The hardware co-op buys majority stake in The Grommet that was formerly held by Rakuten Inc. The Grommet will remain independently run and retain the same management.

Differentiation. In a word, that’s why hardware retailer cooperative Ace Hardware Corp. acquired a majority stake in online marketplace The Grommet.

“We don’t just want to sell the same commoditized stuff that you can get at any discount store,” Ace CEO John Venhuizen says.

In a retail world dominated by discounters selling many of the same items and competing on price, Venhuizen says, Ace wants to offer a selection that stands out. The Grommet will help Ace achieve that by giving the co-op early access to new—sometimes quirky—products from young companies before those items become mainstream.

Examples of items The Grommet sells are a safety bagel knife with a plastic guard to protect hands, a flexible LED  task light  and a kit for making gin at home. The website’s product pages include information about the maker of each item and a comments section in which manufacturers can interact with customers and other website visitors.

In addition to providing access to new products, Venhuizen says The Grommet brings with it customers who already know and like Ace. Ace Rewards loyalty program customers who also purchase products from The Grommet visit Ace stores 50% more often than average Ace Rewards members and spend 2.8 times as much, according to Ace’s analysis.

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The Grommet started selling a selection of products at Ace stores last year. By the end of 2016, about 250 Ace stores featured dedicated displays selling selected merchandise from The Grommet. That store count should grow to about 400 over the next 12 months, Venhuizen says. Top-selling products from The Grommet are also sold by Ace online and made available to the entire Ace network of more than 5,000 stores globally, including stores that don’t have a dedicated display.

“We saw the power of the platform,” Venhuizen says of The Grommet. After working closely with e-retailer he says Ace became convinced that buying a majority stake in The Grommet would give it access to a pipeline of innovative products and also deepen the co-op’s online presence.

Ace Hardware is No. 647 in the Internet Retailer 2017 Top 1000, with estimated online sales of $21.7 million in 2016, a fraction of its total 2016 revenue of $5.1 billion. The Grommet, which overall is a much smaller company than Ace, ranks No. 487 on the Top 1000 list, with online sales estimated at $37.8 million.

A display of products from The Grommet in an Ace Hardware store.

According to Ace, 75% of the U.S. population lives within 15 minutes of an Ace Hardware store. Venhuizen says Ace’s existing website tends to serve as an online catalog, replacing phone calls for customers who want information about products they ultimately purchase or pick up at local stores. About 93% of the Ace products sold on AceHarware.com are picked up in stores rather than shipped.

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Combining The Grommet with the Ace store network should provide omnichannel opportunities for The Grommet’s marketplace sellers, Venhuizen says, which are often start-up inventors and entrepreneurs.

“Ace’s expansive supply chain and network of 5,034 stores coupled with The Grommet’s innovative product discovery platform combine to give dreamers, inventors, innovators and makers a sustainable, high-quality path to meaningful growth, without having to bow down to the altar of Amazon,” Venhuizen says. Amazon.com Inc. is No. 1 in the Top 500 with Internet Retailer-estimated 2016 web sales of  $123.77 billion.

The Grommet specializes in launching new products in 16 categories, all manufactured by small “makers” that otherwise might have a hard time gaining attention, says CEO Jules Pieri. In that way, she says, The Grommet has helped launch about 2,500 companies since its founding in 2008. The Grommet also operates a wholesale site that sells to 10,000 retailers across the United States.

The Grommet FLEXiT flashlight

A flexible LED task light sold by The Grommet.

Unlike most marketplaces, The Grommet is highly selective and only 3% of all products considered end up selling on the site. Every weekday at 10 a.m. Eastern Time, The Grommet reveals new products, handpicked by its staff, with a focus on those that are crowdfunded, handcrafted, made in the United States and made by independent makers and underrepresented entrepreneurs. Visitors to the website can shop by product types or “personal values,” categories such as “Made in the USA,”  “Sustainable Living” and “Tech & Innovation.”

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The Grommet fulfills about 60% of the orders placed on its website, while about 40% are drop-shipped from their suppliers, Pieri says. Since launch, The Grommet has purchased $57 million in inventory from small businesses, the company says.

Pieri says the merger makes sense because Ace provides a level of retail distribution that would otherwise be hard to match and because the cultures of the two companies are similar. Because Ace is owned by its member retailers, they “have the mindset of a local store” and a sensitivity to the needs of entrepreneurs, she says, and that meshes with The Grommet’s mission as a platform for new products from small manufacturers.

Under the new ownership, The Grommet will remain independent and operate under the same management. Pieri does not expect much change to the wholesale business because, among the more than 2,500 products The Grommet sells, there are plenty that would seem out of place in hardware stores. She says Ace also appreciates the “halo effect” of having the brand in the specialty and gift stores The Grommet already sells to via its wholesale program.

Ace purchased the majority stake in The Grommet previously held by Japanese e-commerce company Rakuten Inc. Among other things, Rakuten operates an online marketplace at Rakuten.com and EBates, a membership-based online cash-back rewards site. The Grommet’s co-founders, Pieri and chief discovery officer Joanne Domeniconi, will retain their equity in the company, as will other shareholders. Terms of the sale were not disclosed.

In July, The Grommet announced that it made a series of senior-level hires.

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It brought in Ali Aslam as its vice president of engineering, Vanessa Ferranto as its director of product management and Doug Murphy as its director of customer experience.

Aslam, who started in March, came from television advertising sales platform provider clypd, where he was most recently principal software engineer. Ferranto, who started in April, comes from car-sharing service ZipCar, where she was most recently senior manager of product and experience. Murphy, meanwhile, has spent the past 15 years at American Express, working his way up from financial analyst to director of operations. He started in June.