The art of the deal

There have been many memorable moments for Randall Jones and Greencastle, Ind.-based Headley Hardware, from reopening after a fire in 2000 to taking his entire Do it Best rebate check and investing it in an unproven electrical department in 2009.

But one of his proudest moments came during an ice storm in February, when the store distributed 1,134 bags of Do it Best ice melt in its parking lot in about 70 minutes. “We had 50 or 60 people in their cars waiting for the truck from Chicago because no one in five counties had any ice melt,” Jones told a group of Do it Best members during the co-op’s Extreme Retailing panel at its May Market. “There was no time for the men unloading the bags to look at customers’ receipts. And the crazy thing is, not one bag was taken without being paid for.” 

The scenario was no surprise to Headley’s North American Salt distributor Mac Dunn, of Dunn Sales & Marketing, who said Headley Do it Best ranked second in the country as a single-store purchaser for ice melt — an impressive feat considering Greencastle’s modest population of about 10,000. “He has a destination shop,” Dunn said. “People in that town know that they can go there and get what they need.” 

Headley Hardware’s business model defies easy description. From his 20,000-sq.-ft. operation — 13,000 sq. ft. of actual selling space — Jones emphasizes customer service and project expertise. But he also has a unique and ambitious approach to attracting commercial, government and contractor customers through a cost-plus discount program. Pricing is simple and attractive for these accounts — contractors receive a discount in a core department (such as paint), while commercial and government accounts tend to get an across-the-board discount.

Jones describes the model as a wholesaler to the contractors and a Grainger-type supplier to area production facilities. And on top of it all is an inclination to wheel and deal. 

“What sets us apart is the amount of discounting we do,” said Jones, who entered the hardware business in 1987. “Before hardware, I was a flooring contractor myself, hanging around hardware stores looking for a deal. So, it was just natural for me to be able to wheel and deal. Nobody discounts like we do.” 

Jones said the store maintains about 1,000 charge accounts in a town of about 10,000. A lot of them have discount arrangements. One that works particularly well are the senior discounts instituted about eight years ago. 

The cost-plus model — which offers consistency and clarity, along with savings for commercial/contractor customers — might not be a model for everybody, but it’s worked for Headley. 

In fiscal year 2011, for example, Headley was up 14% to a record $2.7 million in sales. The growth is continuing so far in fiscal 2012 — up 11% over the first five months of last year. “The recession for us was a $130,000 blip,” Jones said.

Fort Wayne, Ind.-based Do it Best Corp. CEO Bob Taylor has taken notice of Jones’ model and his success. “Randall Jones runs a good hardware store,” he said. “And he also gets great buy-in from his commercial customers with the cost-plus discount program, which he has leveraged so well.”

There are many facets to the cost-plus model, but it begins with explaining to the commercial customers the benefits of paying Headley’s cost of the merchandise, plus a certain percentage. “I tell them I will make 15% on everything I sell them.” 

For a small town, Greencastle possesses a wealth of healthy corporate clients — from DePauw University to a mile-long Wal-Mart Distribution Center. 

With price clarity, Headley plays a role similar to that of a purchasing agent for the commercial account. It’s important to partner with wholesalers for certain hard-to-find products, especially electrical products. And Jones said it’s crucial to show value to his commercial accounts and contractors by having the right product and the right time and the right place. 

“We try to alleviate a lot of their worries about day-to-day stuff,” Jones said. “And when you’re accurate, you almost become an employee of theirs. The accuracy to me is the key. When a competitor makes a mistake, that is such a wonderful thing for you. If you can make zero mistakes and have the right price, you’ll win the day.”

Another key for the Do it Best member is to sacrifice large rebates in favor of low cost — which is possible through the co-op’s “vision” purchasing program. 

The concept, if executed correctly, has tremendous potential. It takes discussions of discounting off the sales floor. It opens doors with big purchasers. But it might not be for every business. “The caveat is, you better have a hell of a lot of cash flow, because you’re going to get stretched,” Jones said. “And you gotta have an excellent bank.”

As Headley has grown, so has its accounts receivable. “It used to be painful carrying $100,000 in AR,” he said. “Now I’m used to carrying $250,000.”

Cost plus, as executed by Jones, runs on the principle of giving up margin for volume, and is made possible by strong cash flow.

On the retail side, Headley’s strategy starts with its people — employees are paid 25% higher than typical retail wages. “They are satisfied, and that shows on the sales floor,” he said. 

Versatility also shows on the sales floor. “We cross-train like crazy,” he said. “Our cashiers can mix paint, sell basic plumbing and electrical, and figure out which bolt a customer needs. And our guys on the floor can run the POS, the managers can run the rental computer. Convenience is what drives our formula.”