Hardware Franchises Provide A Strong Foundation For Franchisees

The Home Depot is the big fish in retail hardware and home improvement centers. Founded by Bernie Marcus and Arthur Blank, their first store, opened in Atlanta in June 1979. Today, Home Depot has more than 2,100 stores and 350,000 employees with annual revenues approaching $100 billion. When it comes to U.S. retailers, Home Depot's annual sales rank second only to those of Wal-Mart.

All retailers strive to offer friendly, helpful service, but Home Depot takes it a step further with its in-store clinics and online workshops for the DIY (do it yourself) home owner--who is then more than happy to buy the tools and supplies required to complete their home projects. And when it comes to the mechanically challenged, or the aging baby boomers who no longer can or want to do their own repairs, Home Depot has that covered too: they offer an extensive list of interior and exterior home services, from carpets to roofing.

Lowe's, the number two hardware retail brand in the U.S. isn't exactly small fry, but its revenues are less than half those of Home Depot. Lowe's reported $43 billion in 2006 sales from its more than 1,250 stores, and has been growing rapidly in recent years.

Menard, Inc., a private, family-owned chain with 210 stores, ranks third among retail hardware and home improvement chains with an estimated $6.5 billion in sales in 2005. This 35-year-old operation also has its own lumber yards. Fairly snug in its locations in north central states from the Dakotas to Ohio, Menard's now faces increasing competition from Home Depot and Lowe's, which continue their relentless expansion both into new geographic markets and within their existing markets.

Some hardware retailers have taken the form of a cooperative. The largest of these is Ace Hardware, whose dealer-owners operate more than 4,600 Ace Hardware stores, home centers, and lumber and building materials locations in 50 states and about 70 countries. In 2005, total sales were $3.5 billion.

Do It Best is the number-two co-op in this segment in terms of sales, notching sales of $3.1 billion in its fiscal year ending June 2006. Founded in 1945 as Hardware Wholesalers, Do It Best has more than 4,100 member-owned stores in the U.S. and 45 countries.

Third among the co-ops in terms of sales, True Value (TruServ Corp.) had about 5,800 retail sites in 2005. Combined sales for its brands, which include Taylor Rental, Grand Rental Station, Home & Garden Showplace, Induserve Supply, and others were about $2 billion in 2005.

The market for home improvement retailers (hardware, home centers, lumber, building materials, and related items) is a proven, growing opportunity. In the United States, the total home improvement retail market topped $300 billion in 2006, and is forecasted to grow at a compound annual growth rate of 5.7 percent during the years 2005 to 2010, reaching $309.6 billion in 2007 and $358.4 billion in 2010 (Hardware Retailing magazine, 2006 Annual Report).

The Home Depot, Lowe's, and Menard are more traditional corporations, while Ace, Do It Yourself, and True Value employ the owner-operator model, but without the structure of franchise fee and ongoing royalties. Still, there are entry costs of anywhere from $650,000 to $1 million or more, depending on store size. For independent owners with an existing store, the entry costs, of course, are significantly lower, just as they are for independent owners who convert to a franchise model.

Hardware also includes the tools and equipment used by tens of thousands of mechanics to keep the nation's 200 million automotive vehicles running, as well as its boats, ships, and planes. This niche includes two franchise companies, Matco Tools and Snap-on Tools, as well as MAC Tools.

Snap-on Tools, founded in 1920, is a $2.4 billion S&P 500 company that manufactures and distributes professional automotive equipment, tools, and toolboxes through its familiar trucks. Matco Tools, founded in 1946, began franchising in 1979, selling directly to professional mechanics through a network of independent franchised mobile distributors (Matco is a subsidiary of Danaher Corp.). MAC Tools is not a franchise business model, but each distributor operates a mobile store and is given a unique territory and a specified route with 325 potential customers (MAC Tools is part of The Stanley Works).

Hardware may not be glamorous (although many power tool and home improvement enthusiasts may strongly disagree), but even in this so-called digital age, where would we be without it? Humans are still users of tools, and will continue to be for the foreseeable future. Next time you settle into bed in your comfortable home, thank your home builder; next time you hop in your car to drive to work, or to pick up your new, state-of-the-art computer or digital television, thank your mechanic.

This article is contributed by Franchising.com, the resource center for franchise education. For information about the 235+ franchise opportunities available through the special VetFran program, visit the Veterans in Franchising Success Center at http://veterans.franchising.com/.