Costello’s ACE Hardware – 50 years in business!

Costello’s Ace Hardware is one of the top Ace Hardware retailers in the USA and operates 46 locations in five states – New York, Maryland, Virginia, New Jersey and Pennsylvania and has even more ambitious goals. The retailer has stated its objectives of reaching 75 stores and $250 million in sales by 2025. Costello’s had four stores doing $8 million in 2000 when it entered a growth mode.

The Hardware Journal has spoken to CEO Mike Costello, one of six siblings in a leadership position with the company. We will learn over the next three issues all about their successful strategies that has led to its fast track to growth.

Where it all began
In 1976, when the USA was going through a tough recession. The local economy was devastated. Vincent Costello (Vinny) was forced to close his air conditioning and heating contracting business. Looking for a means to support his wife and 10 children, Vinnie stumbled upon a business opportunity, a retail hardware store. Originally opened in 1973, it was a small, neglected, under stocked store, just over 2,000 square feet located in Deer Park, NY.

With no previous retail experience and no other options, Vinnie courageously embarked on a journey that few would ever have dared. Sales were dismal and the store was in desperate need of attention. Vinnie worked every day for five years and managed to make the store profitable. While most would have been satisfied with this amazing feat, Vinnie was determined to grow beyond that one small store. By refinancing his home, he opened a second location in 1982. This 5,000 square foot industrial store was also located in Deer Park, on the other side of town.

In 1988, another opportunity arose. A shopping centre was being constructed in the little-known town of Nesconset. It wasn’t the most populated area, but Vinnie had lived there for over 10 years and he thought that the residents of Nesconset would respond well to a neighbourhood hardware store. Did they ever!

The 4,000 square foot store was an instant success, profitable from day-one. Over the next four years, the success of that store helped fuel the expansion of the company to larger stores.

During those early growing years, Vinnie’s children worked in the business and contributed to its success. “Our dad taught us the importance of taking care of our customers. ‘Treat them like family,’ he would say. He taught us how to solve their problems and how to learn from them. Most importantly, he taught us that the most sacred bond between us and our customers is trust.” “A guiding principle of Vinnys also was ‘The Customer is King’“ says Mike.

In 2001, with Vinnie’s encouragement and guidance, six of his children opened a 25,000 square foot store in Bellmore, NY. This store was the size of all of the other locations combined, it was huge. Mike remembers “I remember thinking that we would never be able to find enough products to fill it. It took some time, but eventually we had a successful home centre.” The Costello’s team replicated the success of this hardware/home centre concept and today they now have 46 locations across Long Island, New Jersey, Maryland, Virginia, and Pennsylvania. Costello’s has successfully distinguished itself as the loyal, helpful hardware store, staffing each location with associates eager to assist and relate on a personal level with their neighbours.

Just prior to Vinnie’s passing in 2016, his son Mike Costello became CEO, and his daughter Jamie Costello Maloney became President. The company have a very strong and experienced Executive Leadership Team including family and non-family members. In August & September every year the Costello Ace Leadership Executive team start doing their strategic planning for the following year. This process has been in place for a number of years as they proactively identified the need to do extensive longer-term planning. The Executive Leadership Team came up with the five-year plan for a company growth strategy from 2020 to 2025. They have a goal of reaching $250 million in revenue and 75 stores by the end of 2025. At that time in 2019 they had 34 stores.

81 percent of employees at Costello’s Ace say it is a great place to work, compared to 57 percent of employees at a typical U.S. company, according to Great Place to Work® 2021 Global Employee Engagement Study.

Are there specific geographic areas where Costello’s are looking to add stores?

Mike says “Virginia is definitely an area we’re looking at as a growth area. Maryland still offers a lot of opportunity. We just added four stores in northern New Jersey and one just across the border into Pennsylvania with a five-store acquisition (Smith’s Ace). We’re looking to fill in strategic areas between our New Jersey and Maryland locations. If there are opportunities to push a little bit to the west, we would consider that. We prefer to stay in more of a metropolitan area or suburbs of a major city. If we had an opportunity to buy a really successful business in California that had five great locations that were making money, I don’t think we would shy away from it.”

How difficult is it to continue growing aggressively during a period of economic uncertainty?

“We have a positive long-term outlook for the businesses we are in, so our desire to grow isn’t deterred during unfavourable economic cycles. We also possess the confidence that we can and will make whatever changes are necessary to compete and improve. That said, we rely heavily on the profitability of our business to produce the cash needed to grow, so economic instability can certainly have an impact on our speed. Thankfully, our relationship with Ace Hardware assists us in that growth by offering incentives and programs to tap into future earnings. Our partnership with Ace has had more influence on our growth than any other factor.”

Jamie Costello Maloney, President Costello’s ACE Hardware.

What factors are most important when considering possible acquisitions?

Costellos Ace growth is largely dictated by the opportunities that are around them. Historically, the company has grown mainly through ground-up locations. But in the past five years they have grown by 18 locations and 14 of those have been through acquisition. In the coming years, the company say that acquisitions are their biggest opportunity.

Their Modus Operandi is identifying great retailers already out there that have built amazing businesses but don’t have a succession plan in place. They look for strong companies with similar values and try to help those owners monetise their life’s work while continuing to support their communities and people at the same high level as they did.

They look at market demographics, location, competition in the area, sales history, operating profit, store size to see if there is any opportunity for improving the current business model. The company have in some instances acquired fellow Ace members as well as some from rival group True Value.

Costello’s also identify what learnings they can take from the acquired business by identifying when they are doing something that Costello`s are not doing.

Mike Costello, CEO Costello’s ACE Hardware.

What about the Future & the current economic climate?

As you can tell from Costello’s Ace Hardware’s exceptional growth, growing is in their DNA. Even during difficult trading periods including a pandemic, the organisation continued to be in a position to grow exponentially. This growth culture is in no small part due to the company values outlined following which permeates throughout the company.

These Costello’s Ace Values following, were developed from speaking with and taking on board all views within the company.