Business 101: How Friedman's Home Improvement found its groove

LINDSAY RIDDELL

STAFF REPORTER

December 3, 2006

(Editor's note: This story is drawn from a Nov. 16 BUSINESS JOURNAL conference

that focused on how Friedman's Home Improvement positioned itself to successfully

compete with national retailers. The conference included Friedman's President

Bill Friedman; Friedman's CFO David Proctor; Jim Andersen, Friedman's board

member and partner at Andersen & Co. CPAs; Richard Abbey of the law firm

of Abbey, Weitzenberg, Warren & Emery; and Barrie Graham, chief executive

officer of Exchange Bank, all Santa Rosa companies.)

NORTH BAY ? If you've lived in the North Bay long, you probably still call

it Friedman Bros. Hardware. But the independent, family-owned Friedman's

Home Improvement, as it has been renamed, has survived increasing competition

from big box hardware stores by refusing to live in the past.

Instead, the company, poised to make its fourth generational transfer when

son Barry Friedman someday takes over from current President Bill Friedman,

has transformed from the inside out, adopting proven business practices of

larger corporations while maintaining the heart of the Friedman family's

first hardware store back in 1946.

Bill Friedman's father and uncle Benny and the late Joe Friedman opened the

first Friedman Bros. in Petaluma in 1946 and were "committed to hard work,

always treating the customer with respect and doing business ethically,"

values their successors have long sought to maintain.

The original Santa Rosa store opened in 1970 and grew to become the largest

single hardware store in the country when it was expanded to 100,000 square

feet in the days before Home Depot and Lowe's reached national dominance.

Friedman Bros. was passed onto now president and CEO Bill Friedman and his

uncle Harry Friedman in the 1980s. Bill bought out Harry's shares in the

company in 1999 ? transfer number three ? after opening the second and third

Friedman Bros. stores in Sonoma and Ukiah.

When Bill Friedman took over as sole owner, it became apparent that Friedman's

had outgrown its existing business practices ? there was inconsistency among

the three stores, employees weren't clear on procedures and some management

changes needed to be made.

But Bill Friedman felt there was one thing missing that was most important.

"It became apparent to me that we needed to rebuild the company from the

inside out, but first we needed to put heart back in the company," Mr. Friedman

said. "Without heart, our company would not survive."

Competition

For the last seven years, Friedman's has embarked on a broad overhaul that

has led to a new brand identity, store renovations, focused employee training,

management changes, new comprehensive operating procedures and a host of

other improvements.

The company believes the changes will allow it to continue to compete with

the larger chains surrounding the homegrown store, even though another independently

owned hardware store sold to a national chain this year.

Home Depot purchased Yardbirds, the Petaluma-born hardware store with 10

locations, last year after 30 years of independent ownership. Home Depot

already has locations less than two miles south of Friedman's Santa Rosa

location and 10 miles north in Windsor.

With Yardbirds' purchase, the nation's largest retailer could have four more

stores potentially surrounding Friedman's. The nation's second-largest hardware

retailer, Lowe's Home Improvement, has a location 3.5 miles to the south

of Friedman's in Cotati and has proposed another store a couple miles north.

Friedman's said competition is inevitable, and what it has to do is use its

small size to its advantage.

"We wanted to be a smaller PT boat among larger aircraft carriers," Bill

Friedman said. "We wanted to make smart, quick moves around our competition."

The jumping off point

In 1999, Bill Friedman assembled the executive team that would bring the

company to its next level.

Included were Vice President of Merchandising and Marketing Tony Corsburg,

who has 30 years with the company; Vice President of Contractor Sales Bobby

Senften, a 37-year Friedman's veteran; and Vice President and Chief Financial

Officer David Proctor, who has directed accounting for the past 21 years.

As a jumping off point, Friedman's solicited market research in 2000 that

helped it define its customer, improve product selection and discover its

customers' values.

"We received that information which not only told us how the market viewed

us, but how they viewed us measured against our national competition," Mr.

Proctor said.

With the market research results, the company was able to define its core

values, including respecting the customer, the employees and the vendors.

Friedman's knew it had to compete on price with the larger big box retailers

and crafted the "lowest price period" slogan. It put systems in place to

consistently measure its competition's prices and make sure it was keeping

its word.

Friedman's identified its strongest distinguishing feature: its ability to

provide better customer service than the competition. And Friedman's worked

to ensure that it had superior customer service and link it in the minds

of its customers to a new brand identity.

"You can build a better brand identity, but if they come in and you don't

execute, you might as well pack it up," said Mr. Proctor.

Friedman's had to improve its employee culture, create standard operating

procedures so employees knew what was expected of them and were doing it

consistently and invest in its employees' training.

The company also hired an experienced training manager who runs ongoing weekly

training sessions as well as orientation. The training manager is working

with experienced employees who are writing new training guidelines and will

become trainers themselves.

The average sales associate earns more than $14 an hour. Cashiers make at

least $10 an hour. About 95 percent of Friedman's 385 employees are full

time and earn benefits. But they're also expected to know a lot about products

and procedures, and there is little tolerance for being late or missing work.

Employees must pass tests on specific products before they are cleared to

sell them. There are secret shopper programs that measure performance.

The high standards and incentives seem to be working. Friedman's says its

turnover is less than half that of typical retailers.

Friedman's also involved its employees in the company turnaround by surveying

them. The results of that survey produced solution work groups that identified

where the store needs to improve structure and processes. Three groups developed

and continue to develop processes for staffing, policies and procedures and

training. More than 80 standard operating procedures on subjects including

return policies, receiving inventory and training have so far been crafted

and all are accessible on the company's intranet and are reviewed at monthly

meetings with managers.

On the management side, the company expanded its senior executive group to

include an operations manager to oversee all three stores.

"Before that, we weren't sure if the same message got from Santa Rosa to

Sonoma or to Ukiah," Mr. Proctor said.

And they added a human resources director to the senior management staff.

A new marketing campaign featuring the company's employees, the new name

? Friedman's Home Improvement ? and a new logo accompanied the grand reopening

of the Santa Rosa store, which underwent a major renovation completed in

2002. All messages on bold green signage within the store are in English

and Spanish. A remodel of the Ukiah store was completed in 2004 and the Sonoma

store is next, with a scheduled completion date set for 2008.

The renovation costs put a dent in the bottom line as a percentage of sales,

but profitability has been improving for the last several years, Mr. Proctor

said. Friedman's had sales of $88 million in 2005 and is poised to improve

by more than 10 percent.

Barrie Graham, president of Exchange Bank, said Friedman's is a unique customer

in that it's survived so many generational transfers and that the loans the

bank has made to Friedman's to finance its expansion are ideal.

"It went to a good purpose. It helped them to develop a good brand, to increase

inventory and, quite frankly, to grow sales," Mr. Graham said. "They took

on debt and grew sales. We get paid back, and they increase revenue."

Today there is no Friedman's Web site, but an informational site is in the

works, with a planned rollout in 2007.

Friedman's also opened its board up to two new members outside of the company:

North Bay accountant Jim Andersen and Art Simon, a distributor and consultant

whose family had owned another independent hardware store, Simon's Home Center

in the East Bay.

The company continues to be involved in the community, committing money and

volunteers to local nonprofits. Its greatest contribution may be that the

company also supports local businesses.

"For us, community involvement goes beyond the charitable world," Mr. Proctor

said.

He said Friedman's supports local business because the company knows first

hand local businesses can compete with national chains in prices.

Friedman's believes local businesses can provide superior service "because

we can access decision makers and people who deeply care about businesses

here," Mr. Proctor said. "And we're committed to local business because those

dollars stay in the community."

Friedman's business strategies are always evolving, with new training programs,

new operating procedures and new policies being crafted daily.

"And it's not easy," Mr. Proctor said. "We struggle with all of this."

But the payoff is worth it, said Bill Friedman. "I'm excited about

the future."

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