Hammerjack Hardware Stores to Cater to DIY Customers

Case Type: improve profitability.
Consulting Firm: Ernst & Young (EY) Advisory 2nd round full time job interview.
Industry Coverage: retail.

Case Interview Question #01076: Your client Hammerjack Hardware Corporation is a regional chain of “local hardware stores” located in numerous neighborhood strip malls and shopping centers. Originally founded in 1930s as “Hammerjack’s Stores”, the company saw dramatic growth following World War II, more than tripling its sales between the late 1940s and 1959. It first reached $1 billion sales in 1985.

Hammerjack Hardware had enjoyed excellent performance for the past 15 years but has experienced declining profits in the past two years. They are concerned about their profitability and have hired your consulting firm to explain their situation and provide recommendations to get them back on track. How would you go about it? What recommendations would you make to the CEO of Hammerjack?

Additional Information: (to be provided if interviewee asks probing questions)

* COGS (cost of goods sold) — no change
* Overall sales — down
* Lease of space — no change
* Number of customers — down slightly
* SG&A (selling, general and administrative expenses), Overhead — no change
* Dollar amount of purchases — down heavily
* Franchise costs — no change
* All other drivers — no change

Possible Answers:

1. Suggested Framework

Start the case by analyzing drivers of profitability: Profit = Revenue — Costs and reviewing competitive issues.

2. Make the following assumptions:

a. Losing customers and based on the heavy decrease in dollar amount purchased, we are losing high spending customers. (There must be substantially different customer segments)

b. Losing customers and dollar revenue because Home Depot and other huge “warehouse” hardware stores have entered Hammerjack’s regional locations.
– Lower prices due to buying power (economies of scale).
– Provide additional services such as training courses, information, tips.
– Stealing contractors due to substantially lower costs and stealing DIY customers due to price and help.

3. What do we know about our customer segments?

Derive the following 3 target customer segments (as follows):

4. Based on this information, can you determine which segments are most valuable to Hammerjack?

5. You determine that the “Do It Yourselfers” (DIYs) are the most important category. Maintenance segment is still loyal because they only shop once a year and for a lower dollar amount. We probably can’t keep the contractor due to price. How do we keep the DIYs?

Potential Solutions:

- Offer the training courses with an emphasis on the local knowledge of the neighborhood.
- Anticipate the products needed by DIYs and offer competitive prices on those items.
- Acquire or align with other local hardware store chains to gain buying power.