The Retail Hardware Decline

Transcription

1 The Retail Hardware Decline CLARENCE E. VINCENT Until recently the hardware store held a place of prominence among retail Institutions, but it is gradually losing that important position. What has caused the retail hardware trade to experience this decline? What, if anything, can hardware retailers do to rectify this situation? The author examines statistical evidence to ascertain fhe need for some changes, and gives concrete suggestions as to what directions these changes might lead. Journal of Marketing, Vol. 28 (January, 1964), pp HE BIGGEST problem facing retail hardware stores today Tis a decline in their competitive position. This problem, which began in the 1940s, is particularly serious no other retail outlet has experienced as rapid a competitive decline during this period as has the retail hardware trade. The change in competitive position ia evidenced in three ways earnings, sales, and profit on investment figures. A Decline in Earnings Retail hardware stores have experienced a gradual, but definite decline in earnings for more than 10 years. Gross margins as a per cent of sales in the hardware trade increased from 27.80% to 31.55% during the period. During this same period, however, expenses increased from 20.80% to 30.75% of sales. As a result, earnings as a per cent of sales declined from 7% in 1948 to.80% in 1961, the lowest in the trade since 1938 except for See Table I. The decline in earnings in itself is inconclusive, since several other types of retail outlets also experienced low earnings in the late 1950s. A few examples of such outlets are: appliance stores, 1958, 1.1% of sales; department stores, 1958, 0.6%; furniture stores, 1958, 0.5%; and farm supply stores, 1956, 1.5%.i A Decline in Sales More conclusive evidence of this decline in competitive position can be discovered in sales statistics. This evidence is presented in Table 2. While sales of hardware stores increased only 8% during this period, total retail sales increased 68%, and sales of durable goods increased 69%. Sales figures for three other types of durable goods stores have been included since many hardware stores carry some merchandise also stocked by these types of stores. Appliance stores, with an increase of 50%, had the lowest percentage increase of the three; yet this was more than six times greater than the increase enjoyed by retail hardware stores. Since this period was one of the most prosperous in the history of the United States, these figures are especially significant. In terms of expenditures made by its population, the United States economy grew from $259 to $504 billion.^ It is evident that the T~Operating Ratios For Forty-one Lines of Retail Trade (New York: Dun and Bradstreet, Inc., 1959), pp B-usiness Statistics, 1961 Edition. A supplement to The Survey of Current Business (Washington: U.S. Government Printing Office, 1961), p

2 The Retail Hardware Decline 27 Vcar 1948 [ ? TABLE L RETAIL HARDWARE EARNINGS, ' (AHfi^)?uresas a per cent of sales) margin :i D :'.o.on.'!0.45 ;"'> ;n.55 Expense ; o Earnings S.95 3.;io I..00 1, ^Source: Management Report, 1957 (Indianapolis: National Retail Hardware Association, 1958), pp 42-43; Management Report, 1961 (Indianapolis: National Ketail Hardware Association, 1962), p. 11, retail hardware trade as a whole has not participated in the nation's growth and prosperity to the extent that other types of retail operations have. A Decline in Profit on Investment The profit on investment figures also illustrate this decline in competitive position. This downward trend is shown by the figures in Table 3. Net worth, excluding reai estate, and total earnings are used to determine profit on investment in the hardware trade. An increase in net worth would cause profit on investment to decrease even if earnings remained relatively stable. There was a small increase in net worth from 1950 to 1961, but the big decline in earnings during this same period was the primary cause for the decline in investment. Some critics might argue that this decline in profit on investment is inconclusive evidence since many owners also receive salaries in addition to profits. Thus, by including owners' salaries with profit figures, the profit on investment statistics are more realistic. Undoubtedly, this is true, but the same can be said for other types of retail stores in competition with hardware stores. In other words, the owners of many retail stores comparable in size to hardware stores are also active in the business, which means that salary as well as profits should be considered when determining their profit on investment. The fact is that profit on investment in the hardware trade has decreased from 9.58% in 1950 to 4.75% in This represents a significant decline in a 12-year period. Reasons for the Competitive Decline There are several reasons for this decline in hardware's competitive position. The sales figures point out two possible explanations: (1) either consumers are spending a smaller percentage of their income on merchandise carried in hardware stores, or (2) other retail stores selling the same merchandise as hardware stores are taking sales away from the hardware trade. The first proposition is very unlikely since durable goods sales have kept pace with total retail sales. The most probable answer is that hardware stores are losing sales to competitors. There are several possible reasons for this losa of sales to competitors.^ 1. The shopping center development has occurred primarily as a result of the outward expansion of communities aud the congestion and lack of adequate parking facilities in downtown shopping districts. Hardware retailers located in cities with populations from 15,000 to 100,000 have been slow to take advantage of these shopping centers, choosing instead to remain in deteriorating downtown areas. 2. Scrambled merchandising is an innovation in the field of retailing which has take.n place during the past few years. This development has been detrimental to the hardware trade since many grocery supermarkets and drug stores now stock merchandise normally carried by retail hardware stores. 3. The retail stores of the big catalog houses and the auto supply stores have brought about increased competition for the hardware store. Most of these stores carry at least some hardware items, and many carry full lines of hardware merchandise. These stores are located in so many cities and communities that almost everyone has easy access to them. 4. Other changes in retailing which have occurred during the last decade have hurt some retail hardware operations because hardware retailers have been slow to adopt these changes. Some of these ' Contained in an unpublished speech, "Meetin:^ Competition in the Sixties," given by Dr. Wallace 0. Yoder, Professor of Marketing, Indiana University, before the Hardware Management Institute on February 16, 1960, in Indianapolis, Indiana. ABOUT THE AUTHOR. Clarence E. Vincent is Assistant Professor of Business at Southern Illinois University. He holds M.B.A. and D.B.A. degrees from Indiana University. This article is based on research undertaken in connection with the author's doctoral dissertation entitled "An Analysis of Control Procedures In Selected Independent Retail Hardware Stores."

3 28 Journal of Marketing, January, 1964 Retail trade Retail Durable goods Hardware stores Auto accessory stores Appliance stores Furniture and home furnishings stores TABLE 2 SOME COMPARISONS OF RETAIL TRADE SALES' 19J^H 7nonthly averages (000,000) $10,877 3, I960'' monthly averages ( ) $18,294 5, ''/r change bc.tv!cen 19.'fH and 1960 " Source- Business Statistics, 1959 Edition. A supplement to Tk<^ Survey_ of Current Business (Washington: U.S. Government Printing Office, 1959), p. 49; Business Statistics, 1901 Edition. A supplement to The Survey of Current Business (Washington: U.S. Government Printing Office, 1961), p. 51. ' Statistics for 1961 were not available at the time of publication. changes are the extension of self-service, night shopping hours, wider extension of credit, and the use of promotional devises such as premiums, contests, leaders, and trading stamps. These four reasons suggest two primary causes for the stagnant sales situation whieh confronts the hardware trade. First, there is increased competition for the consumer's hardware dollar from non-hardware retail outlets. Second, some hardware retailers have been slow to accept changing retail patterns; therefore, their sales have heen adversely affected. This decline in earnings can be attributed primarily to the rapid increase in expenses. The fact that gross margins have increased is shown in Table 1, but expenses have increased at a greater rate. This increase in expenses can be attributed primarily to salaries. Salaries in 1960 were 18.70% of sales. This percentage was greater than that of any other year.^ Conclusions and Recommendations This decline in competitive position does not mean Year TABLE 3 PROFIT ON INVESTMENT IN THE RETAIL HARDWARE TRADE Profit on investment (not including real estate) Source: "Retail Hardware Survey For 1950, reprint from Hardware Retailer, September, 1951, p. 2; Harry A Harlan, "1954 Retail Hardware Survey," Hardware Retailer, June, 1955, pp , at p. 77; Managenient Report, 1957 (Indianapolis: National Retail Hardware Association, 1958), p. S; Management Report, 1961 (Indianapolis: National Retail Hardware Association, 1962), p. 4. Management Report, 1960 (Indianapolis: National Retail Hardware Association, 1961), pp that the hardware store no longer has a place in the retailing structure, nor does it necessarily imply that hardware retailing cannot regain much of the prestige and prominence it once held. But in order to accomplish this revitalization, hardware retailers must anticipate, recognize, and accept the changes which are occurring in retailing. Even more important, they must adapt their operations to cope with these changes. In most instances, the retail hardware store as it existed 20 years ago is obsolete; yet, too many retailers have failed to recognize this fact. Alert and progressive hardware merchants should be able to increase their earnings. This ean be accomplished in several ways increased sales, increased margins, decreased expenses, or a combination of these. Sales can be increased by some hardware retailers through such devices as improved selling techniques, better promotional devices, more adequate credit plans, improved lines of merchandise, more desirable locations, in other words, simply through better marketing. For example, two hardware retailers located in Indiana reported significant increases in sales volume merely by changing locations. In both cases, these retailers moved from deteriorating downtown locations to suburban shopping centers. Another midwestern hardware dealer increased his sales volume by changing the emphasis on lines of merchandise carried. The number of retail stores in his community carrying hardware merchandise had increased, causing a decrease in the sales of these items in his store. In order to counteract this loss of sales, he enlarged his giftwares department so that his store offered the most complete variety and assortment of giftwares in town. The loss of sales in hardware merchandise was more than compensated by the increased sales of giftwares. Yet a substantial increase in sales may not be the solution for many retailers because of intense competitive pressures, for which there may not be an immediate solution. In fact, competition for the con- 55

4 The Retail Hardware Decline 29 sumer's hardware dollar could conceivably increase. Such intense competition is apparent in conversations with hardware retailers. Three retailers recently quit the hardware business in one midwestern city, and all three place the primary blame on increased competition, not from other hardware stores but from non-hardware retailers selling hardware merchandise. Even if those hardware retailers faced with intense competition for the consumer's hardware dollar are not able to substantially increase their firm's sales volume by means of better marketing methods, their earnings can possibly be increased through one of the other three avenues open to them increased margins, decreased expenses, or a combination of the two. -Margins are influenced by the purchase price paid for resale merchandise and the aeuing price received. Jnten.se competition probably will not allow an increase in the selling price; and one cannot expect a significant decrease in the purchase price paid for items by retailers unless there is a new breakthrough in the distribution of hardware merchandise, such as the breakthrough which occurred with the advent of the retailer cooperative chains. Therefore, it is unlikely that a significant increase in margins would be possible for many hardware dealers in the near future. Thus, a reduction in expenses, and even, more specifically, salaries, can be vital to increased earnings for many hardware retailers. The rapid increase in expenses as a per cent of sales since 1948 is shown in Table 1, and this increase can be attributed primarily to salaries. Salaries can be controlled by the hardware manager in one of two ways. He can either achieve greater sales volume per employee, or he can reduce the number of employees. Either way, sales per person employed will increase, and salaries as a per cent of sales will decrease; this should increase earnings, other things equal. For example, one hardware retailer located in a midwestern city was able to decrease salaries as a per cent of sales by instituting selfservice. He could not operate with fewer employees, but the store was able to handle a larger sales volume during the next few years without adding any employees. This takes into consideration that a completely self-service type of operation, such as that used in grocery supermarkets, is not feasible since certain types of merchandise sold in hardware stores require personalized selling. Not all hardware stores have experienced a decline in their competitive positions, even though profits have declined and sales have remained at approximately the same level for the trade as a whole. By being alert to changing retail conditions and by adapting their operations to cope with these changes, many hardware retailers have been able to compete successfully for the consumer's hardware dollar. Whether or not the hardware store has a place in the future structure of retailing depends primarily on the ability and willingness of the hardware merchant to cope with changing retail patterns aff'ecting the retail hardware trade. MARKETING MEMO- An Alternative to Self-Service.. Russians stoically accept the ritual,.naking a retail purchase in the is a disagreeable..x))erience for anyone accustomed to Western sales methods. Most of the Soviet I/nion's state stores u.e the so-calloa Kas-^a -ca.h,evi system. For the buyer tj.at generally means getting into three lines ^.rst. you line up to ask the price--and permission to look at-the item you want Ihen you queue again, without the merchandise, to pay a cashier. With receipt in hand, you hne up for the third time and pick up the package. While the kassa system doesn't deter Russians from purchasing items they want It doesn t make shopping easy. "Russians Get More Pie," Business Week rjuly 20, 1963) by Special Permission of Business Week.

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