Industry Description
The hardware stores industry in the US primarily retails new home renovation equipment and supplies (NAICS 444100). Goods retailed include hardware, plumbing, electrical and paint-related tools.
The following are some basic characteristics of the hardware stores industry:
- Hardware stores industry has a combined revenue of $32.9 billion, with a growth rate of 2.3% in 2017-2022
- There are approximately 13,000 businesses as of 2021
- The hardware stores industry employs approximately 1,200,000
Industry Trends
The hardware stores industry has low levels of market share concentration, with the top two industry players comprising approximately 2.2% of the industry revenue in 2022. Small players are independently operated and owned in one or more states with less than 20 employees, while the biggest players have multiple locations across the US with more than 20 employees. Some key external forces influencing the industry are (i) Internet of Things, (ii) automation and (iii) after-sales services. Each of these is described in further detail below.
The Internet of Things is popular in the industry because it widens the consumer base and provides key insights to industry players. Industry players can use the Internet of Things to link systems and these systems can then be used to manage the global supply chain. This allows many customers who live in different parts of the world to be served. The Internet of Things also links devices that allow industry players to track the location of the items they ship to customers. When the Internet of Things is used to record information by collecting data in key areas of supply chain management such as manufacturing, storage, and transportation of hardware products, store owners will have the ability to make decisions regarding stocking as there will be information on selling cycles.
Hardware store managers have incorporated automation which is faster than labor thus better results. Industry managers should automate different processes such as warehouse and distribution. By incorporating automation, industry players are ensuring the speed of the different processes are increased. This allows customers to receive their ordered products on time, which increases consumer satisfaction and leads to consumer retention. Automating processes have positive results such as improved efficiency and higher customer satisfaction and retention so industry players should be adapting to this trend.
After-sale services are an effective way to retain current consumers and attract new ones. An example of an after-sale service is delivering purchased items to the consumers free of charge. During the COVID-19 pandemic, there was a change in consumers behavior that led to changes in the industry and the need to cater to the new consumer needs. Hardware stores provide the materials necessary to build robots and autonomous vehicles which are bulky and expensive to transport. Industry players having after-sales services such as free delivery can retain current customers and attract new ones.
The industry is impacted by external forces like the Internet of Things, automation, and after-sales services. The Internet of Things has improved supply chain management and expanded the consumer base. Automation leads to sped up processes, improving efficiency and increasing package punctuality. By ensuring consumers are offered a high-quality service through after-sales services industry players can attract and retain customers. Industry players meeting these factors improve their standing and fight off increasing competition as the industry continues to grow.
Key Performance Metrics
In evaluating hardware stores, the following metrics can provide useful information in comparing a subject company to guideline companies and transactions:
- Sales per square foot
- Conversion rate
- Average transaction value
- Year over year growth
- B2B sales growth
- Client satisfaction and retention
Industry Organizations & Publications
The following organizations publish useful information:
- North American Hardware and Paint Association
- National Independent Hardware Association of America
- Structural Building Components Association
- The Hardware Connection
- HBS Dealer
- Hardware Retailing
Guideline Information: Private Purchase Transactions
Most hardware stores are privately owned. While there are publicly traded companies, data regarding the sale of 100% of closely held hardware stores is generally the best source of information to appraise a subject company.
The following are typical appraisal multiples from sale of hardware stores:
- Revenue multiple between 0.24 and 0.63 times
- Gross profit multiples between 0.71 and 1.51 times
- EBITDA multiples between 3.5 and 26.8 times
In selecting guideline transactions, it is of critical importance to select transactions that are similar to the subject company. Unique factors for any subject company must be considered to yield credible results. Additionally, industry economic conditions also vary over time, which must also be considered.
Guideline Information: Publicly Traded Companies
Most hardware stores are privately owned; however, there are a few that are publicly traded, meaning it is possible to compare a subject company based on industry metrics and appraise using industry multiples. However, as with the guideline transactions described above, it is of critical importance to select publicly traded companies that are similar to the subject company. Also be aware that multiples of certain publicly traded companies may not accurately reflect a subject company.
The largest publicly traded US hardware stores are:
- The Home Depot, Inc. (HD) – $286.4 billion market capitalization
- Lowe’s Companies, Inc. (LOW) – $114.7 billion market capitalization
- Snap-on Incorporated (SNA) – $12.6 billion market capitalization
- Stanley Black & Decker, Inc. (SWK) – $11.9 billion market capitalization
The Price-to-Earnings (P/E) ratios of these four companies range between 14.1 times and 19.1 times.
Appraisal Rules of Thumb
Please note you should never use a Rule of Thumb in place of a professional appraisal. You will never see a competent professional appraiser do their work using a Rule of Thumb. The professional standards that govern professional appraisal practice, which all professional appraisers should follow, specifically prohibit the use of Rules of Thumb.
Hardware stores are businesses sold based on sound economics. These economic considerations can be measured using the key performance indicators described above, but such economics cannot be accurately summarized in these simple formulae.