Hammering out their niche

It's been a rough five years for Steve Romero, owner of Redstone Supply Outfitting and Hardware Co., since Home Depot opened its expansive store almost in Redstone's backyard on Mountain City Highway in Elko.

A mere 100 yards or so separates the two building supply stores, and the brand-name power of the national retailer has significantly cut into Redstone's market.

But down the road on West Idaho Street, business has held steady for Franklin Building Supply, which targets professional builders and remodelers by extending short-term credit on purchase of building products, says company President Rick Lierz.

Redstone's Romero says the company's 15 employees are half the workforce in 2005 and since that time sales have plummeted about 50 percent as well.

"Home Depot has taken the lion's share of business, no question," he says. "I don't think we would still be here but for the fact that we don't have any debt."

The addition of the nearby Super Walmart, which also sells tools and work wear, placed even more pressure on Redstone Supply. To recapture business, Redstone added a broader line of merchandise and also began offering clothing and work wear.

Sales of those additional merchandising lines have been met with moderate success, but many Elko consumers have tightened spending: Overall taxable sales in the county dipped nearly 9 percent from the end of November 2009 from the same time the prior year, the state Department of Taxation reports. Sales of building supply and garden materials dipped almost 11 percent in November 2009 compared with 2008 figures.

"For a while Elko was booming, so we were riding that upward tide, which offset a lot of losses. But lately it's been really difficult to keep things going," Romero says.

Romero has no plans to close Redstone Supply, but in the next few years he'd like to relocate in space away from the retail giants and closer to the heart of town.

"If you can get closer to your customers you can better serve them," he says.

Customer loyalty and commercial accounts have helped Redstone defend its market share. And although stores like Home Depot and Lowe's have aggressive pricing on building staples such as wall studs and sheet plywood, Romero says customers find Redstone's pricing more favorable in other areas.

"It's not an issue of pricing," he says. "If it were pricing, it would be easy. Home Depot is a larger store, it has mass appeal, and you can't compete with its marketing.

"Home Depot and Lowe's corner 40 percent of the market in the U.S., and it's hard to compete with that pricing. But on the rest of the store, they are very high at least those are the comments we get back from our customers."

Lierz, the top executive of Boise-based Franklin Building Supply, says his regional chain of 13 stores and building supply retailers like Home Depot aren't direct competitors even though they sell many of the same products. Home Depot targets homeowners and do-it-yourselfers, and is almost a 100 percent cash business, he says. Franklin retains customers by extending credit to its commercial accounts that is paid back monthly.

And another area Franklin outstrips a national chain retailer, Lierz says, is through its extensive product and homebuilding knowledge.

"Generally what we have found when a Home Depot comes into one of our markets is that it's not an impact on us," Lierz says. "We have a hundred different types of service, and ours is much more nimble by design based on who we are helping."

Kathryn Gallagher, senior manager of public relations for Home Depot's Western Region, says the store's competitors typically adjust product categories and brands to improve differentiation and initiate services such as blade sharpening, tool repair, framing, screening or glass cutting that aren't offered by Home Depot.

"Recent U.S. Census data indicates that within a year, smaller retailers register an average sales increase of 7 percent," Gallagher says.

Lierz admits that national retailers hold an edge when it comes to selection but he counters with service.

"Home Depot is a sexy concept for any homeowner because there is so much selection," he says, "but if you want help it is a little less sexy."

The primary strategy Franklin has employed since the arrival of the building supply giant is to keep its salesmen and staff in front of customers on a regular basis. Face time has actually turned into a strategy, he says.

"One advantage we have is that we have a better chance to know our customers because we deal with them many times and in more depth and detail. It turns out to be an actual strategy and an advantage for us," Lierz says.