Menards' Takes Unusual Approach to Build Business

By George Anderson

Everyone knows the housing market is slow. Both Home Depot and Lowe's have offered it as the primary factor behind scaled-back forecasts for future quarters and adjustments to new store plans.

While many in the home improvement sector wait for some sign that the market is picking up, Menards seems intent on creating opportunities around its stores.

According to a piece on the Milwaukee Journal Sentinel website, Menards has in a few cases purchased land around new stores to develop residential subdivisions. The chain has developed residential areas in Warsaw, Ind. and Urbana, Ill. It has plans for another development near a store in Oak Creek, Wis.

Jamie Radabaugh, director of sales and leasing for the company's property division, told the Journal Sentinel, "We are actively looking for new residential projects around our new and existing stores."

By acquiring land for development around its stores, Menards is creating for itself a built-in customer base. It attracts local homebuilders and construction professionals looking to get in on the action and, once homes are complete, there are plenty of consumers for the chain's stores. Menards currently operates roughly 240 stores in 11 states.

Scott Wright, a spokesperson for the North American Retail Hardware Association, believes Menards may be the only business in the DIY sector involved in developing housing projects.

"I certainly haven't heard of anyone doing anything like that," he said. "Especially in this economic climate."

In Yorkville, Ill., Menards bought land for its new store and additional acreage to put up 164 single-family homes and 68 townhouse-style condominiums.

The chain put in utilities and other aspects of the infrastructure and sold 129 single-family lots to a local homebuilder, AMG Homes. As part of the deal, AMG agreed to buy virtually all of the materials it required from Menards.

Chad Gunderson, co-owner and chief executive officer of AMG, said, "We look at the contract as mutually beneficial."

Menards' Mr. Radabaugh said, "It only makes sense to tie our company's main business with the residential development projects."

Discussion Questions: What do you think of Menards' practice of creating residential subdivisions around new store openings? The Milwaukee Journal Sentinel piece suggests that Menards can do this because it is privately run while Home Depot and Lowe's cannot because they are publicly traded. Do you agree with this and does, at least in this case, being privately operated provide Menards with a competitive edge?

• Menards breaks new ground - Milwaukee Journal Sentinel