For tools and machinery industry experts

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August 26, 2022

by a searcher from Brigham Young University in Highland, UT, USA

I am hoping to get in contact with someone who has experience in the tool distribution industry. Particularly power tools and machinery. I have a signed LOI with a 50-year-old business that has good cash flows. One of my worries about the business is the big box retailers taking over the space (Home Depot, Lowe's, etc.) My understanding is that most contractors will buy their tools from specialty stores like the one in question here.

Question for an industry expert:
Is it true that contractors buy from specialty stores?
If so, are the home depots of the world working to get into the space?

This particular business also repairs the tools they sell and has an online store that does 40% of the company's annual revenue.
As a novice to the industry, it seems to me that this industry is more likely than most to be pushed out in the near future by the big players.

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commentor profile
Reply by a searcher
in Tampa, FL, USA
I believe the type of customer buying specialized tools would prefer to purchase from the more niche specific websites / stores as these buyers will often want the better experience with knowledgeable staff ... as already stated. That statement leads to a bigger question which is how much knowledge do you have in this specific niche to answer these types of questions? The owner has 50 years of knowledge, you can't underestimate that piece. While typically sellers make it sound simple to learn, and it may be but it will take a bit of time and you will want to make sure you have access to his knowledge for a longer time frame.

If for example the business is also selling on Amazon, look through some of the questions they have been asked. It can give you an idea of what to expect.

What are the MOQ's for all suppliers. Does he have contracts in place with existing suppliers? If no contracts with suppliers, what protection is in place if any if the supplier decides they no longer want 3rd party sellers and want all the sales for themselves? How many other distributors are there for their product lines? Look at logistics, which port does the product arrive, how close are they compared to where you will be located?

Lastly, I would look closely at the amount of inventory they keep on hand and the turn rate. If they bring product in from overseas how long is that taking and what are the payment terms. If coming from overseas, what is the average order size and how often? What terms if any with the suppliers do they have? If they pay upfront all cash and receive a discount are you able to do the same? Keep in mind the owner has had a good business for many years and quite possibly has a good cash reserve to be able to hold a lot of inventory, consider this piece when looking at the cash flow side of things. I obviously do not know your position... just something to consider.

Just some things to consider besides your initial question.
commentor profile
Reply by a searcher
from New York University in Maplewood, NJ, USA
FWIW, I run a small manufacturing company that uses some specialized and some generic tools. Personally, I like to buy from specialty stores because they have far better service and knowledge than the big boxes. They also stock tools that big boxes do not stock. One question to ask would be the % revenue from tools that people cannot buy in big box stores. Another question might be how much the founder/owner's personality is the reason people shop there. Hope this helps and please feel free to reach out with more questions.
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