September 2004
Behind the hardware breakup


Once partners now competitors, AHMA and Reed Exhibitions vie for hardware industry dominance in the aftermath of an ugly split

By Cathy Chatfield-Taylor

The sad story of the split between the National Hardware Show’s owner, Reed Exhibitions, Norwalk, CT, and its exclusive sponsor, the American Hardware Manufacturers Association (AHMA), Schaumburg, IL, unfolds like a tale of scandalous and acrimonious divorce. There’s enough name calling, hurtful allegations, prideful boasts and smug self-assurance for a primetime reality series. But it also serves as a cautionary tale to other associations and for-profit show organizers who are considering partnerships.

In the aftermath of last year’s breakup, the former partners have become ruthless competitors, with Reed continuing to produce the National Hardware Show, albeit at a new time and place and with new partners; and AHMA launching its own event within a month of Reed’s but in the same location as in the past. Both waged aggressive marketing campaigns to persuade the $216 billion industry that theirs was the better show.

The 59th National Hardware Show, held May 10–12, 2004, at the Sands Expo & Convention Center in Las Vegas sold out its new venue, attracted 23,569 attendees and covered 489,023 net square feet of exhibit space. By comparison, AHMA Hardware show, held April 18–20, 2004, in Chicago’s McCormick Place, was well-attended by loyal supporters but weighed in at 15,000 attendees and 200,000 net square feet of exhibit space.

But the story doesn’t end there. In a lawsuit filed on Dec. 30, 2003, and amended on July 16, 2004, AHMA is demanding in excess of $100 million in actual damages from Reed, its parent company Reed Elsevier, and its general contractor Freeman Decorating Co., for alleged wrongs ranging from cost-shifting and kickbacks to fraud and deceptive business practices.

How did it come to this?

The history is muddied by different versions of where the National Hardware Show went wrong, and what could have been done to prevent its slide. People interviewed for this story were admittedly biased; their facts and opinions are presented as told. So in the end, you’ll have to draw your own conclusions. Regardless, there are many valuable lessons for all of us to learn when partners become competitors.

The tale of two shows
Abe Rosenberg, Founder of General Tools Manufacturing Co., and his uncle, Charlie Snitow, are credited with staging the first National Hardware Show in New York City in 1945. The successful event for the do-it-yourself home improvement industry eventually got the attention of Reed Exhibitions (then Cahners Expositions Group), which bought the show in 1969.

By the early 1970s, AHMA started plans for its own hardware show. As AHMA President and CEO Timothy Farrell recounts, “Charlie came to AHMA and said he had this show going, and that the industry didn’t need two shows, so he thought it made sense for an arrangement to be made to cooperate on one hardware show.”

Reed and AHMA began their collaboration in 1972 under an agreement that gave the association authority to influence decisions about where the show would be located, among other things. All parties agreed that relocation to Chicago would reduce costs and “other inconveniences,” and the National Hardware Show moved to McCormick’s Lakeside exhibit hall in 1975.

In 1977, AHMA became the show’s exclusive sponsor, with a revenue share of 37 percent. Reed’s 63 percent share of the gross covered show management expenses. The partners worked together for more than 20 years to build a landmark event. Fueled by the popularity of the do-it-yourself trend, the National Hardware Show began a rapid growth cycle in 1997, swelled to 1.26 million square feet in 1999 and peaked at $28.7 million gross revenue in 2000, though with slightly fewer exhibitors — nearly half of which were lawn and garden.

At its zenith, the show generated roughly $13.4 million for AHMA — nearly 75 percent of the association’s 2001 revenue.
And this is where the versions of history diverge. According to Dennis MacDonald, a Reed Senior Vice President and official Show Manager of the National Hardware Show for more than a decade, in 2000 Reed recommended revamping the show to reflect industry consolidation and the diversification of products sold in both traditional and non-traditional hardware outlets.

“We sensed that there were some needed changes to make the show continue to be viable,” MacDonald says. “The hardware show had been just that — power tools, nuts and bolts — but show attendees were changing, branching into other areas, primarily lawn and garden and outdoor living.”

With the advent of Home Depot, Lowe’s and other “big box” outlets, retailers were looking for more than power tools. They wanted gardening supplies, barbecues, patio furniture and all the rest. “At that point, we recommended to AHMA that we make changes to change the complexion of the show,” he says. “They opted not to accept some of our thoughts, and that’s what brought on the separation.”

According to Farrell, the disagreement was not over changing the show but about the show’s costs, which had become prohibitive for some exhibitors.

“In the later part of 2000, we started for the first time to hear people question the value of the show,” Farrell says. “We became concerned about the feedback we were receiving, started to ask questions and drill down to the cause.”

What AHMA claims it learned is the main focus of the lawsuit — that Reed had reduced its operating expenses by shifting costs to exhibitors through an agreement with its general contractor, Dallas-based Freeman. Drayage was the sore point with exhibitors complaining that it cost 10 times as much to move material from the dock to the booth and back as it did to ship it from the coast.

The lawsuit further claims that Reed accepted kickbacks from Freeman of up to 15 percent in exchange for sending Freeman exhibitor contracts. The as-yet unsubstantiated claim is flatly denied by Reed, as are all the lawsuit allegations. Freeman’s response: “While we believe the lawsuit against Freeman to be totally groundless and without merit, our attorneys are still in the process of reviewing the complaint to determine exactly how the company will respond — but we will defend this case vigorously,” says Ellen Beckert, Corporate Director, Marketing & Communications.

Concerned that Reed’s business practices were unfairly escalating exhibitor costs, Farrell says AHMA demanded an accounting from Reed, but Reed refused. And so the dissolution of their partnership began.

Despite the continued boom in the industry, which experienced average annual sales growth of 6–9 percent, the National Hardware Show started to slide. Buyer attendance dropped off, exhibitors dropped out, and exhibit costs climbed to $23 per square foot, plus drayage. By 2002, the show had contracted to 578,803 net square feet.

That was the year the AHMA board voted unanimously to sever its agreement with Reed. After an unsuccessful bid to buy the National Hardware Show — Reed says it was never for sale — the partners agreed to part ways after the 2003 show.

The ink on the Feb. 26, 2003, disassociation deal was barely dry when Reed announced major changes to the 2004 National Hardware Show, and AHMA announced its plan to launch a competing show. In the coming months, both parties planned their 2004 shows while grudgingly working together to get the 2003 event behind them.

Reed goes for the glitz
MacDonald acted on the changes he thought needed to be made, namely holding the show earlier in the buying cycle, moving it to a different location, and diversifying the mix of things for buyers to see and do.

No one disagreed that August was a bad time for a hardware show. When the National Hardware Show attracted mostly small, independent retailers with short buying cycles, August had been the right time to see new products and stock up for Christmas sales. But the big boxes need longer lead times, so Reed moved the show to May dates and chose Las Vegas as the new location.

“We found that from 2000-2003, the show had become more regional to the Chicago area,” MacDonald says. “About 60 percent of the attendees were coming from the three states around Chicago. That’s OK if that’s where 60 percent of the marketplace is, but that absolutely is not the case. The home improvement industry has a universe similar to the U.S. population.”

A Las Vegas location promised to pull people from both coasts as well as internationally, according to MacDonald. It also offered the convenience of more hotel rooms within walking distance, and plenty of entertainment to entice people to come earlier and stay longer.

“We’ve brought a number of shows to Las Vegas in the past five to six years,” MacDonald says. “We’ve always seen, in each of those cases, the attendance not only increase but it increased to a broader geographic area.”

With the move came a makeover. Reed responded to the market trend toward fewer hardware retailers and more home-product outlets — including not only the big boxes but also grocery stores, drug stores and home décor chains — by diversifying the show content.

Enter Rob Cappiello, former Publisher of Home Channels News, a leading retail home improvement news magazine. Coming on board as Industry Vice President, Cappiello spearheaded the introduction of the Industry Summit on Home Improvement, which co-located 14 conferences at the National Hardware Show.

Sponsored by organizations ranging from Home Channel News to the Paint and Decorating Retailers Association (PDRA), each conference presented two to six sessions outside of exhibit hours. The programming filled the void left by AHMA’s pullout, since the association had coordinated educational content in the past.

“We found the best content providers possible and had them co-locate their conferences,” Cappiello says. “That brought disparate groups within the industry to one location to network, buy product and discuss the issues that they needed to discuss.”

The show floor became similarly diverse. With the addition of Lawn & Garden World and New Product World, as well as PDRA’s paint and decorating segments, the exhibit hall began to resemble a Home Depot layout.

“What we do better, now, is connect the entire home marketplace,” Cappiello says. “We look at the way consumers shop for their home — to build, remodel, redecorate or make it better — and we bring together all those people who supply the consumers, from manufacturers, through the distribution channel of wholesalers and distributors, to the retailers who sell the products.”

In a flashy marketing campaign, Reed promoted the revamped show with Vegas show girls and a tagline that read, “It’s anything but the same-old, same-old.”

MacDonald and Cappiello coached their sales and marketing team to be upfront with exhibitors about the problems of the past. “We had to admit our responsibility for not making changes in 2001–2003,” Cappiello says. “We could argue that we tried, and our partner didn’t want to, but for exhibitors and attendees, that’s immaterial.”

Six weeks into the selling cycle, which officially began on July 7, 2003, Reed projected a sell-out. The exhibitor list posted on the National Hardware Show Web site (http://www.nationalhardwareshow.com/) seemed to prove a sea-tide of support from the industry. (When AHMA accused Reed of listing exhibitors who were still undecided, Reed shortened the list to only those with signed contracts.)

A co-sales and marketing agreement signed in November with the International Hardware Fair PRACTICAL WORLD, held March 14–17, 2004, in Cologne, Germany, extended Reed’s reach to the European market. By the time they inked a deal to co-locate with PDRA in February 2004, they needed more space and contracted the Venetian ballroom adjacent to the Sands. When the doors opened in May, they were venue-bound.

How much the move, makeover and marketing set Reed back is, of course, undisclosed. “We spent more money” than in 2003, MacDonald admits. But he denies having deep pockets is what made the 2004 show a success.

“It wasn’t a matter of our out-resourcing the competitor,” Cappiello argues. “It was the changes we made in the show.” As proof, he points to the fact that more than 600 of the 2,303 exhibitors were new or returning after having dropped out of the show two to three years earlier. At press time, an independent audit by Red Bank, NJ-based Exhibit Surveys was verifying the attendance figure of 23,569 industry professionals — in part to surmount accusations that Reed exaggerates its numbers.

Financially, the 59th National Hardware Show performed “better than expected,” and Reed expects the show to be 12 percent bigger next year. Contributing to that growth will be the co-location with George Little Management’s Las Vegas Gourmet Housewares Show (formerly the Gourmet Products Show, last held in San Francisco). Organizers expect at least 10 percent crossover attendance.

Set for May 17–19, 2005, at the Sands Expo and Convention Center and the Las Vegas Convention Center, the National Hardware Show had sold more than 50 percent of the available floor space barely a month after the close of the 2004 show.

In response to AHMA’s legal action, Cappiello says, “The entire lawsuit and all the pieces in it are completely without merit,” and offers this olive branch: “If they believe they made an error in splitting with us, we’d invite them back.”

AHMA plays the loyalty card
As a 103-year-old industry association with 869 members, AHMA maintains that it is the rightful owner of a hardware industry show. Yet, Farrell admits, “having these two shows is the worst thing that could have possibly happened for our industry.”

Nonetheless, AHMA forged ahead with the AHMA Hardware Show, taking as its first challenge the task of cutting exhibitor costs. The association slashed its space rate to $15.95 per square foot, including drayage (a strategy matched by Reed in Las Vegas), then offered a $1 per square foot member discount. Working with the City of Chicago and the Chicago Convention and Tourism Bureau (CCTB), they also negotiated a 10 percent discount on housing. Together, these reductions would save exhibitors 50 percent or more.

Like Reed, AHMA scheduled its show for earlier in the buying cycle, sandwiching April dates between the March PRACTICAL WORLD and the May National Hardware Show. But AHMA stayed in Chicago, because their research indicated 75 percent of buyers are within 750 miles of the city.

Reflecting industry trends toward home and garden supplies, AHMA structured show content into three product segments — World of Hardware & Tools, World of Home Decorating, and World of Lawn, Garden & Outdoor Living, which it created in cooperation with Lawn & Garden Retailer Magazine.

Although it had an in-house event staff, AHMA retained ConVexx, Henderson, NV, for sales and marketing, later adding Infinity Expo Group, Shelton, CT, to the team. “We needed a management company with a sales force to keep the ball rolling on our 2004 show,” Farrell says. The association had signature authority on all contracts, including the general contracting agreement with Las Vegas-based GES Exposition Services.

Running a campaign with the tagline, “Your Industry. Your Show,” the message was clear: The AHMA Hardware Show was the only place for people loyal to the industry.

Positioning its event as “the real show for the hardware/home improvement industry,” AHMA sent members numerous letters, faxes and special reports with allegations about the pending lawsuit, naming top brands that support and endorse AHMA, and making a case for why the association deserves their support. Among the strongest arguments: AHMA has reinvested 100 percent of its hardware show earnings in the industry — an amount totaling nearly $130 million since 1980.

In the end, the 2004 AHMA Hardware Show covered 200,000 net square feet, with 700 manufacturers representing virtually every leading brand, and 15,000 attendees including all the major buying coops.

“We weren’t going to be happy if we had the biggest show, but we’d feel successful if the people who participated were satisfied and found value,” Farrell says. “We were not totally satisfied with our 2004 event, because the participants weren’t totally satisfied. But it’s important to note that neither show served the industry well.”

For 2005, AHMA is “pursuing major changes,” but Farrell is tight-lipped about what those changes are. He denies the rampant rumor that AHMA is planning a merger with the International Housewares Association’s International Home & Housewares Show.

How it will all end is unclear, but even Farrell speculates about the demise of his own show.

“The situation will work out in one of three ways,” he says. “Individuals need to make the hard decision to support AHMA and the AHMA Hardware Show and not the Reed show. As a result, the industry would revert back to one show, operated and governed by the industry and in the industry’s best interests.

“The second way it could work out is, the industry splits its support and participates in two shows,” he continues. “That’s a terrible situation, prolonged into 2005, that further fragments an already fragmented industry. … The third way is that Reed will win this battle and AHMA doesn’t run a show.”

If that happens, the future of the association could be uncertain as well. Although AHMA has begun to diversify its revenue stream, the National Hardware Show comprised 67.6 percent of the association’s total revenue from 1980-2003. Separating from Reed, launching a show and entering into litigation have required a “significant investment.” If AHMA prevails in court, those costs may be recouped. If not, the point may be moot.

Still, Farrell maintains an adversarial stance and, to Reed’s offer or returning to the fold, says, “We don’t believe we made an error in splitting with them, we’ve never believed we made an error in splitting with them, and we’ve never been surer of our decision to split with them.”

No matter the outcome, the lessons for both associations and for-profits are clear: Take heed before entering into partnerships, develop a plan for dealing with disagreements, and consider your exit strategy before you sign on the dotted line.