hand & power tools challenge

Maintaining margins in the face of murky product differentiation and blurred brand identification.

By Jim Anderton

Tools are a tough business. Brand identification is getting murky, product differentiation isn't easy, and thanks to box stores, the margins are shrinking. Add to this the new internet tool stores and some retailers feel like they're under the drill bit.

What's the easiest way to manage tools? "Get out of the tool business," jokes Ron Reiche of C.E. Reiche Castle, Pembroke, Ontario. On a serious note, Reiche sees the price of tools at competing stores, and sometimes wonders if he's getting the same deal from his suppliers. The box stores in particular are notorious for offering sales and loss leaders that can leave customers with no concept of a fair price for tools. And that means shrinking margins for mid-size and small stores. "I've almost got to give them away to sell them," says Reiche when confronting the pricing might of a category killer like Home Depot.

Reiche points out that there's a merchandising issue at the supplier level. Special packages, like multiple-tool kits, involve a rock bottom margin. Usually, one of the tools has some markup built into the kit price, while the other barely breaks even. For a box store, a small margin like that is acceptable with their volumes. For a smaller player, it doesn't justify the shelf space. But if the kit is being advertised by the supplier, customers are going to come in asking for it. "This kit business, in my opinion, is not the way to sell tools," says Reiche.

Another problem for Reiche, and many retailers like him, is product identification. What makes one drill different from another is not always obvious to consumers, who want justification for the price differences. And this isn't just an issue with competing brands.

"When you're dealing with power tools within a brand, they're all the same color," says Reiche. "The consumer looks at, say, a twelve volt cordless drill made by Makita. Then Makita drops a line, or introduces a new line, and suddenly the drills are not the same. How do you differentiate that for the consumer without physically going over it?" At least competing manufacturers are different colors, he says.

Manufacturers are faced with merchandising problems like these, and more. "As a manufacturer, you have to have a logical product line structure that will allow you to distribute all your products to all channels without having them bump into each other," says John Tizzard of Zircon. In other words, you have to keep everyone happy, large and small.

To do this, a manufacturer needs a lot of selection, something for everyone. They must put together products and programs that will get them shelf space in a Home Depot and a Home Hardware, and make money for both of them. Ideally, without forcing Home Hardware to compete with the box store. Says Tizzard, "This puts a lot of stress and cost on a manufacturer. Controlling that inventory is difficult. You spend huge amounts of money on products and holding inventories in many different configurations."

Getting the product front and centre is the challenge for suppliers. The box stores say they'll put the tools up front, as long as they get the lowest possible price, special package consideration, national advertising and in-store merchandising support. The smaller stores say they'll put the tools up front if they're given something they can sell at a reasonable margin, that won't send the customer laughing all the way to the box store.

One anonymous manufacturer put it this way: "The battle is won and lost today in retail store space and retail presence. In the late '60s, if you wanted to pump out a product, you bought national space on TV. And if you had the three networks covered, you hit every house in North America. Today, Wal-Mart is responsible for more transactions than all three networks combined."

That same manufacturer also pointed out that the demographics aren't favoring the yuppies anymore. As they start turning their attention to computers or back to cars, the target end-user for many suppliers is swinging back to the professionals.

Either way, advertising is still the most powerful marketing tool out there, says Peter Clarke of American Tool Companies. "The most important thing both for manufacturers and for retailers is to keep good products advertised so that the end user--be it DIYer or Pro--is aware of them." That also means changing merchandisers, promotions, etc. every six months, he adds. "Someone said once that tools don't sell unless they are advertised and I absolutely believe that."

Box stores have no problem with advertising budgets, but smaller stores are at the mercy of the manufacturer in that respect. Co-ops and franchises have the advantage of an umbrella organization that can help them with advertising. "The best thing for small stores is to follow their head office's or the manufacturer's planograms," says Clarke.

The business of selling tools seems to be shrinking to an ever smaller retail pool, with the big boxes driving the manufacturing. With high volume, low margin retailers such as Wal-Mart enticing manufacturers to keep expanding to meet the orders, some observers think the tool business is building on sand. With shrinking profits, what happens if those volumes bottom out? The battle is not won with pricing anymore.

Delta's 10" Compound Miter Saw is designed for making compound, miter, bevel and cross cuts. Features include easy-grip horizontal handle with trigger switch and built-in electric blade, work support extensions that slide out for supporting extra long stock and a new chip chute that catches dust and chips for improved dust collection. It also features a trigger-controlled miter indexing mechanism, a 15 amp motor, and a carbide tipped saw blade. RS# 57

Hitachi Power Tools and James Hardie Building Products introduce the Hardiblade, a polycrystalline diamond tipped blade that is designed for multi-plank cutting. The four-tooth configuration of the Hardiblade allows for fast low-duct cutting versus continuous rimmed blade grinding. RS# 58

Bosch introduces the 3960 CRK 24-Volt Combo Kit that includes a drill/driver, circular saw and a flashlight. The drill features two variable speed ranges, 0-500 RPM and 0-1, 650 RPM; a variable speed trigger with electric brake and a 16-position torque control clutch. A side handle provides better leverage during high-torque operations, and can be attached on either side for right or left-handed use. RS# 59

Arrow Fastener Co. offers the model ET100, a handheld tool that shoots 18 gauge brad nails in three different lengths: 5/8" (15mm), 3/4" (20mm), and 1" (25mm). It boasts solid state circuitry and rugged construction. Its 10 AMP circuit delivers a driving force nailer without the inconvenience of an air compressor. Ergonomically designed, model ET100 is ideal for cabinetry, furniture, crown moldings, tight corners and other finishing jobs. RS#80

Milwaukee Electric Tool introduces the new Orbital Super Sawzall model 6521-21, a high-performance, 11 amp, 0-3200 strokes per minute (spm) anti vibration saw with a 1-1/4" blade stroke. It also features gear protecting clutch, Anti Vibration System, Quik-Lok Blade Clamp, pivot shoe release, dial speed selector switch, steel carrying case, 10-foot 2-wire Quik-Lok cord and Super Sawzall assortment two blade pack. RS# 61

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The Stanley Works' new line of AntiVibe Hammers for industrial professionals, absorb shock from vibrations, reducing stress and fatigue. Design features include a carbon-steel shank which maximizes absorption of vibrations--dampening them 8 times or 800%. As well, the hammer's handle is wrapped in an Isoplast jacket with a ribbed soft vinyl grip for increased shock absorption and comfort. RS# 62

Vaughan & Bushnell offers a longer, 21-inch version of its Superbar® which features six more inches of reach with a corresponding increase in leverage. Its rocker design combined with the longer length permits savage leverage on both large and tough materials. Sharp beveled edges permit prying without marring while three beveled nail slots fit most nails. RS# 63

Ryobi's JobSite Series of heavy-duty cordless drill/drivers has been redesigned. The drill/drivers include a 3/8" 12-volt and 14.4-volt, and a 1/2" 18-volt. Each drill is variable speed reversible, featuring a tough, dual-range all-metal planetary gear box, running at 0-400 RPM and 0-1, 400 RPM, for high torque and high speed applications. They also have an electric brake and 24-position adjustable clutch to meet any screwdriving task. RS# 64

King Canada's 15" Drill Presses feature 16 speeds (210-3670 R.P.M.); 5/8" chuck capacity; MT#2 spindle taper; built-in work light; on-off switch for power and light located in front of machine; 45 degree tilting table for angular drilling; locking depth stop for accurate repetitive blind hole drilling; and non-slip rubber feed handles. RS# 66

American Tool's Quick-Change bar clamp/spreader provides an easy conversion from clamp to spreader without the need for any tools. Located on the movable jaw, the pending quick-clip release is easily pulled down allowing the jaw to slide on the bar to any desired position or to be removed and repositioned in a spreader application. RS# 65