The price is right

By Carla Waldemar

D USINESS was good, and grorv- IJins. So in 1999 Butch Vernon decided to build a big, new version of Budget Home Center, not far from the original Longmont, Co., store he'd already expanded in 1992 and was already bursting at the seams. Trouble was, the very day he signed for the land, Home Depot announced it was coming to town-and just two miles down the road.

Okay, Vernon decided, if you can't join 'em (and who'd even want to?), beat 'em at their own best game. "I realized, as an independent, that to survive I would need to fight the perception that I was higher priced."

The first step, however, was to do a little soul-searching and evaluate whether BHC wanted to focus all its efforts on contractors' business or continue as a home center, drawing a healthy mix of d-i-yers-not the trendy choice, Vernon notes, but one he's glad he made (and is justly proud that the town in turn, recently voted him "best independent business in Longmont.").

Well, rvhat draws those rveekend warriors to your door? First off, prices the boxes can't beat. To earn the image of 'best value', BHC aggressively promotes its price-is-right image in its ad campaigns and greets customers with this promise at the entrance: "If you find a lorver price on an identical item at any other local retailer, rve'll beat itby lOVc."

That's no empty guarantee. And it's a moving target. To make it rvork takes constant vigilance. Thus Vernon requires all nine department managers to fill out a 3O-item sheet each rveek ("you can't just do it norv and then"). based on footwork as they mysteryshop all competitors' stores. (WalMart and Lorves have since invaded Longmont, too.)

They also relentlessly scour the boxes' ads so BHC can react instantly. If patio srvings are Depot's rveekend special. r'oila. BHC lorvers its price for the weekend. too. With over 4l,000 SKUs, that's a lot of legrvork.

Vernon has learned along the rvay. "At first, I made the mistake of only price-shopping our price-sensitive items," he reports. But that required

BHC to honor l0 to 15 price matches a rveek. By sleuthing pricing on entire families of products. "we norv have to honor only one or two a rveek." he declares. And the best nervs is. rvhen the reports are in. Vernon rarely has to lorver his prices; in fact. he often finds he can increase them to meet those of his competitors.

Sure. you lose a few pennies by selling something at cost norv and then. But go for the big picture. he advises: "You've got to look at margins on the whole sale. If your customers trust that your entire store is priced right. they'll be more apr ro fill their baskets than cherry-pick. (Of course. this requires having the right selection and having it in stock.) I'd rather increase turns. and gross margins. than worry about margins on a particular item." he contends.

Fumbles? "Sure! We learn every day. Strategies change. and you have to adjust." The concept isn't for everyone. he cautions. "There are three types of stores." he goes on to explain. "the convenience-hardware store. rvhere people are not attuned to price-get in. get out-and are not project-minded. or the other extreme: the lumber companies dedicated to the big builder. In betrveen are the boxes and some home centers. like myself. Our customers are the pretty serious di-yers plus small contractors-those doing remodeling. fencing. decks. larvn and garden. and maintenance."

Within those parameters. Vernon is arvare that service can be as big a drarv as price. For his contractors. he offers a drive-through setting rvith express check-out ("rvhich Home Depot doesn't do") He also provides free delivery of sizable orders. house charge accounts. and 2417 Internet access to his inventory and their own accounts ("very popular. especially among the younger pros").

To lasso the d-i-yer. he offers installation of smaller items, which contractors consider a nuisance-a single storm door or toilet, for example. And he's gone out of his way to court female customers by providing wide aisles, a clean store, and personalized service. "Women make most of the decisions," Vernon-a married man himself-can document. "When it comes to remodeling. no guy is gonna say, 'Honey, how about these cabinets?' Our staff has learned to respect women: They read more, they learn more, and are more in tune with current styles and colors. Our paint department is headed by a female, as is the crew of the kitchen and bath department, and our women customers like that-they're more open, and they speak the same language."

Gift certificates is another revenue source that's "growing all the time," he says.

To court both sets of customers. BHC offers periodic free seminars, such a session on decking in May, featuring five different brands with factory reps on hand, along with prizes and giveaways. In June, it's lawn & garden, and in fall, kitchen & bath. Separate sessions are held for BHC's pros.

On items such as grills, where all competitors carry the same brands at the same prices, "We add value. We'll margins on the whole sale. lf your customers trust that your entire store is priced right, they'll be more apt to fill their baskets than cherry-pick." with some frustration. is "the under-30 crowd. The way I see it, they've been raised with mothers and fathers working, so dinner is a sack in the backseat on the way to somewhere. They don't understand, or expect, customer service. They assume everybody's like the boxes, where not getting any help is the norm." latex paint?") Correct answers are rewarded and noted on an employee's annual evaluation form. offer to assemble and deliver it, to stand out from the boxes. or offer a free tank ofpropane."

To make inroads, BHC approaches them where they spend their lives-on the Internet. He buys a flag at the top of a page that, with a mouse click, connects to his own home page, and thus receives from 300 to 500 hits a week.

Moves like these have enabled BHC to climb from an initial $3 million in revenue to $10 million. But the path is getting thornier, Vernon explains. "Building permits in Longmont are way down-half of what they were in 2000," he reports. The town's high-tech economy "is not the strongest right now, and land costs are really escalating."

Another way to keep ahead of the chains is to create a niche as a projects store. To achieve this identity, Vernon requires his department managers to come up with home-improvement projects, assembling all SKUs from start to finish, then going out and pricing them at the stores down the road. "Then we advertise the project, such as a standard yard sprinkler system, listing our price, Lowes' price and Depot's price."

The customer that's the toughest to draw into the store. Vernon announces

Then, when they wander in, he wows them with the kind of service they're unaccustomed to. And which, to be honest, BHC wasn't totally accustomed to giving. When he called on The Farnsworth Group for a customer service report in 2002, he learned that "our rating was good, but not nearly as good as we thought it should be."

With this heads-up, he and his wife, Bev, stepped up the pace of staff meetings to twice a month. "We bring in experts or use our department managers or store manager and concentrate on a particular product category; we also hold what I call 'bitch sessions' to iron things out." Bev also regularly issues a Tip of the Day, gleaned from the NRHA (answers to items relating to customer queries, such as "The water out of my kitchen spout isn't flowing like it used to" or "Can I use a natural-bristle brush with

He's not worried, but he's on his toes. His advice. which he's first to follow. is this: "Pay attention every day. And don't be afraid to try something new. (Every year, we hold a big parking-lot sale of dead inventory. Of 41,000 SKUs, 8,000 have to be changed every year.)

"Get good promotional merchandise and end caps," he advises. Even more crucial. "il you promise something, make sure you can deliver. And you've got to educate that under-30 crowd," he underscores. "People have less discretionary income than before, and you compete for it-not only with the boxes but anybody who's after it-restaurants, movies. The boxes are having a growth problem, though, which provides a great opportunity for independents. We'll see a rebirth. I'm optimisticl" And he's ready.

- A former award-winning LBM trade magazine editor, Carla lilaldemar writes .fiequently on the lumber and building material industry. Contact her at cwaldemar@mn.rr.com.