Plugged in to the competition

Power tool distributors bypass big boxes but remain wary of Web sellers

By -- Industrial Distribution, 5/1/2000

After several nimble years combating the expansionist tendencies of big boxes, power tool distributors have sure strategies and clear knowledge of retail's soft underbelly, but are now on the lookout for e-business broadsides.

Hype about Home Depot is constant, but many turn a deaf ear to announcements of new store openings and are unconcerned about the implications of the January purchase of plumbing and HVAC distributor Apex Supply Company. Tom Meyer, president of Montague Tool & Supply, says the industry spends too much time thinking about big boxes. The Branchville, N.J., company sells about $4 million per year of items like power tools, gas engines, air tools and fasteners.

"We're gourmet restaurants and we need to act like it," Meyer says. "They have a narrow band of things that homeowners might use. We have a broad range of product for professionals."

Meyer estimates that big box companies cater to only about 20 percent of the typical power tool distributor's market because their stock consists mainly of general items used by most homeowners or contractors. He describes them as the low pricetag provider rather than the low cost provider.

"The threat primarily exists on those items the smaller contractor uses," Meyer says. "Either weekend contractors or those that don't value their own time - those shopping purely on ticket price and not on overall value."

Scott Maxwell, owner of Maxwell Tool Sales, Inc. in Gastonia, Ga., says it's tough for small companies to compete against big boxes. He and his two part-time employees compensate by bidding on state and federal contracts and by hustling.

"I don't call them Lowe's, I call them slows,'" Maxwell says. "You can get in and out of my place in a matter of a few minutes, rather than wander through a big box warehouse."

Rob Culgin, vice president of Waltham, Mass.-based Pro Tool & Supply, Inc., said he has built up the inside order counter and repair department.

"A lot of our customers have gone to Home Depot and realized cheaper isn't always better."

Marc Beerman, president of Beerman Precision of New Orleans and the current STAFDA president, says Home Depot hasn't been able to penetrate the professional markets and give the kind of customer service and breadth of product the customer needs. Yet Beerman concedes the Apex purchase is a signal the big box is willing to spend a lot of money trying to figure out how to compete better.

"If that succeeds, what's to stop them from going into industrial or contract distribution?" Beerman asks. "The Depot will hand the customer they can't service off to the plumbing wholesale side."

The entrance of e-tailers on the scene, however, has brought back the bogeyman talk. Meyer says companies with a strong online presence like the alliance between Tool Crib of the North and Amazon.com and Burnsville, Minn.-based Northern Tool & Equipment Co. have a greater impact than big boxes because they have a wide selection even if they don't provide great service.

"Every tool has some channel of distribution that takes the margin out of it," Meyer says. "The high end of power tools have catalog houses."

Although very few contractors can describe what they want over the telephone or web, Meyer says, sometimes they are "drawn offstride by price."

The bottom line for distributors is figuring out how to generate a return on assets high enough to replenish their stock and make the appropriate investment in technology. Beerman agrees and predicts strong Net competition in the next two years. Small end-users who view tool purchases as a capital expenditure may be willing to research the best price online, Beerman says. Still, Beerman says he doesn't think the Internet can change the traditional distribution model.

"What we do is on the jobsite or at the [customer's] plant," Beerman says.m

-By Sheri Qualters, Associate Editor

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