FDD Talk: Ace Hardware Franchise Review (Financial Performance Analysis, Costs, Fees, and More)

In this FDD Talk post, you’ll learn the following:

• Section I – Background information on the Ace Hardware franchise opportunity, including relevant news updates

• Section II – Estimated initial investment for an Ace Hardware franchise, based on Item 7 of the company’s 2020 FDD

• Section III – Initial franchise fee, royalty fee, marketing fee, and other fees for an Ace Hardware franchise, based on Items 5 and 6 of the company’s 2020 FDD

• Section IV – Number of franchised and company-owned Ace Hardware outlets at the start of the year and the end of the year for 2017, 2018, and 2019, based on Item 20 of the company’s 2020 FDD

• Section V – Presentation and analysis of Ace Hardware’s financial performance representations, based on Item 19 of the company’s 2020 FDD, including information on the:

• 2018 (the most recent year for which data is available) average, median, highest, and lowest gross sales for the 928 Ace Hardware branded stores participating in the Retail Financial Report, classified into the following retail formats: Hardware Stores (Convenience, Core, and Super), Home Centers, and Contractor-Oriented Supply

Section I – Background Information

16 Things You Need to Know About the Ace Hardware Franchise

Reported Record First Quarter 2020 Results

1.  In late May 2020, Ace Hardware reported record first quarter 2020 revenues of $1.43 billion, an increase of $51.9 million, or 3.8 percent, from the first quarter of 2019. Net income was $36.2 million for the first quarter of 2020, an increase of $13.6 million from the first quarter of 2019. The 4.2 percent increase in U.S. retail same-store sales during the first quarter of 2020 reported by the approximately 3,200 Ace retailers who share daily retail sales data was the result of a 5.1 percent increase in average ticket partially offset by a 0.9 percent decrease in same-store transactions.

2.  John Venhuizen, president and CEO of Ace Hardware Corporation, said, “While our first quarter generated record sales and profit, we humbly acknowledge that this global pandemic has ripped open much of the world like a nasty earthquake in the six weeks since our quarter ended. Business has changed dramatically in this period, as has life for a meaningful portion of the world. In the month of April, U.S. retail same-store sales increased 26 percent and our online business surged 580 percent; primarily through curbside pickup, in-store pickup and delivery from our locally owned stores.”

3.  Venhuizen continued, “We feel both the blessing and the burden of being declared an essential retailer. The protection of our people and our neighbors remains our highest priority. I want to convey my deep and sincere appreciation to the Ace team and in particular our steady-handed drivers, our hard-working warehouse specialists and our in-store, red-vested heroes for their grit, guts and servant hearts.”

4.  Ace added 22 new domestic stores in the first quarter of 2020 and canceled 12 stores. The company’s total domestic store count was 4,566 at the end of the first quarter of 2020 which was an increase of 69 stores from the first quarter of 2019. On a worldwide basis, Ace added 31 stores in the first quarter of 2020 and canceled 16, bringing the worldwide store count to 5,381 at the end of the first quarter of 2020.

Ranked Highest in Customer Satisfaction by J.D. Power

5.  In mid-June 2020, Ace Hardware ranked “Highest in Customer Satisfaction Among Home Improvement Retail Stores” in the J.D. Power 2020 U.S. Home Improvement Retailer Satisfaction Study. Since J.D. Power began surveying the home improvement industry in 2006, Ace Hardware has achieved this ranking 13 out of the last 14 years. The 2020 J.D. Power study is based on responses from nearly 2,626 consumers who have purchased home improvement products or services over the past 12 months.

6.  Ace ranked highest among major retailers with an overall satisfaction index score of 844 on a 1,000-point scale. According to surveyed consumers, Ace performs particularly well in the categories of staff and service. This year’s score is based on overall performance in five areas: merchandise, price, sales and promotions, staff and service, and store facility.

7.  John Venhuizen, president and CEO of Ace Hardware Corporation, said, “Receiving this honor from J.D. Power and our customers for the 13th time puts a collective bounce in the step of our local Ace owners and their hard-working, red-vested heroes on the front line. We exist to serve others and this recognition inspires us to work even harder to serve and support our neighbors.”

Second Annual Ace Rewards Day Brings Exclusive Online-Only Deals to Consumers

8.  In mid-October 2020, Ace Hardware brought back Ace Rewards Day. For the second year, Ace provided exclusive deals to Ace Rewards Members and select savings for non-members in a two-day only event on AceHardware.com. Ace kicked off Rewards Day on Tuesday, October 13 with exclusive, limited-time deals and free assembly and delivery on winter essentials like snowblowers, grills for holiday entertaining, and lawn mowers for a top-tier yard.

9.  During this event, non-members received 10% off qualifying online orders with code “OCT.” Ace Rewards Members saved 15% with code “REWARDS.” The event concluded on Wednesday, October 14.

10.  Whether customers chose to buy online and pick up in store, opt for curbside pickup or delivery from their local store, Ace provided enhanced digital shopping options so all Ace Rewards Members could take advantage of these offers in an easy and convenient buying experience. Ace Rewards Day featured limited-time deals on many name-brand items across several categories including power tools, outdoor power equipment, grills, and more. Customers could sign-up for Ace Rewards online at AceHardware.com to gain access to these exclusive Member deals and free delivery.

11.  Bill Kiss, head of digital, retail, and innovation strategy for Ace Hardware Corporation, said, “We’re celebrating our Ace Rewards Members and thanking them for their loyalty by continuing to offer free delivery on some of our key categories and adding even more deals to this year’s Ace Rewards Day. As the holidays approach, Ace customers can choose to shop either in-store or online where they have access to tens of thousands of products on AceHardware.com, including the one just right for them. With in-store pickup, curbside or delivery options available, we’re making it as easy as possible for customers to get what they need with the same level of service they’ve come to expect from The Helpful Place.”

Company History

12.  Ace Hardware was founded in 1924 by Richard Hesse, E. Gunnard Lindquist, Frank Burke, William Stauber, and Oscar Fisher in Chicago, Illinois when they decided to unite their smaller individual hardware stores into Ace Stores. Their combined buying power enabled the store owners to negotiate lower prices on merchandise purchased from wholesalers.

13.  Within a few years, Ace had grown into a wholesaling organization, purchasing directly from manufacturers and storing merchandise in its own Chicago warehouse. In 1931, the company’s name was changed to Ace Hardware Corporation.

14.  Over the next few decades, Ace Hardware continued to grow around the United States. In 1973, longtime president Richard Hesse retired and sold the company to its member-dealers, thereby forming a dealer-owned hardware cooperative. Independent retailers became the exclusive shareholders in the company.

15.  In 1985, Ace surpassed $1 billion in wholesale sales for the first time. Since then, Ace Hardware has continued to evolve and often ranks high in customer satisfaction. At the end of the first quarter of 2020, Ace Hardware had 5,381 locations across 60 countries.

Entrepreneur’s Franchise 500

16.  Ace Hardware ranked No. 23 on Entrepreneur’s 2021 Franchise 500 list.

Section II – Estimated Costs

• Please click here for detailed estimates of Ace Hardware franchise costs, based on Item 7 of the company’s 2020 FDD.

Section III – Initial Franchise Fee, Royalty Fee, Marketing Fee, and Other Fees

• Please click here for detailed information on Ace Hardware’s initial franchise fee, royalty fee, marketing fee, and other fees, based on Items 5 and 6 of the company’s 2020 FDD.

Section IV – Number of Franchised and Company-Owned Outlets

Franchised

2017

• Outlets at the Start of the Year:  4,265
• Outlets at the End of the Year:  4,310
• Net Change:  +45

2018

• Outlets at the Start of the Year:  4,310
• Outlets at the End of the Year:  4,353
• Net Change:  +43

2019

• Outlets at the Start of the Year:  4,353
• Outlets at the End of the Year:  4,370
• Net Change:  +17

Company-Owned

2017

• Outlets at the Start of the Year:  98
• Outlets at the End of the Year:  108
• Net Change:  +10

2018

• Outlets at the Start of the Year:  108
• Outlets at the End of the Year:  123
• Net Change:  +15

2019

• Outlets at the Start of the Year:  123
• Outlets at the End of the Year:  186
• Net Change:  +63

Section V – Financial Performance Representations (Item 19, 2020 FDD) and Analysis

• The financial performance representation presented in this Item 19 should not be considered as the actual, potential, or probable results that you will realize from the operation of your store.

• Ace Hardware’s members are not required to furnish their stores’ financial results to the franchisor. However, members may participate in the Retail Financial Report (RFR) which is prepared by Profit Planning Group, Inc., (PPG) of Boulder, Colorado. The data submitted to PPG, by Ace Hardware’s members, is the basis of this financial performance representation.

• The financial performance representation does not include data from Ace Hardware stores operated by the franchisor’s subsidiary, Westlake or GLA.

• The 2018 RFR prepared by PPG used single store operations data voluntarily supplied by 999 of Ace Hardware’s members which includes 71 of Ace Hardware’s nonbranded stores. There were 928 Ace Hardware branded stores participating in the RFR Report (“Reporting Stores”).

• The franchisor has not audited nor independently verified the information furnished by the Reporting Stores; however, it believes this financial performance representation has a reasonable basis.

• The Reporting Stores represent 20.7% of total domestic member stores operating as of December 29, 2018, which was 4,476.

• All but seven of the Reporting Stores had been open at least one 1 full year. The average number of years each Reporting Store had been operated, as of the end of 2018, was approximately 17.95 years, ranging from 0 to 52 years.

• As of December 29, 2019, 917 of the Reporting Stores were still operating.

• The Reporting Stores were classified into the following retail formats: Hardware Stores (Convenience, Core, and Super), Home Centers, and Contractor-Oriented Supply.

• Hardware Stores cater to Do-It-Yourself consumers, focusing on repair, replacement, and small projects. Hardware Stores are further separated into three different categories by hardware square footage.

• Home Centers serve the small contractor as well as the Do-It-Yourself consumer, carrying basic hardware plus expanded millwork, windows and doors, lumber and building materials, and kitchen and bath lines.

• Contractor-Oriented Supply caters primarily to building and remodeling contractors, featuring lumber and building materials as well as essential core hardware items.

Convenience Hardware Format (stores with a retail selling space up to 6,000 square feet)