2021 Higher Ground Playbook

2021 Higher Ground Playbook

THE VIEW IS WORTH THE CLIMB THE 2021 PLAYBOOK

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Superior Financial Results . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 2021 Performance Drivers – Summary of Changes . . . . . . 7 What Is Higher Ground? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 Higher Ground – 2021 Performance Driver Summary . . . . 9 Build Your Growth Plan to Higher Ground . . . . . . . . . . . . . . 10 The Retail Analytics Dashboard . . . . . . . . . . . . . . . . . . . . . . . . 11 8/18/80 – The Alternate Path to Pinnacle . . . . . . . . . . . . . . . . 11 Discovery Acceptance & Best Brands . . . . . . . . . . . . . . . . . . 12 Ace In-Stock Percentage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 Consumer-Relevant Store . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 Overall Customer Satisfaction (OSAT) . . . . . . . . . . . . . . . . . . 18 Training Hours . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 Employee Engagement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 Business to Business (B2B) . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 Ace Rewards Scan Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 Acehardware.com Fulfillment . . . . . . . . . . . . . . . . . . . . . . . . . 26 Table of Contents

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When you reach Pinnacle, the view is worth the climb

94%

of Pinnacle Retailers have a RETAIL GROWTH PLAN

PINNACLE RETAILERS…

the training for their people Employee Engagement Scores 5X 90 % PROVIDE EARNED

85 % HAVE AN

!

Overall Customer SATISFACTION RATING

4

66% SCAN RATE HAVE A

4 SALES REACH SAW FAMOUS FOR $1,083,584

ACE REWARDS

($364K more than Visionary stores)

(53% higher than Visionary stores)

14.3 % $87,000 in acehardware.com sales AVERAGED HAVE (2X more than Visionary stores)

94 %

ARE

OF TOTAL SALES FROM B2B CUSTOMERS (32% higher than Visionary stores)

“IN STOCK”

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Superior Financial Results = higher top line + fatter bottom line + greater return!

‘20 RETAIL PERFORMANCE OF ACHIEVERS Superior Financial Results = higher top line + fatter bottom line + greater return! Superior Financial Results = higher top line + fatter bottom line + greater return! i e + greater eturn! Superior Fina ci l Result = higher top line + fatter bottom line + greater etu n! i Fin ia u ts hi top li e + fatt r o t m

Retail Performance of ‘20 Achievers Retail Performance of ‘20 Achievers etail f m n e of ‘20 chi ve s Retail P rfo mance of ‘20 Achievers

Ace Brande

Ace Branded ce B d Ace Brande

Visionary

Visionary i

Visionary r

FY 2020: JAN – DEC ‘20 vs. LY

FY 2020: FY 2020: JAN – DEC ‘20 vs. LY JAN – DEC ‘20 vs. LY FY 2020: JAN – DEC ‘20 vs. LY FY 2020: J – D C ‘ 0 vs. LY

JAN – DEC ‘20 vs. LY FY 2020: JAN – DEC ‘20 vs. LY FY 020: J – D C ‘ 0 vs. LY FY 2020: JAN – DEC ‘20 vs. LY

FY 2020: FY 2020: JAN – DEC ‘20 vs. LY

JAN – DEC ‘20 vs. LY FY 2020: JAN – DEC ‘20 vs. LY

FY 2020: FY 2020: JAN – DEC ‘20 vs. LY Y 0 : J – D C ‘ 0 vs. LY

FY 2020: JAN – DEC ‘20 vs. LY

FY 2020: JAN – DEC ‘20 vs. LY

FY 2020: FY 2020: JAN – DEC ‘20 vs. LY JAN – DEC ‘20 vs. PY FY 2020: JAN – DEC ‘20 vs. LY Y 20 0: J – D C ‘ 0 vs. LY

2 1 29.1% 11.3% 29.1% 11.3% 27.4% 27.4%

29.1% 11.3% 27.4% 2

29.1% 11.3% 27.4%

Sales

Sales l

Sales

23. %

23.2% .

23.2% 23.2% 8.6% 8.6% 22.3% 22.3%

24.5%

24.5% . 24.5% 8.8% . 8.8% 24.0% . 24.0%

24.5%

27.4%

27.4% . 27.4% 9.7% .7 9.7% 25.7% . 25.7%

27.4%

Trans Tra s Sales GP $’s G ’s Trans GP$s

Trans

Trans

8.6%

8.6% .

8.8%

8.8%

9.7%

9.7%

GP $’s

GP $’s

22.3%

22.3% .

24.0%

24.0%

25.7%

25.7%

1

1

1

1

© 2020 Ace Hardware Corporation. All Rights Reserved. Proprietary and Confidential © 2020 Ace Hardware Corporation. All Rights Reserved. Proprietary and Confidential. © 2020 Ace Hardware Corporation. All Rights Reserved. Proprietary and Confidential © 2020 Ace Hardware Corporation. Al Rights eserved. Proprietary and Confi ential © 2020 Ace Hardware Co poration. All Rights Reserved. Propri tary and Co fidential

LET’S KEEP CLIMBING TOGETHER

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2021 Performance Drivers – Summary of Changes Some minor changes to Higher Ground key performance indicators have been implemented for 2021. All drivers are the same with a few calculation changes and new achievement parameters. Ace Rewards Scan Rate What’s Changing: 1.The Higher Ground Scan Rate metric will now include house accounts in addition to cash transactions 2.The use of courtesy cards will not be counted toward the Scan Rate calculation. This metric will continue to be calculated on a rolling 12-month basis and can be achieved any of the following ways: • Scan the Ace Rewards key fob • Look up the customer by their phone number • Scan the Ace Hardware mobile app on EVERY transaction Why? These enhancements are based on retailer feedback to give credit for house accounts while preventing artificial inflation of overall Scan Rate through courtesy cards. Overall Customer Satisfaction (OSAT) What’s Changing: The minimum survey requirement for Overall Customer Satisfaction (OSAT) increased from 40 to 80 surveys in a rolling 12-month cycle. The score requirements remain the same to reach Platinum or Pinnacle. Why? Higher survey counts mean more meaningful and reliable customer feedback. Employee Engagement What’s Changing: A new 5-survey minimum for Employee Engagement during the month the survey is open to the store is being implemented. The score requirements remain the same to reach Platinum or Pinnacle. Why? Stores that complete Employee Engagement with 5 or more surveys can capture a better rating of the emotional commitment the employees have to the business. Acehardware.com Fulfillment What’s Changing: Two days are added to Acehardware.com Fulfillment. Now you must remain active in BOPIS, BODFS and Assembly every day the store is open in the calendar year 2021. An exception exists allowing a maximum of 12 inactive days when you can turn off any one of the services in My Store. Why? Providing two extra “free” static days per year aligns with the Delivery Day of the Week Exclusion (one static day per week) and Delivery Date Exclusion (now one static day per month). Discovery Acceptance What’s Changing: There is a small calculation change to using QOO from SAP (store ordering system) instead of the nightly transmitted inventory record. Why? This makes the calculation reflect orders shortly after placed instead of waiting until they are close to delivery. Best Brands What’s Changing: This calculation now makes STIHL Elite Dealers exempt from carrying EGO. If you do carry both, you will get credit for both. If you do not carry EGO, it will appear restricted in RAD perspective and will not negatively impact your Best Brands Acceptance percentage. Also new for 2021, stores not approved for the STIHL full line program will no longer be measured against the STIHL BER program. The STIHL full line program will continue to impact Best Brands Acceptance when your market is approved for the full line program.

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What Is Higher Ground?

Higher Ground is Ace’s long-term Retail Growth Strategy, lasting from 2020–2024 and taking us through our 100th anniversary. Ace’s continued growth over the next 100 years will come from More and Better Stores, improving the performance of those in existence and opening up more stores to serve our communities.

Pinnacle Performance Retailing (Better Stores) Improve store performance by utilizing prescriptive, store-specific growth plans and Higher Ground performance drivers. With a new, stronger playbook and thousands of retailers committed to growth, we can achieve retail revenue of >$20 billion by 2024. Here is how it works… 3 performance levels: •  Visionary – A commitment to growth and desire to climb. •  Platinum – Achieving the first-tier store performance level (the climb has begun). •  Pinnacle – The top store performance level (the view is best from here). Each level is achieved by hitting 7 of 9 performance drivers. The targets increase between Platinum and Pinnacle and require stronger performance at retail. Pinnacle performance is achieved by hitting a minimum of 7 of 9 Pinnacle targets. Platinum performance is achieved by hitting a minimum of 7 of 9 Platinum targets. (Higher Ground performance drivers and targets on the following page) 8/18/80 – The Alternate Path to Pinnacle Any store achieving both strong financial performance and high customer satisfaction will be recognized as a Pinnacle-performing retailer by reaching or exceeding the following three targets: 8% Earnings Before Interest & Taxes (EBIT) 18% Pre-Tax Return on Equity (ROE) 80% Overall Customer Satisfaction (OSAT)

Accelerate Store Growth (More Stores)

Since the launch of 20/20 Vision in 2013, Ace retailers have opened 408 branch stores. For the first time in Ace history, multi-store retailers make up the majority of Ace owners. Our goal is to open 800 more stores over the next five years. For those who have a vision to open additional stores, we have the tools and resources to help you grow. Getting Started: • Retail investments exist that include inventory incentives and loans to open a new store. • T he Ace Corporate Support Team will assist every step of the way, including application, operational support, marketing and training. • Contact your District Manager or Territory Representative about your interest in opening a new location.

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Higher Ground – 2021 Performance Driver Summary

Reach 7 of 9 Platinum targets

Reach 7 of 9 Pinnacle targets

Platinum

Pinnacle

Pinnacle Target

2021 Performance Driver

Platinum Target

Quality 1. Discovery Acceptance & Best Brands

≥ 70% Discovery Acceptance and ≥ 70% eligible Best Brands ≥ 93% Renovation in Last 8 Years or Alt Path: achieve OSAT + Discovery Acceptance + Best Brands 80 surveys minimum in a rolling 12 months and an OSAT Score >=80% ≥ 10 hours Complete at least 5 Employee Engagement Surveys per year and achieve or exceed a 70% engagement score B2B YOY Growth >5% or B2B Sales % to Total >15% ≥ 50% Participate in all three: BOPIS, BODFS, Assembly

≥ 80% Discovery Acceptance and ≥ 80% eligible Best Brands ≥ 95% Renovation in Last 8 Years or Alt Path: achieve OSAT + Discovery Acceptance + Best Brands 80 surveys minimum in a rolling 12 months and an OSAT Score ≥85% ≥ 15 hours Complete at least 5 Employee Engagement Surveys per year and achieve or exceed an 80% engagement score B2B YOY Growth >7% or B2B Sales % to Total >20% ≥ 65% Participate in all three: BOPIS, BODFS, Assembly

2. Ace In-Stock Percentage 3. Consumer-Relevant Store

Service 4. Overall Customer Satisfaction (OSAT)

5. Training Hours (customer-facing assoc.) 6. Employee Engagement

Convenience 7. Business to Business Sales (B2B)

8. Ace Rewards Scan Rate 9. Acehardware.com Fulfillment

Alternate path to Pinnacle = Achieve all three targets: 8% Earnings Before Interest & Taxes (EBIT) 18% Pre-Tax Return on Equity (ROE)

Overall Customer Satisfaction (OSAT)

80%

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Build Your Growth Plan to Higher Ground

Our competition continues to raise the bar, and consumer behavior continues to change. It is critical to adapt and elevate performance to drive continued growth. The first part of this process is to build a plan to get there. Every Ace retailer is different, and the Retailer Growth Planning process will allow you to build a specific, prescriptive and flexible growth plan to outline your path up the mountain to Higher Ground.

The Retail Analytics Dashboard houses everything you need to Diagnose , Develop and Deploy your plan. Your Ace Field Team is ready to assist you as you build your growth plan and cast your vision to your team.

Diagnose – Identify opportunities through an assessment of your business • Access the Retail Analytics Dashboard (ACENET > Analytics Dashboard). • R eview the Higher Ground performance drivers, which outline the primary Ace focus areas and growth opportunities within our differentiators of Quality, Service and Convenience. • R eview the Operations tab on the Retail Analytics Dashboard for other operational health metrics to get a better understanding of the state of your business. • Consider any other opportunities for growth, including initiatives local to your store and community. 1

2

Develop – Build and document your growth plan • O n the Retail Growth Plan tab in the Retail Analytics Dashboard , input your growth targets, plans for new store growth and long-term goals. • A fter determining your largest opportunities for growth through the Diagnose phase, input your focus initiatives in the Action Plan section. • D efine three to five initiatives as priorities and set realistic deadlines. • The template will provide pre-populated action steps when an Ace initiative is selected from a list of options. • Select “Other” if you would like to self-define a local initiative.

3 Deploy – Put your growth plan in motion

• Cast your vision to your team to build consensus and collaboration for higher Employee Engagement. • Review your plan and progress with your team quarterly and modify as needed. • Communicate and celebrate each time a goal is completed. A Higher Ground Progress Report will be emailed monthly, providing Pinnacle Performance status, a snapshot of your operational metrics and elements of your store-specific growth plan.

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The Retail Analytics Dashboard

The Retail Analytics Dashboard is a consolidated view of the operational and performance metrics that measure the health and success of your business, all in one place and easily accessible (ACENET > Analytics Dashboard). Operations Tab Looks at the functional areas of your business: Inventory, Marketing/Promotions, People, B2B and Financial. The Key Performance Indicator Progress bars are color coded to tell you how well you are doing in each area and show show opportunities for improvement. You will have visibility to your performance on all nine Higher Ground performance drivers. Performance Tab This contains the major Retail Performance metrics year to date along with a three-year trend, which are

updated daily with the ability to drill down to Department or Merchandise Class to see what is driving increases or decreases. Also available is benchmarking by Peer Group and Territory. Summary Tab A summary of both the Operations and Performance metrics is especially useful for multi-store retailers with the ability to export to Excel or to click through to a specific store. Retail Growth Plan Tab For 2021, a new tab will be created to house your individual store growth strategy and plan for action. For more information, click on the “User Guide” link in the upper left-hand corner of the dashboard, or visit Ace Learning Place and search for Retail Analytics Dashboard.

8/18/80 – The Alternate Path to Pinnacle Any store achieving both strong financial

18% Pre-Tax Return on Equity (ROE) Pre-tax ROE measures the profits made for each dollar from shareholders’ equity. This is a two-part ratio bringing together your income statement and balance sheet where net income is compared to shareholder’s equity, expressed as a percentage. This metric can be calculated at the chain level. ROE = Net Income ÷ Shareholder’s Equity. 80% Overall Customer Satisfaction (OSAT) OSAT measures how satisfied customers are with the overall experience of your store. Customers rate your store on a scale of 1–5. The Pinnacle target for this alternate path is ≥80%, meaning 80% of the time you score 5s.

performance and high customer satisfaction will be recognized as a Pinnacle-performing retailer by reaching or exceeding the following three targets:

8%

EBIT 18% Pre-Tax ROE

80%

OSAT

Pinnacle achievement is based on the prior year’s completed financials of these metrics. 8% Earnings Before Interest & Taxes (EBIT) EBIT, also called operating profits, looks at your business’s profitability by subtracting expenses from revenues. The important thing to keep in mind is that you do not include interest and taxes when calculating EBIT. This metric is calculated at a store level. EBIT = Net Sales – Cost of Goods Sold (COGS) + Patronage Dividends – Total Operating Expenses. EBIT as a % of Net Sales = EBIT ÷ Net Sales.

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1 PERFORMANCE DRIVER: Discovery Acceptance & Best Brands

Discovery Acceptance is the percent of recommended planogram SKUs that are carried by a store. Best Brands acceptance is the number of eligible Best Brands that are carried by a store.

Platinum Target: >=70% Discovery Acceptance AND >=70% of Best Brands the store is eligible to carry Pinnacle Target: >=80% Discovery Acceptance AND >=80% of Best Brands the store is eligible to carry Why is Discovery Acceptance important? Maintaining an optimized, differentiated and consumer-relevant product assortment is critical to a store’s ability to fulfill Ace’s Helpful promise.

Stores with > 80% Discovery Acceptance have significantly greater YOY Sales Growth than those with less

4.9%

2.6%

1.4%

0–60%

60–80%

>80%

Discovery Acceptance

Discovery Assortments provide: • Nationally recognized and differentiated brands • The latest innovation and on-trend products • Optimized space productivity • Merchandising strategies that enhance the customer’s shopping experience

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Sales Per Store by # of Best Brands Carried

$2,743,470

$2,074,092

$1,659,119

6 or less brands

7–8 brands

9–11 brands

# of Best brands carried # of Best Brands that are Carried (based on stores 8k–12k sq ft )

(stores 8k-12k sq. ft.)

Why are Best Brands important? Offering high-quality, differentiated brands to our customers is critical to our Retail Growth Strategy. Aligned with our Famous for Four strategy, Best Brands continue to fuel significant growth and provide some immunity from discount websites and big-box competitors. When comparing Ace stores of similar size and format, the stores carrying all or most of the Best Brands have significantly higher sales productivity. Take Action Carrying a high number of Discovery SKUs and differentiated Best Brands equates to stronger performance. This combination keeps the store relevant at a time when being fresh and differentiated matters more than ever. To evaluate your Discovery Acceptance opportunity: Check your Discovery Acceptance on the Retail Analytics Dashboard. Click the number to drill down and view which departments offer the biggest opportunity. Run the POG Discovery Acceptance Report (C-MER-F0090) in Ace >Page 1 Page 2 Page 3 Page 4 Page 5 Page 6 Page 7 Page 8 Page 9 Page 10 Page 11 Page 12 Page 13 Page 14 Page 15 Page 16 Page 17 Page 18 Page 19 Page 20 Page 21 Page 22 Page 23 Page 24 Page 25 Page 26 Page 27 Page 28

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