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."

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."

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