Most people don’t want to talk about it. Since Home Depot teamed up with Emerson ProfessionalTools late last year to launch a new line of power tools, wholesalers and manufacturers have gotten tight lipped about how they see the power tool market changing.
Without a doubt, however, this introduction of more than 30 pro-grade Ridgid power tools has shaken up the category, and analysts are suggesting that Home Depot’s move will accelerate brand consolidation.
But is this good news or bad news for your store?
While no one knows for sure what the impact may be, industry executives suggest there are two probable impacts. Few insiders, however, are even willing to share which of the two foreseeable scenarios they think is most likely.
The first theory is accelerated brand consolidation will lead to power tool price wars that will make it even more difficult for independents to compete. The other hypothesis is manufacturers with strong national names looking to find shelf space will start courting the independent hardware store, home center and lumberyard.
Paul McNally, merchandise manager at Distribution America, was one industry executive willing to discuss his opinions on the record. And his advice is for independent retailers to make a commitment to the department now.
McNally, who thinks there is a chance for “theory two” to prevail, notes there is little downside in the long run if “theory one” wins out and competition heats up even more. The benefits of getting into the power tool business now far outweigh the risks.
McNally thinks manufacturers will look to independent retailers because he says there is no way Ridgid is going to expand the market, and Home Depot will focus on selling its captured labels over other national brands. More than 80 percent of the power tools advertised in a recent Home Depot flier were either Ridgid or Ryobi, the retailer’s house brand that is targeted to do-it-yourselfers.
The only other brands in the circular were Skil, Black & Decker, DeWalt and Porter Cable. A recent Lowe’s ad promoted nine different national brands.
McNally says he already sees certain power tool manufacturers looking for ways to strengthen the two-step market. As an example, he points to a new “Project Center” introduced by Delta/Porter Cable. The vendor worked with McNally to develop a program to help retailers with limited floor space and inventory dollars target the growing woodworking market.
Doug Bieberich, power tool and accessories product manager at Do it Best, is also encouraging retailers to increase their commitment to the department. “Manufacturers are trying to take costs out of distribution,” Bieberich says.
Recently, Do it Best has been able to restructure its program with Black & Decker. As a result, retailers can compete much more effectively with Black & Decker and DeWalt tools. “Retailers have misconceptions that the only way to cost-effectively buy tools is directly from the manufacturer,” Bieberich says. That strategy forces retailers to place larger orders and carry more inventory than might make sense.
“We are challenging power tool companies to keep independent retailers in the business,” Bieberich says. “We have been able to strike these types of deals with some manufacturers and we think we have the right formula.”
This is the same message coming from other wholesalers, including TruServ, which is reporting similar success. Retailers are finding it increasingly easy to buy power tools on the regular weekly order and still price their products competitively. It allows them to stock less inventory and have a broader range of products and brands.
“Surprisingly we have had some of our large members take a serious look at buying their power tools through the warehouse,” Bieberich says. And it does not have to be one way or another, he says. Retailers might still buy tools on drop ship for promotional needs.
Jade Liechty, who manages one of the largest and most successful power tool departments in the country, confirms Bieberich’s statements. Hartville Hardware in Hartville, Ohio, offers 11,000 SKUs in its 20,000 square-foot department.
“I can now buy DeWalt power tools through the warehouse as cheaply as I can buy them drop shipped,” Liechty says. “And our store does enough volume to essentially get the same drop-ship prices as the big boxes.”
While Liechty says he is unsure if “theory two” will prevail, he is optimistic. “I already see more and more manufacturer reps going out of their way to help us compete,” he says. We recommend to read miter saw reviews
Tips for Rethinking Your Power Tool Assortment
- Good Relationships–Jade Liechty, power tool manager at Hartville Hardware in Hartville, Ohio, says the number one key to success in this department is developing working relationships with the manufacturers’ sales reps. It is critical to make connections during wholesaler shows.
- Broad Approach–Doug Bieberich, power tool and accessories product manager at Do it Best, suggests that retailers broaden their tool lines rather than deepen them. By buying tools through the warehouse, retailers can develop assortments that take advantage of the best-selling tools and prices in each manufacturer’s line. A carefully crafted assortment is another way of offering customers a service.
- Look Offshore–You can’t ignore inexpensive, import tools, which are continuing to capture an increasing share of the market. These products can offer a price point for cost-conscious consumers, and their quality has improved. Whether you choose to use these tools strictly as promotional items or find a permanent spot for them in your tool department, they should be carefully considered.
- Price Shop Constantly–The power tool department is one area of your store where you are forced to compete with on-line retailers. Fortunately, with the help of the Internet, it is easy to price shop these competitors as well as the big boxes from the comfort of your office. At a minimum you should be checking prices weekly.
- Make Good Use of Space–Even with manufacturer support, retailers should look to drive profits with inventory turns and good space management. As a result, it is critical that these products be merchandised in as little space as necessary. Use waterfall racking that allows you to display the tools outside of their boxes so customers can handle the tools.
- Service Centers–Liechty from Hartville Hardware says that it is much easier than you might expect to become an authorized service center, which drives department sales and creates another profit center. He suggests using help wanted advertising to locate a small-tool mechanic. If you locate a good person to fill this position, then you can easily move forward with this strategy.
- Be Realistic–Liechty says it is now much easier for retailers to earn a profit. Even with growing manufacturer support, he says retailers should not look to earn much more than 10 percent gross margins on power tools. However, he says these sales can add money to a retailer’s bottom line, and by stocking more power tools a store will create a better full-service reputation.