Tuesday, September 4, 2007

Ace Isn't The Place For Going Corporate

Here's some friendly advice to the Ace "Helpful Hardware" Man: Be afraid, be very afraid.
Recently Ace Hardware Corp.'s board and senior management revealed they are interested in turning the dealer-owned cooperative chain into a traditional corporation. In a recent story, Chicago Tribune retail reporter Sandra Jones outlined the ambitious plan.
Many Ace dealers are concerned about this possible transformation in corporate governance and they have every right to be worried. That's because it is a horrible idea--one that threatens to destroy Ace's unique entrepreneurial approach and turn the company into a pale imitation of competing hardware behemoths like Home Depot, Lowe's Home Improvement and others.
Apparently, Ace management believes their company can't beat the big box retailers unless it becomes more like them. It seeks greater control with a "top-down" management approach that will empower headquarters staff to enforce important business strategies, including: store design, marketing, product mix and --let's assume-- financial results. In addition, Ace management contends the corporate model will give it greater purchasing power and clout over suppliers, enabling Oak Brook-based Ace to negotiate lower prices and pass savings to the dealers.
This is the type of thinking that makes an MBA salivate.
Unfortunately, it won't help the Ace owners run better stores, out-fox the competition or make them more money.
Under the cooperative system, independent Ace dealers use headquarters as a super-wholesaler, which buys products and helps out with marketing (like hiring John Madden and home repair guru Lou Manfredini for its TV spots). But Ace dealers work for themselves, a perk that enables them to customize their stores and stock them with goods or services more tailored to their surrounding communities.
Indeed, every Ace is a little different. In this area, an Ace in Lincoln Park doesn't operate the same as one in Wilmette. The one in Wilmette doesn't look exactly like the those in Naperville. And so on and so on.
More important than cosmetics, most Ace stores are smaller and less imposing to the average person than a typical Home Depot.
Sure, you can still get lost within an Ace's labyrinth of paint, pipes, tools, and other hardware fare. But it's been my experience that, pound for pound, the Ace stores are well staffed and the help is better informed about what's in stock, and how to use it, than the superstore rivals.
Moreover, Ace owners and managers are more in touch with their immediate communities than the big box players who anchor huge shopping malls.
I've been in urban Ace hardware stores that cater to nearby apartment dwellers (offering specific door and window locks, home safety devices, easy-to-assemble furniture, etc.) and also in suburban Ace stores that focus on the single-family home owner's needs, like specialized garden soil.
Are the Ace prices higher? Sometimes. But frankly that's a premium many are willing to pay to trade with a well-run neighborhood hardware store. If the help is on the ball, the lines are short and you can get a quick tutorial about a purchase--then you'll save time and money in the long-haul.
Something must be going right because the company posted record-setting revenues and healthy returns to dealers last year. What's more, the company has continued to rack up high marks with consumers, according to J.D. Power & Associates.
But once Ace dumps that personal-service philosophy for a more corporate approach (and central purchasing), it breaks a bond with its customers.
And for what? To become more like the rival superstores?
Bear in mind that Home Depot and Lowe's are having trouble. So is Sears Roebuck & Co., home of Craftsman tools.
The cynic in me says that going corporate will give top management the opportunity to tap into stock incentives, more options and other compensation perks--goodies that are tougher to come by when you're part of a cooperative. I hope I'm wrong about that.
Fortunately, this plan is not preordained --Ace's board and senior managers must convince 51 percent of its dealers to approve it. An upcoming Securities and Exchange Commission filing should provide more details.
I doubt it will pass.
But if it does, a lot of longtime customers are going to be unhappy and many "helpful hardware" men are going to end up as employees of the very stores they once owned.`

9 comments:

Anonymous said...

Amen! I am only an Ace Hardware store employee -- one whose opinion certainly won't count for a lot, but here it is: Over the last several years I have observed Ace Corporate trying to become more and more dictatorial. I think it gravels the top execs that they don't have the power to control which they see in their corporate brothers and sisters in other companies. Where's the status and big bucks in being a big doo-dah for a Co-Op? So instead of going out and getting a job like that, they'll turn theirs into one.

I work at a store where we refuse to wear those pimpy red vests, and I'll bet (not entirely in jest) that that's one of the big issues.

Let's hang onto one of the truly successful examples of business diversity combined with an economy of scale in buying.

Anonymous said...

Record profits on cooked books.

During the past 8 or 10 years Ace Management has been on a power & control trip. Beginning with those 300 hand picked dealers they brought to Las Vegas, all expenses paid, who gave Ace Management a V21 dealer mandate and ending with today's "accounting mistake" of $154,000,000.

Since Ace Senior Management are on bonus incentives and the cooked books overstated profit in 2002 and subsequent years, will they be repaying their ill gotten bonuses ?

Change to a for profit corporation ? If there are any changes to be made an adversarial BOD would be a welcome change as opposed to one that's joined at the hip with management. Time to leave the rubber stamps at home and become a hard nose business again.

Brian Odell said...

Bob,

You are right on the money. I am an ACE Owner and bought into this co-op four years ago so I could make my own decisions on how best to serve my very unique market. My customers come to me because they don't want to shop at Home Depot or Lowe's, or even the "big" ACE stores nearby. They want fast, friendly service from someone who remembers their name and remembers what home projects they've been tackling, lately. Even the ACE chains (multi-store operations owned by a single individual/group) can't consistently provide this type of helpful atmosphere. It takes an Owner who is on the sales floor on a regular basis to foster this attitude in the employees.

Thanks for your observations.

Brian Odell
Arlington ACE Hardware
Kensington, CA

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