centers. By the end of the decade, the organization had added five facilities in the Midwest and Southeast. This diffusion of distribution points helped save freight costs, since many manufacturers were willing to ship freight-paid within a given distance.

The company achieved national penetration in 1978, when it signed on members in the eastern United States. Ace’s growth coincided with a six-fold increase in the DIY market, from just under $6 billion in 1970, to $35 billion in 1980, to more than $100 billion by the end of the 1980s. Traditional hardware stores, such as those owned by Ace members, soon found their competition growing too, as mass merchandisers like the “category killer,” Home Depot, Inc., began to get in on the profitable DIY trend. Even supermarkets, discount stores, and drug stores began carrying profitable hardware lines during the decade.

While drugstores and grocery stores were overtaken by the chain store revolution in the 1970s, the hardware segment continued to be dominated by independents through the mid-1980s. By 1984, 85 percent of the 23,500 retail hardware stores in the United States were affiliated with co-ops. Those groups held the top share—48 percent—of annual hardware sales. Some observers credited this phenomenon to dealer-owned cooperatives (or “voluntary chains,” as they were termed by the National Retail Hardware Association). Others credited the personalized service offered by independent retailers. In a 1980 interview with Hardware Age, Ace Chairman Krausman credited the success to flexibility, inventory depth, and advertising of independent operators.

By 1984, Ace’s national advertising budget topped $10 million, most of which was spent on television spots. Ace capitalized on its members’ reputation for having knowledgeable personnel with the slogan “Ace is the place with the helpful hardware man.” This slogan was later modified to include the gender-neutral “helpful hardware folks.” Television spots often featured celebrities, including singer Connie Stevens and actress Suzanne Somers in the 1970s and 1980s, and football commentator John Madden in the 1990s. The company continued to emphasize service in advertisements that showcased “helpful” Ace dealers around the country through the middle of the decade. Ace sales more than doubled during the 1980s, from $801 million in 1983 to more than $2 billion in 1993.

Competing with the “Big Boxes” in the 1990s

Following a trend that began in retail foods, Ace introduced a line of private label products in the early 1990s. Private label products enable retailers to offer their customers a consistently low-priced product while generating higher profit margins for themselves. One of Ace’s first private label goods was paint, which it began manufacturing in 1984 in a state-of-the-art facility in Illinois (Ace paint had been manufactured by the Valspar Corp. beginning in the 1930s). Although paint is generally considered a low-growth commodity, it is a do-it-yourself mainstay. Low brand loyalty and high price sensitivity made it an ideal private label product. By the early 1990s, Ace’s paint division was expanding faster than the rest of the paint industry, and had become the foundation of a private-label program of nearly 7,000 items. In 1991, the paint facility expanded, and in 1995, a second paint facility was acquired in Chicago Heights, Illinois. From 1988 to 1993, private label sales grew at an average annual rate of 12.9 percent, to $350 million. The group planned to transform its private label into a national brand through extensive promotions in the mid-1990s.

While Ace manufactured many of its own paints, the company also purchased some paints (particularly aerosols) from other producers, including Sherwin-Williams, DAP, and ITW Devcon. The company became involved in a product labeling suit with the Attorney General of the state of California for neglecting to warn consumers that several of Sherwin-Williams’ paints contained toluene, a known carcinogen. Although Sherwin-Williams’settlement cost it more than $1 million, Ace was simply required to add appropriate warnings on its toluene-based paints.

Company Perspectives:

Ace Hardware Corporation’s mission is to be a total retail support company, providing its dealer-owners with merchandise and service at the lowest possible front-end cost. A strong board of directors, comprised of 11 dealer-owners and one non-Ace dealer-director, establishes guidelines for the professional Ace staff.

In October 1994, the Ace officers and board of directors launched a strategic plan known as “The New Age of Ace.” This plan was an acceleration of a previous strategic process called “Ace 2000,” which focused on improving business for the co-op’s top-line members. The board laid out four primary objectives to be achieved by the year 2000: improved retail performance, more efficient operations, international growth, and a faster pace for new store openings. A key aspect of Ace’s plan involved incentives for dealers to meet certain standards or risk losing full retail support from the corporation. These requirements included relinquishing connections with any other buying organizations, making at least 80 percent of merchandise purchases through Ace (including and especially Ace paint), using Ace signage, and participating with vendors on special purchases. By late 1994, about 1,500 of Ace’s 5,000 dealers did not comply with these minimum requirements. One Ace executive noted that this list of noncompliant retailers would gradually be reduced, as they either joined the majority of dealers or dropped from the organization.

As part of its plan to improve retail performance, Ace also announced that it would open its own stores in the Chicago area to test retail concepts, an objective it achieved in by 1995. The purpose of these stores was to fine-tune retailing practices for all Ace stores. A new store prototype called the “solutions concept store” catered to the do-it-yourselfer, and was pioneered in 1999. Although the company assured its members that it was not planning to acquire or build a significant number of group-owned stores, this aspect of “Ace 2000” disturbed some dealers, according to a December 1994 article in Do-it-yourself Retailing. In fact, the strategic plan called for dealers themselves to generate nearly $500 million in new sales and open 1,000 new stores in underserved markets by the turn of the century. Ace planned to deploy consultants to help retailers identify potential new store sites.

Ace’s strategic plan also called for improvements in its warehousing operation through technological advances and increased cooperation with vendors. Goals included vendor consolidation; enhanced electronic data interchange between vendors, warehouses, and retailers; and the expansion of vendor-managed inventory systems to control up to one-fourth of inventory.

The company planned to quadruple its international sales to $400 million by 2000, with a special focus on South America. The passage of the North American Free Trade Agreement (NAFTA) in 1994 prompted Ace to plan a paint plant in Texas. This was done in order to meet anticipated demand from the 70 Mexican Ace stores that were open by that time, and the 26 more that were expected to open. Sales overseas had increased by nearly one-third overall from 1992 to 1993, and by more than 60 percent in Mexico alone. Other areas of concentration included the Middle East, Eastern Europe, Latin America, and the Pacific Rim. According to Do-It-Yourself Retailing, Ace hoped to “evolve from being only an exporter to becoming a true world trading company,” by offering international affiliates the services enjoyed by dealers in the United States. Licensing was seen to play an important role in the organization’s overseas expansion.

The New Age of Ace: Changes in the Mid-1990s

The promulgation of the goals of Ace 2000 and The New Age of Ace exemplified two fundamental changes in the organization and the retail hardware industry. First, by the 1990s, Ace had clearly expanded its expectations of and responsibilities to its affiliates. Second, it demonstrated the organization’s determination to survive and grow in the face of increasingly intense competition from what one industry journal called “the big boxes”—mass home improvement merchants, such as Home Depot, Builders Square, and Lowe’s.

As CEO Roger Peterson, who retired in May 1995, told Do-It-Yourself Retailing in December 1994, “Such growth is necessary if Ace is to remain a major player in the hardware industry, capitalize on the Ace name and reputation, and establish footholds in markets before competition gains a strangle hold.” Between 1994 and 1999, wholesale sales at Ace increased more than 37 percent. By the late 1990s, however, the co-op felt itself increasingly challenged by the rollout of Home Depot’s small-store format, Villager’s Hardware, designed to capitalize on the “convenience” hardware market in which Ace specialized.

The company responded with new initiatives and new ventures. In 1995, it established a subsidiary—National Hardlines Supply—to sell to non-traditional retail customers, increase Ace’s buying power, and continue to provide support to its dealers. In 1998, it debuted a new strategic plan called “Encore Growth,” and, a year later, “Vision 21.” Encore Growth developed programs to improve dealers’ gross margins, while Vision 21 aimed to make Ace number one in the “non-big box” sector by getting dealers to embrace the merchandising, marketing, and operational tactics employed by the co-op’s best dealers. Vision 21 posited Ace’s effectiveness as a co-op upon how well its employees supported dealers’ efforts to sell what they bought from Ace profitably, not upon how much inventory moved out of its distribution centers yearly.

Also in 1998, Ace Hardware and the American Rental Association (ARA) formed a comprehensive buying group program called the Member Buying Alliance. The alliance relied upon Ace’s National Hardlines Supply (NHS) to provide ARA members a source for commercial rental products and equipment. NHS also became the supplier in 1998 to the largest non-cooperative buying group for lumber and building materials in the United States. This buying group was formed through a merger of Ace’s lumber, building materials, and millwork division, and Builders Marts of America.

Key Dates:

1928:: Ace Hardware incorporates.
1930:: Hesse becomes president of the organization.
1969:: Ace begins opening regional distribution centers.
1974:: Krausman succeeds Hesse as president.
1976:: Ownership of Ace passes to its dealers.
1984:: Ace begins to manufacture its own line of paints.
1994:: Ace launches its strategic plan for the next century.

In November 1999, Ace launched its first venture in cyber-space with its web site, OurHouse.com, which offered products for sale online and project-related information. In April 2000, Ace placed in-store kiosks in more than 1,000 stores, allowing customers immediate access to the web site. This stronger focus on project-oriented merchandising was a response to the growing market of female shoppers undertaking their own home improvement. Also that fall, Ace opened its first Store 21 in Washington state, a technology-intensive merchandising format designed to accommodate the customer and featured salespeople wearing radio headsets.

Still an ongoing problem at Ace was the sizable minority of dealers whose stores were not sufficiently computerized, whose inventory mix generated inconsistent profits, and whose retail presentation did not fit the homogeneous image Ace desired. Many smaller dealers felt that aligning themselves more closely with the co-op diluted their independence as entrepreneurs. By the company’s 75th anniversary in 1999, according to an article in National Home Center News, only one fifth of the co-op’s members shared information with Ace via computer. Furthermore, only about half its 5,100 stores were linked electronically to its buying group through its AceNet 2000 e-commerce system, which had been instituted in 1997.

Ace’s board of directors spoke of a “disconnect” between the buying group and members, citing programs that generated sales for Ace but didn’t necessarily make dealers’stores more productive. To deal with this, a plan was promulgated to leverage the co-op’s wholesale side while reducing costs on its retail side. The co-op hoped to take over management of the routine part of individual store operations centrally, checking in merchandise and handling accounts receivables. It also hoped to cultivate a retail chain image to make individual stores more competitive, and to develop programs for merchandising, operations and training. Once members became more profitable, the hope was that they would consider investing in their stores’ expansion and opening more stores.

Principal Subsidiaries

Ace Hardware Canada Limited; National Hardlines Supply.

Principal Competitors

The Home Depot Inc.; Lowe’s Companies Inc.; TruServ Corporation; Cotter & Company; ServiStar Coast to Coast Corporation; Hardware Wholesalers Inc.

Ace Hardware Corporation

views updated Jun 08 2018

Ace Hardware Corporation

2200 Kensington Court
Oak Brook, Illinois 60521
U.S.A.
(708) 990-6600
Fax: (708) 573-4894

Private Company
Incorporated: 1928
Employees: 3,900
Sales: $2.32 billion
SICs: 5072 Hardware

Ace Hardware Corporation is a dealer-owned cooperative that pools buying and promotions for more than 5,000 local hardware, home center, and lumber stores in all fifty of the United States as well as 57 countries and territories. Ace’s emphasis on service and modern retailing techniques has helped locally owned and operated Ace retail stores confront intense competition from such home improvement powerhouses as Home Depot and Builders Square. In 1993 the retail support company surpassed $2 billion in sales, a 7.9 percent increase over the previous year.

The organization was founded in the early 1920s, when Richard Hesse, Frank Burke, Oscar Fisher, E. Gunnard Linquist, and William Stauber united to form a purchasing and advertising partnership among their Chicago-area hardware stores. Their combined buying power enabled the store owners to negotiate lower prices on merchandise purchased from wholesalers. The partners adopted the Ace name in 1927 and incorporated the following year. Within two years, Ace evolved into a wholesaling organization, purchasing direct from manufacturers and storing merchandise in its own Chicago warehouse. This move further reduced costs by cutting out the “middlemen” wholesalers, thereby giving Ace members the choice of a competitive edge (they could reduce retail prices) or fatter margins (they could maintain their prices and enjoy higher profits). Frank Burke served briefly as president of the organization, and was succeeded by Richard Hesse in 1930. Hesse served in that capacity over four decades, until the end of 1973.

For its first half-century of operation, Ace was essentially a conventional wholesale group, and its profits were shared by its shareholders. The group’s low-cost purchasing and distribution quickly attracted new members and some franchisees. During its early years, use of the Ace name was recommended but optional; it would later be mandatory for new affiliates. President Hesse expanded services to associates, including a semiannual dealer convention featuring the products and promotions available through the wholesaler. Those meetings continued through the 1990s. By the mid-1930s, the organization had 41 dealer/members and sales of more than $650,000. The expanding roster of affiliates necessitated a doubling of warehouse capacity during that decade.

The postwar era saw the dawn of America’s “do-it-yourself” (DIY) revolution. Industry analysts have attributed the spectacular growth of this market to several factors. The generally high cost of new homes drove consumers into widely available, but sometimes neglected, existing homes. The high charges exacted by repairmen and contractors impelled homeowners to attempt home repair and improvement projects on their own. The emergence of new tools and products that were easy to use furthered the trend. Finally, some observers of the DIY movement have credited the more intangible, but undoubtedly strong, sense of satisfaction attained by consumers who completed a project themselves while saving money at the same time.

On the strength of growing DIY sales, Ace’s nationwide revenues increased to $25 million by the end of the 1950s. The organization opened its first distribution centers beyond the bounds of Chicago in 1969. A California facility served the expanding West Coast membership, and an Atlanta warehouse promoted growth in the south. These were the first of 14 retail support centers across the country by 1994.

Before he retired in 1973, co-founder and long-time president Richard Hesse sold Ace to its member-dealers, thereby forming a dealer-owned hardware cooperative. Purchase of a minimum stake in Ace was required for membership, and dealers contributed a percentage of their co-op purchases to a national advertising fund. Under this new scheme, Ace’s profits were returned to its dealer-owners through cash or stock rebates at year’s end. The company opened its fourth distribution center in Toledo, Ohio, and moved its expanded corporate headquarters to Oak Brook, Illinois, a western suburb of Chicago, that same year. By 1976, when ownership of Ace had passed completely to its dealers, the organization’s sales volume had reached $382 million. Since then, Ace’s board of directors has been made up of dealers.

Arthur Krausman succeeded Hesse as president in January 1974 and advanced to chairman of the board in 1980. During the ensuing years, Ace’s member services expanded to include training and education, merchandising, computerized inventory control, insurance, and store layout. The continuous addition of new members during the 1970s necessitated the establishment of new warehouses and distribution centers. By the end of the decade, the organization added five facilities in the Midwest and Southeast. This diffusion of distribution points helped save freight costs, since many manufacturers were willing to ship freight-paid within a given distance. The company achieved national penetration in 1978, when it signed on members in the eastern United States. Ace’s growth coincided with a six-fold increase in the DIY market, from just under $6 billion in 1970, to $35 billion in 1980, to more than $100 billion by the end of the 1980s. Traditional hardware stores like those owned by Ace members soon found their competition growing too, as mass merchandisers like the “category killer” Home Depot, Inc., began to get in on the profitable trend. Even supermarketers, discounters, and drug stores began carrying profitable hardware lines during the decade.

While drugstores and grocery stores were overtaken by the chain store revolution in the 1970s, the hardware segment continued to be dominated by independents through the mid-1980s. By 1984, 85 percent of the 23,500 retail hardware stores in the United States were affiliated with co-ops, and those groups held the top share, 48 percent, of annual hardware sales. Some observers credited this phenomenon to dealer-owned co-operatives (or “voluntary chains,” as they were termed by the National Retail Hardware Association). Others credited the personalized service offered by independent retailers. In a 1980 interview with Hardware Age, Ace Chairman Krausman credited the flexibility, inventory depth, and advertising of independent operators with their success.

By 1984, Ace’s national advertising budget topped $10 million, most of which was spent on television spots. Ace capitalized on its members’ reputation for having knowledgeable personnel with the slogan “Ace is the place with the helpful hardware man.” (This was later modified to the gender-neutral “helpful hardware folks.”) Television spots often featured celebrities, including singer Connie Stevens and actress Suzanne Somers in the 1970s and 1980s, and football commentator John Madden in the 1990s. The company continued to emphasize service in advertisements that showcased “helpful” Ace dealers around the country through the middle of the decade. Ace sales more than doubled during the 1980s, from $801 million in 1983 to more than $2 billion in 1993.

Following a trend that began in retail foods, Ace introduced a line of private label products in the early 1990s. Private label products enable retailers to offer their customers a consistently low-priced product while generating higher profit margins for themselves. One of Ace’s first private label goods was paint, which it began manufacturing in 1984 in a state of the art facility in Illinois. (Until that time, Ace paint had been manufactured by the Valspar Corp., beginning in the 1930s.) Although paint is generally considered a low-growth commodity, it is a do-it-yourself mainstay. Low brand loyalty and high price sensitivity made it an ideal private label product. By the early 1990s, Ace’s paint division was expanding faster than the rest of the paint industry, and had become the foundation of a private label program of nearly 7,000 items. From 1988 to 1993, private label sales grew at an average annual rate of 12.9 percent, to $350 million. The group planned to transform its private label into a national brand through extensive promotions in the mid-1990s. A second paint manufacturing facility opened in 1995 in Chicago Heights, Illinois.

While Ace manufactured many of its own paints, the company also purchased some paints (particularly aerosols) from other producers, including Sherwin-Williams, DAP, and ITW Devcon. The company became involved in a product labeling suit with the Attorney General of the state of California for neglecting to warn consumers that several of Sherwin-Williams’ paints contained toluene, a known carcinogen. Although Sherwin-Williams’ settlement cost it more than $1 million, Ace was simply required to add appropriate warnings on its toluene-based paints.

In October 1994, the Ace officers and board of directors launched a strategic plan known as “The New Age of Ace,” an acceleration of a previous strategic process called “Ace 2000.” They laid out four primary objectives to be achieved by the year 2000: improved retail performance, more efficient operations, international growth, and a faster pace for new store openings. Ace hoped to increase its wholesale sales to $5 billion by the end of the 1990s. The vast majority of that growth, or $4.2 billion, was expected to come from existing dealers. A key aspect of Ace’s plan involved incentives for dealers to meet certain standards or risk losing full retail support from the corporation. These requirements included relinquishing connections with any other buying organizations, making at least 80 percent of merchandise purchases through Ace (including and especially Ace paint), using Ace signage, and participating with vendors on special purchases. By late 1994, about 1,500 of Ace’s 5,000 dealers did not comply with these minimum requirements. One Ace executive noted that this list of noncompliant retailers would gradually be reduced, as they either joined the majority of dealers or dropped from the organization.

As part of its plan to improve retail performance, Ace also announced that it would open three of its own stores in the Chicago area to test retail concepts. Results would be shared with all Ace retailers. Although the company assured its members that it was not planning to acquire or build a significant number of group-owned stores, this aspect of “Ace 2000” disturbed some dealers, according to a December 1994 article in Do-It-Yourself Retailing. In fact, the strategic plan called for dealers themselves to generate nearly $500 million in new sales and open 1,000 new stores in underserved markets by the turn of the century. Ace planned to deploy consultants to help retailers identify potential new store sites.

Ace’s strategic plan also called for improvements in its ware-housing operation through technological advances and increased cooperation with vendors. Goals included vendor consolidation; enhanced electronic data interchange between vendors, warehouses, and retailers; and the expansion of vendor-managed inventory systems to control up to one-fourth of inventory.

The company planned to quadruple its international sales to $400 million by 2000, with a special focus on South America. The passage of the North American Free Trade Agreement (NAFTA) in 1994 prompted Ace to plan a paint plant in Texas, in order to meet anticipated demand from the 70 Mexican Ace stores that were open by that time, and the 26 more that were expected to open soon. Overseas sales had increased by nearly one-third overall from 1992 to 1993, and by more than 60 percent in Mexico alone. Other areas of concentration include the Middle East, Eastern Europe, Latin America, and the Pacific Rim. According to Do-It-Yourself Retailing, Ace hoped to “evolve from being only an exporter to becoming a true world trading company” by offering international affiliates the services enjoyed by dealers in the United States. Licensing could play an important role in the organization’s overseas expansion.

The promulgation of the goals of Ace 2000 and The New Age of Ace exemplify two fundamental changes in the organization and the retail hardware industry. First, by the 1990s Ace had clearly expanded its expectations of and responsibilities to its affiliates. Second, it demonstrated the organization’s determination to survive and grow in the face of increasingly intense competition from what one industry journal called “the big boxes,” or mass home improvement merchants. As CEO Roger Peterson, who retired in May 1995, told Do-It-Yourself Retailing in December 1994, “Such growth is necessary if Ace is to remain a major player in the hardware industry, capitalize on the Ace name and reputation, and establish footholds in markets before competition gains a strangle hold.”

Although Ace had clearly mapped out an independent future, the possibility of a coalition of hardware co-ops to compete with “the big boxes” had not been ruled out by Ace management. At a dealer forum in October 1993, Peterson acknowledged that he had met with leaders from the other leading home improvement cooperatives, including Cotter & Company, SERVISTAR, Hardware Wholesalers Inc., and Coast to Coast. He noted that while they consulted on issues including freight consolidation and insurance, joint purchasing and pricing agreements were, of course, off limits.

Ace Hardware Corporation

views updated May 18 2018

Ace Hardware Corporation

founded: 1924

Contact Information:

headquarters: 2200 kensington ct.
oak brook, il 60521 phone: (630)990-6600 fax: (630)573-4894 url: http://www.acehardware.com

OVERVIEW

Ace Hardware Corporation is a dealer-owned cooperative that serves more than 5,000 retail outlets across the United States and more than 400 stores in 62 other countries around the world. The company serves as a middleman between its dealers and the manufacturers of hardware supplies. Ace buys merchandise in vast quantities and distributes it through a network of regional warehouses. It also manufactures its own line of paint products. The company is owned completely by its dealers, which receive dividends from Ace's profits.

Ace and other chains of small- to medium-sized hardware stores faced a new competitive challenge in the closing years of the twentieth century with the rise of warehouse-type stores. Ace strategists mapped out a plan to resist the inroads of these retail giants by promoting unparalleled customer service at its own stores. This was an area in which the company felt it had a reasonable chance to outdo its warehouse-sized competitors.

Ace was founded in the 1920s when four Chicago-area businessmen, all of whom had operated their own hardware businesses individually, decided that there was strength in numbers and so banded together to boost their buying power. The concept was a smashing success. Not even the Great Depression could stop the expansion of the hardware chain. In 1973 the last surviving Ace founder sold off the company to its retailers, creating a dealer-owned cooperative.

The company takes great pride in being a good citizen of the communities in which it operates. Through its sponsorship of the Children's Miracle Network and its own Ace Hardware Foundation, Ace endeavors to give something back to these communities and their residents.

COMPANY FINANCES

Ace Hardware posted net earnings of $76 million on revenue of $2.90 billion in 1997, compared with net income of $72 million on revenue of $2.74 billion in 1996. The company posted net earnings of $64 million on revenue of $2.44 billion in 1995, compared with net income of $65 million on revenue of $2.33 billion in 1994. In 1997 sales of paint, cleaning supplies, and related supplies accounted for 21 percent of revenue, while sales of plumbing and heating supplies made up 15 percent of revenue. These were followed by sales of hand and power tools with 14 percent of revenue; farm and garden equipment, 13 percent; electrical supplies, 12 percent; general hardware supplies, 12 percent; sundries, 7 percent; and housewares and appliances, 6 percent.

ANALYSTS' OPINIONS

Industry analysts have sounded a note of caution regarding the growing competition facing Ace and other chains of small- to medium-sized hardware stores from warehouse-type outlets like Home Depot. They feel that the spread of the giants, including the steady expansion of Sears Hardware stores, poses a threat to Ace and its similarly positioned rival, TruServ. Sears Hardware, with 165 stores in 20 states, is seen as the more potent threat because of the moderate size of its stores, which average about 20,000 square feet.

On the plus side, the stores that are linked together in Ace's cooperative are able to keep their prices low through the pooling of their buying power and advertising dollars. "It's not a chain, but it gives a local store the image of being a chain," Ellen Hackney, communications director for the National Retail Hardware Association, told the Atlanta Journal and Constitution.

HISTORY

In the early 1920s four men from Chicago—Richard Hesse, E. Gunnard Lundquist, Frank Burke, and Oscar Fisher—all of whom had operated their own hardware businesses, banded together to increase their buying power, increase collective profits, and share common costs. Ace Stores Inc. was born, so named to honor the valor displayed by World War I's victorious "ace" pilots.

Unlike most retail operations, hardware stores managed to thrive during the Great Depression of the 1930s. By 1933 Ace had built a network of 38 retailers and staged its first dealer convention in Chicago so that dealers could evaluate new merchandise and decide whether or not to buy it.

The U.S. economy was sluggish in the early 1940s and rationing was mandated as part of the war effort during World War II. Ace was forced to become creative in order to survive these difficult years. One of its marketing ploys involved the sale of baby chicks in connection with the country's "Food for Freedom" campaign. Despite the economic obstacles, Ace continued to grow. By the end of the decade the company had amassed more than 130 dealers in 7 states.

The post-war economic boom of the 1950s brought rapid growth to most in America's retail sector, including the hardware business. Ace's sales shot through the roof. By January 1951 the company's sales had reached $9 million. The 1960s were a decade marked by revolutionary change, not the least of which was the arrival of the Computer Age. In 1961 Ace purchased its first mainframe computer. In 1963 the company began expanding into the South and the West Coast.

Ace experienced rapid growth in the 1970s. In 1973 Richard Hesse, the last surviving founder, sold the company to Ace retailers, thus creating a dealer-owned cooperative. In the waning days of the decade, Ace's sales reached nearly $600 million and the cooperative had retailers in nearly every state in the country. The economic recession of the late 1970s and early 1980s did not restrain Ace's continued expansion. By the end of 1980 more than 4,000 Ace stores were operating in all 50 states. In order to better supply its vast network of retailers, Ace doubled the number of its regional retail support centers from 7 to 14. The company also began producing its own line of paint at a state-of-the-art production facility in Matteson, Illinois.

A whole new breed of competition emerged in the 1990s with the rise of warehouse-style chains like Home Depot. Ace, however, resolved to fight back aggressively, launching its "New Age of Ace" strategy to provide its customers with the best service and hardware products available anywhere. Then, in 1997, Ace's chief rival, True Value, merged with ServiStar to create TruServ, a chain of more than 10,000 hardware stores across the country.

STRATEGY

In response to the arrival of home improvement mega-stores in communities across the country, Ace and its dealers are concentrating on giving their customers a level of service that can't be duplicated by these giant competitors. That there is strength in numbers is apparent from the comments of Ace Hardware dealers, who admit they'd rather not have to compete with giants like Home Depot, but feel confident that, with the backing of Ace corporate headquarters, they can weather the storm.

Connie Hansen, who has run an Ace Hardware outlet in Plano, Texas, for 20 years, told the Dallas Morning News that she was not particularly cowed by the opening of a Lowe's warehouse-type store in Plano. Two Home Depot stores are also within a five-mile radius of her store. Ms. Hansen contends the area is large enough to support all the stores. She expressed some concern, however, that the competition might lead to price wars.

Khandoo Nagar, operator of a Dallas Ace Hardware outlet, recalled the threat he faced when Home Depot moved into his neighborhood. "When Home Depot opened, our profits were hurt but not our sales," he said. "We consulted with Ace [corporate headquarters] and worked very hard to increase sales. We expanded and we changed our prices. Customers were mesmerized with the new Home Depot at first, but they soon realized that they can get many of the same prices here and be in and out in five minutes instead of spending more than an hour in Home Depot."

INFLUENCES

One of the factors that is helping Ace shape its strategy for the new millennium and weather the storm of competition is the growing American demand for higher levels of customer service. This gives Ace a leg up on its larger competitors, whose very size makes it difficult to supply that level of service. As the company points out in its literature, Ace truly is the place "with the helpful hardware man." In an open letter to customers on the company's web site, chairman Richard E. Laskowski and CEO David F. Hodnik express pride " . . . in the helpful quality service the folks in the red vests provide to our customers day after day, year after year." Most notably, the company offers its customers a "No Hassle Return Policy" and a "Satisfaction Guarantee".

CURRENT TRENDS

In a world that has become increasingly wired, the hardware industry is no exception. To do business in the most efficient manner possible, companies have had to create high-speed electronic links between themselves and their suppliers. In the spring of 1998 Ace announced it had formed a strategic alliance with EC Company, a leader in the development and sale of electronic commerce software and services, which will allow Ace to offer electronic data interchange (EDI) capabilities to its small- and medium-sized suppliers.

EC Exchange, the trademarked EC terminal system, offers " . . . a quick and easy way for our suppliers to start trading electronically," according to Lynda Moriarty, Ace's quick response manager. "Most importantly, our partners can be up and trading electronically with Ace Hardware in days, not months."

FAST FACTS: About Ace Hardware Corporation

Ownership: Ace Hardware, a cooperative owned by its dealers, is privately held.

Officers: Richard E. Laskowski, Chmn., 54; David F. Hodnik, Pres. & CEO, 48, base salary $450,000; William Loftus, Sr. VP, Retail Operations, 57, base salary $315,000; Paul Ingevaldson, VP, Corporate Strategy & International Business, 50, base salary $280,000

Employees: 4,700

Chief Competitors: Ace Hardware's major competitors include: 84 Lumber; Benjamin Moore; Eagle Hardware & Garden; Hechinger; Home Depot; Home-Base; Kmart; Lowe's; Payless Cashways; Sears; Sherwin-Williams; TruServ; Wal-Mart; and Wickes.

PRODUCTS

Among the products carried in Ace Hardware retail outlets, the biggest sellers are paint and cleaning supplies. The company manufactures its own line of paint. Other products carried by Ace dealers include plumbing and heating supplies; hand and power tools; lawn, garden, and farm supplies; electrical equipment; general hardware such as screws, nails, nuts, and bolts; and housewares and appliances.

CORPORATE CITIZENSHIP

Ace's dealers are actively involved in the communities in which they operate. The company promotes awareness of the importance of assisting customers in the community as well as in the store. Ace is a national sponsor of the Children's Miracle Network, which helps children's hospitals in every corner of the United States. To promote greater sensitivity to environmental concerns, Ace has developed a corporate Conservation Initiative.

Another way in which the company helps communities is through the Ace Hardware Foundation, which was founded in 1991. The Foundation encourages donations from both Ace Hardware Corporation and its individual stores for disaster relief and the Children's Miracle Network. By 1997 the Foundation's contributions to victims of natural disasters totaled more than $113,000.

GLOBAL PRESENCE

In addition to its vast network of hardware stores across the United States, Ace Hardware supplies more than 400 retail units in 62 other countries. Says CEO David F. Hodnik of the company's international presence, "Based on the success many of our international operators are achieving, we're convinced the Ace retail concept is transportable to most countries, especially where there is an emerging middle class seeking to improve their homes and lifestyle. We see Asia and eastern Europe as having considerable long-term growth potential in that regard."

The company's first Asian store, a 15,000-square-foot outlet outside Indonesia's capital of Jakarta, was opened in 1995. Since then, Kunkuro Wibowo, an Indonesian hardware distributor, has opened three additional stores and hopes to eventually open 50 to 100 more by sub-franchising the Ace concept.

EMPLOYMENT

Ace Hardware offers entry-level positions in a number of departments ranging from MIS to Distributing to Merchandising. The company promotes itself as a company where the recent college graduate "can use your newly learned skills, while broadening your experiences and positioning yourself for future growth. It's also important to find an organization where you feel like you fit in, that you're part of a team, and that your contributions are valued. At Ace Hardware, you'll find all that and much more."

CHRONOLOGY: Key Dates for Ace Hardware Corporation

1924:: Four Chicago-area businessmen join together to increase buying power and share costs, calling themselves Ace Stores, Inc.
1933:: Stages its first dealer convention to view and purchase merchandise
1941:: In conjunction with the "Food for Freedom" campaign, Ace sells baby chicks out of its stores
1950:: Ace has grown to 130 dealers in seven states
1961:: The company purchases its first mainframe computer
1963:: Ace begins expanding into the South and the West Coast
1973:: The last surviving founder sells the company to retailers, creating a dealer-owned cooperative
1990:: Ace has grown to 4,000 dealers in all 50 states
1997:: True Value, Ace's chief competitor, merges with Servistar to create a chain of more than 10,000 hardware stores

The company's 4,700 employees are spread among its Oak Brook, Illinois, corporate headquarters, its 17 regional distribution facilities across the United States and Canada, 3 divisional offices, and 2 paint production facilities in suburban Chicago. Ace employees provide services and products to the company's 5,000-plus hardware stores, each of which is independently owned and operated.

SOURCES OF INFORMATION

Bibliography

"ace hardware corporation." hoover's online, 12 june 1998. available at http://www.hoovers.com.

"ace hardware delivers ec exchange innovative edi technology to supplier community." business wire, 29 march 1998.

ace hardware home page, 12 june 1998. available at http://www.acehardware.com/ahci0601/ahci100u.htm.

halkias, maria. "nailing down a niche: small hardware retailers brace for onslaught of superstores." dallas morning news, 4 february 1997.

simmons, kelly. "battling tooth and nail: faced with 'big box' competitors like home depot, hardware stores emphasize personalized service and join buying cooperatives." atlanta journal and constitution, 2 february 1998.

For additional industry research:

investigate companies by their standard industrial classification codes, also known as sics. ace hardware's primary sics are:

2851 paint and allied products

3423 hand and edge tools, nec

3425 saw blades and handsaws

3429 hardware, nec

3452 bolts, nuts, rivets, and washers

5251 hardware stores

Company Profiles for Students

Ace Hardware Corporation

Ace Hardware Corporation

The 1920s-70s: Ace’s Years as a Wholesale Buying Cooperative

The Growth of the DIY Movement in the 1970s and 1980s

Competing with the “Big Boxes” in the 1990s

Company Perspectives:

The New Age of Ace: Changes in the Mid-1990s

Key Dates:

Principal Subsidiaries

Principal Competitors

Further Reading

Ace Hardware Corporation

Ace Hardware Corporation

Further Reading

Ace Hardware Corporation

Ace Hardware Corporation

Contact Information:

OVERVIEW

COMPANY FINANCES

ANALYSTS' OPINIONS

HISTORY

STRATEGY

INFLUENCES

CURRENT TRENDS

FAST FACTS: About Ace Hardware Corporation

PRODUCTS

CORPORATE CITIZENSHIP

GLOBAL PRESENCE

EMPLOYMENT

CHRONOLOGY: Key Dates for Ace Hardware Corporation

SOURCES OF INFORMATION

Bibliography

For additional industry research:

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Ace Hardware Corp

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