January 22, 2018

A new era for Aubuchon after outsourcing distribution

PHOTO/EDD Cote
William Aubuchon, IV sees vast potential in his great-grandfather's business, possibly buying up retiring Baby Boomer's stores across the country.
Jon Hurst, president, Retailers Association of Massachusetts

In August, Aubuchon Hardware announced it would cease distribution operations in Westminster, a decision that CEO William Aubuchon, IV admitted was a tough one.

Aubuchon said in an interview this month the move not only displaced union workers, putting the 110-year-old retail hardware chain in the headlines; other employees, including family members, lost their jobs too, for a total of about 60 layoffs.

But rather than a mere cost-cutting measure, ending distribution in favor of moving to independent distributors was a strategic play Aubuchon hopes will help the company grow, with the potential to add hundreds of stores in the coming years.

"It was a major pivot in our history, in our tradition, but I think it's a foundational one for us looking into the future," Aubuchon said.

After 90 years, a centralized distribution facility was almost as old as the fourth-generation company itself, but it had become a bottleneck, said Aubuchon, the 40-year-old scion of the Aubuchon family who holds a bachelor's degree in economics from Williams College and and an MBA from Babson College.

Working for the company in some capacity since he was a kid, and officially since 1991, Aubuchon has watched retail hardware evolve from an entirely in-store game to one increasingly choked out by big box stores and online retailers with the scale to deliver the products customers want, quickly.

But thanks to the nature of the business, there's always been hope for Aubuchon Hardware to make it through the shakeout brought on by Amazon, Home Depot and their brethren. Even as online retail continues to siphon shoppers from stores, Aubuchon's sales have increased, with $168 million in revenue in 2017, up from $154 million in 2014, according to the company.

PHOTO/EDD Cote
Aubuchon consults with employee Nick LaRosse on the inventory at the chainís Clinton store.

Aubuchon credits his great-grandfather, William Aubuchon, Sr., with founding a business with a crucial customer service component.

"It's very important to have someone at the store that you can depend on, that's knowledgeable and friendly," Aubuchon said.

Creating a tailored experience

That's something, Aubuchon said, online retailers can't provide, and with a home repair niche, Aubuchon is poised to deliver that customer service. Yet, the other part of the equation, he said, is to create an overall superior experience for shoppers. Across all retail categories, the industry depends on creating a great experience for shoppers.

Jon Hurst, president of the Retailers Association of Massachusetts, agreed, saying shopping in stores is a form of entertainment for shoppers, but the trick is to zero in on their needs.

"You just have to find your right niche of what your customer is looking for and serve them in the most efficient and effective way," Hurst said.

For Aubuchon, that means offering products customers need, specific to their geography and proximity to other retail options. That's the drive behind the decision to work with independent distributors. By doing so, the company can offer product assortments tailored to the local customer base.

"Every single market is a little different, so we need to be able to flex our product assortment," he said.

Modeling, then scaling

Capacity at the former distribution warehouse in Westminster was about 15,000 items, Aubuchon said. By comparison, independent distributors located throughout the U.S. stock, on average, 70,000 items in a facility.

In order to avoid offering a cookie-cutter assortment of products, Aubuchon said the company needs to draw from the greater capacity of the independent distributors. The Westminster facility didn't have that capacity, creating the bottleneck.

Aubuchon is now working with several distributors in New York, West Virginia and elsewhere, and plans to do business with more. The idea is create a large portfolio of distributors to draw from, Aubuchon said, adding all mom-and-pop retail hardware stores are already doing this.

"We don't want to do it in just one store. We want to scale it," Aubuchon said.

The model was piloted in three stores, including Cohasset in Massachusetts, as well as in Easton, N.Y. and Moultonborough, N.H., last year, and will be rolled out slowly across stores over the next three to four years, so that eventually, a sizeable portion of inventory will be specific to the market, Aubuchon said. For example, the Easton market has a particular need for automotive products, perhaps because other retailers in the area don't compete in that category, Aubuchon said.

Finding success in your niche

Hard as it may be to keep the customer base when big box and online stores dominant, Aubuchon Hardware isn't Worcester County's only hardware success story. Koopman Lumber and Hardware, serving towns in the Blackstone Valley as well as a the I-495 belt, has grown in recent years as it has successfully protected its niche.

While lumber sales represent about 80 percent of the business, Darrell Baker, vice president of retail operations for the nearly 80-year-old Koopman, said the retail side of the business is important because its weathers recessions better than the lumber side, which is patronized by contractors. And like Aubuchon Hardware – a company Baker is very familiar with through professional dealings – Koopman is focused on the in-store experience, offering a wider assortment of products than big-box stores based on local needs.

Customers "know the company; they know what we stand for. We've been in the community for generations, and that means something to people," Baker said.

Koopman expanded six years ago, opening stores catering to contractors in Hudson, Andover and Sharon, drawing a circle around the Greater Boston area. Aubuchon's much smaller competitor may have more opportunities to grow, Baker said, but nothing is imminent.

Aubuchon expansion plans

Meanwhile, Aubuchon isn't just planning to rework inventory at existing stores. He has plans for large-scale growth in the coming several years, largely through acquisitions. Aubuchon said Baby Boomers nearing retirement largely own the 30,000 independent hardware stores in the U.S., creating a large amount of turnover. While he's still in the planning phase, Aubuchon said he's thinking big, potentially adding hundreds of locations to his chain.

Meanwhile, the company is investing in its online retail site, adding a live inventory check feature. This year, the company will add a store pickup option to the website and making online and instore rewards discounts interchangeable.

Keeping up on the digital side is a challenge, when big-box competitors, like Home Depot, invest billions in their digital business, Aubuchon said. But, as is the case in all aspects of the business, doing nothing isn't an option.

"We're not here to survive and cling to our survival. We really want to thrive and grow," Aubuchon said.

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