Transcript by Descript:

In the last six years, uh, we’ve opened 1, 060 stores.  85 percent of those have come from existing ACE owners. Or from other brands that converted their hardware store to ACE. And I mentioned that because when 85 percent of your new store growth comes from folks who already are in the business, I think it speaks volumes to the health and the efficacy of the model and the economics thereof.

So that’s a real encouraging sign to us.

And Shelley Kohan from the Robin Report. Each episode dives into the latest trends and developments in the retail industry. Join them as they discuss interesting topics and interview industry leaders keeping you in the loop with everything retail.  Hi everybody, and thanks for joining our weekly podcast.

I’m Shelley Kohan and I’m very excited to welcome John Venhuizen. He is the CEO of ACE Hardware, uh, to the show today. So.  Today, what we’re going to talk about is how Ace Hardware has really transformed from this small family owned business to a global cooperative powerhouse that thrives to open new stores, not just here in the U.S., but globally.

And just to mention that currently, Ace operates more than 80 stores.  5800 locally owned hardware stores in all 50 states and 60 countries with global sales topping over 22 billion. So I am thrilled to have you on Retail Unwrapped and I can’t wait to talk about the growth of Ace Hardware.

Great to be with you, Shelley. Thanks for thinking of us and all those fancy statistics credit goes to the team, uh, our local owners, and then the associates that work in those stores. We call them red vested heroes. They get all the credit for those numbers.  That’s awesome. Well, before we jump into the nitty gritty, uh, I’m going to have to congratulate you, I know you’re so modest, but I have to like to your horn.

But Ace Hardware has really had a fantastic performance. First half of this year, you’ve opened 111 stores in the first six months. And for fiscal year 2023, you disbursed dividends of a 357  million. That’s a 35 percent return for a shareholders in 2023.  Thank you for that. And again, uh, the credit goes to the team.

We’ve an amazing team here. We have an unbelievable group of owners who operate most of those almost 6, 000 stores. And so high five goes to them. Thank you for calling that out. Oh, absolutely. And I think what, for our listeners, what’s interesting is you have a very unique business model. So Ace Hardware is run as a cooperative, meaning that the business owners are also the shareholders.

So you, you have suppliers, you have business owners, and of course you have the consumer. So it’s a very kind of complex business model. And the company actually started as a family owned business and it morphed into this huge cooperative powerhouse that it is today. So can you tell us a little bit  about this journey?

And of course, I have to mention you’re celebrating 100 years this year, of course.  Yeah, thank you for that. Well, Shelley, you, you may never meet a company that has more profoundly stuck to their roots and stuck to their knitting than Ace. Uh, like you said, 100 years ago, we were founded by four hardware store owners, and to this day, it remains solely owned by hardware store owners.

There’s just a heck of a lot more of them now. Um, so we operate this company and we report out like a publicly traded company, uh, But the fact is, the only shareholders of ACE are these local, small, mostly family-run businesses who own the ACE stores and are the only shareholders of the company. So it’s, you know, it’s a franchise, like a franchise, with one significant exception, and that is the franchisees own the franchise door.

It’s unique, but it creates terrific alignment, and it allows us to grow globally by acting and thinking locally, which is, again, our roots. Thanks.  I think it’s really interesting because I, in the retail landscape today, now all these retailers are going the route of having more strategic partners, uh, involved in the business or marketplace models.

So is there any advice that you can give to the retailers today in optimizing this multifaceted relationship?  Well, you know, I’m not sure I’m qualified to dole out advice to anyone, but I can tell you this. Um, I believe the first order of business for any business. Uh, especially including ACE is determined  with real precision and crystal clarity what the consumer proposition is,  you got to decide how you’re going to be relevant to the consumer  in ways that are different and better, like uniquely better than all the other offerings in the marketplace, which are significant.

Um, All the other retail buzzwords and partnerships, honestly, it’s a bit like chasing after the wind, unless you can honestly offer a uniquely better relevant point of differentiation nowadays, uh, the way we articulated here is there’s three battles that we’ve got to wage to win this battle for relevance in the retail world.

Um, and for us, it’s service, convenience, and quality internally. We say we want to have an irrational. an irrational pursuit of amazing service. When you walk into an A store, we want that experience to be so great. Not only does it make shopping on Amazon look shallow, hollow and pathetic, but it makes your jaw drop.

Like that’s what we’re aspiring to do. We don’t always hit it, but that’s what we’re aspiring to do. It’s our point of differentiation. And then convenience,  you know, um, almost 75%. Of the United States lives within 15 minutes of an a store.  Like that competitive advantage, not only about them coming to us, but us going out to them.

And then third is quality. And the way we talk about it here is we have a fanatical devotion. It’s fanatical to high quality, locally relevant, differentiated merchandise, because the truth of the matter is this in today’s very competitive retail world. You either differentiate.  Or you die.  It’s so true.

And what I love about what you just said is the localization. So it is the store owner that knows their customer better than anybody. And Shelley, what’s amazing. It’s very, very hard operationally to execute this, but to your point, um,  we have, About 5,  040 stores in the United States, and then another eight or 900 internationally, not one of those stores has the exact same assortment of merchandise as any other store.

Now, every consultant in the world will look at that and say, that’s crazy. We’ve heard all from them and we dismiss their PowerPoints. We, we leverage that because those local owners. Understand their local community better than we will ever corporately. And so they have a tremendous amount of autonomy to localize the mix.

And while difficult, we think it is a point of differentiation.  So, John, you just had your huge ACE hardware convention in Chicago and you unveiled your new store called Elevate ACE. So, can you tell me a little bit about the inspiration behind the new store and also what were the goals when you were developing the store concept?

Yeah, you know, our 100th anniversary seemed like a great milestone, like a perfect opportunity to both Honor the past, which we wanted to do to, you know, acknowledge and honor the hardworking men and women who came before us that, that built this place, uh, which now actually has 5, 965 stores. Wow. Oh my gosh.

But we thought it was a great time, not only to honor that, but also to ignite the future. So, in order to keep that ace flame burning brilliantly, say, for the next hundred years, we thought it was a great time to launch this new store concept, which, as you pointed out, is called Elevate Ace. And we think of that as an initiative to increase or further increase our relevance.

In the neighborhoods and for the shopping experience for those neighbors, which is what we call our customers. We call them neighbors. Uh, so it’s not just a new store format. It’s, it’s an ambition of ours, which we’ve held for some time to try to become famous for four things. Let me put that in context for you.

The typical Ace Hardware store has about 23, 000 different products or 260 categories. We’re trying to become famous for four of them.  Paint  power, backyards and barbecue and home preservation.  Um, our big box competitors tend to be a lot about home renovation. Like if you want to spend 60 grand on new granite countertops and cabinets, you’ll probably end up at a big box, but we’re about preserving the asset you already have home preservation.

So we always say we love helping our neighbors repair, replace, preserve, protect, and to fortify and beautify the largest asset. Most of the world has, which is their home. So our new store model, uh, called elevate ACE, um, really cranks up our exclusivity and an immersive brand shop experience that creates an experience in an ACE store that not just makes, you know, shopping on Amazon looks shallow, hollow, and pathetic, but actually.

Is exciting and enjoyable in an exclusive and an experiential way for, for our neighbors. So we’re putting our money where our mouth is on this one, Shelley. We’re going to probably invest over a billion dollars in the next five years, um, to open those new stores with the elevators format and remodel existing stores and elevates going to be at the heart of that investment.

So we’re excited about what this could do for us. The early results have been very strong.  I’m so excited. I can actually give you an illustrative example of this. So when I was touring the new store, one of the most exciting things for me is how you’re branding your, uh, merchandise for your consumers.

They’re shopping. So, for example, if you, if you own a DeWalt drill and you need to get a bit, you know, back in the day, you’d have to go to the drill. department to get the bits in the bit part. Uh, but now you have all the Walt together in one space. So me as a consumer, I can get the drill. I can get the bid.

I can add all kinds of fun things on there. I even saw like a stereo, a little portable stereo that Dewalt makes. So I think that for me is an amazing shopping experience. Exactly. You’re the perfect customer, Shelley. You should get all of those things. But yeah, that’s the experiential part for these brand shops, which really allows the individual brands to almost have a store within a store.

And it’s a great thing for the shopping experience. But I said experiential and exclusive. You’re also calling out the degree of exclusivity that I think is really good for our local owners. So you’re talking about our power department. In our power department, we have brand shops for steel, Ego, Milwaukee, Craftsman, Black and Decker.

And when you think about those five power brands, we are the only retailer in the world that has access to all five of those brands under one roof. So the experiential coupled with the exclusivity, I think is great for the consumer and it’s great for our local operators.  That’s great.  Perfect. I will add that in.

And we fixed DeWitt. Oh no, you’re never, you’re done.

Yeah. Shelley, so you’re the perfect customer. You should buy all three of those things. I love it. But what you’re talking about with these brand shops is, is yes, definitely the experiential part of it. And that is great for consumers. We were allowing these brands to have  the store within a store brand shop, and it’s a wonderful experience for the consumer.

But I said, it’s both experiential And exclusive. And when you talk about power, you’re calling out something incredibly important for us and our neighbors. We have these brand shops, this house of brands with brands like steel, ego, Milwaukee craftsman, DeWalt.  And when I rattle off those five brands, ACE is the only retailer in the world that has access to all five of those power brands under one roof.

So it is both great for the consumer, a wonderful experience and. It gives our operators a degree of exclusivity that makes it very good for them as well. But, um, the other thing is, so to get to this point, like how are, how, what informs your business decision? You have all these partners in the business.

How are you making decisions?  Well, it all comes through the lens of what I call the passion of this company. So it starts with that. What is the passion of this company? The passion of ACE is an ever-improving store model. So our neighbors have a great experience. And you say, well, what’s a store model? We think of it in three ways.

It’s unit level economics. The store level economics is paramount. We, we can’t serve our neighbors unless those economics in that individual store are sufficient. Second, we got to have unit level operations that are smooth, that are elegant, that we reduce. You know, um, friction and creates an environment of productivity for the store.

And then the third part of the model is the consumer proposition expressed locally, which, as you pointed out, is very big for us. So that’s sort of the framework. And then beneath that, I listen, I know macroeconomics geopolitics right now, national elections tend to dominate all the news media, but I can tell you, we have never  Like not even one time ever made a meaningful business decision-based on these news headlines.

You know, we refuse to be whipsawed by events outside of our control or quick bait. So we’re going to continue our consistent,  determined, relentless march up our differentiated mountain, which I told you is baked in those three imperatives, service, convenience, and quality.  But to your question, with respect to how we formulate decisions,  We try very hard to be fact-based and data-driven.

I like to say we want to be like the back half of the movie money ball, not the early part where they all sit around and pontificate their own feelings and ideas, not rooted in any facts. So we try to weed that out.  And I would tell you, it probably four things are, are the most, um, significant in, in terms of forming our decisions.

You know, where do we go from here? The first is consumer insight.  The consumer isn’t always right, but what they think does matter a great deal.  But maybe even more than that, more than what they think or what they say, what matters most is what they do.  And that’s the second thing we look at, which is a huge imperative at ACE that we’ve had for many, many years called our ACE Rewards Program.

It not only offers benefit to the consumer, a loyalty program where when they buy more, they get more.  It gives us a treasure trove of data upon which good decisions could be made. And I’ll put that in scale context for you. The U. S. has about 85 million single family homes.  54 million of those are on our ACE Rewards program, which again brings them a lot of benefit, our neighbors, but also gives us everything they buy and don’t buy so we can talk to them in more relevant, productive ways.

Uh, the 3rd thing we look at, which you did touch on, too, with with our local stores having a lot of autonomy, well, we study what they do. So we have point of sale data from all of our stores, and we can see what they’re carrying, what they’re not carrying so that we can learn what’s working.  Replicate it, scale it, and then disperse it out to the rest of the retailer base that is, uh, for which it’s relevant.

We get 6, 000 tests going on at retail every day, and that gives most executives like a rash. But we love it because those local owners make a lot of great decisions. And when we find it,  we get, you know, not developed here syndrome is, is not alive and well here. So we take with. You know, those good ideas from local stores and we replicate them in other markets where it makes sense.

And then lastly, because these local owners have a lot of autonomy, we listen to them.  Uh, we’ve about 2, 100 owners that own 6, 000 stores and they’re on the front line fulfilling our brand promise. And so listening to them helps inform our decisions going forward as well.  Well, that’s, that’s amazing. And, uh, it’s interesting also because if we take a step back and we look at like home improvement industry, so outside of HACE, but the global context, especially in the market, the whole home improvement category has been drastically changing since 2019, uh, for obvious reasons. It was up 11 percent in 2020. It was up 14 percent in 2021. The business grew literally 26 percent since 2019, but in the last two years, we’ve kind of seen a slowdown and a lot of analysts have talked about, you know, when you look at the numbers, home improvement is still where, well ahead of where it was in 2019.

So I just want to know, there seems to be a lot of growth that’s coming from Ace Hardware branded stores, and which seems to be going against the trend there. Any insights there that you can share?  Yeah, you know, we’re fortunate. Our business, Shelley, is up 50 percent versus 2019.  It’s crazy. It’s amazing, and I’m so proud of our team, even corporately here, to be able to have kept up with that kind of demand.

It was, believe me, it was a high class problem, but it was challenging.  Most people assumed that a good chunk of that would be lost, and as you pointed out, many players have lost a lot of value.  I’m happy to report we haven’t.  However, it’s created a new law waterline. And so, you know, rather than rest, rest on our laurels or hurt ourselves, pen each other on the back, we need to create a new growth story to create the next growth chance above and beyond this new waterline, which is significant.

I mean, that’s a huge amount of growth in a short period of time,  but regarding interest in ACE,  probably the best way I can quantify this for you. In the last six years, uh, we’ve opened 1, 060 stores.  85 percent of those have come from existing ACE owners or from other brands that converted their hardware store to ACE.

And I mentioned that because when 85 percent of your new store growth comes from folks who already are in the business, I think it speaks volumes to the health and the efficacy of the model and the economics thereof. So that’s a real encouraging sign to us. That’s a great sign. Wow. Very impressive. So what what are you seeing in terms of consumer behavior changes?

And how are you adapting to those changes? Do you think they’re coming more quickly today than they have in the past? I do. And in our industry, Shelley, likely the biggest consumer shift.  Is a bit of a slow but steady shift  from DIY to DIFM. Uh, that is to say people are moving from do it yourself to do it for me.

Uh, a larger percent of Americans are paying a pro to do work in their homes rather than doing the work themselves, particularly when you get into categories like plumbing, electrical, heating, cooling. Um, and so in response to that, uh, we’ve made several acquisitions and now have launched. Ace home services.

And the tagline there is bringing helpful to your home.  We  really are strongly focused on right now, at least six service verticals. So painting handyman, plumbing, heating, cooling, and electric it’s, it’s a new and it’s an emerging business for us, but thus far the consumer response has really been great.

When, when consumers. Get wind of the fact or when they understand that, wait, those helpful people in those stores will come to my home to help me do it myself with me. Wow. I’ll go from a D.I wire to also a D. I. F. M. But I can still have this brand ace that I trust. Um, the response has really been great.

The brand ace.  Primarily because of 100 years of our local owners genuinely serving their, I think, their neighbors. Has earned the right to get in the home.  So our mission, because of this has expanded slightly to the degree we want a stores and a services to be to home preservation, what say Best Buy and Geek Squad are to home electronics.

So that mission shift has expanded a bit, but we’re very encouraged that a stores and a services can own home preservation for a lot of America. Small today, but we’re investing a great deal to expand that.  That’s exciting growth. That’s, that’s really exciting.  So thank you so much, John, for being here.

It’s always a pleasure to chat with you. I get so energized every time I spend time with you. Um, is there anything else that you want to add before we say goodbye to our listeners?  No, I’d merely say thank you, Shelley. Um, and I guess I would say  it’s such a privilege for me to work here. Uh, this place,  it just filled with smart, hard work, working, humble people who are legitimately driven by our purpose, which is what we are.

We exist to serve others.  Um, that is the core of what we do, irrespective of what we may sell in our store, what services we may provide. And I think that’s not just a good business model, but it’s probably the path to a fulfilling life. So it’s a privilege to work here.  I love that. And thank you so much for being here today.

Our pleasure. Thank you, Shelley. Appreciate it very much. And next week on Retail Unwrapped, we’re going to have Edward’s companies come on to the podcast and we’re going to do one, we’re going to congratulate them. They just won a big award in Columbus, Ohio for work that they’ve been doing, uh, on the real estate fund.

We’re going to talk a little bit about how mixed use space is really becoming super important. And we’re going to talk about how those mixed use spaces come together with community and the city and how all that works. So. Don’t miss Retail Unwrapped next week.

Thank you for listening to Retail Unwrapped. We’ll be back in one week with another podcast. Please subscribe on Apple Podcasts, Spotify, or any podcast service. If you have questions, ideas for a podcast or anything else, please contact us via the robin reports.com.