It wouldn’t be a weekend for Jay Swanson if there wasn’t some tinkering to do around the house.
The building engineer from north suburban Wauconda gets a lot of satisfaction from jobs that strike fear in others’ hearts. His idea of a good time is resetting a toilet or installing some closet bolts.
When Swanson tackles a task, he usually makes a run to a nearby Sears Hardware store or Ace Hardware. He isn’t crazy about either one. The prices strike him as high, the selections aren’t huge and the service is just so-so.
If Home Depot, the retail giant of the home improvement biz, had a store in Wauconda, it wouldn’t even be a close call.
“I’d forget about Ace and Sears,” Swanson says.
Swanson may soon be getting what he wants. The Atlanta-based chain unveiled a new prototype store last week in Brooklyn, N.Y., that is half the size of a regular Home Depot and can easily be dropped into neighborhood areas.
A second neighborhood store is set for Staten Island, N.Y., in the fall and a third is coming next year to Chicago’s Lincoln Park, where Home Depot already has two full-size stores in close proximity.
“If you’re Sears Hardware or Lowe’s, it’s time to get to work,” chuckles John Simley, Home Depot spokesman.
As home of the nation’s two largest buying cooperatives for independent hardware store owners–TruServ Corp. and Ace Hardware Corp.–as well as the headquarters of hardware-heavy Sears, Roebuck and Co., the Chicago area may have the most to lose if Home Depot conquers the neighborhood hardware store business.
But consumers like Swanson will be the big winners. As Home Depot pushes deeper into urban areas, it will force other stores to sharpen pricing and provide better service.
It’s going to be a fierce fight. After growing at a compound annual rate of 6 percent from 1995 to 2000, retail sales at home improvement retailers are projected to slow to 3.8 percent annually between 2000 and 2005, says the National Retail Hardware Association.
At first glance, the edited Home Depot in Brooklyn doesn’t look that different from its overgrown siblings. Merchandise is stacked high on utilitarian shelves. The floor is concrete. The ceiling is white metal.
Yet the scale is different. The ceiling is two stories high. There are a handful of checkout lanes. Mixed in with Home Depot’s typical tubs of joint compound and Black & Decker drills are jugs of Tide detergent, portable lamps and Maytag washers and dryers, items more likely found at Target or Sears.
What’s missing? Pressure-treated lumber and 12-foot sheets of drywall. Customers or contractors interested in buying those can place orders to be picked up or delivered from one of two nearby Home Depots.
To get a neighborhood store right, one must understand the neighborhood, experts agree. Home Depot appears to have done its homework. Managers have studied Brooklyn’s demographics, driven its streets and talked to its residents, a mix of home owners and renters.
The result: The new store offers a custom service to replace doors with rounded tops, a prevalent design touch in this southern part of Brooklyn. To accommodate the area’s Orthodox Jewish residents, Home Depot has hired experts in designing kosher kitchens.
Storage big for Lincoln Park
The same care is being used to assemble merchandise for the Lincoln Park store at 2665 N. Halsted St., formerly the site of Chernin’s Shoes.
“We’ve looked at the demographics, and we think it can support a little more high-end merchandise,” said Rich Kantor, a Home Depot divisional merchandising manager.
Home storage is expected to be big at the Halsted store as are home decor items. The multilevel store will devote the second floor to a design center for kitchens and baths. On top of that will sit a two-story parking garage.
In Brooklyn, one would expect the new Home Depot to receive less-than-a-warm welcome from small competitors such as Mazzone True Value Hardware, a family business in its third generation.
Not so. Matthew Mazzone says he isn’t concerned about the impact on his business, which caters to owners and renters of century-old brownstones in the Carroll Gardens section of Brooklyn, many of whom don’t own cars but are constantly renovating their vintage homes.
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At 61,000 square feet, the new Home Depot is hardly a “neighborhood” hardware store, he points out. Mazzone True Value does business in a tiny 1,000 square feet of selling space.
Reinforcing Mazzone’s confidence is his record in the trenches: A full-size Home Depot opened in Brooklyn four years ago. The store has become “notorious for being inefficient and having awful help,” Mazzone says, and many customers who did defect have been disappointed in the quality of Home Depot products.
“Everyone told me the same thing: If you can get through the first year, you’ll be fine,” he adds.
The sages are correct so far. After declining slightly in the first year, Mazzone’s sales have increased by double-digit percentages in the last two years.
Ace Hardware executives also say they aren’t intimidated by Home Depot’s plans.
“You can either own service or price,” said Ken Nichols, vice president of retail operations for Oak Brook-based Ace. “Home Depot has been successful in owning price, but after mega-millions of advertising dollars touting service, they’ve never been able to deliver it.”
That doesn’t mean Ace isn’t paying attention. The buying co-op is eager to study and understand the new concept in order to help its 5,100 members better compete, Nichols says.
Skepticism is fine, retail consultants say, but retailers that convince themselves that the Home Depot threat is minimal are kidding themselves.
“A half-size Home Depot will be a price killer. They will be lower-priced than Ace and True Value,” warns Sid Doolittle, partner with Chicago’s McMillan/Doolittle. “There is no middleman there. The stores will be supplied direct.”
Adds George Whalin, president of Retail Management Consultants: “There are going to be some folks hurt. Home Depot is very formidable. They have great technology. They don’t run out of things.”
And there’s little objective evidence that Home Depot is turning off shoppers with poor service, retail experts say.
Home Depot consistently scores high with consumers in terms of service, says Chris Ohlinger, president of Service Industry Research Systems, a retail market research firm in Kentucky that tracks shoppers perceptions.
In fact, Home Depot ranks as a “super-merchant” when it comes to helping customers, Ohlinger said.
Department stores once considered good service their forte, too, consultants point out. But the numbers don’t lie. Discount stores, which provide little in the way of service, are consistently winning market share from department stores because of lower prices and improved merchandise.
Yet there’s no question that many consumers find Home Depot intimidating and time-consuming. That accounts, in part, for Ace being able to increase its same-store sales last year by 2.3 percent while Home Depot’s same-store sales were flat.
Poor record with new formats
Another thing that may be comforting Home Depot competitors right now is the company’s less-than-stellar track record with new formats.
Home Depot has experimented with another small prototype called Villager’s Hardware, a spiffy store with wood floors that sold items as varied as candlesticks and microwaves.
Now, after three years of fine-tuning, Home Depot is pulling the plug on Villager, changing the name to Home Depot and adjusting the merchandise mix back to more traditional hardware. Another experiment with rural stores geared toward farmers’ needs also was a bust.
Even a successful experiment such as Expo Design Center has taken Home Depot years to figure out. There are 46 Expos–another will open soon in Lincoln Park–and the chain is still a money-loser, retail analysts say.
But the neighborhood version of Home Depot is a different proposition altogether.
The company isn’t trying to build a second brand, it is simply editing its existing so-called big-box format. And because Home Depot is remodeling existing buildings ranging from 50,000 to 80,000 square feet, the stores can be rolled out quickly.
Home Depot executives shy away from specific projections about how many neighborhood stores are planned. They also decline to say whether the smaller-format stores would work in secondary markets that couldn’t currently support a full-size store.
For now, Home Depot is focusing on urban neighborhoods that already have at least one sister store nearby.
No question, experts say, that Home Depot needs a new way to grow. With 1,363 stores, Home Depot is near saturation with its big-box format.
Retail Management’s Whalin believes Home Depot could easily build 500 or 600 neighborhood stores around the country. That should be enough to keep even a home-center giant busy for the next few years.