How to Start a Hardware Store: 12 Steps to Open a Tool Shop

Illustration of a man behind the counter of a hardware store with an array of tools behind him

Like all SMBs, the biggest hurdle of opening a hardware store is finding a way to compete with eCommerce giants and big box brick-and-mortar retailers. From Home Depot and Lowe’s to franchised hardware retailers like Ace and True Value, the competition is fierce. But small business hardware stores are still popping up across the country. The housing market has largely recovered and there are more and more construction projects are starting every day. This has made hardware stores, tool shops, and lumber yards especially lucrative: in 2018, the industry as a whole generated nearly $30B in revenue between over 20,000 locations. So how can you start a hardware store? Check out the 12 most important considerations!

1. Will You Go Independent or Buy a Franchise?

The hardware field has some major franchise players, but certain communities are still better suited for locally-owned shops. Let’s look at the pros and cons of each.

There are still many opportunities for locally-owned SMBs to open a successful hardware store. Tightly-knit and community-oriented communities are more likely to be drawn to independent, smaller retailers. And many entrepreneurs can benefit from making something entirely their own. This option offers more autonomy and freedom in your product line, operations, marketing, and hiring processes.

But for others, the franchise route might be a better option. Many areas of the United States, particularly suburban communities, are much better suited for brand names and large-scale operations. A franchise business model better facilitates this. It requires a smaller investment and less overhead throughout ownership. Franchises also have access to an established, reliable, and vast supply chain. Additionally, you’ll have assistance with your marketing. Franchises already carry strong name recognition and many share advertising costs among all franchisees.

Determine which option makes the most sense after considering your potential market and your desires as a business owner.

2. Choose Your Supplier and Determine Your Product Inventory

As mentioned above, your supply chain is a vital factor to consider prior to opening. It also can depend on whether or not you’re a franchise store or independent.

Either way, managing an efficient and productive stock should be a major focus. Many shoppers are looking for materials that they plan to use later that day, so stockouts can be particularly frustrating and lose your business customers, giving the big box retailers a huge advantage.

Form solid vendor relationships so that you can receive emergency orders, promotional and bulk pricing, and generous lines of credit. Vendors that trust you and that you trust are key.

3. Invest in the Best Hardware Store POS Software

To maintain optimal inventory in your store, you’ll need an advanced hardware store POS software. This will provide your inventory management system, ordering, customer relationship management, and product performance reports. Combined, these tools will help direct your business and increase your sales.

Look for cloud-based points of sale. These will increase convenience and efficiency and add to greater data security.

More advanced features, like detailed retail product analysis, provide extra information for your business.

4. Write a Business Plan – How Will You Make Money?

Every prospective business should come with an in-depth business plan that lays out exactly how it will succeed. Hardware shops are no exception. Start by identifying exactly who your customer is. Explain why they will shop with you over your competitors. Running a good business is only successful if you know what to offer your shoppers. Once you have this in place, the rest better falls into place. You’ll know what products to buy and which marketing avenues will be most influential and productive. But defining your audience isn’t as easy as it might sound.

5. Define Your Hardware Store Retail Niche and Target Market

Start by putting yourself in the shoes of a typical hardware store customer. You must be able to identify with each shopper in order to provide the tools and services that they require.

Furthermore, analyze your location to identify your typical customers. Are you in an area with new construction or an older town that requires a lot of upkeep and maintenance? Is the construction being done by large contractors that require bulk orders, or is the market controlled by DIYers and local repair/construction companies?

But there are other ways to consider what your store can provide that others can’t or don’t. Are you in an environmentally conscious community? Carry more organic and sustainable materials and a greater supply of gardening equipment. Is your hardware store located near housing developments and shopping complexes? Find out what materials these projects use; carry them and all accessories.

6. What Are the Costs Involved? Find Necessary Financing

Unfortunately, you’ll need some decent cash to start a hardware store. No business is cheap to open these days. The cost of financing a new tool shop will likely be in the hundreds of thousands of dollars. And opening a big franchise often exceeds $1 million.

Some lucky entrepreneurs may have the means to front this cost alone, but most small business owners need to seek outside investments and loans. You’ll need to analyze how much your rent, brick-and-mortar retail equipment, and initial inventory will cost. In order to attract more investment, you’ll have to show how you’ll make up these costs.

Look to influential business owners in the area – many seek to contribute to the growth of a strong community. Local banks, if present in your area, may also be more friendly to other independent businesses. You might also consider running your business plan by your local Small Business Administration office. They are there to aid business owners in securing the necessary finances and paperwork.

7. Register Your Business with Local and Federal Governments

Every business must be registered with the secretary of state in order to receive a tax ID number. Not only will this allow you to operate as a business and file your taxes with the city, state, and federal government, but it also means you can open a business bank account. This will let you create various lines of credit, helping with vendor relations and ensuring an efficient and reliable inventory supply chain.

Speak with a lawyer to discuss your insurance policy. A small accident can be crippling to a small business without the proper insurance. On top of that, though, hardware stores often have especially dangerous equipment. You must have liability insurance for customers and staff alike. Workers’ compensation and is certainly necessary, too.

Make sure that you also have any required warning signage and paperwork around your retail space. Hazard signs and waivers are required by law in many public spaces. Discuss any relevant details with your legal team.

The Small Business Administration is a big help here, too. Contact them with more specific questions to your business and its location.

8. Know Your Customers and Start Your Marketing

Promoting your brand from the beginning is another critical step and one that requires planning and preparation. It’s always important to market to other local businesses, but especially for hardware stores. Most of the tools, raw materials, and other products carried at a hardware store can be sold to other businesses. So you have the benefit of selling business-to-business as well as business-to-customer. So get an early start and market to your neighboring SMB owners.

Hardware stores still benefit from print advertising. Billboards, local commercials, and radio ads are all relevant ways to various segments of your customer base. Many retirees frequent hardware stores, so the more traditional forms of marketing still apply.

But, of course, don’t ignore more modern marketing outlets. A thorough social media presence is integral to success. Partnering with certain Instagram accounts and the DIY-oriented Pinterest allows you to directly reach potential customers.

9. Choose a Rewards Program

A great customer loyalty program is an important extension of your marketing plan. It can be used to draw potential customers into your store as well as encourage repeat business from those who have already shopped with you.

Rewards programs encourage more spending and more frequent shopping. Hitting benchmarks is exciting, and customers will be incentivized to meet them quickly. This can be done by using a simple points-based loyalty program or a more powerful membership program.

10. Think About Providing a Service

Offering services at a hardware store is a great way to go the extra mile. You have the option of your pricing here. For many businesses, this means a combination. Some services can come included in the purchase, while others will cost an additional fee.

Providing basic services facilitates a continued conversation and more time to convert a shopper into a loyal customer. It’s also a personalized experience that most consumers love. And it sets your apart from any eCommerce competitors.

Seasonally specific services might also be worth considering. Many businesses need assistance with holiday decorations, landscaping is commonly outsourced, and homeowners often need some guidance with small projects around the house.

11. Hire a Great Team

In order to provide this type of service, you’ll need to hire a knowledgeable and passionate staff. Most shoppers who come to tool shops, gardening centers, paint stores, and the like come with questions. And in some cases, they are apprehensive about asking if they feel over their head. Make sure your team is welcoming and great at educating each shopper about the products and procedures.

Take your time through the hiring process. Find people who are interested in these things on their own time but are still eager to learn more. Even for the smallest hardware shops, you’ll need at least 2-3 trusted employees to rely on. Look for passion, knowledge, and great energy.

12. Find Ways to Volunteer and Give Back to Your Community

There are charitable construction projects everywhere. Unfortunately, every American city still has areas that need dramatic improvement to local infrastructure. You can partner with local charitable institutions to volunteer materials or services. Participating in the project itself or donating materials to auctions is a fun way to give back, too.

Support local organizations through sponsorships as well. Getting your brand attached to a summer softball team or meet-up group will build brand confidence and identity. Gaining customer trust is a critical first step to a successful hardware store.

Photo of author

Written By

Michael Chalberg

Michael has long focused his writing on the world of retail and small businesses. He''s been a part of the KORONA POS team since 2018 and loves helping entrepreneurs find ways to adapt and succeed. In his spare time, you'll likely find him hiking somewhere in the Southwest.