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in FDD Talk: Retail Franchises, Franchise Earnings, Retail Franchise
In this exclusive Franchise Chatter FDD Talk post, you’ll learn the following:
Section I – Estimated initial investment (franchise costs) for an Ace Hardware franchise, based on Item 7 of the company’s 2023 FDD
Section II – Initial franchise fee, royalty fee, and marketing fee for an Ace Hardware franchise, based on Items 5 and 6 of the company’s 2023 FDD
Section III – Number of franchised and company-owned Ace Hardware outlets at the start of the year and the end of the year for 2020, 2021, and 2022, based on Item 20 of the company’s 2023 FDD
Section IV – News updates on the Ace Hardware franchise opportunity
Section V – Presentation and analysis of Ace Hardware’s financial performance representations (average revenues and/or profits), based on Item 19 of the company’s 2023 FDD, including information on the:
- 2021 (i.e., the most recent year for which data is available) average, median, highest, and lowest gross sales for the 685 participating Ace Hardware branded stores that were still operating as of December 31, 2022, classified into the following retail formats: Hardware Stores (Convenience, Core, and Super), Home Centers, and Lumber/Contractor-Oriented Supply
Section VI – Key ratios, comparables, computations, and analyses for the Ace Hardware franchise opportunity (exclusive content for Platinum subscribers)
Section I – Ace Hardware Franchise Costs
- Ace Hardware franchise costs (leased premises), based on Item 7 of the company’s 2023 FDD:
- Initial Franchise Fee – Affiliation Fee: $5,000
- Initial Franchise Fee – Capital Stock Subscription: $5,000
- Advertising – Initial Brand Assessment: $6,000 to $12,000
- Exterior Signage: $10,000 to $30,000
- Interior Decor: $15,000 to $32,000
- Leasehold Improvements – Store Planning, Interior Décor Consolidated Fixtures, Furniture, and Other Fixtures: $102,750 to $200,850
- Store Set-Up Labor: $30,000 to $120,000 ($10 per sq. ft.)
- Equipment: $91,100 to $138,100
- Rent – First 3 Months’ Rent and Security Deposit: $21,000 to $107,000
- Prepaid Expenses – Dues, Permits, Subscriptions, Utilities (deposits may be refundable), and Other Prepaid Expenses: $3,000 to $15,000
- Opening Inventory: $210,000 to $1,000,000
- Initial Supplies: $3,000 to $7,500
- Insurance: $2,500 to $30,000
- New Investor Retail Training: $0 to $37,730
- Additional Funds – Working Capital for the First 90 Days: $90,000 to $205,000
- Total Estimated Ace Hardware Franchise Costs: $579,350 to $1,913,080
Section II – Ace Hardware’s Initial Franchise Fee, Royalty Fee, and Marketing Fee
- Ace Hardware’s initial franchise fee, royalty fee, and marketing fee, based on Items 5 and 6 of the company’s 2023 FDD:
- Affiliation Fee: $5,000
- Stock Subscription Fee: $5,000
- Annual Brand Assessment: store’s first calendar year: $6,000 flat fee per store. Subsequent years: 2% of prior year purchases subject to minimum and maximum assessments.
- Regional Advertising: will vary depending on regional advertising programs. Participation is optional and program is market-specific.
Section III – Number of Franchised and Company-Owned Ace Hardware Outlets
Franchised
2020
- Outlets at the Start of the Year: 4,370
- Outlets at the End of the Year: 4,441
- Net Change: +71
2021
- Outlets at the Start of the Year: 4,441
- Outlets at the End of the Year: 4,540
- Net Change: +99
2022
- Outlets at the Start of the Year: 4,540
- Outlets at the End of the Year: 4,645
- Net Change: +105
Company-Owned
2020
- Outlets at the Start of the Year: 186
- Outlets at the End of the Year: 206
- Net Change: +20
2021
- Outlets at the Start of the Year: 206
- Outlets at the End of the Year: 211
- Net Change: +5
2022
- Outlets at the Start of the Year: 211
- Outlets at the End of the Year: 222
- Net Change: +11
Section IV – News Updates on the Ace Hardware Franchise
Section V – Financial Performance Representations (Average Revenues and/or Profits) for the Ace Hardware Franchise (Item 19, 2023 FDD)
- The financial performance representation presented in this Item 19 should not be considered as the actual, potential, or probable results that you will realize from the operation of your store.
- Ace Hardware’s members are not required to furnish their stores’ financial results to the franchisor. However, members may participate in the Retail Financial Report (RFR) which is prepared by Profit Planning Group, Inc. (PPG) of Boulder, Colorado. The data submitted to PPG, by Ace Hardware’s members, is the basis of this financial performance representation.
- The financial performance representation does not include data from Ace Hardware stores operated by the franchisor’s subsidiaries, Westlake or GLA.
- The 2021 RFR prepared by PPG used single store operations data voluntarily supplied by 685 participating Ace branded stores (“Reporting Stores”).
- The franchisor has not audited nor independently verified the information furnished by the Reporting Stores; however, it believes this financial performance representation has a reasonable basis.
- The Reporting Stores represent 15.6% of total domestic Ace branded member stores operating as of January 1, 2022.
- All but 39 of the Reporting Stores had been open at least one full year. The average number of years each Reporting Store had been operated, as of the end of 2021, was approximately 17.2 years, ranging from 0 to 54 years and the median was 14 years.
- As of December 31, 2022, 673 of the Reporting Stores are still operating.
- The Reporting Stores are classified into the following retail formats: Hardware Stores (Convenience, Core, and Super), Home Centers, and Lumber/Contractor-Oriented Supply.
- Hardware Stores cater to Do-It-Yourself consumers, focusing on repair, replacement, and small projects. Hardware Stores are further separated into three different categories by hardware square footage.
- Home Centers serve the small contractor as well as the Do-It-Yourself consumer, carrying basic hardware plus expanded millwork, windows and doors, lumber and building materials, and kitchen and bath lines.
- Lumber/Contractor-Oriented Supply caters primarily to building and remodeling contractors, featuring lumber and building materials as well as essential core hardware items.
Convenience Hardware Format (stores with a retail selling space up to 6,000 square feet)
- Number of Reporting Stores in Category: 121 (17.7%)
- Median Annual Sales: $1,963,111
- Average Annual Sales: $3,268,482
- Highest Annual Sales: $30,626,548
- Lowest Annual Sales: $113,967
Core Hardware Format (stores with a retail selling space of 6,001 to 12,000 square feet)
- Number of Reporting Stores in Category: 323 (47.2%)
- Median Annual Sales: $2,741,124
- Average Annual Sales: $3,295,889
- Highest Annual Sales: $36,488,244
- Lowest Annual Sales: $514,897
Super Hardware Format (stores with a retail selling space of more than 12,001 square feet)
- Number of Reporting Stores in Category: 189 (28%)
- Median Annual Sales: $4,745,444
- Average Annual Sales: $5,676,401
- Highest Annual Sales: $27,942,001
- Lowest Annual Sales: $906,840
Home Center Format
- Number of Reporting Stores in Category: 42 (6.1%)
- Median Annual Sales: $5,423,837
- Average Annual Sales: $8,126,970
- Highest Annual Sales: $51,705,997
- Lowest Annual Sales: $990,749
Lumber/Contractor-Oriented Supply Format
- Number of Reporting Stores in Category: 10 (1.5%)
- Median Annual Sales: $6,617,714
- Average Annual Sales: $6,953,496
- Highest Annual Sales: $16,261,267
- Lowest Annual Sales: $1,918,022
- When reviewing the financial performance representation, please remember that Reporting Stores within the hardware format contain diverse types of outlets including, but not limited to, grocery stores, agricultural cooperatives, and traditional retail outlets.
- In addition, if your store is a new store, its financial results may differ significantly from the results of stores that have been open and operating for a number of years.
- Individual retailer operating and financial performance is dependent on the following factors, among others:
- Type of store/outlet – Financial performance for these varying types of businesses is significantly different, with different cost structures. Performance can also vary significantly within type.
- Location – In the current retail environment, the location of the store in relation to the target market is a critical decision and factor in retail success. Although the franchisor often assists the member or prospective member in market and demographic studies for both new businesses and expansion plans, the final decision rests with the member. A good location will not guarantee success. In the changing retail marketplace, location, like the economy and competition, can be affected by changing local conditions.
- Management abilities of the owner – Since all stores are independently owned, this is one of the most important factors. Ownership and management of a retail store is difficult and demanding. Store hours, depending on location, can cover up to 80 hours per week. You select both management and hourly employees for your store. Although training programs currently are offered by the franchisor, the franchisor is not required to provide any training; all store training is controlled by you. The franchisor believes that owner-operators are more successful than absentee owners.
- Capitalization – Initial capitalization is of the utmost importance in opening a new store. Retailers must expect to operate unprofitably for a period of time and have adequate capital to fund the project until acceptable results are obtained. Adequate inventory levels must be maintained to support sales. Adequate capital in the business continues to be important to be competitive within local economic and competitive conditions and to fund growth of the business or store expansions and remodeling.
- Local/regional economy and competition – Every marketplace is different and changing. Although the franchisor assists retailers with market analysis, conditions may change within a very short period of time. Competition from mass merchandisers, online retailers, and discount chains has also increased and intensified, with a few competitors having very aggressive, and unpredictable, expansion plans. Members in all markets, large and small, must be prepared for changing economic conditions and increased competition, both through aggressive retail programs, quality management, and adequate capitalization.
- How these factors interrelate for any particular store can vary by store and can have a significant effect on operating and financial performance.
- You are responsible for developing your own business plan for your store, including budgets for investments in inventory, leasehold improvements, and fixtures and equipment; forecasts of sales and operating expenses; and other elements appropriate to your particular circumstances.
- Prospective members generally utilize industry data and knowledge about the actual proposed location and market to prepare a detailed business plan, sales forecast, and proforma financial statement tailored for the specific operation.
- The prospective member’s sales forecast is often done at various ranges of performance whereas his or her proforma financial statement is based on his or her single best estimate.
- While the franchisor’s field personnel may assist prospective members with their business plans, sales forecasts, and/or proforma financial statements, the prospective member is responsible for the soundness of all assumptions contained in all such plans, forecasts, and proformas.
- Consult with your own financial, business, and legal advisors to forecast sales, estimate expenses, and prepare budgets for your store.
- Some Ace Hardware stores have sold and earned these amounts. Your individual results may differ. There is no assurance that you’ll sell or earn as much.
Section VI – Ace Hardware Franchise Ratios, Comparables, Computations, and Analyses (Exclusive Content for Platinum Subscribers) ⬇️
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