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A classic American company may have found a way to protect itself from the retail killer that is e-commerce - if only for a moment.
We're talking about Ace Hardware.
It's no secret that e-commerce leviathan Amazon.com Inc. (NYSE: AMZN) is devouring the retail space, leaving corpses in its path.
Amazon is "quite arguably the most disruptive company in the history of business, and they impact everybody without question," said Ace Hardware CEO John Venhuizen to Business Insider on Aug. 16.
However, Ace is one of a handful of retailers that are employing Amazon defense strategies to stay competitive with the online giant.
And Ace's strategy is working... for now.
Here's how this longstanding American company is battling the retail ice age, what's in store for the hardware chain down the road, and what it all means for your investments...
Ace Hardware's Amazon Defense Strategy
While AMZN has enjoyed a nice 31% gain this year, so have major players in the U.S. home construction industry.
The U.S. iShares Home Construction exchange-traded fund (ETF), which includes major players like Home Depot Inc. (NYSE: HD) and Lowe's Co. Inc. (NYSE: LOW), is climbing right alongside AMZN and is up 26% year to date (YTD).
Meanwhile, the SPDR S&P Retail ETF is down 11.37% YTD. That's because hardware and home construction stores leverage the one advantage that brick-and-mortar establishments have over Amazon: the ability to appeal to all five senses before a purchase.
"Many people like to still physically see and touch and have the five senses," said Venhuizen to BI. "We had a big, 5,000-store celebration [this weekend]. Many of them were out there smoking meat on a grill. You can't smell that on Amazon."
This sensory experience is critical to the success of Ace and other hardware giants because of the nature of their products.
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Things like power tools, paints, and outdoor grills are not only costly to ship, but also difficult to evaluate without seeing them in person - especially if you have any questions. That's where Ace Hardware thrives.
And when you have the privilege of having face-to-face interactions with customers, you also have the opportunity to provide quality customer service.
"When a local business provides an irrational level of service to its local neighbors, that's hard to compete with on a big-box or a dot-com national scale," said Venhuizen. "Every small business can do that."
But of course, Ace has some advantages that average small businesses don't.
For example, Ace realizes that in order to sell its billions of dollars' worth of inventory, it has to appeal to both in-store and online consumers. That's why Ace promotes free online pickups and continues to update its online presence.
This blend of online and offline strategy has already proven successful.
Ace Hardware's online sales grew 61% in the second quarter, and 93% of those transactions were picked up in the store, according to Venhuizen. The company is now starting to experiment with home delivery, he added.
However, these efforts may not protect Ace indefinitely - especially given Amazon's developing offensive strategy...
Retailers Are Living on Borrowed Time
Amazon has already started to compete with traditional brick-and-mortar retailers on the ground level.
First, Amazon debuted its Amazon Go cashless convenience stores. Then, it opened bookstores nationwide. And now, it is rolling out a slew of Instant Pickup stores across college campuses.
The brick-and-mortar stores offer consumers a way to use their five senses before purchasing a product. The cashless, modern checkout process offers convenience. And for consumers who would prefer to shop online and pickup in-store, Amazon now offers that too.
As for customer service, Amazon's mission is to be "Earth's most customer-centric company," according to its website. The company may not have an in-person customer service associate for every purchase, but it does offer "award-winning," 24/7 support via phone, email, and chat.
To be clear, Amazon's latest developments aren't necessarily threats to Ace (yet), but they serve as warning signs that Amazon is willing to try anything and everything to acquire more customers and steal market share from the competition in a number of industries. Because of its resilience to e-commerce, hardware could well be next on Amazon's list.
And if that happens - if Amazon meets Ace and the other home construction chains where they live - there may be no more defense strategies to turn to. Then, it's only a matter of time before these companies go the way of other retailers...
Straight to the grave.
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