Do it yourself, but
When money is tight, homeowners tend to repair their propertiesrather than move house.
went to find out if hardware stores can make you money in this economic climate
up in three years’time. You willstill be able to get in later but yourmargins will probably be lower.”Seasonalityand productrangeshould also be considered and duetothe natureofthe sector,cashflow is vitally important as capitalbecomes tied up in stock.LindaSmith,the ownerofLFSHardware in Eldorado Park, hasbeen in the game since 1996.Althoughshestarted offasanindependent,Linda joinedabuy-ing group three years ago.“The buying groupserves mebetterbecauseI stillhaveindi-viduality and I can interact withmy suppliers directly. At the sametime,Ihave themuscleofbulkbuying power. Asan independentit isvery difficult.We usedto buyfrom the samesuppliers but didnotgetthe samebulkpricesthebuying group can negotiate. Theyput you on a cash basis and oftenthe approachis ‘if you don’tlike itthen tough’.”Linda says it took her about twoyearstoget herstockmixrightand adds that people should neverneglect cash flowin this retailspace. She believes dive r s i f ic at io n
is important and while the storestocks DIY and hardware goods,the business also acts as a cementandbuilding supplieswholesalerto competitors in the area.“Even ifyou only makea 5%profit, this is fine because if yousell enoughvolume, youwill getar e bate,”she says.
Build it’s retail operations man-ager, Hans Koekemoer, expectsthe market to remain tough forthe nextsix months butadds thatgrowth will continue thereafter.DIY Depotshares thissenti-ment; directorDani Machetsayssales will improveonce banksstart to relaxlending criteria andthe housing sector picks up.Fellow directorMark Reevesadds tothis, saying thatin ruraland peri-urbanareas, themarketisstillquite healthyandevengrowing at the moment.Mica CEO CliffordBuchler s aysgoodentrepreneurs inurbanar-eas canalso make moneyin theDIY space rightnow, as con-sumers willrely on astore ownerfor advice when maintaining orrenovating theirhomes withoutthe help of contractors.Chris Argyrou, Warrior Paints& Hardware’s marketingandsales director, says that despitetheeconomic climate,itis uptoeach entrepreneurto gooutandsecure market share: “We all haveto up our game”.Ja c k’s Paint& Hardwareop-erations director,Chris Russell,echoes this, sayingthe currentclimate willforce operatorsto be-come morestreamlined and thatthis will translate into better prof-its during the good times.Plus Ten Hardware Distribu-tion director Norman Jacksonadds: “Thereis somuch oppor-tunityin SouthAfrica. Thepro-cess ofbuying groupsand evenfranchiseshasonly justbegun—
USINESSMAN AlanKnott-Craigonce flewtoLondonto meethisthenboss forjust halfan hour.The 16-oddhours ontheairplanewere well spent, he says, for at themeetingthe budget was signedand sealedand theycould gettowork —im medi ately.
“Itwouldhave takenmonthsif we haddone it anyother way.Thereisno moreproductivewayof doing businessthan meetingpeople face to face.“I spentat least90% ofmyworking day meetingand talkingto people,”says theretiredVo-dacom CEO.Alanis bynomeans the onlyexecutive to understandthe im-portance of face-to-face meetings.“There is anunderstanding inthe currentclimate thatwe haveall had to pullback on travel,”aSaudi Arabianexecutive wasre-cently quotedas saying.“But astheeconomy improves,wewillstartto seedamageto thebusi-nessif weare notout there.Bot-tom line: when I am with the clientless, I’mbringing inlessrev-enue.”It iswith thisin mindthatBritish Airways haslaunched itsbusiness opportunity grants, aR29-million initiativeaimed aten-couraging localsmall-to-medium-sized South African businesses totravel inan effort tosee theirbusinesses grow.“The economicdownturn hasseen business travel budgets in-ternationally slashed by morethan 56%over thepast yearandSouthAfrica hasbeen noexcep-tion, with airlinesseeing consid-erable contraction in corporatebookings,”says Sue Botes, BritishAirways commercial manager.“Thisis areally toughenvi-ronmentinwhich todobusinessand we’re hoping that, throughthis initiative, SMEs will have anopportunity they wouldnot havehad otherwise.By invigoratingtheir business travel,new oppor-tunitiescanopen upandtheycantruly experience the benefit of doing face-to-face business.”British Airways will award 50small-to-medium enterprises aye a r ’sworth oftravel toanyBritish Airways international des-tinationthrough theprogramme,which has been successfullylaunched in the US and Europe.Ina surveyby HarvardBusi-ness Review Analytical Services,95%of respondentssayface-to-facemeetingsare keytosuccessin buildinglong-term relation-ships,while about87% saidtheyare essential when sealing a deal.But for most SMEs, travelling tomeetbusiness partners(especial-ly internationally)is justadream.“It is very difficult to be top of other people’sagenda ifyouarenot present,”says oneof the 2300respondents in the Harvard study.“Face-to-facemeetings speedupalignment and decision-making.”Nkhensani Nkosi,founder of Stoned Cherrie, is anadvocateof the BAopportunity grantsini-tiative.
“This initiative givesSMEs theopportunity to developinto newmarkets in this challenging eco-nomic environment,”she says.Alan says the BA initiative is anidealopportunityfor asmallbusi-ness to make its mark.“To loseopportunities justbe-causetimes aretough andyoudon’t want tospend money ontravel does notmake businesssense. Throughthis initi ative
there is no reason not to traveland meet existing and potentialclients. Thisis theideal oppor-tunity to grow a business.”According to the Harvard studythere isno doubtthat “meetingtechnology”ison therise, butbusinessexecutives stillbelievethatface-to-face meetingsarees-sentialfor success,offeringben-efitsthat cannotbe replacedbytechnology.“The value of face-to-face meet-ingsis incomparableand itisencouraging to see initiatives thatsupport SMEsthrough thesedif-ficult times, givingthem a chanceto expand into new markets,”s aysAlan.SMEs from any industry em-ploying250people orlessareeligible to enter, says Sue.“Entriescan bemade onlineatwww.ba.com/safrica-grants. Theclosing date forentries is Febru-ary 19 2010. Afterthat a panel of judges will look ateachappli-cat io n. The 50winning SMEs will
then be chosen and the winnersannouncedon March19. Thetick-ets awardedto eachof thewin-ners will be valid for a year.”In the applications,a case fortheunmet businesstravelneedsof the SME willhave to be madeand applicants will have to outlinetheir objectives for2010 and howbeing awarded a grant would ben-efit their business.Whether it isa sit-down ap-pointment witha potentialclient,buyer, investor or a check-in on anofficethat hasnot beenvisitedbecauseofbudget cuts;theini-ti at ive allows the SME freedom touse the tickets to suit their needs.“The programme is designed tohelp budget-conscious businessesgetwherethey needtogo,phys-ically and financially,”says Sue.“The 10return businessticketscan be used entirelyat the SME’sdiscretion.”British Airways will cover thecostofthe fares,butwinningcompanies will be responsible forpaying taxes, fees and charges.According to Sue,“it does notmatter what industrythey are in,be it a laundromatowner or an ITbusiness”.She says Alan,along with apanel of British Airways exec-utives and peoplenot connectedto the airline, willjudge the en-tries.“Itwill comedowntothebusiness plan submitted and howbusiness travel can benefit theSME.”
Flying to new horizons
Travel may broaden the mind, but it also clinches thedeal. British Airways is encouraging small and mediumenterprises to fly high.
re po r t s
HE do-it-yourselfandhardware retail sectorwas notspared bythere-cession.But,because ofthe natureof thisindustry, someof itssub-sectors are stillperforming rel-ativelywell, withhomeownerstending to repairand upgradetheir houses insteadof buyingduring slower economic times.The question for existing andprospective entrepreneursiswhether there is an opportunity tomake money in the sector.The answer is notclear cut: theshort-term expectations are notgreatand everyoneis waitingforthe upswing to gain momentum.But entrepreneurswith accessto capital can invest now andcream it later.The DIY and hardware retailsectorcanbe splitintothreebroad categories —1) general DIYandhardware, 2)buildingsup-plies and 3) industrial supplies.While the first sub-sector hasbeen relativelyinsulated, theother two have taken a pounding.The industrycan alsobedivided further.Some storesgettheir goods independentlythrough wholesalers; others joinbuyinggroupsto pooltheirbuy-ing power andsecure discountsand franchises.Glass, hardware and paintmake up7% to 8% of all retail tradein the country.According toStatisticsSA, thesectorexperi-enced a 23.1%year-on-year de-cline in sales (at constant prices)in June. Thebiggest reason wasthedecline inbuilding andman-ufacturing activity.But there is definitely still mon-eytobemade ifonelooksatthegrowth experienced bysome in-dustryplayerssuch asBuildit.This buyinggroup generatedmore thanR4-billion insales dur-ing their last financial year.EvanWalker,a retailanalystatRMB Asset Management, says themarket will consolidateover thenextthreeyears andhewarnsindependents against makinghasty decisions.“Ijust seethe biggerplayersbecoming bigger at the expense of independent retailers.If youarelooking to open, I think you shouldlookata franchisemodel.Iwouldbevery nervousas anen-trepreneurto ventureout onmyown over the next five years.”EconomistTony Twineof Econometrix says the economywill onlyreally pick uponce therest of the world has normalised.“Weareprobably likelytohaveone more false start (in early 2010)before sustainable growth re-turn s,”he says.
Although both Tonyand Evanpaint a negative picture of theoperatingenvironment, theyaredefinitely not saying that oneshould not invest in a business.“You wantto investwhen timesare tough and not when you are inthe middle of a boom,”Tony says.“The smart guyswith capitalwill be able to get in now and clean
Investment and return
don’t be in a rush
EACH franchise or buyinggroup has its own formula onhow much money is needed toopen a DIY, hardware orbuilding supply store.There are some rules of thumb.Ageneral store can rangein size between 100m² and450m².Extra space is needed if youwant to sell building supplies.Aturnkey operation of about 400m² in the DIY orpaint area will costR2-million to R4-million.The stock componentgenerally makes up about50% to 70% of this amount.Paint is usually moreexpensive than DIY goods.Franchises and buyinggroups secure products forbetween 10% and 20% lessthan independent buyers,depending on the type of sto ck.
Your return on investmentalso depends on what is sold.Plus Ten HardwareDistribution director NormanJackson says that buildingmaterials generally generatean 18% to 24% gross profit(GP) margin, whereas DIYand hardware can bring in aGP of between 33% and 38%.Industrial supplies have aGP of 26% to 30%.Some franchises though,report slightly lower profitmargins.
Consumers willrely on a storeowner for advicewhen maintainingor renovatingtheir homes
HAMMERINGAWAY: DIYshop ownersFreddie andLinda Smith
thereare hundredsandhundredsof opportunities left.“It isimportant tounderstandwhat youare investingin. Intheold days,if youenjoyed fixingthings, you coulduse your pen-sion money to open a hardwaresto r e. Thesedays itis muchmorecomplicatedand youneed ade-cent back-office system.You alsoneed to understandthat productknowledge andservice arethedifferentiating factors.“If youare willing toplay thegame, thereare opportunitiesavailable.”
HEAT OF THE MOMENT: DIY entrepreneurs are advised to stay cool, even when the sparksstarttofly
Picture: MARIANNE SCHWANKHART