Home Centers and Hardware Stores
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Industry Overview
The home center and hardware store industry (home improvement retailers) includes about 30,000 stores with combined annual revenue of about $200 billion. Major companies include Home Depot, Lowe's, True Value Hardware, and Ace Hardware. The industry is concentrated at the top but fragmented at the bottom: Home Depot and Lowe's are about 60 percent of industry sales.
Home centers offer more building supplies (such as lumber and flooring) than hardware stores. This profile excludes building supply wholesalers and distributors and lumberyards.
Competitive Landscape
Home remodeling and repair and new homebuilding drive demand. The profitability of individual companies depends on low-cost purchasing, effective merchandising, and competitive pricing. Large companies can offer wide selections, supply high-volume goods to builders, and have advantages in purchasing, finance, distribution, and marketing. Small companies can compete by offering specialty products, providing superior service, or serving a local market. Average annual revenue per worker is about $200,000.
Competition includes building supply distributors and wholesalers, mass merchandisers, warehouse clubs, and Internet retailers.
Products, Operations & Technology
Major products include lumber and building supplies (50 percent of sales); hardware, tools, and plumbing and electrical supplies (25 percent); and paint and lawn and garden products (5 percent each). Building supplies include doors, windows, masonry supplies, cabinets, and countertops. Lawn and garden supplies include lawn care machinery; outdoor nursery stock (trees and shrubs); and fertilizers. Companies may also offer installation, delivery, design, or tool rental services.
The industry includes national and regional chains and independent retailers. Membership in a cooperative, such as True Value or Ace, allows independent retailers to leverage a national name and benefit from volume discounts. Cooperative members may receive payouts or dividends based on how well the co-op performs.
Do-it-yourself (DIY) projects generally refer to customers buying products and performing work themselves. Do-it-for-me (DIFM) refers to projects where home improvement retailers supply and install products. Companies typically rely on third-party contractors for installations.
Large stores require significant amounts of real estate and are typically located in major retail centers to capitalize on heavy traffic. Locations for independent retailers include secondary strip malls and small town centers. A typical hardware store is about 8,500 square feet, generates just over $1 million annually, and averages $150 in sales per square foot, according to Hardware Retailing. Home centers are about 14,000 square feet, generate $4 million annually, and average $300 per square foot.
Inventory varies according to store type. Home centers stock more lumber and building supplies because many customers are building contractors. Large home centers can carry up to 45,000 stock-keeping units (SKUs) and typically have wide selections within product categories. While independent hardware retailers offer a more limited selection in stores, cooperatives offer members access to a broad range of inventory. Companies using a "good-better-best" merchandising strategy may carry products at different price/quality levels, including national brand names, exclusive brands, and private-label products. Periodically, companies may have line reviews for a category to decide which products or brands to add or drop.
Companies buy inventory from manufacturers, cooperatives, distributors, and importers. The supply side of the industry is fragmented; for example, Lowe's buys from about 7,000 vendors. Large chains and cooperatives typically have extensive distribution networks to facilitate shipping from suppliers to stores. Special distribution centers may stock large items, items requiring special handling, imports, special orders, or Internet sales. Effective supply chain management has allowed large companies to realize significant cost savings and keep prices low.
Integrated information systems have been extremely important to large companies by linking operations at point-of-sale (POS); warehouses; and distribution centers. Bar codes allow companies to track the flow of individual products and identify slow- and fast-turning items. Electronic ordering and automatic replenishment can be important for high-volume stores. Database management systems track important customer groups, such as frequent buyers or new home owners, and help companies create targeted marketing programs.