Company is thriving despite competition

OAK BROOK, Ill. - Every time he gets on an airplane wearing his gray Ace Hardware work shirt, Ray Griffith hears expressions of concern.


Fellow passengers always want to know whether the venerable cooperative is managing to get by OK in the face of competition from ever-proliferating home improvement superstores. It's a question Ace's chief executive finds almost embarrassing, he says, because the retailer-owned company is doing so well.

"All our vital signs are very positive," Mr. Griffith said in an interview at Ace Hardware Corp. headquarters west of Chicago. "And people seem to be almost amazed at that."

There's no need to worry about Ace. A focus on convenience and knowledgeable service has enabled the 4,600-store chain to stake out a modest but healthy share of the huge hardware market, providing the impetus for the biggest new-store expansion in its history.

The 83-year-old chain just concluded its best sales year since 1998, with wholesale sales up 6.5 percent to $3.4 billion and a record bottom line exceeding $104 million, based on preliminary figures. Its stores, about two-thirds owned by independent dealers, racked up almost $12 billion in retail sales.

Though mega-retailers Home Depot Inc. and Lowe's Cos. are expected to report about $140 billion in 2006 sales between them next month, Ace appears to have outperformed the two leviathans in same-store sales growth for the fourth year in the past five.

In addition, Home Depot is under fire for spotty customer service and sluggish sales in its warehouselike stores, along with a lagging stock price, which led to the abrupt resignation this month of CEO Bob Nardelli.

Big enough in its own right to make periodic appearances in the Fortune 500, privately held Ace nonetheless embraces a role as protector of the small hardware-store owner.

"We come to work every day on behalf of the entrepreneur," Mr. Griffith said. "We have a chip on our shoulder about the big boxes, and we like that. We like being the underdog. America loves the underdog."

Ace has been looking out for individual entrepreneurs since its founding in 1924, when four Chicago-area hardware store owners united to increase buying power and profits.

Dealers own their individual stores and shares in the parent organization, which distributes its profit to them in the form of sizable annual dividends. They stock their stores from Ace's 15 warehouses across the country, although they also can buy elsewhere, and Ace provides them with group buying power, distribution and marketing support and a powerful brand name.

Ace is not the place for the lowest prices or the biggest assortment of home improvement goods. But analyst Howard Davidowitz says it nonetheless is doing "tremendous" business by emphasizing convenience and by continuing to upgrade the aesthetics of the stores.

"It's not a question of price, or they're out of business a long time ago," said Mr. Davidowitz, chairman of Davidowitz & Associates, a New York-based retail consulting and investment banking firm. "It's a question of convenience and service."

The hardware cooperative is opening a new store about every other day - 188 in 2006, 180 planned in 2007. Already, 50 percent of the U.S. population is within three miles of an Ace store. "The opportunity," Mr. Griffith said, "is the other 50 percent."

Shoppers should notice differences. Old stores have been remodeled and new ones are larger at an average 14,000 square feet, still puny compared with a 120,000-square-foot superstore but up from 8,000 to 10,000 previously.

Lighting is brighter, aisles are wider, ceilings are higher and the mix of merchandise has changed as Ace encourages its retailers to cater to a new breed of home improvement shopper, one that now includes 40 percent women in its stores and a declining percentage of do-it-yourselfers.


- Culpepper Lumber (Evans and Thomson)

- Salter Building Supply (Waynesboro)

- Crouch Hardware (Edgefield)

- Lincoln Place Ace Hardware (Lincolnton)

- Smith-Sheppard Supply (Louisville)

- Bob's Ace Hardware (Leesville, S.C.)

Source: Ace Hardware