Home Depot Ups the Ante,
Targeting Smaller Rivals

By JAMES R. HAGERTY
Staff Reporter of THE WALL STREET JOURNAL

SOUTH RIVER, N.J. -- In the back of their hardware store here, Ed and Bonnie Trygar keep a collection of champagne corks to commemorate little victories they have toasted: the day in 1996 when they finally installed air conditioning, the first time they were paid to open a customer's safe, the sale of a brass bathtub drain that had been collecting dust for years.

If the Trygars are still in business two years from now, that alone may merit a toast.

Mom-and-pop operations like Trygar's Hardware & Locksmith Store have survived over the past two decades despite the relentless expansion of Home Depot Inc.'s orange-decked warehouse stores, with their stack-it-high-and-sell-it-cheap ethic. Though they couldn't beat Home Depot prices on many items, the family-owned stores offered two things the orange giant often couldn't match -- friendly, personal service and convenient locations.

Now Home Depot is plotting to rub out rivals by challenging them on the only advantages they have left: service and convenience.

The Atlanta-based retailer will soon begin an experiment with smaller stores that are "locationally convenient," as one company official puts it. The idea is to entice customers who don't have the time or need to drive 10 miles to a warehouse store in order to save a little money. The first of these smaller stores, to be called Villager's Hardware, is due to open this spring in East Brunswick, N.J., in a strip mall less than two miles from Trygar's.

"We're not really shaking in our boots," says Mr. Trygar, a balding 40-year-old ex-professional drummer who inherited the business from his parents 14 years ago.

He is, though, taking several steps to defend himself. He recently ordered a new Trygar's sign. It will brighten a drab sidestreet where several storefronts await tenants. Last fall, he repainted the trim on his two-story brick building here in downtown South River (pop. 14,000).

He may need to do something about the roof. After a heavy rain, water drips into plastic pails set out on a wood floor still stained from a flood several years ago. Black fan belts dangle from a tin ceiling that is corroded in spots.

A Resilient Breed

Even as he patches up his patrimony, Mr. Trygar strives to remain cheerful with his customers, although, he says, "sometimes I get in one of those zones where I don't feel like talking to anyone." Often, Mr. Trygar admits, he wonders whether it wouldn't be easier to sell the store and work for a big company.

Local, family-owned drugstores and supermarkets have withered in the face of competition from national chains like Rite Aid Corp. and Kroger Co. But family hardware stores have proved surprisingly resilient. There are about 21,400 hardware stores in the U.S., nearly all of them family-owned, the National Retail Hardware Association says. That is down only about 12% from the mid-1970s, just before the rise of Home Depot.

Rather than wiping out small local hardware stores, Home Depot has been roughest on regional chains of midsize "home center" stores. Such outlets often were too big for convenience but too small to compete with Home Depot on price.

Small hardware stores are still around partly because decades ago, long before the arrival of Home Depot, they joined cooperatives such as Ace Hardware Corp. and TruServ Corp., which owns the True Value, ServiStar and Coast to Coast trading names. The cooperatives serve as wholesalers, buying goods in bulk on behalf of their members. As a member of TruServ, Trygar's typically gets merchandise 10% to 20% cheaper than it could if it bought on its own, TruServ officials say.

Keys to Success

As part of their survival strategy, the small stores tend to concentrate on selling items, such as plumbing and electrical fixtures, that require patient explanations from experienced salespeople. Many small stores find lucrative niches. Trygar's makes a specialty of duplicating keys (its motto is "Keys That Please") and locksmith services. Mr. Trygar is on call to open locked cars long after store closing time. The key-and-lock business accounts for about a fifth of his revenue.

Small stores like Trygar's also benefit from the loyalty of their neighbors. "I don't like dealing with big companies when I don't have to," says Tom Naminsky, a mechanic in South River who regularly shops at Trygar's. "Why make big companies richer when there's someone around the corner trying to make a living?"

Being big has its advantages, of course, notably in being able to keep prices low. People tend to go to Home Depot, rather than to the likes of Trygar's, when they want power tools or other big-ticket items. Founded in 1978, Home Depot operates more than 700 stores in the U.S. and opens a new one every two or three days. It has reported record earnings for each of the past 51 quarters.

But Home Depot eventually will run out of prime locations in the U.S. to open its warehouse stores, whose average size is about 112,000 square feet (or about 50 times larger than Trygar's). So, Home Depot is experimenting with new ways to sustain its growth, including expansion in Latin America, a chain of upscale Expo home-decoration stores and Villager's Hardware.

Over the next 12 months or so, Home Depot intends to open four of the Villager's stores, all in New Jersey, says David Suliteanu, a Home Depot executive supervising the experiment. If the stores succeed, the company will try to make Villager's into a national chain.

CrossRoads Went Nowhere

Success isn't a given for Villager's. In the mid-1990s, Home Depot experimented with rural hardware stores called CrossRoads, then quickly dropped that idea when it found the formula had little appeal. But if Home Depot gets the formula right with Villager's, that chain would probably drive some of the weaker family-owned hardware stores out of business.

The name Villager's was chosen, Mr. Suliteanu says, because it sounds "friendly, convenient, close to home, you know ... warm." The Villager's stores will be several times larger than the typical neighborhood hardware store, but still "easy to shop," Mr. Suliteanu promises, with a bigger selection and lower prices than local hardware stores. All in all, he suggests, "a very exciting retail concept."

No one would mistake Trygar's for a new retail concept. Along the five aisles, browsers find myriad products and curiosities, some from another era. Stacked on the shelves or hanging from pegs are clothespins, hand-crank meat grinders, fuse pullers, Goo Gone grease remover and wooden washboards. "Surprisingly," says Mr. Trygar, picking up a washboard, "we sell quite a few of these."

The store has been in the family since 1974, when Mr. Trygar's father bought it from another local family. The younger Mr. Trygar left South River after high school, joined the Air Force and later settled in California, working as a locksmith and as a drummer for blues bands. One day his parents said they were going to sell the store unless young Ed wanted to take it over. So he moved back to South River.

'An OK Living'

The store's modest profits yield "an OK living," Mr. Trygar says during an afternoon lull between customers. "We've got a house, two cars." He shrugs. "It's more of a lifestyle." The Trygars live about a mile from the store and wear jeans to work. If they wake up at 7:45 a.m., they can still open the store at 8.

Merchandising decisions flow from instinct, not market research. "We'll try things," says Mr. Trygar. He points to a $5.99 wind chime designed to be implanted in a lawn. After a year of prime display, chime sales were zero. "It was kind of a bummer," Mr. Trygar says. Yet the chimes remain on display.

"Dad always used to say, 'Hardware doesn't go bad. It's not like food,' " Mr. Trygar recalls. The younger Mr. Trygar disagrees. He is stuck with metal spouts for oil cans; no one buys them now that oil comes in plastic bottles. A red hand drill, priced at $20.99, has been languishing on a shelf since 1992. Mr. Trygar felt sure customers would snap up environmentally safe antifreeze, but a jug of it has been awaiting a buyer for four years. "I'll probably put it in my car," he says.

Though he can't always anticipate their desires, Mr. Trygar at least knows the faces and sometimes the names of his customers.

"Hey, what's the good word?" he shouts when Bob Hettinger comes into the store on a recent morning to buy duplicate keys. Mr. Hettinger, shivering under his green New York Jets cap, ponders the question. "Cold!" he says. "That's the good word. Ice!"

Mr. Trygar doesn't need to be reminded of the cold snap: He is running out of rock salt, just when customers finally need it to clear ice from their sidewalks. He gets deliveries from his main supplier, TruServ, only once a week, and he won't receive a new shipment for several days. At Home Depot, fresh merchandise arrives daily.

Service and Economies

That makes service all the more vital for Trygar's. Many of the store's customers come in for advice on how to remove stains from a carpet, plug a leaking toilet or fix a broken lock. When a young man shows up with a tale of woe about a faulty door lock, Mr. Trygar provides a patient explanation of lock mechanics and sells the customer a small can of WD-40 oil. The customer walks out smiling.

Can Home Depot reproduce those warm-and-fuzzy customer relations? Mr. Suliteanu, the Home Depot executive, says Villager's stores will put customers "on a pedestal." Home Depot won't say whether Villager's will have more salespeople per customer than the warehouse stores, where throngs of customers often result in long waits for service, especially on weekends. Mr. Trygar scoffs at the idea that Villager's will be able to match his service.

He concedes that Home Depot has the pricing edge on many items. A Home Depot warehouse in Milltown, N.J., just a few miles from Trygar's, recently was selling 16-ounce bottles of Elmer's wood glue for $3.84, compared with $4.99 at Trygar's. But Trygar's was selling 10.1-oz. tubes of GE caulk for $3.29, less than the $3.45 at Home Depot. Mr. Trygar says low caulk prices lure building contractors into his store.

TruServ keeps Trygar's and other members of the cooperative posted on the prices Home Depot and other competitors are charging for items like batteries or light bulbs that are most susceptible to comparison shopping. Even so, Mr. Trygar says he doesn't have time to constantly adjust his prices. In general, he says, "our prices are in the ballpark. Some are higher, some are lower."

Keeping prices in the ballpark requires keeping overhead costs as low as possible. The Trygars own the building and pay very little in wages. The staff consists of Mr. and Mrs. Trygar and one part-timer, a high-school student who earns $6 an hour. Rather than buying a state-of-the-art computer system, Mr. Trygar several years ago bought three obsolete 386-series PCs from a local school for $10 each. He employs one of them to help keep track of inventory, using a DOS program he wrote by himself.

He has avoided the expense of installing scanner equipment so far, though he expects to do that eventually. For now, the Trygars affix a price label to each piece of merchandise.

The Web vs. Tradition

They do try to keep up with the times, however. Mr. Trygar figured out how to set up his own Web site. It lists monthly specials (last updated in October) plus the store's hours and address. Home Depot, it happens, also has a Web site and plans to experiment with online sales of merchandise. Mr. Trygar is skeptical about that idea: "I don't think you can sell hardware over the Internet," he says.

So he sells it the traditional way, on his feet for up to 11 hours a day. As Mr. Trygar prepares to close the store on a wintry Friday evening, Norm Dennis drives up and asks for a duplicate key. He is amazed when Mr. Trygar finishes the job within a minute or two.

The conversation turns to the Villager's Hardware due to be opened soon by Home Depot. Mr. Dennis, who works in the mailroom of a newspaper, says Home Depot shares are the stars of his retirement account. "Home Depot is a great stock," he says, "but the sad thing is they're going to put small guys like this out of business." Mr. Dennis turns to Mr. Trygar and, in a just -- FYI tone of voice, says, "They'll kill you."

Mr. Trygar doesn't argue. After the customer drives off, Mr. Trygar locks the front door. He turns off the lights and puts on his overcoat. "Everybody's always telling us we're going to be out of business," he says. He pauses, then adds softly, as if to persuade himself, "We're still here."