80% of those who venture into hardware business close shop in less than 2 years due to losses and cash-flow problems. The good news however, is that there are those few lucky ones who survive against all odds and live to share the cake as cut-throat competition fades away. But what really separates the wheat from the chaff?
As a potential hardware owner, it is important that you are up to speed with some trade secrets…In other words you need to be armed with some market survival tactics that an ordinary business classroom doesn't offer.
In this brief article, we give you some street smarts of starting a successful general hardware and construction equipment supplies shop in Kenya (the article can be applied in any other country with slight alterations, Note $1 = Ksh100).
As a rule of the thumb you need to understand your market thoroughly before you commit your money to the business. First, you need to identify places with ready (and growing) market potential for hardware products.
Secondly, you need to be in sync with the trends and ruling prices of the industry. You also need to do a strength, weakness, opportunities and threats analysis (S.W.O.T) with particular focus on what your potential competitors are up to.
To guide you in your research work, here are some 5 questions that you need to find answers to:
(1)Which is the best place to start a hardware business in terms of market potential?
(2)How many competitors are already on the market?
(3)How much money I'm I willing to spend to penetrate the market?
(4)What is the greatest weakness with my potential competitors and how can I use it as a launching pad for my business?
(5)Given past, and recent past trends, what does the future for the business look like?
2.Which is the Best Place To Start a Hardware Shop?
The best place to start a hardware is where there is an upcoming community of people who are building their first homes.
Look for possible future satellite towns and start small. As the estate grows, your business will most likely grow as it benefits from customer loyalty which can be earned by operating in the market over a long period of time.
For those in Nairobi and its environs, the best places to set up shop would be along Kangundo road, Eastern Bypass and Magadi Road.
It is however important to ascertain that you’re choosing a market that has enough purchasing power i.e. customers who can potentially spend at least Ksh20,000 per month and pay on time.
3.What about Competition?
Hardware business has minimal barriers of entry and for this reason cut throat competition is quite a common feature.
The first step in dealing with competition is to avoid it in the first place. Ideally, you should set-up shop in upcoming estates and grow slowly as the market expands.
It's also important to create strong relationships with the market – this can be achieved by doing the following.
(1)Creating a low price image e.g. by offering price discounts on basic products such as cement, steel bars and iron-sheets and recovering the profit margin through minor products such as door locks, hinges, sand paper and trowels.
(2)By encouraging convenient shopping e.g. by allowing your trusted clients to place orders via phone, delivering to the site for free and allowing them to pay you later in the evening.
(3)By providing a one stop shop for your clients such that they don’t have to go shop for anything else in any of your competitors’ shops. You may want to talk to your suppliers so that they avail any items that may be on demand but are missing from your shop as quickly as possible as you strive to achieve the status of a one-stop-shop.
4.Which Products “Move” Off The Shelves Quick?
Because hardware business is quite capital intensive – i.e. huwa inafunga pesa sana – you will want to invest mostly in fast moving products. These are
Steel bars and rods
Please note that although products such as cement and steel bars sell quite fast, they have very slim profit margins. You can start your hardware with these basic items and then expand your inventory by adding other new products based on what your customers are frequently requesting for.
Don’t make the mistake of sitting in your shop the whole day waiting for customers to walk in. With the kind of competition that’s there nowadays, you are better off getting the word out there yourself.
You can hire a salesman to be going around you area scouting for any new upcoming construction sites. Field trips such as these will help you initiate fruitful relationships with site owners and foremen.
Tip: When you go marketing to different customers, the first question you’re most likely to get is “How much do you price cement and steel bars?” At that point, you’re better off giving a price discount for these two crucial commodities even if it means recovering the cost through other products which the customer might require later. Most potential customers use the price of cement and steel bars to judge how friendly your deals are – so don't make the mistake of overcharging them on these two.
6.Managing The Hardware
Hardware business requires a hands-on approach. And although it is quite possible to run it alongside an 8am to 5am job, you will surely need to burn the mid-night oil in order to keep track of its performance.
Ideally, you should have a stock taking exercise done after every two weeks – this will help you understand which products are “moving” fast off the shelves and which ones need immediate restocking.
Stock taking can also help you control possible theft by your employees; which has often been cited as one of the biggest challenges in running a hardware shop.
7.Minimum Cost Breakdown
- Starting stock – Ksh500,000 (200 bags of cement, 100 pieces of steel bars among others)
- Rent & Deposit – Ksh50,000 (May vary)
- Single Business Permit
- KRA ETR Machine
- Other Minor Requirements
- The minimum starting budget for this SME would be Ksh700,000.
On average a good performing hardware makes a net profit of 10% its daily sales. Therefore if you make a daily sale of Ksh100,000 you can look forward to making Ksh10,000 net profit per day. Please note that this figure may vary depending on your pricing policy and list of expenses.
Image Credits: Joobaa & Jyppe