CASE STUDY >
The nuts and bolts of business
Written by: René Jakl
Photo by: René Jakl
Just like buying rolls from a local bakery or from the Odkolek franchise, in recent years people have gotten used to buying screws, hammers, saws, and drills at either a hardware store or at Břenda.
THE GOLDEN AGE of the mid-90s, when 40 hardware stores throughout the Czech Republic carried the Břenda sign, may be a thing of the past, but in the tools and fasteners segment, the Břenda firm continues to lead.
Buy a hardware store for KCS 50,000
In the revolutionary year of 1990, Václav Břenda (30 at the time) was the manager of the Household Goods store on Ječná street in Prague. “The shelves were left from the days of the Austro-Hungarian empire, maintenance had been neglected, and no one was willing to make any repairs,” Břenda says. But he adds that the shop had a good reputation, something that is especially appreciated at hardware stores. Prague residents and people from the country alike shopped there. “Furthermore, it was possible to park in front of the shop at that time, which is no longer the case,” Břenda says, recalling an advantage that the newly built DIY stores in the city outskirts usurped a few years later.
– extensive product assortment, including specialized items
– high quality and large number of expert employees
– long-term knowledge of the market
– well-established brand
In the shop, no one was interested in management of the household goods section, so Břenda acquired it under a lease. Because there were long lines of people waiting to get into the shop and business was good, Břenda decided to build a retail outlet network. Within the framework of the so-called small privatization, he started buying up more hardware stores, generally for starting prices of about KCS 50,000. While this sum didn’t include the value of inventories worth millions of crowns, for which Břenda had to take out bank loans, or the real estate on which he had to pay rent, he thinks the price was cheap, even at the time. “No one was interested in hardware stores, and the 50,000 crowns could be recouped in one shop within a month without any problem,” Břenda says.
In 1991 shops were added in Podolí, Břevnov, on Dlouhá street, on Kubánské square, and in Michle, as well as two outlets outside of Prague – in Odolená Voda and Nymburk. In November of the same year, Břenda opened a wholesale warehouse in an industrial complex above the Libeň train station that a Japanese investor had just bought in auction. He also needed to get rid of excess hardware inventory worth CZK 50 million, and Břenda bought it from him gradually. At the end of 1991 eight retail shops and one wholesale store bore the Břenda name, and they employed about 70 people. “I’m a scatterbrain,” says Břenda, sitting behind a huge pile of paperwork in his office. “Over the years I’ve learned that one who insists on order and dwells on details generally doesn’t do very well in business,” he says with a smile.
In the years to come, Břenda expanded more slowly. He discovered that the time for consolidation came after the rapid growth. “I had to create a wage system, so that people wouldn’t leave when salaries rose in other places, to make accounting between the stores more transparent, and to unify warehouse records,” Břenda says. Individual shops had their peak sales in 1991 and 1992. “Our largest total monthly sales reached 47 million crowns, and the extraordinary record for an individual store, 10 million crowns in one month, is held by our former Kubánské square outlet,” he adds, describing the salad days.
The firm focused exclusively on carrying hardware, canceling kitchen equipment and electrical appliance sales. The next step was to gradually limit wholesale operations, for which Břenda had several reasons: wholesale customers were often late in paying, or they didn’t pay at all, independent hardware stores didn’t want to support their largest competitor’s wholesaler through their purchases, and the pricing policies of Czech manufacturers didn’t benefit the wholesaler, either. Some manufacturers gave merchants commissions of 5% or even less, mainly in order to keep the end price down. Many of them paid dearly for this, even though they offered high quality products. “When the American company Stanley acquired TONA Pečky, a Czech key maker, they immediately gave me a 47% commission, 30% for retail sales and 17% for wholesale. Unlike the others, they are still on the market,” Břenda notes.
DIY stores – heavyweight competitors
In the mid-90s Břenda’s chain of hardware stores reached its greatest size. At one time there were 31, and the total gradually reached 40. But in 1996 and 1997 the favorable leases expired for many Břenda stores, and the new real estate owners raised the rents markedly. Also, the well established hardware stores came up against competition – specialized DIY stores like OBI, Hornbach, and Bauhaus. In addition, new hypermarkets like Tesco and Carrefour featured tool departments. Despite all of the shortcomings of the giant stores, starting with insufficient numbers of employees, general inaccessibility for customers without cars, and the need to make purchases in large quantities, Czech customers came to like them. Large parking lots, advertising, and sales did their job.
Břenda responded by placing greater emphasis on specialized items (see sidebar, p. 32) and by cutting back on the number of stores. “I sold some of them, and in other places I terminated the leases, transferring the inventories, along with my best employees, to other outlets,” recalls the ambitious entrpreneur. He currently owns two stores in Prague and four outside the city, with sales of about CZK 10 million a month. The situation has been stabilized for several years, and his firm is still considered the leader in retail sales of hardware goods. At his main wholesale outlet in Prague 3, he organizes presentations, and in the future he plans to open a tool rental shop. “The most expensive items are goods we don’t have, and this is costing us customers,” says Břenda, summing up the firm’s strategy.
|Goods from A to ZThe list of more than 16,000 items at Břenda hardware stores reads like a primer for the household handyman. It includes cordless drills, adapters, shower fixtures, angular grinders, tinwork tools, and 150 W bulbs, and rope ladders. Legendary Czech handymen are not the main shoppers according to Václav Břenda, instead they are professionals. “Builders, craftspeople, and buyers from factories and various firms buy from us,” Břenda says, describing his current customers. This was one of the reasons he decided to locate his wholesale outlet behind the rail freight terminal Praha-Žižkov, in the area of today’s construction boom.
” DIY shops offer only a single type of grinding disk, while we carry ten different abrasion degrees, with holes for suction removal or without. A customer needs only to tell us the type of grinder he has, and we sell him the appropriate disk,” says Břenda. For example, an entire sales section is dedicated to a wide variety of screwdrivers. Customers can buy the precise number of screws or nuts that they want, not a full package as is the case at other stores.
|Other “Břendas”In the ’90s the hardware market lacked any important chains, but some independent shops managed to prosper. These include the popular hardware store V. J. Rousek in Nusle and Truhlář & Co. in Smíchov (and later in Kobylisy). Břenda’s old store on Moskevská street is called Jirásko, claiming to have been founded in 1896. Another large hardware store in Michle, which was among the first Břenda bought, is now called Kostka. People with good memories certainly remember the traditional U Rotta hardware store on Malé náměstí, which was replaced by a delicatessen and wine shop.
In the beginning of the ’90s Unimarket constituted the only large competing chain, but hardware was only marginal to its business. According to Břenda, Unimarket was built by the former heads of household goods out of the most lucrative and largest stores outside of the downtown district. “Of course they had information as to which shops were making money, but they were only interested in sales of, say, four million a month,” Břenda says. Paradoxically, Unimarket paid dearly for the aggressive arrival of the DIY shops, which were close to the Unimarket stores in both location and product assortment.