Latest / Small Business Success with Fexingo: Local Companies, Main Street Stories, and Community Commerce / How a Local Hardware Store Beat Amazon with Free Tool Rentals
Transcript
- Lucas: So we're standing outside Ace Hardware on Hawthorne Boulevard in Portland, and the owner Mike Chen just told me something that stopped me cold. He said his store rents out tools for free if you buy the tool first. Luna: Wait — you buy the tool, then you can rent it whenever you want, no charge? That sounds like it cannibalizes sales. Lucas: That's exactly what I thought. But Mike showed me the spreadsheet. The program launched six months ago. Foot traffic is up 40 percent. Paint sales alone are up 28 percent. And the average rental return rate is 94 percent — meaning almost everyone brings the tool back. Luna: So the rental isn't really about the tool. It's about getting people in the door and making them feel like they have a relationship with the store. Lucas: Exactly right. The tool purchase is the entry ticket, but the real revenue comes from everything else — the paint, the sandpaper, the screws, the caulk, the gloves. Mike calls it the 'consumable flywheel.' You buy a circular saw once. But every time you come back to borrow it, you're buying blades, lumber, safety glasses. Luna: And that's the Amazon weak spot. Amazon can sell you the saw cheaper, maybe. But it can't hand you a tape measure when you forget yours. Lucas: Right. The free rental is a loss leader that costs Mike almost nothing. The tools are already paid for by the initial purchase. The incremental cost of letting someone borrow it is basically zero — just a little wear and tear. And the upside is that each rental visit averages an $18 ring on consumables. Luna: So the customer feels like they're getting a deal, and Mike gets a predictable stream of visits. How does he handle the logistics? I can imagine people not returning stuff. Lucas: He keeps it simple. You buy the tool, they put a sticker on it with your name and the purchase date. When you come in to rent it, you show your receipt — they have it in the system anyway — and you walk out with the tool. No deposit, no paperwork. The honor system, basically. And it works because the customer knows Mike, and Mike knows them. Luna: That only works in a neighborhood store though. If you tried this at a big box, the shrinkage would kill you. Lucas: Totally. But that's the point. Ace's advantage is that it's local. Mike knows which customers return tools and which ones don't. He told me he's only had three tools go missing in six months — two drills and a pressure washer. One guy moved away, the other two just forgot. They came back a month later and paid for the tool again. Luna: So the system self-corrects. If you don't return it, you effectively bought it twice. That's actually brilliant. Lucas: And Mike doesn't even push it. He just says, 'Hey, no worries, stuff happens.' But the customer feels bad and usually becomes even more loyal. The guy who lost the pressure washer now brings in cookies every time he comes to rent something. Luna: Let's talk numbers. Mike said foot traffic is up 40 percent. But how many of those are actual rental visits versus just people curious about the program? Lucas: Good question. He tracks it. About 60 percent of the increase is repeat rental visits from existing customers. The other 40 percent are new customers who heard about the program and came in to buy a tool so they could join. So the program is both a retention tool and an acquisition channel. Luna: And the cost? He's not losing money on the tools themselves, but is there any other cost I'm missing? Lucas: He spent about $500 on stickers and a small shelf to display the rental tools behind the counter. That's it. The labor cost is negligible because the rental transaction takes thirty seconds. No paperwork, no inspection. Mike or his staff just hand over the tool and say, 'Bring it back when you're done.' Luna: So the barrier to entry is almost zero. That's the kind of thing that makes you wonder why more hardware stores don't do this. Lucas: I asked Mike that. He said most store owners overthink it. They worry about liability, about theft, about customers damaging tools. But Mike's view is that the tools are already paid for, and if one gets damaged, it's a write-off. The goodwill he gets is worth far more than the cost of a replacement drill. Luna: And he's probably right. Because the lifetime value of a hardware customer is huge. People buy houses, they remodel, they do projects for decades. Lucas: Exactly. Mike has customers who have been coming to him for fifteen years. One guy bought a table saw in 2018, and he's rented it back at least twenty times. He's spent over $800 on blades and accessories in that time. The saw was $450. So Mike's made almost double the saw's price just from that one customer's consumables. Luna: That's a 1.8x return on the tool investment in consumables alone. And the customer feels like he's getting a free service. It's a win-win. Lucas: Which brings me to something I want to mention. We talk a lot on this show about how small businesses can compete with the giants. And the common thread is always the same: use your local advantage. Mike's program works because he's on Hawthorne Boulevard, not in a warehouse in Tennessee. He can afford to trust his customers because he sees them every week. Luna: And that trust is the moat. Amazon can't replicate it. No algorithm can say, 'Hey, I remember your kid just started soccer, here's a free pump.' Lucas: Right. And that's why we do this show without ads, by the way. Because the most valuable business conversations are the ones that aren't interrupted by someone trying to sell you something. If these episodes have helped you think about your own business differently, the best way to support that is at buy me a coffee dot com slash fexingo. No pressure, just a way to keep this ad-free. Luna: Yeah, it's a small way to say this matters. And it really does keep us independent. Lucas: So back to Mike. The program has a second-order effect I didn't expect. He told me that people who use the rental program are more likely to buy higher-end tools. Because they know they can borrow them, they're willing to spend more on the initial purchase. Luna: That makes sense. If you're buying a tool you'll only use once a year, you might go cheap. But if you know you can borrow it anytime, you'll buy the good one. Lucas: Exactly. Mike says the average sale price of a tool purchased under the rental program is 22 percent higher than a regular tool sale. Customers are trading up because the rental feature adds perceived value. Luna: So the program is effectively a pricing lever. It lets him compete on quality, not just price. Lucas: Exactly. And that's the lesson for any local business. You don't have to beat Amazon on price. You beat them on relationship, on convenience, on trust. Mike's free rental program is really just a structured way of saying, 'I've got your back.' Luna: And it's working. Are there any other metrics he's tracking? Lucas: He tracks something he calls the 'rental to purchase conversion.' About 8 percent of people who come in to rent a tool end up buying a different tool they didn't plan to buy. They see something on the shelf, they ask about it, and they buy it. That's incremental revenue he wouldn't have gotten otherwise. Luna: So the rental foot traffic acts as a discovery engine. Interesting. Lucas: Mike also told me that the program has reduced his returns. Because people can try the tool at home before committing to ownership. If they don't like it, they just bring it back and buy something else. But because they already own it, they're more likely to keep it and make it work. Luna: That's a clever way to reduce buyer's remorse. And returns are a huge cost for hardware stores. Lucas: Huge. Mike says his return rate on tools dropped from 12 percent to 4 percent since the program started. That alone saved him thousands in restocking and damaged goods. Luna: So the program pays for itself in multiple ways. Higher foot traffic, higher average sale, lower returns, and a customer base that feels like they're part of a club. Lucas: Exactly. It's not a gimmick. It's a systematic rethinking of what a hardware store can offer. And Mike is already thinking about the next iteration. He's considering a 'tool library' where customers pay a monthly fee for unlimited rentals of a curated set of tools. Luna: That would be a subscription model on top of the purchase model. Very sticky. Lucas: Right. He's still working out the pricing. But the logic is the same: deepen the relationship, increase the frequency of visits, and sell more consumables. It's a playbook any hardware store could copy. Luna: And any local business, really. The principle is universal: give your customers a reason to come back that isn't just a sale. Lucas: Absolutely. Whether it's a free tool rental, a coffee loyalty program, or a plant hospital, the best local strategies are the ones that turn a transaction into an ongoing relationship. Mike's hardware store is a perfect example. Luna: I'm going to try this at my own local shop. I have a hardware store a block from my apartment. I'm going to ask them if they've thought about it. Lucas: Let me know what they say. And if they do it, tell them Mike says hi.