Despite high labor and inventory costs, a small hardware store has been in the black for decades. Here's why.
Best Hometown Business
Staggering labor costs and mountains of inventory let Harvey's Hardware grant every customer's wish. Is this any way to make money?
The first time I walked into Harvey's Hardware, my immediate impression was of having stumbled onto a crime scene. There were no chalk bodies or signs of a struggle, but in every direction I looked in the somewhat claustrophobically arranged, modest-sized store, people were scurrying around, intercepting and closely questioning other people. Often the interrogees were led off to dark corners of the store, where I lost sight of them. And though no one looked frightened or even unhappy, there was an intensity in these transactions that I couldn't square with buying drill bits or wood putty.
Even odder was that five feet from the entrance, an impromptu police-style lineup seemed to have taken shape for my benefit. Five men ranging in age from about 16 to 70, all dressed neatly in sweaters or flannel shirts, were standing shoulder to shoulder; in the best tradition of lineups, two of them looked very much alike. All five were staring straight at me, as if they had been waiting for me to arrive. As I stood there contemplating evasive routes, the entire line started to undulate in my direction. After a moment one of the men broke out in front. When he reached me, he smiled broadly and said, "Can I help you?"
One and a half hours and nearly $500 later, I walked out of the store, having experienced an adventure--a veritable odyssey of hardware--in the cramped aisles of that place. Though I am no stranger to hardware stores, I bought things I hadn't imagined existed, let alone thought I needed; my eight bags brimmed with swiveling drain-spout extenders, multitipped screwdrivers, and dial-a-pattern lawn sprinklers. I had approximately tripled my understanding of plumbing fixtures, roof-snow-removal strategies, the electromechanics of thermostats, and half a dozen other facets of home-maintenance arcana.
I had been initiated into the cult of Harvey's.
As it turns out, just about anyone in the town of Needham, Mass., as well as a surprisingly large percentage of the population of the surrounding western suburbs of Boston, could have warned me that I was doomed to succumb to the near-supernatural level of service and almost comically extensive inventory at Harvey's. People in these parts often express the sentiment that Harvey's is not merely the best hardware store in the area but that it is--as if they've actually scouted the tool-and-gardening emporia of Buenos Aires and Copenhagen--the best hardware store in the world.
In exchange for the wonderful service and selection at Harvey's, its fans shower it with their business--more than $2.5 million worth last year, compared with a little more than $900,000 for the average U.S. hardware store (excluding large "home centers" like Home Depot), according to the National Retail Hardware Association (NHRA). Which poses an interesting question: How can a business thrive for decades while consistently flouting some of the most sacred rules of retail? Anyone who has ever run a lemonade stand knows the drill: hold labor costs down, keep inventory turning over, and run sales to bring in customers and unload sticky merchandise.
Fortunately for the members of the Katz family, none of them has ever run a lemonade stand.
In 1923 Harvey Katz's grandfather started a hardware store in bustling Revere, Mass., up on Greater Boston's North Shore. By the time Harvey returned from a navy stint in the Korean War, his father had taken over the business, and Harvey went to work for him. Just a few weeks later Harvey was standing around the store, shooting the breeze with one of its suppliers. The supplier mentioned that he had just taken over a paint-and-wallpaper store in Needham, in lieu of the $5,000 the previous owner owed the supplier. Would Harvey want to take the store over for nothing, paying off the debt if he could make a go of it? "Sure," replied Harvey. "Where's Needham?"
Needham was 20 miles southwest, but it might as well have been on another planet. Whereas downtown Revere was a heavily ethnic, noisy urban center studded with tobacco-shops-cum-bookie-joints,
Needham was a sparsely settled, Yankee, mostly affluent enclave of Victorian homes, arranged around a lazy knot of stores that made up the town center. Within a year of taking over the store, Harvey decided he wasn't cut out for the paint-and-wallpaper business; he's a big man, blunt and boisterous, and the task of spending hours discussing rose patterns and shades of turquoise with suburban matrons was not working for him. Hardware, on the other hand--that he could relate to. Thus, Harvey's Hardware was born in 1953. From his new storefront, Harvey could watch the occasional horse-drawn carriage clopping by, as well as keep an eye on the traffic flow in some of the seven other stores that offered hardware in Needham Center.
Harvey couldn't afford much inventory. But his grandfather had always said that a hardware store had to look full. So Harvey scattered his meager selection--a toaster here, a set of wrenches there--out on the shelves and then packed the rest of the shelf space with sealed, empty boxes. Almost every penny he took in went into replacing the boxes with real items, one by one. He started to repay the $5,000 debt to the supplier.
As business slowly picked up, Harvey noticed how many customers came by looking for odd items that none of the hardware stores in town, including his own, ever bothered to carry. Replacement handles for adzes, size 0-5 screws, 18-volt flashlight bulbs--who could justify carrying items that might ring up a couple of sales a year? But when Harvey did happen to have an item that the other seven stores in town didn't, customers seemed especially grateful. More important, Harvey noticed that those customers usually came back. A new strategy was forged: Stock it, and they will come. From that, everything else followed.
Today Harvey's is adorned with a large wooden sign with gilded, hand-carved-looking letters--a sign that would be at home on a three-star restaurant or an artisan's shop. It proclaims, if subliminally, that this is not somewhere you go to sift through bins of cut-rate screwdrivers. The impression is reinforced by the neat lines of monster snowblowers outside the store in late fall and winter, and of lawn mowers and charcoal and gas grills in the warmer months. There are no banners or flyers advertising sale items in the window or entrance.
Inside, any anticipation of tony gentility is immediately and unceremoniously bludgeoned. Every square inch of shelf and wall space, and the vast majority of floor space--even a significant percentage of ceiling space--is crammed with a riotous mÉlange of wares. The place is stuffed to the gills with hardware. The aisles are narrow and asymmetrical. The lighting is on the dim side. There are no aisle placards or any other store navigational aids, nor does any logical scheme of organization suggest itself. There is a prominent staircase leading to a lower floor but no hint of what might be down there.
None of that matters, though, because you weren't intended to make your own way through Harvey's. "This is not a self-service store," says Gary, Harvey's oldest son, who is now the primary owner and manages the store along with his brother Jeff. "We have people here to help you find what you're looking for."
Gary and Jeff themselves are usually front and center in the customer-assistance gantlet. They are both slim, friendly, all-American, scrubbed-looking men, 41 and 38, respectively. They look so much alike that customers who encounter Gary upstairs and then Jeff downstairs are sometimes convinced someone is trying to make a fool of them. (Gary occasionally takes advantage of the resemblance by actually sneaking down the back staircase to greet a customer he has sent down the front staircase, insisting he is his brother.) Harvey himself, though officially retired, hangs around on most days, looking like a bearish, content Leslie Nielsen, natty in pastel cardigans and gray slacks. "It's his hobby now," explains Jeff.
There are 19 other employees at Harvey's. Even though some are part-time, that's still a lot of help for a store the size of Harvey's. Gary and Jeff hire with the busiest times in mind and don't cut back when things slow down; they kind of like being overstaffed. Turnover is surprisingly low; half the employees have been with the store for more than 5 years. (One of them first applied for a job when he was 6 years old; Gary told him to come back when he was 16, and he did.) Every employee can fix a leaking toilet, cut a perfect pane of glass, or schmooze about lock mechanisms. "I tell the kids I hire they should be paying me for the education we give them," says Gary.
Why make the business dependent on such a large, well-trained--and expensive--staff? Originally, that need fell out of Harvey's decision to stock everything under the sun. He had so much stuff that his choice was either to move into a bigger store and spread everything out or to keep people around to help customers survive the experience.
But over time superb service became the second cornerstone of the business. "When you get to know your customers and build a relationship with them, it creates a sense of loyalty and trust," says Gary. Would you recognize your local hardware-store owner if you ran into him or her on the street? Harvey, Gary, and Jeff can't go anywhere without being hailed. Gary was floating down a canal in Venice, Italy, when someone shouted, "Hey, Harvey's Hardware!" from a restaurant window. I myself spotted him near a lake in New Hampshire.
There are direct payoffs to the service emphasis, too. Gary will ask you how the cordless drill you bought last month is working out--not to make conversation, he explains, but to dig up otherwise unvoiced complaints that he can address, or if the purchase dates back a ways, to perhaps uncover the need for a replacement. (Gary seems to have an eidetic memory when it comes to customer purchases. He remembers one of the items I asked for my first time in the store, one and a half years ago, and claims he'll remember to ask a customer about a grill five years after it was purchased.)
The level of staff service at Harvey's is so high, in fact, that when the store finally computerized itself, three years ago, with a system designed for hardware shops, Gary found that he and his staff didn't even need three-quarters of the features built into the software. Why have a computer tell you when to reorder duct tape when any of the 22 people who work in the store can tell you when you're down to your last few rolls? Some information is still scattered throughout the store in various paper files whose locations are known only to Harvey. Gary and Jeff refer to Harvey's cryptic information-retrieval system as "the HRK" (pronounced "hark"), after his initials. In fact, because Harvey had made a habit of filing (on paper) customer information by phone number rather than by name--he has a poor memory for names but is good with faces--Gary and Jeff paid the software vendor to adapt the system to that filing method. Phone-number-based filing is now a standard feature on the latest release of the software.
How does the burden of maintaining a large, well-trained staff affect the bottom line? Very gently, as it turns out. Though labor costs at Harvey's are high, the outsize revenues captured by the resulting top-drawer service drown those costs out. Annual sales per full-time employee at the average U.S. hardware store are $102,000. At Harvey's, they come out to $228,000.
Harvey's still adheres to the everything-under-the-sun inventory-management philosophy. Residents of the neighboring town of Wellesley who have stubborn hard-water stains in their washing machines can always count on Harvey's for a tube of Rover rust remover. I have bought odd-size halogen bulbs and jumbo S hooks there that I have yet to see in another store--and I checked several. Says Gary, "When someone comes in and finds what they're looking for and tells me they've been to eight other places looking for it, I say to them, 'Maybe you'll come here first next time.' "
Stocking all that stuff remains a challenge, but Harvey's has turned even that to its advantage: the jammed-up feeling communicates the scope of the inventory and creates an ambience compatible with a hardware-buying frenzy. "The trick is to keep everything organized," says Harvey. "Not too neat--but organized." Manufacturers' reps sometimes show up at the store armed with "planograms" that map out the most efficient and effective way to display their merchandise, but they end up walking away, shaking their heads, when they see that Harvey's allots approximately half the minimum space per item that they need to work with. Harvey's packs in $113 worth of inventory per square foot, more than three times the average for hardware stores. Sales per square foot are $503, close to four times the average.
Harvey's doesn't just buy obscure items--it buys them in bulk to save money. When a distributor told Harvey that a manufacturer had stopped making the bulky replacement metal cylinder used to line an obsolete, below-ground garbage-storage bin--a product that in a good year accounted for two dozen sales at Harvey's--Harvey bought everything the distributor had and then tracked down the manufacturer to buy every unit it had lying around. To cope with that sort of glut, Harvey's operates four small warehouses in the area and keeps employees shuttling back and forth. Several garbage-bin liners still hang from the ceiling near the back of the store.
Harvey's has turned even that, the willingness to let quantities of merchandise gather dust, into a service advantage. The store keeps part of its warehouse space filled with items needed for weather emergencies: pumps and hoses for rainstorms, shovels and ice melt for snow, and so forth. Those reserve inventories are never used to fill floor stock; they're left untouched and ready for mobilization should a crisis arise. When the Northeast was pummeled by near-torrential rain last October, leading to widespread flooding, the line of people from Needham and surrounding communities waiting for pumps snaked through the entire store. Every customer got one. No one seemed to know of another store in eastern Massachusetts that hadn't run out of pumps within hours. The local police know that Gary and Jeff don't mind if their home numbers are given out in the middle of the night to a distraught homeowner.
Again, one might well wonder how Harvey's can afford its eccentricity; slow-moving merchandise is anathema to retail. But once again, the business's seeming extravagance is muffled by the torrent of sales it attracts. The simple fact is, for every pail liner that languishes on the ceiling, hundreds of flashlights, hoes, and cordless drills go flying out the door. The result: despite the many slow-moving items--or more properly, in part because of them--Harvey's achieves an enviable overall level of inventory churn. The ratio of annual sales to inventory value is 4.5 at Harvey's, compared with 3.7 for the average hardware store. One reason may be that the scope of the inventory seems to inspire sprees on the part of shoppers. The average bill for customers at hardware stores is $12 per trip, but it's $17 at Harvey's.
Gary and Jeff aren't above messing with their father's formula, or at least extending it. Under Jeff's management, the store has built up an extensive service department that includes appliance repairs, home repairs, locksmithing, and warranty repair and maintenance of Weber gas grills, of which Harvey's is one of the leading small-store sales outlets in the country. Besides adding to revenues, says Jeff, the services can generate goodwill that will feed back into store sales.
Otherwise, Gary and Jeff have kept things pretty much the same. The seven other hardware-carrying stores that once graced Needham Center? They were all driven out of business by Harvey's, one by one, the last finally succumbing four years ago. Until recently, when Aubuchon Hardware Co., a 152-store regional chain, decided to open store 153 five stores down from Harvey's, the only competition has been from the "big boxes"--the home centers like the Home Depot and HQ that have sprung up in the suburbs. Like other "category killers," those behemoths are widely perceived as having huge selections and discount prices. Harvey's has no problem competing on hardware selection, but Gary and Jeff admit they are vulnerable on the perception of price.
But only on perception, they contend. "The big boxes work on loss leaders," Gary says. "They'll put the cost-sensitive items on sale for below cost and advertise that, but for everything else they have to get a margin similar to ours, or even more. If you were to compare prices on a basket of items, you'd find our prices are competitive." I check it out. It's true that on most items Harvey's is close on price; whether or not you'd save much money at the big boxes depends on how careful you are about sticking to the sale items. That Harvey's can attract hordes of hardware shoppers without explicit discounting is clearly a key strength of the business. The average gross margin after rebates at hardware stores is 37%; at Harvey's it's 43%.
Gary notes, however, that when a customer mentions that a big box has a sale price on an item the customer wants, he cheerily offers to match it. He also points out one cost disadvantage to the big boxes: since everything has to be bar-coded, they have to sell small items like screws in packages, whereas Harvey's lets you buy only the one or two you need.
Is a reliance on bulk purchases and local warehouses unusual in the neighborhood hardware business? I ask the Harvey's guys this, and they all stare at the floor, pondering. "I don't know," says Gary, finally, looking at Jeff. "Do you know?" Jeff doesn't know. Harvey doesn't know. In a combined 110 years of working in and running a hardware store, none of them has ever bothered to ask anyone else in the business whether any of this is standard practice or whether there might be a better way to do things. "It works for us," says Gary with a shrug.
It's hard to argue.
|How Does Harvey's Do It?||AVERAGE HARDWARE STORE||HARVEY'S|
|Shrinkage:||2%||Less than 1%|
|Gross margin after rebates:||37%||43%|
|Sales per square foot:||$129||$503|
|Inventory per square foot:||$35||$113|
|Net sales to inventory:||3.7 times||4.5 times|
|Average size of transaction:||$12||$17|
|Sales per full-time employee:||$102,000||$228,000|
David H. Freedman (email@example.com) is a regular contributor to Inc.
Why I Love Harvey's
Harvey's is amazing. First, there's the selection. Whatever I'm looking for, Harvey carries so many varieties of it that it's well beyond what anyone else doing rational shelf-space management would stock.
Second, he wraps a heck of a lot of good advice around that merchandise. Unlike other stores, Harvey's doesn't have a revolving-door employee situation. So I feel I have a personal relationship with people who work there.
If Harvey's is a little more expensive than the mass merchants, it's a small price to pay for the terrific experience that I have there.
Harvey's is really a replicable model for a lot of small local businesses. The important thing is to offer convenience and personalization. Sure, part of what Harvey Katz does just isn't business rational. But that's why he's a legend.
-- Michael Treacy, coauthor of The Discipline of Market Leaders
HARVEY'S HARDWARE, Harvey, Gary, and Jeff Katz, 1004 Great Plain Ave., Needham, MA 02192; 617-444-4515; firstname.lastname@example.org 58
MICHAEL TREACY, Treacy & Co., 45 Milk St., Boston, MA 02109; 617-956-1200 58