August 31, 2007
Ace Hardware Thinking of Leaving Coop Behind
Ace Hardware appears to have come up with a novel approach to make it more competitive against the likes of Home Depot and Lowe’s. The company is considering making a switch from a member-owned cooperative to a for-profit corporation.
Ray Griffith, president and CEO of Ace, wrote a letter that was republished, in part, by Crain’s Chicago Business. In it, Mr. Griffin wrote, “We believe that becoming a traditional corporation is the best path for our retailers and the company.”
According to Crain’s, Ace has been aggressively pursuing an expansion strategy and converting to a for-profit corporate structure, which may offer advantages over its current coop model.
Peter Jankovskis, chief investment officer of quantitative products at Oakbrook Investment, said, “If (Ace) wanted to ramp up its creation of stores and expand, going public would of course bring some capital in to make that happen.”
What’s not known at this point is the reaction Ace members have to the move being considered. Crain’s reported that members are likely to get more information at a company convention next month in Denver.
An Ace dealer from the Chicago-area who requested anonymity told Crain’s, “This has huge ramifications for the dealer base. This clearly is a corporate takeover.”
Discussion Questions: Will changing from a coop to a corporation have an impact on Ace Hardware’s competitive position? Do you see inherent benefits in one structure versus the other?
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A McDonald’s hamburger is a McDonald’s hamburger! It’s the same in New York as it is down here in Florida. Now hardware, that’s a whole different ballgame. What hardware (i.e. plumbing fittings) an Ace store may need to stock to satisfy New York building codes will be different than what our codes require down here in Florida. Ace hasn’t mastered how to merchandise their stores on a regional basis yet.
There are a lot of people that value their community, and try to purchase from people who own their own businesses and live locally. The money stays in the community and a lot of people like myself try to support the local business owners.
Now let me get this straight: Ace management is completing the SEC filing documents “before we communicate anything else to our members or the general public”? Sounds like a tactic calculated to close off debate.
But this is perhaps the most consequential strategic decision contemplated by Ace since its inception. Doesn’t it deserve detailed, critical examination by the owner/members before it is put to a vote?
It may be true that Ace is competitively disadvantaged versus Home Depot and Lowe’s, however I am skeptical that this can be resolved with a business restructuring alone. If I were an owner/operator, I’d demand to hear about the positioning and competitive strategies in detail. How will C corporation Ace market and merchandise better? How will it enhance customer experience and relationships? How will it earn gains in customer share of wallet?
In my experience, Ace stores do very well indeed by helping homeowners find things and fix things that the big box stores cannot and do not. They provide personalized service and carry inventory of hard-to-find parts and supplies. They are convenient, local, personal and quick, where the big boxes are imposing, distant and time-consuming.
Ace stores are also idiosyncratic as their owner-operators, and a bit behind the curve in retail systems. Their marketing could be a lot sharper, budget permitting. In and of itself, going corporate won’t address these issues. If management truly has a better strategy in mind, it ought to lead with that, not with the paperwork.
Cooperatives are difficult organizational structures to manage. With strong leadership, Wakefern, Unified and Affiliated Southeast have stood the test of time. The difficulty is getting the members to invest and follow the lead.
Every member likes their rebate checks, but their primary focus is their own store, or stores. Investing in the parent is viewed as taking money away from the member. On the other side, McDonald’s has done very well. It all comes down to management and leadership. Changing the ownership structure may not make a difference.
There are two issues that the members should consider.
The first is how much stock and how many stock options as a percent of the company management is to receive. Will they still be servants or, like the Church of England, do they feel that they have certain entitlements after having had many suppers in the manor house? Cutting to the chase, whose best interest does this proposal serve?
The second question is how long will it take for the new public corporation to begin competing with its former owners who are now just customers? No matter what one one says, there is a difference between how a voluntary and a co-op view the retailer. The voluntary might be a better choice for some retailers but it is a different choice.
Whether coop or corporate, Ace’s future success will depend on the leadership of its financial and competitive strategies in today’s retailing world and its skills in dealing effectively with its various constituencies. Good leadership comes before classification.
Moving from coop to corporation can have its pluses but they would need a strong brand manifesto and a detailed operations plan to revive the Ace name. I think customers appreciated Ace’s down home, localized way of doing business and it was great being able to do business with the actual owner. But Ace needs to fix itself to compete with the big guns and they need to bring in managers and operators who have the merchant mentality. Ace has an advantage over the big boxes in that they can cater to local markets more efficiently.
Even though Home Depot and Lowe’s are much larger than Ace, that doesn’t mean Ace will fail. The owner-operator model has tremendous customer loyalty and great resilience. It’s not subject to the errors and whims of centralized control. Home Depot and Lowe’s might be better off converting some stores to the Ace model. This test might show improved customer service and more appropriate local assortments. And isn’t it easier to run a national brand without having to worry about recruiting, training, and motivating all those folks in the stores? And wouldn’t return on capital for the national brand skyrocket since the store inventories would be owned locally?
An important aspect of this change is how it is being undertaken. From what I have been able to gather, this is being pushed by Ace senior management without the prior involvement and commitment of Ace members, who will be presented with the option to vote on the change at the convention. This is a commonly used method in the business world, and will likely lead to pockets of deep resentment and bitterness, which in turn will likely have consequences that ripple out into many unforeseen areas. It is unfortunate that management structures continue to do things this way.
I’m surprised no one has yet mentioned that Home Depot is experiencing its own problems currently, and to view them as an Ace-killer might be a little premature. This positioning to Ace store owners may be seen as disingenuous by their Co-op’s management. Additionally, at a time when some fast feeders and C-store chains are selling off their corporately-owned stores as a competitive strategy, this move by Ace is exactly the opposite.
Having been associated with Ace for 26 years (7 of which as a member-owner), I am quite dismayed at the lack of faith displayed by our leadership in the co-operative structure. Our company, as a whole, has enjoyed the largest store count growth, largest sales volume growth and largest profit growth as a co-operative. Aside from my initial reaction of disappointment in the way the news was given to us, I have yet to find even a mediocre reason for converting away from our current form. The Ace trade show at the end of this month ought to be one of the most active in recent memory.
A lot is still to be seen yet but one of the most interesting questions running around in the circles of the company I work for is “what will happen if the Ace membership overwhelmingly votes this down? Will ACE management still proceed forward with this plan or will they listen to the wishes of their membership?
Also, how will this affect current co-ops such as Tru-Value, ENAP, PAL, and Ace’s largest co-op competitor, Do it Best? ACE has, just like the above listed co-ops, many loyal members who joined because of the culture and benefits of a co-op. It would stand to reason that the discouraging nature of these potential changes could ultimately encourage them to look to ACE’s current cooperative competitors for a new home.
I was an Ace Dealer 22 years and have witnessed Ace undergo a means goal reversal. What was once a lean support organization has become fat, bureaucratic and expensive.
The Vision 21 Initiative was attained by inviting +300 hand picked dealers to Las Vegas, expenses paid and then Ace Management claiming overwhelming support from dealers.
Smells like a simple corporate takeover due to an empire building management and the proverbial rubber stamp board.
The claim that management wants to better compete with Home Depot and Lowe’s sounds good but if they really wanted to compete, they’d cut costs & staff.
Guess that recently discovered $154,000,000 “accounting mistake” ends this little plan.
It is now time for Ace Dealers to demand that the Corporate Culture be changed. Over the past 10 years or so Ace Corporate Culture has changed from one of support for their dealers to one a pure arrogance directed toward their dealers.
Time for the Ace Board to take a hard look at Ace Senior Staff, especially the empire builders, bureaucrats and those who openly hold Ace Dealers in disdain and fire them.
Going to be a tough job for the proverbial rubber stamp BOD but man up and do your job!
I do not believe the change in the company’s legal structure is in the best interest of store ownership. The change ignores the real direction store owners prefer, and only benefits management who will receive large bonuses should new structuring happen.
Despite the recent discovery of a major accounting error, the Ace Dealer-Owners should keep a sharp eye out for the conversion bell to be sounded ASAP upon the resolution of the accounting issue. The fiscal problem merely changes the timetable for change, not the goal of the present leadership.
Ourhouse.com…Eaglevision…Non-branded stores…Ace2000…and now, this plan hatched at the corporate level, and oh, by the way, we lost 154 million but their is no money missing….
I became an Ace store owner in 1997 and witnessed a steady chain of corporate missteps until I gladly switched to Do It Best in 2005. All I know is that if most Ace dealers had made a similar series of errors in their businesses, Ace wouldn’t have them around to beg for their vote for this corporate takeover. I agree with many of the above posts; until the corporate culture of arrogance at Ace is broken, nothing will change. When I first attended a Do It Best convention, I expected a culture difference, but I was shocked at how much more aligned with the interests and needs of the individual retailer the corporate structure of Do It Best was. Ace’s owners need to wake up and smell the coffee real soon!
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A McDonald’s hamburger is a McDonald’s hamburger! It’s the same in New York as it is down here in Florida. Now hardware, that’s a whole different ballgame. What hardware (i.e. plumbing fittings) an Ace store may need to stock to satisfy New York building codes will be different than what our codes require down here in Florida. Ace hasn’t mastered how to merchandise their stores on a regional basis yet.
There are a lot of people that value their community, and try to purchase from people who own their own businesses and live locally. The money stays in the community and a lot of people like myself try to support the local business owners.
Now let me get this straight: Ace management is completing the SEC filing documents “before we communicate anything else to our members or the general public”? Sounds like a tactic calculated to close off debate.
But this is perhaps the most consequential strategic decision contemplated by Ace since its inception. Doesn’t it deserve detailed, critical examination by the owner/members before it is put to a vote?
It may be true that Ace is competitively disadvantaged versus Home Depot and Lowe’s, however I am skeptical that this can be resolved with a business restructuring alone. If I were an owner/operator, I’d demand to hear about the positioning and competitive strategies in detail. How will C corporation Ace market and merchandise better? How will it enhance customer experience and relationships? How will it earn gains in customer share of wallet?
In my experience, Ace stores do very well indeed by helping homeowners find things and fix things that the big box stores cannot and do not. They provide personalized service and carry inventory of hard-to-find parts and supplies. They are convenient, local, personal and quick, where the big boxes are imposing, distant and time-consuming.
Ace stores are also idiosyncratic as their owner-operators, and a bit behind the curve in retail systems. Their marketing could be a lot sharper, budget permitting. In and of itself, going corporate won’t address these issues. If management truly has a better strategy in mind, it ought to lead with that, not with the paperwork.
Cooperatives are difficult organizational structures to manage. With strong leadership, Wakefern, Unified and Affiliated Southeast have stood the test of time. The difficulty is getting the members to invest and follow the lead.
Every member likes their rebate checks, but their primary focus is their own store, or stores. Investing in the parent is viewed as taking money away from the member. On the other side, McDonald’s has done very well. It all comes down to management and leadership. Changing the ownership structure may not make a difference.
There are two issues that the members should consider.
The first is how much stock and how many stock options as a percent of the company management is to receive. Will they still be servants or, like the Church of England, do they feel that they have certain entitlements after having had many suppers in the manor house? Cutting to the chase, whose best interest does this proposal serve?
The second question is how long will it take for the new public corporation to begin competing with its former owners who are now just customers? No matter what one one says, there is a difference between how a voluntary and a co-op view the retailer. The voluntary might be a better choice for some retailers but it is a different choice.
Whether coop or corporate, Ace’s future success will depend on the leadership of its financial and competitive strategies in today’s retailing world and its skills in dealing effectively with its various constituencies. Good leadership comes before classification.
Moving from coop to corporation can have its pluses but they would need a strong brand manifesto and a detailed operations plan to revive the Ace name. I think customers appreciated Ace’s down home, localized way of doing business and it was great being able to do business with the actual owner. But Ace needs to fix itself to compete with the big guns and they need to bring in managers and operators who have the merchant mentality. Ace has an advantage over the big boxes in that they can cater to local markets more efficiently.
Even though Home Depot and Lowe’s are much larger than Ace, that doesn’t mean Ace will fail. The owner-operator model has tremendous customer loyalty and great resilience. It’s not subject to the errors and whims of centralized control. Home Depot and Lowe’s might be better off converting some stores to the Ace model. This test might show improved customer service and more appropriate local assortments. And isn’t it easier to run a national brand without having to worry about recruiting, training, and motivating all those folks in the stores? And wouldn’t return on capital for the national brand skyrocket since the store inventories would be owned locally?
An important aspect of this change is how it is being undertaken. From what I have been able to gather, this is being pushed by Ace senior management without the prior involvement and commitment of Ace members, who will be presented with the option to vote on the change at the convention. This is a commonly used method in the business world, and will likely lead to pockets of deep resentment and bitterness, which in turn will likely have consequences that ripple out into many unforeseen areas. It is unfortunate that management structures continue to do things this way.
I’m surprised no one has yet mentioned that Home Depot is experiencing its own problems currently, and to view them as an Ace-killer might be a little premature. This positioning to Ace store owners may be seen as disingenuous by their Co-op’s management. Additionally, at a time when some fast feeders and C-store chains are selling off their corporately-owned stores as a competitive strategy, this move by Ace is exactly the opposite.
Having been associated with Ace for 26 years (7 of which as a member-owner), I am quite dismayed at the lack of faith displayed by our leadership in the co-operative structure. Our company, as a whole, has enjoyed the largest store count growth, largest sales volume growth and largest profit growth as a co-operative. Aside from my initial reaction of disappointment in the way the news was given to us, I have yet to find even a mediocre reason for converting away from our current form. The Ace trade show at the end of this month ought to be one of the most active in recent memory.
A lot is still to be seen yet but one of the most interesting questions running around in the circles of the company I work for is “what will happen if the Ace membership overwhelmingly votes this down? Will ACE management still proceed forward with this plan or will they listen to the wishes of their membership?
Also, how will this affect current co-ops such as Tru-Value, ENAP, PAL, and Ace’s largest co-op competitor, Do it Best? ACE has, just like the above listed co-ops, many loyal members who joined because of the culture and benefits of a co-op. It would stand to reason that the discouraging nature of these potential changes could ultimately encourage them to look to ACE’s current cooperative competitors for a new home.
I was an Ace Dealer 22 years and have witnessed Ace undergo a means goal reversal. What was once a lean support organization has become fat, bureaucratic and expensive.
The Vision 21 Initiative was attained by inviting +300 hand picked dealers to Las Vegas, expenses paid and then Ace Management claiming overwhelming support from dealers.
Smells like a simple corporate takeover due to an empire building management and the proverbial rubber stamp board.
The claim that management wants to better compete with Home Depot and Lowe’s sounds good but if they really wanted to compete, they’d cut costs & staff.
Guess that recently discovered $154,000,000 “accounting mistake” ends this little plan.
It is now time for Ace Dealers to demand that the Corporate Culture be changed. Over the past 10 years or so Ace Corporate Culture has changed from one of support for their dealers to one a pure arrogance directed toward their dealers.
Time for the Ace Board to take a hard look at Ace Senior Staff, especially the empire builders, bureaucrats and those who openly hold Ace Dealers in disdain and fire them.
Going to be a tough job for the proverbial rubber stamp BOD but man up and do your job!
I do not believe the change in the company’s legal structure is in the best interest of store ownership. The change ignores the real direction store owners prefer, and only benefits management who will receive large bonuses should new structuring happen.
Despite the recent discovery of a major accounting error, the Ace Dealer-Owners should keep a sharp eye out for the conversion bell to be sounded ASAP upon the resolution of the accounting issue. The fiscal problem merely changes the timetable for change, not the goal of the present leadership.
Ourhouse.com…Eaglevision…Non-branded stores…Ace2000…and now, this plan hatched at the corporate level, and oh, by the way, we lost 154 million but their is no money missing….
I became an Ace store owner in 1997 and witnessed a steady chain of corporate missteps until I gladly switched to Do It Best in 2005. All I know is that if most Ace dealers had made a similar series of errors in their businesses, Ace wouldn’t have them around to beg for their vote for this corporate takeover. I agree with many of the above posts; until the corporate culture of arrogance at Ace is broken, nothing will change. When I first attended a Do It Best convention, I expected a culture difference, but I was shocked at how much more aligned with the interests and needs of the individual retailer the corporate structure of Do It Best was. Ace’s owners need to wake up and smell the coffee real soon!