Your business: how to open a hardware store
The aim of the project is the opening of a construction store for the retail sale of building materials in a city with a population of more than 1 million people. The target audience of the construction store is retail buyers, 60% of which are the male population of the city aged 23 to 65 years, as well as wholesale buyers in the face of construction and installation teams, with whom cooperation agreements are concluded.
To implement the project, a retail space of 200 m2 is rented, located on the main street of the sleeping area of the city, in close proximity to residential buildings. The area of the trading floor is 130 m2.
The volume of initial investments is 1,408,000 rubles. Investment costs are directed to the purchase of equipment, the initial purchase of goods and the formation of working capital, which will cover the losses of the initial periods. The bulk of the required investment is in inventory – 50%. Own funds will be used to implement the project.
Financial calculations cover a five-year period of operation of the project. According to the calculations, the initial investment will pay off for the fifteenth month of operation. The industry average value of the payback indicator is 10-18 months. The monthly net profit of the project is about 120,000 rubles. For the first year of the project, net profit will amount to 1,082,000 rubles.
The dynamic development of the construction industry and the real estate market in Russia has led to a high demand for building materials. This trend was accompanied by an active increase in the number of hardware stores and hypermarkets. Every year, the market for building materials increased by 20% and by 2015 reached a volume of 1.46 trillion. rubles. The trend changed in 2016 against the backdrop of a general economic downturn, when household incomes decreased by 6.5%, and the commissioning of residential real estate – by 9%. In 2015, a record drop in the market of building and finishing materials was recorded in recent years – 11%. At the end of 2016, the market volume amounted to 1.068 trillion. rubles. However, when compared with other segments, the building materials market with a drop of 5% does not feel so bad – for example, the food segment dipped by 10%.
The dynamics of retail sales of building and finishing materials is also subject to decline in the last two years. The most vulnerable were materials for construction and rough finishing – a decrease of 16.7%. The market for finishing materials proved to be the most stable, having decreased by only 0.3%. In other words, Russia began to build less, but did not refuse repair work.
According to forecasts, the market of building and finishing materials will be able to return to its previous volume not earlier than 2018. Recovery will begin in 2017, but it will be quite slow – only 2-3% per year, which is explained by a significantly reduced purchasing power of the population and a falling business activity. During this time, small and inefficient players will leave the segment, but large construction retailers will retain their volume at the same level.
Today, the market has more than 1000 universal and specialized networks of construction stores, with the top 10 largest retailers accounting for almost 25% of the market. The crisis of 2014-2015 consolidated the success of large construction retailers. Increased competition in the market and the intensified regional expansion of market leaders led to a decrease in traffic and a deterioration in the financial condition of other Russian retailers. The complexity of the competition with building hypermarkets lies in their aggressive pricing policy and wide assortment, covering all stages of construction and repair. In this regard, since 2015, among construction stores, there has been a tendency to change the assortment structure with the replacement of building materials with household goods.
Thus, the opening of a construction store has its advantages and disadvantages. The main advantage is the high demand for goods, which guarantees a stable income. According to statistics, the average family in Russia makes repairs every 5-7 years. This does not include purchases to maintain repairs. The profitability of a hardware store can be 30-32%, depending on the margin on goods.
The challenges of doing business include:
– fierce competition in the industry. The market will have to compete not only with small retail outlets, but also with construction hypermarkets, which can offer consumers a wide range and lower prices;
– price policy. It is necessary to establish the optimal price for goods, since overpriced will scare away potential customers, and too low prices will not allow to recoup the business. The best option is to analyze the pricing policy of competitors and reduce prices by 2%;
– the need to provide a wide range of products, allowing to interest the consumer. Firstly, the important task is to correctly formulate the assortment, taking into account the preferences of the target audience.