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DO IT BEST CEO DISCUSSES HOW THE CO-OP HAS RESPONDED TO DISRUPTIVE CHANGE

Do it Best President and CEO Dan Starr outlined how the co-op has responded to disruptive change this year.

Dan Starr, president and CEO of Do it Best Corp., kicked off the co-op’s Fall Virtual Market with his traditional President’s Address to Shareholders also held virtually. He shared how the co-op and its members have responded quickly to disruptive change due to the pandemic and other market forces, making their 75th anniversary celebration memorable in unique ways.

“It was in June of 1945…when founder Arnold Gerberding launched Hardware Wholesalers, Inc. as a way to support independent home improvement dealers in Indiana, Michigan and Ohio. Over the next seven and a half decades, the company has grown to the international co-op it is today, serving thousands of hardware stores, home centers, lumberyards, etailers and industrial commercial suppliers all across the U.S. and in more than 50 other countries around the globe. And even though when we started our planning to celebrate this milestone anniversary, I envisioned I would be taking the stage in the Sagamore Ballroom in the Convention Center in Indianapolis, this year ended up… differently,” Starr said.

He added, “Evolving, unusual, disruptive, unprecedented—We’ve heard these words a lot when describing the retail environment this year. But Do it Best and our members have quickly evolved to meet the demands of these unusual times. The pandemic has thrown a lot at all of us. There have been so many things to figure out, work through and press on in rapid succession. Our industry has faced challenges with supply chain, health and safety, federal and state mandates, new federal loan programs and so much more—hitting all of us at lightning speed. And while I won’t pretend it’s been easy, it has been truly rewarding to see how resilient you’ve been throughout it all.” 

With all the disruption in our business, it would have been easy to shift into a “heads down” mode or get distracted by the urgent at the expense of the important, Starr pointed out. “But you and your co-op were actively ‘heads up,’ looking down the road in an effort to anticipate what would come next. Especially in the heat of the fray, our members remained focused on the main things, building the business of tomorrow,” he stated. 

The speed with which this country closed down was unparalleled, Starr pointed out. “In those very early days, we all worked together to get prepared for what was to come. I’ve been really proud of the entrepreneurship you’ve demonstrated. While it was great for our industry to be open throughout the pandemic, it certainly hasn’t been easy. You’ve had to manage through all these changes while still working to meet the growing demands from customers.

“Like you, our business continuity plans were put to the test. And it’s worth noting that these plans addressed a significant event affecting one or maybe two locations at the same time, like a hurricane or an ice storm. We never envisioned a global issue that would impact every single person on the planet. So, as we found gaps, we responded to them quickly. With federal and state orders and a near universal designation as essential business, our combined readiness ensured you were able to continue to serve those customers to the very best of your ability,” he said.

The pandemic has forced companies to operate with unprecedented agility, according to Starr. “Customer service during the pandemic has taken on new meaning. Your ability to make quick adjustments to your operations, like phone and text orders, social distancing, checkout guards, touchless service, hours of operation, curbside pickup and home delivery all happened in hours, not weeks. Your creativity and flexibility in securing the safety of your store, your staff and your customers reinforced your essential status in your community,” he told members.

“Agility has been shown to be critically important. No matter how much better we’ve all gotten at it, we need to continue to be even better. The world around us isn’t going to move any slower. And your co-op is focused on agility as well. We’ve conducted digital hiring events and on-site job fairs as demand surged and labor tightened, we re-engineered distribution and delivery routes, and we worked to secure product and identified new sources when the supply chain bottlenecked. Through it all, I’ve been extremely proud of our combined agility as we’ve moved ahead,” Starr said.

Communication has never been more important for their business, according to Starr. “Things happen quickly and we saw the need to keep everyone informed and keep the lines of communication open, just as quickly, and through varied ways. When travel bans sidelined our field staff, they shifted to daily outreach to members in their territory, sharing insights, identifying potential issues and working on quick resolutions. We launched a COVID-19 resource page on mydoitbest filled with information on vendor status, the CARES Act, signage and best practices. We sent out emails and videos to keep you informed. And we launched podcasts, like What You Should Know, a bi-weekly supply chain update, and Better Together, my opportunity to share more in-depth insights on growing the business—all to connect and communicate with you in new ways,” he stated.

HELPING OUR MEMBERS GROW

Starr pointed out that 2020, Do it Best’s 75th anniversary year, is one for the record books as the co-op posted record warehouse sales, record profit and record member rebates. 

“Going all the way back to this time last year, it’s kind of hard to remember that the first big issue of the day was the ongoing battle with tariffs. While not as severe as the prior year, the administration was discussing moving about $250 billion in imported goods to a 30 percent tariff and implementing a 15 percent tariff on everything else on September 1. While these moves were later delayed or reduced, the ongoing uncertainty had everyone preparing for continued disruption and price increases,” he stated.

“With the emergence of the virus, here’s where the lesson of readiness really paid off for all of us. While you were working to secure your stores, your customers and your employees, we moved quickly, too. Even though our work environments were already deemed low risk, we knew it was important for our teams to be safe and healthy to keep our centers open and operating. However, we did close our doors to all outside visitors. We launched an intensive virus awareness and self-monitoring campaign for our team. In Fort Wayne and in our regional lumber offices, we swiftly moved to a temporary remote work environment. And while that really isn’t novel today, in March of 2020, we only had about a week to test our systems, our bandwidth and new policies before sending 350 people out of the building. That was about three-quarters of our team. That was a new experience for us. And at the time, our goal was to provide every bit the same level of support so our members wouldn’t notice any difference at all. I’m so proud of our team, because I believe they met that goal with a lot of hard work. Just like your team, there were weekends, overtime and a lot of ‘on call’ responses,” Starr stated. 

It was a little different story in Do it Best’s warehouse. “Just like your work environment, remote work just wasn’t an option. Safety was an increasingly top priority in containing and preventing the spread of the virus on a daily basis. We learned and adapted quite a bit throughout the process. I’m pleased to say that as of today, very few of our staff have contracted the virus. And, to the very best of our knowledge, not a single one of those exposures occurred in the workplace,” Starr noted.

He added, “I’d be remiss if I didn’t point out the most phenomenal aspect of this result. Not only did the team continue to stay focused on keeping product flowing through the warehouses, they did it in a year where there were record hours worked— 12- to 14-hour days, through weekends and holidays for months on end, just as you did in your stores. That’s over 230,000 hours worked more than last year…while maintaining the lowest accident rate in our company’s history. To help illustrate the sheer volume our teams have been processing, think about this: At the height of the pandemic, they essentially moved an entire warehouse’s worth of product in, through and out the door in just three days. I’m so proud of the all-in effort our team made to serve you safely while helping you grow.” 

He added, “Despite our very best efforts, the record demand for product in the fourth quarter put stress on our vendors and the entire supply chain dropping our very strong service level—well over 96 percent—down to levels not seen before. That’s a consistent trend within our entire industry, but it’s not where we wanted to be. However, it’s important to note that while we had some clear challenges—and still do—our team was able to avoid many of the policy changes implemented by our competitors. Both Ace and Orgill suspended certain services and withheld product lines so they could focus on the highest demand products only. They pushed out deliveries. Orgill went so far as to prioritize or suspend warehouse shipments based on its perception of a store owner’s loyalty to Orgill—But not Do it Best. For 75 years, through it all, we have been all-in, and serving every one of our member-owners to the best of our ability. We wouldn’t have it any other way.”

He added, “COVID challenges persisted throughout the fourth quarter despite our very best efforts. For virus-related products, member demand jumped 15 times normal in several categories. We sold through what would have been decades worth of volume in certain products in under a month. Non-COVID related products and vendors held their own until about mid-April and then suffered massive declines brought on by factory closures, social distancing mandates, raw material and labor shortages and extreme demand. Given the unprecedented impact on the supply chain, our team upped the communication. Providing you the What You Should Know podcasts twice a week, bringing you up-to-the-minute information on disruptions, options and alternatives so you’d be in a better position than your competitors.”

Starr said, “Now almost six months have passed since the COVID-19 virus first hit the U.S. shores and our supply chain is still heavily impacted. We continue to see sustained and extreme demand for a number of products in our core categories. We have recorded upwards of 50 percent growth across major categories like lawn and garden, outdoor living, farm and ranch and paint and paint supplies. While almost all of these vendors are back up and running at levels similar to pre-pandemic conditions— with many actually increasing their output—very few are able to withstand the double-digit sustained growth in demand that we’ve seen for such a long period. Safety stocks are depleted, manufacturing is at full capacity and many vendors have significantly reduced their available SKUs to focus on improving their productivity on their core items.”

The Do it Best merchandising and logistics teams are focused on the main things: pushing our vendors for accelerated recovery, finding alternative vendors and products to substitute for out of stock products and collaborating to drive maximum throughput to all of you, Starr pointed out.

“Similar pressures hit the lumber and building material industry, with an even more rapid escalation in the last month. At the beginning of the pandemic most experts predicted a significant slowdown in the building industry. Dealers across the country kept their inventories lean and mills reduced their supply by taking nearly 1 billion feet out of production. They also sold large blocks into international markets. But then, building didn’t slow. In fact, it surged in most states as lumberyards and home centers were deemed essential businesses. Mills started struggling with staffing and an undersupply of logs. Transportation problems delayed shipments as they continued to fight for cars. And driven by tariffs, Canadian producers have chosen instead to sell within their own very healthy housing market rather than shipping to the U.S. Unless there’s a significant slowdown in building, which we don’t expect in light of the 22 percent surge in housing starts reported for July, we will likely see ongoing LBM supply challenges through late fall,” he stated.

With all of that as a backdrop, Starr pointed out sales for the year hit $3.6 billion, net profit was up 12.6 percent over the prior year and member rebate jumped to $128.4 million, the largest rebate in Do it Best’s 75-year history. 

“When we talk about how we will achieve our position as the first and best choice for independent home improvement, it will be through our commitment to excellence and our dedication to growing our members’ businesses,” Starr said. “Our growth plans are intentional, strategic and fully supported by our board of directors. They guide everything that we do as a company, identifying where we’re headed and why.” 

He outlined Do it Best’s significant advances in fulfilling its e-commerce strategy. “Unlike our competitors, our e-commerce strategy is completely member-focused. It is member-centric. It’s member-led. And we have a very diverse group of members to serve.” 

Starr noted that some of their members are fully in the business of e-commerce. “Those members partner with us for our expertise in key areas: product sourcing, fulfillment and delivery across the U.S. and beyond. We’re the distribution backbone and fulfillment center for them. One of these members, our largest single location member in terms of purchases, earned their first million dollar rebate this year. So clearly, they are a leader in this business model,” he stated.

“For most of our members, however, their strategy is not to build a business that is primarily e-commerce-driven. They’re using e-commerce to support the rest of their business. Certainly, they’ll sell product online, but they typically aren’t a presence on marketplaces or investing millions of dollars engineering an e-commerce strategy. For them, it’s a different model and they need a different e-commerce solution from us.

“Today, people will shop your store on their phone before they ever come in and shop it in real life. And they may make a purchase and look for delivery at the store. Our strategy is to use that to drive as much traffic, footsteps and activity through our local members and support their strategy to deliver an exceptional in-store experience as well,” Starr said

He pointed out the third component of Do it Best’s e-commerce strategy is doitbest.com, which is out there to capture the “unclaimed online shopper.” He added, “These are people already searching the web for products who are not yet connected to a member site. Doitbest.com works to attract these customers and drive traffic back to our member locations.”

Starr added, “Last fall, we began moving doitbest.com and our member websites to our next generation platform, MOCE. The new platform not only brought your sites a modern look and feel but also gave us the ability to do so much more. Making these strategic investments ensured that when the unexpected hit, the MOCE platform was already in place. E-commerce saw record-setting sales for the last quarter, equating to an increase of 142 percent over the prior year. Fiscal 2020 recorded a total increase of 42 percent for the year. Our timing with the new platform served us all well and the growth opportunities are about to get even better.”

Starr said another company initiative for this year is to develop and implement an enhanced .com strategy that includes same-day in-store pick-up. “I’m pleased to share that during this fall market, we’re delivering on that initiative with four tremendous new features for our MOCE platform,” he said.

Other initiatives have also begun to pay dividends during the pandemic. “In 2019, our then new Transportation Management System drove a reduction in our outbound delivery routes by 520,416 miles annually—a savings of nearly $1.2 million that further bolstered member rebates. While we expected to capture these savings, the new system delivered something else that became crucial in the wake of COVID. The massive volume demand this year resulted in a significant increase in routes and miles. In May alone, we shipped an additional 800 routes beyond our planned 2,300 normal ones. We simply could not have processed this unprecedented surge in demand as quickly or efficiently without the new system in place,” Starr noted.

Do it Best has also invested in enhanced category management. “Increased focus on core categories and greater use of POS data are paying big dividends. We are optimizing our current library of over 2,700 planograms through the use of these new tools and collaboration with Retail Performance. And our new tool for rapidly measuring ROI by planogram by region, store type or even by specific member will allow for a significant improvement in recommendations and monitoring of performance. We now have the tools to deliver customized regional or member-specific planograms as a service. We’ll be piloting this service ahead of deployment later this year,” Starr noted. 

He added, “Since the introduction of the Do it Center, we have consistently invested in growth through leading store designs. While the pandemic slowed our progress a bit, I’m pleased to share that we are very close to opening up a new prototype location for a next generation of store design. I’m very excited by the early results and I can’t wait to share more with you soon.”

Starr concluded, “This year has presented challenges and opportunities unlike any we’ve experienced in our lifetime. I have confidence that we have the right growth plan. One that will ensure we’re well-positioned with the right solutions. Solutions that will not only combat those challenges and leverage those opportunities, but create new strategies to compete and win. I have confidence in our team. This year tested our mettle more than any other and everyone committed to serving you by giving you our very best. I have confidence in you, our members. You are true entrepreneurs! You have innovated and adapted, remaining agile to adjust to rapidly changing circumstances to serve your communities. And you’re driven to succeed. I have confidence that we will be first. We will be best. And we will do it together.”

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