Detailed Succession Plan Working Out Great for Drew Family

Dale Drew looks comfortable sitting in the office chair, taking a momentary break from the busy sales floor at one of his family’s three hardware stores in Bright, Ind.

“I’ve had to prove something to my dad for 10 years,” he explains. “It hasn’t been easy, but it’s worked out great for us and for the business.”

His dad is Mike Drew, who bought a small hardware store in Cleves, Ohio, in 1980 and has grown Merrilees Trustworthy Supply into a successful three-store operation. The family’s other store is located in Milan, Ind.

Businesses can go on forever, but people can’t. That is why Mike Drew’s biggest success as a hardware store owner has been devising a detailed succession plan to ensure the business is passed on to the next generation—his 36-year-old son, Dale.

It is a 10-year succession plan and they are in year nine. Dale gets 5 percent of the company each year and he will be at 49 percent ownership next year, according to Mike.

“Dale is buying some shares and (my wife) Rose and I are gifting him some shares, to get him to an equitable stake in the business. We are gifting at the max level,” Mike adds.

It is not easy for an owner to step away from a business when he is still relatively young and healthy, but that is exactly what Mike has done.

Dale had left the business for two and a half years after college but came back in 2004. He started taking on more responsibility in 2005, and Mike turned over day-to-day management duties to his son the next year. After a thorough job of pre-planning, the succession plan was underway by 2007.

“When we started this succession plan nearly nine years ago I didn’t know for sure how dedicated Dale would be to run the family business,” explains Mike. “It is hard work and you just don’t know how things will work out, but he’s put in some serious sweat equity. I used to joke that I worked half-days: seven to seven. And that’s what Dale is doing now.”

 

Learning to Delegate

The first four to five years of the succession plan Mike worked directly with Dale in their Cleves store. He then felt comfortable turning over the day-to-day management for all three stores to him. Mike works with pricing, inventory and buying, which allows Dale to concentrate on the day-to-day details of hiring and supervising employees and interacting with customers on the sales floor.

“Dad did a good job of stepping out of the business and grooming me on all aspects of the operation by letting me be in charge. It’s been an eye-opening experience to learn everything,” Dale says, especially handling employee issues.

“I became his eyes,” Mike points out. “I’m still the majority stakeholder, so I want to make sure the business is headed in the right direction. We’ve kept employees informed of the succession plan so they know what’s happening.”

Many retailers wait too long or until it’s too late to start succession planning, but Mike was proactive at preparing for the future.

“We got great guidance from our accountant and an attorney and we set up the succession plan properly,” he says. “The plan shields Dale as well as protects us and our estate, since Rose and I have other children who did not want to be involved in the business. We have two daughters and another son who is retired from the Navy, so we wanted to make sure our estate did not overlook them, while also recognizing that Dale is the one who has dedicated his career to running the hardware business.”

Mike adds, “There are contingencies in place to protect him and us if anything were to happen to me. We’ve made some tweaks to the plan along the way, mainly to add extra protection for Dale. Our attorney said not to call him to change anything in the plan unless you can come to me in joint agreement, and that’s what we’ve done.”

They set it up so that Dale would have to borrow money to get to the 51 percent level of ownership, according to Mike. “We still want him to get a small note so he has experience with doing that, but Rose and I will carry a small note for him, too,” he says.

They remain intimately involved in the details of the business—Rose still oversees payables while Mike pores over the financial reports—but they are able to enjoy the warm weather during the winter and get away from the business. “Dale’s stepping in and running the business in such an outstanding way has enabled Rose and me to travel and live the type of lifestyle that appeals to us,” Mike says.

As Dale points out, there are now a lot of checks and balances in place with his dad watching the back end of the operation. “Dad’s job is to look over reports such as price overrides, shrinkage and margins. He’s able to watch over the back end more closely and we’re more profitable as a result, because there is less slipping through the cracks now,” Dale says.

Although they are getting close to the end of their succession plan, Mike anticipates that his son will want to keep him around. “Even when the business comes into his name 100 percent I still plan to be involved at some level, probably doing what I’m doing now,” he says. “I’ll be 60 years old when this succession plan comes to an end and we need to have medical insurance

coverage. But I’ll still have to bring some value to the business to prove my worth.”

 

Finding a Partner in House-Hasson           

Merrilees Trustworthy has been buying from House-Hasson since 2000, when their previous supplier, Kruse Hardware, went out of business. “We have a great relationship with House-Hasson. It’s nice having someone there who knows you and works hard for you,” Dale says.

“Our partnership with House-Hasson has grown tremendously,” adds Mike. “They have been a great partner in our business. Their merchandise mix continues to change for the better. They will listen to your suggestion and if it has merit they will go along with you.”

Mike spends a lot of time working on the buying, because that is how they keep their margins up. “I spend a ton of time preparing for each dealer market, and we go to all of them,” he says. “In advance of the market we know what we’re going to buy and if we’re going to change any categories. When you buy right it all drops to the bottom line.”

The buying specials are a great incentive, but the dealer markets are also a great experience for learning new things and networking, Dale points out. “We learn from the vendor reps and get to know them, which can come in handy later if something comes up. It’s nice to take employees to the market and broaden their horizons. When you’re picking up 15-20 points on items it’s worth your time to come to the shows.”

The Drews are big fans of the Etoolbox program. “It’s up to date and live time,” says Dale. Adds Mike, “I really like where they went with the dealer website and Etoolbox program. They’ve made great strides in those areas.”

They also use the customer loyalty program from Repeat Rewards, which has done well for them. “We’re up to about 4,000 members now in less than two years. We send out postcards to our Rewards members at different times of the year. We’ve seen transaction size and repeat visits go up with our Rewards members,” Dale points out.

Serving on the dealer advisory board for the past five years has been a beneficial experience for Dale. “We communicate problems that have cropped up and House-Hasson listens and tries to accommodate us. They recognize that the better we do, the better they do,” he says.

These days Dale supervises the managers in the other two stores while spending most of his time in the Cleves store. His wife, Michelle, runs the Bright store, while their 14-year-old and 11-year-old kids help out on occasion. “Shelly and I work well together,” says Dale, who points out that his wife is responsible for that store’s neat merchandising.

It was hard for Mike to step away from the business, but it has led to a learning experience for him. “Dale doesn’t do things the same way as me, but that’s OK,” he says. “In the beginning, I would come in and want to take over and I would disrupt things a little. We may have different management and business styles, but now we’re a good blend.”

Not only is Mike very proud of the job Dale is doing with the family business, more importantly he is happy and content with his life as he heads toward the back nine of his retail career. “I’m so happy that our succession plan has done what I wanted it to. It’s made my relationship stronger with Dale and I think he’d say the same thing,” Mike says.