Like a growing number of independent dealers, Ron Tremel joined a home appliance cooperative and a lumber buying group to take advantage of better pricing and more reliable distribution than he'd be able to negotiate by himself for Seymour Lumber, his single-location, $10 million operation in Seymour, Wis. And while he's realized those benefits, Tremel also discovered and leveraged other services from his memberships in those groups, including shared-cost advertising programs and industry networking opportunities, that have helped make Seymour Lumber even more competitive in its market. “I figure I save 10 percent versus buying direct from manufacturers,” he says of his membership in Best Brands Plus (BBP), a Germantown, Tenn.–based cooperative source for home appliances, furniture, and electronics. “But the opportunity [at BBP's semi-annual national buying shows] to discuss issues, solutions, and ideas with other dealers who have the same problems really opens your eyes.”
Some of these co-ops that have historically focused on DIY home improvement retailers, such as Ace Hardware, Do it Best, and True Value (formerly TruServ), have recently turned more of their attention to pro dealers to help combat big-box proliferation across the country. “The pro dealer is a huge industry and opportunity for us,” says John Venhuizen, director of business development for Ace Hardware in Skokie, Ill., especially those with a small-volume customer base threatened by big boxes and large-chain LBM outlets entering their markets. “They are looking to mix better [between contractor and retail accounts] and not wanting to fight Home Depot on price by themselves.”
Whatever the pinch points for a pro dealer, whether it's competition, industry consolidation, or rising prices, cooperatives and buying groups appear to offer an attractive outlet without necessarily threatening a dealer's core competence and brand equity. “Members use co-ops in different ways,” says Tom Cyr, vice president of the corporate banking group at the National Cooperative Bank (NCB), a Washington, D.C.–based financial services provider to 1,800 member co-ops nationwide. “It's not just getting hammers cheaper and on time, but a lot of value beyond that.”
Growth Strategies Of the estimated 40,000 cooperatives operating in the U.S., those formed to serve the lumber and hardware sector represent a small fraction; only six ranked within the latest NCB Top 100 by revenue, including sector leader Ace Hardware, the seventh-largest co-operative in the country, with more than $3.2 billion in revenue, and True Value, which ranked No. 15 on the list with about $2 billion in revenue. Combined, the six co-ops represented less than 8 percent of the estimated $131 billion in revenues generated by all of those on the NCB's annual list.
But despite a tiny market share compared with other coop sectors (agriculture boasts 42 of NCB's top 100 co-ops and a 48 percent revenue share, for instance), those serving the building material realm are on the rise. Ft. Wayne, Ind.–based co-op Do it Best Corp., which ranked No. 9 in the 2004 NCB Top 100, breached the $3 billion revenue mark last year, a nearly 30 percent jump since 2003.
Smaller groups grew even faster, including ENAP of New Windsor, N.Y., which leapfrogged 13 spots to No. 40 on the 2004 NCB rankings after a 37 percent rise in revenue that year. The remaining two lumber and hardware coops in the Top 100, Progressive Affiliated Lumbermen in Grand Rapids, Mich., and Allied Building Stores in Monroe, La., also saw significant revenue growth in '04 (albeit totaling about one-fourth or less as much as the top three in the segment), placing them at No. 77 and No. 82, respectively, in the latest annual rankings.
Cyr attributes that growth to a variety of factors, including the big box juggernaut that other sectors also face (think independent grocers vs. Wal-Mart), but in large part to market- and member-sensitive growth strategies, especially among the three leading lumber and hardware co-ops, that offer more than competitive pricing. “All three have different strategies, but all of them are adding services to attract new members and help existing ones remain profitable,” he says.
Ace Hardware's plan, for instance, is to grow from within by helping existing members add more locations (which 90 of them did in '05) and solidifying the Ace brand of neighborhood hardware outlets. “It's like Walgreens vs. Wal-Mart,” says Venhuizen. “We compete [with The Home Depot and Lowe's], but it's a different model: pricing and parking lots vs. convenience and people.”
That's a modified strategy from the seven years prior, during which the co-op added 800 stores through conversions of competitive (mostly True Value) locations. “We're kind of a victim of our own success,” says Venhuizen. “There aren't many good stores left to convert, so our strategy had to change.”
Do it Best is on a similar track, with a majority of growth coming from existing member companies that are expanding via acquisition and exploring niche product categories such as flooring, cabinets, and countertops. “Our chain yards, in general, are growing rapidly [through expansion],” says Dave Heine, vice president of retail development. “Single-store operators are exploring niche growth.”
