This category covers establishments primarily engaged in the retail sale of a number of basic hardware lines, such as tools, builders' hardware, paint, glass, cutlery, housewares, and household appliances. Establishments primarily engaged in the sale of lumber and other building materials are classified in SIC 5211: Lumber & Other Building Materials. Those establishments are included in this industry analysis because of their dominant role in the hardware industry. Establishments that specialized in a particular line of hardware, such as paint or wallpaper stores, were classified in SIC 5231: Paint, Glass & Wallpaper Stores.
444130 (Hardware Stores)
Hardware remained a healthy, growing business in the early part of the new millennium. There were approximately 20,290 hardware stores in the United States in 2002, a 7.3 percent decrease over a 10-year period. This could be attributed to the growth of home improvement chains, including Home Depot, replacing some of the independently owned, "mom and pop" hardware stores that were typical in past years. There were also roughly 10,000 home centers, which combine goods related to hardware retailing with goods related to building materials retailing. In 2001, the average hardware dealer had sales of more than $3.6 million annually. The average home center is considerably larger, with sales of about $5.6 million. Warehouse home centers had sales of $35.9 million per store. Annual retail sales of hardware store were estimated at $16.5 billion in 2001.
Most of the U.S. retail hardware stores are independent businesses. However, nearly all of them are affiliated with a nationwide wholesaler that offers private label brands, retail store advertising, and identification programs. Such affiliations create the appearance of a structured industry. Many of these wholesalers are actually cooperatives owned by independent hardware store owners, forming a distribution system that originated in the early twentieth century. Dealer-owned wholesalers sell only to member stores, but member stores can buy merchandise from other wholesalers or directly from manufacturers.
The largest dealer-owned cooperative is Cotter & Company, based in Chicago Illinois. It manufactures and distributes products to member-owner stores under the retail trade names of True Value Hardware and V&S Variety Stores. In 1997 Cotter merged with ServiStar, a Minneapolis-based distributor that owned Coast to Coast Stores. Together they created a $4.3 billion company that serves more than 10,000 retail outlets. Ace Hardware Corporation, based in Oak Brook, Illinois, is the nation's second largest cooperative with more than 5,100 members in 1999. Other dealer-owned wholesalers and their store identification programs include Our Own Hardware Co., of Burnsville, Minnesota (How-To Centers) and United Hardware Distributing Co., of Plymouth, Minnesota (Hardware Hank Stores).
Hardware Wholesalers, Inc., Fort Wayne, Indiana (Do-It-Best Centers) launched its own Internet Web site in July 1999. Already one of the nation's largest hardware cooperatives with recorded sales of $1.9 billion in fiscal year 1998, www.doitbest.com listed 70,000 items for sale on opening day. The Web site is marketed as "The World's Largest Hardware Store." However, Internet hardware retailing is still rare.
Most retail hardware stores have less than 20,000 square feet of floor space. The National Retail Hardware Association (NRHA) categorizes larger formats as home centers. Home centers average more than 30,000 square feet and usually combine lumber with a greater selection of hardware products to create a one-stop shopping environment for home repair and home improvement projects. Home centers typically buy directly from the manufacturers and often sell to commercial accounts, as well as individual consumers.
The home center segment also includes large warehouse-style hardware stores that average nearly 100,000 square feet and have between $12 million and $15 million in annual sales. Warehouse stores began to appear in the late 1970s and have had a notable impact on the retail hardware industry. In the early 1990s industry analysts predicted that the warehouse format would revolutionize the industry. But despite attracting a great deal of attention and a significant customer base, warehouse chains such as Home Depot accounted for only about 12 percent of industry sales in the late 1990s.
Warehouse stores are able to negotiate greater discounts from wholesalers and manufacturers because of their size. Warehouse stores also base their retail business on generating a high volume of sales, rather than by pursuing high profit margins. This forces smaller, independent hardware stores and chains, which have traditionally operated on high margins, to lower their prices, become more efficient, redesign their stores, improve customer service, and bypass their wholesalers to get a better price directly from manufacturers. This new operating style has forced numerous wholesalers and retailers to go out of business.
Hardware stores were among the earliest retail establishments in colonial America, selling tools imported from England. The oldest hardware store in the country is Elwood Adams Hardware in Worcester, Massachusetts. Founded by Daniel Waldo and son in 1782, it was still in business in 1999. The store was named for Elwood Adams, who purchased it in 1886. The first American manufacturer of hardware was probably John Ames, a blacksmith in Bridgewater, Massachusetts. He established a factory for making shovels in 1774. Ames' shovels became indispensable to American settlers.
The American Industrial Revolution of the early 1800s greatly increased the availability of manufactured goods and spurred the growth of general stores that stocked basic hardware. Peddlers selling hardware from the back of their wagons inundated rural areas. The industrial revolution also gave rise to factories that could supply more goods than nearby communities could use. This created the need for wholesalers and distribution networks. As the U.S. economic base shifted from agriculture to manufacturing in the last half of the nineteenth century, the hardware industry began to acquire distinct manufacturing, wholesaling, and retailing segments.
National Retail Hardware Association. Many hardware stores established in the late 1800s survived for more than 100 years. These stores were largely small, family-owned businesses, and, like neighborhood grocers before the advent of supermarkets, hardware store owners knew their customers well and were important members of the local business community. Although they valued their independence, hardware store owners also recognized the need to organize. By 1900 there were 25 state hardware associations, created primarily to lobby against what retailers believed were unfair trade practices conducted by manufacturers, who sold directly to hardware store chains and mail order houses at a significant discount.
Delegates from nine of these state associations met in Chicago in 1900 to discuss their common concerns, and eventually groups from seven states formed the Interstate Retail Hardware Association. In 1901 the name was changed to the National Retail Hardware Dealers Association, which later dropped "Dealers" from its name. The NRHA campaigned for fair-trade laws to protect storeowners from unfair pricing. Later the association offered members a broad range of management, marketing, and research services. Headquartered in Indianapolis, Indiana, the NRHA became a federation of 14 state and regional hardware associations in 1993, including the Canadian Retail Hardware Association. Five years later the entire federation voted unanimously to amend its bylaws so that NRHA could accept direct retail members from all 50 United States.
Wholesale Cooperatives. In addition to seeking legislative relief from what they perceived as unfair pricing policies, hardware store owners also began forming wholesale cooperatives to increase their leverage with manufacturers. One of the first cooperatives was the American Hardware Supply Company (AHSC), which was founded by retailers in Pittsburgh, Pennsylvania, in 1910. AHSC, the forerunner of ServiStar Corp., eventually shipped hardware to retailers throughout most of the eastern United States.
One of the most successful U.S. cooperatives has been the Ace Hardware Corporation, founded in 1924 by four Chicago retailers. The four retailers had been members of an innovative promotional program created by the E. C. Simmons Hardware Co., a St. Louis distributor providing advertising, window displays, and other store identification materials. In addition to buying directly from manufacturers on behalf of its members at volume discounts, Ace Hardware revived the Simmons promotional program. For 50 years Ace Hardware was run by Richard Hesse, a flamboyant marketer and hardware industry legend who strove to create emotional as well as economic bonds between members of the cooperative. In 1998 Ace Hardware was the second-largest hardware wholesaler with 5,100 stores and sales of $3.1 billion.
Coast to Coast Stores, though not a dealer-owned cooperative, was formed in 1928. Coast to Coast was initially both a wholesaler and a franchiser. The Minneapolis-based company assisted storeowners in arranging financing, selecting store locations, and understanding the retail hardware business. In 1990 Coast to Coast was purchased by ServiStar, the Pennsylvania-based wholesale cooperative founded in 1910. At the time of the sale, Coast to Coast had about 1,100 franchisees and annual sales of $400 million. Our Own Hardware Co. is another well-known cooperative. Founded in 1913, it was originally known as the Hall Hardware Company. By 1992 Our Own Hardware Co. had about 1,000 members and sales of $185 million. The company merged with ServiStar in 1996 to form ServiStar Coast to Coast Corporation. A year later ServiStar merged with Cotter & Company, the wholesale cooperative behind the True Value chain. Together they created a $4.3 billion company with more than 10,000 retail members.
Home Centers. The boom economy that followed World War II led to a tremendous expansion of the retail hardware business. Homeowners began buying more tools, housewares, plumbing, electrical supplies, paint, building materials, and other staples of the hardware business. The do-it-yourself market was beginning to take shape. The post-war economy also gave rise to another form of competition: large, chain-owned hardware stores known as home centers. These chains were led by Lowe's Companies, Inc.; Payless Cashways, Inc.; and Builders Square, Inc., originally known as Home Pro.
Warehouse Stores. In 1979 a start-up company, The Home Depot, Inc., opened two warehouse centers in Atlanta, Georgia, sparking dramatic changes in the retail hardware industry. Home Depot's stores were greatly expanded home centers. Each store featured 60,000 square feet of space, an informal atmosphere, and low prices. Beginning with a severely limited budget, Home Depot's top shelves were often stocked with empty boxes to avoid an empty feeling in the cavernous stores. The concept, however, was an overwhelming marketing success. By 1983 Home Depot was operating 10 stores in Atlanta and southern Florida. Each store averaged 60,000 square feet in size and nearly $12 million in annual sales.
Competitors soon copied Home Depot's warehouse format. In 1983 W. R. Grace & Co. opened two House Works stores in New Orleans. Within weeks Home Depot also opened two stores in the Crescent City. This was followed by two more House Works stores. Within a span of 90 days, six warehouse hardware stores opened in New Orleans with a combined 400,000 square feet of space. Warehouse stores soon opened in other areas of the country in a confusing flood of similar sounding names, including HomeOwners Warehouse in Florida, Home-Pro Warehouse in Texas, and HomeClub in southern California. By the end of 1983, 11 companies had opened a total of 47 warehouse hardware stores.
But Home Depot was not outdone by the competition. In 1999 the Atlanta-based home-improvement giant was reporting annual sales of $30.2 billion. With 874 stores in the United States, Canada, Puerto Rico, and Chile, Home Depot was by far the largest hardware retailer in the world. According to company executives, during the late 1990s Home Depot was opening a new store every 53 hours.
In the course of this industry-wide expansion, many independent hardware stores were driven out of business. Hardware store failures were attributed largely to the success of suburban malls and discount stores, such as Kmart and Wal-Mart. For example, Wal-Mart and its growing hardware sales expanded from about 30 stores in 1970 to about 9,000 stores in 1999. Most of these stores were typically located in stores near small communities.
The malls and discount retailers changed shopping patterns throughout the United States. Hardware stores moved away from downtown areas in both big cities and small towns where people no longer came to shop. Warehouse stores, on the other hand, actually expanded the hardware market. By one industry estimate, when the first Home Depot store opened in 1979, the do-it-yourself market was reporting earnings of about $35 billion annually. Ten years later, the market was estimated to be worth nearly $90 billion. Many retail hardware stores were able to capitalize on the expanding market by becoming more efficient and offering more personal service.
Wholesale cooperatives also helped their members deal with increased competition. Cotter & Company was credited with creating innovative store identification programs to counter the advertising campaigns and name recognition of the home centers. These programs included national advertising in consumer magazines and cost-efficient mass-produced circulars for member stores. Many such programs were copied by other cooperatives.
The chain-owned home centers may have been more adversely affected by the warehouse stores than independent hardware stores. Initially, home centers competed based on price, but competition from warehouse stores forced home centers to add services, such as installation services, and hire more qualified employees. Home Depot was an industry leader in customer innovations such as how-to clinics, bar code standards, employee training programs, and satellite communications between the chain's mainframe computer in Atlanta and point-of-sale computers in its stores nationwide.
A 1999 NRHA report showed that the typical hardware store annually sells $104,754 per employee, whereas the high-profit stores (the top 25 percent of all hardware stores) annually sell $112,644 per employee. Average hardware stores sell $1.01 million annually, whereas high profit stores sell $1.11 million a year. Gross profit margin is 37.7 percent for typical hardware stores, whereas high-profit stores do 39 percent. Thus, although the industry as a whole grows at about 4.4 percent each year, a noticeable gulf between the high-profit hardware stores and the average store continued to exist.
As the new millennium approached, most retail hardware stores were still family-owned businesses, with many family histories extending back four or five generations. In the majority of these stores, sons and daughters worked along side their parents. But many of the present owners did not expect to pass their stores on to the next generation. Those who expected to someday sell their stores to outsiders cite hard work, long hours, an uncertain future, and the lower-class image of hardware store owners as contributing factors to the decreasing appeal of hardware store ownership. Long-time employees often purchased hardware stores that are sold outside the family. In this regard, many hardware stores have established employee stock ownership programs that make it easier for employees to take over ownership.
Storeowners are also more likely to cite competition from discount retailers such as Kmart and Wal-Mart as the most serious threat to their businesses. Financially, the strongest independent hardware stores are those that have staked out a variety of niche markets, such as kitchen remodeling centers and lawn and garden centers. Some wholesale cooperatives, including Our Own Hardware, began helping members establish tool rental departments. At the same time, many storeowners were reluctant to make radical changes in their businesses and made no plans to change their product mix. Other owners became interested in bypassing traditional distribution channels to buy directly from the manufacturers.
Although none of the other warehouse hardware companies came close to duplicating the success of Home Depot, warehouse stores continued expanding in the 1990s. Lowe's Companies Inc., which began experimenting with larger stores in 1984, made a corporate decision in 1988 to hold the line at about 60,000 square feet. In the early 1990s, however, the company decided to build larger stores and by the mid-1990s more than half of its stores were more than 60,000 square feet. Lowe's experimentation paid off. In November of 1999 it had solidified its position as the second largest home-improvement store in the United States.
Another leading company with major expansion plans in the early 1990s was the Hechinger Company. Based in Largo, Maryland, Hechinger operated a chain of traditional hardware stores. In 1988 Hechinger purchased Home Quarters Warehouse Inc., and in 1991, the company opened its first warehouse-size Home Project Center. By the mid-1990s Hechinger had become the fourth largest home-improvement retailer in the nation. However, the company fell on hard times in 1997. Two years later it filed for bankruptcy protection from its creditors and began liquidating a number of its stores.
Legislation. Among other issues of concern to the retail hardware industry during the 1990s was the question of product liability. Increasingly, courts were holding retail stores liable for damages caused by defective products. Several courts had ruled that hardware stores have an obligation to ensure the safety of their products and held them liable for money damages when they failed to fulfill this obligation. For two decades Congress has conducted hearings to determine if they should enact federal laws to insulate hardware store retailers from product liability lawsuits. Despite several pieces of proposed legislation, no bill ever passed both Houses. Thus, hardware stores continued to insure themselves against the risk of liability.
Despite a weakened economic climate preceding, and worsening after, the events of September 11, 2001, home channel market sales managed to increase 6 percent in 2001. Total home channel sales were $343.1 billion, which included sales from hardware stores, home centers and other building material dealers, lawn and garden equipment and supply stores, department stores, paint and wallpaper stores, and other general merchandise stores. Hardware stores made up $16.5 billion, or 4.8 percent of total home channel market sales.
In 2001, the typical hardware store sold $127,000 per employee, with home centers average $133,000 per employee, and warehouse dealers at $189,000 per employee. Hardware stores sold $3.6 million per store, and warehouse dealers averaged $35.9 million in sales per store.
Although many sectors of the economy suffered, hardware managed to thrive due to a number of factors. The increasing trend toward do-it-yourself (DIY) projects was one of the chief reasons. People were purchasing tools and other hardware and household items at a record pace. According to the NRHA, the DIY market increased at a compound annual rate of 6 percent from 1995 to 2000. The NRHA expected the trend to continue, growing 3.8 percent through 2005. The trend toward staying home, or "cocooning," after September 11, 2001, was another factor that drove home sales. As travel declined, Americans had more to spend on home renovations instead. Cable television started a home renovation and design programming trend that became popular with viewers and further encouraged sales in the home sector. The good news for home sales did not stop there: with ongoing low interest rates in 2002 and 2003, housing remained stable and even strong in some markets. The demand for new housing was also on the rise, with an estimated demand at 1.8 million units per year, compared with 1.6 million housing units per year during the 1990s.
A noticeable trend among hardware stores in the early 2000s was the bid to attract more female customers. According to the National Association of Realtors, single women are the second biggest group of homebuyers after couples. They influence a large number of home improvement purchases, and are increasingly involved in DIY projects. Leading the way toward increasing appeal to women buyers were Lowe's, the first to incorporate a home decor department in the mid-1980s, Home Depot, and Sears. Now, traditional hardware stores, including Ace Hardware, were following suit. In addition to female-friendly marketing and advertising, more and more decor programs were cropping up alongside new store designs and display programs geared toward the distaff set.
Atlanta-based Home Depot is the largest hardware retailer in the United States. It had 1,500 stores worldwide and generated more than $58.3 billion in sales in 2003. It is credited with driving the retail hardware industry to adopt newer technologies, including the use of bar codes for maintaining inventory. In the late 1990s Home Depot began to roll out a line of large-format stores called EXPO, which featured 80,000 to 100,000 square feet of space focusing on interior design materials rather than the lumber and construction offerings of its flagship chain. In 2002, Home Depot unveiled a new prototype store in Brooklyn, New York, that was half the size of a regular Home Depot. The stores were designed for use in crowded, urban areas and are neighborhood-friendly, offering a targeted mix of products and services.
North Carolina-based Lowe's Companies, Inc. is the second leading hardware retailer in the country, reporting more than $26.5 billion a year in sales from 850 stores in 2003. TruServ Corporation was a leading cooperative in the hardware sector, serving some 6,800 retail outlets and reporting sales of $2.2 billion in 2002. Ace Hardware, based in Oakbrook, Illinois, was the second leading cooperative in the United States behind TruServ with 2002 sales of $3 billion and more than 5,100 stores worldwide.
The retail hardware industry employs approximately 150,000 people, with the average hardware store employing 12 full- or part-time workers. Entry-level workers are usually paid at or near the minimum wage. Smaller hardware stores with a lower profit margin commonly complain about the difficulties in finding and retaining a competent staff. The problem is especially critical in small towns. Home centers typically hire away experienced employees at higher wages. They also offer employee training programs and more opportunity for advancement. Home Depot is a leader in hiring employees with a construction or building industry background to improve service. Wholesale cooperatives have attempted to help their members by instituting employee-training programs.
In 2001, Ace Hardware became the first non-Japanese retail company to join the home improvement market in Japan. Ace Homeplace, as it will be known, opened under a licensing agreement with Sunstar Engineering of Osaka that would allow another 200 stores to open in Japan through 2011. Smaller than its 35,000-square-foot American counterparts, the store measured 5,000 square feet and differentiates itself in the Japanese market by catering to female and DIY customers and offering a more specialized mix of products, including paint, lawn, garden, housewares, and home decor products.
Although Mexico is dominated by family-owned independent hardware stores, Home Depot made a move into the market in 2002 with the purchase of two small Mexican chains, Del Norte and Total Home. In response, Ace Hardware and Do it Best also began stepping up efforts in the region.
"Ace Makes Japan the Place." National Home Center News, 17 December 2001.
Chandler, Susan. "A Sizable Change for Home Depot." Knight Ridder Tribune News Service, 18 April 2002.
"Downturn Deals Some a Blow, While Overall Industry Stays Strong." Home Channel News, 20 May 2002.
Goldblatt, Jennifer. "Hechinger Liquidation Puts Norfolk, Va., Employees Out of Work." Knight-Ridder Tribune Business News, 10 September 1999.
"Happy Times Ahead for Hardware in the Mass Market." MMR, 29 July 2002.
"The Home Channel in Growth Mode." Home Channel News, 3 June 2002.
"Independents Continue to Dominate the Mexican Market: But Big Boxes Make Plans to Move Into Border Town." Home Channel News, 20 May 2002.
"Retailers Report December Sales Increase: Hardware Stores—1999." Do-It-Yourself Retailing, 1 February 1999.
"Top 500: Productivity." Home Channel News, 20 May 2002.
"U.S. Retail Landscape Expands In Some Aspects, Contracts in Others." Research Alert, 17 January 2003.
"Wooing Women." Home Channel News, 3 March 2003.