Ace, Amazon Look to Opportunities in DIY Market
The approaches are different, but the goals are the same. Ace Hardware and Amazon.com are looking to grab greater share of the home improvement market.
In Ace’s case, the focus is on opening smaller, "Express" stores in locations that don’t have the space for larger formats. The stores top out at 5,000 square feet and stock more than 11,000 of Ace’s most popular items, according to a Chicago Tribune report.
"Essentially we’re providing the same top-notch brands and exceptional customer service, but just in a smaller space," said Mike Berschauer, director of retail development for Ace Hardware, in a statement.
An article on Forbes.com, suggests that Amazon’s rumored move to same-day delivery service could pose a major challenge to Home Depot, Lowe’s and others in the DIY space.
The author, Laura Heller, posits that Amazon already holds inventory and service advantages. While the DIY chains have instructive tutorials and product information online, the in-store experience, including out-of-stocks and hard to find floor staff, are weaknesses of the major chains. Amazon, on the other hand, also has useful information, but better stock positions, superior customer service and better prices even with sales tax added.
Interestingly, Ms. Heller concludes that Amazon’s gains at the expense of the big boxes could bring back the neighborhood hardware store. Interesting, that that is where Ace appears headed.
Discussion Questions
Discussion Questions: How big a threat does Amazon pose to the major DIY chains? Are we about to see the return of the neighborhood hardware store?
I’ve already bought some tools through Amazon and have been quite happy with the result. The problem with Ace is that the prices are noticeably higher. I also will never forget how a local owner (owns 4 stores I think) raised his prices right before the hurricanes of 2005. Amazon’s prices are close enough, and most of the time for tools, I can wait a day or two.
I see this as a bigger threat to Sears than I do HD or Lowe’s — since I can’t quite envision Amazon carrying a full line of lumber and building supplies.
As for Ace, it just depends how competitive the company can be. I’m not a ‘save a penny’ shopper, so when I notice, it must be a pretty egregious price differential. I’m just as happy to wait a day and get what I need through “Prime.”
It is like this, I do my weekly grocery shopping at a full service supermarket and if I need one or two items, I go to the convenience store. Shopping for a big project around the house when I need lots of stuff I go to the Home Depot or Lowe’s. When I need but one screw or a fly squatter, again for convenience, I go to my local True Value or Ace hardware store.
Amazon may help me with a book on how to do the project, but again I get a lot of that from the DIYs. Will Amazon cut my boards to the length I need for the project? I think not. There is room for both the hardware store and the DIYs and knowing your customer needs and providing that level of service is key to the success of both of them.
I don’t think Amazon poses a big threat to the major DIY chains when consumers are in immediate need of an item. If it’s a planned purchase, then Lowe’s and Home Depot, look out. Amazon will be able to deliver a better customer experience at a great price, without out-of-stocks.
I don’t see how Amazon entering the hardware business would bring back the local hardware store. Neighborhood stores are significantly more expensive, although they do offer better service. When a hardware store purchase is needed, customers will weigh the cost/savings vs. time spent. If the savings is great enough, they may opt for the big box store.
I agree with Paula that large items will continue to be the most convincing reason for the existence of large DIY centers. For me, our neighborhood hardware stores serve a unique function, but unfortunately for them, it’s almost always for low ticket purchases. It’s the “can you help me match this bolt size?” shopping trip, or to ask “what can I spray on our hostas to keep the deer away?” (and then to experience just how bad the stuff smells).
I don’t see Amazon or HD replacing those needs satisfactorily and so I try to support our local guys as much as is reasonable.
The construction industry is a fraction of what it was at the beginning of this century. Construction material sales are low enough to cause a reduction in the number of manufacturers worldwide. One of the skills needed to succeed in the retail end of this is creating and maintaining an inventory that makes sense for the selling radius of each store. This is an acquired knowledge that is expensive to get and maintain. Amazon and Ace will initially align themselves with the vendors that will use this opportunity to relocate stagnant inventory. There is opportunity here, but beware the trips and traps.
I am hoping Amazon’s threat will help improve DIY chains. Maybe the out-of-stocks and the lack of customer support will be addressed and corrected, thanks to the threat by Amazon as well as Ace Hardware. When shopping for materials for DIY projects, I prefer to see and touch what I am purchasing in person. I also like the ability to shop around and compare my options from other chains, such as Lowe’s. There is a convenience factor involved with Amazon, but I still believe in the personal touch and attention of the brick and mortar establishments.
Depends on the project (complex/simple), the motivation (urgent/casual), the category assortment needs (narrow/wide), the audience (expert/beginner), and how my wife feels (annoyed/distracted).
The Amazon query has really been done to death. It’s the same answer for every possible category they will enter: it’s a money thing more than anything. I believe anyone with the financial resources to match Amazon’s, plus the willingness to use it, to build all the infrastructure pieces, use data effectively, and install a bold, creative management team, can compete with them. There’s just way too much Kool-Aid being swilled regarding their magic.
The larger of the two local Ace stores by me closed about a year ago and rightly so. Their prices were higher than Home Depot’s, selection smaller, staff equally unimpressive, dated store layout/design, etc. Take away the corporate hype and I don’t see anything particularly attractive to customers no matter what their footprint.
Let’s be really clear about this; Amazon is a threat to everyone – regardless of what they sell. If I can buy a LearJet on eBay (which I can right here), I can certainly buy tools, lumber and lots of other stuff from Amazon. With more of the pie being eaten online, the slice that’s left for Ace could very well beg a concept that looks a lot like the local hardware store of yesteryear.
As for same-day shipping — some analysts will undoubtedly pooh-pooh it but in my opinion, same-day shipping is going to be a big nail in a lot of coffins. The psychological difference between waiting a couple of days for something or having it today is absolutely enormous.
Looks like part of Amazon.com’s bigger strategy of creating “showroom partners” working with small-format businesses.
This arrangement may help small-format businesses compete with big boxes by having virtual endless inventory and availability, and help Amazon.com expand their reach as a supply chain partner.
Amazon definitely poses a threat to DIY chains. The DIY market is defined by home improvement projects. These projects have specific lists of both items and tools required to accomplish them. A customer could easily shop extensively for all of these items online and virtually collect all the required pieces and parts and have them delivered to the customer’s doorstep. There is so much wasted time and energy making return trips to a store because the store didn’t have the right item, you forgot something or realized you needed additional stuff!
Amazon would do well to create accurate and complete ‘things you need’ lists for the top 100 DIY projects, accurate instructions and videos. This along with their same-day delivery could be an incredible punch for the DIY retailers. This is something the DIY retailers should have been doing 3 years ago!
What about a more radical proposition, like Ace actually teaming up with Amazon? Not likely, but when you look at the value and how consumers are shopping, there may be a case for “using the right tool for the job” — in this case, small local stores by Ace for convenience and limited supply, and Amazon and their distribution and supply chain strengths for bigger, planned purchases that can be delivered to the customer or picked up at a distribution center or store.
I’m a bit shocked that RW commenters cite how Ace is “noticeably higher,” like that is a ripoff or something. Smaller retailers don’t have the financial support of Wall Street, don’t get the lower prices to begin with from the manufacturers, and frequently are trying to live off the replacement screw for a 1932 toilet because they have to charge more for power tools and are losing to the big boxes.
Wanting more customer service would mean higher markups to support that.
Amazon is the black hole sucking many segments of retail and wholesale into their grasp forcing downward pressure on everyone. Wait till they perfect grocery delivery! Amazon is a big threat to all.
Amazon has already hurt big-box hardware. They are experiencing declining sales and eroding margins due to a number of factors. Most of the big stuff customers want to buy from big-box hardware is not in the stores anymore, anyhow. They do not carry “job lot” quantities on most items because inventories have been slashed and the help is non-existent, that fact is driving sales out of the store faster than Amazon can “steal” it.
The model they operate under requires growth. New stores, new markets, etc. Lowe’s and Home depot cannot thrive in a slow-growth economy. They can merely survive. A soon as someone with a better plan comes along, customers flock to it. Amazon is following the golden rule of business; find a need and fill it.
Amazon is definitely a threat.
As for the Ace idea, I think it has a lot of merit given what is happening with other retail sectors and consumer needs.
I’m not sure the idea of putting the most popular items from bigger stores into smaller ones is where I’d start though. I’m sure some of these will be relevant, but a simple filter of this by trip mission (ideally with a link to household/geography) would help get a more refined set of products to start the “test and learn” with.
I also agree with Bob that they then need to experiment on the pricing side as this convenience can legitimately demand a premium. Again slicing the price/sales data by mission and customer will help understand elasticities much better than just looking at the broader picture.
Amazon is well positioned to skim off profitable sales of power tools, hand tools, fixtures, appliances, air conditioners, mowers, tractors, gas grills and the like.
It is less well positioned to take away sales of commodity and material items like lumber, roofing, flooring, brick, paint, adhesives, fencing, plumbing parts, fasteners, garden supplies, or similar. Home Depot and Lowe’s still win on these items.
Small hardware stores excel and win on small items and small projects — like fasteners, picture hangars, small plumbing repairs, bits, blades, bulbs and air filters.
The defining metric for each of these channel options, in my opinion, is speed-to-success.
Adrian W. makes a very valid point here that deserves amplification: There is a huge opportunity for DIY chains to offer interactive project planner tools that can enable the homeowner to commence a project with all the required elements in hand, including how-to guidance. These should be accessible in the store on associate’s tablets as well as on the shopper’s home computer or smart device.
It will be a long time, I’d wager, before Amazon can deliver anything like this.
I agree with Ken: Amazon has about $50B in sales — (vaguely) similar in size to Macy’s or Sears or several other companies — total retail in the U.S. is about $4T. In other words, it has about 1% of this; now obviously they have a higher share in fields they specialize in (e.g. books), and their sales are growing faster than the overall market, but I would still like to see something more thoughtful than the robo-remark that they’re a “threat” (to everyone, it seems).
A&P did it 100 years ago, Walmart did it 40 years ago, and Amazon is doing it now. Both A&P and Walmart were/are logistics companies, satisfied to leave the actual selling to the shoppers — aka, SELF-service. Amazon is a SALES company, that has mastered logistics with aplomb. Amazon will own the retail world of the future just has Walmart has owned it most recently. But Amazon will not do this without a winning mobile play. I can’t believe it is not coming. 😉
The rest of this is all just rearranging the deck chairs — although the “Titanic” of retailing is NOT going to sink.
I am not sure I see Amazon as a threat as much as I see them a convenience for those times when we need it now or soon. There are those times when we enjoy browsing, touching and testing before buying. That is where the neighborhood merchant becomes significant.
I do not see Amazon as a big threat to the Home Depot and Lowe’s store models. Those shopping there want it now — not the same day … now. They go, they purchase, they return home and use what they bought. Amazon’s speed of delivery can’t beat that.
It seems to me that the Amazon threat is far over-stated in almost every area — including home improvement.
What Amazon can’t provide is the shopping experience. Yes, they’ll already own a share of power tool purchases from people who will buy sight unseen.
But next day delivery doesn’t help choose, for example, a fixture where the consumer needs to see it to be satisfied it’s the right thing. Instead, next day deliver just speeds up Amazon’s return problem.
That being said, it is critical that home improvement integrate online and store for consumers and get rid of the Internet silo. Once they do, they are positioned not only to survive, but to thrive while Amazon begins to struggle.
Interesting thought to consider is whether Amazon will still be influential in 10 years — after retailers like Macy’s and others choose to leap the hurdle to integrate online and store experiences.