Heidemann Talks True Value Tactics

Home Channel News caught up with True Value CEO Lyle Heidemann at the International Builders’ Show in Orlando, Fla., to talk about the co-op, the economy and the American consumer.

Home Channel News: You have made a point of emphasizing the change of the corporate mentality at True Value—from a wholesaler to a retailer. Can you talk about steps you’ve taken to make that happen?

Lyle Heidemann: I would say we started the journey in the fall of 2005. It was a new idea. What does that mean: we’re going to be a retailer versus a wholesaler? Starting from that point on, all of our initiatives were driven from the retail point of view. We focus on things that would help our members grow their top line sales and their bottom line profit. What we’ve tried to do every time we made a decision is step back and ask: ‘if we own the stores, would we make this decision?’ It’s always easier to say other people should make an investment, but what if we owned the stores? And if we wouldn’t make that investment, then why should we ask 4,000 members individually to make that investment?

HCN: One of your key initiatives right now is the Destination True Value. Can you talk about what you’ve learned in the few months since it’s been introduced?

Heidemann: In [the 2007 fall market in] Atlanta, we assembled it for our core members to see. We had more than 1,100 distinctive members go through it and complete a survey about it. The survey covered whether they thought it was something that their customers would like; whether it was something that they thought was differentiated as a hardware store. Our members are very enthused with it. We’ve got about 70 percent of the members who have completed this survey indicate that they had an interest in one of three levels of adoption. So we have very, very high early marks.

HCN: What kind of research goes into your retailing effort?

Heidemann: We actually started the genesis of what turned out to be Destination True Value in late fall of 2005, collecting data externally and internally. We had to basically find out what the consumer was looking for. What did we need to do to satisfy the consumer’s demands. We focused that around what we called internally the five Ps: product, people, promotion, price and place. We dug into each one of those five and what are they looking for. In 2006, we made that same information a focus of 350 of our members. We walked them through the same exercise and asked them to define what they thought customers wanted. We also used some retailers that had been successful in the last 15 to 20 years in consistent growth and asked ‘OK, how are they winning? And how does that—even though it’s not the same industry—how does that communicate with our customers? ’

HCN: Can you share who some of those retailers were?

Heidemann: I think the one that we focused on was Target. And the reason we focused on Target is that our female members and our female consumers could relate to a store that they like, from an environment standpoint and a shopping experience stand point.

Then we stepped back and said a successful retailer has to win on at least three of those five Ps to be competitive and sustain growth. If you wanted to really win, you need to win on four of the five. Our members told us that what we needed to win on was product, people and place. Promotion would be the fourth point that we need to win on. Price, we learned, would not be a reason why someone wouldn’t shop our stores.

HCN: The state of the economy and the housing market are on everyone’s mind. As you plan to expand or help your members expand, do you see any chilling effect from the economy on expansion plans?

Heidemann: From the individuals that we have approved programs with, we have not seen any deterioration of that. Whether we’ll see a lag from members that are in our pipeline, I’d say that’s certainly a possibility. From the standpoint of our investment in that member’s success, we’re not changing our posture, and we’re not changing our commitment to that. As long as our members have a desire to grow with the new store or remodel or remerchandising the store, we will be there with the financial support to help them.

HCN: In the past you described a shift toward brand names on the shelves. How are national brands and house brands mixing in stores?

Heidemann: I think some people might have misconstrued our emphasis on house brands. What we have chosen to do is take the name “True Value” of f the product. We still have proprietary brands throughout our store, proprietary to True Value. But we have chosen to take the True Value name off of most of our products. We’ve left it on a few high commodity things—refuse bags that you see out on the curb for leaves and things like that. But basically we’ve taken True Value of f, and the reason for that is we do not want to, over time, weaken the value of and the quality behind the True Value brand. I do believe that if you put your name on products that are lower price and lower quality, even though you do get your name out there, over time people will associate it with lower quality. And we clearly don’t want to confuse the name on the outside of the building with those products.

HCN: It’s difficult to avoid comparisons between the accounting issues that hit TruServ in the late 1990s and those of Ace. Do you see any similarities? And are there implications for True Value from Ace’s situation?

Heidemann: I have not spent a great deal of time since I’ve been with True Value looking back. My focus is the future not the past, and so as a result I’ve spent virtually no time trying to investigate what happened in 1999 and 2000 with TruServ. From an Ace standpoint, I read what either yourself or other people write. I think the similarity is that they are both over $125 million dollars. That’s as much as I know. Now I would say certainly from a True Value standpoint, since 2004, we started adopting all the Sarbanes-Oxley requirements we could, as if we wanted to register. We believe we could pass the requirements of all the 404 testing.