SIC 5251 Hardware Stores

 
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SIC 5251

This category covers establishments primarily engaged in the retail sale of a number of basic hardware lines, such as tools, builders' hardware, paint, glass, cutlery, housewares, and household appliances. Establishments primarily engaged in the sale of lumber and other building materials are classified in SIC 5211: Lumber & Other Building Materials. Those establishments are included in this industry analysis because of their dominant role in the hardware industry. Establishments that specialized in a particular line of hardware, such as paint or wallpaper stores, were classified in SIC 5231: Paint, Glass & Wallpaper Stores.

NAICS CODE(S)

444130

Hardware Stores

INDUSTRY SNAPSHOT

According to the National Retail Hardware Association (NRHA), industry revenues totaled $28.8 billion in 2004. The NRHA projected that the industry would reach $33.8 billion by 2008, a 4.7 percent growth rate. The size of transactions was increasing, while the number of customers was decreasing.

Hardware remained a healthy, growing business in the early part of the new millennium. There were approximately 20,200 hardware stores in the United States in 2004, a steady decrease over a 10-year period. This could be attributed to the growth of home improvement chains, including Home Depot, replacing some of the independently owned, "mom and pop" hardware stores that were typical in past years. There also were roughly 10,100 home centers, which combine goods related to hardware retailing with goods related to building materials retailing.

ORGANIZATION AND STRUCTURE

Most of the U.S. retail hardware stores are independent businesses. However, nearly all of them are affiliated with a nationwide wholesaler that offers private label brands, retail store advertising, and identification programs. Such affiliations create the appearance of a structured industry. Many of these wholesalers are actually cooperatives owned by independent hardware store owners, forming a distribution system that originated in the early twentieth century. Dealer-owned wholesalers sell only to member stores, but member stores can buy merchandise from other wholesalers or directly from manufacturers.

The largest dealer-owned cooperative is Cotter & Company, based in Chicago. It manufactures and distributes products to member-owner stores under the retail trade names of True Value Hardware and V&S Variety Stores. In 1997 Cotter merged with Servi Star, a Minneapolis-based distributor that owned Coast to Coast Stores. Together they created a $4.3 billion company that serves more than 10,000 retail outlets. Ace Hardware Corporation, based in Oak Brook, Illinois, is the nation's second largest cooperative with more than 5,100 members in 1999. Other dealer-owned wholesalers and their store identification programs include Our Own Hardware Co., of Burnsville, Minnesota (How- To Centers); and United Hardware Distributing Co., of Plymouth, Minnesota (Hardware Hank Stores).

Hardware Wholesalers Inc. of Fort Wayne, Indiana (Do-It-Best Centers) launched its own Web site in July 1999. Already one of the nation's largest hardware cooperatives with recorded sales of $1.9 billion in fiscal year 1998, www.doitbest.com listed 70,000 items for sale on opening day. The Web site is marketed as "The World's Largest Hardware Store." However, Internet hardware retailing is still rare.

Most retail hardware stores have less than 20,000 square feet of floor space. The National Retail Hardware Association (NRHA) categorizes larger formats as home centers. Home centers average more than 30,000 square feet and usually combine lumber with a greater selection of hardware products to create a one-stop shopping environment for home repair and home improvement projects. Home centers typically buy directly from the manufacturers and often sell to commercial accounts, as well as individual consumers.

The home center segment also includes large warehouse-style hardware stores that average nearly 100,000 square feet and have between $12 million and $15 million in annual sales. Warehouse stores began to appear in the late 1970s and have had a notable impact on the retail hardware industry. In the early 1990s industry analysts predicted that the warehouse format would revolutionize the industry. But despite attracting a great deal of attention and a significant customer base, warehouse chains such as Home Depot accounted for only about 12 percent of industry sales in the late 1990s.

Warehouse stores are able to negotiate greater discounts from wholesalers and manufacturers because of their size. Warehouse stores also base their retail business on generating a high volume of sales, rather than by pursuing high profit margins. This forces smaller, independent hardware stores and chains, which have traditionally operated on high margins, to lower their prices, become more efficient, redesign their stores, improve customer service, and bypass their wholesalers to get a better price directly from manufacturers. This new operating style has forced numerous wholesalers and retailers to go out of business.

BACKGROUND AND DEVELOPMENT

Hardware stores were among the earliest retail establishments in colonial America, selling tools imported from England. The oldest hardware store in the country is Elwood Adams Hardware in Worcester, Massachusetts. Founded by Daniel Waldo and son in 1782, it was still in business in 1999. The store was named for Elwood Adams, who purchased it in 1886. The first American manufacturer of hardware was probably John Ames, a blacksmith in Bridgewater, Massachusetts. He established a factory for making shovels in 1774. Ames' shovels became indispensable to American settlers.

The American Industrial Revolution of the early 1800s greatly increased the availability of manufactured goods and spurred the growth of general stores that stocked basic hardware. Peddlers selling hardware from the back of their wagons inundated...

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