Ace Hardware

How one retailer survives and thrives against Amazon and big box stores.

I tried to fix my toilet last Sunday.  It was leaking somewhere in the tank, causing the valve to kick on and refill the tank regularly, wasting water.  My quest to repair my toilet illustrated something about innovation, and gave me yet another example of the “third way” to innovate.

Faced with a leaky toilet, my first step was to read up on toilet repair – a pretty simple process once you learn to speak toilet (e.g., once you learn the difference between a ball cock, a float cup, and a flapper seal).  Online guides recommended checking the height of the overflow tube and cleaning the flapper, but after doing those steps the leak continued.  There was something wrong with the flapper.

I went to Amazon and searched for “flapper” along with the brand of my toilet. The search returned 111 different items, which led to a new set of questions: what size flapper did I need?  Did I need the whole assembly or could I just replace one part?  Which of the 111 different results were right for my toilet? Furthermore, none of the parts would arrive that weekend, and I wanted to get the toilet fixed while I had some free time.

So I went to the local hardware store in my neighborhood.  It’s a family-owned place that celebrated its 100-year anniversary a few years ago.  The wood plank floors, narrow aisles, and busy shelves are a wonderful experience – it’s like a return to my childhood when I would go with my father to the local hardware store.  And it seems like every time I go there I see a friend from the neighborhood.  Unfortunately, they didn’t have the part I needed.

So I went to the Ace Hardware store nearby.  It was a Goldilocks moment – it didn’t have the funky charm of my neighborhood store or the wide selection and low prices of Amazon, but what it did have was just right – the solution for my leaky toilet.  In the store, above the display of toilet parts, was a simple diagram of how to diagnose and fix common problems.  A helpful guy stopped by and asked if I needed advice.  He spent 5 minutes diagnosing my problem, showing me the right part, and telling me how to do the repair.  The total cost?  $9.99 plus tax.

After grabbing the right part, I walked around the store, just browsing.  The first thing I noticed was a wall of toilet seats, in case I wanted to upgrade that part of my toilet. There was a similar display of bathroom and kitchen faucets.  I saw a barbecue grill display and bought replacement parts and a grill cleaner. I bought bird seed for my wife’s bird feeder.  We were low on duck tape[1] so I stocked up.  I got some extra house keys made and bought a completely unnecessary power tool.  I left spending three figures, fixed the toilet, and was completely satisfied.

Ace Hardware is a great example of a company that’s thriving despite facing some of the toughest competition imaginable. Amazon and other online retailers offer lower prices and free delivery.  Big box stores like Lowe’s and Home Depot promise a wider selection and lower prices, and the family-owned hardware store that’s been in the neighborhood for three generations has its own unique appeal.  But Ace Hardware is not just surviving, they’ve grown both sales and profits by over 20% the last two years.  The company’s unique approach to innovation doesn’t involve selling cheaper toilet parts (they don’t) nor disrupting the hardware industry, but by surrounding their products with complementary products and services that make those products more valuable to their customers.  Ace is continually experimenting with new types of products and services they can offer, all focused on giving homeowners everything they need to repair, preserve, and improve their homes.

My local Ace Hardware store sells not just standard hardware items like toilet parts and tools, but also has a full rental center in case I want a roto-tiller, wood chipper, carpet cleaner, or party tent. They have a services desk that can repair my window screens, test the pH of my soil, or fix a lock.  Their employees are uniformly friendly, knowledgeable, and helpful.  They have regular evening events, many targeted only to women.  And their inventory is online so I can check availability.  Some stores will deliver large items like barbecue grills the same day you purchase them, and assemble them for you. They adjust their inventory to fit the neighborhood they serve – the items in an urban Ace Hardware store will be much different than those in a suburban or rural store.

In my previous book, Brick by Brick: How LEGO Rewrote the Rules of Innovation and Conquered the Global Toy Industry, I told the story of how LEGO adopted a similar innovation approach in 2003 to recover from their brush with bankruptcy.  Like Ace Hardware, LEGO’s success hasn’t come from just offering a better box of bricks, and hasn’t come from reinventing the future of play.  LEGO tried both of those strategies and failed.  The successful strategy for them was to go back to the company’s core product, the box of bricks, understand what the customer wanted from that product, and innovate around the box.

The company recovered, quickly and spectacularly. As I write this in the Fall of 2016, LEGO’s eight-year average annual sales growth has been 21% per year, and profit growth an equally impressive 36% per year.  Given that the patents for the brick expired in the 1980s and aggressive competitors make LEGO-compatible bricks for a fraction of the price, this growth is nothing short of astounding.

The LEGO story and the repair of my toilet both illustrate an approach to innovation that’s genuinely different than the other types of innovation that we hear about in the popular press.  There’s no sailing for blue oceans nor disrupting current products.  There’s no pivoting to new markets to find scalable new business models.  The LEGO approach is neither incremental improvement of current products nor revolutionary disruption – it’s something we’ll call the “Third Way” to innovate, and it’s not being discussed or codified in the literature.  The goal of my new book – The Power of Little Ideas – is to define and explain this approach.

[1] “Duck tape” is the proper name for the strong, versatile waterproof tape that’s good for repairing almost anything, except furnace ducts.

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