The ‘Big Box’ Gets Bigger
An American company is helping companies convert from traditional smaller stores to big-box formats. Bob Vereen reports…
From Iceland to Taiwan, big-box retailing is captivating consumers and tradespeople in less developed countries by offering tremendous product assortments in attractive, modern retail facilities. No longer is big-box retailing limited to major markets such as Germany, the UK, the USA or France.
The degree and quality of traditional competition varies considerably from country to country, but it seems consumers and tradespeople react the same way to the concept of smartly merchandised one-stop shopping. The trick is to emphasize the concept of one-stop shopping, rather than merely selling products in a larger store.
One of the leaders in encouraging the development of big-box retailing around the world is a pioneer of big-box retailing in the United States – Frank W. Denny, President of the Cibolo Group, a San Antonio, Texas-based consulting and store development firm. Denny was president of the W. R. Grace home centre division and then went on to found Builders Square, a warehouse chain later sold to Kmart. Both companies were giants in the industry at one time. After Denny sold Builders Square, he founded the Cibolo Group, which over the last 15 years has been working with retailing firms or investment groups in a number of countries including Saudi Arabia, Taiwan, Iceland, Russia, Chile and Curacao. In fact, the firm has worked on five continents around the world. In most of the countries in which they have been active, competition usually consists of small, privately-owned stores with very limited assortments, or small privately owned chains. They actively help in developing and training store managers and even shop-floor employees, to ensure ongoing development of the big-box concept in each country. Properly trained employees can become store managers and fuel further expansion. To ensure success for their clients, they remain a factor by working with the new stores to “audit” its operation for a period of time. Firms such as Ace Hardware, Do it Best, True Value, Mica, etc, also are doing a good job of upgrading affiliated stores in many countries. However, their expertise is more focused on smaller units, and they typically exclude lumber and building materials. But with re-merchandising, Denny said greatly increased productivity can be achieved even in these smaller formats, and he reports that a significant amount of his own firm’s activity now is involved in reformatting and restructuring smaller units. Most such units are small, and 5-10,000 sq ft would be considered large in many instances. According to Denny, the aggressive move by chains such as OBI, Praktiker, B & Q and others to open big-box stores in other countries is causing more local chains to consider changes to their own operations.
For many years in Iceland two chains fought it out with traditional stores – H & S and Byko. In 1999, Cibolo began working with the Norvik division of Byko and not only developed a big-box home centre for the Norvik group, but also developed the operating and merchandising formats for the 43-unit food chain also owned by Norvik. With the advent of the big-box warehouse and the upgrading of its existing store network, Byko became the market leader.
Iceland’s Byko Group is now operating seven home centres, a wholesale division and an electronics superstore, while the Kaupas firm in that country has 43 food and sporting goods stores in that small island nation. Nothing stays the same, however, and Bauhaus recently announced it is going to open in Reykjavik, which will once again change the competitive environment in Iceland. Denny and other principals of the firm have actually been retail operators, so their expertise extends beyond “designing” stores and includes operational guidance of all kinds.
In working with Saco World, the 110,000 sq ft unit it developed three years ago for the Saudi Company in Saudi Arabia, it encouraged management to conduct how-to clinics for its customers, as well as to offer design services, assembly, installation and rentals. It opened in May of 2004. Interestingly, in that land of sand and desert, outdoor living (barbeques, patio furniture, etc) is one of the strongest departments. Saco is Ace Hardware’s largest international customer. Its huge superstore carries more than 25,000 items organized into 13 major departments, sourced from around the world. In Curacao (South America) several years ago, a new Do It Best store located close to the main store of Kooyman (a home improvement chain) and began taking away market share. Kooyman called on Cibolo for help. The firm had a strong following with specialty contractors but had a “me too” position in its other three locations. Cibolo developed a 20,000 sq ft hardlines home centre, featuring hardware, plumbing, electrical and paint, as well as a drive-through LBM operation. With the drive-through, the operation grew to be 50,000 sq ft and has vaulted Kooyman into market leadership.
With European retailers like IKEA and OBI opening in Russia, local entrepreneurs also want to be part of modern retailing, so Russia’s SKU-Superstore was designed and put into operation by Cibolo two years ago as an 80,000 sq ft unit featuring an indoor drive-through lumberyard and building material offering. Germany’s OBI has identified Russia as one of its major targets for future expansion, so the locally-owned SKM firm needed to launch a strong competitive challenge.
Back in the late 90s, Home Depot entered Chile, where Sodimac was the dominant home centre chain, and Cibolo’s client, Construmart, was the third major player. Depot was unable to compete with Sodimac and closed its Chilean operation. Cibolo worked with Construmart to develop effective smaller stores (averaging 20,000 sq ft) and the company now has 21 units and holds a comfortable second-sized market share, while increasing sales and profits annually. Construmart targets commercial and professional accounts, rather than focusing totally on Do It Yourself business.
Taiwan’s hardware industry historically consisted of tiny “shops” often concentrating on a single merchandise category – tools, hardware, electrical. So it was a major departure in 1998-99 for Sherman Fu of Homax to call upon Cibolo to develop a destination store selling all categories under one roof. Today, Homax is operating three units as Taiwan is being targeted by major international retailers such as B & Q, which has announced plans to greatly increase its number of units there.
Denny is convinced that consumers and commercial accounts everywhere will respond to modern, attractive retail sales floors, managed by executives concentrating on high turns and gross margin return on inventory (GMROI), and staffed by highly trained and motivated employees.
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