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Case Study

Big-box stores create supplier headaches for indies Add to ...

THE CHALLENGE

“This number is no longer in service.”

Jim Lewis, owner of Winnipeg-based Jim’s Home Improvements, was more than a little surprised and much more than a little concerned as he listened to the recorded message. It was the third time in two years that one of his wholesalers had closed shop.

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Where he would get his store’s products? While ‘big boxes’ were a big hit with customers, small retailers often took a big hit when it came to sourcing their supply. With this most recent closure, Mr. Lewis found himself wondering: Where was he going to get his products if his suppliers continued to shut down?

THE BACKGROUND

Mr. Lewis opened his retail namesake, Jim’s Home Improvements, almost 18 years ago on Pembina Highway, Winnipeg’s main north-south corridor. It was a high-service specialty home improvement store that defined itself by providing exemplary service and high-quality products, such as Benjamin Moore Paints. With three big boxes located within a 10-minute drive of his store, Mr. Lewis believed his customers came to him because there were things the big guys couldn’t provide – a careful ear that made sure customers got exactly what they needed was one of them.

While he was doing things right, it was increasingly apparent that some of his suppliers were not. The recent entry of several big-box retailers, such as Home Depot and Rona, had chased more and more wholesalers out of business. These smaller establishments, companies including Premium Wholesalers and Lumber Dealer Supply, were no longer around. The suppliers had served a crucial function for small retailers because they let the little guy buy things in small quantities. Given the confined size of Mr. Lewis’s 1,100 square-foot operation, his policy had been to order weekly – or as he liked to say, “one to show and one to go.”

This change began about a decade ago when the big retailers started arriving on the scene and eventually Mr. Lewis was left with just one supplier, TruServ, the wholesale arm of the True Value buying group, which was willing to sell to small independents like himself. Buying from TruServ meant he would have buy case lots, instead of the ‘one-sies and two-sies’ he was used to. But for some items, such as painting tape, where a “case” involved 36 rolls, it wasn’t a big deal. For larger items Mr. Lewis saw some real problems ahead. The prospects were, suffice to say, daunting. So daunting that he had seriously considered closing up shop about seven years ago.

THE RESULT

Seven years later, Mr. Lewis is still in business and doing better than ever. How did this happen? By forming relationships with suppliers. Whether it was by connecting with RJR for weather-stripping or Newark for paint brushes, Mr. Lewis was able to directly connect with about two dozen large manufacturers to replace the half dozen or so supply houses that had gone out of business. Making the best of this new situation, Mr. Lewis found that he was also able to buy even better than before, saving himself about 10 per cent in the process.

This created a slightly different challenge. To the point: buying in full case lots, or by minimum order sizes of $3,000 or 2,000 pounds, created storage problems making the new problem not one of access but one of storage – where do you keep your inventory until it sells? For a small retailer with only 1,100 square feet offering 10,000 stock keeping units (SKUs), physical space was at a premium.

So what did he do? First, he expanded the store – doubling it in size from 1,100 square feet to about 2,200 square feet. This worked out so well, he ended up expanding once more – to 3,300 square feet. The number of SKUs didn’t go up, but his store’s product depth did, leaving Mr. Lewis better positioned to service those customers who did cross his doorway. So, by taking the initiative to build a new set of supplier relationships, and then expanding his store to become a slightly larger ‘small box,’ Jim’s Home Improvements was all the more able to improve the homes of its home improvement customers.

Special to The Globe and Mail

Reg Litz is a professor in the Asper School of Business of the University of Manitoba.

This is one of a regular series of case studies by a rotating group of business professors from across the country. They appear every Friday on the Your Business website.

 

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