Another Ace up his sleeve Featured

7:03am EDT May 25, 2004
Fifty percent of Americans live within five miles of "the place with the helpful hardware man."
But that's not good enough for Ace Hardware President and CEO David Hodnik. With stores in all 50 states and 72 countries on six continents, Hodnik plans to keep growing the business by making it even more convenient -- and more relevent -- to the do-it-yourself market.
For most chief executives, that would comprise an aggressive strategic plan approved by the company's board of directors. But Hodnik, who was named president and CEO in 1996, is in a unique situation. Ace's 3,700 independent owner/operators form a cooperative, which owns 100 percent of the company. That means the CEO, normally a position at the top of the organizational chain, is just an employee of the people of whom he is in charge.
That is one major difference between the large public companies that are Ace's competitors and the collection of independent operators that make up Ace.
"We have some similarities -- envisioning the future and directing the organization toward that future -- but our requirements in a cooperative are more of a communication and leadership challenge than what I believe is the case in a for-profit retailer like the Home Depot," says Hodnik. "They have more authority, a lot more control over what happens in retail. They go about it differently."
There are other differences, says Hodnik.
"We have one less public to address," he says. "That would be the stock market, making my role a lot simpler from that perspective."
While answering to the independent owners has unique challenges, Hodnik says not making decisions based on the price of the stock gives Ace an advantage.
"If you looked at the organization that I do have control over and have authority to take action, we're basically a broad-based, fully service-oriented distributor," he says. "We're not a retailer. I think that does give us value and benefit. The reality of it is, it is a role or responsibility that leaders have to engage in and spend time with that I personally do not have to. There is a time responsibility here that does not exist with the CEO of a cooperative but does exist with (a public company). That is important."
Hodnik's role is to mold and lead a band of independent business owners -- all flying under the same Ace Hardware banner -- each with his or her own opinion about how to run a business. For Hodnik, that challenge might mean convincing an independent operator that having consistent signage and honoring the national sales campaign are keys to the company's overall success. Or it might encompass signing a deal with a foreign firm to open new Ace stores.
While his challenges are diverse, one thing is consistent -- Hodnik's ability to adapt within the cooperative structure has allowed him to grow Ace into a significant player. Last year, revenue exceeded $3 billion for the first time in the company's history, with $100 million in net profit -- up 22 percent over the previous year -- and Ace exceeded its goal of adding 1 million square feet of new retail space by more than 10 percent.
This year, Hodnik has aggressive plans to add 150 new stores, with more than 1.6 million square footage of new retail space.
 
A successful blueprint
"Our cooperative structure -- our basic mission to help -- has been a significant factor in attracting entrepreneurs (to our) business, which is clearly a significant, positive advantage for our organization," Hodnik says. "Managers of retail stores are not (as dedicated). It's hard to get them (to be) as passionate as entrepreneurs who own and operate the business rather than just operate it.
"The approach the founders took has helped us attract entrepreneurs."
That entrepreneurial spirit has pervaded the company from its inception eight decades ago when, in 1924, four Chicago-area hardware store owners -- Richard Hesse, E. Gunnard Lindquist, Frank Burke and Oscar Fisher -- banded together to increase their buying power and profits. The venture was the seed of what was to become Ace Hardware, and within four years, 11 retailers had joined the young enterprise, called Ace Stores Inc.
Today, with more than 4,800 retail locations, Ace has formulated a strategy designed to build the Ace brand among consumers, build retailers' businesses and deliver a consistent, helpful experience with every customer visit, according to the company's annual report. Hodnik says it's clear that strategy to strengthen its retailers' position in the convenience sector of the home improvement industry is working. But there's still a lot of growth potential to capitalize on.
According to a December 2003 survey by Roper Reports, half of all Americans plan to buy or do "at least one of 19 things related to their homes in the next year or two, ranging from buying new furniture to painting a room to major renovations." And with total retail sales of $210 billion by home improvement retailers last year, according to the National Hardware Association, Hodnik wants to make sure Ace gets its fair share.
"Homeowners continue to create a better lifestyle environment for themselves, whether they are moving or staying put," he says. "As that trend grows, Ace will continue to benefit."
 
Building the structure
Today, every Ace store has proper signage, but 30 years ago, that consistency among the stores didn't exist. The company now maintains minimum standards for all its stores, so how does Hodnik convince thousands of independent dealer/owners that the decisions made at headquarters are the right ones?
"Most of it is good communication, leadership, envisioning the future and getting them to understand that and want to follow that direction," he says. "We also have some opportunities for retailers to attain much higher levels of quality and participation in the program."
But no matter how good the communication is, Hodnik knows it can take a bit more than a pat on the back to align every dealer's philosophy with the organization's overall plan. Built-in standards and award opportunities -- including monetary incentives to operators who meet certain goals -- motivate independent retailers and keep them interested.
While the cooperative structure is now an integral part of the operation, it hasn't always been that way. When founders Richard Hesse resigned as company president in 1973, he agreed to sell the company to its retailers for $6 million. The transition to making Ace a retailer-owned cooperative was completed in 1976.
Since then, the company has grown beyond the United States. In 1975, Ace expanded into Guam and since there has flourished in the international market. And Hodnik recently signed a deal with Hardware Enterprises de Mexico, a home center retailer and paint manufacturer, to establish a strategic alliance in the Mexican hardware market.
Ace has had stores in Mexico for 10 years, with 28 retailers operating 84 retail outlets/points of sale. For Hodnik, this is another method of accelerated growth.
"What we're looking for here is more international brand building -- a fine company from Mexico that the banners on their stores will be Ace," he says. "There will be buying power built by them buying through us."
Hodnik has also targeted ways to organically expand the existing business. Ace offers the Ace Helpful Hardware Club, a loyalty program which allows customers to earn points toward reward certificates and offers discounts, and some stores have a rental section, the Ace Rental Place for customers who don't want to buy tools they won't use on a regular basis. There are 386 Ace Rental Places in 61 countries.
"We continue to grow that part of our business," says Hodnik. "It's a nice tangent category of merchandise."
 
Assembling a strong community
Hodnik recognizes that Ace is only as strong as the communities in which it does business. Its independent operators are involved in their communities, which is a key component to retaining and attracting customers. It's also part of Hodnik's plan for expanding deeper within the company's existing bases.
The company as a whole focuses on specific programs -- the Children's Miracle Network, the American Red Cross, City of Hope Cancer Center -- but the money raised by each store stays in its community.
In 1991, the Ace Hardware Foundation was established to serve as an umbrella over the charitable fund-raising efforts of Ace Hardware retailers, Ace Hardware Corp. and Ace vendor partners. In addition, Ace serves as the official hardware provider to Little League Baseball, and the Ace Scholarship Program, along with GE Sealants and Adhesives, provides 20 $2,000 scholarships in five areas, including child of an Ace store employee and a high school senior store employee.
Because the company's core business helps families physically improve their homes, the scholarships are yet another way Hodnik aims to strengthen Ace's relationships with its clients. And, as he says, "We look at it as being consistent with our overall culture. It's hard to argue with children." How to reach: Ace Hardware, (630) 990-6600 or www.acehardware.com