Channel Report: Hard Times for the Hardware Shopper

With retail sales declining and new-home sales tanking, home centers and hardware stores have been hit hard by the recession. To counter that, they are refining their approach to satisfy the new economic-minded hardware shopper, focusing on products for needed repairs, on energy-efficient products and touting the value of making small investments. They also are organizing and cleaning up departments."The economy has had an effect on our sales, but we're lucky in that our business is closely tied to essential elements of life," says Brad Williams, director of visual merchandising at The Home Depot in Atlanta. "Home-owners need the products we sell, so we've shifted our merchandising focus more toward repair, remodel and maintenance needs rather than larger projects."The market is experiencing an unprecedented decline in volume, notes Ken Clark, editor in chief of Home Channel News in New York. Its rankings of the top 500 chains showed that total sales among that group (which comprises the vast majority of the channel's sales) dropped for the first time since the list was created in 1990. Sales in 2007 were $250.9 billion, declining from $256.3 billion in 2006. In January, Home Depot shut down its Expo business, resulting in around 7,000 layoffs. The company expected that its 2008 sales may be down as much as 8%, according to Lindsay Blakely, an analyst for the BNET business network. (Final sales figures were not available at press time.)Value ShoppingSome categories, such as plumbing, are holding up, Clark notes. "If something breaks down in your house, you have to fix it." Likewise, customers understand that a small investment can pay off later on."Consumers are more economically minded, and that includes the need to save energy and utility bills," says Jason Ringling, director of marketing for Red Devil Inc., Tulsa, OK. "This makes caulk a wise choice, when you consider the return on investment and minimal labor in sealing drafty areas. Our merchandising philosophy is to make the products easy to find, select and purchase."Home Depot has targeted those sales with front-of-the-store displays showcasing all types of energy-saving products, including its own Eco Options brand. The "Save Money, Save Energy" promotion began in October and included signage, display pieces and tearpads featuring 10 key ways to save energy. "We're putting a significant investment in those products, both in the store and beyond, in our media," says Williams. The program was refreshed in January to continue after the holiday season.Dow Chemical Co.'s Great Stuff expanding-foam insulation participates in many of those promotions with retailers. "Sales have held up very well even in the downturn," reports Don Bratton, senior designer for P-O-P and P-O-S, based in Marietta, GA. "The product is a cost-effective problem solver, and energy is such a hot topic now." In some cases, he notes, the company is asked to participate in endcap or checkout-aisle promotions for a fee. "We often find those are well worth paying for."To entice shoppers into the store, Home Depot in October cut the price on 1,200 SKUs storewide between 5% and 50%, creating a "Guaranteed Low Prices, Now Even Lower" message. "As supply and demand economics take effect, we can go back to our vendors and renegotiate lower prices," explains Williams. "We've also lowered our margins on some products. It creates an opportunity to drive value and savings to our customers, which creates traffic and generates interest." The retailer established a dedicated buying team that targeted key products for reductions deemed "essential to us and homeowners as parts of key projects, plus others where we thought we could get a better price," he says. "Customers are more discerning and more interested in value today."The Remodeled IndependentIndependent retailers also are taking new approaches to interest a reduced consumer base. True Value in June announced that it would remodel its member stores to create a more inviting atmosphere to attract female shoppers. Dubbed "Destination True Value," the program "is built upon consumer expectations and meeting those expectations," says Ted Noring, director of retail implementation for the Chicago-based hardware retailer. Key features include shorter gondolas, enhanced hardware departments, color-coded aisle numbering systems, neutral-colored displays, and new layouts for eight core departments. The "landing zone," the area just inside the entrance where shoppers orient themselves, will be designed to display three key focal points: seasonal, color/paint and power tools. High-traffic plumbing and electrical departments are located at the back to pull shoppers through, Noring says. Ace Hardware Corp., Oak Brook, IL, has begun an evaluation of its merchandising strategy to "revamp our in-store communication guidelines," says Mike Knapczyk, store development manager. "Our goal is to create a blueprint for success for our stores, regardless of their footprint, so they can generate the best sales per square foot." The team is going department by department to review existing programs to introduce the strategy in one package in the fall. Ace presents a different challenge than big-box stores, he explains, as its individual store owners buy the fixtures from Ace and are more involved in the store's programs and service. "That's our strength, and we get deservedly high marks for having helpful service. So we want to temper our P-O-P and ensure we're projecting the right image. Too much P-O-P can send the message that there isn't any sales help, and you're on your own. We want to ensure everything is focused on helping the customer make an educated purchase decision."The company is less concerned about being the low-price leader, he notes. "Our research shows customers will pay a little more to receive better service, and that's why they come to our stores. They're not expecting rock-bottom prices, but they do expect a different experience." The Ace customer, he notes, "is on a mission, and they want to get back out. We would like to slow them down so they fill their basket more, but that's our challenge. We need the right signage to suggest related products or make them aware of products that they may consider next time, but we have to be unobtrusive about that."The goal, Knapczyk says, is to "create an entire toolbox that provides a road map of guidelines and standards. We plan to put together a comprehensive program so that corporate, field, retail and vendors all understand the rules." A key part of that program will be ensuring merchandising pieces are as flexible as possible, he adds.Flexibility is a key goal at Home Depot as well, Williams says. For its energy promotion, for instance, the company produced a kit of parts with endcap banners, sign holders, shelf tags and other pieces to be used at the managers' discretion. "Stores have a lot of local control in how they merchandise," he says. "We provide a basic framework on which they put their own spin. We pride ourselves on being entrepreneurial and working from the grassroots in how we merchandise and direct our visual message."Retailer RulesThat message, however, is becoming more uniform, as retailers take more control of their in-store message. "Vendors are anxious to add their own twist in stores, and we try to resist that as much as we can," Williams says. "But we're a broad organization, and it's hard to police across all stores to ensure the message is consistent. We try to direct it more for large campaigns with far-reaching messages. The stores do a good job of interpreting our programs, because we give them good leadership on visual aspects and language."Vendors agree that the resistance to outside programs is growing. "They want more standardized materials and have more strict guidelines," says Desiree Ortman, brand manager for Black & Decker in Towson, MD, who's run into restrictions while overhauling a program for Walmart to drive more power-tool sales. "In Home Depot, we used to have more free reign within limits, but now everything needs approval. More standardization is the trend across the board in the past year, and that puts us at a disadvantage because we can't shout our brand as much."Lowe's, Mooresville, NC, has had strict standardization rules for some time, she adds. That process requires Black & Decker to budget between two to six weeks more when creating a program to allow for approvals and potential changes. "It creates a more level playing field in the store for all brands, and that's not necessarily a bad thing," she says. "But we think we can do a better job of merchandising than our competition, so it hurts us."To offset that uniformity, Black & Decker is putting more emphasis on its packaging, Ortman says. "We still have complete control over that, and it allows us to tell a deeper story." B&D recently completed research that instigated a package redesign now rolling out gradually to stores. Application photos have been added that focus on differentiating each price point through different projects. "We think we're improving our step-up strategy because we're not calling out the same features on different products." The new look integrates more of the company's signature orange color, eliminating some of the subtle color-coding it tried in the past. And packaging will feature trilingual copy, saving the cost of producing separate pieces for Canada. "We have to simplify our message because there is less space," she says. Mark Schlagheck, vice president of retail sales at Azek in Cincinnati, a maker of composite decking and trim, says its products have to convey the benefits of paying more to avoid long-term maintenance issues. Research completed in late 2008 has led to changes in its P-O-P strategy, putting more information on each individual board (which are not packaged) rather than on displays."Customers won't look above 6 feet, 6 inches for information, so we've moved the message onto labels on each board," he explains. Putting lengthier labels onto the boards offers more room to explain the message. The bilingual labels include visuals and details about features and installation. In contractor locations, he notes, labels put the emphasis on installation tips rather than product benefits.Deck products provide a prime example of the difficulties faced in helping customers make an informed product decision. The large pieces and multiple elements -- flooring, railings, balustrades, post caps and other accessories -- create challenges to ensuring consumers have what they need. To alleviate that, Universal Forest Products Inc. (UFPI) in Grand Rapids, MI, instigated a deck-design endcap that combines samples from many manufacturers into one location."The products could be convoluted and spread throughout the store wherever they fit," explains Chris Camfferman, senior marketing manager for merchandising and product marketing. "We're finding that once customers see all the information in one place, the overall ticket price goes up. They see the entire project and customizing options." UFPI also is making more flexible use of its stocking bays, turning one into a special-order display for its DecoRail post caps. The homeowner takes a sample to the desk, and it's delivered to the store or their home within 48 hours. It also is working on a program for Lowe's to be introduced later this year that will use high display space to show samples of each post cap, with the products stocked directly beneath. "We want to take some of the merchandising appeal of faucets and lighting and move that 'design' feel to the lumber department." Cross-Merchandising ThrivesEnsuring the customer has everything needed for a project opens multiple cross-merchandising options which are expanding in stores. "We can't always have the adjacencies we need, so we use a lot of cross-merchandising," says Home Depot's Williams. Local stores have leeway, he adds, owing to local preferences and building-code requirements.Cross-merchandising goes beyond clip strips, he adds. "They're a good management tool, but they can become obtrusive and annoying, so we try to keep them under control." The retailer is a big believer in wing stacks, consisting of 2-foot-by-2-foot pallets that it creates or has vendors supply. It also has increased its oversight of how the pallets should be constructed for height, signage and other elements.Ace also relies on cross-merchandising opportunities, notes Jodie Weinshenker, category manager. "We are always evaluating how our customers shop our stores and how department sales are doing based on our recommendations," she says. "As customers wait to have their paint mixed, they should have every item they need to complete that project right there in the paint valley."Dow's Great Stuff brand is a strong supporter of Home Depot's pallet program because the product has a unique distinction: It has no home in most home-center stores, relying on off-shelf placements. In addition to pallet programs, Dow offers permanent wire racks and temporary sidekicks. That approach has led to an average of six quarter-pallets and two to four wire racks in each big-box store, Bratton says. As more stores have gone to in-house fulfillment programs, the company has pulled back some of its merchandising, he notes. "There is definitely a trend for retailers to take more ownership of their stores and move away from manufacturer programs to encourage more consistency, which takes away a little of the approach we can provide," he says.Williams agrees that Home Depot's ownership will continue. "We want to be good stewards of the presentation, but we don't want to get into the business of taking ownership of shipping displays to our stores. That responsibility remains with the manufacturer."The goal is to make the shopping experience easier and more informative for both the contractor and consumer, who need all the encouragement they can get today. "We will never turn our back on the small and mid-sized contractor, who with serious D-I-Yers are our premier customers," he says. "Those two are who we build our business on, and we need to give them more opportunities for value."

Channel Report: Hard Times for the Hardware Shopper

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