Mom And Pop Hardware Stores Fight Back

Co-ops merge to battle giants like Home Depot

Curt Madson's family has operated the Coast to Coast hardware store in Barron, Wis., for 20 years. The 3,000 residents are used to friendly service and a selection of 14,000 items, from snowblowers to drill bits. But many residents now drive an hour to the outskirts of Minneapolis to find bargains at Home Depot. "They buy grills by the trailer load," says Madson. "I buy them by the single unit."

Eager to even the odds, Madson joined Coast to Coast hardware-store owners around the nation voting for the merger of the No.2 and No.3 nonprofit hardware cooperative buying groups, which was officially approved on Apr. 1. The marriage of ServiStar Coast to Coast Corp. and Cotter & Co., wholesaler to the True Value chain, creates a $4.5 billion colossus that gives 10,500 independent hardware stores more heft to compete with the so-called big-box stores.

The expanding co-ops may be the last chance for stores such as Madson's. The National Retail Hardware Assn. says sales at independent hardware stores will grow 3.5% annually over the next five years, while superstore sales will climb more than 5%. ServiStar CEO Paul E. Pentz hopes to change that by giving his members new buying clout. As president of TruServe, the merged co-op, Pentz hopes to reduce annual purchasing costs by 10%, or $50 million, through such economies as cutting the number of distribution centers from 23 to 18.

Those savings will translate into lower prices for the Mom and Pops. But that may not be enough in the long run. "Joining forces is a step in the right direction," says Asma Usmani, an analyst at brokerage Edward D. Jones. But, she adds, "the big-box retailers are the ones that are picking up market share." The 512-store leader, Home Depot Inc., continues to expand rapidly. It had 1996 revenues of $19.5 billion--nearly as much as all the Mom and Pops combined. And it will add 111 stores this year, says president Arthur M. Blank. No.2 Lowe's Cos. plans to open more than 200 new stores to reach 600 by 2000. In addition to the growing big-box store threat, the TruServe members will also be fighting for share with shops that are aligned with ACE Hardware Corp., for now the No.1 co-op. All in all, it's a grim outlook for that homey hardware store around the corner.

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