Hardware Retailing

MAY 2018

Hardware Retailing magazine is the pre-eminent how-to management magazine for small business owners and managers in the home improvement retailing industry.

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May 2018 | HARDWARE RETAILING 169 Menards' Market and Opportunities Hardware Retailing (HR): Can you describe the average Menards consumer? Anne Brouwer (AB): In general, I would say their customer is probably not too different from those of Home Depot and Lowe's. Menards' customers are often looking for a lot of the same products and services. There are a number of markets where these stores overlap, and in those markets, a Menards' customer might be slightly more price-sensitive. HR: What is Menards' position among its major competitors? AB: When you talk about Menards, they're clearly No. 3 after Home Depot and Lowe's. But they're a regional player and often about one-tenth of the overall size of these major competitors in terms of earnings. There's a significant difference in the productivity among these three companies. Most of these companies have 200,000-square-foot stores, but Menards brings in $10 to $12 million less per store. HR: What opportunities can Menards capitalize on in the coming years? AB: One of their biggest opportunities is to look at how to increase the productivity of each store, rather than building new stores, which is costly. I think Menards' opportunities fall into three main areas. One is improving operational excellence, which starts with recruiting and training the right kind of people with the right kind of skills. It includes improving their processes, in-store and beyond, and it includes their ability to solve problems and deliver a satisfactory solution to customers. Another area is in information and data management. That involves an underlying combination of systems and analytics and access to accurate, timely information. The third area is culture. Menards has a reputation for not necessarily always being a happy place to work or a satisfying place for customers, particularly post-purchase. These challenges are not unique to Menards; many retailers need continuous improvement in these areas. HR: Can you discuss Menards' e-commerce presence compared to Amazon and direct competitors Home Depot and Lowe's? AB: I think you could argue that they're lagging behind in that area. This is clearly one area that represents an opportunity for them. It's an area that's tough for all retailers, not just Menards, because so much is changing so quickly, and the consumers are often far out in front of a retailer's current capabilities. It's a huge investment of resources. It's time, money, skills and access to the right solutions. HR: You've called Menards a "regional player." What benefits come from sticking to certain regions as opposed to expanding? AB: It takes huge investments to open new stores. Unless you have a model that gives you a break-even and return on investment, new stores can sometimes give you a temporary boost, but not always a sustainable long-term model. In the last few decades, lots of retailers expanded too quickly and now have too many stores, leaving them needing to shrink their retail footprint because they need to invest in other touch points to match customers' needs. The second advantage of staying regional should be to more deeply understand their trade area and tailor their products and services to meet that demand. They should, theoretically, be able to outmaneuver national chains that might not be able to understand or capitalize on differences between regions. If you look at home improvement, we already have two very strong national players and strong independent competitors and local specialists like lumberyards and plumbing, kitchen and lighting product suppliers. You have to ask whether there really is room for a third national player in these markets. There may be opportunities in mid-size markets for companies like Menards, where Home Depot and Lowe's would never invest. HR: What value does Menards derive from being a private company? AB: Menards has a lot more leeway to run with different kinds of margins, operating profits and net profits than a public company that's constantly being hammered by the markets and challenged by analysts who expect faster growth and higher profits. Anne Brouwer Senior Partner, McMillan Doolittle Anne Brouwer, Wisconsin-based senior partner at retail consulting firm McMillan Doolittle, offers her perspective on Menards. Brouwer serves on the National Retail Federation Associate Member Council and belongs to other retail organizations.

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