Harbor Freight Tools: Strategies Behind America’s Fastest-Growing Retailer
In 1977, Harbor Freight Tools was started as a small family-owned business with a commitment to providing working people with high-quality tools at the lowest prices.
For over 45 years, Harbor Freight Tools has upheld this promise, expanding to more than 1,350 stores across the country and offering over 7,000 tools and accessories. They provide quality levels that match or exceed competing brands but at prices up to 80% less.
The company is a team of high-achievers passionate about excellence, continuous improvement, and getting things done. Their success can be attributed to several key factors which have driven their remarkable growth in the tool and equipment market.
The Visionary Behind Harbor Freight: Eric Smidt’s Unstoppable Ascent
Harbor Freight Tools’ unique success can largely be credited to the leadership and foresight of its co-founder and current CEO, Eric Smidt. Unlike most other national retailers such as Home Depot and Lowe’s, Harbor Freight is privately owned.
According to Forbes, with an estimated $6.5 billion in annual sales, it is the 86th largest private company in the country.
Remarkably, it is 100% owned by Eric Smidt, giving him a net worth of over $10 billion and placing him on the Forbes 400 list of the richest people in America. He is one of only 32 people on that list with a self-made score of 10, underscoring his exceptional entrepreneurial achievements.
Eric Smidt co-founded Harbor Freight in 1977 when he was just 17 years old, fresh out of high school, alongside his father, Allan Smidt. Allan, who had extensive experience in retail and was already operating a small tool-selling business, partnered with Eric to start a mail-order business where customers would exclusively order tools over the phone from a catalog.
In 1980, three years after its inception, Harbor Freight opened its first physical store in Lexington, Kentucky, reselling items returned by customers. Over the following decades, the company gradually scaled its operations, transitioning from the catalog model to opening new stores across the country, supported by increasingly larger warehouses and distribution facilities.
In 1985, Eric became the president of Harbor Freight and continued to gain more control over the company. By 1999, he had bought out his father’s half of the company, becoming the full owner, while Allan remained on the board of directors with final say over major business decisions.
With Eric at the helm, Harbor Freight adopted an aggressive expansion strategy, opening stores farther east and targeting areas with high concentrations of existing catalog customers. This strategic shift transformed Harbor Freight from a regional player into a national brand, expanding its retail presence from 13 states to 40 states in just a few years.
The Shift in Strategy That Transformed Harbor Freight Tools
Harbor Freight Tools’ growth and success are also a result of its strategic approach to reinvestment and debt financing. As a family-owned business that has never publicly reported its financial figures, there are complexities in understanding its financial strategies.
The company’s co-founders, Allan and Eric Smidt, had significantly different viewpoints on handling money, which often led to contention. Allan Smidt, who grew up during the Great Depression, was very frugal and risk-averse.
Early on, the business followed Allan’s conservative approach, reinvesting all profits back into the company and avoiding debt. This cautious strategy helped Harbor Freight build a strong foundation and weather tough times.
As Eric Smidt recalled, “We were doing great, and every penny we were making we put back into the business. Not borrowing a dime from anybody. We lived like paupers until it was a $500 million business.”
However, when Eric took control of the company, he adopted a more aggressive financial strategy. Unlike his father, Eric believed in leveraging debt to fuel growth. He started borrowing money and using profits for both business expansion and personal acquisitions, including a $100 million collection of extravagant items.
This shift in strategy did not sit well with Allan, leading to conflicts and even a lawsuit that ended in an undisclosed settlement. According to allegations in a lawsuit, Eric Smidt heavily leveraged the company by taking out more than $500 million in loans.
He reportedly used some of the money for extravagances such as a $20 million Manhattan apartment and the purchase of a painting for $100 million. One notable purchase mentioned was The Knoll, a 13-bedroom mansion in Beverly Hills bought for $46 million.
The lawsuit also contends that Eric Smidt made significant changes within the company, including firing several longtime executives and removing his father from the board of directors. Allan Smidt claims that in May, his son had the company’s new chief operating officer escort him out of the company’s headquarters, telling him, “Don’t come back.”
Despite these personal and legal challenges, Harbor Freight Tools maintains that these family disputes will not affect its business or continued success. The company stated, “Family disagreements are never pleasant, but this lawsuit is incredibly sad. The assertions in the complaint are completely unfounded and they will be addressed in due course.
Eric’s strategy of using debt to finance rapid expansion proved successful. Under his leadership, Harbor Freight transitioned from a conservative reinvestment model to a bold debt-financing approach, allowing it to expand aggressively and become a multi-billion dollar company.
Product Focus and Quality Assurance at Harbor Freight
While leading home improvement and hardware chains typically offer a broad range of items from building materials to appliances and fixtures, Harbor Freight Tools distinguishes itself with a focused inventory primarily consisting of over 7,000 tools and accessories, including hand tools, power tools, air tools, generators, pneumatic tools, hydraulic lifting tools, automotive tools, shop equipment, and more.
Harbor Freight Tools is the premier destination for quality tools at the lowest prices for both “do it yourself” and professional tool users. For over 40 years, that mission has made HFT the fastest-growing tool and equipment retailer in the United States, with 40,000,000 loyal customers taking advantage of their low prices and satisfaction guarantee. HFT has over 1,000 stores and continues to open new stores every week.
Many of these products are sold under their own brand names such as Pittsburgh or Icon. This focused approach allows Harbor Freight to operate smaller, more cost-effective locations and compete indirectly with larger retailers.
The company’s logo promises quality tools, a claim that has sparked debate. Harbor Freight has made efforts toward quality assurance, including the establishment of two assurance labs dedicated to testing their products.
At Harbor Freight Tools, ensuring the quality and reliability of products is a paramount concern. The company’s rigorous quality assurance (QA) testing process is designed to maintain high standards and customer satisfaction.
When samples are requested, vendors must send them to the HFT QA Laboratory in the USA at their own cost, with specific quantity and location details communicated by HFT Sourcing.
Upon receiving the samples, HFT conducts quality tests at its own expense to determine whether the products meet its stringent standards. Successfully passing this testing phase is required before proceeding to the Vendor/Product Set Up stage.
As part of the product development review, vendors may also need to provide third-party test reports and certification documents to verify that the products meet industry standards and regulatory requirements
However, it’s widely acknowledged that Harbor Freight may not be the destination for top-tier quality tools. Customer feedback, often found in comment sections and reviews, generally reflects a consensus that while Harbor Freight tools are affordable, they are typically considered decent for the price point.
Price Strategy: How Harbor Freight Keeps Prices Low
Harbor Freight Tools has solidified its position as America’s largest discount tool retailer by prioritizing its commitment to offering the lowest prices in the market. This strategy began when Eric Smidt, at just 17 years old, traveled to Japan to forge direct relationships with tool manufacturers, laying the groundwork for cost savings that continue to drive the company today.
By sourcing directly from factories, Harbor Freight eliminates middlemen and passes significant savings on to customers. Over the years, as the company has scaled its operations, it has been able to negotiate larger orders with manufacturers, further driving down costs.
“At Harbor Freight, we cut out the middle man. We work directly with the manufacturers of our tools to get the best possible prices – and we pass the savings onto you, essentially cutting out the middle man. No upcharge for “fancy names and slogans” here, just quality tools at the lowest possible prices, as stated in our tagline,” the company stated.
The consensus among customers is clear: Harbor Freight consistently offers prices that are substantially lower than its competitors, often boasting savings of up to 80%.
According to the company, many of their tools are sourced from the same factories that produce for renowned brands, ensuring quality comparable to higher-priced alternatives. Harbor Freight enhances its competitive pricing strategy with frequent sales, money-saving coupons, and a highly regarded $29.99 annual membership club that grants members early access to sales and exclusive deals.
Despite its success in offering competitive prices, Harbor Freight has encountered legal challenges related to its pricing practices.
For instance, a class-action lawsuit alleged deceptive advertising of sale prices compared to regular prices, raising concerns about transparency in pricing strategies. Harbor Freight settled the lawsuit without admitting wrongdoing, reaffirming its commitment to affordability while navigating challenges in consumer perception.
Employee Satisfaction and Customer Service Excellence
Harbor Freight employs over 28,000 people, and the majority of them are content and enthusiastic about their roles. This positive work environment translates into excellent customer service and a welcoming atmosphere in their stores.
Harbor Freight Tools prioritizes the well-being and satisfaction of its associates by offering a comprehensive range of benefits. Full-time associates can choose from up to four medical plans tailored to their location, providing flexibility to meet diverse healthcare needs.
Part-time associates benefit from a Limited Medical Plan that offers discounted reimbursement for essential health services and prescription drugs, complemented by a telemedicine service for virtual doctor visits and significant savings on medications, all without deductibles or copays.
In addition to medical coverage, Harbor Freight provides dental and vision plan options based on employment status, ensuring associates have access to comprehensive healthcare solutions. Paid Time Off and Sick Time are available to all associates, offering flexibility in managing personal and health-related leave.
To support long-term financial health, Harbor Freight offers a 401(k) savings plan administered through Principal, with a generous matching program that includes 100% matching on the first 3% of contributions and 50% on the next 2%. This initiative helps associates build savings for the future with employer support.
Further demonstrating their commitment to associates, Harbor Freight operates a charitable fund administered by and for its associates, providing short-term financial assistance in times of unexpected hardship.
Harbor Freight has earned spots on various prestigious lists, including Fortune’s “Best Companies to Work For.”
“Harbor Freight Tools truly invests in their people; I’m proof of that. HFT has given me the opportunity to be promoted, relocate, lead various teams, work with our corporate partners, and continue my professional development,” said one employee.
In many ways, the happiness and dedication of its employees are integral to Harbor Freight’s ongoing success.
