Teradata

Ace Hardware Corporation is blazing into its 83rd year of business on a growth and performance tear that would be remarkable in a company a tenth its age. The firm recorded $3.46 billion in wholesale sales during 2005, a 5.4 percent increase over 2004 and the largest annual gain since 1998. It added 131 new stores with 1.7 million square feet of retail selling space during the year, opened a 788,000 square foot retail support center, and welcomed the 10 millionth customer to it's Helpful Hardware Club loyalty program. 

The outstanding financial performance and robust growth that Ace enjoys today are driven by a strategic campaign of reinvestment and infrastructure renewal, initiated in 2000, that has refurbished its retail stores and reinforced the ranks of local owner-investors. Less visible but equally important has been a wholesaleto- retail shift in the firm's business model that has allowed the firm to forge new bonds with its retail customers while maintaining the unique independence of local Ace retailers. Technology has played a key role in enabling this strategy, and no technology has contributed more to the transformation than Ace's enterprise data warehouse environment from Teradata Corporation.

Throughout its 82 years Ace's wholesale business model and cooperative organization have been the twin themes of a uniquely long-running success story. The company was founded in 1924 to pool the buying power of several independent hardware stores in the Chicago area. Consolidating their purchasing and distribution helped Ace stores compete more effectively with larger chains, and the storeowners' independence provided the type of entrepreneurial energy, attentive service, and creative response to customer needs that are only possible when the owner is in the store.

This happy combination produced almost seven decades of uninterrupted growth. The number of Ace stores climbed into the thousands, a network of regional distribution centers was built, and in time the cooperative was sold to its retailer members. The company ran the wholesale side of the business, sourcing high-quality products at low-cost and developing retail support services to offer its retailerowners. Ace retailers retained complete control of their own operations, picking and choosing from the co-op's products and services as they saw fit.

By the 1990s, however, major change was afoot in the retail industry, driven by consolidation and advances in information technology. "Big box" operators Home Depot and Lowe's came to dominate the home improvement sector. These firms made history with rapid expansion, made possible in part by their aggressive exploitation of end-to-end operating data – purchasing data, inventory data, retail transaction data and customer data – to eliminate inefficiencies, reduce costs, optimize pricing and product selection, increase sales and maximize margin.

For the first time, Ace's decentralized organization began to seem a competitive challenge.While the company had a solid command of its wholesale operations, it was virtually blind to events at the retail level. Only summarized sales were reported back to the co-op, and no customer data was captured at all. Because many stores had not embraced the co-op's retail technology recommendations, the POS environment was highly heterogeneous, and most stores had only dial-up network access. In short, Ace not only lacked retail sales visibility, it lacked much of the infrastructure necessary to acquire it.

With sales and customer visits in slow decline at many locations, it seemed an open question whether a loosely organized cooperative like Ace could adopt the new generation of data-driven management tools and adapt them successfully to its own unique culture and decentralized decision-making processes.

In 1997, Ace's marketing department, determined to acquire more detailed retail sales and customer data, sponsored two experimental developments. To address the issue of retail sales visibility it worked with Ace's IT department and POS vendor to create a low cost, pay-as-you-go data warehouse. Starting with a single store and an outsourced 250 GB SQL database, it began organizing nightly uploads of POS transaction records over the available dial-up connections. Storeowners were recruited for the project with the promise of shared reporting and sales performance analysis. All ETL processes were manually coded, and five Cognos licenses were acquired for marketing and merchandising analysts.

The Ace marketers then turned their attention to customer insight, creating a card-based loyalty club – the Helpful Hardware Club (HHC). Customers were recruited to the program with the promise of purchase discounts and special offers. Retailers were incented to support it with the promise of new marketing and merchandising tools to increase sales.

Both efforts were immensely successful. The number of stores sending daily POS records climbed first to 100, then to 700: less than 20 percent of all Ace stores, but a statistically useful sample, and one that included many of the firm's most successful members. Helpful Hardware Club membership reached one million when the deteriorating warehouse forced a halt to new sign-ups. Queries that had originally run in a matter of hours now required days. Ace's marketers were getting exactly the data they needed, but had exhausted the capacity of their warehouse platform. Actually using the data would require a more powerful and scalable enterprise platform.

Fortunately, the warehouse capacity challenge coincided with the design phase of a major new enterprise growth initiative. Vision 21 is a retail renewal program designed to increase sales, reduce costs and improve profitability by upgrading and standardizing key aspects of store appearance, merchandise assortment, pricing, retail technology, and customer service. Standards are based on best practice operations at Ace's busiest and most profitable stores. Like all Ace programs, participation is voluntary, but members are strongly incented through a special rebate on wholesale purchases, paid to stores that have been certified Vision 21-compliant.

Ace's IT and marketing departments made a strong presentation to management that a true enterprise data warehouse – a single repository for retail and wholesale sales, customer information, purchasing, inventory and finance data;with the performance to support large and varied workloads – would provide essential insight and decision support for the Vision 21 initiative.

After an exhaustive business analysis that included detailed ROI projections and three-year TCO analyses comparing the full cost of competing solutions from IBM and Teradata Corporation, Ace management approved the acquisition of a new Teradata® system. The new facilities were installed in early 2001, and were operational by June.

"To store and analyze the high volume of POS transactional data and combine it with our masses of historical data, we needed a powerful data warehouse system and a strong partner," explained Frank Murphy, Manager of Retail IT. "Teradata is the world leader in data warehousing solutions, with a proven track record in retail, as we discovered when we sought vendor references. That experience, including customer relationship management, category management and business intelligence, made Teradata the right choice for Ace Hardware."

When the new Teradata Ace Data Warehouse (ADW) system entered production, the constraints on new data sources and reporting workloads were immediately relieved. 2,500 stores now transmit daily POS transaction detail to the warehouse, and the number of Helpful Hardware Club members is approaching 11 million. Query execution times fell from days to hours or minutes, even as hundreds of new users began accessing the warehouse. The ability to manage and report on that data has given Ace's merchandising, marketing and operations departments a vastly better understanding of what's working at the retail level, and how Ace retailers as a whole can benefit. As a result, the average value of retail transactions has increased, the number of samecustomer store visits is up as well, and all nine Ace product departments have recorded retail profit margin increases.

"We've come to the point where we realize that data warehousing is a critical capability for Ace Hardware," says Frank. "The Teradata ADW has become a kind of plug-in to the business, and our operations really depend on it – not to mention our customers."

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