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HILTI CORP. DRILLS INTO HOME DEPOT TERRITORY

By Neil Janowitz

Hilti Corp. began in 1941 in Liechtenstein as a mechanical workshop specializing in high-quality power tools. The company grew quickly in size and crossed the pond, establishing itself in Stamford, Conn., in 1955 as Hilti Inc. By virtue of its quality products and devoted sales staff, Hilti became over the next half century a leader in the professional-grade tool business. A large part of that emergence has been its Hilti Centers, a chain of company-owned stores that act as conduits between the customers and Hilti itself. The first of these opened in Salt Lake City in 1970; since then 100 more have popped up, bringing the breakdown to 82 in the United States and 19 in Canada.

The company seeks spaces measuring between 2,000 and 4,000 square feet, with good visibility, ample parking and proximity to complementary suppliers, says Carla Biggs, Hilti’s marketing communications manager. For nearly a decade the company has maintained an arrangement through which Hilti ProShops operate inside Home Depot stores. These “shops” are 150-square-foot, Hilti-exclusive areas within Home Depot’s power tool department. The steady development of Hilti Centers, no doubt helped by ProShop-generated buzz, has translated into profit growth of 14 percent annually. (The company does not disclose sales figures beyond that.)

But Hilti is free about divulging its expansion plans, which involve 10 new stores this year, including units in Vancouver, British Columbia; Boston and San Francisco. This is good news to Nick Black, vice president of Mega Properties, the management firm that oversees a Hilti-anchored shopping center on Milwaukee Avenue in Chicago. Black’s firm has been working with Hilti since last summer. “They were wonderful to work with on the build-out of the location and since then have continued to be very hands-on and responsive,” said Black, who has been so happy with the relationship in fact that his company renamed its shopping center after Hilti. “And there’s been great synergy with other tenants in the plaza, all of whom are very happy. Hilti has an attractive store, and almost all people can use their products, so they bring a lot of new traffic to the area. I hope to put more of their stores in our other centers.”

But for a niche retailer like Hilti, trying to toe the line between consumer-grade and professional-grade could limit growth. “They’ve made their reputation with contractor tools and services — providing products, accessories for the products, repairs, training and environmental disposal. With their quality and that customer care, they don’t have much competition at the high end,” said Ryan Mathews, president of Royal Oak, Mich.-based Black Monk Consulting, which examines business trends from a futuristic perspective. “But it’s not all about the big construction firms. There are a lot of subcontractors who can’t pay top dollar. They need the best product for the lowest price, and with everything the big-box stores offer, I don’t know that Hilti can compete there.”

Of course, with those ProShops inside the Home Depot stores, that’s exactly where Hilti is trying to compete — and with a convincing amount of success. The units, like the Hilti Centers stores, saw double-digit sales growth last year, says Biggs, attributable in no small part to ProShops’ rapid expansion, having reached 370 units in just eight years. But Biggs says the ProShop units, which feature wood-type panels and glossy product photos amid the shelves of tools, represent no greater a focus than the Hilti Centers stores. “Both channels play a critical role in driving awareness to the Hilti brand,” she said.

Mathews sees the endeavor as a coin flip. “If the strategy works, it builds brand cachet,” he said. “Hilti is hoping their products outshine the environment and draw people in. But it could work another way, particularly when you consider those subcontractors, who are only concerned with the bottom line. They may come into Home Depot and see the dramatic price difference and opt for the cheaper models. There’s a reason people go to Home Depot, and that’s because they have a Home Depot budget. The situation invites that kind of price comparison. “The other concern is that Hilti may suffer from the same thing that happened to Gitano Jeans. Gitano used to be a high-fashion brand. Then they signed a deal with Kmart, figuring their chic offerings would stand out in the low-cost environment. In actuality, people just associated Gitano with low-market store quality, and the brand was ruined. I understand the logic — people come for the value and will see the quality in a more expensive product. But it can work the other way.”

Still, Mathews says, Hilti has a great opportunity to succeed if it capitalizes on its broad network of customer sales representatives. “The challenge is to get enough people to believe that a relationship is more important than a transaction,” Mathews said. “Hilti needs to sell customers on the notion of a long-term investment .”

Black agrees. “By and large, if you compare Hilti Centers to the [big-box stores], the people in the Hilti shops are more informed,” said Black. “The stores clearly don’t have the same amount of product, but the people are very competent and great with customers. Personally, I’d like to pay a little more and receive the type of assistance and knowledge they provide.”