Kaufring AG - Company Profile, Information, Business Description, History, Background Information on Kaufring AG

Kieshecker Weg 100
D-40468 Düsseldorf

Company Perspectives:

The purpose of the organization is the economic promotion and support of the Kaufring members to ensure, secure and strengthen their independent existence in a competitive marketplace.

History of Kaufring AG

Kaufring AG is the leading German wholesale organization for mid-sized independent department stores and special interest outlets. Its 558 member retailers represent a sales volume of about $3.5 billion. Kaufring's services include purchasing and warehousing; advertising and event marketing; consulting in logistics, new site planning, product range, interior design, advertising, human resources, and information technology; and financial services. As a result of a fundamental restructuring program initiated in 1999, Kaufring planned to divest about one-third of its business through the sale of all Kaufring's active retail subsidiaries, such as Golden Team Sport, Germany's third largest wholesaler for sporting goods. Some 57 former purchasing departments were reorganized into eight divisions, and Kaufring's Far East purchasing subsidiary Centra Trading Ltd. ceased operations, being replaced by an agreement to work with a Hong-Kong-based purchasing agency.

Early Years as a Purchasing Cooperative: 1921-45

Kaufring was born three years after the end of World War I, when Germany was going through a severe political and economic crisis. Beginning in 1920 a small group of hardware retailers started meeting regularly at Dusseldorf's Bahnhofshotel to network and exchange ideas about how to improve business. Very soon the get-togethers of the regulars became more than just social gatherings. At a time when competition from the new department stores was threatening their very existence, these independent retailers realized that they had to bundle their purchase orders to achieve better terms and prices from suppliers. In early 1921 retailers from the German states Rhineland and Westphalia loosely organized a nonprofit organization, the Einkaufsverein Rheinisch-Westfälischer Geschäftshäuser, or in short ERWEGE. Every other week members met to figure out their purchase needs, and their bundled purchase orders were handed over to representatives of suppliers who also attended those meetings.

Just before Christmas 1921, on December 22, representatives from 28 retail businesses founded the ERWEGE Groáeinkaufsgenossenschaft e.G.m.b.H., a limited liability purchasing cooperative based in Düsseldorf. Their members came from a variety of retail businesses: small crafts-based businesses with their own corner shop and origins stretching back to the second half of the 18th century; pure retail businesses founded primarily in the middle of the 19th century; and retail businesses founded in the 20th century, planned from the very beginning more like department stores but without the long tradition of a Kaufhof, Karstadt, or Hertie, already well known German department stores founded in the 1880s. ERWEGE's first official member directory listed 76 member firms.

The 1920s and 1930s saw ERWEGE thrive. New members from all over Germany joined the organization, and its headquarters moved several times into more spacious offices with more exhibition space for product samples. In areas with many producers of hardware products, ERWEGE hired representatives to work with suppliers, negotiate favorable conditions, and place orders. Beginning in the 1930s, ERWEGE expanded its product range into new areas besides the traditional household goods. By 1937 it included products made from glass, china, porcelain, ceramic, leather, and metal; accessories and luxurious goods; toys; home interior products such as rugs, window coverings, linen, and other home textiles; clothing; and food.

The growing product range could not be managed in the old ways. While purchasing offices in Düsseldorf continued to manage the hardware and grocery areas, new central purchasing houses were set up. In 1931 a new purchasing house for textiles was opened in Berlin, and by 1939 there were 12 central ERWEGE offices in place. They had also replaced the old system of supplier representatives.

In addition to expanding its product range, ERWEGE took on new responsibilities for its members, assisting members with advertising, setting up balance sheets at the end of the business year, and offering group insurance. In 1934 ERWEGE expanded into warehousing. A new subsidiary, the Groá-Impex Groáhandels Im- und Export GmbH, based in Berlin, was founded to handle this business.

After the Nazis came to power, ERWEGE's marketplace became more and more restrictive. New laws were passed to put the German economy under Nazi control and prepare the country for a war. Production of household goods and kitchen appliances made from iron or steel was restricted. In 1938 a new law was passed aimed at excluding Jews from all business activities; thus Jews were no longer allowed to be members of a cooperative, and ERWEGE lost about 40 members. Some 20 new Austrian members joined through the new office in Vienna after Germany incorporated Austria in 1938.

Two key decisions made it possible for ERWEGE to survive World War II. First, its decentralized purchasing offices made it easier to secure supplies in times of scarcity. Second, a central fund for future investments in new equipment was set up in 1939. During the war ERWEGE's headquarters and some purchasing houses were completely destroyed.

Becoming a Full Service Agency: 1946-64

In the reconstruction years after World War II ERWEGE became one of 20 major dealers in the newly founded German state of North Rhine-Westphalia, responsible for trading textiles from American army supplies. Due largely to this fact, the cooperative was able to balance out losses caused by the war within only two years. In January 1948 ERWEGE members decided at their annual meeting to give the organization a name more oriented toward the future, one that expressed its purpose. On July 27, 1948 it was officially registered under its new name Kaufring Gemeinschaftskauf GmbH, loosely translated as 'purchasing circle.' Kaufring was also registered as a trademark. That same year, a new subsidiary responsible for coordinating advertising activities for Kaufring members was founded in Frankfurt/Main.

The currency reform in the three West German zones on June 20, 1948, marked a new beginning for businesses there. For the first time since the war had ended it was possible to buy goods for cash, following years of scarcity from rationing systems. Soon after the currency reform the first retail trade shows were held again. The first Kaufring textile inspection was held in April 1949. During 1949 and 1950 a new Kaufring building was erected in Düsseldorf which accommodated 29 central purchasing departments, including the ones formerly located in Berlin.

Kaufring greatly benefited from the Germans' increasing thirst for consumer goods during the 1950s. Within ten years, the number of Kaufring members almost doubled, from 250 in 1950 to about 480 a decade later. In fiscal year 1952-53, Kaufring for the first time grossed over DM 300 million, a market share of one percent. In 1961-62 the company passed the DM 1 billion mark for the first time and achieved a respectable third place in Germany's market for consumer goods, succeeded only by two large department store chains. New products were stocked by Kaufring, such as baby products, children's clothing, fashion accessories, auto supplies, and do-it-yourself products. Such volume could only be managed by expanding Kaufring's capabilities. Four new purchasing houses--for knitwear, toys, porcelain, and small furniture--were set up by 1960.

Through this dynamic growth, Kaufring continued to be a member-driven cooperative. Kaufring members were involved in decision making and purchasing politics in different ways. A board of directors was installed after a new law regulating cooperatives was enacted in West Germany in the early 1960s. Another institution was an already-existing committee, members of which worked together in sub-committees specializing in such fields as textiles, hardware, food, or advertising. Kaufring's so-called 'Chefs' Conversations at the Round Table' were held for the first time in 1964 in all West German regions, while 'Kaufring-Junior Circles' provided a forum for junior managers of member businesses.

In 1956 and again in 1961 Kaufring sent groups of delegates on business trips to the United States to study new developments in the retail industry first-hand. As a result, the first self-service shop for textiles within a German department store was opened at a Kaufring member's site, as were the first two full-fledged self-service housewares departments. Also beginning in the mid-1950s, import and export became more important again, and prewar connections to foreign business partners were reestablished. In 1964 Kaufring's subsidiary Groá-Impex imported products from 23 countries around the world, and new purchasing houses were set up in New York, Tokyo, and Hong Kong. Among Kaufring's first non-German members were the by then independent office in Vienna and the biggest and most modern department store in Persia. To intensify and oversee its international activities, Kaufring founded a new subsidiary, Kaufring International GmbH, in December 1964.

By this time it had become clear that the mere bundling of purchasing power was not enough to sustain Kaufring's success over the long term. Prewar services such as advertising, accounting, and insurance services were offered again, and Kaufring continually expanded into new areas to serve its member firms, becoming a full-service agency for independent retail businesses. Kaufring consulted its members on architecture and interior design, business administration and database management, and import and export issues. Beginning in 1964 the company offered decorating services and developed training programs for sales personnel and other staff.

Cooperation and Acquisitions: 1965-87

In the second half of the 1960s Kaufring introduced its electronic data processing services. Its first central computer was installed at the Düsseldorf headquarters in 1965. Only eight years later, 119 Kaufring members were using its central electronic accounting system; 121 members used a product tracking program; and 102 members were connected with Kaufring's electronic payroll system. Again Kaufring grew too big for its headquarters. A new piece of real estate was bought from the city of Düsseldorf in a special deal. In exchange for Kaufring's new 120,000 square meter location near the Düsseldorf Airport, the city took over Kaufring's old office building and paid Kaufring an extra sum for the lucrative inner-city property. By 1968 all Kaufring departments had moved into the brand-new office building. Although the new facilities were generously planned in the first place, exhibition halls and warehouses grew too small again and were continuously enlarged during the 1970s.

The 1970s marked a turnaround in Germany's economic climate. The world economy moved into a period of recession, consumer spending in department stores began to decrease, rising wages and oil prices pushed costs up, and the new hypermarkets took business from traditional retail stores. To stay competitive, Kaufring members decided at their 1970 general meeting to work even closer together and to take measures to adapt their organization to the new marketplace. Kaufring moved into a period of cooperation and acquisition activities.

For the first time in its history Kaufring started cooperating with other big organizations. In September 1971 the company entered an agreement of cooperation with Neckermann und Reisen (NUR), a major German player in the travel business, and started selling standardized travel packages at 25 selected member locations. Kaufring also started to cooperate with Europe's two biggest food wholesalers, the German cooperatives EDEKA and REWE. By 1980 Kaufring was working with a total of nine regional cooperatives and wholesalers. As a result the company withdrew step by step from warehousing food products until 1984 when the only product group Kaufring carried was candy.

In January 1983 Kaufring had the rare chance to get rid of its only competitor in the German market of mid-sized independent department and specialty stores. At that time the Grohag GmbH had 248 member firms with 450 stores and grossed approximately DM 500 million annually. In comparison, Kaufring's 650 members were generating over DM 1.5 billion per year in retail sales. In a one-of-a-kind deal Kaufring took over Grohag by depositing DM 20 million as liquid asset capital. The deal also included the takeover of Grohag's Swiss subsidiary Alexia Holding AG. However, soon after the takeover, problems arose between Kaufring and Grohag members who were doing business in the same territory. Consequently, by December 31, 1985, Kaufring ceased all Grohag business activities. Some 51 former Grohag members with around DM 300 million in sales decided to join Kaufring.

In addition to these activities, Kaufring continuously worked on improving its member services and business organization throughout the 1970s and 1980s. In the early 1970s, an incentive system was introduced to increase product purchases by Kaufring members. Kaufring-Kaufhaus-Projektgesellschaft (KKP), a new subsidiary that established and managed new department stores in under-represented territories, was established in 1975. In 1971 Kaufring launched a national image campaign that increased its recognition level among consumers from five percent in 1971 up to 24 percent three years later. Moreover, the product range sold under the Kaufring brand name was significantly expanded. In the mid-1960s it included about 630 articles. A decade later, over 2,000 products carried the Kaufring trademark, and by 1978 that number had more than doubled again. All of Kaufring's traditional purchasing houses had closed by 1982. At the same time, the company expanded its international activities and in 1983 founded Kaufring Far East Ltd. in Hong Kong. A new Kaufring service offered human resources consulting. Kaufring also subsidized advertising and large investments for its members. A new logistics scheme was developed that bundled in-going and outgoing product streams through 13 regional shippers, and a new state-of-the art warehouse complex was completed by 1987. In 1985, member retailers purchased 82 percent of their inventory from Kaufring.

Going Public and Subsequent Challenges: 1988-99

At a general meeting of Kaufring members in June 1988, 98.3 percent of all votes were in favor of transforming the cooperative into a public company. On October 20, 1988, Kaufring AG was officially registered in Düsseldorf. All former members of the cooperative signed agreements to turn their business over to the new company; they were given shares in the new enterprise in exchange for their shares in the cooperative. However, they secured their exclusive influence in the business by not publicly offering any stock. Kaufring continued to be owned by the same shareholders until the company's initial public offering (IPO) in October 1991.

The new corporate format made it easier to look for new potential business partners. In 1989 Kaufring sold 25 percent of its share capital to the German retail group Horten AG, which was also based in Düsseldorf. In the same year the new partners founded a new purchasing subsidiary, the Merkur Einkaufsgesellschaft HORTEN-Kaufring mbH in which each partner held 50 percent. In the following year Kaufring invested with Horten and Hertie, two other major German retail groups, in the Sono Centra Trading Ltd., based in Hong Kong and active in the Asian market. After those partners sold their shares in the mid-1990s, Kaufring would hold 100 percent interest in the company until mid-1996, when it found two new partners--Katag AG and EK Grosseinkaur--based in Bielefeld, which each took over a 15 percent interest in Sono Centra.

Three main factors prompted Kaufring's decision to expand into retail trade. First, the new market was expected to bring in more revenue. Second, Kaufring locations that were given up by shareholders and members could be used to avoid a meltdown in membership. Finally, the unexpected reintegration of East Germany into the domestic market opened up a once in a lifetime chance to win market share quickly by taking over businesses there. However, this endeavor turned out to be an unfortunate one for Kaufring and put the company into serious trouble in the latter half of the 1990s. In 1995, one year before Kaufring turned 75, its annual sales passed the DM 3 billion mark, and for the first time in its history the company showed a net loss. In the following years, its business stagnated and revenues decreased continuously. To stop this development and to win new customers, Kaufring purchased a 49 percent share in the Nuremberg-based Nürnberg Bund Handels GmbH (NBH). However, Kaufring went into the red again in 1998, partly because the inventory taken over from NBH caused immense extra costs. In August 1999 Kaufring's finances were no longer liquid after it failed to acquire additional short-term credit. Bad came to worse when several suppliers canceled their provision agreements with Kaufring. This in turn made Kaufring customers nervous; many of them financed their purchases with bills of exchange issued by the Kaufring headquarters, and these would be worthless if Kaufring had to file bankruptcy. Consequently, many Kaufring customers began looking for other suppliers.

A radical restructuring program was enacted that year, aimed at selling off all retail businesses and concentrating on Kaufring's core competencies. In spring 2000 the company expected that the program would diminish Kaufring's sales by about one-third and its workforce by 3,000 or about 80 percent. Despite an expected loss of about DM 110 million, the company maintained that it would be able to pay all extra costs from its own reserves and might even be able to pay a dividend in 2001.

Principal Subsidiaries: Kaufring Logistik GmbH; J.Gg. Rupprecht GmbH; Kaufhaus Moses GmbH; Innosys Vertriebsgesellschaft für Handelssysteme mbH; WEKA-Kaufring Kaufhaus GmbH; Nürnberger Bund Handelsgesellschaft mbH; Merkur Einkaufsgesellschaft Kaufring-WOOLWORTH mbH (50%); Planungsring GmbH; Kaufring Handelsbeteiligungs- und Verwaltungsgesellschaft mbH; KVV KONZIS Versicherungs-Vermittlungs-Gesellschaft mbH.

Principal Competitors: Metro AG; Aldi Einkauf GmbH & Co. KG; Spar Handels AG.


Additional Details

Further Reference

'Beim Kaufring brennt es lichterloh,' Lebensmittel Zeitung, August 6, 1999, p. 6.'Der Kaufring ist 75 Jahre alt geworden,' Frankfurter Allgemeine Zeitung, October 7, 1996, p. 24.Kaufring: Europas gröáter Verbund selbständiger Kaufhäuser und Fachgeschäfte, Cologne: EuroHandelsinstitut e. V., 1998, 69 p.'Kaufring sieht wieder Land,' Süddeutsche Zeitung, March 10, 2000, p. 30.Maderner, Stephan 'Das Ringen um den Kaufring,' TextilWirtschaft, August 12, 1999, p. 52.'75 Jahre Kaufring,' Markt+Marke, Düsseldorf, Germany: Kaufring AG, 1996, 303 p.

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