How Harbor Freight Keeps Tool Prices So Low

Harbor Freight's tools are so affordable that you wouldn't be wrong to wonder how it's even possible. After the cashier tells you your total, it's enough to make you question how the store's turning any profit at all. As it turns out, that's how founder and CEO Eric Smidt designed the business to operate from the start.

Keeping prices low has been part of the company's business strategy since its founding in 1977. Harbor Freight's able to price tools so low by purchasing them straight from the factories that make them. That way, instead of having to go through a middleman, Harbor Freight can get the products directly from the manufacturer and save on having to pay a distributor. And it won't have to increase tool prices to make up for paying the middleman, either.

Compare that to other retail chain tool departments that have to buy tools from another company or distributor that, in turn, gets them from the manufacturer. Basic supply chain principles tell us that every time another business gets involved in the process of moving from the factory to the shelf, the price of the product will typically go up to account for that.

Harbor Freight's factory-direct approach is only part of why its prices stay low, though. Because the store almost exclusively sells its own brands, it doesn't have to pay the extra costs and fees associated with carrying more prominent brand names. Beyond that, your average Harbor Freight store tends to be smaller than your big-box hardware store of choice. Whether it be Home Depot or Lowe's, Harbor Freight's retail locations are nowhere near as spacious. That smaller footprint can mean even more savings for you, the customer. Harbor Freight also tends to run frequent promos and put out sheets upon sheets of coupons to bring prices down even more.

That's not to say Harbor Freight is always cheap, though. One place where it might actually end up costing you more than one of those aforementioned competitors is with Harbor Freight's restocking fee. At Harbor Freight, some returned products are subject to a 20% restocking fee. That means you might have to forfeit a fifth of what you paid for the product in order to return it. Harbor Freight says that fee can be waived in certain situations (such as unopened items in new condition, warranty replacements, or even exchanges), but still: Harbor Freight's prices are cheap, but don't assume everything's going to be a steal.