Canada: How Home Hardware competes with big-box home improvement retailers
Tony Flanagan, a 25-year veteran of Canadian-owned Home Hardware, is particularly proud of his furnace filter display. With winter on its way, the filters take up a full aisle of floor space in his Burlington, Ont., store. He says they are one of the niches he has found to set himself apart in a fiercely competitive market.
“This is Canada,” he says, as he shows off his shop, located in a spacious open-air mall that also houses a major supermarket chain and two places to buy alcohol. “Everyone needs furnace filters.”
Flanagan bought his first Home Hardware operation in 1991 in nearby Oakville, taking over an existing hardware store and signing up as one of Home Hardware’s dealer-owners. That location is now managed by his youngest son, Kyle, while his oldest, Chris, runs the day-to-day operations in Burlington. In a tough retail environment—the Home Depot, Lowe’s and Canadian Tire are all in close proximity to his 18,500-square-foot store—Flanagan says the filters are one important staple, along with batteries and picture hooks.
“The reason I’m still here at the age of 69 is because I’m still having fun,” he says. “I worked too many hours to develop hobbies, so now I’m turning my job into my hobby.”
Long service, such as Flanagan’s 25 years, is a common trait at Home Hardware, which has had just three chief executives since St. Jacobs, Ont., entrepreneur Walter Hachborn founded it in 1964. It’s a dealer-owned enterprise—the proprietors of its 1,100 retail locations across Canada are also its shareholders. Each dealer can tap into a range of services offered by corporate headquarters, which has never left St. Jacobs, in the heart of Ontario’s Mennonite community. Home Hardware is a Gold Standard business in accounting firm Deloitte’s annual list of Canada’s Best Managed Companies—a winner for four consecutive years.
“It’s a culture of service,” says current chief executive Terry Davis in an interview at Home Hardware’s headquarters, which adjoins the company’s 1.5 million square-foot distribution centre at the edge of tiny St. Jacobs.
“Retailers are normally controlled and owned by the head office. Our only purpose here is to serve those dealers in the stores, so we just have a different mindset,” says Davis. “We are here to look after them. We are like a concierge service at the best hotels. I absolutely believe that makes us a strong competitor.”
Davis, 65, joined Home Hardware in 1970 as a “picker” in what was then a modest warehouse operation, and he never left. Hired as the firm’s 36th employee, he now oversees an operation with 2,300 employees at its head office and central distribution centre, and $5.8 billion in annual sales.
Previous CEO Paul Straus ran Home Hardware for 26 years, from 1988 to 2014, while Hachborn, who still keeps in close touch with company affairs, was in charge for the 24 years before that.
Davis bristles slightly when asked if it’s unusual for him to be running an operation of this size without an MBA or the other management qualifications that most Canadian CEOs put on their resumés. “No management degree? How dare I?” he asks.
Davis says his experience across a dozen roles with the company was definitely more useful than formal training. “I think being a manager in a large organization like this almost comes naturally with my sort of background. Experience is a great teacher, whether it’s for a functional task, an operational thing or for leadership. You soak it up and learn, and try to do your best,” he says. “I think to be a manager, to be a good leader, is as much soft skills and experience and relationships as it is formal management learning. It’s gut. I really think it is.”
Davis admits Home Hardware’s quasi-co-operative business model presents some challenges: The firm has neither the deep pockets of its publicly traded rivals, nor the top-down control of a franchise operation. But he says the model also offers benefits rivals can’t match.
He cites flexibility and communication as two factors that help Home Hardware compete. For instance, individual dealers select the goods that will best meet the needs of their local markets. Management conducts regular surveys of store owners’ priorities. Twice a year, about 70% of the dealer-owners show up for big marketing events in St. Jacobs, where they can meet management, talk to suppliers and generally stay in touch with what’s going on.
“One of the biggest challenges we face is having to be nimble and competitive and aggressive and all of those things without having the funding that’s available to publicly listed companies,” Davis says. “It must be nice to be a franchise organization, and go out and tell every branch exactly how it has to operate, but we don’t have that either. We don’t dictate to our members as much as we persuade them. We are a group of 1,100 retail operations out there trying to work as best we can as one big team, and I think we do it very well.”
Yet Davis also recognizes the need to maintain quality. The company is four years into a five-year plan that targets 42 locations for termination—ordering dealer-owners to improve their stores or leave. “There were a number we ended the relationship with,” Davis says. “It was a difficult exercise, and the first time we’ve done anything like that. But we feel pretty strongly about what the brand stands for.” So far, 29 of those 42 stores have closed; in nine of those markets, Home Hardware has recruited new dealers.
Flanagan, the Burlington-based company veteran, shares the desire to protect the brand and concedes that the need for consensus among dealers can make the company conservative and risk-averse. For instance, there would be no agreement on moves like increasing loan funding for dealers wishing to open stores in Canada’s biggest urban centres, where, he says, the brand remains relatively weak.
But Flanagan is very satisfied with the service he receives from the St. Jacobs management team, a pay-as-you-go list of options that includes help with branding, design and display materials, as well as access to experts in fields like human resources, finance, health and safety, and real estate. He says Home Hardware’s corporate culture was a breath of fresh air after the numbers-driven Canadian retail operation where he worked before—he calls that one “management through intimidation.”
“If I were to sum up the Home Hardware culture in one word, it would be ‘helpfulness,’” Flanagan says. “We are run by a board of directors that are Home Hardware dealers, so it’s the dealers telling head office what we require. We’re a ground-up, not an ivory-tower-down, organization.
“It’s almost like, ‘How can I help you more than I already am so you can be more successful than you already are?’” says Flanagan. “That’s how it is.”
Source: Canadian Business
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