- The Washington Times - Wednesday, January 17, 2007

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 in the face of competition from home-improvement superstores. It’s a question Ace’s chief executive officer finds almost embarrassing, he said, because the company is doing so well.

“All our vital signs are very positive,” Mr. Griffith said in an interview at Ace Hardware Corp. headquarterswest 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 record earnings exceeding $104 million, based on preliminary figures. Its stores, about two-thirds owned by independent dealers, racked up almost $12 billion in sales.

Although retailers Home Depot Inc. and Lowe’s Cos. Inc. are expected to report a combined $140 billion in 2006 sales next month, Ace appears to have outperformed the two leviathans in same-store sales growth for the fourth of the past five years.

In addition, Home Depot is under fire for spotty customer service and sluggish sales in its warehouse-style stores, as well as a lagging stock price, which led to the abrupt resignation this month of CEO Robert L. Nardelli.

Big enough in its own right to make periodic appearances in the Fortune 500, privately held Ace, nonetheless, embraces a David-versus-Goliath 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 own stores and shares in the parent organization, which distributes its profit to them in the form of 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; the big boxes have it beaten in those categories. But analyst Howard Davidowitz said Ace is doing “tremendous” business by emphasizing convenience and by continuing to upgrade the appearance of its 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 retail consulting and investment banking firm. “It’s a question of convenience and service.

“Their stores are bright, organized and have the key [product] categories,” he said. “They have carved out a niche, and it works.”

Ace patterns itself after Walgreen Co., the fast-expanding drugstore chain that is counting on convenience to win the battle against its giant nemesis, Wal-Mart Stores Inc.

The hardware cooperative isn’t growing quite as rapidly, but it is opening a store about every other day — 188 in 2006, 180 planned this year. 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 bigger than the old 8,000- to 10,000-square-foot stores.

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 — fewer of them are do-it-yourselfers, and 40 percent of them are women.

Much of Ace’s trademark red decor has been removed from stores, replaced with women in mind by softer colors such as beige. Its paint section has added the high-end Benjamin Moore line and many new colors, reflecting that 90 percent of paint colors are picked by women.

Even its longtime slogan has changed to “Ace is the place with the helpful hardware folks” — not “man” — because of the growing number of female clients.

In short, Ace is acting increasingly like a retailer these days, not just a supplier of inventory for its stores.

“Home Depot and Lowe’s have caused us to be more aggressive with our retail approach,” Mr. Griffith said. “We’re using the scientific side of retailing, and we’re working harder to reduce costs and gain efficiencies.”

If the changes sound like they’re taking the co-op’s independently owned outlets further away from the cozy mom-and-pop stores of the past, they are. Consumers might like nostalgia, but, according to Ace, they don’t spend much money in old-fashioned hardware stores.

“We think we have a great upside in simply filling in the marketplace around the big boxes and offering the consumer a different kind of value and a different kind of helpfulness that the big boxes simply can’t or don’t want to do,” Mr. Griffith said.

“That has proven to be very effective for us and rewarding for both our existing retailers and investors as well.”

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