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

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Our mission is to spread the do-it-yourself philosophy throughout Cen tral Europe. We want to help our customers to realise their home impr ovement dreams.

History of Baumax AG

Baumax AG is Austria's leading operator of Do-It-Yourself (DIY) hardw are stores, and one of the leading and fastest-growing DIY chains in the Central European region. Based in Klosterneuburg, in lower Austri a, Baumax operates some 70 stores in Austria itself, providing comple te national coverage. Many of the company's Austrian stores feature t he MegaMax building format. These stores reach nearly 135,000 square feet of selling space, including garden centers of more than 43,000 s quare feet, and even in-store cafes. The MegaMax format targets not o nly the consumer DIY market and small trade circuit, but also the pro fessional building segment, with a mix of consumer goods and construc tion materials. Baumax's Central European expansion has led it into m ost of Austria's neighboring Eastern and Central European markets, in cluding the Czech Republic, the largest of the group's international network, with 23 stores. The company is also expanding in Hungary (14 stores), Slovakia (ten stores), Slovenia (three stores), and Croatia (three stores). Altogether, the company operated 53 stores outside o f Austria in 2005. Further international expansion is a central part of the group's strategy, particularly as competition heightens in its home market. In 2005, the company began preparing its entry into the increasingly stable Bulgarian market, and launched plans to expand i nto Rumania as well. These entries are part of the company's ambitiou s expansion program for the second half of the 2000s, intending to do uble its revenues. In 2004, the company's total sales topped EUR 1 bi llion ($1.3 billion). Publicly listed throughout the 1990s, the f ounding Essl family, which had previously controlled nearly 85 percen t of the company's shares, bought out its minority shareholders and t ook the company private in 2004. Founder Karlheinz Essl remains activ e in the company as chairman of the board, while son Martin Essl guid es the group's operations as managing director.

Forming a Family Business in the 1970s

Baumax stemmed from the Fritz Schömer company, founded in Kloste rneuburg, Austria, in 1923. Schömer originally operated as a sma ll coal-selling business. By the late 1950s, however, the company had expanded into the sale of building and construction materials. Nonet heless, the company remained small, with less than 30 employees.

The arrival of Karlheinz Essl as part of the business, and the Sch&ou ml;mer family, marked the beginning of a new era for the family-owned business. Born in 1939, Essl came from a family with a background in food retailing. In the 1950s, after finishing his studies at Graz Bu siness School, Essl was sent by his family to Germany, Switzerland, a nd, especially, the United States, to observe the growing supermarket culture in those countries. While in New York, Essl met his wife, da ughter of Fritz Schömer.

Returning to Austria, Essl decided to join his father-in-law in his c onstruction materials business, rather than join his family's food wh olesale and distribution operation. Essl and Schömer worked toge ther to build up their operation, extending into building supplies, a s well as construction and related materials. By 1973, the company's growth led it to restructure its operations into two businesses, one dedicated to building materials, the other focused on its coal and ot her mineral distribution operation. In that same year, the company al so extended its scope into the cement and aggregates market, founding Schömer L+S Beton Werke.

Essl took over control of the family business in 1975. By then, he ha d developed an interest in a relatively young retail market. The Frit z Schömer company continued to grow strongly over the next decad es, becoming a major Austrian company in its own right, with sales of more than EUR 1.5 billion by the mid-2000s. Yet Essl's new interest turned toward the Do-It-Yourself (DIY) market. If the traditional har dware stores already existed, the DIY market represented a step furth er, appealing to the growing trend among consumers toward making thei r own home repairs and home improvements. The DIY center became part of a trend toward "category killer" stores that had emerged in the Un ited States during the 1970s. The category killer, by focusing a narr ow product category, promised a far larger selection than the typical department store, as well as the potential for lower pricing. The ne w DIY retail centers, therefore, developed a similar "one-stop shoppi ng" concept, offering products for nearly all of a consumer's home im provement needs under a single roof, from basic construction material s to home furnishings to gardening supplies and plants.

The oil crisis and related economic difficulties of the 1970s, furthe r exacerbated in Austria by the near total lack of significant oil re serves in the country, provided a fertile ground for the development of a DIY culture. Indeed, elsewhere in Europe, the DIY market eventua lly grew to become one of the most popular consumer pastimes, rivaled only by gardening (which also featured prominently in the typical DI Y center). Essl recognized the DIY center as a natural extension of t he family's main business, and in 1976, he began developing a DIY ret ail format, and established a new company, Baumax.

The first Baumax store opened in the town of Kindberg. The Baumax con cept caught on quickly, and the company's early entry into the segmen t allowed it to gain an early and lasting lead in the Austrian DIY ma rket. The company became the country's top DIY retailer in 1983, a po sition it would not relinquish through the mid-2000s. By the end of t he 1980s, the Baumax name was said to have become as well known as Mc Donald's or Coca-Cola in Austria.

Essl was joined by son Martin Essl in 1983; like his father, the youn ger Essl had been sent to the United States to study the retail clima te there. Baumax began extending its presence throughout Austria, bac ked by a public offering and a listing on the Vienna Stock Exchange a t the end of the decade. The Essl family nonetheless remained in firm control of the company, holding nearly 85 percent of Baumax's stock. The company built its new headquarters in 1987, called the Schö mer house in honor of Fritz Schömer.

Central European Expansion in the 1990s

As it approached the 1990s, Baumax drafted a new expansion and market ing strategy, dubbed BauMax 2000. The company's objective was not onl y to complete building out its growing national network of retail sto res, but also to launch its first efforts at international expansion. The decision to direct its international efforts at the Central and Eastern European market came in 1989, with the collapse of Soviet dom ination of the region.

In the early 1990s, Baumax went in search of its first foreign expans ion prospects. At the same time, the company began implementing a new business and marketing strategy. A prominent part of this strategy w as the company's decision to expand its store format. Into the middle of the 1990s the company's stores boasted an average selling space o f nearly 3,500 square meters, a 30 percent advantage over the rest of the Austrian DIY market. Yet the company's new format called for the development of far larger stores, featuring 10,000 square meters of DIY selling space, with an additional 4,000 square meters devoted to gardening tools, supplies, and equipment. The larger format stores we re dubbed BauMax 2000, and began shifting the company's average store space upward through the end of the decade.

Baumax's first foreign store opened in Prague in 1992. The Czech Repu blic quickly became the company's most enthusiastic foreign market, a nd by the mid-2000s was also its largest market outside of Austria, w ith 23 stores. The company also entered Hungary in 1992, where the su ccess of the company's format enabled it to expand its network to 14 stores over the next decade. Slovakia became Baumax's next target, wi th the first store opening in Bratislava in 1994.

In that year, Baumax made an important acquisition, buying constructi on materials, tiles, and retail group Buettinghaus. The acquisition h elped boost Baumax's revenues by some 65 percent for the year, allowi ng the company to top sales of ATS 5.7 billion. Following the acquisi tion, Baumax split up Buettinghaus's operations into its separate bus inesses, ultimately divesting the tiles and building materials busine sses. Part of these went to the Fritz Schömer company.

The Buettinghaus acquisition not only boosted the company's retail ne twork in Austria, but it also gave Baumax its first retail store in S lovenia. The company began converting its Buettinghaus stores to the BauMax 2000 format, a process in large part completed by 1997. In the meantime, the company began stepping up its international expansion. By 1995, the company's foreign network already numbered 12 stores, a nd its international sales nearly doubled. Into 1997, the company's e xpansion remained brisk, as the company pursued an ATS 1.1 billion in vestment program, including the opening of 14 new stores, and the com pletion of 32 store refittings.

Facing the Competition in the New Century

Baumax had put into place a new logistics network in 1994, boosting i ts efficiency. This became all the more important in the late 1990s a s the company faced a new level of competition both for the Central a nd Eastern European market, but in Austria as well. Indeed, into the late 1990s, a number of Europe's largest DIY specialists, especially leading German groups including Obi, Praktiker, and Hornbach, had beg un to eye these markets. The increased competition took its toll on B aumax, shrinking its Austrian market share from a high of 35 percent in the mid-1990s to a still respectable 29 percent in the mid-2000s.

Baumax's response came in two parts. On the one hand, the company sou ght out a number of purchasing alliances, such as that formed with Co logne, Germany-based Rewe in 1999. That alliance, called tooMax, bund led Baumax's purchasing strength with that of Rewe's own DIY retail o peration, Toom.

The second part of Baumax's strategy into the 2000s was the developme nt of a new retail format designed to appeal to both the consumer/sma ll trade and professional contractor markets. The new format was call ed Megabaumax and easily lived up to its name: The new store design f eatured more than 135,000 square feet of selling space, including a g arden department boasting more than 43,000 square feet.

Into the 2000s, Baumax began rolling out the Megabaumax format, build ing new stores and converting or replacing an increasing number of it s existing stores. The company also exported the Megabaumax format to its foreign markets, and especially the Czech Republic, which saw th e opening of three new large-format stores in 2001 and 2002. The comp any also launched plans to add eight new stores to its Slovakia netwo rk; by 2005, the company had succeeded in expanding its retail operat ions in that country to ten stores. Hungary, too, proved a strong mar ket for the group. By 2005, the company operated 14 stores in that co untry, including its latest and largest, a 12,500-square-meter store opened in Obuda, in North Budapest, in 2004. At the same time, Baumax expanded into another new market, neighboring Croatia, opening three stores there by mid-decade.

As it turned toward the second half of the 2000s, Baumax remained con fident in its growth strategy. In 2005, the company announced its int ention to enter the Bulgarian market, as that country's economy showe d signs of reaching stability. The company also indicated its desire to establish a presence in Rumania in the near future, and asserted p lans to double its sales, from EUR 1 billion ($1.3 billion) befor e the end of the decade. In the meantime, the Essl family had moved t o take the company private, buying out its minority shareholders in 2 004. The family-owned company represented an Austrian, and increasing ly international, success story.

Principal Competitors: Franz Haniel and Company GmbH; Castoram a Dubois Investissements S.C.A.; BayWa AG; Hagebau Handelsgesellschaf t fur Baustoffe mbH und Company KG; AB Lithun; INTERPARES MOBAU Hande lsgesellschaft mbH und Company KG.


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