Ace Hardware is one of the most recognized and trusted brands in the home improvement retail industry. With over 5,000 stores across the United States and 60 other countries, Ace has built a reputation for helpful service, knowledgeable advice, and well-stocked stores. But despite its ubiquity, many people don‘t fully understand Ace Hardware‘s unique business model. Is Ace Hardware a franchise? How does the Ace cooperative system work? And crucially, how much money can Ace Hardware store owners make?
In this article, we‘ll take a deep dive into the Ace Hardware business model from the perspective of both a retail industry expert and a savvy consumer. We‘ll examine how the Ace cooperative operates, the economics of Ace store ownership, the competitive landscape of the hardware industry, and the overall viability of Ace as an investment opportunity. Whether you‘re a potential Ace store owner or just a curious DIYer, read on to get the full scoop.
Ace Hardware: A Brief History and Overview
First, let‘s start with some basic background on Ace Hardware. The company was founded in 1924 in Chicago by five independent hardware store owners who wanted to increase their buying power and compete with larger retailers. The company initially operated as a traditional wholesaler, but in 1973, Ace shifted to a cooperative business model. Under this structure, Ace store owners became shareholders in the company and earned a share of the overall profits.
Fast forward to today, and Ace Hardware has grown to over 5,000 stores worldwide, with retail sales topping $16.6 billion in 2020. The company is still a cooperative, with each store independently owned and operated by local entrepreneurs. Ace provides these owners with branding, marketing, distribution, and other support services in exchange for their investment and participation in the cooperative.
The Ace Hardware Cooperative Model: Costs, Benefits, and Risks
So what exactly does it mean to be part of the Ace Hardware cooperative? Let‘s break down the key elements:
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Investment: To open a new Ace Hardware store, owners must invest $5,000 to purchase shares in the cooperative. This grants them voting rights as shareholders and the right to use the Ace brand and systems.
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Startup Costs: The total startup costs for an Ace Hardware store can range from $270,000 to over $1.6 million, depending on factors like location, store size, and inventory. Owners must have a minimum net worth of $400,000 and at least $250,000 in liquid assets to qualify.
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No Royalties: Unlike a traditional franchise model, Ace Hardware store owners do not pay ongoing royalty fees on their sales. However, they do pay into national and local advertising funds and may have other fees for specific services.
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Profit Sharing: As shareholders, Ace store owners receive a portion of the cooperative‘s overall profits each year in the form of dividends. In 2020, Ace paid out $289.8 million in dividends to its retailers, an increase of 33% over the prior year.
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Training and Support: Ace provides extensive training and support for new store owners, including classroom sessions, on-site coaching, and ongoing education. Owners also have access to Ace‘s distribution network, preferred vendors, and marketing resources.
The cooperative model offers some significant benefits for Ace Hardware owners. By pooling their buying power, Ace can negotiate lower prices and better terms from suppliers, which helps stores keep costs down. The profit-sharing structure also rewards store owners for the overall success of the cooperative, not just their individual location.
However, there are also some risks and limitations to consider. While Ace store owners have considerable autonomy, they must still adhere to certain brand standards and purchase requirements set by the cooperative. And like any retail business, success is heavily dependent on local market conditions, competition, and the skills of the individual owner.
Inside the Typical Ace Hardware Store: Size, Layout, and Merchandising
So what does a typical Ace Hardware store look like? Most Ace stores range from 10,000 to 15,000 square feet in size and are located in strip malls, shopping centers, or freestanding buildings. The stores are organized into distinct departments such as tools, hardware, paint, plumbing, electrical, lawn and garden, and home goods.
Ace provides detailed planograms and merchandising guides to help store owners create a consistent look and feel across the brand. Stores typically feature wide aisles, bright lighting, and clearly marked signage to make it easy for customers to find what they need. Endcaps and promotional displays are used to highlight seasonal items, new products, and special deals.
One of the hallmarks of Ace Hardware is its knowledgeable and friendly staff. Ace store owners prioritize customer service and employ team members who are experts in their respective departments. Stores often feature a dedicated customer service desk and offer services like key cutting, screen repair, and paint color matching to drive traffic and loyalty.
Ace Hardware‘s Target Market and Competitive Position
Who shops at Ace Hardware? The company‘s primary target market is homeowners aged 35-64 with household incomes of $60,000 or higher. These customers are typically engaged in small to medium-sized DIY projects and home repairs and value the convenience, service, and expertise that Ace provides.
Ace also serves tradesmen and contractors as a secondary market, particularly for items like fasteners, tools, and building materials. However, the company is generally not focused on large-scale construction projects or bulk quantities.
In terms of competitive positioning, Ace Hardware occupies a unique niche in the market. It competes with big box home improvement chains like Home Depot and Lowe‘s on selection and price, but differentiates itself through its knowledgeable service, neighborhood locations, and community involvement. Ace also faces competition from Amazon and other e-commerce players, but has invested in its own digital capabilities to offer customers a seamless omnichannel experience.
Advertising, Marketing, and E-Commerce at Ace Hardware
To build and maintain its brand image, Ace Hardware invests heavily in national and local advertising. The company runs TV, radio, print, and digital ads highlighting its helpful service, wide selection, and community ties. In 2020, Ace spent $224.7 million on advertising, up 18% from the prior year.
At the store level, Ace provides owners with comprehensive marketing support and resources. This includes seasonal promotions, in-store signage and displays, direct mail campaigns, and digital marketing tools. Ace also offers a popular loyalty program called Ace Rewards that provides customers with exclusive deals, coupons, and rebates based on their purchase history.
In recent years, Ace has also made significant investments in its e-commerce and omnichannel capabilities. The company‘s website, AceHardware.com, offers over 80,000 products for purchase with free in-store pickup or direct shipping. Participating stores can also fulfill online orders from their own inventory to drive incremental sales. Ace‘s mobile app provides customers with features like in-store product locators, barcode scanning, and digital coupons.
The Economics of Ace Hardware Store Ownership
Now for the million-dollar question: how much can Ace Hardware store owners actually make? The short answer is that it varies widely based on factors like location, competition, and individual owner performance. But here are some high-level statistics:
- According to Ace Hardware‘s 2020 annual report, the average Ace store generated sales of $3.2 million, up 16.1% from the prior year.
- Ace stores typically operate on gross margins of 40-50%, with an average net profit margin of around 3.5%.
- In a 2019 survey by Franchise Business Review, the average Ace Hardware owner reported an annual income of $83,500, with top performers earning over $95,000.
Of course, these are just averages and do not guarantee success for any individual store. Owners must carefully manage their inventory, pricing, staffing, and other expenses to maximize profitability. And as with any retail business, there are inherent risks such as economic downturns, supply chain disruptions, and changing consumer preferences.
The Bottom Line: Is Ace Hardware a Good Investment?
So is owning an Ace Hardware store a smart business move? For the right entrepreneur, it can be a profitable and rewarding venture. The Ace brand has a strong reputation, loyal customer base, and proven business model. The cooperative structure provides owners with valuable resources and support, while still allowing for local flexibility and control.
However, success is not guaranteed, and the initial investment and ongoing costs can be substantial. Prospective owners should carefully research their local market, develop a solid business plan, and be prepared to work hard to differentiate their store and build customer loyalty.
Overall, Ace Hardware presents a unique and compelling opportunity in the retail hardware industry. With its focus on service, selection, and community, Ace has carved out a niche that resonates with customers and has allowed it to thrive for nearly a century. As the company continues to evolve and adapt to changing market conditions, it is well-positioned for continued growth and success in the years to come.
