Baumax AG

Aufeldstrasse 17-23
Klosterneuburg
A-3400
Austria
Telephone: +43 2243 410 0
Fax: +43 2243 380 13
Web site: http://www.baumax.at

Private Company
Incorporated: 1976
Employees: 5,634
Sales: EUR 1.0 billion ($1.3 billion) (2004)
NAIC: 423390 Other Construction Material Merchant Wholesalers; 423310 Lumber, Plywood, Millwork, and Wood Panel Merchant Wholesalers; 423320 Brick, Stone and Related Construction Material Merchant Wholesalers; 423330 Roofing, Siding, and Insulation Material Merchant Wholesalers

Baumax AG is Austria's leading operator of Do-It-Yourself (DIY) hardware stores, and one of the leading and fastest-growing DIY chains in the Central European region. Based in Klosterneuburg, in lower Austria, Baumax operates some 70 stores in Austria itself, providing complete national coverage. Many of the company's Austrian stores feature the MegaMax building format. These stores reach nearly 135,000 square feet of selling space, including garden centers of more than 43,000 square feet, and even in-store cafes. The MegaMax format targets not only the consumer DIY market and small trade circuit, but also the professional building segment, with a mix of consumer goods and construction materials. Baumax's Central European expansion has led it into most of Austria's neighboring Eastern and Central European markets, including 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 of 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 into Rumania as well. These entries are part of the company's ambitious expansion program for the second half of the 2000s, intending to double its revenues. In 2004, the company's total sales topped EUR 1 billion ($1.3 billion). Publicly listed throughout the 1990s, the founding Essl family, which had previously controlled nearly 85 percent of the company's shares, bought out its minority shareholders and took the company private in 2004. Founder Karlheinz Essl remains active in the company as chairman of the board, while son Martin Essl guides the group's operations as managing director.

Forming a Family Business in the 1970s

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

The arrival of Karlheinz Essl as part of the business, and the Schömer 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 Business School, Essl was sent by his family to Germany, Switzerland, and, especially, the United States, to observe the growing supermarket culture in those countries. While in New York, Essl met his wife, daughter of Fritz Schömer.

Returning to Austria, Essl decided to join his father-in-law in his construction materials business, rather than join his family's food wholesale and distribution operation. Essl and Schömer worked together to build up their operation, extending into building supplies, as 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 other mineral distribution operation. In that same year, the company also 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 had developed an interest in a relatively young retail market. The Fritz Schömer company continued to grow strongly over the next decades, 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 hardware stores already existed, the DIY market represented a step further, appealing to the growing trend among consumers toward making their own home repairs and home improvements. The DIY center became part of a trend toward "category killer" stores that had emerged in the United States during the 1970s. The category killer, by focusing a narrow product category, promised a far larger selection than the typical department store, as well as the potential for lower pricing. The new DIY retail centers, therefore, developed a similar "one-stop shopping" concept, offering products for nearly all of a consumer's home improvement needs under a single roof, from basic construction materials to home furnishings to gardening supplies and plants.

The oil crisis and related economic difficulties of the 1970s, further exacerbated in Austria by the near total lack of significant oil reserves in the country, provided a fertile ground for the development of a DIY culture. Indeed, elsewhere in Europe, the DIY market eventually grew to become one of the most popular consumer pastimes, rivaled only by gardening (which also featured prominently in the typical DIY center). Essl recognized the DIY center as a natural extension of the family's main business, and in 1976, he began developing a DIY retail format, and established a new company, Baumax.

The first Baumax store opened in the town of Kindberg. The Baumax concept caught on quickly, and the company's early entry into the segment allowed it to gain an early and lasting lead in the Austrian DIY market. The company became the country's top DIY retailer in 1983, a position it would not relinquish through the mid-2000s. By the end of the 1980s, the Baumax name was said to have become as well known as McDonald's or Coca-Cola in Austria.

Essl was joined by son Martin Essl in 1983; like his father, the younger Essl had been sent to the United States to study the retail climate there. Baumax began extending its presence throughout Austria, backed by a public offering and a listing on the Vienna Stock Exchange at 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 Schömer house in honor of Fritz Schömer.

Central European Expansion in the 1990s

As it approached the 1990s, Baumax drafted a new expansion and marketing strategy, dubbed BauMax 2000. The company's objective was not only to complete building out its growing national network of retail stores, 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 domination of the region.

In the early 1990s, Baumax went in search of its first foreign expansion prospects. At the same time, the company began implementing a new business and marketing strategy. A prominent part of this strategy was the company's decision to expand its store format. Into the middle of the 1990s the company's stores boasted an average selling space of 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 were 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 Republic quickly became the company's most enthusiastic foreign market, and by the mid-2000s was also its largest market outside of Austria, with 23 stores. The company also entered Hungary in 1992, where the success of the company's format enabled it to expand its network to 14 stores over the next decade. Slovakia became Baumax's next target, with the first store opening in Bratislava in 1994.

In that year, Baumax made an important acquisition, buying construction materials, tiles, and retail group Buettinghaus. The acquisition helped boost Baumax's revenues by some 65 percent for the year, allowing the company to top sales of ATS 5.7 billion. Following the acquisition, Baumax split up Buettinghaus's operations into its separate businesses, ultimately divesting the tiles and building materials businesses. Part of these went to the Fritz Schömer company.

The Buettinghaus acquisition not only boosted the company's retail network in Austria, but it also gave Baumax its first retail store in Slovenia. 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, and its international sales nearly doubled. Into 1997, the company's expansion remained brisk, as the company pursued an ATS 1.1 billion investment program, including the opening of 14 new stores, and the completion of 32 store refittings.

Company Perspectives:

Our mission is to spread the do-it-yourself philosophy throughout Central Europe. We want to help our customers to realise their home improvement dreams.

Facing the Competition in the New Century

Baumax had put into place a new logistics network in 1994, boosting its efficiency. This became all the more important in the late 1990s as the company faced a new level of competition both for the Central and 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 begun to eye these markets. The increased competition took its toll on Baumax, 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 sought out a number of purchasing alliances, such as that formed with Cologne, Germany-based Rewe in 1999. That alliance, called tooMax, bundled Baumax's purchasing strength with that of Rewe's own DIY retail operation, Toom.

The second part of Baumax's strategy into the 2000s was the development of a new retail format designed to appeal to both the consumer/small trade and professional contractor markets. The new format was called Megabaumax and easily lived up to its name: The new store design featured more than 135,000 square feet of selling space, including a garden department boasting more than 43,000 square feet.

Into the 2000s, Baumax began rolling out the Megabaumax format, building new stores and converting or replacing an increasing number of its existing stores. The company also exported the Megabaumax format to its foreign markets, and especially the Czech Republic, which saw the opening of three new large-format stores in 2001 and 2002. The company also launched plans to add eight new stores to its Slovakia network; by 2005, the company had succeeded in expanding its retail operations in that country to ten stores. Hungary, too, proved a strong market for the group. By 2005, the company operated 14 stores in that country, 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 confident in its growth strategy. In 2005, the company announced its intention to enter the Bulgarian market, as that country's economy showed signs of reaching stability. The company also indicated its desire to establish a presence in Rumania in the near future, and asserted plans to double its sales, from EUR 1 billion ($1.3 billion) before the end of the decade. In the meantime, the Essl family had moved to take the company private, buying out its minority shareholders in 2004. The family-owned company represented an Austrian, and increasingly international, success story.

Principal Competitors

Franz Haniel and Company GmbH; Castorama Dubois Investissements S.C.A.; BayWa AG; Hagebau Handelsgesellschaft fur Baustoffe mbH und Company KG; AB Lithun; INTERPARES MOBAU Handelsgesellschaft mbH und Company KG.

Key Dates:

1923:

Fritz Schömer establishes a coal trading business.

1959:

Karlheinz Essl joins father-in-law Fritz Schömer.

1975:

Essl takes over as head of the Fritz Schömer business.

1976:

Essl launches a DIY retail store concept, Baumax.

1983:

Baumax becomes a market leader in Austria.

1989:

Baumax goes public, launches new larger-format BauMax 2000 stores, and announces plans to begin international expansion.

1992:

The first foreign store is opened in Prague; a store opens in Hungary.

1994:

Baumax opens a new logistics center; its first store in Slovakia is opened; the company acquires Beuttinghaus, which gives it a new store in Slovenia.

1999:

The company forms a purchasing alliance named tooMax with Rewe's Toom DIY business.

2000:

The company opens its first store in Croatia; the new large-scale Megabaumax store format is launched.

2004:

The Essl family acquires full control of the company and Baumax is delisted from the stock exchange.

2005:

The company announces plans to open its first store in Bulgaria and to enter Rumania.

Further Reading

"BauMax Expects Gross Revenue of HUF 32.5bn in 2004," Hungarian News Agency (MTI), September 20, 2004.

"DIY Abroad: Austria," National Home Center News, August 7, 2000, p. 135.

"International Retailers Set to Enter Bulgaria," Europe Agri, May 4, 2005.

Levering, Robert, and Milton Moskowitz, "10 Great Companies to Work For: Baumax," Fortune, January 24, 2005, p. 38.

Pinter, Gejza, "Only a Satisfied Customer Comes Back," Euro Forum, January 1999.

Pleininger, Hans, "Baumax ist Niederösterreichs bester Familienbetrieb," Wirtschaftsblatt, May 17, 2005.