WHY TRUE VALUE QUIT THE CO-OP MODEL

By NZHJ July 17, 2019 Industry news

In an exclusive interview, John Hartmann explains True Value's shift away from the “antiquated” (his word) cooperative model.

In April last year True Value Company and ACON Investments finalised a strategic partnership that allowed True Value Company to change fundamentally how it operates as a business.

It enabled a shift away from the company’s historical co-op model to becoming a pure-play wholesaler whilst remaining a nationally recognised brand and still offering a suite of retail services.

From the True Value retailers’ perspective, ACON’s US$230 million investment meant they got back 70% of their invested capital and 100% of their promissory notes, on top of their 2017 Patronage Dividend.

The retailers also retained a 30% holding in the new True Value Company, which would continue to be run by the existing management team.

John Hartmann, President and CEO of True Value Company (and former Mitre 10 NZ CEO), commented at the time that ACON’s investment would allow True Value Company to “accelerate its transformation, while unlocking vast potential to partner with current and prospective retailers as a more flexible supplier and service provider.

“Providing access to the benefits of a national brand without any membership fee is truly a game-changer for this industry, and we are excited to be at the forefront of this important shift.

“We look forward to continuing to support independent retailers across the US and internationally as we begin this exciting new phase for True Value Company, together with our new partners at ACON.”

One year on, we asked John Hartmann to explain the motivations behind this step change away from what he describes as the “antiquated” co-op model.

 

Describe True Value’s historical or legacy model?

“The history of True Value began with the co-op’s founder, John Cotter. Having started his career at a neighborhood hardware store at age 12, Cotter had a clear vision for small business owners.

“He knew that retailers could thrive given the best access to product and low pricing, while retaining their complete independence, and he took action to make that happen.

“In 1948, he founded Cotter & Company, a retailer-owned cooperative that included 25 independently owned and operated member stores. He also purchased the True Value trademark – a long-standing brand and presence since 1932.

“Today, True Value continues to be driven by the very same goal. As the only hardlines wholesaler with a nationally-recognized brand in the industry, we provide locally relevant product, competitive prices, an expansive warehouse network, and innovative marketing know-how.

“We help retailers all over the world achieve retail excellence in a way that works for them and for their local communities. We’re focused on helping our 4,500 independent stores to grow, realize profitability, and remain relevant with their communities for many decades to come.

“Our 13 regional distribution centers, and approximately 2,500 associates work tirelessly with stores across 60 different countries to support this goal.”

 

How has True Value’s model changed, in particular in the last year? And what took place to enable these changes?

“We know that with the ever-changing retail landscape, simply sticking with the status quo is not an option – we have to stay bold, ambitious and innovative in everything we do.

“In 2014, True Value laid out a multi-year plan that would lead to improved retailer growth and profitability. Over the last five years we have been on a journey, making strategic investments to ensure our retailers remain relevant for generations to come.

“In parallel with our investments in the company, we identified a way to unlock the majority of our retailer’s equity to allow them to invest in their business as they know best.

“A year ago, we closed on the transaction with a financial sponsor that unlocked True Value members’ equity and transitioned the business from a co-op model to becoming a pure-play wholesaler, while continuing to offer access to nationally recognized brand and suite of retail services.

“True Value is now best-placed to allow the independent hardware retailer to thrive, by creating a more flexible, growth-oriented business model.

“With the return of over $230 million to more than 4,000 independent hardware retailers— they are now able to invest in their business to ensure they stay relevant for generations to come.

“The move not only opened a new chapter in the history of our company, but it also began the transformation of the industry, by paving the way for the continued growth of all independent hardware retailers.”

 

You have talked about modernising the channel’s business model – what were the key drivers?

“As the retail industry continues to transform around us, retailers must constantly improve their business, so that they can continue to offer customers the choice, value for money and superb service that differentiates them.

“The co-op model has been in existence for decades. And while we absolutely respect the legacy of the co-op model, times have changed since its inception in the hardware industry.

“We needed to start to think differently. We knew we could offer retailers the same great relationship without their hard-earned money being trapped in an antiquated model.

“Thinking differently changed the structure of our business and allowed us to return our retailers’ trapped equity while at the same time, accelerating our strategic investments, importantly without financial burden to them.

“More than $100 million of the returned equity has been reinvested back into their business through the purchase of new stores, remodels, new assortments, and digital advertising.

“Now, with an infusion of money, these independents are better positioned to compete, provide jobs and remain the heartbeat of their communities.”

 

Describe the benefits of these changes for True Value Company one year on? And for the retailers?

“Now, as the only hardlines wholesaler with an iconic, globally recognized brand and no stock requirement, more and more retailers are seeing the advantages of True Value.

“In fact, since the transaction, more than 500 retailers have come on board.

“From May 1st through the end of last year, we had record setting growth with more than 300 retailers joining True Value. An amazing trend that is continuing with more than 250 new customers so far this year.

“These include traditional hardware stores – both individual and multi-location, major lumber and building material dealers like Carter Lumber, and a variety of non-traditional customers.

“We’re also making the largest investments in the history of True Value to more effectively and efficiently serve our independent hardware retailers.

“In the past year, we:

  • Implemented the first phase of Hub and Spoke in the Midwest – fill rates are now at 99%.
  • Introduced the industry’s most innovative and effective, hyper-local marketing programs
  • Began the doubling of our sales force to better serve current accounts while growing our customer base
  • Broke ground on a $100 million state-of-the-art distribution center.”

 

“We’ve been busy,” concludes John Hartmann, with perhaps just a touch of understatement.

“It has been a year that we are proud of – proud to keep the commitments we made to our members and customers and proud to move the needle in the areas most important to them.

“The historic change, and achievement, was possible because we allowed ourselves to think differently.

“We were able to think outside the co-op model and put trust in a plan that outlined the importance and benefits of independence.

“We remain humble and hungry to serve independents around the world.”

 


[This article first appeared in the July 2019 issue of NZ Hardware Journal magazine and is included online and in our Digital Edition so more people can read it.]

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