One of the largest hardware companies in the U.S. is strengthening its cooperative business model by buying a retail division that operates 30 Missouri stores, including one in Springfield.
Oakbrook, Ill.-based Ace Hardware Corp. purchased co-op member Westlake Ace Hardware and its 85 locations in seven central U.S. states on Dec. 17 for $88 million.
Ace Hardware purchased the Lenexa, Kan.-based Westlake chain from Minneapolis private equity investment firm Goldner Hawn Johnson & Morrison, which had owned Westlake since 2006, according to Westlake CEO George Smith.
Smith said the move would have a minimal impact on operations at the 2350 S. Campbell Ave. store. The Westlake Ace Hardware name and staff would remain in place, and he said the company would be managed as a wholly owned subsidiary of Ace.
“We will continue to purchase merchandise from Ace distribution centers as we have in the past, and support Ace national advertising programs and events. From a consumer perspective, it will be a very transparent transaction,” Smith said. “They will still see Westlake over the doors and Ace products in the stores.”
Cooperative strategyThe retailer-owned Ace Hardware cooperative allows individual owners to independently operate their roughly 4,400 stores worldwide while accessing greater buying power, Smith said. Founded in 1905, Westlake Ace has been a member of the Ace Hardware cooperative since 1959, he said. According to AceHardware.com, Ace completed a transition to a retailer-owned cooperative in 1976.
The move represents a change in strategy for the cooperative business, as the wholesaler re-enters the retail market. Ace Hardware spokeswoman Kate Kirkpatrick declined to comment on this story.
Westlake Ace operates stores in seven states: Iowa, Kansas, Missouri, Nebraska, New Mexico, Oklahoma and Texas, according to
WestlakeHardware.com.
Ace Hardware also has two independently owned stores in Springfield: Rathbone Ace Hardware at 508 E. Commercial St. and Cowan’s Ace Hardware at 3310 W. College St.
Cowan’s Ace co-owner Matt Cowan said it is too soon to say whether Ace’s move to buy Westlake is a good one.
“(Ace) is a wholesaler and now it has purchased a retail chain, so how it chooses to manage that will be intriguing,” Cowan said. “I guess (Westlake) will be set aside and be its own company still, and it has been a successful company for many years.
“The proof will be in the pudding. We’ll have to see what happens during the next several years.”
Cowan said the growth of Westlake has allowed the regional chain to pick up certain products on its own, without the help of the Ace network. He hopes through the deal Ace is able to take advantage of some of the networks and talent that Westlake has accumulated throughout its history.
Ace in the holeSmith said Roanoke, Va.-based investment banking firm Mozart Investments Inc. served as broker on the sale, which had been in the works since July. He said no management changes are expected at the Westlake stores.
“It is a natural course of events for private equity firms to buy companies, hold them for a period of time and then exit those companies,” Smith said. “We will be run as a retail arm. We will have a separate board of directors that will comprise Ace directors and Ace dealers, but we will be run independently.”
Westlake was Ace’s largest independent co-op, and with the purchase, Smith said Ace is protecting its retail presence.
“(Ace) was able to acquire a retail platform with an experienced management team that can grow stores, acquire stores and protect the markets they are in,” Smith said, adding the buyout could pave the way for future purchases. “Many stores are sole proprietors, where the owner has only one or two stores, and many of them don’t have an exit strategy for their business. This allows Ace to acquire those stores and keep them in the Ace fold.”
Michael Beall, CEO of the Washington D.C.-based National Cooperative Business Association, said there are 29,000 co-ops nationwide employing 2 million workers. He said he was aware of the Westlake purchase and feels the move by Ace could be a smart way for it to ensure its largest membership group remains in the family.
“With a number of co-ops, what we are seeing now is that many owners have been owners for years. If those businesses have built up to be quite large, the owners may be getting ready to retire or change [hands], and the co-ops are confronted with the question, ‘Do we potentially lose a member or do we find a way to buy it or have other members buy it?’” Beall said.
He said U.S. co-ops are growing, with revenues to exceed $600 billion collectively in 2012. That’s up from $500 billion, according to a 2009 study by the University of Wisconsin Center for Cooperatives. Beall said he has noticed a trend recently among health care providers turning to cooperative business agreements.
“Dozens of them are in formation to take advantage of the nation’s health care laws changing,” Beall said.
Locally, CoxHealth joined the BJC Collaborative in October with BJC HealthCare in St. Louis and Cerner Corp. in Kansas City to increase its buying power.
Ace Hardware Corp. reported third-quarter revenues of $949.9 million, a 4 percent increase from third-quarter 2011. For the nine-month period ending in September, revenues were $2.9 billion, up 5 percent through the first three quarters in 2011, according to
AceHardware.com. According to Stores Magazine and Kantar Retail Consultancy, Ace Hardware ranked No. 38 in 2012 in its list of the top 100 U.S.-based retail chains based on retail revenue.[[In-content Ad]]
