Many people walk to the entrance of the community and can always see one or two hardware stores. They are small and have few customers, but the stores have been open for many years.
Sometimes I hear that these stores can make hundreds of thousands of dollars in profit a year.
Are you also confused?
How can a seemingly deserted store be so profitable?
In fact, the business logic of a hardware store is completely different from what you think.
It is not a problem that the hardware store is crowded, but it is normal.
Your usual visits to supermarkets and restaurants are for recreation, a drop-in, and daily shopping.
But when do you go to the hardware store?
Either the water pipes at home are leaking, or the circuit is broken, or the decorator is in urgent need of screws.
Most people who walk into a hardware store have a clear need and must buy something.
To put it simply, hardware stores are driven by demand, not traffic but conversion.
For example, the transaction rate of clothing stores is only 20%-30%, and the transaction rate of department stores is almost 15%-25%.
But in hardware stores, the transaction rate can reach 85%-90%.
Industry tracking for one year found that 100 hardware stores have an average of 20-30 customers a day, 87% of whom buy something.
In other words, there are few people but the order rate is high, and almost every customer is the target of payment.
The business scope of hardware stores is actually very wide.
Even though the signboard looks simple, you can find everything from screws and tape to water pipes, sockets, and tools.
An inconspicuous little shop, behind which is a full range of zero repair needs.
In terms of business model, most hardware stores are mom-and-pop or family stores.
The husband delivers goods and repairs, while the wife keeps the store.
This model saves a lot of labor.
When an ordinary community supermarket hires people, the labor cost can account for 20-30%, but for a hardware store where a husband and wife work together, the cost only accounts for 5%-10%.
The labor is almost zero, and all the income goes into your own pocket. The small store operates at a low cost, and the profit is of course high.
Hardware products look cheap, but in fact the gross profit margin is pretty good.
For common faucets, switches and sockets, the price difference between purchase and sale averages 35%-45%.
For special model accessories, the profit margin can reach 120%-150%.
A pack of screws costs RMB 5 and can be sold for RMB 12-15, with a profit of over 140%.
The high gross profit of small commodities is more obvious in the low-cost mom-and-pop store model.
Hardware stores also have hidden weapons, which are the community’s stable customer base and value-added services.
Many hardware stores are rooted in the local area, and the owners are familiar with the surrounding neighbors.
When a resident comes to buy something for the first time, the boss can help with suggestions and even take orders for door-to-door repairs.
Whenever there is a problem at home in the future, this store will be the first thing I think of.
Surveys show that for hardware stores that have been in business for more than five years, the repurchase rate of old customers can be 70%-80%.
After purchasing something, 60% of customers will ask the boss to come to their home for installation, unclogging, and maintenance. These services are not free, and often cost tens or hundreds of dollars per order.
A hardware store of some size can earn between 50,000 and 80,000 yuan a year just by relying on these services.
In the revenue structure, value-added services can account for 20% to 30%.
When the boss comes to visit, he not only collects labor time fees, but also sells more accessories to capture all future needs of customers.
This approach is more reliable than using the APP to temporarily call someone for repairs, and has higher customer trust.
The place where hardware stores really make money is actually in their B-side business.
Ordinary individual retail is just the tip of the iceberg.
Decoration teams and construction teams need a large amount of hardware consumables: screws, tools, wires, etc. The demand is stable and the amount is large.
The boss established a good relationship with the decoration team and became a warehouse for their materials. He could also handle accounts, deliver goods, and settle accounts.
A decoration team can purchase up to 100,000 or even 200,000 yuan a year.
As for the surrounding small businesses and factories, if a piece of equipment breaks down, you have to go to the hardware store to buy a light bulb and a few wires.
In some hardware stores near industrial parks, they can receive 10-15 corporate purchase orders every month, with amounts ranging from 500 yuan to 3,000 yuan.
The annual gross profit income can be 100,000 to 150,000 yuan.
There is also property cooperation, and the supply of logistics consumables for communities, schools, and units is often undertaken by hardware stores.
By cooperating with these units, the annual business income is 80,000 to 120,000 yuan.
Data shows that B-side cooperation business can account for 55%-65% of a store’s total revenue.
Some hardware stores have long-term cooperation with 3-5 decoration teams. Each team purchases 100,000-200,000 yuan per year, which is not small.
However, the advantages of hardware stores also have their limits.
In the past few years, e-commerce has seized the market, and the traffic of traditional hardware stores has dropped by 15%-20% on average.
But immediate demand remains solid.
Seventy-eight percent of customers will still choose nearby physical stores when they are in urgent need of goods.
You have to wait one to two days for online shopping. When you are in urgent need, only hardware stores can provide instant gratification for the “last hundred meters”.
This is why hardware stores are difficult to replace.
If you have lost a screw at your door and don’t want to wait for express delivery, you can just go downstairs and buy it in five minutes.
After all, hardware stores are essential supply depots in community life.
Some shop owners have also begun to transform.
Some have established community WeChat groups to receive orders online and deliver goods offline, expanding their coverage to 2-3 kilometers around them.
On the contrary, the number of orders increased by 30%-40%.
Some people renovated the store from “dirty and messy” to bright and clean, attracting young people to enter the store. The proportion of young customers increased from the original 20% to nearly 40%, and the turnover increased by 25%-30%.
This change is not only happening in China.
For example, hardware stores in old urban areas in Singapore also follow the path of community trust. The owner is also a maintenance worker, with close interaction with neighbors, and the service area covers several kilometers. In Japan, small street hardware stores focus on professional advice, and the delivery service is more thoughtful and subdivided into each household, forming a stable circulation within the community.
These examples show that in the face of the impact of e-commerce, the hardware store industry has survived better by relying on localization and service innovation.
Of course, not all hardware stores can maintain high profits.
Some newly opened stores have not established community relations and only passively sell goods, so their business is difficult to sustain. Some small stores in remote locations and lack of B-side cooperation have a significant income gap with traditional large stores.
In areas with fierce competition, gross profit margins are also gradually declining due to suppliers’ lower prices.
This is a reminder to the industry: the survival of hardware stores depends most on community relations and service capabilities, and cannot just rely on selling goods.
Looking back, the reason why street hardware stores remain standing depends on the compound model of “low traffic, high conversion, strong stickiness, and high profits”.
The mom-and-pop store model keeps costs down, community trust locks in customers, value-added services expand the boundaries, B-side business serves as a profit fortress, and the last mile instant solution to demand is the secret to its vitality.
Next time you pass by a hardware store, think differently.
These seemingly deserted small shops are actually holding on to their own business world.
