They say that teamwork makes the dream work. Ace Hardware stores began with this simple idea nearly 100 years ago. Today, Ace is the largest retailer owner hardware cooperative in the entire world.
Business Model of Ace Hardware
The company operates with a co-op business model, which means that the store owners are the only shareholders. This is the opposite of the popular franchise model. Thousands of entrepreneurs work together to increase their buying power and reduce their costs. The corporate structure oversees the 14 regional distribution centers that supply each store with their merchandise.
Here’s what happens when a new Ace store opens: The owner buys $5,000 in shares. He or she can then purchase any of the 80,000 plus products from the co-op warehouses. They can use the branding and they can use the logo. They’ll then receive dividends based on purchases rather than equity. Each store contributes to things that will benefit the co-op, like marketing and advertising.
This model allows even the smaller stores to compete with the big guys. Ace wants successful stores. So if a particular store is underperforming, they may have them give up the right to use the Ace signage. It’s all about image management and protecting the brand.
That Ace brand got its start back in 1924 when four Chicagoland businessmen teamed up. They thought that perhaps they could get better deals on inventory if they joined forces and bought things together in bulk. Richard Hess, E. Gunnard Lindquist, Frank Burke, and Oscar Fisher combined their stores and called them Ace Stores. The name was inspired by the Ace fighter pilots from World War One who were able to overcome all odds. Ace Stores became incorporated in 1928.
Their first warehouse opened up in 1929. While the stock market crash wreaked havoc on businesses across the country, hardware stores found new customers that were looking to do their own home repairs. It was cheaper now for homeowners to purchase the needed tools and fix things on their own rather than to hire out the task. By 1933, Ace had a network of 38 retailers and held a dealer convention in Chicago.
This allowed dealers to check out new merchandise and to make informed decisions about what items to purchase and to carry. Ace Hardware stores thrived after the war. By the end of the 1940s, Ace’s 133 stores brought in more than $7 million in wholesale sales. By 1951, sales reached $9 million, and by the end of the decade, in 1959 on its 35th anniversary, sales from their 325 stores topped out at $24.5 million dollars.
The 1960s saw continued growth for Ace. In 1961, they bought their first mainframe computer. By 1963, they began expansion into both the South and the West Coast. Their first distribution centers outside of Chicagoland opened in 1969, with a warehouse in California serving the West Coast stores and another in Atlanta serving the South. By 1994, there would be 12 more added to the fold.
By the 1970s, Ace evolved into a wholesale organization. They would purchase directly from manufacturers and then store the merchandise in their warehouses. This cut costs even more for the Ace store retailers because it eliminated the middleman. Owners could decide whether they wanted to pass this savings onto their customers by lowering prices or keep prices the same and take home a bigger margin.
Original co-founder Frank Burke served as president of the organization early on until fellow co-founder Richard Hess took over in 1930. He would maintain that role for more than four decades until the end of 1973, just before he retired. He sold Ace to its member dealers, forming a dealer-owned cooperative. He was the last surviving founder. The company also moved its headquarters to Oakbrook, Illinois, a suburb of Chicago.
Sales continued to soar for Ace in the 1970s. By 1976, sales reached $382 million dollars. In 1978, they finally expanded to the East Coast. Also expanding at this time was the DIY market. Competition grew in the form of big box stores. Even grocery stores began to carry some hardware items. But having the retailers be the exclusive shareholders in the company was a good move. Ace had more than one billion dollars in wholesale sales in 1985. By 2015, it was over $5 billion dollars.
Ace Hardware continues to be the helpful place. Today, Ace has more than 5,300 locally owned and operated stores in all 50 states and in over 70 countries. Ace has earned the top spot in the highest customer satisfaction among home improvement retail stores category in the J.D. Power Home Improvement Retailer Satisfaction Study 14 of the last 15 years.
As the saying goes, teamwork makes the dream work. That was the goal for four Chicago businessmen nearly 100 years ago, and their dream is still alive and well in the helpful team at Ace Hardware today.
