[HBH] Hornbach: The Hardware Store That Conquered Europe

How Hornbach dominates European DIY retail with a simple formula: massive stores, steady prices, and family control

Origins

In 1877, Michael Hornbach opened a slate roofing workshop in Landau, Germany. Think small town, skilled craftsman, reliable work. His son Wilhelm added construction materials trading in 1900. Standard family business growth story so far - except the Hornbachs kept doing this generational expansion thing for 150 years, and they got pretty good at it.

The real turning point came in 1968. Otmar Hornbach, the founder's great-grandson, visited the United States, allegedly, and saw something new: DIY stores. He came back and opened Europe's first combined DIY store and garden centre in Bornheim.

The timing was perfect - Europe's post-war middle class wanted to fix up their homes themselves, and Hornbach gave them the tools to do it. The company rode this wave straight into the retail big leagues, eventually growing to 169 stores across Europe.

The Hornbach family pulled off something rare in retail: they kept control while professionalizing the business. In 1993, they split the company into Hornbach Holding AG and Hornbach-Baumarkt-AG, creating a structure that balanced family ownership with professional management. They brought in outside talent (like hiring dm-drogerie's CEO Erich Harsch in 2019) while keeping the family involved - they're now working on bringing in the sixth generation. In German business, they call this "old money, new thinking." The Hornbachs seem to have figured out how to do both.

How do they make money

At its core, Hornbach Holdings sells home improvement products through really big stores.

Think of a massive warehouse filled with everything you'd need to renovate your kitchen, build a deck (or more realistically, start building a deck and finish it sometime next year) and create that garden you've been dreaming about. These megastores - each about two football fields in size - dot the landscape across nine European countries. The basic model is straightforward: source products at scale, mark them up, sell them to people who want to improve their homes or tackle construction projects.

"Their apartments, houses, and gardens are their source of strength and focal points for gatherings with family and friends. And they are places where everyone has the power to create things with their own hands," - CEO Albrecht Hornbach.

This philosophy shapes their entire business structure. The main division, Hornbach Baumarkt, runs those DIY stores with a clear focus on serious home improvement projects - not just the "I need a screwdriver" crowd, but people undertaking major renovations. Then there's Hornbach Baustoff Union, serving professional builders with construction materials, and Hornbach Immobilien managing their real estate. They're playing both retailer and landlord - a bit like being the house and the dealer at the same casino, owning most of their store locations outright.

What makes this model tick is their market positioning. They've carved out the serious project niche in home improvement retail. Their private label products give them pricing power, while their scale in purchasing helps margins. They maintain an "everyday low price strategy" - no sales or promotions, just consistent pricing. While their home market is Germany, they've become particularly dominant in several other European countries, suggesting they've found a formula that travels well.

The business has evolved beyond traditional retail. A significant portion of sales now happens online, integrating with their physical stores through services like click-and-collect. Their strategic vision, as CFO Karin Dohm explains, targets three key trends:

"catering for multifunctional living spaces that accommodate both work and life, fostering energy efficiencies through renovation and modernization of Europe's aging residential homes, and adopting bathrooms and other rooms for an aging society."

They're expanding into specialized services too - they recently acquired Seniovo, which focuses on renovating homes for elderly residents. Their customer base spans DIY enthusiasts, professional trades people, and project-focused homeowners.

When housing markets get tough or consumer spending drops, people might delay building a new house - but they'll still need to replace their water heater (which always chooses 3 AM on a holiday weekend to fail).

Numbers

Every retail company is ultimately about selling stuff for more than you paid for it. So, let's start there with Hornbach.

Hornbach's gross margin - what's left after paying for the products they sell - stands at 34%. For every €100 in sales, they keep €34 to cover all other costs. This margin improved from 33.4% last year. In retail, even small margin improvements matter enormously at scale.

The company rings up €4.95 billion in sales across 171 stores. That works out to about €2,414 per square meter of retail space. Think of it as each square meter of store floor earning enough to buy a decent laptop each year. This sales density tells us how efficiently they're using their expensive retail space.

Speaking of stores - each one carries about €6.5 million in inventory. DIY stores need lots of inventory (nobody wants to wait two weeks for a hammer), but too much ties up cash. This number suggests disciplined inventory management: enough screwdrivers and paint to serve customers, not so many they're gathering dust.

Now for the digital transformation story: 12.4% of sales happen online. That's €578 million of virtual shopping carts. While slightly down from 12.9% last year, it's well above the pre-pandemic 9.8%. The pandemic didn't create a digital revolution at Hornbach - it accelerated one already in progress.

Market share numbers tell an intriguing geographic story. In the Netherlands, Hornbach captures 27.8% of DIY spending. 37.7% market share in Czechia. In Germany, their home market? Only 15.1%. Interesting.

The balance sheet reveals both strength and prudence. The equity ratio of 46.8% means almost half the company's assets are funded without debt. Their minimum requirement is 25% - they're running with nearly double the required financial cushion.

Here's a telling detail about financial conservatism: Hornbach completely eliminated their reverse factoring program (a way to stretch out supplier payments) even though they had €149.1 million available. Most retailers maximize such programs. Hornbach chose to pay suppliers directly, suggesting exceptional cash generation.

Cash indeed flows nicely: €284.4 million from operations in nine months. More importantly, this exceeds reported profits of €198.5 million. When cash earnings surpass paper earnings, that's often a sign of high-quality profits.

The cost side shows some pressure. Wages increased 8% - significantly above inflation. Retailers can't easily automate store assistance or shelf stocking. Labor costs matter, and they're rising.

One subtle metric deserves attention: administrative expenses rose to 5.1% of sales from 4.8%. A 0.3 percentage point increase might seem tiny. At Hornbach's scale, it represents millions in additional overhead costs that need to be offset somewhere.

Hidden value lurks in the property line: only €23 million in "investment property" despite owning many prime retail locations. Most of the real estate value sits understated in the regular property account of €1.85 billion. Traditional accounting sometimes hides real estate gold.

These numbers show a conservatively managed retailer successfully balancing physical and digital presence, while maintaining strong market positions beyond its home territory. The financial cushion they've built might prove valuable if European consumer spending hits turbulence.

People

People build companies. People own them. People run them. People work in them. At Hornbach Holdings, these people form an interesting web of relationships, power, and incentives. Let's unpack it.

Who owns Hornbach? The Hornbach family holds 37.5% of the shares, followed by Finnish investment firm Finda Oy at 12.6% and UK's M&G Investment at 6.8%. The rest spreads across various European investors.

The family's mastered the art of minority-majority ownership, where 37.5% equals 100% if you know which legal buttons to push. Their KGaA (Kommanditgesellschaft auf Aktien) structure combines features of a corporation and a partnership, giving the family stronger control rights than their ownership percentage suggests. When they tried to delist their main retail subsidiary in 2022, offering a 30% premium to minority shareholders, they showed how this control works in practice.

Who runs the company? The operational leader is Erich Harsch, CEO of the main retail business HORNBACH Baumarkt AG since 2020. He came from running dm-drogerie markt, bringing retail and digital expertise. The strategic control sits with Albrecht Hornbach, representing the family's interests as chair of various supervisory boards. His father Otmar opened Europe's first combined DIY and garden center in 1968. Today's CFO is Karin Dohm, though she's departing in March 2025.

The next generation of Hornbachs - Jan and Nils - hold leadership positions too. It's a blend of family continuity and professional management, like a family recipe that keeps getting subtle updates from new chefs.

Who works there? Hornbach employs 25,357 people across nine European countries. The workforce splits almost evenly between Germany (54.2%) and other countries (45.8%), matching their revenue distribution. They've been raising wages significantly - an 8% increase in late 2024 - while managing rising costs. Over 1,000 employees are in training programs, and 40.9% are women, notable for a DIY retailer.

Their workforce transformation is less 'home improvement' and more 'self improvement'. They're expanding an IT hub in Romania while maintaining traditional retail service levels. Their turnover rate hit 17.4% in 2023/24, even as they increased wages and benefits. They're evolving from a traditional hardware store operator into a modern retailer with strong digital capabilities.

The market typically applies a 'family discount' to such structures, but Hornbach's property portfolio and steady margins suggest this might be shortsighted. They own over 60% of their retail locations - that's significant hidden value in an inflationary environment. The ownership and management structure protects long-term thinking while limiting minority shareholder influence. Whether this model continues to succeed depends on their ability to keep these human elements working in harmony.

Competition & the Moat(?)

The home improvement retail space works like a game of territorial conquest. Companies battle for prime locations, customer loyalty, and the best suppliers. Think of it as Risk, but with hammers and garden gnomes.

Let's look at who Hornbach competes with:

OBI dominates Germany with 351 stores to Hornbach's 98. They focus on smaller stores and everyday consumers. Their strategy? Be everywhere. OBI goes for volume and convenience, spreading stores like seeds across neighborhoods.

Bauhaus takes a different approach. They build massive stores - their Frechen location spans 30,000 square meters. That's about four soccer football fields of power tools and paint samples. They compete directly with Hornbach's large-format model and target similar professional customers.

Local specialists pop up in each market. Hardware stores for quick fixes. Garden centers for plants. Professional suppliers for contractors. These specialists excel in their niches but lack the one-stop-shop appeal.

Online retailers keep pushing in. Amazon sells hammers. Specialized DIY platforms offer convenience. Yet they struggle with bulky items and immediate needs - try downloading a wheelbarrow.

Now, about those moats we all love...

Let’s think about it in terms of the Hamilton Helmer's 7 Powers. I can see 2 of them here.

Process Power shows in the numbers. Hornbach maintains 34% gross margins while growing market share. That's not just good management - it's systematic advantage. They've built an operational machine that competitors struggle to replicate, from inventory management to supplier relationships. Running massive stores profitably while maintaining everyday low prices requires processes that become self-reinforcing over time.

Location advantage represents a true Cornered Resource. Those prime spots, secured early and often owned through Immobilien AG, can't be replicated. Try finding 12,000 square meters of retail space near major population centers today. Zoning gets stricter, cities expand, and these plots become more valuable. This advantage varies geographically - enabling 37.7% market share in Czechia versus 15.1% in Germany.

Heritage creates trust, especially with professionals. Founded in 1877, Hornbach pioneered the combined DIY/garden format in Europe. The family still runs things - Albrecht Hornbach chairs the supervisory board. This long-term orientation shapes decisions differently than quarterly-focused public companies.

The real power comes from combining these elements. Prime locations, operational efficiency, and brand heritage reinforce each other. Each piece matters, but together they form something stronger.

What moats eroded? Digital barriers never materialized. Online sales make up 12.4% of revenue but recently declined 3%. The company wins "best online DIY shop" awards yet faces increasing digital competition. No network effects emerged to protect their digital presence.

Scale alone stopped being defensive. Other chains matched or exceeded Hornbach's size. Pure square footage doesn't guarantee success anymore. The game shifted toward efficiency and customer experience.

The question remains: are these moats deep enough? They've protected margins so far. Market share keeps growing. Yet construction weakness, online competition, and changing consumer habits keep testing these defenses. Like any good castle wall, they need constant maintenance.​​​​​​​​​​​​​​​​

Mr. Market

The stock chart of Hornbach Holdings tells a story of market moods - from irrational exuberance to perhaps equally irrational pessimism.

In early 2021, Hornbach traded around 70 euros.

Then COVID hit, everyone became a home improvement enthusiast, and the stock doubled to 140. The market decided DIY retail was the future, forever. It wasn't. The stock now trades back at 73 euros, right where it started.

Two key moves shaped this journey.

First, the COVID unwind from 2022 to 2023, as the market slowly accepted that people would eventually leave their homes and do something other than renovate their bathrooms.

Second, a sharp 20% drop this December when Hornbach admitted that, yes, German consumers are actually kind of struggling.

The current valuation seems to reflect deep scepticism about Germany rather than Hornbach itself. The stock trades at 7 times earnings and pays a 3.4% dividend - classic numbers for a "show me" story.

The market is saying:
"Nice business you've got there, shame about the economy it operates in."

Some context helps here. German stocks broadly trade at cheap valuations - the market doesn't believe in German recovery. Hornbach's global peers like Home Depot trade at much higher multiples. The gap suggests this is more about geography than business model.

A closer look at recent results adds nuance. Revenue missed estimates by 2% in Q3, and management lowered full-year sales guidance. Yet they maintained profit targets. The market focused on the miss, not the margins. When stocks trade this cheap, investors tend to see what they fear rather than what might work.

The current 1.1 billion euro market cap values Hornbach at about 0.2 times sales. For comparison, that's like saying the entire company is worth about four months of revenue! The market seems to price in a long winter for German retail, even though Hornbach's actual results show resilience.

What's really happening here is a story about time horizons.

Short-term, German consumer spending looks weak. Medium-term, construction activity might recover.

Long-term, Europe needs massive renovation for energy efficiency. The market currently prices the short-term pain.

Patient investors might see opportunity in the longer arcs. Then again, markets can stay sceptical longer than optimists can stay solvent.

Bear Thesis

Ok, let’s try to argue the bear position here.

A glance at Hornbach Holdings suggests a straightforward retail story: a German DIY chain making steady profits with a solid balance sheet. Trading at 7x earnings with a 3.4% dividend yield, it hardly screams "disaster." Yet there's a compelling bear case here, and it centres on transformation - or rather, the lack of it.

The core problem? Hornbach is getting squeezed from every direction. Operating costs are rising (personnel expenses up 8%), while competitive pressure limits their ability to pass these costs to customers. Their digital transition is stalling - online sales actually declined 3% to €578 million, with online share dropping to 12.4% from 12.9%. Meanwhile, they're maintaining a network of 171 physical stores across Europe.

This might be fine in a growing market. It's not fine when your primary market is stagnating. Germany, which represents over 50% of sales, shows residential building permits down 23.5%. The construction materials segment has already taken the hit, with sales falling 7.3%.

You can see the pressure in the numbers. The normalized net margin tells the story: 4.28% in Q1 2025, down to 4.00% in Q2, then 0.93% in Q3. The working capital cycle is stretching out: from 68 days to 75 days in just two quarters. That's what stress looks like in retail operations.

Management's response? They've cut capital expenditure by 44.1%. They've eliminated their reverse factoring program (a way to stretch supplier payments that freed up €149.1 million last year). In retail, when you're cutting investment during a transformation period, you're usually not winning.

A retail chain is like a shark - it needs to keep moving forward. Hornbach seems to be treading water. Their market share gains are minimal in mature markets (up 0.9% in Netherlands, 0.4% in Switzerland), and they're actually losing share in Austria (down to 17.2% from 17.4%).

The customer behaviour is particularly telling. Store visits are up, but average purchase amounts are down. That's not what you want to see - it means more operational costs to generate each euro of revenue.

Here's the real concern: this isn't just about surviving a tough cycle. The retail landscape is transforming. E-commerce is growing. Energy costs in Europe remain structurally higher than in the US. The German construction sector is undergoing a secular shift. And Hornbach is responding by... conserving cash and maintaining their dividend.

Sometimes the bear thesis isn't about imminent collapse. It's about the slow erosion of competitive position, the gradual loss of relevance. Hornbach's management keeps pointing to the second half of 2025 for recovery. But their actions - reduced investment, defensive financial management - suggest they're hunkering down rather than transforming.

In retail, that's usually not a winning strategy.

Bull Thesis

You can buy shares in Europe's DIY retail champion for the price of a used hammer. Kind of. But yes, Hornbach Holdings trades at 7 times earnings - that's what you pay for distressed retailers, not companies growing market share with expanding margins.

The quality runs deep here. Hornbach commands a 37.7% market share in Czechia and 27.8% in Netherlands. Their gross margins expanded to 34.9% last year, while delivering what customers ranked as the best product range and private label quality in Germany. Even S&P noticed, upgrading their outlook to stable - and rating agencies usually trail the market on good news.

European expansion keeps delivering. Half the revenue now comes from outside Germany, with higher margins in those markets. The company's adding four new stores in 2025, including two in Romania where they're "extremely successful" with "nice EBIT margins." Every market they enter, they seem to end up leading.

Here's where property creates hidden value: Hornbach owns 60% of its store locations, most acquired years ago. Recent property write-ups are starting to reveal this value - like finding old Deutsche Marks in your grandfather's attic, except these are prime retail locations.

Three trends power growth: Europe's massive energy efficiency push (most buildings are over 20 years old), aging populations needing home modifications (they bought renovation specialist Seniovo), and hybrid work making homes more important. Someone needs to sell all those heat pumps and insulation materials.

Management runs this like they own it - because they do. The Hornbach family maintains a 37.5% stake. They keep a 46.8% equity ratio when they only need 25%. They just eliminated €149.1 million in supplier financing because they didn't need it. Graham would appreciate this kind of conservatism.

Yes, German construction permits fell 23.5%. Yet Hornbach's renovation and maintenance focus provides resilience. Their customer traffic keeps growing, even as shoppers temporarily spend less per visit.

The digital piece impresses. Online sales represent 12.4% of revenue - think about that for a DIY retailer. They're investing in Blue Yonder technology for better omnichannel integration, while collecting "best online DIY shop" awards across Europe.

Remember when everyone became a DIY expert during lockdowns? The market's pricing Hornbach like that never happened. At 7 times earnings, you're buying growing market leadership, property value, and multiple expansion trends - with a 3.4% dividend while the story plays out.

As Graham might say: Sometimes margin of safety means buying quality at a reasonable price. This feels like one of those times.

So what do we make of all this?

Look, here's what Hornbach really is: a family business that turned buying prime retail locations and selling home improvement stuff into a weirdly effective European expansion story. The secret isn't actually secret - they just focused on running really good, really big stores while everyone else was trying to reinvent retail.

For bears, this is a story about structural decline. German construction is weak, online competition keeps growing, and running massive stores in an inflationary environment is getting more expensive by the day. Those rising personnel costs and declining average basket sizes? Classic retail death spiral indicators. If you believe retail's future is digital and asset-light, Hornbach is walking in the wrong direction.

For bulls, though, this is about buying quality assets at distressed prices. You're getting dominant market positions across Europe, a massive real estate portfolio probably undervalued on the books, and exposure to long-term trends like energy renovation and aging population home modifications. If you believe that physical retail still matters and that German sentiment is overly pessimistic, well, 7x earnings is what you pay for companies going out of business, not market leaders expanding their footprint.

The fun part about Hornbach is that both sides might be right - it just depends on your time horizon. The short term definitely looks rough for German retail. But the long-term story is about a company that keeps winning market share in every country it enters, maintains solid margins, and is run by people who think in generations rather than quarters.

As these things often go, your investment thesis probably says more about your view on retail evolution than about Hornbach itself.

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