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Signs of the times

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One of Do it Best’s success stories is Sullivan Hardware...
Bob Taylor, CEO of Do it Best ...

Bob Taylor could be described as an optimist, a guy who looks at the ongoing housing crisis and the troubled economy and still sees a glass that’s half full.

“There are no doubt significant challenges out there today. Some markets and members have been more impacted than others,” said Taylor, CEO of Do it Best. “That being said, collectively, we have tried to look past the obstacles to identify the opportunities—opportunities that will help our members grow in the months ahead.”

Taylor points to the fact that Do it Best’s fiscal year, which began in July, is “off to a positive start,” with increases out of distribution each of the first three months—a good indicator that members continue to gain market share. Yet the first three quarters of 2008 have taken their toll on the home improvement industry, including this $2.8-billion company and its 4,100 members. Rising costs on the hardlines side of the business and the affect of the fuel crisis have left Taylor offering words of encouragement to members as the corporate team in Fort Wayne, Ind., works to maintain pricing and to keep the co-op strong and profitable. Still, the questions and concerns continue.

To mitigate some of the affect of inflation on pricing, Do it Best has been diligent in negotiations with vendors. And regarding those unprecedented fuel prices, which have made acquisition and delivery expenses a much bigger portion of the company’s total procurement costs: It’s more important than ever that these costs are accounted for and recouped at retail.

“We use a landed cost model in selling to our members. It’s certainly more challenging for us but it makes it much easier for our members to protect their margins and their bottom line,” Taylor said. “We have no separate freight charge or fuel surcharges at the bottom of the invoice that can erode margins. And, our low cost of operations also minimizes the impact.”

Do it Best continues to maintain the delicate balance between national brands and private label alternatives, using its corporate branding committee to review all private label decisions in an effort to maintain consistency across product categories. The co-op is also stressing project selling in areas like paint, lawn and garden, plumbing and home decor, offering flexibility and customization within the advertising components so members can craft the right message for their individual markets.

In addition, Taylor is encouraging retailers to pursue opportunities in niche categories like leisure, pet supplies and green products. (See enviroLINK story, page 18.) “We’ll work with our members to better develop those opportunities, while at the same time continuing to push our operational efficiencies with efforts like our recent voice pick installation in distribution,” he said.

Patti Christie, who, along with brother, John, helps run Hood’s Do it Center in Wyandotte, Mich., just south of Detroit, said her store’s extensive Yankee Candle and gift business has helped bring in extra sales at a very difficult time. But she says it’s the basic items that remain most important, as customers don’t have a lot to spend on luxuries. “People are buying the necessities, so it’s important to be well-stocked in these items and have things here when someone comes in and has the cash to spend,” she said.

R.J. McDaniel, a manager at B&B Hardware in Milan, Ill., said his store’s niche Frisbee category brought in some much-needed extra business over the summer. But he agreed that it’s the small projects that have kept the hardware store above water. “It’s the guy working on the kitchen or bathroom, or finishing the garage—not major things, but the small DIY project that has kept things going,” he said.

And while many members have suffered this year, there are also many success stories to tell. There’s Todd Kirschner of Trio Hardware in Plainview, N.Y., one of the National Retail Hardware Association’s Young Retailers of the Year; Pat Sullivan of Sullivan Hardware & Garden in Indianapolis, who has used the Signature Store Design program to accent his lawn and garden strengths and more closely connect to his community (See related story, page 16); Barry Joseph of Joseph’s Do it Best in Cohasset, Mass., who is in the process of expanding from a base of five stores to 10 or 15 locations around the South Shore of Massachusetts; and the Taylor family’s own stable of Do it Centers, which have been expanded this year to include the Express format.

“I could look at my family’s business and brag on my brothers back in Virginia a bit,” Taylor said. “They certainly are identified as the ‘local guy,’ and they’ve been going up against some of the toughest competition anywhere for many years and doing quite well.”

STAYING AHEAD OF THE GAME

Bob Taylor pointed to a number of key initiatives aimed at allowing the co-op to keep pace in a slowing economy, while still driving strong profitability and rebates for members:

The World Class Catalog project, which looks to keep Do it Best’s online offering at the leading edge.

Expanded use of Web services in many areas.

Use of Iterative Development Methodology, including use of wiki’s, during project development.

Use of Google mapping for business and sales applications for members.

Development of core server infrastructure to utilize virtualization technology.

Research and planning of demonstrations of simulation software that should allow business users to “test drive” and more fully experience applications before they are built.

Acouple of planned projects focused on enhancements to EDI transmissions that will provide better communication with suppliers and improve supply chain efficiency by alerting them of business application errors electronically.

Continued investment in upgrades to both the B2B and B2C Web sites.

Looking ahead to the rest of this year and into 2009, Taylor believes the biggest challenge facing the co-op is the continued weakness in the housing market and the associated credit crunch. And he believes it will most likely extend well into 2010 before anyone begins to see a sustained recovery.

“The booming housing market of the past and the associated home equity availability provided a long, sustained period of growth. The fall off has been significant,” Taylor said. “For our members, and for all independents in our industry, managing cash flow effectively has never been more important. Those that do it well will come out of this stronger and better positioned to grow in the future.”

FIVE QUESTIONS WITH BOB TAYLOR

Home Channel News: Do it Best continues to stress the importance of global sourcing and private brand initiatives. Where do national brands fit in the mix?

Bob Taylor: Our strategy includes a balance of national brands and private label product. We certainly support and promote strong national brands and will continue to do so. There are many categories, however, where there is no recognized national brand. A strong private label offering helps us pull these categories together, and allows consumers the opportunity to save money on quality products while providing our members with excellent margin opportunities.

HCN: Almost 80 percent of Do it Best stores are within 10 miles of a big box store—57 percent within 10 miles of three or more big boxes, according to Do it Best’s numbers. What is the single most important program the co-op has to help members compete in this environment?

Taylor: We have a lot of great retail programs at Do it Best Corp. All are offered in a menu-driven format that allows members to pick and choose only the ones that work the best for them in their local market. That being said, our most important tool in helping our members compete effectively against the big boxes comes back to getting them the products they need each week at the best possible prices, and delivering them on time with a fill rate in excess of 97 percent. Having what the customer needs, when they need it and at the right price is the best offense against the big boxes.

HCN: Last year, you said you expected to see some attrition in the ranks. Has this happened, and to what extent?

Taylor: While we signed on more than 135 new members this past year, we do continue to see some attrition. For the most part, that has been among our smallest members. This past year, however, we did see the impacts of the housing crisis catch up with a few larger relationships on the lumber and building materials side of the business. It’s unfortunate. The good news out of this is that stronger members are looking at this as an opportune time to consider strategic acquisitions, grow market share and position their companies to benefit as the market improves.

HCN: Is Do it Best trying to recruit investors to open new hardware stores? People from other industries who are retired or looking for new career opportunities? Young people out of college or business school?

Taylor: We have an active and engaged sales team and store development staff. They are continuously involved in prospecting efforts all across the country. Our focus is on both helping our existing members grow and expand their operations, as well as attracting new members to Do it Best Corp. The support we offer in terms of market research and site analysis, our Signature Store Design program, assortment planning and merchandising assistance, and financial incentives are a prescription for retail success. Our rock-solid financial foundation, free of any long-term debt, provides both new and existing members a strong, stable partner in their growth.

HCN: Has Do it Best identified areas of the country that are “understored,” and if so, can you share them with us? Are you targeting these areas in any way?

Taylor: We certainly have areas of the country where we would like to see the Do it Best presence grow, and, yes, we do actively target those areas. Whether that’s helping our existing members expand into those markets, sharing the Do it Best story with the very best existing retailers there, or attracting new prospective retailers, we look to grow our opportunities and membership. We don’t publish a list, but every region has their objectives.