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Lute Supply’s Bold Venture into the Dual-Format

Lute Supply has spent half a century earning a reputation for success serving professional builders, contractors and tradespeople. Its list of accolades features top awards by Goodman and Amana for outstanding sales growth, market share growth and excellence in distribution. The company is even ranked 96th in the U.S. by Supply House Times Premier on its “Top 125 Wholesalers” list and was No. 94 in Wholesale Magazine’s 2013 “Top 100” list.

But, in 2009, as the U.S. housing industry was crumbling, pro-focused home improvement retailers were facing some very difficult decisions. They could either tighten expenses and hope to ride the economic storm out or make investments to their operations in the hope of attracting a more diverse customer base. For the team at Lute Supply in Portsmouth, Ohio, laying low and hoping for the best just wasn’t an option.

Instead, the retailer used the downturn as a time to invest in a new business model built around attracting DIYers along with the contractors and tradesman who were already familiar with the operation.

“The addition of d-i-y lines is a perfect fit for us,” says Brian Hancock, senior vice president at Lute Supply. “Many of our managers have experience in the hardware and building trades, which gave us a tremendous advantage in start-up.”

Lute Supply was no stranger to retail innovation. In fact, it was one of the first pro-focused retailers to convert its entire inventory management system to computers. The team’s push toward reinventing itself has paid off: The company now boasts 14 locations in Ohio, Kentucky, West Virginia and Indiana—with nearly half those locations featuring the dual-format, serving both pro customers and DIYers.

First Steps

Lute Supply started its conversion to the dual-format at its Portsmouth location. One of the first decisions when making this shift was how to find the space at the location to allow for a retail show room. When the Lute team realized the original Portsmouth location just couldn’t accommodate such an expansion, they chose to move the store to a busy section of U.S. Highway 23. This decision not only allowed more customers to see the store, but it also created enough room for a retail salesfloor, a home decor showroom with offset cubicles for personal consultation and a special pro section, complete with its own service counter.

With the space issue solved, the next decision involved what product lines to bring in and how to keep the margins high enough to make a profit, despite competition from Lowe’s and another local independent home improvement store.

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“Deciding how to get into retail was all about staying flexible,” says Autumn Dippolito, Lute’s director of marketing/advertising. “We chose products that were natural extensions to our existing assortments—HVAC and plumbing. Gradually we started branching out into other categories.”

The team identified 15 consumer-focused items that would complement its pro-focused lines. But contractors and new d-i-y customers quickly began asking for more. That’s when Lute Supply teamed up with a distributor, House-Hasson.

“We never put all of our eggs in one basket,” says J.R. Bellamy, product manager at Lute Supply. “A majority of our customers were and still are new-construction home builders, but by offering remodeling and repair products, we’re able to compensate for any one sector that may take a hit.”

Even with the addition of a retail business at some of its locations, Lute Supply continues to promote itself primarily as a destination for pros; but the team believes this gives the company an advantage with consumers at the same time.

“We wanted to maintain our pro reputation but knew that we could play to the fact that we could get DIYers the same tools professionals use,” says Mark Keyser, branch assistant manager. “It was a strategy our competitors weren’t trying and it’s working.”

As they slowly began to add inventory, the management at Lute Supply set a policy that its prices would be competitive with the big boxes’ prices. For an independent, this meant the company needed to focus on smarter buying.

“There are some products, such as power tools, where you don’t make a ton of money, and the big boxes will buy 80 truckloads of them, so you really can’t make any money,” Bellamy says. “The key is to buy right so you can sell at higher margins.”

In addition to attending wholesaler shows in search of show-only deals, the company buys in bulk, stocking the excess in an extensive warehouse connected to its Portsmouth location, which acts as a hub or mini distribution center to the company’s other stores.

The team at Lute Supply also advises other retailers to lean on local vendors for special deals and services.

For example, when the company decided to add a paint category in May, it teamed up with a local paint manufacturer. The vendor had already established strong relationships with contractors in the community; the new partnership would allow Lute to leverage those relationships.

“We refuse to take a hit on quality, but if we can find a local vendor who will go above and beyond in helping us serve customers, why not take advantage of that?” says Ken Hornsby, branch manager.lute supply1

Calculated Growth

The Lute Supply team says many of its challenges as a company are ones it would have even if it decided to stay focused only on the pro side of
the business.

“In Portsmouth, we were always a big fish in a small pond, but in many of our other markets, it is completely the opposite. Being a small company, we have to be creative and extensive in our market research,” Dippolito says. “One way we make sure we know our market is to always employ locally. We don’t utilize transferred employees. Just because they know ‘our’ way of operating doesn’t mean it works for their marketplaces. We would rather our sales staff know the marketplace rather than just learning our systems.”

Challenges Along the Way

The team does admit that serving both pros and DIYers does bring unique challenges.

In addition to exploring new product lines, the team says employee morale has been a surprising challenge with its new retail strategy.

“Some of our employees have been here for more than 20 years, and they’re used to serving the pro,” Hornsby says. “They are used to serving contractors who know exactly what and how many of a product they want. It’s been hard to get them out from behind the counter and on the floor helping customers with more consumer-focused projects.”

Plus, where the typical Lute Supply store has two to five employees, the locations that feature the dual-format can employ more than 20 staffers.

Management made a concerted effort to conduct regular hands-on training, rotating groups in and out of small product- and trend-focused educational workshops.

The team also utilizes the expertise of vendors at the store’s special events, such as Demo Days. Before the events start, management will ask the vendors to go through short demonstrations, tips and instructions on their products with employees.lute supply7

Maintaining the Pro-Focused Brand

Today, the store’s customers are approximately 80 percent pro and 20 percent DIYer across all its locations, with some stores still focusing only on pro customers.

The staff strives to maintain its pro-focused reputation while balancing its new consumer business. One of the ways it does this is by separating the two customer groups.

The company has separate service counters and service doors at its dual-format stores as well as a website that allows visitors to choose a pro home page or a consumer home page and receive a web experience catered to their needs.

The store’s advertising strategy also remains targeted to the unique needs of its customers, whether they be pros or DIYers. The company uses its outside sales team to call on pros at the job site and supports its efforts through targeted direct mail sent directly to the customers’ homes and offices through a support headquarters located in Portsmouth. The company even develops biannual catalogs specifically for the pros, providing catered deals and extended pricing.

In comparison, the company’s retail advertising is comprised of monthly mailings, classifieds, in-store deals and promotions on the company’s scrolling marquee sign. The store also hosts frequent special events.

“It’s imperative to reach out and advertise to each group of customers differently,” Dippolito says.

Ultimate Goal

In addition to Lowe’s and an independent retailer, Lute Supply faces unique competitive challenges because of additional competition from specialty suppliers in areas such as HVAC. But competition doesn’t seem to shake the Lute Supply team.

“With any store that has a national reach, we believe the consumer will find his pros and cons himself,” says Rochel Wolfe, who works in the kitchen and bath showroom at Lute Supply’s Portsmouth location. “We don’t have to do too much in the way of persuading them. We just need to focus on having the products at good prices. Good customer service will also triumph.”

The team also focuses on creating a destination, a place consumers are excited to visit.

“We want to be well ahead of the recovery curve,” Hancock says. “It has always been the vision of the Lute family to be a positive force in the community and a formidable competitor in every market we serve.

About Jaime Koch

Jaime Koch was the managing editor of Hardware Retailing Magazine. Jaime regularly traveled around the country and internationally to visit with retailers and share their stories. Jaime was honored by the American Society of Business Publishers for Editorial Excellence.

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