4777 Menard Dr.
Menard, Inc. is the nation's third largest home improvement supply chain. A rarity among retailers, Menards (as the company's stores are called) also operates its own manufacturing facility. The cost-saving measure is representative of founder and owner John Menard's penchant for keeping prices low. The regional chain faces increased market pressure as Home Depot and Lowe's continue to build their presence in the Midwest.
Founder's Values, a Bedrock for Business: 1950s-80s
John Menard, the eldest of eight children, worked his way through the University of Wisconsin-Eau Claire by building pole barns with some fellow students. In college, he majored in business, math, and psychology, but his work philosophy was influenced by his upbringing. 'Menard remains a farm boy at heart, anchored by a few simple beliefs,' the National Home Center News (NHCN) stated in a 1996 profile. His parents, both teachers and dairy farmers, instilled in him 'the principles of frugality and, in Menard's words, common sense.'
Alert to opportunity, Menard expanded the boundaries of his late-1950s construction business. He began buying wood in bulk and then resold it to builders scrambling to find materials on the weekends: a time when lumberyards typically were closed. In 1960, Menard added to his building supply line. A decade later, when the building supplies generated a majority of his revenues, Menard sold the construction end of the business. He founded Menard, Inc. in 1972, just in time to catch the building wave of do-it-yourselfers.
Deviating from the standard lumberyard format, Menards stores featured wide aisles, tile floors, and easy to reach shelves--a design similar to mass merchandisers. During the 1970s and 1980s, Menard opened building supply stores in a five-state area: Wisconsin, Iowa, North and South Dakota, and Minnesota. Menard snapped up vacated retail sites, which were inexpensive but well-situated. Seconds, overstocks, and closeout items were peppered among the product mix. By 1986, Menards ranked 15th among the top home improvement chains, with estimated sales from the 34 outlets approaching the half billion mark.
Early 1990s Expansion
To support the growing company, in the early 1990s Menard opened a huge warehouse/distribution center and a manufacturing plant. Menard moved into Nebraska in 1990, the Chicago area in 1991, and Indiana and Michigan in 1992. The economic downturn in the early 1990s slowed home turnover and boosted sales on the home repair and improvement front.
By the fall of 1993, 12 Menards stores served suburban Chicago and were in direct competition with the 28-unit, Illinois-based Handy Andy, as well as Builders Square and HomeBase. Anticipating the arrival of Atlanta's Home Depot, Menard announced a major expansion drive. The company planned to open up to 18 additional stores in three different formats.
The regional chain ended 1993 with a total of 88 stores and $1.7 billion in revenues. The $9 billion home improvement supply leader, Home Depot, entered the Chicago market in September 1994.
John Menard, meanwhile, based on a net worth of close to $400 million, qualified for the Forbes Four Hundred list. His personal wealth allowed him to finance a longtime hobby. In 1979, along with two friends, Menard bought a $65,000 racer which Herm Johnson drove in the Indianapolis 500. Team Menard cars became perennial entries in the event; Menard spent millions on car and engine development. In 1994, Menard qualified two out of the three cars he sponsored for the Indy 500 and placed 8th and 20th. 'He'll need to do a lot better than that to succeed in Chicago,' wrote Frank Wolfe for Forbes magazine in June 1994.
By the end of 1995, Menard operated 115 outlets and produced $2.7 billion in sales. The company's rapid growth in the Chicago area played a significant role in the demise of Handy Andy and Courtesy Home Centers according to NHCN. The privately held Menard funded its growth through cash flow generated by the stores: 'That cash flow is sustained by aggressive cost containment policies that come directly from its president, whom vendors will describe as `tenacious,' `frightening,' `entrepreneurial' and `paranoid,' all in the same breath,' reported NHCN in May 1996.
Keeping Prices Low: Mid-1990s
Opinion aside, sole owner John Menard's business practices served the company well: Menard, Inc. claimed the 44th spot on the Forbes list of the largest private U.S. companies in 1996 and held third place in the home improvement industry.
In spite of the company's ever increasing size, Menard retained the flavor of a family business. One of John Menard's brothers, a daughter, a son, and a nephew held prominent management positions, and day-to-day policies reflected the owner's world view.
Employees put in six-day work weeks, both in stores and at the 600-plus-acre corporate headquarters in Eau Claire. Store workers built gondolas, bulk displays, and checkout counters. Scrap wood was used for store signage, and carpet remnants covered displays. The company's buyers played hard ball with suppliers when negotiating allowances, discounts, and price increases.
Menard tenaciously held to his low price strategy, even in head-to-head competition with super-sized Home Depot. Even when it meant slim margins. Staple products such as studs and paint sold consistently below Home Depot's price, sometimes just by a penny.
Conversely, Menards was trying to upgrade its image in order to draw in more middle and upper income shoppers. In the familiar 120,000-square-foot format, Menards stores were reminiscent of 1970s discount stores, but in upscale neighborhoods the company needed to cater to customers more concerned with quality than cost.
Menards shelved better quality product lines in areas such as kitchen and bath; more employees walked the sales floor. In 1996, a new 165,000-square-foot format was introduced although the department store-like design was retained. Menards also upped its advertising expenditures and offered its first private label credit card that year. Changes aside, the dominant advertising theme remained the same: 'Save Big Money at Menards.'
Menards stores, furthermore, were considered a rarity among retailers by depending on vertical integration as a cost-saving measure, according to NHCN. The products Menard manufactured in its plant accounted for about a quarter of items sold. In-house production cut an estimated ten percent off the cost of going through a supplier for a steel door. Among others items, Menards stores offered its own line of Formica countertops, dog houses, and picnic tables. The company had $45 million invested in the state-of-the-art manufacturing facility, according to a 1997 Forbes article.
Menard's across-the-board control helped him produce highest sales per employee ratio among industry leaders. On the other hand, Menard's penchant for being in charge generated lawsuits from disgruntled ex-employees, as well as customers and suppliers. Few, though, could ignore his bottom line, 1996 after-tax profits were $93 million, up 15 percent from 1995, according to Forbes. The 128 Menards stores produced $3.1 billion in sales on the year.
Pressure Building at Century's Close
The onslaught of larger players had brought other home improvement concerns to their knees while Menard flourished. Kmart closed its five Minneapolis area Builders Square stores when Home Depot entered the market. By contrast, Menard's properties produced higher per square foot sales than Home Depot's Midwest offerings.
In a February 1997 Forbes article, James Samuelson said John Menard attributed part of his success against Home Depot to the sheer size of the industry leader's stores. 'He believes that many do-it-yourselfers, especially the weekenders, feel pressed for time and are put off by Home Depot's cavernous, cement-floored superstores, where the merchandise is stacked high in the air.' Menards offered a comparable number of items, an average of 50,000 per store, in a smaller space by rapidly restocking shelf items from ample warehouse and stockroom space adjacent to each store.
The Menards chain distinguished itself from Home Depot via advertising as well. While Home Depot's promotions had some glitz, Menards' television ads, shot in the flagship store, had a down-home feel. 'The spots feature a 70-year-old Ray Szmanda, a longtime employee from Eau Claire who simply goes on the air to point out Menards' low prices on hammers and shower curtains and other household gear that appeals to local do-it-yourselfers,' wrote Samuelson. Menards used its Midwest roots to encourage customer loyalty.
In the latter half of 1997, rumors circulated regarding Menard's future as an independent entity. Some Wall Street analysts suggested the number two home improvement retailer was interested in buying Menard to gain a foothold in the Midwest. North Carolina-based Lowe's Companies Inc. operated 402 stores and reported 1996 sales of $8.6 billion. At the time, number one Home Depot had sales of $19.5 billion. Both of the industry leaders were in expansion drives. John Menard denied the rumors.
Also in 1997, Menard received a fine of $1.7 million for violating Wisconsin laws regulating the disposal of hazardous waste. The company had also been fined in 1989 and 1994. In other legal action, Menard faced off against fellow contenders in the $150 billion home improvement market over advertising claims. Sears sued Menard and Menard in turn sued Home Depot.
Home Depot entered another one of Menard's Midwest strongholds in 1998. The four Milwaukee area Menards stores, thanks to its regional roots, held market leadership. A number of independent retailers also had a strong following among area consumers. Menard planned to add more Milwaukee stores in response to Home Depot's challenge.
In 1998, Home Depot's 888 stores earned nearly $40 billion; Lowe's 550 stores produced sales of about $16 billion; and number three Menard's 139 stores followed behind with $4 billion in sales.
In 1999, number two Lowe's entered the Chicago market with plans to open 20 to 30 stores. Menard had 25 Chicago outlets. Home Depot operated 31 units and was poised to add ten to 20 more. Lowe's' entry was expected to spark a price war in the nation's largest hardware market. Menard had cut prices ten percent during a 1998 price war with Home Depot.
Lowe's pending entry into the Chicago area rekindled some speculation about a merger with Menard, according to a December 1999 Crain's Chicago Business article. '`John Menard hasn't been intimidated by Home Depot in the past,' says John Caulfield, executive editor of National Home Center News in New York. `So, it's unlikely he'll be intimidated by Lowe's. The two companies might not make a good merger fit anywhere, since Menard's lays out its stores differently and focuses on lower-priced goods,' reported H. Lee Murphy.
Menard celebrated the opening of its 150th store in early 2000. At the time, Christopher Menard, vice-president of distribution, announced that the company would be phasing out the sale of products made out of wood cut from endangered forests. Menard followed the action of other home improvement dealers such as Home Depot.
Just as the industry had been under pressure by environmentalists, Menard felt the squeeze of market leaders Home Depot and Lowe's. Industry observers generally agreed that only two big chains could thrive in a particular market. Given John Menard's competitive nature it was likely he would fight to hang on to his share of the Midwest home improvement scene.
Principal Competitors: The Home Depot, Inc.; Lowe's Companies, Inc.
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