The Ewerses hitched their wagon to Ace Hardware, which provided them with detailed financial documents showing the store could rapidly be made profitable by using Ace’s “Vision 21” plan. Those documents convinced an Arlington bank to loan the Ewerses $1.85 million, and the couple plunked in another $930,000 of their own. Cash. The couple took over on Jan. 1, 2009.
And then the store spiraled straight down a financial sinkhole into bankruptcy, for which the Ewerses filed last month. Meanwhile, the couple learned that Ace falsified the financial documents the Ewerses relied upon to buy Fischer, according to court pleadings, and that hardware store owners around the country have been suing Ace based on virtually identical stories of rosy Ace forecasts and rotten Ace results.
Where’s the “helpful hardware man” when you need him?
“It’s just tough,” said Roy Ewers, 56, but feeling much older after three years of struggle (and no vacations) to keep Fischer going. He has had to put the store up for sale, though the goal is to stay. But, he added, “We would never have bought the place if we had known” Ace had provided them with what they say are phony financial documents. They are hoping that a pending lawsuit in Illinois, where Ace is headquartered, will give them the cash settlement they need to get more financing and keep Fischer Hardware afloat.
The lawsuits unfolding so far tell virtually identical stories: people looking to open a hardware store were pitched by Ace and told that their ”Vision 21” stores would not only compete with the big box stores like Home Depot and Lowe’s but quickly become profitable. In Indianapolis, according to a lawsuit filed in Illinois, a man quit his job and cashed in his 401(k) retirement fund to buy a “co-op” store with Ace, based on the ”pro forma” financial projections provided by Ace.
But in its first year, its sales were $450,000 below Ace’s projections; Ace said the store would make $100 per square foot, but it actually made $59.25. In central Indiana, another new Ace store owner sold $700,000 below Ace’s projections. That store is now closed.
In Hialeah, Fla., Ace told a new store owner he would make $938,000 in sales. His first year, he made $222,564. His second year, $168,559. That store failed, and the owner lost nearly $600,000 of his own savings and retirement funds, the lawsuit states.
Lawyers for the Indiana stores argued in November that there were ”at least 40” and possibly hundreds of similarly situated Ace store owners.
The Ewerses allege that “Ace did not obtain Fischer’s sale history of fixed costs” before compiling and presenting a pro forma to them. Instead, they inserted the sales history and costs of a different store in downtown Washington, the counter-claim states.
The Ewerses filing argues that an Ace official told one of his marketing development managers to “manipulate the numbers contained in the pro forma and do whatever it takes to get the store open.” Where once the numbers had been rejected for an SBA loan by National Cooperative Bank, according to the Ewerses, when it was resubmitted with new figures, the SBA loan was approved.
After the Ewerses took over Fischer Hardware, they said Ace came in and revamped the store, and conducted a heavily flawed inventory. Hooks that were empty because they held unneeded product were ordered filled, and Ace began requiring the Ewerses to buy $50,000 to $80,000 per month in inventory — even as sales dropped.
In two years, Fischer bought about $2 million of inventory from Ace ”based on Ace’s deceitful recommendations and deceitful pro forma which resulted in money that was dramatically lost each quarter,” according to Harry O. Channon, the Ewerses’ lawyer.
”As a result of the foregoing acts,” Channon wrote in the countersuit, “Ace has severely and irrevocably damaged a 60-year-old business and directly led [the Ewerses] to the path of failure.”
Norman Leon, a lawyer representing Ace, did not return a phone call seeking comment.
Ewers said, “By doing everything they told us, we started losing money. They changed the culture of the store. We’ve been trying to repair that.” They said Ace promised them ongoing support, and they saw a national chain of 4,000 stores, so figured they’d be safe even as the recession and the big box stores choked off smaller stores.
Fischer was renowned for having knowledgable salespeople, while chain stores might not, and for having a deep variety of hinges, sockets, nuts, bolts and all the stuff you used to go to hardware stores for. Now, they are battling to hang on.
“It’s pretty much destroyed us,” Ewers said. But after affiliating with Orgill, a hardware store supplier, “we’ve been able to pull to a point where if we can get $300,000 to $500,000 in financing, this store could come right back. We’ve got everything set up.”
But they will need some help from the courts. Or a rich angel with a soft spot for an old-time hardware store.