CHICAGO— True Value has been preparing for a new chapter in its history, where it has distributed resources, taken aim at a rising base of potential customers and identified fresh opportunities to build on its strengths in a changing hardware and do-it-yourself home improvement marketplace.
With Millennials buying and, frequently, fixing up homes for the first time, True Value can leverage certain advantages as it competes for DIY dollars, and it has restructured to execute against generational and other opportunities as they are arising in the consumer market, company president and CEO John Hartmann told HOMEWORLD BUSINESS®.
At the same time, the company has attracted new investment and used that to put funds into the hands of its independent hardware store members, whether they operate single or multiple locations, so they can better serve the neighborhoods that are the focus of the businesses. Now the corporation can pursue opportunities outside of the traditional channel where it has operated to build on proprietary resources, which is all to the good for members who have belonged to the True Value cooperative and still own 30% of the company.
Consumers seem to favor the independent approach to DIY that True Value exemplifies. True Value and Ace Hardware tied for the highest customer satisfaction ranking in the J.D. Power 2019 U.S. Home Improvement Retailer Satisfaction Study, beating out Home Depot and Lowe’s.
In March of last year, True Value struck a deal with ACON Investments, a private equity firm, which has led to the development of the new corporate structure. ACON got a 70% stake in the company based on its $229 million investment while True Value retailers retained the 30% holding in the newly constituted True Value Co. As a consequence, True Value retailers received back capital invested in the corporation, money they could use to invest in their businesses.
True Value retailers now can order merchandise directly from company but without the requirement that they purchase stock in it, the financial obligation that had been required for membership. They can benefit from a volume and growth rebate program designed to keep the cost of doing business with True Value down, and retailers working with True Value have access to trademarks and programs such as free shipping to stores.
In the aftermath of the deal, True Value has continued developing a differentiated merchandise assortment for independent retailers, with an emphasis on product selection, competitive prices, product availability and delivery, while boosting a la carte value-added services covering marketing, store remodel support and True Value University educational programs, as well as the ship-to-store initiative.
Hartmann said the new corporate structure positions True Value to partner with current and prospective retailers as a more flexible supplier and service provider. He called access to the benefits of a national and, in fact, international brand without any membership fee “a game-changer” for the hardware channel as it allows True Value retailers to invest more in their own local formats.
The deal with ACON was consistent with True Value’s longtime mission to support independent retailers, Hartmann maintained.
“True Value has been around since the 1940s,” he said. “It allowed individual store owners to bundle their buying power. We have the same goal today, to do the things for independent retailers that allow them to grow their businesses profitably in a very competitive marketplace. So we changed our structure from a 100% cooperative into a private organization. Our focus was on freeing up the assets for our independent store operators that had been tied up in the company. A quarter billion dollars owned by storeowners was trapped in the company. The plan was to unlock equity and return 70% of the ownership equity to them and allow them to reinvest in locally as they know best.”
Hartmann said returning dollars to its independent True Value retailers provided them with the opportunity to invest in their stores, whether it meant fixing a roof or a parking lot, physically expanding a store or enhancing digital operations.
The products True Value deals in today cross diverse categories stretching from the DIY core. In addition to hardware, the company offers housewares in such segments as personal care, kitchen, clothing care, home environment, cleaning and As Seen On TV products. Although its independent retailers focus their assortments based on the size of their operations and the needs of their communities, True Value provides a wider variety of products on its website, which also includes some furniture, lighting, as well as seasonal merchandise.
Some of the changes that True Value addressed with the updated corporate structure revolved around the customer base. The DIY shopper has been changing. Millennials are moving into homes, and many have to, or want to, refurbish.
“Any organization not clearly focused on the younger generation is missing the boat,” Hartmann said. “Millennials now make up the largest group of home purchasers and about 50% are first-time buyers.”
The neighborhood hardware store stands to benefit from younger consumers who already have expressed a preference for shopping locally and favoring “authentic” experiences, which lends itself to building relationships with the neighborhood retailers they see as having a genuine connection to the community.
However, Millennials are a likely constituency for local hardware retailers for another reason, which has to do with knowledge. As they left home for apartment living, Millennials tended to lack practical knowledge of certain domestic skills, especially cooking, which housewares retailers and manufacturers addressed by developing educational materials they favored, including store-level and video demonstrations, which supplemented what they were viewing on television cooking shows.
Even as they purchase homes, Millennials, Hartmann said, “tend to be inexperienced and less familiar with home improvement projects. That falls into True Value’s sweet spot. Our independent retailers are in a great position to provide a local, relevant assortment of merchandise and product knowledge they seek. Millennials are more cost conscious with their home improvement projects and typically tackle the smaller, lower cost projects first, and they love to shop local stores. And if they run into a snag on their project, TrueValue.com has a video gallery and project library of various home improvement projects to help them get the job done right.”
The new approach to business at True Value should help independent retailers deal with DIY enthusiasm.
“The business model change released trapped equity for independent retailers to invest in their stores as they know best. For example, modernizing their stores to make them more appealing to younger consumers and women,” Hartmann said.
Outreach to Millennial consumers played into prompting True Value, but it was one of several factors. Even as Millennials purchase their first homes, Generation Xers are buying second and even third, often larger homes and many Baby Boomers are reworking their housing for retirement.
Younger consumers are apt to shop more broadly online but older shoppers are catching up, and that reality is having a bigger effect on the hardware channel. Even if it experienced a more gradual shift, the DIY/hardware retail channel has been experiencing more digital demand and online buying trends were a prominent consideration in the True Value reorganization. In moving more resources to online, True Value is aware both of the opportunity to better serve more customers and also of the competitive reality that Amazon and big box competitors are pushing to capture more DIY dollars.
“There is a really strong history of how the independent hardware channel has battled back against intense competition,” Hartmann said. “The original onslaught of big boxes was game changing in the mom and pop space. We’re drawing a lot of similar lessons as we’re facing more online competition. There are over 25,000 independent hardware stores, garden centers and home centers across the country that compete right under the shadow of big boxes. The local heritage, deep product expertise and personalized service that our independent retailers offer their customers every day cannot be matched by online competitors or large format stores. True Value is more local convenience hardware with a quick in and out, where store owners know customers by name and are the cornerstone of their community.”
True Value has been developing resources to make online shopping more convenient as it works to compete, including a free ship to store delivery option. The company also has been moving to combine the local and online aspects. It is devoting resources to support the individual websites of its affiliated stores. Overall, the company has been developing what Hartmann calls a “hyper-local” approach to promotion, both traditional and online, to ensure more marketing communications directly link consumers to their local True Value stores.
By working with the various independent retailers, True Value can support their specific approach to products and services, which has been crafted to meet the needs of local customers. At the same time, the company can apply its own market research to look beyond the individual store. True Value can build information on each market where its independent retail partners operate and provide data that helps each of them update marketing and product assortments.
“We can see what works in different markets, and help customize and planogram stores for that geography,” Hartmann said.
A brand that takes a community approach to product and market while supporting the local application of independent store knowledge can create a consumer proposition that few of True Value’s competitors can match, Hartmann said. True Value already is seeing positive results from its strategy.
“When we look at our independent retailers that are, in many cases, getting double digit comps, they are typically most focused on a hyper-local approach leveraging both print and digital advertising,” he said.
The new corporate structure also allows the company to engage more retailers, including hardware stores that might have been reluctant to commit to a single cooperative and now can connect with True Value. However, under the new structure, garden centers, lumber yards and home center retailers that may emphasize other product categories but who have a DIY orientation can now buy from True Value. Hartmann said the company already has begun working with 500 new retailers. Growth in the retail base will give True Value more muscle and lend itself to building the investment its member retailers retain.