Interview with the Management Board

on growth strategies and current trends changing the internet business
(March 2011)

Question: Germany‘s economy experienced almost a boom in 2010. What effect does that have on your customers?

Vogel: We are seeing substantial double-digit growth rates in our turnover in Germany. This means that our domestic market is clearly driving growth in the whole of Europe. However, as the world‘s second-largest exporter,
Germany was also among the markets which were hit hardest by the 2009 crisis. Other markets are recovering at a somewhat slower pace, but the overall trend points to rising order numbers and an increase in the average order value. Customers are now making up for what they postponed in 2009.

Question: Is your business as a whole strongly cyclical?

Vogel: Thanks to our position in a large number of international markets, we can usually compensate for any economic downturns which occur either in Asia or in Europe or the USA. However, when economies around the world all went downhill at the same time in 2009, it was impossible to offset this trend.

Funck: To a certain extent, our order volumes echo the overall economic climate. However, the impact of this is greater on some of our Group units than on others. Companies like Hubert are less cyclical, while others shadow economic developments to a greater extent. This primarily depends on how volatile the markets and industries are which our customers supply. Just two decades ago, we were heavily dependent on customers from the manufacturing industry. With our acquisitions in recent years, we have invested in companies which are geared more towards customers in the service sector.

Question: With Hubert and Central, you have started supplying the food service industry alongside your traditional customers. Are there other sectors that you would like to expand into?

Zimmermann: There are a number of fields which appeal to us. Our prime consideration is always that they must fit to our business model. Above all, this means sticking to the B2B sector and focusing on providing equipment in an environment with a fragmented customer and supplier structure. In other words, we will not start selling pure consumables, such as printer cartridges or copy paper. It would be feasible for us to supply equipment for educational facilities, the healthcare sector or the environmental sector, for instance.

Question: Let‘s talk about e-commerce. Online B2B commerce was the top priority for your growth initiatives last year. Were your expectations fulfilled?

Zimmermann: Absolutely. Our online brand Certeo is making good progress in Germany; so that we have already rolled it out into Austria and Switzerland. We have concrete plans to expand it into other countries, too. Our new web site IndustrialSupplies.com has also got off to a good start. At the moment, we are also piloting an online-only Topdeq shop in Spain, and we also plan to launch an online-only brand for the OEG in Europe.

Question: So, what is the advantage of these new brands when you have to raise awareness of them first? Could customers not be reached just as well – and more easily – using the established names?

Funck: Once a brand has been introduced, you cannot keep experimenting with it without diluting and jeopardising the brand‘s image. With a new own brand, we have more scope to take a different approach right from the start and see how it goes. This enables us to target new groups of customers online. We can also be more flexible with our pricing and product portfolio on the internet.

Question: What‘s next for TAKKT in terms of e-commerce?

Zimmermann: That will remain one of the most important issues for us in 2011 and beyond. In the medium term, each of our five groups will operate their own online-only brand. We have set up an e-commerce circle dedicated to sharing experience between all our groups and the holding company. And our FUTURE @TAKKT conferences – together with the competition of the same name – act as a think-tank for new ideas and best practice models. E-commerce plays a crucial role here, too.

Question: Will the traditional catalogue business fall by the wayside at some point then?

Vogel: Definitely not in the foreseeable future. It is on a completely different scale – even if the proportion of online orders keeps rising. Our goal is to grow our turnover and our market share. Every channel is important to achieve this. The trend is moving towards a multi-channel approach – that means catalogues, online and, in addition, personal contact for largescale customers. B2B selling is already geared towards different customer groups. Large
companies have specific needs – e.g. for personalised solutions – while a web shop alone is often sufficient for smaller-scale customers.

Question: Printing and distributing thick catalogues costs a lot of money. You must be very pleased that customers are using the websites instead.

Funck: You might think so at first sight, but it‘s not as simple as that. Firstly, the catalogue is not the only thing that costs money – so does online marketing. You also have to invest in your web shop if you want to do more than attract a few occasional customers by chance, for example by using search engine optimisation, keyword advertising,
etc. And secondly, as Mr Vogel just mentioned, many online orders are prompted by the catalogue. In these cases, it would be wrong to conclude that you could send out fewer catalogues due to rising online order numbers. For that reason, our approach in simple terms is to spend around ten percent of our turnover on marketing and advertising.
The question is, how to best divide these funds between online and print. That is a classic case for economic optimisation. The aim is to budget in such a way that the last thousand euros you invest in each channel promise the same return for both options.

Question: In recent years, rolling out established companies in new countries has proved a valuable growth strategy for your company. Can you reveal what is planned for the near future?

Vogel: We will not tell you everything just yet, but we have various projects in the pipeline. However, it is clear that we cannot keep setting up new multi-channel companies in Europe and North America at this pace now that we have virtually comprehensive coverage there, with two or more brands operating in many markets.

Question: Can you finish by giving us a glimpse of things to come? Where do you envisage TAKKT to be in the next five to 20 years?

Zimmermann: Our Group will stick to its business model with a crystal-clear focus on specialised B2B direct marketing for business equipment. We have defined three strategic dimensions where TAKKT can generate growth and intends to do just that. Firstly, we will supplement our portfolio by means of acquisitions. Secondly, we will further ramp up our multi-channel activities, for example by establishing new companies or additional key account activities. Thirdly, we will set up online-only brands in all our groups. In other words, we are taking a three-tiered approach to growth. All in all, I think the following fields will account for a much larger share of consolidated turnover in 20 years‘ time: our business with customers from the service sector, our business in Asia and our e-commerce activities. At present, everything indicates that this will be the case.