Price-Fixing Lawsuit Against Ace Hardware Corp. Could Reshape How Ace Member Stores Are Sold or Newly Opened

By Craig Webb

Headlines about a recent potential class action complaint brought against Ace Hardware Corp. and its members have focused on allegations that Ace runs a price-fixing cartel. They've overlooked a second claim that could have a greater chance of success: Allegations Ace illegally influences how existing stores are sold and where new ones can be opened.

The May 7 filing in a U.S. District Court in Chicago argues that Ace "abandoned its commitment to independence by illegally coordinating members' prices and locations" and "abandoned its commitment to local ownership, favoring ownership by multi-store chains, private equity firms, and Ace Hardware Corp. itself. All of this conduct has driven up Ace store prices and profits at consumers' expense." The case has been handed to Judge Sunil R. Harjani, who has yet to call any hearings on the matter.

People have alleged for centuries that companies were working together to manipulate prices. Indeed Adam Smith stated in 1776 in The Wealth of Nations that "People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices."

In the Ace case, Sean Twomey of Palos Heights, IL, is the official plaintiff for two powerful law firms that filled much of their 98-page brief decrying how Ace operates a cartel. Ace does this, the suit says, by taking data on sales and prices and suggesting to members the prices they should reset in order to gain maximum profit margins.

The suit could have a hard time arguing that consumers have been damaged economically given that most people can get what they want from the big boxes, lumberyards, and the Internet if they don't like what the hardware store charges. It also could be fiendishly hard to figure treble damages on all sales at more than 5,000 Ace stores between May 7, 2022 and the present, as the plaintiffs propose. The lawsuit estimates that, if the case is deemed a class action, the number of affected people in that class is likely to top 5 million.

On the other hand, the plaintiffs may have a stronger claim in arguing that the Ace Hardware Corp. and its member stores impose territorial restraints on where Ace stores can be located, restrict the opening of new Ace stores, and push the sale of Ace stores to existing local members. Those practices constitute "an unreasonable horizontal restraint of trade," the suit alleges.

Citing sources as diverse as Ace documents, decade-old news articles, spatial statistics formulae, and Reddit conversations, the plaintiffs argue that Ace Hardware Corp. and its member stores have been "implementing a formal policy of territorial restraints that allocate markets among member stores, to prevent new stores from opening in local markets where they will compete with existing member stores, and to allow existing member stores to charge higher prices without the threat of competition."

It notes that Ace Hardware Corp. grants individual store memberships for a specific location, and store owners cannot move without Ace Corp.s specific approval. Ace member store owners also need Ace Corp.'s approval to open a new Ace store in a new location."[T]he Cooperative Cartel uses this control over member store locations to prevent local store competition, causing member stores to be geographically dispersed rather than clustered in the busiest areas of town," the plaintiffs say.

Ace Corp. policies also prevent owners of existing stores sell to other existing store owners rather than to new, prospective members of the co-op. That practice, combined with Ace Corp.'s preference to let existing members build new stores, "jointly encourage Ace member stores to consolidate into chains owned by a single entity," the lawsuit says. "They thus accomplish the ame end as limiting local entry." Half of the Ace member stores in Vermont are owned by a single multi-store chain, it notes.

Claims of local market domination are one offshoot of a developing duopoly in the hardware space involving Ace and Do it Best. The latter co-op in recent years has taken over United Hardware Distributing and True Value.

"The fact that the market for national retail cooperative services is a duopoly means that a retail hardware store looking to leave DIB for another national coopeative will have no choice but to choose to become an Ace member store," the plaintiffs claim. "This gives the Ace Cooperative an immense amount of power."