Hardware: Hassle or high-margin opportunity?

Hardware images
Hardware images

Hardware images

While it takes dedication, adding hardware to your lineup can yield many rewards.

There’s a reason that some LBM dealers focus exclusively on lumber and other materials: to sell hardware, and to do it well, can add thousands of SKUs to inventory, and requires readily-available staff members to help customers find just what they’re looking for. On the other hand, hardware products typically offer significantly higher potential margins, which can be very attractive to LBM dealers who are accustomed to razor thin margins on commodity lumber and materials.

In this article, we talk with some LBM dealers who have found hardware to be an effective (and margin-rich) resource for their stores, as well as some of the leading hardware providers.

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Hardware profit potentials

According to the Home Improvement Research Institute, home improvement product sales for 2018 totaled approximately $398.2 billion, a 6.3% increase over the previous year. But when it comes to the dollar figure for the LBM dealer who carries hardware, it’s not solely about total profit; it’s also about margin.

Mike Matusek
Mike Matusek

“When you’re talking about profit margin, hardware is doing great,” says Mike Matusek, owner of Shelbyville Lumber Company in Shelbyville, Tenn. “We average around 30%, but 40% is our target number. Don’t get me wrong, lumber is moving, but the margin is so much smaller and you need to give up margin for product width. Hardware has the benefit of a much higher margin without the necessary need for as much width.”

Grant Leavitt
Grant Leavitt

Grant Leavitt, owner of Marcus Lumber in Marcus, Iowa, echoes Matusek when it comes to profitability. “Roughly 18% of our total revenue comes from what we classify as hardware items, which includes items like fasteners,” says Leavitt. “And on average, hardware items are closer to 15 points higher in margin than commodity LBM products. Our top ten highest margin departments or ‘groups’ that we track are all hardware items (paint, electrical, fastener, hardware/connectors, and plumbing).

Hardware pie chart

Who is the customer?

It’s easy to fall into the trap of thinking that the hardware buyer isn’t the pro customer, that it’s mostly homeowners and DIYers. “We have 4,500 U.S. and international stores,” says Jason Blair, senior director of strategic alliance accounts at True Value Company, “with the majority being core hardware stores, but most of them carry some level of lumber and building materials. In the last year, though, we signed a little over 150 LBM dealer locations, and this segment of business is really growing for us.”

For Matusek, the mix of customers changes depending on the store. For example, with his family’s original operation that opened in 1944, it’s a traditional lumber store; thus, it caters to more of a pro customer base. Nevertheless, it also carries a healthy inventory of hardware. When his family purchased a second store (located in Kentucky) that was more of a hardware and garden store, he began phasing in more building products to broaden the store’s reach and appeal.

Robert Hughes
Robert Hughes

But no two stores are alike. For Leavitt, he estimates approximately 70% of his customers at Marcus Lumber are pros. “It’s hard to really break that down for us,” he says, “as we are exposed to many of the final consumers through the contractor.” Likewise for Robert Hughes, owner of Hughes Lumber in Catoosa, Okla., which has seven locations throughout the state. “Our business is heavily pro-oriented,” he says. “However, in our rural markets we want to grow our retail business.”

The reality is that it’s a blend of customers, and the key to success is not letting yourself become pigeonholed into narrow selling position. “We have a diversified customer mix that consists of hardware stores, home centers, pro lumberyards and farm stores,” says David Mobley, Orgill’s senior vice president of North American sales. “Our assortment mix is structured to support all of these retail formats within all hardlines departments we offer. In addition, this diverse assortment strategy allows any of the retail store types to take advantage of niches that may exist in their marketplace should they choose to do so. For example, a hardware store may have an opportunity to sell farm-related products.”

There’s more than profits to be had

Besides mere dollars, there are other benefits to be had from offering hardware, benefits that can keep an LBM dealer profitable even in a down market. “When the construction and new housing  markets  are  strong,  dealers  often  tend to put their full effort and energy into their larger ticket building materials sales, with little to no focus on hardlines sales,” says Do it Best’s Vice President of Lumber & Building Materials, Gary Nackers. “The building materials industry is always going to have peaks and valleys, and the diversity of the hardlines business can really help dealers through those valleys. While the transaction will not be of the same size as building materials, the margins are considerably higher and can effectively help support a dealer through slower times.”

Hardware chart 2

By offering hardware, you also gain the advantage of being able to better provide for unique needs. There are niche categories that are underserved in every market, and by identifying those you can have great success. “If you have your sales force ask the questions that identify those needs,” explains True Value’s Blair, “they’ll find they can sell more items.”

And let’s not forget upselling. It’s one thing to be able to sell a door; it’s another to offer the contractor everything else he or she might need for that door installation, and that creates a larger upsellable ticket size. As Leavitt explains, “For example, every new exterior door we sell out of our store should also have with it a bundle of shims, a tube of caulk and a door lock (and we better upsell the handle). With every wood deck we sell, we can upsell the sealer, brushes and gloves for the project.”

Dedication defeats the downside

So with all of this good news, you’re probably thinking there has to be a catch, some pitfall that makes it prohibitively difficult to incorporate hardware into your business plan. In reality it’s not so much of a pitfall as it is a matter of patience and perseverance. “It’s a lot easier to take on lumber than it is to take on hardware, and you have to be prepared for it,” explains Matusek. “You have to give the customer the chance to learn what you’re now carrying, and you have to give your staff the chance to learn what the customers want.”

Complacency is the enemy, and it’s vital for the successful dealer to remain relevant to his or her customer—both pro and consumer. “When you talk about the hard line space,” says True Value’s Blair, “being committed to doing it, having the complete assortment, setting aside the space that you need to execute, and then maintaining it and not forgetting about it is what makes a dealer successful—not ‘set it and forget it,’ but paying attention to it and not letting it get stagnant.”

Part of that relevancy is the ability to stay laser-focused on the customers you serve, the product trends they want, and the market in which you’re competing. Because of advancements in technology, the last five years have seen a tremendous change in product mixes with the introduction of items such as Nest security cameras and video doorbells, and the successful dealer will be able to address those needs. “We offer a large variety of market-specific tools and resources to help our retailers understand their customers’ needs and wants,” explains Orgill’s Mobley. “We work with our customers to identify and take advantage of any sales opportunities that exist in the markets they serve.”

As well, an LBM dealer needs to be ready to invest in team members dedicated to offering to the customer that laser- focus on hardware. For example, Leavitt points out that it can take a fair amount of time with customers on hardware sales, and the dealer needs to be prepared for that—not just for the customer’s sake, but also for the dealer’s. “Without having the right team members in place to take care of these higher demand/higher touch customers, your staff may not be maximizing their time,” he says. “If you’re having team members help on everything from nuts and bolts to building projects, you’ll be dissatisfied with results.”

Do it Best’s Nackers shares Leavitt’s viewpoint on staffing. “If a dealer is going to be successful in carrying hardware, it requires a different sales mindset from LBM,” he explains. “Relying on the same staff who work the contractor counter to also effectively sell hardware will not drive the category’s growth. When a dealer invests in the right level of service in the aisle they’ll find success in these higher margin products.”

Advice for success

Luckily, the transition into hardware does not have to be painful or terribly difficult. Suppliers often provide support programs to make the addition of hardware as easy as possible by customizing the product lineup and store layout to meet the needs of the individual distributor. For example, in the case of Do it Best, it provides its dealers with an assortment of planograms designed specifically to appeal to the pro/tradesman customer. This ensures that the dealer can also be positioned as a single source provider for their pros and contractors.

Similarly, True Value launched this spring what it calls the Pro Yard, a dedicated resource that develops custom planograms that are aligned to meet the LBM distributor’s needs. “At this point we have developed a little over 280 lineal feet of planograms that are easy to maintain, incorporate 5′ gondolas, and speak to the inventory needs of the contractor,” explains True Value’s Blair. “LBM distributors are sometimes very averse to embracing these SKU channels and all of those pieces and parts, and our goal with Pro Yard is to make it as easy for the end user as possible.”

Adding hardware SKUs can seem overwhelming, but remember that you don’t have to carry everything under the sun. For Matusek, he found success by incorporating electrical and plumbing so that his customers didn’t have to go to multiple stores, along with grills and outdoor items—he even launched a firearms division in 2008 that’s been very successful.

“Our advice is to take a micro-marketing approach to the entire retail operation,” says Orgill’s Mobley. “We assist our retailers in evaluating the market they serve and we use that information to drive the store’s assortment strategy, customer service and to employ the right retail pricing based on the competitive realities in that marketplace.”

If there is a single piece of advice that everyone interviewed for this article shared, it is to think of adding hardware as a chance to build better relationships with your customers. As True Value’s Blair points out, “The existing LBM dealer has this unique opportunity to determine what to carry in their store rather than assuming what to carry. When the contractor comes in, whether it’s for a morning cup of coffee or at the end of the day to write up their order for the next day, ask them where they just came from and ask them where they are going next. Did they just come from a plumbing or electrical supply house, and does it make sense to try to be competitive in that? Or maybe they came from a big box store. You have a great opportunity to build a great relationship with these people by asking them what are those 50 SKUs I need to have for you.”

In the end, it’s all about getting more customers into your store and then selling those customers more of what they need, and adding hardware to your LBM lineup can be a successful strategy to increasing margin dollars to sales you are already making. “I would encourage any LBM dealer who thinks they may have an opportunity to sell more hardware to trust their instincts and give it a try,” encourages Hughes. “We all need to be willing to try new things. At Hughes Lumber, we certainly intend to be true to who we are. However, at the same time, working to broaden our appeal and attract a broader customer base is exciting.”

Perhaps Grant Leavitt summed it up best: “We’ve continually been amazed at what sells when we never thought we could be in that space. It’s a game of footsteps and eyeballs. If you’re able to accomplish the hardest part of getting customers in the store, you’re well on your way to succeeding with an expanded hardware selection.”

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