What Neighborhood Retail Gets Right (Episode 27)

My guest is Gina Schaefer. Gina is founder and owner of 11 neighborhood hardware stores located in Washington, D.C., Baltimore, and Alexandria, Virginia. She opened her first store in 2003, and today she has over 200 employees.

Gina’s been deeply engaged in community revitalization, including efforts in D.C. and elsewhere to strengthen locally owned businesses and nurture new entrepreneurs. She serves on the board of directors for Ace Hardware, which is a national wholesale cooperative. We’ll talk more about what that means in our conversation.

Gina’s also an active member of Business for a Fair Minimum Wage and she serves on several non-profit boards including, in full disclosure here, our board of directors here at ILSR.

Gina has received many recognitions and honors. She’s been called an industry top gun, a woman to watch. I think as you listen to this conversation, you’ll begin to understand why.

Gina joins us today from our Washington, D.C. offices. Before we get started, a reminder to please subscribe to this podcast and rate us no iTunes, Stitcher, or wherever you find your podcast. We’re a small, scrappy organization so we could really use your help and this is an easy way to do it. Just take a minute to leave us a rating. It really helps us reach a wider audience, so thank you.

Now let’s get started. Gina, welcome to the show.

But you know, way back then it’s easy … You know? Today we think of city neighborhoods as a great place to open a business, but that was not at all the case 15 years ago. I mean, at that time retail was all about big stores, lots of parking, big parking lots, everything had to be easy for people in their cars.

You basically did everything wrong. You opened this little hardware store that was 20 feet wide and 100 feet deep, and had zero parking spaces. Do people think you were crazy?

It’s funny, it’s not even been two decades. In the grand scheme of urban revival I think you that have to go decades to really see dramatic changes in some cases. But Logan Circle at that time had three or four businesses, I would say it’s probably … You know? I’ve never truly counted, but maybe 10 or 12 blocks and two or three businesses. Everything else was just closed. Houses were boarded up. Every other house was boarded up. The businesses had long gone and there was nothing here, so it was ripe for a lot of changed and Washington, D.C. at the time was truly ripe for retail development. The big boxes and the national chains that you think of had really … They had ignored us for a long time so we had a lot of opportunity that, in hindsight, is exciting but we had no idea what was coming at us.

So, yeah, I think I was the only one … Maybe I was the most clueless, because I was just so excited about the opportunities that I refused to see any of the negative sides that I was hearing about from various parties.

From a business perspective there’s so much I didn’t know. I mean, I knew … My team jokes that I lead from a place of cheer-ocracy, meaning everything is just cheery and happy. That only gets you so far, and I’ve learned that over the years. I work with a business coach to learn more about the numbers. I have taken countless seminars, and classes, and used educational resources from Ace and other avenues to learn about HR and marketing.

We have 30,000 items in our store, which is a whole other conversation. But what it comes down to is I’m really running a small business, and any small business has the same needs in terms of expertise, marketing, HR, finance, et cetera, and so on. So I wish I had known more about those things when I first started, but I think my growth path for the last 14 years has gotten me where I’ve needed to be when I’ve needed to be there. And I am by no means an expert in anything.

We sort of think of ourselves as being in the home preservation business. People come in because their toilet needs to be fixed. They want to repaint a wall. They might need to hang something on the wall. You know? Nail in floorboards, et cetera, and so on. Obviously it’s bigger than that to keep us in business, but the preservation. Home Depot wants to help build houses, build buildings. They’re selling lumber and drywall and things like that. So there is a pretty good distinction for most of us.

In terms of the independent market, again a couple of really distinct things going on. Ace had the pleasure this summer of celebrating our 5,000th opening. We now have over 5,000 independent stores across the country. We’ve had several years of increased store growth. We went through about an eight-year period there where we closed more stores than we opened, and it was really scary. But that has changed. We’ve been fortunate for the last, I think, five years now to have a positive net store growth.

If you read any hardware news, which some people might find interesting, you’ll see things like True Value potentially trying to sell itself. True Value is also a coop. If you think of the landscape, there’s three big national coops for hardware: Do It Best, True Value, and Ace. The True Value system is really in jeopardy right now. It’s kind of scary to watch from an independent perspective because while in some case we could consider them competitors, I consider them allies in the fight against big retail and so I don’t necessarily want them to fail. But they’re struggling now.

I think that Ace is doing really well. True Value needs to find its feet, or figure out what’s going on. Iconic brands in the larger picture, like Sears, are struggling for a variety of reasons. We’re kind of all over the place, I guess, long answer, short.

I would tell you that it’s not a ton of money, although it incrementally goes up. The more you purchase, the more successful you are. The stock is not redeemed until you die, sell, or close the business. It’s almost like a … I use the word “forced,” but a retirement plan for those of us that are owners. Then the cash piece comes back. You use it to pay your taxes. You use it to do store renovations. Some owners, depending on how small they are, use it to supplement their income. That’s how that works.

I was also fortunate about a year ago to be elected to the board of a national coop called CCA Global. They run the Carpet One Flooring & Home stores. which a lot of folks know about and may not know that that is a coop as well. CCA Global has helped spin off more of a non-profit arm that’s really delving into coops and what they do communities. What they think a typical community is comprised of is about 150 coops.

So those of us who are consumers or residents in communities don’t necessarily think of these business models being everywhere, but coops can be in housing, they can be in food, they can be worker coops, purchasing coops like us, utility coops, credit unions are typically coops.

So we’re a little bit of everywhere. And people are much more likely to do business, with my business at least, when they hear that we’re a coop and not a franchise. Obviously nothing against franchises, but we’re perceived very differently in the consumer’s mind and so it’s very important to me that consumers know that Ace is a coop.

That’s not the case with your stores. I mean, you get to make the decisions. You are fully a local owner, and then you’re also a part owner in Ace along with about 5,000 other store owners. I assume you all sort of have one vote, right?

I was in an amazing Ace Hardware Store in Houston, Texas last year that has a fudge shop inside of it. You want to talk about the fun place to be in a hardware store, it’s not the plumbing aisle, it’s the fudge shop.

We have a really great indoor plant section at one of my locations. We sell a ton of houseplants in specialty flowerpots. That’s unique. A lot of Ace Hardware Stores don’t carry that. So we have the benefit, as part of this larger buying group, to be able to create these really interesting niches to help serve our neighborhood the way we would like to.

It’s been interesting as someone who’s done research on independent businesses for a long time. I think there’s a really marked difference in how well independent businesses are that belong to one of these coops, that have coops in their sector, versus other sectors where they don’t exist. It seems like that sort of mutual support, and the kind of knowledge, and also the economies of scale … I mean, you guys are buying … Ace is buying in bulk. That means pricing it at local hardware stores is not that different from a Home Depot or a Lowe’s, right? I mean, those are some of the sort of strengths that come with that.

If you were listening to another podcast right now, this is the moment when they would take a break to bring you an ad from a national company. Maybe an online mortgage broker, or a meal delivery service, you know the ads I’m talking about. At ILSR our mission is to deconcentrate the economy, to bring economic power back to communities, so we’re all about locally owned businesses.

But for businesses that are local in scope, advertising on a national podcast doesn’t make a lot of sense. That’s where you come in. Please support your local businesses. Also, please consider kicking in a few bucks to support ILSR. Your donation not only underwrites the cost of this podcast, but it also helps support all of the research and resources that we make available on our website and the advocacy work that we do. So please take a minute and go to ILSR.org and click on the “donate” button. That’s I-L-S-R .org. While your there you can also sign up for our monthly newsletter. It’s a great way to get regular updates with new resources and tools you can use to build local power.

Now back to our conversation with Gina.

So the one thing we haven’t talked about yet in this conversation is sort of the 800 pound gorilla in the room for all retailers and for local economies, which is Amazon. Amazon is now capturing about one out of every $2 that people spend online. And although I can buy hardware from you through the Ace Hardware website, anywhere you are if there’s an Ace store near you you can buy all kinds of stuff from them online through the Ace coop website, lots of people are just starting their search right on Amazon. They’re not even going to Google. They’re not looking around. They may not realize they have local options if they want to shop online and still support the local economy.

How does this feel from your perspective as a hardware store owner? Have you felt this in your own business, the growth of Amazon? And how do you think we should respond? What is it that people need to know?

I gave a presentation to about 800 franchise owners in New Orleans a couple of months ago. They sell tires and they really thought that they were Amazon proof. But you can buy tires online now, and I said to them “You know? If you are in the audience and you have an Amazon Prime account, why would you ever shop at a local store when you’ve already paid money to shop at an online store?”

It was kind of an “aha” moment for a lot of the people in the audience. It just means that we have to be scrappier, and more diligent, and figure out how to be more top-of-mind for our consumers.

I do think that there’s a role that the customer needs to play. On one hand people are loving the return of Main Street. They’re embracing the Shop Local movements. You know, in Washington, D.C. if you’re not eating snacks that came from a local maker, you’re not eating the right snacks. Right? If you’re not drinking a locally produced beer, you’re not drinking the right beer. It’s become very hip to do those things. I think the consumer wants to do that.

Then on the other hand is really fighting this “It’s cheaper and more convenient” mentality with Amazon that all of the small retailers have to figure out how to compete with.

I wonder to what degree the experience of being in store and part of your neighborhood … Is this something that you’re emphasizing more? And what’s the role of the people, the employees in your store, in making that something that people seek out that creates a different kind of shopping experience that sort of exceeds the lure of clicking a button on your phone?

We have to have superior customer service. I can’t tell you how many times a day I hear:

“Oh my gosh. I went to …”

and they’ll name another retailer or some place they shopped online and they’ll say:

“The service was terrible so now I’m coming here.”

Well why didn’t you come here first? So the minute we get them to realize that we have better customer service, we’re likely to have a customer for life. The converse of that happens too though. The minute we disappoint a customer, they are very quick to say they’ll never shop here again. So even if the alternative means going back to a place where they know that they’re going to get poor service, they will hold that one experience with us against it. You know? Maybe it’s double standards, but us really needing to up our game when it comes to customer service.

Then finally customer location. Having 500 stores means that we’re very close to a majority of the population in the United States, meaning you might be able to ship something overnight form Amazon, but you can walk in and get friendly customer service with unique products within a couple of miles of where you live all over the country.

So those are really are three weapons. Those are the three things that we have to fight with. Now what we do with them is up to us. For me it’s educating my staff on what the differences are between us and Amazon. I have a little bit of a chip on my shoulder because I always want to have that price argument:

“No, they’re not always cheaper. No, I know you can always find stuff cheaper online but that doesn’t mean that Amazon is the cheapest and we’re not.”

I’m never going to get over that. I’ve tried to tell myself I need to have a better argument, or I need to not be so emotional about it. But I take care of 260 people and their families by providing them with stable employment, health benefits, a 401(k), vacation time, so many things that small businesses can’t do or that the bigger businesses won’t do, so I think that I have to be as vocal about it as possible. I can’t seem to operate any other way.

What’s really interesting, and is also something that people … There’s this assumption that big companies always pay more. That’s true in a number of sectors of the economy, but it’s not true in retail. In retail the smaller businesses actually, statistically speaking, pay more than the big chains and that’s true for your stores. You had a piece in the Washington Post last year, an op-ed, and you wrote:

“Since the very beginning I’ve subscribed to the theory that business is a two-way street. I tell my team that as an employer I hope to be respected by them, and that they in turn should get the same respect back.”

What does that actually mean in your business? I understand the human case for that but what’s the business case for that?

You know, you mentioned earlier that I’m part of Businesses for a Fair Minimum Wage. I want my employees to see that even if retail compensation, for example, isn’t as high as we would all like it to be that I’m going to fight to make it as high as legally we can; as opposed to the business owners that are out there saying “I don’t want to pay people more.” I mean, I don’t know how you go to work every day and look at your employees in the face and say “I hope you still make $7.25 tomorrow,” which is the starting wage in 24 states. So when I do work on these campaigns, I try to educate my staff as well so that they at least know why I’m doing it and what I hope to make better.

I was with a 19-year-old daughter of a retailer from California last week at this trade show. She walked up to someone who was selling a hand tool and he said:

“Oh, do you want to take one? You can use it to make your cupcakes.”

Well this was not the right young woman to say this to. I mean, the poor thing went ballistic and she said:

“I’ve never made a cupcake in my life. Why would you assume I was going to make cupcakes?”

So I would say that those kinds of experiences are a little fewer and far between than they were before, but they still occur. And you know how we handle them. We chuckle and then educate, and that’s all we can do.

When I was applying for my first loan, my hardware experience didn’t technically count because I was only 16. The first three banks, I think, we spoke to didn’t want to give me a loan because I didn’t have any hardware experience. Mark, my husband didn’t go in and try and get those loans without me, so I don’t know if he would have been perceived differently because he was a man. But I’ve heard those conversations. I’ve had those conversations. Most women were never going to have true hardware experience, at least not in an urban setting in Washington, D.C., so I think incorporating some of the unconscious bias practices that are becoming more prevalent will help on a banking level.

Running a hardware business is like running a clothing boutique, a card shop, dog washing business, a restaurant, you still have to know all of the basics that I mentioned before: HR, marketing, finance, et cetera. So it doesn’t really matter if you don’t necessarily have expertise in that.

You know? We talk about the struggles that we have, building a business or building lives as women in the United States or business owners et cetera, and it’s nothing compared to what these families go through. So the series was good for me. It was eye opening, educational, it was beautifully filmed, I thought. The stories were great. It really made me want to go volunteer at this school and help these kids become better people.

So anyway, it’s not a book but I highly recommend ‘Daughters of Destiny’.

Also a thank you for our theme music. It’s ‘Funk Interlude’ by Dysfunction Owl.

For the Institute for Local Self-Reliance, I’m Stacy Mitchell. I hope you’ll join us again in two weeks for another episode of Building Local Power. Thanks.