Hammering Away At The Web
In e-tailing, it's getting pretty tough to hit the nail on the head. But it's especially tricky in home improvement and hardware, one of the last retail categories to move online. This elusive area ranks as No. 16 out of a listing of 20 Net categories tracked according to their potential by Goldman, Sachs & Co. (GS) For starters, few consumers want to buy lumber online because it would cost an arm and a leg to ship. Plus, scores of people make urgent trips to the store because their toilet is overflowing or they have a leaky faucet. They're not going to wait for United Parcel Service (UPS) to deliver the goods necessary to make the repairs. Market researcher Jupiter Media Metrix estimates that online hardware sales will hit $170 million in 2001--up more than double from 2000, but still only a tiny fraction of the $186 billion overall home-improvement market. "It's the crappiest segment of the whole e-tailer sector," says Neil A. Hastie, chief information officer for hardware cooperative TruServ Corp. in Chicago.
Established hardware companies have no dot-com delusions. They know the Internet isn't ideal for selling wrenches and table saws. Instead, they're finding savvy ways to use the Web to cut the inventory costs of stocking big-ticket items in stores and to reach new customers.
Indeed, the Web may be just the ticket for luring buyers into good, old-fashioned stores. Home Depot (HD), Lowe's (LOW), and Ace Hardware are using their Web sites to provide online hardware reference guides and how-to libraries, hoping this will help buyers make decisions. "I think online pure play isn't going to work," says Jupiter Senior Analyst Michael May. "But using the Net to enhance the offline experience is of real value to hardware stores."
One way to do that is to bring the Net into the store. Big retail chains such as Ace, Sears (S), and Lowe's are testing Web kiosks in their stores so customers can get product information, comparison shop, and even buy items--avoiding long checkout lines. North Wilkesboro (N.C.)-based Lowe's, the nation's second-largest hardware retailer with $15.9 billion in sales, has been testing Web kiosks in 30 of its stores since March. "We've had people tell us it's the fastest shopping they've ever done at Lowe's," says Thomas E. Whiddon, executive vice-president of logistics and technology. He expects half of all kiosk purchases to be take-home buys.
The Web also is helping some Old Economy companies sell products that customers can't carry out the door. At retailer Sears, research shows that its Web site influences 10% of all in-store major appliance purchases. Better yet, sears.com customers on average made at least one more trip to the store than all other customers. Sears says the content on its Web site--home-improvement tips and product advice--attracts potential customers who then see promos for other products and come into the stores. Although Sears won't reveal the average spending of its online customers, the company says it's 30% to 50% higher than the average spent at its brick-and-mortar stores.
Going virtual may also help hardware companies snag an audience they have failed to attract--women. Ace says its research shows that female buyers are driving most of the big in-home appliance sales. But Ace's in-store clientele is 70% male. That's where its minority stake in hardware e-tailer OurHouse.com comes in. Ace supplies 75% of the goods and handles all fulfillment chores for the Web retailer. And Ace is testing a mini version of the OurHouse Web site on kiosks in some stores. The female connection: More than 60% of the buyers at OurHouse are women. For Victoria Stach, 34, a lawyer for the Chicago firm of Winston & Strawn and an experienced e-shopper, buying a light fixture and some Christmas presents like a George Foreman grill at OurHouse was a breeze. "It was easy, no-stress, no-hassle," says Stach, who regularly shops online because she doesn't have the time to wander through stores.
Now Ace wants to get Stach and other women who already shop online into the store. A new national print and TV marketing campaign targeting women based on life stages--buying a first home, having a first baby, becoming an empty-nester--is scheduled to begin in February and also will run on OurHouse.
For Tool Time-type companies, the less risky strategy is to use the Net to strengthen ties to the heavy spenders--professional contractors who typically buy higher-margin products. That's why the nation's largest home-improvement retailer is focusing its Web strategy on the pros. The $38.4 billion Home Depot expects that Web sales will be more attractive to the 30% of its customers who are professional contractors, rather than the typical weekend Mr. and Ms. Fix-It. Home Depot began testing online sales last August to customers in the Las Vegas area. And in recent months, it added San Antonio and Austin, Tex. "Professionals are more likely to use the Internet to buy, along with other channels like phone and fax. We want to give them as many choices as possible," says Home Depot Chief Information Officer Ron Griffin.
Not that the remaining Internet-only hardware sites are ready to close up their tool sheds just yet. CornerHardware.com opened shop in February, 1999, and offers more than 37,000 home improvement products on its site. And in October of that year, Amazon.com Inc. (AMZN) purchased the catalog business of Tool Crib of the North, a Grand Forks, N.D., construction equipment and tools company. One month later, it launched its home-improvement shopping area. Now, Amazon.com offers more than 20,000 products and scores of hardware specialists to its 25 million customers. The company says home-improvement sales this past Christmas were 2.5 times that of 1999.
Still, lacking a partnership with a big bricks-based hardware retailer, or a long-established online brand presence like Amazon.com, pure-play e-tailers face an uphill climb. Watching the growing Web presence of Home Depot and Lowe's, several analysts question CornerHardware's ability to survive the year. The privately held company insists it is doing fine, but its visitors shrank by more than 38% from October through December of last year, according to Internet market analyst PC Data Inc. At the same time, Web traffic at Home Depot and Lowe's shot up 70% and 27%, respectively.
Even having a big backer in the business may not be enough. Under its deal with OurHouse, Ace supplies the bulk of the site's 25,000 listed products. But a dispute between the two companies over who gets manufacturers' discounts has shaken the relationship. OurHouse Chief Executive Philip Airey isn't predicting when his company will reach profitability, but he says it's on track with more than 750,000 registered customers and average sales figures of $50 for first-timers and $70 for repeat customers. He says sales at the end of 2000 were more than five times what they originally promised Ace and he's confident the two companies will hammer out their differences. Good luck, because being a dot-com in the home-improvement market isn't going to be as easy as hitting the nail on the head.