News
Is the housing market "rigged"?
Buy a house, or rent and invest?
Hardware News Network
Price to income comparison for housing
Echange is telework based
Click to visit the HBT website for more information
As retail strategists, we all feel sometimes that looking 10 to 15 years ahead seems almost pretentious. This is particularly the case at the moment, when the retail sector looks set to experience some turmoil over the next three or four years, which could change just about every projection we've already made. The potential entry of Amazon to the Australian market, increased automation in manufacturing, and the opening up of parts of Africa as production centres will all have effects. That said, there are some types of strategic decisions that really need a long-term view. One obvious area is determining the location for a new store, especially when it's an expansion, and you are hoping for something that will be slightly contra-cyclic to existing stores. Retail locations can take up to five years to fully develop, and most would plan on an additional five years of returns following that.

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Products
Tradie app offers more than price
Mr Tradie helps customers to not just focus on price
Fairfax Media
The app's flat fee for tradies is its point of difference
Mr Tradie is available as an iPhone app and also has an Android version
Click to visit the HBT website for more information
Another tradie app has been launched and was recently profiled in Fairfax newspapers. First launched on the iPhone in 2015, Mr Tradie makes it easy for Australians to find tradespeople in their area.

Rather than tradies simply undercutting each other to offer the lowest price, Mr Tradie also includes an Uber-style ratings system so users can take into account customer satisfaction. They can rate tradies but not vice versa, although that feature might be added down the track.

Competing services tend to charge tradespeople a fee every time they provide a quote, regardless of whether or not they win the work. However Mr Tradie charges tradespeople a flat fee of $10 per month or $100 per year. It's a model that works better for both tradespeople and customers, explains founder Ishan Dan. He told Fairfax Media:
When you rely on a cheapest quote system the good tradies tend to get beaten by the cut-price tradies who aren't necessarily qualified - which drives the good tradies away and can leave the end customer with a shoddy job. It becomes a race to the bottom on price which punishes the good tradies by forcing them to cut their prices to survive.
Mr Tradie lists a customer feedback score, a bit like Uber, which means tradespeople are relying more on their reputation to win work than on offering dirt-cheap prices - if tradies continue to get bad feedback scores I kick them off the system.

The idea for Mr Tradie was born from Mr Dan's conversation at the pub with several tradespeople friends who were struggling to find customers but were relying on word of mouth and referral networks rather than marketing and establishing an online presence.

Mr Dan has no background in app development, he's a stockbroker who works for a financial planning company but he studied both computing and finance at university. The hardest part of bringing the Mr Tradie idea to life was building the app, he explained, with disputes over the first version of the iPhone app almost going to court.

The search for a replacement developer forced Mr Dan to heed his own advice for hiring tradespeople: don't shop on price alone. He weighed up seven developers before going with Melbourne-based AppsCore.

Altogether Mr Dan and his investor have spent around $70,000 on app development, which includes two versions of the iPhone app as well as an Android version. His advice for people wanting to bring their app ideas to life is to invest lots of time and effort in the planning stage rather than making changes later that can cost thousands of extra dollars and delay the project by months.
Companies
Chervon buys SKIL from Bosch
Chervon Group has purchased the SKIL business from Bosch
Chervon Group
A Chervon factory
The SKIL brand is now owned by Chervon
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Chervon (HK) Ltd. has signed an agreement with Bosch Power Tools to acquire the SKIL businesses in North America and Europe. The new arrangement will see ownership of the rest of the global market phased in over a period of time. The deal is now subject to the approval of antitrust authorities. President of Chervon, Peter L.Q. Pan said:
SKIL is an excellent complement to our existing brand portfolio. It will further strengthen our competitive position in the global power tool market...

Its current brand portfolio includes Ego, a line of battery-powered outdoor power tools; Hammerhead, a range of cordless tools and accessories; and X-Tron. The Toolguyd website said:
Chervon has made a lot of the tools for Craftsman's 12V Max Nextec lineup, and still makes some of Craftsman's C3 cordless power tools. It also made Craftsman's digital router.

According to the Pro Tool Reviews website, Skilsaw redefined its brand in 2016 so that it was separated from the DIY-level SKIL brand. Both brands, however, remain under the same umbrella, and Chervon has acquired the two brands in this deal. It said:
It will be interesting to monitor new Skil tools and Skilsaw tools over the next year and see what Chervon has in store for the brand. If the new Skilsaw worm drive table saw is any indication, this could be a great year. As Chervon acquires Skil, we also anticipate an expansion of the brand into more types of saws and tools in the coming years.
Background

The business cooperation between Chervon and Bosch can be traced back to 2003, when Chervon became one of the major OEM suppliers for Bosch Power Tools. In 2007, the two companies formed a joint venture in Nanjing known as Bovon Power Tools with a focus on benchtop products. Henning von Boxberg, president of Bosch Power Tools said:
We are confident that the SKIL business will benefit from Chervon, and will be able to take the best possible advantage of its opportunities for growth in this customer and price segment.

Chervon's strategy of creating original brands began in early 2003. In 2007, the company launched Devon, targeting the professional Chinese tool user. In 2013, Chervon acquired the century-old German power tool brand Flex and entered the European power tool market.

By 2014, Chervon introduced the world's first 56V Lithium-ion battery driven outdoor power equipment into the North American, European and Oceania markets under its own brand Ego.

Founded in 1924 in New Orleans (USA), SKIL has been a highly recognised tool brand for over 90 years. In the early 1920s, SKIL invented the electric hand saw (known as the Skilsaw) and has maintained its success in the marketplace ever since.

In 1960, SKIL expanded its business to Europe. Beginning in the early 1980s, it grew its footprint into South America, Asia Pacific and other emerging markets. By 1996, SKIL was acquired by Bosch and became one of the business units of the Bosch Power Tools division.

Related:
Supplier update: EGO range campaign - HNN
News
HI News V3 No. 1: The retail industry in 2017
Download the latest issue of HI News Vol. 3, issue no. 1
HI News
What to expect from Mitre 10 and other major retail groups in 2017
The latest hardware retail statistics reveals the influential role of the weather
Click to visit the HBT website for more information
The first issue of HI News for 2017 focuses on what can be expected in 2017 from major retail groups, Mitre 10, Home Timber & Hardware (HTH) Group, Hardware Building Traders (HBT), and Bunnings.

Just click on the following link to download this edition:
HI News V3 No. 1: The retail industry in 2017

The latest data on hardware retail sales from the Australian Bureau of Statistics undergoes scrutiny. Although most mainstream media outlets have seen the closure of Masters Home Improvement as casting a shadow over hardware sales in December, it's likely the weather also had an effect.

Bunnings opens its first UK trial store in St Albans. In Australia, the big box retailer is moving into Devonport (TAS). It is taking over an ex-Masters site in Mount Gambier (SA) and undergoing negotiations for another former Masters location in Gregory Hills (NSW).

Tasmania-based independent retail group, Kemp & Denning announced that it is closing two of its warehouse stores.

We take a brief look at GUD Group's half yearly results, and AMES' purchase of the Hills Home Living brands that includes the iconic Hills Hoist. In other supplier developments, the Hitachi power tools unit has been sold to private equity and Stanley Black & Decker acquires Craftsman in the US.

This edition features updates on the Grafton Group, Screwfix and Travis Perkins in the UK, and as well as US retailers, The Home Depot and Lowe's Home Improvement.

Products from EGO outdoor equipment, Fiskars, Lufkin, Rover lawnmowers and Kwikset are also highlighted in this issue.
Editorial
Retail industry development in 2017
Will The Block still define Mitre 10's advertising reach?
HNN Sources
J.K. Galbraith's "The New Industrial State" remains a classic of modern economics
Milwaukee's One-Key product deliver information
Give to Amnesty International
Forecasting has always been something of a difficult task. Generally speaking, forecasts either look at the immediate past and draw a direct line through recent events to predict the future, or they concentrate on one or two emerging forces that will take place, and use those as a basis for prediction. We've divided the forecast into these two parts, beginning with some direct consequences of 2016 on 2017, then detailing a more theoretical outlook on how retail in evolving.
From 2016 to 2017

There is no denying that a number of events that took place in 2016 will have a strong influence on 2017. The best news for independents is that the collapse of Masters Home Improvement will definitely improve the amount of revenue flowing into other hardware stores. It remains to be seen exactly how much of that revenue is captured by Bunnings and how much goes to independents, but it is in general a good news story.

Equally, with the threat of Masters removed from the market, it is likely there will be more of an easing in price competition by Bunnings. It may not be much, and it won't extend across all categories, but it will create a little breathing room for many retailers.
Independent Hardware Group

Of course, the biggest news for independents remains the acquisition of the Home Timber and Hardware Group (HTH) by Metcash to form the Independent Hardware Group (IHG). Coming on the heels of over a year of uncertainty about what would happen to HTH, most store owners feel that this has simply created yet more uncertainty for them to deal with during 2017.

It is also something of a case of going from frying pan to fire. The situation when HTH was majority owned by Woolworths was that its fate hinged on the performance of the Woolworths supermarket business. With Metcash that situation is repeated.

As Metcash showed through the sale of its automotive business to Bursons, it is quite willing to divest even well-performing assets to protect its core business. If Metcash cannot defend itself in the price war between Wesfarmers' Coles, Woolworths, and the ever-growing Aldi, HTH store owners could find themselves contracted with yet another wholesaler in another two or three years time.

In terms of what happens in 2017, this acquisition would seem to raise two critical questions: How does this benefit HTH store owners, and how does it benefit the end customer?

IHG's answer to the first question would likely be that the company will be able to get better prices from suppliers through its superior buying power, which would enable both IHG and its stores to get higher margins on sales. However, to obtain those benefits, the stores would need to buy from a narrow range of products identified by IHG. The question that independent store owners then have to ask is whether this will affect the volume of sales (and even customer retention in some cases), and if the improved margin will offset these potential losses.

Additionally, there is also the issue of service. Independents always place a very high value on service, both given to customers and received from suppliers. If suppliers are being forced to crunch their own margins, will smaller HTH stores find themselves in a good situation when they set aside long-established relationships with familiar suppliers and move to new ones?

There is a similar problem, really, when it comes to marketing. Mitre 10 has had a slightly bigger advertising budget than HTH, but with IHG operating no fewer than four separate brands (Mitre 10, Home, Thrifty-Link and True Value -- as well as Hardings and Hudson Building Supplies), it will be difficult to establish a "cut through" marketing presence.

If the rumours HNN has heard (repeatedly) prove true, then IHG may move to eliminate all trading brands except for Mitre 10 and True Value. That will help to restore focus to marketing efforts, but it also brings additional risk to store owners. Switching branding is always a tricky and difficult business, and a little unsettling as well.

It would, of course, make a whole lot more sense, if Metcash had not radically underinvested in Mitre 10 marketing for the past three years. The fact is that Metcash has used Mitre 10 as an efficient source of growth in earnings before interest and taxation (EBIT), without adequately reinvesting in the business. Given that underinvestment, the team at Mitre 10 has worked near-miracles in producing the EBIT it has. Despite these efforts, as a brand Mitre 10 is in radical need of a refresh.

Added to that is the fact that Home Hardware has won many of the Roy Morgan Customer Satisfaction Awards for 2016, beating out Mitre 10. HTH owners could be asked to surrender their identification with the leading hardware brand in Australia.

This leads us to the other question, about how customers will benefit from the acquisition. At a guess, IHG would see this as being delivered by the slow rollout of its premium "Sapphire" store design -- which is exclusive to Mitre 10 branded stores. As HNN has remarked in the past, this is quite a good store design, with good implementation of the paint area, good signage, and a "neat and tidy" appearance.

However, it does not come close to some existing store designs in HTH. In particular, the Hume & Iser Home Hardware in Bendigo, VIC, would serve as a far better model for store development. Aside from having a very good garden section, it also has a very workable kitchen display area, something that is quite rare in Mitre 10 stores. (Though, equally, HNN is sure there are Mitre 10 stores that are as good, and easily exceed the Sapphire standard.)

In the end, the process being followed by IHG would seem to be overly product-centric, rather than customer-centric. Instead of seeking to engage customers so as to understand their needs, they are instead providing a familiar list of products, with improved margins for the retailer (and themselves).

What needs to be heard from IHG is whether they will resolve the marketing issues, and drive investment in a new, innovative approach to hardware retail. That would make it worthwhile for store owners to invest in the brand change process. A simple retread of Sapphire, and some lower wholesale prices, will not.
Bunnings

Meanwhile, even as it benefits from the exit of Masters and perhaps looks to improve some of its thinner margins, there is no doubt that Bunnings remains the single most significant competitive factor facing independent hardware retailers in Australia. One of the concerns that HNN voiced in the past regarding the merger of Mitre 10 and HTH was that this would create conditions where Bunnings would feel less restrained in competing with independents, as gained market share would be less likely to raise concerns from the Australian Competition and Consumer Commission (ACCC) and others.

At the moment, IHG is likely looking at around $1.9 billion in revenue for its FY 2017/18 (next financial year). HNN would not be surprised to see Bunnings gear up to shave $100 million off of that, and $150 million off in the subsequent year.

One factor with Bunnings that has received inadequate attention is its acquisition of a total of 15 ex-Masters sites from the Home Investment Consortium Company Pty Ltd. Two of these are development sites, for future building, which will be leased directly from Home Consortium. A normal development process must be undertaken, including permissions, before these sites can be used.

Six of the locations will be leased directly from Home Consortium. Once the arrangement has been completed, Bunnings estimates it will take a further five months to convert these to Bunnings Warehouses.

Of the six building leases and two development leases, Bunnings says seven will be used to replace what it refers to as "under-scoped Bunnings locations".

The remaining seven of the 15 sites are leasehold trading locations, where arrangements with other landlords must be reached. Four of these sites will be replacements for existing "under-scoped" Bunnings stores.

So, to summarise, 11 of the fifteen sites will be used to consolidate existing regions for Bunnings, while four of the sites will be expansions into new trading areas.

This will enable Bunnings to ramp up its competition in a highly efficient and quick way, likely before December 2017, once Woolworths' negotiations with Lowe's Companies over their joint venture, Hydrox Holdings concludes -- which will likely be in June 2017.

It's worth noting that the ex-Masters stores Bunnings will be moving into will not only be much bigger than the stores they replace, but also have been built to provide a higher level of amenity, costing something around 20% more to build than comparable standard Bunnings Warehouses.

This improved amenity is significant. As HNN has noted over the past two years, one of the challenges facing Bunnings in expanding its market share is how to retain its "Aussie battler" core customer base, while also moving upmarket to embrace more affluent customers. Bunnings already sells quite expensive outdoor furniture, and it has added expensive "designer" barbecues to its range over December 2016. The higher amenity stores might provide a better platform to integrate these ranges more fully with its overall offering.

The other vector for Bunnings to grow its market share may also make use of higher amenity. While the retailer's ultra-compact, ultra-dense urban stores, such as in Collingwood (VIC), have proved successful, it is seeking to diversify its metro offerings. Recent planning documents have revealed the design of a new "mini-warehouse" Bunnings. Instead of fitting as much as they can into a compact space, these seem set to focus on more premium lines in an airy, spacious layout.

This might also be part of a larger strategy to finally launch a transactional Bunnings website. The first such operation has already launched in the UK, where an ecommerce presence is virtually mandatory for shoppers these days. As HNN has mentioned in the past, the real challenge for Bunnings in ecommerce is delivery logistics. One possibility is that, as Wesfarmers becomes used to the idea that it might be becoming less of a conglomerate and more of a retail specialist, it could merge some operations between Coles and Bunnings. Coles already has a delivery network for home-delivered groceries.

Once Bunnings has ecommerce underway, these new mini-warehouses could become showrooms for goods that are ordered online for delivery or click and collect. This solves the "touch/feel" the product problem, and enables more stock to be handled in a limited space.
Innovation

In short, even though the end of Masters has released some of the pressure from Bunnings, and it is likely to ease up margins slightly, the retailer will not halt its drive for more innovation. That would seem to be in stark contrast to IHG. While Mitre 10 did launch its Sapphire store program some years ago, this has been not only quite slow to roll-out, but also not very ambitious. It delivers a better store, but the company's initial claims that this was "the store of the future" are somewhat overblown.

In the independent sector, the biggest innovator at the moment is likely Hardware & Building Traders (HBT). With over 600 members this is growing to be one of the more significant forces in independent hardware in Australia. The recent, sad passing of its dynamic leader, Tim Starkey, in late 2016 has been a setback. However, like all good leaders, Mr Starkey had built a solid team, and when it comes to executive power, HBT has something of a very deep bench, consisting of long-term members who operate very successful hardware stores.

In contrast with IHG, HBT has introduced a number of innovative program during 2016, including high quality own-branded products in important categories such as paint. It's also working to expand its "H" branded hardware stores.

If IHG is to meet its expected growth targets, it's likely it will have to learn from some of the management choices HBT has made over the years. The most important lesson is that HBT regards its first aim as making sure its members are happy with it, and with each other. That means providing certainty, and reducing stress wherever possible.

The second lesson from HBT is that it doesn't see suppliers as an opposing force that needs to be browbeaten down to the lowest possible price. Instead, HBT sees suppliers as part of an overall hardware "ecosystem". When that ecosystem is managed well and fairly for all, it will produce good results. Shifting risk from one group to another within the ecosystem might bring short-term gains, but simply destabilises the system in the longer term.
Industry developments

The coming two years, 2017 and 2018, are likely to see some of the most significant changes to the overall Australian retail industry for the past 20 years. While the Australian home improvement retail industry is not central to these changes, it will be one of the more affected retail sectors.

For home improvement, it is likely the full force of these changes will be felt in 2018 rather than 2017. 2017 is important from a strategic perspective, and 2018 will see developed strategies play out in the marketplace.

Broadly, changes will come from two sources: the internal restructuring of the Australian retail industry, and a shift in market power away from retailers and towards suppliers.
Internal restructuring

In terms of the internal restructuring of retail in Australia, 2016 has already given us some clues as to what to expect. The failure of Dick Smith, the inability of Wesfarmers to find a market fit for its Target mid-price department store, the acquisition of The Good Guys by JB Hi-Fi, and the ongoing repositioning of department stores Myer and David Jones are indications of change.
Dick Smith

Much has been written about Dick Smith. There is much to be said about its management, the structure of its IPO and other factors. However, the issue of why, really, it did fail is something that seems to have eluded most commentators.

To HNN, it seems clear there were two movements to its failure. To understand the first, you need only know two datapoints. In 2012 when Anchorage Capital first acquired Dick Smith, smartphones had a penetration rate of 43.7% in Australia. By 2016, when Dick Smith failed, this had grown to over 66%. In 2015 the number of smartphone users in Australia exceeded 15 million.

You can see the significance of this if you consider the stock Dick Smith carried. Cameras, video cameras, alarm clock radios, TVs, voice recorders, landline phones, phone answering systems, DVD players and portable stereos. Every one of those items could be replaced by a smartphone for users in the retailer's core customer demographic.

To counter this rapid change, Dick Smith introduced its Move brand, which was really an attempt to utilise the popularity of the smartphone. This product line consisted of smartphone peripherals, such as charging cables and cases. The product build was standard Chinese commodity, but the items were produced in bright colours, and a considerable margin was added. There was advertising, and Dick Smith leased some of the most expensive commercial space in Australia, at airports, to sell these products.

It failed, of course, and Dick Smith's final strategy was a "pivot" into selling home appliances, which also failed, and Dick Smith entered into receivership.
JB Hi-Fi

The inspiration behind that pivot was a similar move by entertainment and technology retailer JB Hi-Fi, though JB had started this pivot much earlier, in late 2012. It began with the opening of four JB stores carrying a new "Home" brand, which sold appliances as well as consumer electronics.

This was one of a series of pivots that JB had put in place since 2005. The first such pivot was a move into gaming, including sales of game consoles and game software. This was accompanied by the introduction of the computer category. By far the best move the company made, however, was to introduce the telecommunications category in 2007.

As sales of what JB refers to as "software" -- which includes music CDs, movie DVDs, games and PC apps -- declined by 9% per year for 2009 through to 2012, telecommunications, particularly the sale of mobile phones and service plans, have filled that gap.

The final part of this pivot has been JB's acquisition of appliance and consumer electronic company The Good Guys. Post acquisition, the retailer now has only 9% revenue exposure to software, where previously it was 14%.

While it is easy to see what the attraction for JB to buy Good Guys was, what was the attraction for Good Guys to sell itself? Why a sale, in fact, instead of a listing on the Australian Stock Exchange?

Again, this was an astute business call by Good Guys. The outcome of a listing would have been uncertain, and the indications are it might not have gone so well. The pro forma operating margin for Good Guys was only 3.6% for FY2015/16 (JB's was 5.6% -- 56% higher than Good Guys). As importantly, it relied on appliances for 66% of its revenue, and which is a highly cyclical business, with serious competitors such as Harvey Norman in the market.

More than that, though, what JB brought to Good Guys was the ability to focus more on customers rather than products, not just in what it sells to them, but also in the information it collects about them.
Suppliers gain more power

The past 15 years have been marked by a retail culture that has become increasingly reliant on the supply of essentially duplicative products. This has been brought about by a combination of technological advances, supply chains built on the availability of low-cost labour, and cultural factors which transformed "copies" from being a "cheap" option to a "smart" option instead.

Whether it is women's fashion, cordless power tools, smartphones, or even bathroom fittings, virtually every "name brand" product today has its shadow, either quasi-legal or outright counterfeit.
Protection against copying - Plumbing Connection

This has created a market paradox. Never before has original design been so valued by the market, and never before has it been quite so difficult to get a full return on the investment put into new product development.

In response, mainline brands have adopted three basic strategies to ensure better returns. Some have opted for more extreme innovation (such as power tool maker DeWalt's 20v/60v FlexVolt cordless system, designed to create a design "safe haven"). Others are relying on "network effects", through producing products that interlink with other products in their range. Another tactic is to make products that connect the manufacturer directly with the end customer. (It's interesting to note that Milwaukee Tool's One-Key feature does all three -- as will, most likely, Bosch's equivalent, launching this quarter.)

The success of these tactics, along with some other factors, has contributed to a shift in retail that is only beginning to show its effects recently. To really understand that shift, it's necessary to first take a look at the retail market models that have existed since the end of World War II. There have been roughly three such models: consumer sovereignty, the revised sequence, and the duplication.

The first of these models is in some ways more theoretical than actual, but provides a baseline for looking at consumer markets. Post World War II, up until the mid-1960s (and beyond), most economists held that in modern, capitalist economies, consumers were "sovereign", in that they created the demand to which retailers and manufacturers would respond.

It was the US economist J.K. Galbraith writing in his landmark work "The New Industrial State" who first popularised a different model. He called it "the revised sequence", and he described it like this:
The mature corporation has readily at hand the means for controlling the prices at which it sells as well as the those at which it buys. Similarly, it has means for managing what the consumer buys at the prices which it controls.

Further, Galbraith follows that up with:
...the producing firm reaches forward to control its markets and on beyond to manage the market behaviour and to shape the social attitudes of those, ostensibly, that it serves.

In the revised sequence, far from being sovereign, the consumer was shaped and moulded by advertising and other means to conform to the requirements of the market. Prices were not set (for the most part) collusively, but there was an understanding that getting into a "price war" would be detrimental to all participants in a market, and this was to be avoided.

The duplication stage emerged from a combination of access to low-cost labour (in China and elsewhere), and new technologies that increased the reliability of products. It began, really, in the late 1990s, but started to have a significant effect in the early 2000s.

In mid-2015 the then managing director of the Wesfarmers-owned Bunnings big box home improvement chain, John Gillam, summarised the strategic changes this brought to the retail industry by stating that "The margin is the outcome".

A lot can be read into that one pithy statement. One aspect of modern retail it highlights is the difference in the way new products are developed. Under the revised sequence, a new product would be designed, production costs estimated, and pricing determined by modelling volume versus margin to deliver the greatest overall profit -- at the least risk.

In the duplication sequence, the goal was to introduce products that duplicated existing products, though they might not have all the features, at a price that was irresistible. The cheaper product might not have the same quality as the original, but it had a known degree of quality.
Suppliers strike back

If "the margin is the outcome" is a good signpost for the recent retail economy, there is another, quite chilling, signpost for the retail economy that is to come. This originates with one of retail's all-time greatest strategists, the head of US online retailer Amazon, Jeff Bezos. It is something of a personal motto of his: "Your margin is our opportunity".

"The margin is the outcome" is a product-based strategy. "Your margin is our opportunity" is a sales-based strategy. The first is based on disrupting markets by offering products with fewer features, but also "just enough" features, at an attractive price-point. The latter is based on direct competition through efficiencies gained post-supply chain, in the sales process itself.

To give that some context, Bunnings (as an example) is adept at knowing which features its customers want in a particular product. For example it might suggest a cordless brushless hammer drill kit with two batteries and a charger at a price point under $160.

Amazon is adept at knowing exactly which customers are likely to want a particular product, and what will trigger a purchase for them. For example, the purchase of a mitre saw, and a book on how to build decks might trigger a suggested purchase of a cordless impact driver, of the same brand as the mitre saw.

The first models general purchasing behaviour, and it could be likened to casting a net into waters where you are fairly sure the fish will be. The second models specific customer buying patterns, and is more like dangling a hook with just the right kind of bait in front of a small school of fish.

At the moment, Amazon is close to being the only retailer in the world that can utilise this post supply chain model. That's because it has a very rich set of longitudinal (taking place over time) data to work with.

However, there is a midway point to this kind of modelling, and that is represented by the approach Kingfisher is using for its home improvement businesses. By engaging in what is likely to become a longitudinal study of customer behaviour around projects such as bathroom renovation, it can closely predict choices and needs for the associated range of product lines.

Outside of retailers, however, there are other companies that are now collecting data that can be used in this modelling. One of the aspects of Milwaukee Tool's One-Key Bluetooth-enabled tool networking is that it means the company is now collecting very precise data about tool use by clearly identified customers.

Milwaukee will be able to tell, for example, when a tool is close to wearing out, and will need to be replaced, or if a tool is being over-stressed, meaning its owner really needs to upgrade to something better. This means that, in a sense, Milwaukee now "owns" these customers more closely than the retailer which sold the tool ever could.

What develops from this, and from a similar system being developed by Bosch Power Tools, is not known at this time. It does, however, seem likely that this is a sign that the role of the retailer will be further changing in the near future.
Conclusion

If there remains a single mystery about the development of home improvement retail in Australia, it has to do with the role that the internet and ecommerce will eventually play in its success.

Bunnings does not have an ecommerce website in Australia (except for gift cards), but it has built out its web presence to be quite considerable, with very high site traffic. Aside from offering a comprehensive catalogue of its stock, the site also offers guides to a wide variety of maintenance, renovation and woodwork activities.

Its attempt at a social media style site, "Workshop", seems either not to have worked too well, or simply not received much backing. While it continues to be run, its membership and posts are quite low.
Bunnings goes social with Workshop website - HI News, page 6

The Mitre 10 website is functional, but it's evident that not much has been spent on its development. That is really not a criticism: the question of how you would go about developing a web presence that will work for independents is a major one.

It's likely that the answer will lay in not directly pursuing so much a hardware/home improvement angle on this, as looking at a more general "home ownership" angle. Two of the most successful websites in this area, Houzz and the US-only Porch.com (which has Lowe's as a major investor) have taken that approach with a great deal of success.

Houzz has become an "idea book" for home design, with access both to products, professionals such as architects, and tradies as well. Porch began life as site that aspired to be a kind of "log book" for houses, providing owners (and prospective buyers) with a record of what work has been done on a house and by whom.

It seems likely that this is one area where real development will not take place for another two years or so, and that the answer will emerge from new technological developments that are not as yet evident.

Related:
Will Sapphire save Mitre 10? - HI News, page 3
Powerhouse independents: Hume & Iser HTH, page 44
Statistics
ABS hardware retail statistics
Hardware retail sales trend, seasonal and original data
HNN Sources
Year to date per cent change in hardware retail sales Australia wide
Cumulative retail sales Australia-wide
Click to visit the HBT website for more information
Mainstream media has recently seized on the Australian Bureau of Statistics sales numbers for hardware retail to suggest that the closing down sale of Woolworths' Masters Home Improvement big box stores has had an impact on performance during December 2016. In fact, a number of articles have suggested that this has pulled down the numbers for Australian retail sales overall.

The declining number that the media point to is that for seasonally adjusted sales. For overall Australian retail this fell by 0.1% for December 2016. For household goods retailing, the seasonally adjusted estimate fell by 2.3%. In that category by far the highest seasonally adjusted fall was for hardware, which was down 6.6%.

This might seem quite discouraging, but a very different tale is told by the trend estimate statistics. The trend estimate indicates that retail turnover in Australia rose by 0.3% in December 2016, following similar increases in both October and November 2016. The trend estimate for household goods also increased by 0.3%, with the trend estimate for hardware flat at 0%.

So, what does all this mean? We need to start by understanding what the difference is between seasonally adjusted and trend estimate numbers. The thinking behind both of these statistics is to help to provide statistical numbers which enable a direct comparison between two consecutive time periods (usually months).

We all know that if you were to just compare the original retail sales numbers for the consecutive months of, say, August and September in any one year, you could mistakenly conclude that the industry had undergone a big surge -- as September is always going to be more active than August.

By using moving averages in a clever mathematical way, it is possible for statisticians to work out what the seasonal component of the increase between August and September would be. When they remove or adjust for that component, they provide numbers for August and September that can be bettered compared, and will provide a forecast estimate as to whether demand is increasing or falling.

However, there are even more factors that distort statistics when comparing months. Some months have five Saturdays in them, others only have four. Some months have 31 days in them, others only 30, or 28, or even 29. Holidays such as Easter move around, and so forth. The trend estimate takes factors such as these into account, and attempts to deliver statistics that have as little of this kind of "noise" as possible.

Given all that, what should you do when confronted with statistics where the seasonally adjusted and the trend estimate numbers seem to be at odds?

In general, the first thing to look at, particularly for hardware statistics, is what has made up "the season", especially the weather. Seasonal adjustment relies on specific weather patterns, and if these have shifted, that might be something that is contributing to the difference.
Hardware retail sales trend, seasonal and original data
Weather for December 2016

Australia's Bureau of Meteorology publishes a very useful report which summarises weather conditions by month for all of Australia. The report for December 2016 can be found at:
Report from the Australian Bureau of Meteorology

According to this report, weather for December 2016 was unusual in a number of regards. First, as far as temperature is concerned:
Mean temperatures were above average across most of the eastern half of Australia as well as through an area extending from southern South Australia through to northwest Western Australia. Large parts of these regions experienced mean temperatures in the warmest 10% of historical records for December, with record-high temperatures on the south coast of New South Wales, in eastern Gippsland, and parts of southwest Queensland. In New South Wales it was the second-warmest December on record behind December 1990, 2.21 °C above average, while Queensland recorded its equal sixth-warmest December (1.29 °C above average).
...

Daytime temperatures were well above average across most of eastern and northern New South Wales, southern Queensland and the Cape York Peninsula, and the Gippsland region of Victoria, as well as in parts of southern South Australia. The statewide average maximum temperature in New South Wales was 2.37 °C above average, the seventh-warmest on record and the warmest December since 2005.
...
Above-average temperatures were also observed across most of South Australia, Victoria, southern and eastern Tasmania, and in parts of the Top End of the northern Territory and northwest Western Australia.

Rainfall also followed an unusual pattern.
Nationally, December rainfall was 76% above average, and the fifth-wettest December on record. South Australia had its wettest December on record; Western Australia and the Northern Territory had their third-wettest December on record; and all other States, apart from Queensland and Victoria, had above average December rainfall.
Masters' influence

While it seems highly likely that weather has contributed to this result, that doesn't mean that Masters didn't have a role as well. The logic behind the Masters sale having an effect would be that it pulled sales forward into October and November, inflating the sales numbers for those months, then dwindled during December, deflating the sales numbers for that month.

What partially argues against this is that the sale did continue until 12 December, and those 12 days likely accounted for 50% of all sales during that month, giving that they would have fallen off steeply for hardware after Christmas. It's also fairly likely that the sales volume, as the sale discounts reached their peak, would have been quite high. However, without a month-by-month breakout of sales (which we will never get) it's impossible to say.

It is interesting to speculate about the overall effect of the Masters sale. It looks like Masters managed to sell around $700 million worth of stock for something like $550 million, in a sale lasting from mid-September up until 12 December 2016. At an estimate that would be around $510 million in the final calendar quarter of the year, when under normal circumstances sales would have been around $260 million. However, due to its discounted nature, that $510 million would have displaced $660 million or so in undiscounted sales, meaning that there was a net additional effect of $300 million or so.
HNN statistics

Though we've mentioned this in the past in this column, it's worth repeating that at HNN we tend to focus on the original data, rather than seasonally adjusted or estimated trend data. The reason for this is that we see ourselves as providing information for store owners and retail managers.

The original data is the best source to use for getting a good idea of how a retail operation is performing in comparison with the market. If such an operation seems to be having a great month, with sales up 5%, but the overall market for that region grew by 6%, its likely that it is in some risk of losing market share -- just as conversely what might seem like a bad month, with sales down 3%, might actually be pretty good, if the overall market went down by 4%.

In terms of forecasting, of course, the actual retail stats are generally not as good an indicator as the broad range of other statistics that are available, such as building permits issued, expenditure on construction, house prices and renovation statistics from the ABS and other sources.
Current retail statistics

So, what do the current retail statistics reveal? The following chart shows the percentage change in retail sales for calendar years going back to 2008.
Year to date per cent change in hardware retail sales Australia wide

As has been shown in previous charts of this nature we've published, there has been an increasing consolidation of growth percentages for all states and territories into a narrow band. This is a trend that begins with the calendar 2015 year, and intensifies for 2016.

What this indicates is that the drivers for spending on hardware have become more national and general in nature, rather than being specific to individual states and territories. Prior to that, there was quite strong variance in hardware retail revenue growth between states and territories.

One reason for this is that natural resources, in particular minerals, have declined as a source of economic growth for most states and territories. These tend to provide economic stimulus that is highly regional in nature. In terms of housing construction, and construction in general, while this continues at very different levels in different regions, there would seem to be no truly "break away" regions that are accelerating past other regions by a wide margin.

It is also likely that national economic drivers, such as interest rates, bank loan regulations, budget decisions, the rate of inflation, and industry assistance packages, have come to have a stronger influence than many regional forces.

In general, the trends reflected are mildly positive. The only region to show negative growth (shrinkage) is the Northern Territory, at a relatively mild 5%. The other states and territories show grow in the range of 3% to 12%. This is in contrast to many previous years where, while some states and territories would show strong gains, usually two would show negative growth, with at least one losing more than 5%.

That said, the results for calendar 2016 are not as positive as those for calendar 2015. The results for the earlier year showed higher overall percentage gains, and no states or territories were in the negative growth part of the chart.

The following chart indicates the numbers for each calendar year since 2008, gives a clear indication of just how strong the contribution from NSW, VIC and QLD has been, making up over 70% of the national revenue total.
Cumulative retail sales Australia-wide

The following chart shows the cumulative contribution of states and territories to hardware retail revenue for the month of December, going back to 2008.
Cumulative hardware revenue for the month of December alone

As indicated by the numbers in Chart 1, for 2016 there has been more limited growth, after particularly strong growth in December 2015 as contrasted to December 2014.

The following chart is in some ways a counterpoint to the previous chart, showing the cumulative contribution of states and territories to the final calendar quarter. The growth for the 2016 quarter is similar to that for the 2015 quarter, with strongest growth clearly coming from NSW.
Cumulative hardware revenue for the last calendar quarter
Conclusions

It is important for us to remember that the numbers reflected here are those for only the revenue coming into hardware retail. The real effect of the closing out discounts at Masters will be on earnings before interest and taxation (EBIT). Not only will the Masters discounts have diverted dollars to Woolworths, but other hardware retailers will have been driven into deeper discounts just to keep pace.

In looking ahead to the results the industry will produce through 2017, it is most likely that these results will be similar to 2016. While concerns about the boom/bust cycle in residential housing will continue, there are few events on the horizon that will cause substantial change over its current rates of growth. Renovation is set to coast slightly lower through the year, according to several forecasts, and this will be driven slightly lower for hardware as many renovations focus more expenditure on technology offerings, such as "smart" kitchen appliances and whitegoods.

In the industry itself, Metcash's Independent Hardware Group will be spending most of its energy on consolidation activities, such as matching up the retail technologies of Mitre 10 and Home Hardware. Bunnings may see this as an opportunity to take some additional market share, but it will be for the most part consolidating its position in areas where it has yet to build a substantial presence.

One area of more rapid expansion open to Bunnings is through the ready-made ex-Masters leaseholds it has acquired. With the resolution of the sale of Hydrox Holdings still ongoing between Woolworths and Lowe's Companies, it's unlikely this will be resolved before June 2017. Bunnings has flagged that it will take around five months to refit those leaseholds and new Bunnings Warehouses, so their impact will be delayed until 2018.
Bigbox
Bunnings opens first UK store for business
Bunnings first UK store from the front
HNN Sources
Bunnings UK tool range - including Ryobi
A familiar look to the Bunnings UK aisles
Click to visit the HBT website for more information
The first Bunnings UK store opened its doors to the general public following a "pre-opening team member event" for around 600 store employees and their families and friends on 2 February 2016. This is some four months after the original October 2016 deadline Bunnings had announced.

Richard Goyder, the managing director of Bunnings' corporate owner, Wesfarmers, is predictably enthusiastic about the store, telling Fairfax Media that he thought the new store "looks terrific". Bunnings plans to open at least four of these "test bed" stores before even considering a broader rollout. This follows the same pattern Bunnings followed when introducing its first warehouse stores in Australia, and gives the retailer the chance to fine-tune its offerings. According to Peter (PJ) Davis, who is managing director of Bunnings UK & Ireland:
A second Bunnings Warehouse store in Hatfield Road, St. Albans will open in April and we are on track to have at least four pilots up and running by the summer. We are laying strong foundations on which to build the Bunnings Warehouse business in the UK and Ireland for generations to come.

This initial trial store is a converted Homebase outlet, and measures around 70,000 square feet, or 6500 square metres. This is less than half the size of Bunnings' Australian warehouse-style stores, most of which range between 15,000 and 20,000 square metres. Obviously, the smaller store footprint limits the number of products and categories. This means Bunnings UK stores will never be exact replicas of those in Australia.

That said, the new-format stores will hold around 40% more products or stock keeping units than former Homebase stores, with more space dedicated to garden products and tools and less space for kitchens, bathrooms and homewares. In total, this adds up to more than 30,000 items. Bunnings has already honed its skills in designing smaller stores with its inner-metro offerings in Australia.

It has also widened and deepened the product range, introducing more DIY and light commercial products such as tools and plumbing supplies. One of the first moves that Bunnings made when taking over the Homebase stores was to close homewares concessions such as Habitat and Laura Ashley.

That's not the only improvement that Bunnings has made to the former Homebase way of operating. The new-format stores will employ more staff (68 people in the case of this store) and include cafes, children's playgrounds and has already hosted a sausage sizzle. A new feature not yet found in Australian Bunnings stores is a dedicated DIY workshop area, where both adults and younger people can hone their DIY skills with help from staff.

A Bunnings UK website has also launched, complementing the existing Homebase site. In keeping with the demands of the British public, this is going to be Bunnings' first full ecommerce website.

The Bunnings UK team has already reduced prices at existing stores and moved to an everyday low-pricing model to draw customers through the door, rather than high/low pricing. Mr Davis said:
The St Albans store will be instantly recognisable as a Bunnings to anyone who has ever shopped with us. We're bringing the widest range of home improvement and garden products to the UK market. And as we've said all along, ranges will be tailored for the UK market.
Products

The launch of this store has provided a number of surprises as regards the products it will feature. HNN had previously speculated about how Bunnings would fill the gap in its power tool line, if it were not able to stock leading brands from Techtronic Industries, specifically Ryobi and AEG.

At the time, we had assumed that Kingfisher's B&Q home improvement store held exclusive access to those tool lines, in a similar deal to the one Bunnings has in Australia, and Home Depot has in the US.

It turns out this must be wrong -- as Bunnings UK is stocking both Ryobi and AEG tools.
Local market conditions

The St Albans Bunnings store will test the GBP20 billion (AUD33.3 billion) British DIY and gardening market. According to a report in the Australian Financial Review, the UK home improvement sector has been mostly sluggish since the global financial crisis despite solid housing construction activity. Analysts suggest many factors to explain this, including relatively weak wages growth, an abundance of tradespeople from eastern Europe willing to work for lower cost that has created a "do it for me" culture as well as a lack of interest among young people in tackling home improvement projects.

Nevertheless, the UK economy remains in reasonable shape and there is some executive talk of "green shoots" for DIY, particularly in the London market. Brexit has so far failed to dent consumer confidence. And the British love of gardening shows no signs of weakening, with suppliers reporting strong demand for their products.

For the St Albans Bunnings, which is situated in the middle-class "green belt" that encircles London, garden products should account for a big part of its business. The British reliance on external handymen means the store must make sure it appeals to trade customers.

Bunnings' move to an "everyday low prices" model at the traditionally expensive Homebase stores indicates a confident belief that it can do home improvement better than the established players. Soon after it acquired Homebase, Bunnings management aggressively undercut B&Q and its other main competitor, Wickes, on the price of Dulux paint (sourced from the European Dulux company, which is not associated with Australia's DuluxGroup).

These sort of bold moves are necessary to not just change the perception about Homebase being pricey, but to spread the word about Bunnings. Although the ubiquitous national advertising campaigns have helped Bunnings in Australia, they remain uneconomic in the UK until the chain achieves genuine scale.
Additional UK stores

Bunnings is also scouting for sites for greenfield Bunnings stores, which would be cheaper than converting existing Homebase stores.

However Mr Goyder said the conversion of Homebase's entire fleet would depend on whether the new format was embraced by consumers. He said:
Conversion will depend on how the first handful go - when we're happy with how they go well move relatively quickly. It will take some time because there are 270 stores, but if we need to make tweaks we'll do that before we do a fast rollout.

Mr Goyder also played down former Bunnings CEO John Gillam's decision to resign from the Homebase board, saying that, as planned, he remained chairman of the Bunnings Group Council and the Bunnings UK and Ireland advisory board. He said:
He has stepped down from all the boards - it was all part of the plan - but he is still on the Bunnings Council and advisory group. Both businesses are working together and he is still heavily involved in the UK.

Wesfarmers plans to invest an additional AUD1 billion over the next few years improving and expanding the UK and Ireland businesses and does not expect the acquisition to be earnings accretive until 2018 or 2019.

Mr Goyder is confident Bunnings will eventually achieve an 18% return on capital within three to five years. Many analysts, however, believe Wesfarmers will struggle to achieve its return targets. Citigroup said in a recent note:
We expect return on capital to improve at Homebase, but believe it will settle at 11% return on invested capital, not the 18% targeted by Wesfarmers because the store sizes and locations will be challenging.

Related:
Homebase acquired by Wesfarmers - HNN

Sources:
Bunnings readies for its big bet on Britain - Australian Financial Review
Bunnings first UK pilot looks terrific says Wesfarmers MD - Australian Financial Review
Bigbox
Big box update
Bunnings will take over the soon-to-be-vacant K&D Warehouse site at the Devonport Regional Homemaker Centre
HNN Sources
Bunnings will be another anchor store for the Mount Gambier Marketplace in South Australia
The prospect of Bunnings store in Panorama (SA) has received support from the local mayor
Click to visit the HBT website for more information
Bunnings will occupy a site in Devonport (TAS) that K&D Warehouse will vacate; Bunnings will also move into an ex-Masters site in Mount Gambier (SA) and is undergoing negotiations for another former Masters location in Gregory Hills (NSW). The prospect of a Bunnings store in Panorama (SA) has also attracted support from the local mayor.
Bunnings moving into Devonport

The Advocate reports that Bunnings will take over the soon-to-be-vacant K&D Warehouse site at the Devonport Regional Homemaker Centre in Tasmania.

After the announcement that K&D Warehouse will close, Bunnings general manager - property, Andrew Marks said it was approached to take over the land. He said:
Following K&D's decision to close their Devonport store, we were approached to consider a potential tenancy instead of undertaking our own development on adjoining land. We can confirm we have now entered into an agreement with the land owner.

Mr Marks confirmed Bunnings would lease the property where K&D stands, which will be expanded. He said:
The development represents an investment over $19 million and is expected to create over 80 employment opportunities for local residents.

The lease takeover date is unknown. Mr Marks said he would inform the Devonport community when a date was established.

Bunnings was strongly rumoured to open a store at the Devonport Regional Homemaker Centre for some time. Devonport Mayor Steve Martin said with K&D closing in March, the rumours became stronger recently and it was expected Bunnings would move in.
Bunnings takes over ex-Masters location

Bunnings in Mount Gambier (SA) will relocate its warehouse to the former Masters site, according to The Border Watch. It will be another anchor store for the Mount Gambier Marketplace located close to the region's residential growth corridor.

The Bunnings store will join Big W, Woolworths and smaller speciality stores at the Marketplace.

The big box retailer has yet to release when it will begin the development works at the site. Bunnings general manager - property Andrew Marks welcomed the looming relocation of the Jubilee Highway West Bunnings store to the new site. He said:
We can confirm a development application has been lodged and approved for the conversion of the Masters Mount Gambier site into a Bunnings Warehouse. Our intention for Mount Gambier is to relocate our existing store, including all current Bunnings team members.

But Mr Marks was unable to release a relocation date as planning was still under way.

Bunnings also intends to ensure its existing Jubilee Highway location is leased. The company spokesperson said:
Hopefully this will support bulky goods retailers entering the region and create new jobs in Mount Gambier. The new store will continue to actively contribute to and participate in the local community through hands-on support of local community groups and hosting the famous Bunnings sausage sizzles.

Mount Gambier Marketplace is owned by SCA Property Group. Operations general manager, Sid Sharma said:
This partnership with Bunnings ensures that the customers of Mount Gambier Marketplace will continue to have access to their groceries, home improvement, general merchandise, fashion and dining needs in one convenient location.
Bunnings Panorama back on the agenda

The possibility of a $42 million Bunnings store in Panorama (SA) is being discussed again after it received support from the local mayor.

Bunnings general manager - property, Andrew Marks said Bunnings is working with Mitcham Council to address concerns about designs for the former TAFE site, centred around landscaping, paving and a lack of trees. He told Adelaide Now:
Bunnings will continue to work collaboratively with the relevant authorities throughout the application process and is looking forward to bringing investment and jobs to Panorama.

However, the council's Development Assessment Panel rejected a second application to build a warehouse store on Goodwood Road, also calling for better fencing and a review of rubbish collection hours.

In August 2016, almost 100 residents turned up to a development panel meeting to protest the plans. Their main concerns centred around the belief that the building would be out of character for the area and create traffic problems.

The Say No to Bunnings Panorama resident group has also collected more than 2000 signatures against the development since October 2015.

However, Mitcham mayor Glenn Spear said he hoped the development would be now be approved as soon as possible. He believes the site is an "eyesore". He said:
If we say no to everything then we become a council known to be anti-development and anti-progressive. It's time for Mitcham to move out of this retrograde position.

Mr Spear said Bunnings had been "fabulously responsive to council and addressed most of our demands and it is council's opinion it should be approved".

Meanwhile, Panorama resident Neil Baron has lodged proceedings in the Environment, Resources and Development Court, to appeal the development panel's decision to reject the application.

Mr Baron said locals had been worried about traffic heading to the back of the site. He said:
We were very concerned with the rear access that we would have tradies and all these people short-cutting through the area. We discussed that with Bunnings and they decided to block it and we were happy with that. If someone else were to go there, there would be no certainty that would happen.

The big box retailer has had the site earmarked for a store since purchasing the former TAFE site in 2014. If the plans are approved, it said the store would create 340 construction jobs and 190 permanent roles.

Related:
Big box update: Bunnings could rethink Panorama store - HNN
Bunnings considers Gregory Hills site

Bunnings is looking at a location in Gregory Hills (NSW) vacated by Masters. Bunnings general manager - property, Andrew Marks, told the Wollondilly Advertiser the company is working with the owner of the site. In a statement, he said:
We can confirm that we have agreed conditional terms with the landlord at the former Masters Gregory Hills site. If the conditions are satisfied, there will be necessary conversion works that need to be undertaken to reformat the store ahead of Bunnings moving into the site.

Bunnings lodged an application with Camden Council on January 12 to "amend the layout and description of an approved development to facilitate [a] new operator of the premises".

Mr Marks said the new store would bring more than 100 new jobs to the region. He said:
Our intentions are to open a new store, employing approximately 120 team members.
Companies
AMES new owner of Hills Hoist
AMES is bringing in the Hills Home Living products into its portfolio
HNN Sources
The iconic Hills Hoist will no longer be owned by Hills
Hills' licensing deal with Masters ended when Woolworths closed down its stores
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Hills is selling its gardening and laundry products business, Hills Home Living (HHL) to AMES Australasia, the local subsidiary of US-based Griffon Corporation. It has sold the right to make and sell Hills Hoist clotheslines after concluding it could not make money from the iconic Australian household product.

AMES will acquire tooling equipment and trademarks not used by Hills and has undertaken to invest in the HHL brand that extends across laundry products, ironing boards, garden sprayers, watering systems, as well as clotheslines.

Hills chief executive David Lenz said AMES with its established export markets, local infrastructure and retail distribution networks, offered the best future for HHL.

AMES has indicated that it intends to revitalise HHL's product portfolio as well as introduce a wide range of solution-focused products on the home and garden sectors. Simon Hupfeld, AMES Australasia chief executive, said:
We consider this a tremendous development for our business, and have great confidence that the many customers, employees and suppliers of Hills will enjoy the benefits of this new ownership structure. As now part of our global AMES team, Hills will be very well positioned to serve its customers better through our established capabilities in design, marketing, customer service, procurement and distribution.

Under the deal AMES will distribute HHL products through hardware retail channels including Bunnings, Home Timber and Hardware, Mitre10 and Thrifty-Link.

Bunnings does not currently stock the brand following Hills' licensing deal with the now defunct Masters chain.

In 2014, the Hills brand was licensed to Woolworths's Masters chain for seven years to generate a new revenue stream for the business. That deal fell apart less than two years later with Woolworths's move to exit its home improvement business and close its Masters stores. But Hills received a severance payment worth AUD6 million.

Mr Lenz said AMES was essentially taking over the business operated by Woolworths under its licensing arrangement from Hills.

Mr Lenz also said a recent strategic review found it was no longer feasible to make and sell home living products.
The Hills of today is a value added distributor of technology products and services and the company is focused on delivering security and surveillance solutions, audio visual, IT, communications and health solutions. It is important that we remain focused on our core business activities.

Hills did not disclose the sale price but said it would maximise value for its shareholders and improve earnings for the first half of the 2017 financial year, more than offsetting the weaker trading results of its Hills Building Technologies (HBT) business. Mr Lenz said:
Even with an improved second quarter for the HBT business, this has not made up for the underperformance of the HBT business in the first quarter of FY17 as outlined at our AGM in November.
History

Harold Hill-Ling took what was known as Hills Industries public 58 years ago with his business partner, brother-in-law and Hills hoist inventor Lance Hill.

Hill-Ling's son Bob subsequently took over the business and in 2007 Bob Hill-Ling's daughter, Sydney lawyer Jennifer Hill-Ling, became Hills chairman. The Hill-Ling family remains Hills' biggest single shareholder.

Hills Hoists were originally produced out of Hills' Adelaide factory, but more than a decade ago Hills transferred some of its manufacturing to China.

Related:
Supplier update: Hills' Masters deal ends early - HNN
Hills hitches its future with Woolies - HNN

Sources:
Hills sells right to make and sell hills hoist clotheslines - Fairfax Media
Hills finally parts with iconic clotheslines for good - Gold Coast Bulletin
Hills sale deal with AMES follows Woolworths' Masters collapse - The Australian
AMES pulls off Hills Hoist heist takes over ownership of icon - The Australian
Companies
Hitachi power tools sold off
Hitachi is divesting majority ownership of its power tools unit, Hitachi Koki
HNN Sources
Hitachi Power Tools has been sold to US private equity firm Kohlberg Kravis Roberts
Hitachi's appliance business may be on the chopping block in the future
Subscribe to HNN weekly e-newsletter
US private equity firm Kohlberg Kravis Roberts (KKR) has agreed to buy Hitachi's power tools unit, Hitachi Koki for about USD1.3 billion (AUD1.69 billion).

KKR will launch a tender offer running from January 30 to March 22 to acquire Hitachi's holdings, which amount to a little over 40% of the unit's outstanding shares, or 51% of voting rights. Hitachi Koki will be delisted and will eventually drop the Hitachi brand. CEO of KKR Japan, Hiro Hirano said:
Hitachi Koki is well-positioned for further organic and inorganic growth given the high quality of its products, its high-calibre team and the attractive environment for power tools through cordless and digital trends. Looking ahead, we are fully committed to leveraging our global network and resources to provide full support to Hitachi Koki in pursuing its growth strategy.
Background

Hitachi has weighed various options for the future of its power tools unit as the conglomerate becomes increasingly focused on infrastructure and information systems. In the end, it decided to strike a clear blow against what it perceives is Hitachi Koki's culture of dependence on the parent company, according to the Nikkei Asian Review.

The deal marks Hitachi's first complete sale of a major subsidiary since the 2012 divestment of a hard-drive unit, a move made under former president and current chairman Hiroaki Nakanishi. The transaction is also unusual for the group in that the buyer is a private equity firm.

Since Toshiaki Higashihara took the helm as president in April 2014, Hitachi's efforts to reorganise have been limited mostly to reducing its stakes in Hitachi Transport System and Hitachi Capital from roughly 60% each to about 30%. But these partial sales appeared half-hearted to some investors and analysts.

Things changed in 2016, when the parent company told Hitachi Koki executives to hammer out a growth strategy, including "a possible departure from the group," an executive told the Nikkei Asian Review. The unit had just acquired German power tool company Metabo and was in the middle of drafting a new medium-term plan, looking at overseas expansion.

Hitachi had two decisions to make: whether to choose an industrial company or an investment fund as the buyer, and whether to keep the unit. Discussions ensued, with some arguing that private equity has a negative reputation and that taking the Hitachi brand away from the subsidiary would undermine its business.

Hitachi also received a bid for the unit from Kyoto-based Kyocera, which said it would create an all-around tool manufacturer.

Against this negotiations, KKR offered a higher price, along with plans to beef up the Hitachi Koki's foreign operations and support a relisting.

Mr Higashihara showed little hesitation in selling the unit even though Hitachi Koki is profitable, with a projected operating margin of more than 4% for the fiscal year ending in March.

Part of Mr Higashihara's determination to sell appears to stem from a desire to root out a perceived tendency in Hitachi Koki to rely on the parent company. Hitachi's choice for a complete sale seems to be an emphasis on discipline in group management.

But critics could still point to other non-core businesses such as Hitachi's chipmaking equipment and appliance businesses.

Hitachi has made no progress on plans to spend 1 trillion yen (AUD11.5 billion) on acquisitions in the three years through fiscal 2018. It remains to be seen whether the group's latest divestment will lead to bolder growth moves similar to those of General Electric and Siemens. These conglomerates have proven more willing to make clean breaks when exiting business and have used the proceeds for acquisitions in their focus areas.

Related:
Hitachi to sell power tool unit - HNN

Sources:
Hitachi practices tough love on dependent group - Nikkei Asian Review
US investment fund buys Hitachi unit - Japan Times
KKR to buy Hitachi Power Tools - Torque Expo
Companies
Craftsman sold to Stanley Black & Decker
US retailer Sears sells the Craftsman brand to Stanley Black & Decker
HNN Sources
Craftsman will be added to Stanley Black & Decker's product portfolio
Sears is selling assets to raise cash
Subscribe to HNN weekly e-newsletter
Stanley Black & Decker (Stanley) has struck a deal to buy the 90-year-old Craftsman brand from troubled US-based retailer Sears.

The USD900 million (AUD1.23 billion) acquisition will also add Sears' signature lifetime warranty to Stanley's portfolio of hand and power tools.

The company will pay USD525 million (AUD694 million) at closing and USD250 million (AUD330 million) after three years. It will also make annual payments on new Craftsman sales for 15 years.

Sears will continue to offer Craftsman-branded products at Sears and Kmart stores through a perpetual license from Stanley Black & Decker.

The Craftsman line includes power tools such as saws, drills and hand tools such as wrenches and screwdrivers as well as lawn mowers, barbecue grills and other gardening equipment.

The acquisition gives the company an entry into the lawn and garden equipment market, estimated by Stanley to be worth USD12 billion (AUD15 billion).

Just 35% of Craftsman sales come from tools so the deal also represents a significant expansion into other business lines.

In a statement, Stanley CEO James Loree said his company will increase the availability of Craftsman products through other retailers (brick and mortar and online) as well as industrial partners. The agreement allows Stanley to increase Craftsman sales in these untapped channels.

Currently, about 90% of Craftsman products are sold through Sears, Kmart and Sears Hometown stores, according to Mr Loree. Much of the 10% sold outside Sears-related channels is sold through Ace Hardware stores.

Craftsman's appeal might be slightly stronger with older customers who remember it from decades ago, when the Sears catalogue's role was similar to that of e-commerce today, Mr Loree said. But he estimated the brand could add about USD100 million (AUD132 million) of revenue growth per year for the next 10 years, in part by making Craftsman products more widely available. He said:
The world has changed, but Craftsman is still an incredibly strong brand.

Stanley is working on plans to begin expanding Craftsman's distribution but currently sells Stanley and Black & Decker brands to some of the biggest home and hardware retailers, including Home Depot, Lowe's and Amazon.
America First

After announcing an agreement to purchase Craftsman from Sears, Stanley said it will construct a new USD35 million (AUD46 million) hi-tech factory in the US to broaden the Craftsman tool line.

The decision is considered a move to prevent Stanley from a "border tax" or tariff that has been threatened by President Donald Trump. Mr Trump has warned a tax could be imposed on companies that relocate to other countries to make products and then sell those products back in the US.

Mr Loree said that US manufacturing capacity made "business sense" and was close to his company's philosophy "to make where we sell whenever possible" whether that is in the US or any other country where Stanley has a presence. He believes many end users prefer to buy products that are produced in their own countries.

He also called the Craftsman deal an opportunity to "re-Americanise and revitalise" the brand.

Stanley, which already has around 30 manufacturing plants in the US, has increased the number of manufacturing employees by 40% in the past three years. It currently has about 3,000 domestic production workers. Mr Loree said:
We already manufactured many products cost-effectively in the US and in some cases, we've been able to bring manufacturing back to the US at a lower cost than producing overseas.

In addition to the threat of trade policies that could damage imports, manufacturing products in the US to sell to American consumers reduces logistics and distribution costs and lowers the company's environmental footprint, Loree said.
It makes good business sense for us.
Acquisition trail

Mr Loree pointed out that the tool market is "incredibly fragmented and the competition, particularly the hand tool market is brutal," noting that "there is a lot of room for acquisitions in the tool business."

Stanley has been one of the most active acquirers of companies for many years. The company, which dedicates half of its excess capital to acquisitions, has made more than 100 acquisitions in the past 15 years.

Its biggest purchase came in In 2009 when Stanley Works acquired Black & Decker Corp. for USD4.5 billion (AUD5.9 billion) in stock. After that purchase, Stanley had been in a self imposed hiatus from further acquisitions.

But Mr Loree has made it clear that era is over. Five years ago, Stanley bought Hong Kong-based fastener manufacturer Infastech for USD850 million (AUD1.1 billion) in cash. Last October, Stanley paid USD1.95 billion (AUD2.5 billion) for Newell Brands' tools business that includes Irwin and Lenox. Those moves marked significant bids for Stanley's growth in the global tools industry.

Mr Loree emphasised that Stanley intends on growing as a "diversified industrial company," not just a tool company noting that its recent tool acquisitions have occurred because of their value and opportunity for growth.

Craftsman remains an icon in the tool industry. Sears bought Craftsman in 1927 for USD500 (AUD661) and the company is known for its lifetime warranty of products.

[In the US] Craftsman still accounts for the largest share of the hand tools and accessories market by dollar share as of September, with about 26.6%, and accounts for about 8.3% of portable power tool sales, according to Stevenson TraQline, a market research firm. But its share in both categories declined nearly 6% over the last four years, shrinking alongside Sears' sales.
Struggling Sears

Sears first announced last May that it was considering the sale of its so-called KCD line up of in-store brands -- Kenmore, Craftsman and DieHard -- in an effort to raise cash. The company said at that time it was looking at strategic alternatives for its Home Services installation and repair businesses as well.

The Craftsman sale is part of a broader strategy Sears has to boost its liquidity. That plan includes the closure of 150 unprofitable Sears and Kmart stores, among other steps.

Rumours of Stanley Black & Decker's interest in Craftsman first began to circulate last October.

Related:
HI News Vol. 2 Issue no. 19: Stanley Black & Decker Q3 2016 results, page 28
HI News Vol. 2 Issue no. 16: Stanley buying Irwin Tools, page 21
HI News Vol. 2 Issue no. 11: Sears expands its brands, page 24

Sources:
Stanley to buy Craftsman - Bloomberg
Sears sells Craftsman brand to Stanley - Chicago Tribune
Stanley Black & Decker builds on tool empire - The Australian
Stanley adds US factory following Craftsman deal - Industrial Distribution
Companies
Supplier update
The Dulux dog makes his thoughts known in the latest campaign
HNN Sources
CEVA Logistics is working with Arlec to enter the UK market
MiTek Industries acquires DIY Technologies
Subscribe to HNN weekly e-newsletter
The Dulux dog expresses his thoughts in the latest campaign; Arlec is supplying Bunnings UK stores with the help of CEVA Logistics; and MiTek expands into technologies for the DIY sector.
Dulux dog in starring role

The old English sheepdog has been synonymous with the Dulux brand for over 65 years. For the first time, people will be able to hear his thoughts in a new advertising campaign.

A focus on consumer-centric marketing at DuluxGroup is being spearheaded by marketing director Helen Fitzpatrick. She explains:
We wanted to tell our consumers that in the future, you'll know why it's worth using Dulux; and we knew we had to do it in an emotional way. Consumers love the Dulux dog, so we thought what better way to gain a powerful, emotional connection to the brand than to make him the star of the campaign.

The latest Dulux campaign is about educating consumers about the risks of using inferior paints. It does so by highlighting the most important quality test: the test of time.

On his travels, audiences can hear the Dulux dog's musings on the future, and the importance of protecting homes with the right quality paint. The dog will become a consumer champion and lend a paw to anyone who needs advice on painting their home. Dan Lacaze, client services director at BMF, the agency that created the advertisement, said:
It's with great responsibility and pride that we have given the Dulux dog a personality, and a bigger and more important role in the communications mix. He's seen it all and there's no one better placed to explain why Dulux is worth it.

The integrated campaign includes short films for social media, online video, TV and cinema. It will be supported by outdoor, print, online and instore marketing.

You can watch the ad here:

Arlec enters UK market

Australian electronic and electrical products supplier, Arlec will be able to serve Bunnings UK stores through its relationship with CEVA Logistics.

Under the deal, CEVA will provide warehousing, storage and relabeling services to Arlec from its site at Mendlesham in Suffolk (UK).

CEVA said it has a long-established tailored approach for companies in the global DIY industry, and has wide experience in managing inbound electronic and electrical products requiring a range of added value services. Arlec Australia managing director, Balu Jega said:
We are delighted to have partnered with CEVA for our entry into the UK market. The Mendlesham facility is ideally located to manage both our inbound air and ocean product lines. CEVA's ability to provide storage solutions combined with their experience in managing ranges of Far East imported products means that our entry into this new market couldn't have gone more smoothly.

Of the inbound traffic to be handled under the contract, 95% will be brought to the UK via ocean freight with 5% coming in by air for CEVA to then store and distribute. CEVA's executive vice president, Michael O'Donoghue, said:
CEVA's implementation of this supply chain solution demonstrates our commitment to new customers in an area where we have considerable experience and expertise. Arlec's product range is constantly developing and we have put in place a range of flexible options to ensure we can meet their future development.
MiTek secures DIY Technologies

MiTek Industries has acquired DIY Technologies (DIY) based in Tucson, Arizona (USA). DIY creates web-based design software for a wide range of home improvement and renovation projects. Tom Manenti, MiTek

chairman and CEO, said:
DIY has established long-term relationships with some of the nation's largest and most-respected retailers and building products manufacturers. The combination of MiTek's software and capital resources, along with DIY's comprehensive web-based software, will provide unparalleled technology tools that will enhance our customers' value proposition.

Founded in 1998, DIY provides web-based software focused on do-it-yourself home improvement projects, including decking, fencing and other outside living projects. DIY's software provides its users a wide range of capabilities, from generating project layout sheets, to creating cut sheets and material lists, to identifying and locating specific manufacturer's products at local retail and building material stores.
Retailers
Indie store update
The closure of K&D's Devonport was not a total surprise to the local mayor
HNN Sources
The Glenorchy store building has been sold
The K&D Devonport store opened in 2013
Click to visit the HBT website for more information
Tasmania's Kemp and Denning (K&D) has announced it will close its Devonport and Glenorchy locations.

According to a report in The Advocate, a trade customer of the Devonport store said he received an email from K&D Warehouse chief executive Nick Fazzolari saying the branch would close on March 3. The email said despite its best efforts, K&D could not make its Devonport outlet viable.

K&D confirmed the three other businesses in the state's south were not affected and operating as normal. The email also said the company's financial position remained strong and the affected staff would receive full entitlements and additional assistance as well.

Devonport Chamber of Commerce and Industry president Stacey Sheehan said the closure of K&D was devastating for workers but was optimistic for the future of the North-West. She said:
There does appear to be a lot of positive sentiment about the local economy. People are hiring and hopefully this has not come as a complete shock, because I know a lot of people have been looking at it and questioning whether it would stay open or not.

To Ms Sheehan, the closure of the store was not unexpected. She said:
There is a lot of choice for hardware on the North-West Coast and obviously what they were providing was not meeting with what the market wanted.

Devonport Mayor Steve Martin said his sympathies were with the K&D workers that were out of a job.
I do think this is specific to K&D having to close when it pretty much has a large portion of the hardware market in Devonport perhaps the business model is wrong.

It's believed a development application for K&D to extend it's nursery area at the homemaker centre had been lodged with the council recently and was in the process of being assessed.

However, instead of an expansion plan K&D staff, shareholders and trade customers were informed of the Devonport store's closure.

The closure of K&D's Devonport store and loss of almost 40 jobs was a blow to the city. Mr Martin said:
Yes it is a blow because we don't like anybody losing their jobs in our city.

However, it also created the opportunity for Bunnings or another large retailer of bulky goods to move into the vacant hardware site, he said.
Sale of Glenorchy site

K&D chairman Greg Goodman said the Glenorchy store was closing because the building, on Derwent Park Road, had been sold.

Jackson Motor Company managing director and entrepreneur Errol Stewart has confirmed his company purchased the K&D building late last year.

Mr Stewart said his company bought the store just before Christmas for close to $6 million. He said he had not yet decided what the site would be used for, but that it was possible he would expand the nearby motor company or install a tenant.

Mr Stewart - whose latest projects include a $16 million hotel development on a prime Tamar River site - said the K&D store was in a "strategically great location". He expected jobs to be created at the site after K&D's closure.

K&D opened its first warehouse store in Hobart in 1986. The Glenorchy store opened in 1996, followed by Cambridge in 2008 and Devonport in 2013.

Related:
Indie store update: Kemp & Denning exits Mitre 10 - HNN
K&D continues to trade, remains unsold - HNN

Sources:
About 40 jobs to go as K&D sells Glenorchy store building - The Mercury
Devonport business to close doors - The Advocate
Jackson Motor Company buys Derwent Park K&D store - The Mercury
Retailers
Europe update
Grafton Group's Woodies business sees a solid increase in volumes
HNN Sources
Screwfix is set to open 4th distribution centre and additional stores in 2017
Travis Perkins has collaborated with a team of designers on a new method of construction
Click to visit the HBT website for more information
Grafton Group delivers improved performance; a new distribution centre and more stores for Screwfix; and Travis Perkins has been involved in a Circular Building project.
Grafton's multiple markets boost revenues

UK builders merchanting and DIY group, Grafton said it ended 2016 strongly with revenues rising 13.4% to GBP2.51 billion (AUD4.1 billion) from GBP2.21 billion (AUD3.6 billion) in 2015.

In a trading statement issued in advance of the company's final results in March, the group said turnover was up 10.4% on a constant currency basis.

Grafton operates the Woodie's DIY chain across Ireland and also has operations in the UK, the Netherlands and Belgium. It trades from 650 branches and has 11,000 employees.

The company said revenues from its merchanting division, which accounts for 92% of group revenue, were particularly strong. Chief executive Gavin Slark told the Irish Times:
The group finished the year on a more positive note and saw the benefit during 2016 of its exposure to multiple markets.

Like-for-like revenue grew by 5.3% for the final quarter, the strongest pace of growth since the first quarter of 2016.

In the UK, full-year merchanting turnover was up 6.6% on both an actual and constant currency basis.

Grafton said its Selco Builders Warehouse outlets outperformed the UK merchanting market with good revenue gains in established branches and growth from new branches. It said expansion of the branch network gathered pace with the opening of seven branches, increasing the network to 47 in 2016. The group plans to open at least 10 more Selco stores in 2017.

Revenue also picked up in the last quarter for its other merchanting retail brands, Buildbase and Plumbase, although the market remained very price competitive.

The group's merchanting business in Ireland outperformed a recovering construction market, driven primarily by growth in residential RMI (Remodelling Market Index) activity. It reported a double digit like-for-like revenue increase for the third successive year. Turnover was up 11.9% on a constant currency basis.

The Woodie's DIY business, which accounts for 6% of group revenues, reported a "solid increase in volumes," the group said. It is "benefitting from the initiatives undertaken in recent years to improve the customer proposition and a more favourable retail market". Overall, retail revenues were up 5.6% on a constant currency basis last year.

The Netherlands merchanting business, acquired in November 2015, performed well, supported by good economic growth and a strong recovery in the residential new build and RMI markets. However, the Belgian business continued to experience "difficult market conditions with softening demand".

Grafton said its UK mortar manufacturing business experienced stronger demand in the second-half of the year from its house builder customer base. It also increased revenue from the acquisition in 2015 of a packaged mortar products business.
Screwfix growth plan

UK trade tools and hardware retailer Screwfix will get a new warehouse for its expanding store network. It recently notched up store number 490 and has self-stated plans to open "one store per week".

Set to open later this year, the warehouse will be built in Prologis Park Fradley, near Lichfield, on a site the size of seven football pitches (562,000sq ft.).

The Screwfix brand is part of the Kingfisher Group and has been a star performer. Kingfisher's latest financials revealed Screwfix's sales growth hit 23.1% in Q3 2016. Supply chain, logistics and IT director, Martin Lee said:
The decision to construct a warehouse near Lichfield was taken to ensure we have the logistics infrastructure to support the needs of our expanding business. Adding one store per week to our network means we need to make sure we have the stock distribution in place to enable our busy trade customers to get what they want, when they need it from the nearest Screwfix, so they can get back to the job as quickly as possible.

The building has taken sustainability into account with use of technology including solar PV panels, LED lighting and rainwater harvesting planned to minimise the environmental impact of the site.
Travis Perkins participates in Circular Building

British builders' merchant and home improvement retailer, Travis Perkins has collaborated with a team of designers on a new method of construction; where materials are sourced, built then recycled and reused as part of a process aimed at improving quality of living in the future.

Travis Perkins partnered with Arup - an independent firm of designers, planners, engineers, consultants and technical specialists - alongside facade supplier, Frener & Reifer, construction design company, BAM and The Built Environment at London Design Week in late 2016.

Together they designed and developed a Circular Building prototype, which allowed the participants to investigate how the circular economy can benefit the industry and the built environment. Jez Cutler, head of environment at Travis Perkins, said:
The project provided Travis Perkins with a unique opportunity to understand what distribution challenges exist in a circular economy for example, in routine building materials like timber cladding and flooring joists.
We supplied the new material and, once the event had come to a close, the house was disassembled and we took all the materials back. This was followed by an examination of the condition, its presentation and value before determining possible reuse or recovery options. Distributors have a crucial role to play in the circular economy and it's clear that strong collaborative linkages with solid supply chain support are essentials to a circular economy model.

The Circular Building tests the maturity of circular economy thinking in the supply chain and examines what it means for building design. It asks questions that alter design and construction priorities, such as can buildings be designed where all of its components and materials can be reused, remanufactured or recycled?
Products
Control shock hammers
Fiskars' hammer range incorporate the patented IsoCore[tm] Shock Control System
HNN Sources
These product have proved popular with professional end-users
The hammer are suitable for major framing jobs to small interior tasks
Click to visit the HBT website for more information
Fiskars' IsoCore[tm] Shock Control System hammers have a patented technology that captures the kinetic energy and vibration of every strike, reducing the impact felt by the user up to four times compared to a traditional hammer.

The range features two claw hammers, one framing hammer, a club hammer, a sledge hammer, a maul and a mattock that are all endowed with the vibration control system.

The claw hammers are ideal to remove and pull out nails easily and allow for more precision work. The framing hammers are longer, and are designed to be used for longer periods of time. The longer shafts allows more swing and therefore efficiency. Each hammer head is fitted with magnetic technology that holds the first nail in place, and eradicates the age old problem of whacking a finger on the first hit.

The club, sledge and maul use the IsoCore system to reduce the vibration that comes from the shock of the strike in the joints. A common problem amongst users of heavy duty demolition hammers is that inaccurate strikes weaken the shaft, so Fiskars has reinforced the demolition head with an overstrike protection to strengthen the shaft.

It has added a sloped head to push debris away from the user and towards the sides after each hit. The sledge hammer, in particular, can generate five times more power on each strike.

For added safety due to heavy use, each hammer is fitted with a retention bolt that ensures the head won't separate from the body.

Fiskars trademark ergonomic design also helps to absorb shock and protects joints.

Related:
Fiskars' Striking Tools wins at NHS - HNN
Products
Rover adds to Duracut range
The Duracut 420 has a mulching option that is ideal for smaller yards
HNN Sources
The Duracut 820 is equipped with a 159cc Rover OHV 800 engine
The Duracut 820 also has a 46cm (18-inch), 1.8mm steel deck
Click to visit the HBT website for more information
Rover's Duracut Series has four new models. The company says the18" Steel Deck Pedestrian mowers start the first time, every time.

Built with a159cc Rover 800 engine that punches out 8.04ft-lbs of torque, the four swing back blades featured on the Duracut 820 and 850SP can cut easily through any length of grass.

On the other hand the 410 and 420 models pump out almost 5ft-lbs, making either series an ideal domestic and commercial product. An extra-wide 46cm high quality steel deck on all models with ten different height adjustment settings will shave time off mowing time.

Rover's Safe Stop technology all four new models will stop the mower automatically if the user is not in control, minimising injury and providing peace of mind for the user.

Durability is a core attribute of the Pedestrian series. They feature a 1.8mm thick steel deck that offers increased strength on component contact and wear points. In addition, they are fitted with full 8-inch ball bearing wheels matched with a Zag 2-grip pattern for top performance in rugged conditions.

Each mower and engine is backed by a five year warranty domestically and 90-day warranty commercially.
News
HI News V2 No. 19: Next Gen DIY
Download the latest issue of HI News Vol. 2, issue no. 19
HI News
Younger DIYers need different products
Millennials want technology in their homes
Click to visit the HBT website for more information
The final edition of HI News for the year is mainly about the next generation of DIYers. As baby-boomers age out of DIY, home improvement retailers and suppliers need to revise the kinds of products they sell to younger generations.

Technology remains very important for the millennial demographic when it comes to their homes.

Just click on the following link to download this edition:
HI News V2 No. 19: Next Gen DIY

Also in this issue, we analyse the strategies that may have led to the demise of Masters and look back at some of its merchandising highlights.

We take a further look at Metcash-Mitre 10 results and reveal its independent hardware brand. Other company results include tool companies, Stanley Black & Decker, Hitachi Koki and Makita. US home improvement retailer also reports disappointing third quarter results.

The biggest news in the big box retail sector is the surprise resignation of Bunnings CEO John Gillam. We note some of the major achievements during his storied career at Wesfarmers.

In statistics, we discover another set of data on renovations that may be helpful.

Products featured in this issue include the latest range from Briggs & Stratton; a charging surface from Corian; the Danco toilet seal; and a Kickstarter-funded shovel.

As the last issue for the 2016 and to celebrate Christmas and the holiday season, we take the opportunity to thank our readers, advertisers and supporters.
Editorial
Next Gen DIY
The Sutton Tools lock jig
HNN Sources
The Irwin lock jig
Ryobi faceplate recess maker
Give to Amnesty International
It's likely that 2017 will be a year of considerable changes for the Australian home improvement retail industry, as well as the larger economy. Ford Australia has already halted production of locally made vehicles, and late in 2017 both General Motor's Holden and Toyota will do the same.

In the retail world, there is a high probability that US ecommerce company Amazon will open up local distribution for its products. This will eliminate high shipping costs from the US, and open up a new era of discounting on products ranging from power tools to washing machines. Amazon is also likely to launch an array of high-tech products that help it push its products, and has already extended its video content streaming services to include Australia.

If that is not enough, the home improvement industry, over the next four to five years, is going to encounter cultural shifts that will change one of the key areas of its business, the DIY home-owner. Up until recently, the sheer size of the baby-boomer generation, and the increasing difficulty most people under 30 experience in buying a house due to high prices and a lacklustre job market, has protected retailers from this demographic shift.

The population, of course, is always ageing out, with younger people replacing older people in the demographic areas that buy more DIY and other items. What makes this shift more important is that, without being conscious of it, many retailers have been tailoring what they sell to the baby-boomer generation. Even as it ages its way out of prime demographics, it represents such a large group, that it has managed to remain a prime marketing target. Retailers have, as a consequence, grown a little less sensitive to the need for constant change.

Over 27% of the population is now aged between 25 and 40, with a significant chunk of the baby-boomers shifting into the lower-spending and less DIY-prone over-60 group. Ageing-in-place conversions might be one of the next booming markets, but you can be pretty sure most of that work is going to be done by trades, and not the older people who are the target market.

There is another, really crucial factor that many commentators tend to ignore. As the crucial baby-boomer population does age, what else happens? That situation is summed up by demographics researcher Mark McCrindle like this:
The Baby Boomers currently comprise 25% of the population yet they own 55% of the nation's private wealth. And in 2020, when the oldest Boomers hit their mid 70's, we will witness the biggest intergenerational wealth transfer in history.

Inheritance, or in many cases simple generosity, will see a very delayed shift of wealth from an older, highly invested generation to a struggling younger generation.

How will this affect DIY? The baby-boomer generation may be the last generation to be provided with generally applicable DIY skills. Some see this as a lamentable state brought about by inattentive parenting, or a lack of training at school. One major contributor, however, is simply that things tend not to break down so often, and when they do break down they require complex repairs.

Few of the Millennial generation, for example, know how to start a car with a flooded carburettor - because just about every vehicle is fuel-injected now. Not to mention that twelve years from now, probably half of all cars sold will be electric.

Even a simple skill like changing a flat tyre is becoming more rare, simply because, where you could once count on getting a flat at least once every two years, roads and tyres have improved to make flats far less common. Many cars use run-flat tyres as well, making it more convenient just to drive to a garage. In short, car maintenance, as it was 30 years ago, is simply no longer a valued skill.

You can extend that to a range of other DIY activities. Why would you build your own bookcase, for example, when you can pick up one that is so much better from IKEA for $70? (Not to mention that you probably don't own that many printed books anymore.)

Plus, with the block sizes for houses getting ever smaller, and a confirmed move to multi-dwelling residences, that icon of male adulthood, the shed, is fast disappearing. It's hard to even find a spare corner of a garage for a workshop these days.

We're as little as five years away from the point where many households will likely find a 3-D printer to be more useful than a power saw.
What to do?

If home improvement retailers (and their suppliers) are going to have any hope of retaining the profitable DIY market for the next ten years or so, they will need to change their approach to this market. This means new and different products, different ways of selling in-store, and promotional activities that are more attractive to younger people.

One way to determine how to latch onto better growth in the future is to observe what other industries are doing as they struggle with similar problems. There is some inspiration to be found in a slightly surprising source: the laptop computer industry, and in particular the changes that Apple is bringing to its products and marketing in that area.
The MacBook Pro situation

Recently there has been a backlash towards Apple over the release of its latest MacBook Pro laptop computers. People who consider themselves to be "professional" users have complained that, for a "pro" computer, it's a bit lacking in features and power.

The addition of a "touchbar" in place of function keys has attracted as much bewilderment as criticism amongst this same set of critics. The touchbar is a touch-sensitive graphics display system that responds to whatever software is running front-most and provides quick access to the most commonly used features and commands.

Most truly "professional" users have not found this to be a very useful feature. After all, after years of intensively using specific software, they already know most of the key commands they need. Even its display of suggested phrases to ease the task of typing is relatively useless. If you touch-type at a speed over 30 words per minute, you really don't need that kind of feature.

Look beneath the surface of this apparent stress and rejection, however, and you can see the shape of a clever strategy that is being implemented by Apple. What seems like a few not-so-clever product tweaks is actually a vast shift in product design, and a realignment in the market place.

One indication of how seriously Apple is taking this change can be seen in its use of one of the "sacred phrases" of Apple lore when introducing the product line: the "Hello, again" message that was contained in the media invitations to the event. Famously, when Steve Jobs introduced the first Macintosh computer, the screen showed the "Hello" message in a styled font, then a first for any personal computer. Later, when Mr Jobs returned to company and revitalised its product line with the colourful iMac, the message "Hello, again" appeared.

What is the purpose of this "third-coming" of the Macintosh? In the past, Apple has done what almost every PC maker has done with its product line. They began at the pinnacle of their user pyramid, the high-end, pro users who really stress out their machines, as designers, software engineers, web developers, video editors and photographers. The laptops in particular, which started out as a very premium line, were designed for their use, and then "de-featured" for less intense users as the standard MacBook. Diagram 1 shows roughly how this market approach maps out.
Diagram 1: Old market approach

With the new MacBook Pro, however, that approach has been almost reversed. Instead of appealing to the highest level of users, these laptops are designed with less proficient users in mind. The goal of these laptops is not to make the top users happy, but to take less proficient users and make them more proficient, through the addition of features such as the touchbar. Diagram 2 shows how this approach works.
Diagram 1: New market approach

Why? There are really two, interlocked reasons. First, those less proficient users who want to be more proficient make up a much larger market than the fully proficient users. Secondly, the fact is that there is now a gap between less proficient and fully proficient users. The market has actually split. It has split for a variety of reasons, but one of the main ones is that much of the market is now made up of people whose main experience with computing has to do with their smartphones rather than computers.

This is a very big change to the way Apple markets its products. It really is about reinventing the Macintosh.
The DIY situation

Similar market forces are at work in the DIY hardware world. There is a considerable prize that will become available over the next three to five years for retailers and suppliers who manage to crack the code, and actually make DIY products that are suited to this changing market.

The initial problem for suppliers and retailers is identifying what needs to change. Many of us have had the experience of asking a computer expert of some sort how to perform a certain task, and getting back a stream of what sounds almost like gibberish instructions. For many DIY users, the DIY world is treating them in a similar manner.

That's a little hard to believe, so let's take a very simple example, and walk our way through it to show how confusing and difficult DIY can be.
Fitting the lock

As our relatively simple task, let's consider the steps you need to go through to fit a deadbolt lock to a door that hasn't been pre-drilled for it. That is the kind of task that many DIYers would take on. A typical case might be a door that leads from an attached garage into the house. It's currently fitted with a knob, and has a button lock on the knob, but the homeowner decides it might be a good idea to fit a deadbolt before going away on holidays, just to make it a bit more difficult for any prospective thief to get in. To make things a little easier, we'll only look at fitting the lock in the door, and not the steps necessary to fit the receiver for the bolt into the door jamb.

Let's just go through the steps necessary to perform this task.

1/ Measure place where lock will be inserted.

2/ Drill large hole through door for the body of the lock.

3/ Drill smaller hole along the plane of the door for the bolt to go through.

4/ Chisel out a recess for the faceplate to be screwed in.

5/ Insert the bolt.

6/ Fit the faceplate, and screw it in place.

7/ Fit the lock onto the bolt.

8/ Secure the lock with screws.

9/ Add the rose plate to the lock to hide the screws.

Think for a moment about where you believe the real "pain points" will be for an inexperienced DIYer attempting this task for the first time.

Most people would focus on the "big tasks", drilling the two holes as being the most difficult to get right. That could be the case if you relied on the paper templates provided with most locks. Fortunately, several companies have come along and produced special jig kits specifically for this task. HNN bought two of these kits, one made under the Irwin brand, and one made under the Sutton Tools brand, to test out.

As it turns out, these kits, for the most part, work very well. There are some significant differences in the approaches each takes. The Sutton Tools kit provides a one-sided jig for the door holes, while the Irwin kit provides a two-sided jig. As it turns out, this doesn't really matter all that much.

The process involves using a hole saw with a pilot drill to cut through the door from one side about two-thirds of the way through, then reversing the drill and completing the cut from the other side of the door. While the two-sided jig was a little bit of a help, it turned out that using the Sutton one-sided jig was just as easy. Cleverly, the jig can be attached to the door edge using the screws that go into the faceplate, making it very secure. Drilling in from the opposite side wasn't difficult, as the pilot hole made alignment simple.

However, where the Irwin jig did have a big advantage over the Sutton jig was in the latitudinal adjustment for the length of the bolt. The Sutton jig takes care of this with a plastic-on-plastic slider which, in the jig HNN purchased, was somewhat jammed. It seemed at first as though some fault had occurred in manufacturing, fusing the two parts of the slide. It was only after giving the slide an almighty tug that the slider worked. It's possible that some DIYers would actually give up at this point.

On the Irwin jig there is a simple push together and slide mechanism, that is also conveniently notched for the two most common sizes of backset.

The hole saws provided in the kits for drilling the large lock hole were tested out on solid pine, and both performed very well. The jigs really made what could have been a difficult task very easy to perform.

In order to save costs, both kits came with two hole saws, one for the main lock and one for the barrel of the bar, but only one arbor. So, after drilling the main lock hole, the next task was to remove the arbor from the larger hole saw and fit this to the smaller hole saw.

Which is where the real problems, for an amateur DIYer, begin. Any amateur DIYer using a hole saw is going to do what? They will either push the drill too hard, or tilt it a bit too much, making the bit jam, the drill torque -- and when the drill torques it is going to set the arbor good and solid into the drill body.

If you have a workshop vice handy, it takes about six seconds to free the arbor from the drill body. Just set it in the vice, grab a spanner, apply a bit of elbow grease and it comes off easily. If you have a G-clamp handy, it takes about 30 seconds to secure the drill body and get a grip on the arbor. But what if you have neither? What if the only tool to hand is a single, fairly wimpy adjustable spanner? What do you do then?

The real answer to that is -- as is the case with so many things -- not what you do then, but what you should have done before. An old trick is to take a bit of thin fence wire, and wrap it once or twice around the arbor where it meets the drill body (you can dab a bit of WD-40 on it as well, if you want to be fancy). Drill the hole, and if the arbor has bound, it pretty easy to work the wire out (a pair of needle-nose pliers can help). Once the wire is removed, the arbor can be spun off by hand.

If you don't know that, if you don't have either a vice or a G-clamp available, it's likely your door DIY project has just come to a halt. Unless, of course, you find some way to get ingenious about jamming the body of the hole saw in a door or something or (dangerously) try jamming the hole saw with the drill set in reverse to torque your way out.

The problem is, of course, with an inexperienced DIYer, it's likely providing instructions to use the wire trick probably wouldn't work either. That's because people new to DIY really do expect clean, simple solutions. Twisting a bit of wire around the arbor just seems clumsy, and makeshift.

So, there are really only two solutions. One is simply to either supply two arbors in the kit, one fitted into each hole saw. The other is to use the kind of click-on arbor you can find in Starrett kits. There is no reason, after all, that the arbor should attach via a threaded coupling. The major force is torque, not pressure.

So that is the first point of absolute failure with these kits. What is the second point? What task remains that a novice DIYer is going to find really hard to complete?

It is what is required by the deceptively simple requirement to "chisel out a recess for the faceplate". If you have never used a chisel before, how are you going to do that? Bear in mind this is a very shallow recess, about 2mm deep. It's also highly visible, and affects the entire fit and finish of the lock.

Irwin did actually think about this problem, while Sutton did not. Irwin includes in its lock kit a small router bit that can be fitted to a drill, and small plastic template to use with it. The template enables the user to cut around the edges of where the faceplate goes, then chisel out the remaining wood.

It's not a bad idea, except for one thing: unless you are very careful when you are using the router bit, you are going to chew right through the thin plastic template, making it almost worthless for someone who is not experienced.

As it turns out, this is such a considerable problem, that there are kits you can buy to help you perform this task. The one HNN purchased is made by Ryobi. It consists of a plastic device, with a metal ring in the shape of the faceplate sticking out. The user bangs on the plastic handle, embedding the metal ring in the wood, then pulls it out. The device has a built-in chisel that can then be used to chip the wood inside the indentation out.

It's not bad to use -- except that the built-in chisel is close to worthless. But you can bang in the metal ring, and then effectively use a real chisel to chip out the wood to form the recess.

So, to make this kind of kit effective for the real novice DIY market, you would need to solve the arbor problem, and include some simple tool to make fashioning the recess much easier. Of course, the objection most tool designers would have to these changes is that they will increase the cost of the kit.

That's true, but the core thing to understand is that, in this market, price is not nearly as important as providing all the ingredients needed for success. There is no point in being a novice DIYer and buying a lock kit that ends up not working.
The new market

The point of the above example is not so much a review of two particular lock jig sets, or identification of the problems they don't quite manage to resolve. What it is really about is investigating a certain frame of mind. Can we look at typical DIY tasks and see all the obstacles they present to people with limited experience? Can we find our way to solutions for most of those problems, or at least bring those solutions within the reach of people with a low level of skills?

One of the core values involved in this that it is important to get right is that cost is far less of a consideration than might normally be thought. For someone with some experience, the cost of a jig for fitting a lock might matter a lot. For someone whose only alternative would be spending money on a tradesperson to do the work, cost is far less of a concern.

It is a difficult set of adaptations for the industry to make, but looking into the mid-term future, it is a crucial adjustment to make.
Other cultures

In addition to adapting to people with fewer skills, the other task that faces hardware retailers and suppliers is adapting to people with widely different skills. There are two sets of cultures that while they not strictly about DIY, come very close and could offer effective DIY-like markets in the future.

The first of these is something that has become known as "maker culture". Here is one definition of what that maker culture is:
Maker culture emphasises learning-through-doing (active learning) in a social environment. Maker culture emphasises informal, networked, peer-led, and shared learning motivated by fun and self-fulfilment. Maker culture encourages novel applications of technologies, and the exploration of intersections between traditionally separate domains and ways of working including metal-working, calligraphy, film making, and computer programming.
Community interaction and knowledge sharing are often mediated through networked technologies, with websites and social media tools forming the basis of knowledge repositories and a central channel for information sharing and exchange of ideas, and focused through social meetings in shared spaces such as hackspaces.

Typical maker culture activities consist of everything from simple electro-mechanical home automation (remote controlled solenoids connected to wi-fi that mechanically turn on/off light switches, for example) to robots that perform basic tasks. Some of this has a practical bent, and some is purely playful or exploratory.

The second is the world of "craft", but not quite craft as we have known it. It is often just as much about a form of "hacking" traditional forms of craft to produce startling and different results. Much of this is about repurposing both found and purchased objects to suit new needs.

For example, there is a whole sub-culture of this kind of craft that is dedicated to reconfiguring and repurposing IKEA furniture so as to make it serve radically new purposes. This includes people using IKEA to subdivide new rooms in their apartments, and create entire new categories of furniture, often combining the functions of two or three pieces into one.
Analysis

It is necessary to emphasise that, while some of the above might seem a little negative, in fact the future for DIY is a very bright one. One reason car manufacturing is ending in Australia, is that there is simply too much capacity worldwide, and much of that capacity is in nations where labour costs are lower. There is little doubt that, over the next 15 years, private ownership of vehicles is set to diminish. Autonomous vehicles, even if they provide only limited transit areas, will make owning a car less vital to everyday life. At the very least, two-car families will likely transition to one-car families, and in the inner cities in particular, the number of no-car families will increase.

What is also set to increase is the amount that families and individuals spend on fixing up their houses. That money is less likely to go into expensive leather lounge suites and marble countertops in vast bathrooms. Where it will go is into home technology. The modern home, with solar energy roof tiling, a complex battery system to store off-peak power on sunny days, comprehensive energy monitoring, water recycling, and, most likely, a central computer that runs all these and many other systems, is going to become even more a focus for spending.

The thing to grasp, for retailers and suppliers that really want to benefit from these coming changes, is that the spending will be on areas that are today only just beginning to become viable. There really is a new era coming to the home improvement industry, and it will reward those companies and retailers that understand it early, and being preparing for the change soon.
Bigbox
Big box update
The Shepparton Bunnings store will be the second largest in Victoria
HNN Sources
Bunnings has flagged plans to move into the former Masters site at Albion Park (NSW)
Woolworths has found new jobs for more than 1500 of its former Masters workers in its supermarket chain
Click to visit the HBT website for more information
The Shepparton Bunnings store will be the second largest in Victoria; there are plans for Bunnings to move into the former Masters site at Albion Park (NSW); Bunnings' head office site has been sold; and several ex-Masters staff have transferred over to Woolworths supermarket stores.
Shepparton will be second largest in VIC

The $53 million Bunnings store being built in the regional area of Shepparton (VIC) is on schedule to open in mid-2017, according to the Shepp Adviser. It is set to become the second largest Bunnings Warehouse in Victoria.

Currently under construction at 90 Benalla Road in Shepparton, the new Bunnings' will see approximately 50 new jobs created following its opening, taking the team to approximately 180. Bunnings property - general manager, Andrew Marks said:
On-site, the majority of ground works are complete with construction progressing to the erection of structural steel and concrete wall panels. Bunnings Warehouse Shepparton will have an approximate total store size of 18,000sqm...The development will include a main warehouse, indoor timber trade sales area, building materials and landscape supplies yard and outdoor nursery, as well as an indoor playground and cafe and parking for over 410 cars...
Bunnings has been part of the Shepparton community for over 15 years and is looking forward to bringing a bigger and brighter offer with the new store.
Masters Albion site for Bunnings

Bunnings has flagged plans to move into the former Masters site at Albion Park (NSW). The Advertiser Lake Times reports that Bunnings has lodged a development application with Shellharbour council, seeking to modify the Masters consent.

Instead of being a classed as a "home improvement centre" Bunnings wants to create a "hardware and buildings supplies" store, and make a series of minor design modifications.

If approved, the Albion Park location would add a growing stable of Illawarra Bunnings outlets. A $30 million development is planned at Kembla Grange, and a store is underway at Russell Vale in addition to the three others in the region.
Bunnings' HQ sold off

The Bunnings head office based in Hawthorn East (VIC) has been sold for $24.7 million to a private syndicate. It was purchased on a yield of 6% in a deal negotiated by Colliers International's Peter Bremner and Rob Joyes, according to the Urban Developer.

Despite the sale, Bunnings' staff will continue to operate from the same location, having commenced another six-year lease in August, with an additional six-year option to renew.

Mr Bremner said the buyer recognised the property, which has a net lettable area of 5295sqm, as an "outstanding" opportunity to secure strong-performing real estate with a solid income stream in a prime location. He said:
Bunnings is Australia's largest private employer and largest company in terms of revenue and has been a long-term tenant since the building was specifically constructed in 2004. The building offered a predictable and secure cash flow stream until at least August 2022, as it continues to be Bunnings' national headquarters, plus significant future rent reversion in a thriving inner-east suburban location.

The off-market campaign achieved a quick turnaround, selling to the syndicate within two weeks of the first inspection.
Ex-Masters staff deployed to Woolies

Woolworths has found new jobs for more than 1500 of its former Masters workers in its supermarket chain, according to a report in Fairfax Media.

Approximately 1650 Masters staff of a workforce that used to total 6000, have accepted new roles at Woolworths. This represents a take-up rate that equates to just under half the number of people who were offered alternative jobs.

An additional 600 workers have taken roles at other, mainly hardware-aligned businesses through Woolworths' outplacement program implemented when the retailer announced plans to shut down the store network.

Woolworths home improvement human resources director Gillian Davie said workers who didn't take up alternative employment offers were able to gain redundancy payments, which included access to a job placement program. She said:
We are proud to say that every Masters store employee who wanted a job in Woolworths was given a job offer as per the commitment made by Brad Banducci at the time of the announcement of the home improvement exit.

Matthew Dickson was working as an assistant store manager at Masters but has moved from Newcastle (NSW) to take a store manager role with Woolworths at Coonabarabran, two hours from Tamworth.

Mr Dickson said it was quite a transition, moving from hardware to grocery but he said there was also a lot of similarities.
The main difference between hardware or home improvement and a supermarket is the product you are selling, you are still in a role where you are looking after a team and leading a team and making decisions based on the customers and that doesn't really change no matter what retailer you are working for.

Retail analyst Steve Kulmar said the high number of Masters staff moving across to the Woolworths chain reflected just how tough it was in the retail sector and he warned the outlook was uncertain for retailers that hadn't kept up with the shopping habits of the millennials. He said:
Millennials are now the dominant group and they have a very different approach to retail, which is more considered and they do a lot more research. They are inclined to shop less but they make very considered purchases and in-store or brand experiences play a massive role. A lot of retail businesses just don't know how to do that and I think they're secretly wishing they were still selling to impulsive baby boomers out of average stores.
Companies
Supplier update
Dulux chief executive Patrick Houlihan addressed shareholders at its AGM recently
HNN Sources
Stanley Black & Decker has extended its deal with IkeGPS Group for its Smart Measure Pro product
Taubmans features snow globes in its latest print advertisements
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Dulux chief executive Patrick Houlihan remains positive about the company's future; Stanley Black & Decker has extended its deal with IkeGPS Group for its Smart Measure Pro product; and Taubmans Endure Exterior paint features snow globes in its latest print advertisements.
The future is profitable: Dulux chief

At Dulux's annual general meeting recently, chief executive Patrick Houlihan told shareholders he expects the company's core home renovation and maintenance markets, which account for two thirds of revenue, to drive sustainable profitable growth this year as the sector returns to long-term average growth rates in 2017.

Mr Houlihan confirmed that subject to economic conditions and excluding non-recurring items, Dulux expected overall net profit after tax in fiscal 2017 to be higher than the 2016 equivalent of $130.4 million.

He also noted that the company should not be affected by the closure of the Masters hardware chain. Mr Houlihan said lead indicators in the company's key markets remained largely positive. He said:
Our core existing home renovation and maintenance markets...are expected to continue to provide resilient, profitable growth. The new housing market segment accounts for approximately 15% of group revenue and we tend to focus on the higher-margin, premium end of this market. Although new housing approvals have peaked, we expect this market to remain strong in 2017, given the solid pipeline of work yet to be commenced and completed.

He said commercial construction markets were expected to remain solid, but resources infrastructure markets would continue to struggle while markets in China and PNG were tipped to stay weak in the immediate term.
However, we are confident our core, renovation and repair markets in Australia and New Zealand are on track to revert to normal, resilient growth rates.

Related:
DuluxGroup FY2016 results - HI News, page 22
IkeGPS expands Stanley deal

New Zealand-based IkeGPS Group has struck a new deal with Stanley Black & Decker.

The tool company has extended its supply, branding and distribution agreement for Ike's Stanley Smart Measure Pro product that targets the construction industry and professional contractors. The agreement term runs to the last quarter of 2018.

Ike executives said sales channels contemplated under the agreement are Stanley Black & Decker's big-box retail and specialty distribution partners spanning Europe, North America, Asia, Australia and New Zealand where partners include Bunnings.

To facilitate sales into these different markets, the product has now been translated into 15 different languages and customised for 25 different geographic territories.

The Stanley Smart Measure Pro product was launched in December 2015. About 25,000 units were sold into the US market in FY16 through Lowe's stores. The FY17 unit volume forecasts have been upgraded twice in the first half of the financial year, from 26,000 units to 39,500 units, as a result of three new European markets. Ike chief executive Glenn Milnes said:
Given the extremely positive customer and market response to the product since its launch into North America and now into the UK, France and Germany, the extension of our agreement with Stanley Black & Decker is an exciting long term development for this product.
We have already seen the power of big-box retail distribution and anticipate follow-on orders from each of the aforementioned markets as well as launch orders for numerous new territories and channels through FY17, FY18 and beyond.

This renewed agreement has been concluded on improved commercial terms and the sale of units will generate material gross margins for Ike.

Related:
Kiwi tech in US home improvement market - HNN
Snow globes star in paint ads

Taubmans and its creative agency Naked Communications have launched a print campaign to inspire consumers to make the most of their festive free time by painting the exterior of their home.

The campaign focuses on Taubmans Endure Exterior, a premium paint designed for maximum protection against all weather conditions. It dramatises the effectiveness of Taubmans paint by showing a range of different regional-style Australian homes, each encased in a snow globe. Fiona King, senior brand manager at Taubmans, said:
Our customers can sometimes struggle to find the time to paint, but with the great weather and time off, the holidays are an excellent time to finally get around to it. Taubmans Endure is the perfect choice because it has Nanoguard Technology, which provides maximum all weather protection. We felt this idea brought this to life in a fantastically simple way.

Jon Burden, Naked's executive creative director explains:
Leading up to the holidays many brands are shouting for people's attention, especially in print format. We wanted to stand out from the Christmas crowd by creating something simple and pure. I believe the mark of a good product ad is being able to explain the product benefit without explanation or a list of claims, and this concept does just that.

The campaign is running across national magazines and press.
Products
Briggs & Stratton industry showcase
The 8,000 watt Elite Series portable generator is suitable for serious do-it-yourself projects
Briggs & Stratton
Vanguard's Oil Guard System offers savings for commercial landscapers
EASYflex high-pressure washer hoses are designed to make pressure washer set-up and storage easier
Click to visit the HBT website for more information
This year's Green Industry and Equipment Expo (GIE+EXPO), the outdoor power equipment industry's largest gathering in Kentucky (USA), provided a showcase for Briggs & Stratton. Dealers and retailers had the opportunity to see and test out the latest products.

The 8,0002-Watt Elite Series[tm] Portable Generator with StatStation Wireless Bluetooth allows homeowners to monitor the generator from a smart device. They will be able to see the remaining fuel levels or capacity of the generator at a glance. The app also provides maintenance reminders and a store locator.

The Vanguard[tm] brand launched Vanguard Oil, a 100% synthetic 15W-50 small engine oil designed for demanding commercial engine applications. Vanguard Oil is ideal for commercial-focused turf-cutters who push their small engines to the limits.

Vanguard's Oil Guard System allows for 500 hours between oil changes. The system continuously exchanges oil between the engine and a large remote oil reservoir external to the engine. It protects the engine oil from thermal breakdown, extending maintenance intervals and producing a cooler running engine.

The Mow N' Stow(r) + Just Check & Add[tm] walk mower engine combines two of Briggs & Stratton's most recent innovations. The engine never needs an oil change; owners need only check oil levels and add when necessary. This mower can be folded and stored upright even with gas and oil in the tanks, taking up 70% less space in the garage.

EASYflex[tm] high-pressure washer hoses are designed to make pressure washer set-up and storage more manageable. At 30-feet long and more flexible than a standard pressure washer hose, it helps improve the pressure-washing experience.

The Briggs & Stratton Protection Pack for pressure washer maintenance includes the exclusive pump saver formula to protect piston and seals from damage; O-ring replacement kit; and advanced formula fuel treatment and stabiliser to help prevent damage caused by ethanol.

The third pressure washer innovation introduced at the expo is a rotating surface cleaner with detergent tank, which allows users to clean large outdoor areas such as driveways and decks. It comes in a 16-inch size designed for gas-model pressure washers and a 14-inch size for electric pressure washers. Both come with an integrated detergent tank.
Products
The shovel that's badass
DMOS has had another successful Kickstarter campaign for its Alpha Shovel
DMOS Collective
The Alpha Shovel can be used for shovelling and cutting through hard surfaces
In 2015, DMOS introduced the Stealth Shovel on Kickstarter
Click to visit the HBT website for more information
Portable tools innovator DMOS has launched a second campaign on crowdfunding site Kickstarter to debut its new shovel for the active outdoorsman or DIYer. Supporters can pre-order discounts on the Alpha Shovel and its accompanying accessories: the T-handle saw and interchangeable T-grip.

Last year on Kickstarter, DMOS introduced the Stealth Shovel, a pro-quality, packable tool for shovelling, raking, and biting through hard surfaces like ice and hard-pack snow. The Stealth Shovel went on to win the 2016 ISPO Brand New Hardware Award. (ISPO is a sporting goods agency.)

DMOS out-performed its funding goals on its original Kickstarter campaign for the Stealth Shovel and received rave reviews from media outlets such as ESPN, Outside Online, and Freeskier Magazine.

Using customer feedback to build the latest products, DMOS returns to the Kickstarter platform for further dialogue with the company's most supportive consumers. Founder and CEO, Susan Pieper said:
The response to the original Stealth Shovel Kickstarter campaign was stellar; fans loved it and called for more. We listened and are very excited to return to Kickstarter with the Alpha Shovel and its accompanying accessories. Backers and early adopters demanded a shovel with a larger blade be added to the assortment, but it had to be as indestructible, well-designed and portable as the Stealth Shovel. We built the Alpha Shovel to be the top shovel of the pack...

The Alpha Shovel campaign will enable DMOS to secure funding to complete production of the Alpha Shovel. The company will also offer add-on accessories of the saw and the T-grip as rewards for its Kickstarter backers.
Retailers
Retail update
IKEA customers in Canberra will have e-commerce before the rest of the country
HNN Sources
Kennards Hire has opened outlets in Werribee (VIC) and Tauranga (New Zealand)
Mitre 10 New Zealand has opened another MEGA store in Ruakura
Click to visit the HBT website for more information
IKEA customers in the nation's capital are the first in Australia to have an e-commerce option; Kennards Hire adds to its retail network; and Mitre 10 New Zealand has established another MEGA store.
IKEA goes online in ACT

IKEA has launched online shopping and Canberra customers are the first in the country to get it. They can shop, order and pay online 24/7 and have goods delivered the next day.

There is also a new click and collect option - where items are collected and available ready for pick up. Click and collect was recently trialled at IKEA in Tasmania, but Canberra is the first store to have both click and collect and home delivery. IKEA spokesman Michael Donath told the Canberra Times:
We've been shown a lot of love from the Canberrans, I think we've had 1.5 million visitors since we opened. And I guess Canberra's a really good opportunity to test and try as well and learn from the market, understand how the customer experience should be where we have a store and online offering, and really see how we can support the customer best before we produce e-commerce for the rest of the country.

Almost the entire IKEA range is available for delivery. Costs starts at $79 and is currently available throughout the ACT and Queanbeyan. Mr Donath said:
In the new year we will look at other regional areas surrounding or a bit further from the ACT, so everywhere from Wagga Wagga through to places like Albury, Wodonga etc..

The existing loading bay area near the store's exit will become the click and collect area, with the service attracting a $20 fee. Mr Donath explained:
You come in straight through the exit and your goods will be ready to pick up. When you do order online you can select your day that you prefer and the time slot, so you can actually come in when it suits you. You won't have to wait there and wait for it to be picked, it'll be all ready for you.

There are future plans is for IKEA to roll online shopping out nationally over the coming years.
Kennards Hire opens new branches

Equipment and tool rental company Kennards Hire recently opened its 23rd branch in Victoria following the acquisition of family-owned business, Werribee Trade Hire.

Kennards Hire is retaining the expert staff from Werribee Trade Hire. Neil Masterson, general manager of Kennards Hire - Victoria identified its local expertise as being crucial to Kennards' success in the area. He said the owners, Miro and Roberta Strmecki have built a great business with their equipment fleet and customer base almost identical to Kennards' core market.

According to Mr Masterson, the western suburbs are a rapidly expanding part of Melbourne and in growing need of housing and infrastructure development. Though Kennards' branches at Brooklyn and Geelong have been servicing this market, the company thought it necessary to be closer to the action to provide quicker service and a wide range of reliable hire equipment.

Kennards also opened its 17th branch in New Zealand when it took over Tauranga Hire. Tom Kimber, general manager of Kennards Hire New Zealand said:
Being the largest city in the Bay of Plenty, Tauranga is an exciting step for our network of hire equipment branches...Infrastructure projects, housing and commercial construction are all projected to see strong growth over the next few years. This is a great opportunity for us to invest in and grow our brand and equipment hire service offering in one of the fastest growing population areas in New Zealand.

The current staff at Tauranga Hire will join the Kennards Hire team, providing a seamless service for customers.

Kennards Hire operates almost 170 branches across New Zealand and Australia. Prior to the branch in Tauranga, it opened one in Hamilton in August this year. Tauranga is the neighbouring suburb to Hamilton in New Zealand.
Mitre 10 NZ launches in Ruakura

The recent opening of Mitre 10 MEGA Ruakura will serve tradies and DIY enthusiasts in Hamilton, a populous city of the Waikato region, in the North Island of New Zealand.

Store owner-operators, Terry and Lynne Wilson, have been eager to complete this four-year project for their South-East Hamilton based customers, who previously had to make the journey to the Wilson's other Mitre 10 MEGA store at The Base, Te Rapa. Mr Wilson said:
The new store will operate as a satellite of our Te Rapa store - offering the same range and store features and allowing our trade customers to use one account across both stores.

The Mitre 10 MEGA Ruakura store encompasses almost 8,000sqm of retail space, garden area, drive-thru, trade yard with trade supply bulk bins, and a Columbus Cafe.

The store has been designed with sustainability and efficiency in mind, including new wireless mobile devices that will enable team members to be more productive and responsive to customer requests. Mr Wilson adds:
Whether they're in the garden area, the drive-thru, trade yard or anywhere else in the store, our team members will be able to check stock location and availability on the spot, as well as process orders without the need for paper, which allows them to deliver a more efficient service for our customers.
Reports
What millennial renters want
When it comes to a place to live, what millennials value most is technology
Building Design + Construction Network
Understanding what millennials want from apartment design
Australia can benefit from multi-family passive housing
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Recently, millennials have supplanted baby boomers as the largest generation on the planet. With such a huge number of people, many of who are 20-somethings beginning to get a little spending power, companies are doing everything they can to try and crack the enigma that is the millennial buyer and figure out what they value most (beyond ironic t-shirts, protesting, and coffee shops).

Perhaps unsurprisingly, when it comes to a place to live, what millennials value most is technology. A recent survey from Wakefield Research and lock maker Schlage of 1,000 American renters in multifamily dwellings revealed that 86% of millennial renters would pay higher rent for a "smart" apartment.

For comparison, only 65% of baby boomers would pay more for an apartment packed with automated or remote-controlled devices.

The survey also found that over 61% of millennial renters would rent an place specifically for electronic access features, such as keyless entry doors, and 55% would pay more for an apartment with high-tech door locks compared to traditional door locks.

Another 44% of millennials said they would sacrifice having a parking spot if it meant they could live in a high-tech apartment. Overall, millennials would pay about one-fifth more for smart home features than other generations.

It isn't just technology millennial renters are after, however. Convenience and security are also important. 63% of millennial respondents said they would move out of a flat or apartment because of poor security. Additionally, 64% of millennials feel it is more important for their place to be closer to work than friends and family.

At least according to this survey, the average millennial renter is more concerned with technology and convenience than anything else in an apartment, and are willing to pay for the things they desire.

The Schlage survey was conducted in October 2016 via email and an online survey.
News
HI News V2 No. 18: Is housing "rigged"?
Download the latest issue of HI News Vol. 2, issue no. 18
HI News
Bunnings' micro-warehouse in Balmain
Metcash-Mitre 10 half-year results for FY 2016-17
Click to visit the HBT website for more information
The Australian housing market and its implications for the home improvement retail industry gets a lot of attention in the latest issue of HI News.

Just click on the following link to download this edition:
HI News V2 No. 18: Is housing "rigged"?

We take a close look at the future of retail, based on the findings from strategic survey data company Roy Morgan. Its statistics indicate a strong increase in customer visits to physical ("bricks and mortar") retail outlets. However it has also detected a fall in overall actual spending.

Overall revenue grew slightly for Mitre 10 owner, Metcash in its first half results. However EBIT continued to decline. Diversified agribusiness Ruralco is in growth mode after a restructure. The group includes merchandise group, Combined Rural Traders.

We also put forth an alternative theory on why Bunnings may be building a micro-warehouse in the inner-suburb of Balmain in Sydney.

Australian bathroom retailer, The Blue Space is experimenting with virtual reality for its customers. Local tradie app, Mr Tradie moves the focus away from just cheap pricing.

Featured new products include battery driven outdoor power equipment from Greenworks Commercial; latest Honda mowers; and a home security range.
Retailers
Indie store update
Ruralco is the parent company of merchandise group Combined Rural Traders (CRT)
Farm Online
It is set to acquire TP Jones in Tasmania
Hunter Irrigation is being integrated into Ruralco's Eden water equipment stable
Click to visit the HBT website for more information
After a $14.1 million management restructure to strip out excess costs, Ruralco plans to make up ground on the back of reporting a 70% net profit slump recently. The farm supplies, agency and water equipment group added 19 new businesses to its network during the past year.

Ruralco is the parent agribusiness for a host of rural livestock and property agencies, plus the 38-branch Total Eden network and merchandise group Combined Rural Traders (CRT). It has 270 business outlets Australia-wide, many owned in partnership with their operators.

The group is set to launch a generic line of drench and lice treatments under the Covine brand by mid-2017 following this year's successful private label release of the Relyon farm chemical range.

Ruralco has also teamed up with the ASX-listed Steadfast group to merge its insurance broking business into a joint venture with Ausure Consolidated Brokers (ACB). This more than doubles its insurance footprint and provides better back office support and underwriting capabilities.

In Tasmania, Ruralco's agency subsidiary, Roberts is set to absorb the TP Jones and Company rural retail businesses in Launceston, Longford, Latrobe and Campbell Town in February 2017. It will sell its Kubota and Agco machinery dealership, Tasmania Farm Equipment, in Devonport, Launceston, Smithton and Hobart.

At the same time, Ruralco has been incorporating the recent purchase of three additions to its Total Eden water equipment stable in the NSW Lower Hunter Valley (Hunter Irrigation) and two in South Australia's Riverland. They are part of the 19 businesses added to the network in the past year.

However, tight margins in the livestock export business and the cancellation of an export licence for its southern Frontier International operation in July became the trigger for a big cost cutting drive and management revamp.

Live export and water business restructuring alone cost the company more than $8 million, with redundancies, six store closures and the divestment of the machinery business costing a further $4.4 million.

The restructure, and an $8.7 million slide in live export gross profits, eroded Ruralco's 2015-16 after-tax net profit to just $4.2 million.

However the group still posted strong results in its core traditional business, with rural supplies' gross profits up 16% to $118 million and agency gross profits up 3% to $105 million. The company has spent $14 million on restructuring and divestment costs.

Managing director, Travis Dillon, has not released estimates on the value of the cost savings to Ruralco's bottom line, but he said the "strategic cost out benefits will more than cover the expenses we've incurred". He told Farm Online:
We've taken action which needed to be taken; we've got a very engaged workforce; we're very comfortable with our platform, and we're very optimistic about the business outlook for the next six months.

Despite the lean 2015-16 net profit result, the company's underlying performance was solid with revenue up 10% to $1.8 billion and gross profit lifting from last year's $297.7 million to $304.9 million.
Companies
Supplier update
Boral buys US company Headwaters
HNN Sources
A consumer survey from Husqvarna shows the popularity of eco-friendly equipment
James Hardie has downgraded expectations for its full-year profit
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Boral acquires Utah-based building products group Headwaters in AUD3.5 billion deal; Husqvarna survey shows support for eco-friendly equipment; and James Hardie's half year profit dropped 24%.
Boral's US acquisition

Boral, Australia's biggest supplier of construction materials and building products, has agreed to buy Utah-based firm Headwaters for USD2.6 billion (AUD3.5 billion) in a deal that will double the size of Boral's US business.

It will be funded by a AUD2 billion share issue, as well as borrowing and Boral's existing cash, according to the company's announcement to the Australian stock exchange.

Chief executive Mike Kane said the deal would provide cost savings of around USD100 million per annum within four years of closing. He said in the statement:
The businesses of Headwaters are highly complementary with Boral's existing US operations - in fly ash, roofing, stone and light building products.

Headwaters chief executive and chairman Kirk Benson said the combined group would be one of the "leading manufacturers and distributors of building products and construction materials for infrastructure, new residential, repair and remodel, commercial and institutional construction".
American dream

The market was quick to connect Boral's big bet on the US with the election of Donald Trump, who has promised to launch a USD1 trillion (AUD1.35 trillion) infrastructure investment program via tax breaks for the private sector to boost economic growth.

Headwaters' fly ash business (a waste product from coal-fired power plants that is used as a cement substitute in heavy construction) would be a big beneficiary of what Mr Kane called a "Trump bump", although he insisted this would be "gravy" for Boral and hadn't been built into its due diligence projections.

So when Mr Kane told AFR Weekend "this was the time to buy this business in this cycle" he was talking less about infrastructure and more about the recovery in the US housing market.

The huge US housing crash a decade ago caused new housing starts to slump from more than 2 million in 2005 to just 646,000 in fiscal 2009.

The bursting of the US housing bubble sparked the global financial crisis and led to millions of home foreclosures. Property prices plunged more than 20% and many gave up on the great American dream of owning or building a home.

As a major manufacturer of bricks, other cladding like stone, roofing, tiles and building materials in the US, Boral was already leveraged to the US housing market and badly hurt by the downturn.

Today, Mr Kane's theory is simple. Due to years of under-building since the crisis and strong pent-up demand, the housing market has bottomed and is now in a five-to-seven year upswing that will see housing starts move back to their long-term annual average of 1.5 million, from around 1.2 million in 2015.

Mr Kane says the market is now largely controlled by so-called "production" home builders who own huge land banks. Prior to the GFC, when the economy was awash with money, these groups were in a building frenzy but today they are being much more cautious.

The result, Mr Kane said drawing on his 42 years of experience in the US market, could actually be a more sustainable market. He said:
It's a housing market that's been characterised by violent swings every seven to eight years. And now we are probably going to be in a 10 to 12-year recovery.

While the Headwaters deal will help diversify Boral's US operations away from the new-home market - the proportion of revenue from new homes in the US business will fall from 66% to 45% after the deal - housing will remain the key to Boral's American dream. Around USD810 million (AUD1.1 billion) of its revenue in the US will remain exposed to the sector.

Beyond the macroeconomic and political forces influencing the success of the takeover, a benefit to Boral is that Headwaters can sell its products through Home Depot and Lowe's stores.
Eco-friendly equipment finds favour

A recent survey conducted by Husqvarna shows that its US-based customers prefer eco-friendly equipment and are willing to pay more for it.

The Green Spaces Survey was conducted in August of this year. Of the 1,579 consumers polled, 65% stated they would choose a landscaper who uses eco-friendly outdoor power equipment over one who doesn't.

Companies that choose to be eco-friendly are also more likely to receive ongoing customer support, as 72% of the survey respondents said they would support eco-friendly companies over those that do not use battery-powered equipment. Jeff Dewosky, vice president and general manager for Husqvarna North America, said:
Husqvarna is committed to keeping a pulse on the future of public green spaces so we can best advise both consumers and professionals on sustainable, efficient ways to maintain parks, as well as commercial and residential properties. This report demonstrates that there's a demand for more eco-friendly outdoor power equipment and the benefits that the technology provides.

Along with being eco-friendly, the consumers polled also had an interest in quieter outdoor power equipment, with 57% saying they would pay more for a landscaper who uses quieter equipment. A strong majority of respondents (71%) felt that companies that choose eco-friendly equipment should receive tax benefits.

At GIE+EXPO, the largest industry event for outdoor power equipment held each year in Louisville, Kentucky (USA), Husqvarna revealed additions to its 500 Series battery lineup, including the 536LiPT5 and 536LiP4 pole saws. Both saws have an intuitive keypad and a 10-inch bar, but the 536LiPT5 comes with a telescopic tube and weighs slightly more at 10.8lbs (almost 5kgs); the 536LiP4 weighs 7.4lbs (3.6kgs).

The 536LiLX trimmer is another addition and features a two-way rotation head, enabling users to operate the product in both a forward and backward direction. The 536LiHD60X hedge trimmer, meanwhile, has been upgraded with a new proprietary motor that maximises its working time, and the tool's rear handle can pivot to enable both vertical and horizontal trimming.

As with all of Husqvarna's battery-powered equipment, each model can share the same type of battery.

On the more traditional gas-powered side of things, Husqvarna has two new trimmers and edgers.

Husqvarna said the 522L trimmer is an affordable option for landscapers who don't want to forfeit the manufacturer's durable design. The 525LK trimmer features a detachable shaft that allows it to be a jack-of-all-trades, swapping out attachments such as a dethatcher, brushcutter and edger.

The 525ES edger has a steel shaft drive while the 525ECS edger comes with a curved shaft and flex drive.
James Hardie cuts FY expectations

Building products supplier James Hardie has downgraded expectations for its full-year adjusted net operating profit, saying production constraints are affecting its ability to meet US demand.

The company noted that analysts' forecasts for net operating profit excluding asbestos-related adjustments for the year ending March 31, 2017, ranged from USD256 million to USD285 million (AUD342 million to AUD381 million).

But management expects full-year adjusted net operating profit to be between USD250 million and USD270 million. The comparable adjusted net operating profit for fiscal 2016 was USD242.9 million.

Chief financial officer Matt Marsh said in a briefing for market analysts that James Hardie was taking steps to increase manufacturing capacity to meet strong demand now and in the future. Mr Marsh said the downgrade was driven by a combination of start-up costs and the company not being able to ship everything it had orders for. He said:
So a combination of those two is really the driver of the adjustment down to USD250 million to $US270 million.

Chief executive Louis Gries said it would be another two or three quarters (six to nine months) to get James Hardie's manufacturing network up to targeted performance levels.

James Hardie expects the US housing market to grow steadily in fiscal 2017. But although US housing activity was improving, market conditions were uncertain and some input costs were volatile.

In Australia, net sales are expected to trend in line with the average growth of the renovation and single detached housing markets in the eastern states.

James Hardie recently booked a 24% fall in first-half profit to USD144.1 million, mainly due to greater asbestos-related adjustments in the prior corresponding period.

Excluding asbestos-related adjustments, net operating profit was up 10% to USD141.4 million, from USD128.7 million a year earlier.

Net sales rose by 11% to USD973.5 million, driven by higher sales volumes in the North American fibre cement business and a higher average net sales price in the international fibre cement segment, which includes Australia.

Although demand in the renovation and new housing markets grew in the US, James Hardie's production costs increased because of unfavourable plant performance and higher start-up costs associated with lifting the production capacity of the US plants.

In Australia, net sales for the half-year lifted due to a higher average net sales price and greater volumes. But the guidance pointed to a transition year for the company, where good volume growth does not provide the upside that the market may have anticipated.
Bigbox
Bunnings' micro-warehouse in Balmain
A rendering of what the completed store would look like
HNN Sources
A map of the area around the proposed Bunnings
The site of the building
Click to visit the HBT website for more information
Bunnings' proposed store at the inner-Sydney location of Parsons St, Rozelle is no ordinary Bunnings store. With a selling floor space of just 4,100 square metres, including 500 square metres of outdoor garden space, it is one of the smaller Bunnings stores in the big-box retailer's fleet.

While Bunnings has made great strides with its "medium" format stores, such as the one at Collingwood, on the outskirts of the Melbourne CBD, this store would appear from the plan diagrams to be quite different. Rather than concentrating on fitting the maximum amount of selected stock into a "compact" space, the Balmain store follows the design layout of the larger warehouse stores. As the planning documents state:
The Bunnings "small format warehouse" is a new venture for the company which currently develops contemporary large formats of some 17,000m2 to 20,000m2 and medium formats of some 12,000m2 to 16,000m2.

The documents go on to characterise the purpose of this kind of retail layout:
It is relevant that the large contemporary hardware outlets are "destination" sites whereas the small outlets are more "convenience" sites for local residents and trades persons.

The store has two floors of selling space, with the upper floor apparently having an open area for garden plants and supplies. The two floors are connected by a travellator. It has a number of other unique features, including a turntable in its shipping dock for trucks.

This store is likely aimed at the weekend quick stop market, as well as the weekend/weekday drive-by/drop-in traffic, predominantly by DIYers, but also, in this inner-urban location, tradespeople as well.

To put it simply, this Bunnings store could well be the trial prototype for a rollout of smaller format stores that are directly aimed at taking market share from smaller independent stores in urban locations. It is considerable effort, too, with the store predicted to cost $11.8 million to construct.

From a location standpoint, looking at the map, it's easy to see why Bunnings is attracted to this location. It is virtually triangulated by the three existing Bunnings in the general area, Ataramon, Ashfield and Alexandria.

HNN will cover in more detail at a later date the retail characteristics of this new store layout. What is of most interest at the moment is how Bunnings is working the planning the system so as to get this type of store approved.
Planning approvals

Given the style of the store, local small hardware stores see it as a direct threat to their businesses. The Hardware Store has its Balmain branch located a few minutes drive from the proposed site, and its owner, Grant Crowle, has been vocal in his view the store should not be allowed to go ahead. Not only will the store likely directly impact his own operations (which have been ongoing since 2003), but he says it has the potential to worsen traffic congestion in an area that is already highly congested.

There is also the matter of parking. The planning documents that only 74 car parking spaces will be provided in a basement car park.

Protests have reached a state where an online petition has been organised to provide a focal point for objections, and a sign appeared for a brief time, lashed to the fence around the site (currently an unused warehouse) protesting the development.

However, as usual, Bunnings' property team have developed a clever approach to getting approval for what could turn out to a controversial store location. To begin with, the site had been granted planning approval in 2012 for a three-level building with industrial establishments on the ground and mezzanine level, and a fitness gym on the top level. This will tend to make protesting the building itself a more difficult task.

That plan (which never went beyond planning approval) called for 94 parking spaces. How, then, can Bunnings, as a retailer, get away with providing only 74 spaces?

The answer is in the way Bunnings has positioned this store in the planning documents. The planning documents provide this analysis of the likely traffic that would be generated by the store:
  • the projected traffic generation of the previously approved development for the site were significantly greater than that projected for the proposed Bunnings development during the weekday peak periods
  • the projected weekend peak for the proposed Bunnings development may be higher than the potential for the approved development, however the flows on Robert Street and Mullens Street are significantly lower at these times (i.e. than the weekday AM and PM peaks).

  • Essentially what is going on is that Bunnings is "fitting" the store into the congestion patterns of the area. It is claimed that the store will generate less traffic during times when the traffic is at its highest, that is, on weekdays, and reach peak traffic loads only on weekends, when general traffic is at its lowest.

    Just to add to the picture, Bunnings is also claiming that another new, full-size Bunnings warehouse it has underway, at Victoria Road in Gladesville, will also divert some traffic away from the Balmain Bunnings.

    The calculations regarding parking spaces are just as interesting. There is an existing standard for the number of parkings spaces that must be provided for a retail floor areas. In this case, that standard calls for 1.78 spaces per 100 square metres of floorspace. In this case, that would work out to 73, and Bunnings is supplying 74 spaces.
    Analysis

    While it is evident that the new Bunnings would affect trade at the long-established The Hardware Store nearby, it seems quite likely that this is not the primary target of this venture. Just 15 minutes away down the Western Distributor is one of Mitre 10's most praised retail outlets, the Sunlite Mitre 10 store in Paddington.

    When Mitre 10 began to suggest it would consider acquiring the operations of the Home Timber and Hardware Group (HTH), HNN did suggest that this could alter the competitive situation between Bunnings and Metcash's hardware operations. This could be one of the first moves in that direction by Bunnings.

    If so, the company may be planning to adopt a quite unique approach. Rather than -- as it has done in the more blue-collar Collingwood store -- seek to produce a compact, as fully-stocked as possible store, Bunnings may select profitable, more upmarket locations to expand into. The stores it builds in these locations may be, instead of small and compact, scaled down warehouses, with more of a sense of space, and a more limited stock. It wouldn't be surprising if many of these locations turned out to be near stores that are fully-owned by Metcash.

    There are a number of other intriguing possibilities to this as well. There are signs that Bunnings could well launch an ecommerce site in calendar 2017. Having more urban, smaller stores, could open the way for it to facilitate ecommerce, by offering click-and-collect, or an online expansion of its special ordering services.

    Another possibility is that these stores in more upmarket suburbs might end up being the primary distribution points for some Bunnings products that continue to seem slightly out of place in its standard suburban warehouse stores. Chief amongst these is the company's range of outdoor furniture, which competes favourably with some of the furniture offered by Harvey Norman and even Domayne.

    If that did prove the case, it would be likely these small warehouses have less of an impact on retailers such as The Hardware Store, as the stock overlap would be smaller.

    In the meantime, Inner West Council is accepting public submissions on the proposal until December 19. The development application can be found here:
    Development application
    Retailers
    Metcash half-year results for FY 2016-17
    Results for Mitre 10 FY2017H1
    Metcash
    Results for Metcash overall, FY 2017H1
    Slide from Metcash analyst presentation
    Click to visit the HBT website for more information
    Australian supermarket and hardware wholesaler Metcash has released its results for the first half of its FY 2017, to 31 October 2016. Sales revenue was reported as $6629 million, up by 0.35% on the previous corresponding period (pcp), which was the first half of FY 2016. Earnings before income tax (EBIT) was reported as $82.8 million, down by 4.72% on the pcp. Net profit after taxes was $74.9 million, down by 38.61% on the pcp.

    Net profit was affected by several non-recurring items. The pcp comparative profit included profits of $35.1 million, relating to the sale of Metcash's automotive operations to Bursons. The current results include the acquisition costs for the Home Timber & Hardware Group (HTH) of $4.5 million, and an additional $3.4 million spent on Metcash's "Working Smarter" program aimed at reducing operational costs.

    Metcash reported that while the hardware and liquor divisions had performed well, the results had been impaired by a dip in the performance of the company's food and grocery operations. For the latter revenue fell by 1.16% and profit before tax fell by 8.05%.

    In a comment presented in Metcash's earnings press release, the company's CEO, Ian Morrice, is reported as stating:
    Despite difficult market conditions in the Supermarket sector, Independent Retailers are continuing to invest in growing their businesses, including new stores and refurbishments, and we remain focused on supporting this growth. The acquisition of HTH broadens our footprint in the hardware sector and, along with smaller acquisitions in the Liquor business, have diversified the Group's earnings base.
    The Group's strong underlying cash flows have further strengthened our financial position. Metcash is well placed to invest in growth opportunities, as well as in further operational cost and efficiency improvements.
    Hardware

    The company reported sales revenue for its hardware operations of $581.6 million, up by 9.59% on the pcp. Profit before tax was $12.5 million, an increase of 7.76% on the pcp. The company reported that sales on a like-for-like (comp) basis increased by 1.7%, up from the pcp's number of 1.3%.

    The newly acquired HTH operations did not materially contribute to EBIT, according to Metcash. However, HTH did contribute $51.5 million to revenue.

    In its presentation to investment analysts, Metcash stated that its EBIT percentage of sales fell to 2.1% for the reporting period, down from 2.2% in the pcp, noting a decline, however, of just 4 basis points or 0.04%. Based on the non-contribution to EBIT by the HTH revenue, HNN believes a more representative EBIT margin for Mitre 10 operations would be 2.36% (or as Metcash would present that number, 2.4%) an increase of 17.2 basis points.

    Metcash said the increase in EBIT came despite pressure from Masters' liquidation sale, and the unseasonal cool weather on Australia's eastern seaboard.

    The company noted that it completed a further four Sapphire store transformations during the half, bringing the total to 16. It claims an average sales increase of 17% across these revised stores.
    Acquisition

    Adjusting for cash already held by HTH, balanced against adjustments to working capital, the $165 million acquisition cost for HTH works out to $163.2 million. Assets acquired included trade receivables and loads amounting to $171.1 million, and inventories amounting to $125.6 million. These and other assets balanced against trade payables and provisions of $168.1 million balance the acquisition out at $163.2 million. No goodwill was included in the transaction. Total transaction costs amounted to $6.4 million.

    Metcash noted that the 2% retention rebate provided by HTH was discontinued in October 2016. Integration of HTH and Mitre 10 is expected to be completed by the end of FY 2018. The company states that it expects HTH to contribute more than $10m to EBIT during the second half of FY 2017, exclusive of integration costs.
    Analysis

    The food & grocery division of Metcash continues to struggle in what has become a highly competitive retail sector. Roy Morgan holds that IGA's market share, at around 10%, is now less than that of Aldi, which it believes has 12% Australia-wide.

    One possibly hopeful event on the horizon would be the entry of US online retailer Amazon into Australia, as Amazon has suggested it might make use of Metcash's supply chain. Even should this occur, Metcash and other grocery retailers could be hard-hit by the entry of Amazon, which could take market share in profitable staples such as laundry detergent.

    HNN has suggested in the past that Metcash has used Mitre 10 largely as a means of financing its ambitious goals in the grocery sector, making the minimum investment required to secure a good return, rather than making longer-term investments to grow the business into the future. The addition of HTH to the hardware division may change that equation somewhat, but it is difficult to see Metcash taking on much more risk over the next two years.

    The long-term question that remains is whether Metcash will become a diversified retailer, moving to make its grocery business a smaller contributor overall, or if the company will instead spin-off its hardware division at the end of FY 2018 so as to finance further expansion in its grocery business.

    HNN notes that, as has become the case over the past 18 months, Metcash has delayed making the recording of its presentation results to analysts available. HNN will be providing separate analysis of this when it does become available.
    Retailers
    Bathroom retailer using virtual reality
    The Blue Space has introduced virtual reality in bathroom, kitchen and laundry retail
    Power Retail
    It can display all the fixtures and fittings in the space
    The Blue Space is an Australian online retailer
    Click to visit the HBT website for more information
    Australian online retailer The Blue Space will launch its virtual reality (VR) technology in early 2017 to enable shoppers to choose and buy bathroom designs.

    The technology will replicate the customer's own kitchen or bathrooms (including dimensions), which will allow them to see what a range of packages would look like in their own space. Managing director, Josh Mammoliti told Power Retail:
    It simply takes the hassle out of shopping for a kitchen, bathroom or laundry. You can really see what each choice you make will look like in your house. You can 'live in it' before you buy. It helps with choice, saves time and reduces the risk of buying something you don't actually like.

    The virtual reality technology also shows real lighting and reflections, from the exact position of the sun as it moves through the day, based on the customer's home specifications. This can create a more accurate ambiance of lighting when they are viewing their virtual bathroom design.

    The retailer said its VR technology is within 99.9% dimensionally accurate, to correctly display all the fixtures and fittings in the space including all hardware and surfaces. Mr Mammoliti said:
    Bathrooms are quite complicated, especially when people are sinking usually $5,000 or a lot more into one. I wanted to build a business that looks at everything that makes it difficult for a customer to build a bathroom or kitchen, and do everything to take down those barriers.

    As the former digital strategist for Caroma, Mr Mammoliti saw a gap in the marketplace, and decided to start a company that takes the stress and hassle out of building a bathroom.

    The company primarily operates online but it has recently developed a bricks-and-mortar presence, with showrooms in Brisbane and Victoria. A few more have opened in New South Wales where customers can book for a virtual reality consultation or have their bathrooms built online in 3D. He said:
    The showrooms will be about the virtual reality and consultancy side of things - it's not really about the traditional showcasing of physical products.
    We're aiming for people to come in, do a 3D bathroom or experience it via virtual reality and for us to do the specifications. We can design the bathroom for them. We give them a code. They then load it up on their computer when they go home and play with it, show their family, chop and change things and then buy from home.

    The technology is in its first generation and Mammoliti said his vision for The Blue Space is that people can do this in their homes, with their own virtual reality systems.

    Developers of the technology, Situ, are currently refining the design, with a virtual colour palette to be implemented into the system at a later stage.

    The Blue Space is looking to install more pop-up stores in high traffic locations. Mr Mammaloti said:
    We're currently testing it out to making sure it all works. Customers will also eventually be able to buy through the VR technology, which is also being tested for its future generation models.
    Retailers
    USA update
    Ace Hardware has reported a third quarter revenue decline
    HNN Sources
    Pergo Outlast+ flooring has won The Home Depot's 2016 Innovation Award
    Lowe's is working with start-up B8ta to sell smart home products
    Click to visit the HBT website for more information
    Ace Hardware misses sales targets in its third quarter; The Home Depot hands out awards to the most innovative products and suppliers; and Lowe's works with start-up to offer smart home gadgets.
    Sales decline at Ace Hardware

    US hardware co-operative, Ace Hardware has reported third quarter 2016 revenues of USD1.2 billion, a decrease of USD46.5 million or 3.6%, from the third quarter of 2015.

    Net income was USD50.2 million for the third quarter of 2016, a decrease of USD4.1 million from the third quarter of 2015. John Venhuizen, president and CEO, said:
    Our expectation for the third quarter of this year was modest sales growth and lower net income as a result of last year's strong 13.2% consolidated revenue growth and 45.3% net income growth.
    We missed on sales in our Ace domestic business, but exceeded our net income budget. The Ace domestic sales shortfall was largely driven by last year's sell-in of LED lights and the lowering of wholesale selling prices to our retailers. For our shareholders, these wholesale price reductions were positive as over three-quarters of our wholesale price changes were decreases, resulting in less margin for the corporation, but more margin for our retailers.

    The 0.8% increase in retail same-store-sales during the third quarter reported by the approximately 3,000 Ace retailers who share daily retail sales data was the result of a 2.2% increase in average transaction size. For the first nine months of 2016, retail same-store-sales are up 1.9%.
    Revenues

    Total wholesale revenues were USD1.17 billion, a decrease of USD46.2 million, or 3.8%, as compared to the prior year third quarter. Decreases were noted across several departments with electrical, paint and plumbing showing the largest declines.

    Wholesale merchandise revenues to comparable stores decreased USD39.1 million in the third quarter of 2016. A significant portion of that decline was the result of significant sales of LED bulbs in the third quarter of last year as part of store resets and to support an October 2015 LED promotion.

    The company's Ace Wholesale Holdings subsidiary contributed USD1.9 million of incremental revenue in the third quarter of 2016, which was an increase of 2.1% from the prior year third quarter.

    Retail revenues from Ace Retail Holdings were USD59.9 million in the third quarter of 2016. This was a decrease of USD0.3 million, or 0.5%, from the third quarter of 2015. Same-store-sales decreased 3.4% compared to the prior year with the largest decreases in paint, lawn and garden and hardware.

    Ace added 36 new domestic stores in the third quarter of 2016 and cancelled 16 stores. This brought the company's total domestic store count to 4,335 at the end of the third quarter of 2016, an increase of 60 stores from the third quarter of 2015.
    Flooring innovation recognised

    The Home Depot recently announced that Pergo Outlast+ has won the retailer's 2016 Innovation Award. The company was selected because its new laminate flooring provides 24 hours of defence against liquid spills - something no other laminate offers at the moment.

    The annual award acknowledges the most innovative new products that provide genuine benefits to consumers and the suppliers that exceeded expectations in sales, service and program execution.

    Runner-up honours were awarded to Milwaukee Tools for its Milwaukee M18 FUEL with ONE-KEY. ONE-KEY allows users to connect to the tool with a smartphone for unlimited customisation and control. And honours went to Heath Zenith lighting for its Defiant LED BLADE motion activated security lights that has seamless light coverage.

    Additionally, Trex Enhance Composite Decking, made from 95% recycled materials, won Environmental Partner of the Year and PPG won the Marketing Innovation award for its Glidden Diamond Launch campaign.

    In addition to the top three award winners, The Home Depot endorsed the companies that round out the top 10 product innovations.

    Ryobi Ultra Quiet Garage Door Opener is the ultra-powerful motor that will quietly open and close large doors with ease, and comes with a multifunctional wall control, wireless keypad, two remotes, safety sensor and can be controlled via smart device.

    Mohawk Industries Lifeproof Carpet has lifetime stain protection, superior softness, exceptional durability and environmentally friendly attributes.

    FEIT LED Edge-Lit Flat Panel Lighting integrates the latest in LED technology with a low profile design that directs the light downward, creating uniform light distribution without hot spots, flicker or glare.

    Masterbrand's Thomasville Studio 1904 cabinets offer 12 unique door styles with modern, simple and straight lines.

    Nexgrill Evolution Plus 5-Burner Gas Grill with Side Burner provides the flexibility of choosing between direct heat and infrared cooking, and also has a smoker for smouldering wood chips.

    Apex Tool Group Husky 100 (Black) Mechanics Hand Tools includes multi-purpose alloy steel tools, heat-treated for added strength, suitable for small jobs around the house or the DIY mechanic.

    Freud Diablo Carbide-Tipped Hole Saws are the industry's first carbide-tipped hole saws to cut both wood and metal, with a design to simplify the attachment process for mounting.
    Lowe's selling tech gadgets

    US big box home improvement retailer, Lowe's has struck a deal to showcase technology products sold by San Fransisco-based B8ta within its stores.

    The Lowe's outlet in Livermore, California (USA) has installed a 400-square-foot section that lets customers get their hands on B8ta's still-unfamiliar home technology devices, including smart doorbells, light bulbs, security cameras, garage door openers and lawn sprinklers.

    It's one of three SmartSpot Powered by B8ta sections Lowe's has installed. The others are opening in Lowe's Burbank, Los Angeles and Aliso Viejo, Orange County locations.

    Details about the partnership were not revealed, but it would be a big boost for B8ta if Lowe's were to eventually decide to expand across its chain. B8ta, which started with a single store that opened two years ago in Palo Alto, California recently announced a USD19.5 million round of financing that will let it open outlets in Seattle and Santa Monica. Co-founder Phillip Raub said:
    For us, it was important to be able to broaden the horizons of B8ta.

    The Lowe's section sells about 40 products, less than half the number sold in B8ta stores. Manufacturers include Amazon, Lutron, Nest, August, Ring and Chamberlain, as well as tech startups.

    The display devices are placed on tables and not boxed up, so customers can play with them. Crucially, each product has an iPad next to it, to demonstrate how the device works and what colours are available, and to explain why it might benefit the customer.

    B8ta monitors the type of information shoppers look for on the iPads and whether changes in how the product is displayed - in terms of colour, for example - increase or decrease sales. Collecting continuous data on customer preferences, a core methodology of B8ta, is increasingly crucial to retailers.

    The SmartSpots feature a new generation of smart home devices that are more popular with early tech adopters than the typical Lowe's customer. But Ruth Crowley, Lowe's vice president of customer experience design, said the chain hopes the section helps demystify smart-home products.
    One of the keys is that all of these products are out of the box. We wanted to make sure to take away the intimidation in a market that's saturated with these kinds of products and allow the customer the ability to touch and feel and experience.

    Cutting-edge tech products that lure more consumers could be key to Lowe's future. Lowe's lags behind Home Depot in luring customers who are home improvement professionals, which "puts Lowe's at a disadvantage, especially if growth in the consumer segment starts to wane," according to a note from the retail research and consulting firm Conlumino.
    Products
    Battery-powered OPE for pros
    Greenworks Commercial has a new line of tools designed for professional landscapers
    Total Landscape Care
    Greenworks Pro 3-in-1 battery-powered lawn mower with 21-inch deck
    Starting in early 2017, Greenworks Commercial will offer three models of zero-turn mowers
    Click to visit the HBT website for more information
    Greenworks Commercial has launched a line of tools specifically engineered to meet the needs of professional landscapers. Powered by 82-volt battery technology, the range of commercial grade equipment delivers power and run-time equivalent to comparable gas-powered models.

    The latest equipment line that Greenworks has produced comes with four main benefits, according to the company. The products are quiet, easy to operate, give off no fumes, and are low maintenance.

    All Greenworks Commercial battery-powered products use push button start technology, removing the need for pull cords. This is especially appreciated with its chainsaw. Gray Abercrombie, director of global marketing for Greenworks told Total Landscape Care:
    Arborists love the saws. All they have to do is push the button to start and safety comes into play a lot with chainsaws.

    They also no longer need to leave their elevated position and return to the ground to restart their equipment.

    The push button start on the GBB600 Backpack Blower allows the user to go from full power to completely off, and back to full power without ever removing the backpack.

    By using lithium-ion batteries, landscapers do not need to worry about the memory effect commonly found with nickel cadmium batteries, where they lose their maximum charge over time if continually recharged.

    These battery-powered tools have been designed for those who work in cities with strict decibel ordinances. Most US cities with ordinances limit anything above 79 dB and Greenworks' 82-volt brushless axial blower ranges from 60 to 72 dB. Mr Abercrombie said:
    Commercial landscapers can start earlier and work later with this quieter equipment.

    Greenworks' string trimmer produces 50% less noise than its gas counterpart while its power is equivalent to a 32cc gas engine.

    The brushless hedge trimmer comes with a 180-degree rotating rear handle and features a die-cast magnesium gear box to endure heavy use.

    Greenworks has a walk-behind mower that is battery-powered as well. It features a 21-inch deck and comes with seven cutting heights that can be adjusted with a lever.

    Starting in early 2017, Greenworks Commercial will offer three models of zero-turn mowers, the GZM 33W Walk-Behind Zero Turn Mower, the GZM 48S Stand-On 48" Zero Turn Mower, and the GZM 52R Ride-On 52" Zero Turn Mower.

    Run times depend on the amp hour battery used. The products come standard with a 2.5 Ah battery, but they can be upgraded to a 4.0 Ah battery, 5.0 Ah battery or a 900W battery backpack.
    Products
    Home security offering for tradies
    Uniden's Guardian Hybrid digital video recorder (DVR) range is ideal for tradies
    Uniden
    This security system can be used to monitor the interiors and exteriors of a property
    It is suitable for both home and small to medium sized business owners
    Click to visit the HBT website for more information
    Home maintenance professionals and electricians looking to expand their services can consider home security systems as an opportunity to help customers who prefer the Do It For Me (DIFM) approach to home improvements. Uniden's Guardian Hybrid digital video recorder (DVR) range of security systems is best installed by those proficient in home handiwork.

    The Uniden home security system - with wired and wireless capabilities in one device - is ideal for home and small to medium sized business (SMB) owners who want a cost-effective solution to keeping an eye on their property.

    Whether it is introduced as an ad-hoc job or an extension to existing projects, handypersons and electricians can add value with a simple hardwiring camera installation. This type of work requires approximately one to two hours of labour. (Installation time will vary based on the complexity of the property. For example, multiple storeys or large premises may require additional cables to be run through.)

    The system can provide peace of mind to home and business owners lacking the confidence to carry this out independently.

    They can choose a combination of wired internet IP cameras, which rely on an Ethernet cable for internet connectivity, as well as wireless IP cameras which connect to the local wi-fi network via an app. Hardwiring the cameras calls for drilling holes into wall and ceiling surfaces and running cables for power and internet connectivity.

    Relying on a power connection only, the wireless cameras are practical for locations where it's difficult to extend a video cable, such as a garage or deck.

    This security system can be used to monitor the interiors and exteriors of a property, and can be scaled up as needs change. Home and SMB owners have the ability to monitor their premises remotely via a dedicated app on smartphone or tablet devices. The app also sends alerts to connected devices whenever the security system detects movement.

    All Guardian wired and wireless cameras are weatherproof to withstand the harsh Australian elements. Key features include:
  • Expandable with up to 16 wired cameras and up to eight optional wireless cameras
  • Full HD 1080p resolution for clear picture quality
  • Guardian Live Pro app for iOS/Android smartphones and tablets
  • Up to 2TB internal storage
  • Up to 20 metres of night vision, from dawn to dusk
  • USB backup
  • Connect to a large screen TV or monitor via an HDMI port
  • Remote viewing capabilities via smartphone or tablet
  • News
    HI News V2 No. 17: Kitchen report
    Download the latest issue of HI News Vol. 2, issue no. 17
    HI News
    Renovators are upgrading appliances and benchtops rather than whole kitchens
    The weather had an impact on Bunnings' first quarter sales performance
    Click to visit the HBT website for more information
    The latest issue of HI News is about a lot of things. On the business side, we take a second look at the kitchen category this calendar year and highlight some of the marketing strategies from the industry's top retailers and suppliers.

    There is also some analysis of Bunnings first quarter sales performance and DuluxGroup's full year results.

    Just click on the following link to download this edition:
    HI News V2 No. 17: Kitchen report

    On a more personal note, there is a brief tribute to Tim Starkey, long-time group manager of Hardware & Building Traders (HBT), and a friend to HNN (Hardware News Network), publisher of HI News and Industrial & Tools News.

    Other major stories include the role of home brands in the hardware industry and our visit to the HBT state conference in Melbourne. In addition, we closely examine the ACCC's (Australian Competition and Consumer Commission) recent judgement against Dulux.

    The most recent hardware retail data is featured in our Statistics section. In our regular update on big boxes, we draw attention to some of the main points in the presentation by Bunnings UK managing director, PJ Davis to members of the British Home Enhancement Trade Association.

    In terms of suppliers, Hitachi is preparing to unload its power tools and semiconductor fabrication equipment businesses and sources indicate that Stanley Black & Decker is seeking buyers for its locks division.

    New products include Makita's 18V LXT(r) Sub-Compact Brushless range; Caterpillar's entry into the outdoor power market; and Leatherman emergency tools.
    Reports
    Kitchen renovations evolve
    IKEA tries humour to sell kitchens
    HNN Sources
    A new style of ad from Kaboodle?
    Real Living offers Kaboodle great editorial support
    Subscribe to HNN weekly e-newsletter
    This is a summary version of the article. To read the full article, please download our PDF magazine (which is free) at the following link:
    HI News Vol. 2, issue no. 17

    The kitchen renovation industry -- always a little fickle when it comes to style and fashion -- seems set to undergo one of its periodic changes for 2017. HNN has identified a number of trends, many of which are already shaping the kinds of products and the way those products are presented by the major flat-pack suppliers. Some of these trends will also affect the higher-end, semi-custom and fully custom kitchen design and installation industry as well.

    One trend which has become evident at the end of 2016, is that the slow shift from the pre-Christmas kitchen to the pre-Winter kitchen has taken a move forward. While this shift has been underway for the past two or three years, it seems to have accelerated in Spring 2016. One possible reason for this is that there has been an increase in spending on outdoor living renovations.

    The outdoor room -- which proved so popular five years ago, but declined due to the high level of maintenance required -- has met up with a strong trend to building decks, and produced a new version of the outdoor room. Built on the deck, this new outdoor room offers a new extension for outside entertaining, and is relatively easy to maintain. It is also rapidly developing more "outdoor kitchen" features, becoming almost a summer kitchen, especially for households in the warmer climes outside of southern Victoria and Tasmania. It is likely that establishing a "second kitchen" outside is reducing the spend on the standard kitchen inside.

    One area where this slow-down has been sharply felt is in sales of magazine advertising to the two main flat-pack competitors, the Bunnings-exclusive brand Kaboodle and IKEA. There have been almost no IKEA kitchen ads in Spring home decorating editions of magazines, and Kaboodle has also reduced its spending, outside of one particular magazine.

    In the notch above flat-pack, the semi-custom kitchen market, changes also seem likely in the near future. The Good Guys pulled out of their major promotional activity, sponsoring the kitchens on Channel Nine's reality/renovation show "The Block", and they don't seem to have replaced this with increased promotional spend elsewhere. The Good Guys' place on "The Block" was taken by the other main semi-custom kitchen company, Freedom Kitchens. Freedom carried off that sponsorship with real flair and demonstrated ability.

    As The Good Guys has been recently acquired by JB Hi-Fi, it does seem possible that its kitchen business will be spun out during 2017, as it doesn't sit well with JB Hi-Fi's main electronics and appliances business. Should that happen, the most likely buyer would be Freedom Kitchens.

    An alternative to this would see Metcash acquiring the kitchen business of The Good Guys, and incorporating this as one of the elements of its Mitre 10 Sapphire stores. That's unlikely, as Metcash has enough integration concerns at the moment without adding a service business to the mix. However, one strong possibility for Metcash is that it will spin out and IPO the hardware business in the first calendar half of 2019, and an asset such as a kitchen fitting service could help to make Mitre 10 more attractive as an independent company.

    The actual health of the core kitchen business at Mitre 10 is something HNN has not been able to determine, as Metcash has not responded to requests for information. It seems very likely -- and a little ironic -- that the kitchen business of Metcash's recent acquisition, the Home Timber & Hardware Group (HTH), is going through some tough times this Spring. HTH sells the same Principal Kitchen range as has been sold in Masters, with some stores, such as Hume & Iser in Bendigo, making it a major feature of their business. There have been some discounts on this range throughout Masters' liquidation sale, but in November 2016 these discounts increased substantially, to over 50% in some areas.
    Numbers

    In terms of kitchen installations in new homes, the Housing Industry Association (HIA) is predicting this will slow considerably during 2016/17 and 2017/18, before picking up again in 2018/19. The slowdown is predicted based on a reduced number of dwellings being built.

    Kitchen renovations -- as contrasted with new builds -- are expected to continue at around the same number for 2015/16 into 2016/17. The HIA pegs the "pool" of available renovations at 145,600 for 2015/16, and sees this increasing by less than 1% for 2016/17.

    Shane Garrett, a senior economist with the HIA, has indicated there are three main reasons why kitchen renovations will continue at a steady rate. While the HIA does see renovation budgets in general shrinking somewhat, even as more people turn to renovating, kitchens represent good value for money, and are lower in cost than major renovations such as extensions or structural alterations.

    Mr Garrett also points to the high levels of building in the early 2000s. With most kitchen renovations taking place in kitchens around 15 years old or so, this has helped to feed the pool of available work. Finally, he notes that there was been a sharp shift in fashion for kitchens, with the utilitarian looks of 10 or 15 years ago replaced by kitchens that match the rest of a house aesthetically.

    In 2014/15 the HIA estimates the average value of a renovated kitchen was $21,862, up from $19,036 for 2013/14. A survey conducted by the home design website Houzz during 2016 on renovations conducted during 2015 indicates that the average cost of a full renovation on a large kitchen was $31,000, while for a kitchen under 12 square metres it was $21,840. A minor renovation on a large kitchen averaged at $16,120, while for a kitchen under 12 square metres it was $11,570. The average size of a renovated kitchen was 14 square metres. Some 76% of all kitchen renovations involved replacing benchtops, according to this survey.
    Trends

    In addition to the trend of much of the kitchen renovation business under $60,000 shifting from the Spring to Autumn season, there are a number of other shifts taking place in the kitchen renovation market. HNN has identified six key ones.
    Appliance upgrades

    While the number of ads for kitchen suppliers reduced sharply in the pages of home design magazines, the ads for very high end kitchen appliances, especially ovens, increased sharply. Smeg and the Italian brand Ilve were particularly noticeable. Harvey Norman also ran a number of ad sequences that featured black and white images of high-end kitchen appliances.

    This seems to match up with industry reports that one version of a kitchen "fix up" instead of a complete renovation is to buy higher-end appliances for an existing kitchen. Instead of spending $30,000 or more, home-owners spend $12,000 to $15,000 on appliances with advanced technology, and perhaps replace kitchen benchtops as well.
    Style over reference

    During 2014 and 2015 there was a push for kitchens which offered a very particular design approach, such as industrial, rustic, or cafe. In 2016 there is a move away from those complete systems of design to more freeform styles, where colour, for example, plays a much greater role. This echoes a trend that has been developing in the US, where many homeowners approach kitchen design with a primary colour -- white, blue, green, black -- as its central theme.
    Adaptation over cost

    Where cost has played a central role in the past when it came to choosing a kitchen, consumers are now willing to pay a little bit more for kitchens which offer a higher degree of adaptability. While the finite life of a kitchen might remain 15 years, they expect that they will update the kitchen once or twice over that period, to keep up with changing fashions. Cabinets that can be easily repainted a different colour, with hardware that can easily be swapped out have gained in popularity.
    Apartment style

    In the past many people moved from their parents' house to a share house during university/apprenticeship, then bought their own house. Today, it is more likely that there will be a period of five to 10 years (or more) when they will live in a multi-dwelling building of some sort. They have grown used to much smaller kitchens, and while they might want something a little bigger, they feel a little uncomfortable in kitchens that are too big. This is especially noticeable for kitchens in smaller houses. Where these homeowners would once make big kitchens to make the house "feel bigger", that's less likely today.
    The Not So Serious Kitchen

    Not that long ago, it seemed that everybody who had anything to do with a kitchen almost had to be, compulsorily, a gourmet chef. Recently, homeowners have come to terms with the fact that many of them might be fair at putting a decent meal together, but they don't see a great future in flambe.

    Hence the origins of the Not So Serious Kitchen (NSSK). It's no longer mandatory to concentrate on how much "prep space" you have on the benches when, frankly, the most used kitchen appliances will be the microwave oven and the grill.

    This means many homeowners are seeking to downscale the kitchen, reducing it both in size, and in its presence in the house.
    The living room is the new kitchen

    Over two years ago, HNN and a number of other sources suggested that there was a move in Australian households to make the kitchen the new living room. Today, we're seeing a further evolution of that trend, where the living room is functioning as part of the kitchen. Where these two room were, in the past, kept clearly separate, designs now feature kitchens opening directly into the living room in open plan houses.
    Advertising

    It is true that 2015 was an unusual year for kitchen advertising. IKEA was boosting its new kitchen system, METOD, after its release in May of that year, with a heavy cycle of magazine advertising in September and October. Just about every home design magazine featured at least a five-page foldout on the new kitchen, and some had considerably more ads. Kaboodle, motivated not only by the IKEA move, but also by its involvement with in Bunnings' resistance to the Masters venture, responded with a heavy advertising blitz as well.
    IKEA Spring 2016

    In 2016, the kitchen advertising spend could be optimistically described as "subdued". HNN could only discover one single ad for IKEA kitchens, and that was in a quarterly publication, and so likely had more to do with February/March 2017 than the current season. There were some IKEA ads in other magazines, but these were devoted to IKEA's Indian-inspired SVARTEN range of interior design furnishings. Not even an editorial which featured a METOD kitchen in Better Homes & Gardens September 2016 edition could seemingly convince IKEA to advertise.

    One possibility with IKEA is that this slowdown in advertising is partially a result of the company's change in its media buying contracts. After a review that began in April 2016, and went through to July 2016, IKEA determined that media buying and planning would be handled worldwide by either Group M or Dentsu Aegis.

    It's not clear currently which media buying group IKEA Australia chose to go with, though most commentators expect it would be an agency in the Group M business. (Media buying/planning relates only to purchasing ads. IKEA's creative work in Australia seems to be mostly handled by leading ad agency The Monkeys. IKEA appointed Pulse Communications, part of Ogilvy PR Australia, as its public relations agency of record in April 2016.)

    Another possibility is that IKEA is gearing up for general online sales starting in early 2017, with a switch to more spending on online advertising. The company has recently launched an online store that services only Tasmania. It runs online stores in other countries around the world, including the US.

    However, HNN is fairly certain that the lack of IKEA ads in Spring 2016 is down more to internal logistics than strategy. One factor that points clearly in that direction is that, with the publication of the December issues of home design magazines, IKEA's kitchen ads have made a mild comeback. It makes very little sense to choose December as the month to promote kitchens over September and October. That late in the year those families that intend to install a new kitchen before Christmas are well down the planning and renovating path.

    Outside print advertising, IKEA globally has begun to adopt a very interesting approach in its online ads. Its main theme in recent times has been "Let's Relax". The company has put together a very clever ad on this theme which illustrates exactly how silly today's online-obsessed world has become. An aristocratic family in what looks like the Louis XIV period sit down to eat a meal -- but wait, they can't touch it until a painter has rendered it on a canvas. Which is then transported around the country via couriers for a number of groups to view, who give it a thumbs up or a thumbs down. Only when those results are tallied and reported back to the family can they eat the meal.

    In parallel with this effort, IKEA has run a series of short videos which it calls "Kitchen Confessions". In each of these people from a range of ethnic backgrounds confess to a range of "kitchen sins". "I served take-away food," one woman confesses, "and pretended it was home-made." "I never use a timer," is the blunt statement of a another man. "I ate from disposable plates," a woman says, "for a month".

    Other confessions are far more serious, even grave. "I never understood," a man says, "the oven symbols". "I never wash lettuce". And, finally: "I can't cook".

    The video closes on the message: "Relax. Nobody's perfect".

    What is definitely getting picked up here is the NSSK theme described above. IKEA has likely identified that one factor preventing people from buying its kitchens is the sense that they need to be enthusiasts -- dedicated chefs, stylists extraordinaire, appliance savants -- in order to design and order a kitchen. In truth, lots of people simply need a kitchen, and it's not such a big deal. It needs to be an adequate kitchen, but they don't expect it to "transform the living space" or suddenly make their family life richer and more meaningful. It's a kitchen. You cook stuff there. That's OK.
    Kaboodle Spring 2016

    Kaboodle had more of an advertising presence during the season, especially in the Bunnings-supplier perennial favourite, Better Homes & Gardens, as well as Real Living. The big exception for Kaboodle, however, was the September 2016 issue of Australian Home Beautiful (AHB), which had a saturated ad buy. There are seven pages of advertising, which meant that Kaboodle "owned" that issue's "kitchen special" feature. While Kaboodle has rightly targeted this magazine for some time as representing a good market for its products, it is also possible that, with IKEA pulling out, some of those ad pages were sold at discount, "distressed" rates.

    Better Homes & Gardens, as is usual with Bunnings suppliers, gave Kaboodle a heavy editorial presence, featuring in particular its "paint it yourself" cabinet doors, and had one full page and one double-page spread ad. Real Living also featured the "paint it yourself" cabinet doors (though in a much more creative way than BH&G) in two separate editorials, and scored a double-page spread ad. These are very much "standard" ads for Kaboodle, similar to those it has been running over the past two years or so. The editorial design feature was backed up by another editorial feature, providing DIY instructions for painting the Kaboodle cabinets.

    The real Kaboodle story was unveiled in AHB. This featured what appear to be two new style ads from Kaboodle, though at a guess this isn't the finished campaign that will be seen in Autumn 2017. Kaboodle has tied these ads together with a theme it calls the "seven builds" in the first ad of the series. The seven builds are:
  • Built to dream
  • Built to cook
  • Built to celebrate
  • Built to design
  • Built to create
  • Built for colour
  • Built to last

  • The two new ads would seem to be "built to cook" and "built to colour". The first shows a crisp white kitchen with an island bench, and the second shows four cabinets along a wall, each painted a different shade of blue, promoting the "paint it yourself" range. One factor that Kaboodle hasn't got quite right in particularly the second ad is the height of the camera.

    In the darker ads the company has featured recently, the camera height is just slightly above the bench height, which tends to highlight the benchtops, and give the ads a planar feel. This camera position doesn't work quite as well when the main subject is brightly painted cabinets. Most kitchen photography highlighting cabinets uses a camera height that is lower, usually 50cm to 65cm from the floor.
    A new style of ad from Kaboodle?

    It is difficult to know to what extent these ads play a clear role in Kaboodle's future strategy, and to what extent they are a somewhat make-do response to a good advertising opportunity. At a guess, it is likely to be a bit of both, and the two new ads may signal a change in Kaboodle's advertising strategy for 2017.

    If that's true, then the company will be answering the trends of style over reference and flexibility. Cabinets that have been painted one colour can fairly easily be painted a new colour in another five or six years. In terms of pure advertising, the addition of brightness and colour in the Kaboodle ads would be welcomed by many.
    Analysis

    There are two trends that likely deserve a good amount of attention going into 2017, one of which has been mentioned above, and one which has not. The one that has not been mentioned is a deep underlying trend in retail, that's actually been around in some form for the past decade, but which is beginning to bite a little deep now. That trend is all about the ongoing decrease in the influence brands have on consumers.

    It could be said that as we move into 2017 the entire notion of what a brand really is has become more a question than an answer. One reason for this -- though it does not have a big direct effect on either IKEA or Kaboodle -- is that the influence of standard television programming itself is decreasing. The top 50 years for brands, from about 1956 through to 2006, coincided with the top years for television. TV, in fact, has been every advertiser's dream medium, just a fantastic way for them to get their message delivered.

    Today TV is being steadily replaced by online alternatives. The simple truth behind this is that online video viewing is likely not even half as effective as TV has been for advertising. Many online viewers dislike advertising so much that enough ads by one particular brand actually turn them off that brand. So advertisers face a steady migration of audiences away from a medium which is good for advertising to one which isn't. That has to mean that, in the main, we face a future where advertising will simply not be as effective in producing sales as it has been in the past.

    There are other influences that are leading to the decline of the brand as well. One way of getting to what those influences are is to ask the question: "What has replaced the brand?" The simple answer to that question is: innovation. One of the strongest brands the world has ever seen is Apple, the California, USA-based maker of smartphones and computers. Yet as successful and big as it has grown, people still speak of it as though it is perpetually on the edge of some kind of failure. That is because, as it sits out there on the edge of innovation, it is only ever as good as the most recent product it has launched.

    An even better example of how innovation has replaced brand can be seen in the car industry. Small car makers have come and gone over the past three or four decades, and often end up being only really known (and remembered) by car aficionados. In Australia, names such as Bolwell are a mystery to all but a few. And there have been dozen of others: Puma in Brazil, De Tomaso in Italy, for example. Even currently operating manufacturers such as Proton in Malaysia are little known.

    But everybody knows what a Tesla is. That's not because of advertising, or publicity stunts. It's because Tesla products are directly and evidently highly innovative and highly effective. Drive a Tesla alongside a great car such as BMW's i7 sports hybrid, and it becomes immediately evident that the BMW is a very good car, but it's really a repackaging of the past. The Tesla is a direct line drawn to the future. Despite BMW's decades of great cars and good advertising, the innovation in Tesla is able to overshadow it.

    Both Kaboodle and IKEA have been quite innovative in recent years. IKEA launched its new kitchen system, METOD, in 2015, and it has been a success. Kaboodle managed to evolve its brand from what many saw as a cheaper alternative to a "real" kitchen, to something that meant average homeowners without too much to spend could get the style and features of much more expensive kitchens.

    Innovation, however, is something that never stops. Where in pure branding companies can take a year or even two years off from major developments, innovation is constant. So the question needs to be asked: how and where should flat-pack and standard kitchen makers think of innovating in the future?

    One way to get to an answer is to run the thought experiment of imagining where a startup kitchen company would innovate today in entering this market. There would be at least two entry points.

    The first is to reconsider the "pod" kitchen. This idea of the do-everything pod that is prefabricated and dropped into a kitchen space has been popular in Europe for decades, but not really found a receptive audience in Australia just yet. However, if the trends HNN predicts do take hold, especially the acceptance of more apartment-based styling and the rise of the NSSK, pods may become an acceptable, cost effective alternative for many Australian homeowners.

    The second -- which is a real challenge -- is to develop the $12,000 kitchen. How much kitchen -- complete with appliances and installation -- could really be delivered for $12,000? This thought experiment opens up a number of areas for investigation, such as considering materials, new sources of manufacturing, and exactly how DIY a kitchen can be made. Today's flat-pack kitchens can be self-assembled, but this requires a fair amount of skill. Can this be made simpler, easier, cheaper?
    Appliances

    The second key trend, which has been mentioned above, is the shift evident during this Spring 2016 season towards buying better appliances rather than doing a complete kitchen upgrade. At the moment this trend is only affecting the higher-end of the kitchen purchasing spectrum, but it is likely to start affecting the middle of the market by the Autumn 2018 season. Developments such as steam ovens will likely begin to become more commonplace by then.

    Again, this is largely driven by innovation. Appliances are getting smarter, and we are likely on the edge of seeing them fully integrate into intelligent home management systems designed by companies such as Amazon and Alphabet (Google). Instead of playing with knobs and dials, it will be possible to say "Set the oven temperature for 300 degrees, and the timer for six-thirty".

    This change will bring a new balance to parts of the kitchen renovation market. IKEA, for example, is well-positioned to take advantage of such a change. Replacing kitchen renovation with new appliance purchases will work well for the company as it is fully vertically integrated into kitchens. IKEA is no doubt developing its own high-end range of kitchen appliances, and these will likely launch before 2019.

    For other suppliers, such as Kaboodle and Bunnings, it is probably not such a positive development. While Bunnings is making more of a move into appliances, it's a difficult market to enter against strong and persistent competition.
    Other developments

    The other major change in kitchens which is likely two years off from widespread development is the use of virtual reality (VR) technology to showcase kitchens to potential customers. While some advances have been made in various "3D" kitchen design systems, most of them remain awkward to use. Fully developed VR will enable customers to "enter" a possible kitchen and "walk around" in that kitchen. It could be a winning sales tool that really closes the deal for some suppliers.
    Conclusions

    In the longer term, the problems that continue to hold back the overall kitchen renovation industry from reaching its full potential are much the same problems that hold back over 50% of renovation activities. Where construction has made some progress in becoming a more efficient (and a much safer) industry over the past 20 years, progress in the renovation sector has all but stalled.

    The simple fact is that if renovations could be made less expensive and much simpler to organise, there would be a sharp increase in renovation numbers. To do that means a transition from a smaller number of renovation jobs at a relatively high price, to a much higher number of renovation jobs at a lower price.

    It's a difficult transition to make. In the end, it's likely we will have to rely on the suppliers -- and retailers to drive the suppliers -- to bring in the needed changes to the industry. In the mean time, HNN believes the renovation industry, in spite of its recent growth, is perhaps 20% below its true potential, in earnings, not revenue terms.
    Bigbox
    Wesfarmers-Bunnings sales results 2016-17 Q1
    Bunnings results for FY2016/17Q1
    Wesfarmers
    Rainfall for September 2016
    Average Australian rainfall for September
    Click to visit the HBT website for more information
    Australian retail/resources conglomerate Wesfarmers has announced its sales figures for its retail operations over the first quarter of its FY2016/17. Bunnings, Kmart and Officeworks performed well. Coles Food and Liquor returned a mediocre result. Target returned negative growth results.
    Bunnings results for FY2016/17Q1
    Bunnings

    Bunnings Australia and New Zealand (BANZ) reported sales of $2659 million for the quarter, up by 7.4% on the previous corresponding period (pcp), which was the first quarter of FY2015/16. Like-for-like store growth was 5.5%, according to the company.

    These numbers were substantially lower than growth for the two previous first quarters. According to the company, there were two contributors to the lower numbers. The first was that Australia experienced wetter and cooler conditions throughout this early Spring quarter, resulting in an induced incentive to commence home improvement tasks. Additionally, the liquidation sale of Masters may have affected sales, though only for a limited proportion of the quarter.

    In response to a question from an analyst, Wesfarmers Home Improvement CEO John Gillam commented on the factors which had impeded results for the quarter. He began by commenting on the difficulty of estimating any impact from the Masters liquidation sale:
    If you think right back to February [2016], we talked about the risks of unprecedented liquidation event, because we thought it would be May/June, then we called it out again in August, because then there was more knowledge about it... There is no transparency over the volumes that are being liquidated, so your guess is as good as ours.

    He also offered this assessment of the impact of the poor weather during Spring 2016:
    I would point out...you've got to go back to about 2012/13 financial year to find a Spring that has been as late, and a Winter that has just kept going, and the water that has been around. We are very sensitive to weather. That is not new news. We call it out when we've got the wind at our back, and this time we're having to tack pretty hard to set up for the Spring. Hopefully, when the warm weather comes, there will be very good growing conditions, given the sort of moisture that is around. But, you know, Richard's [Goyder] comments at the start were there because it is very obvious that what started at the start of September has continued in October, and is continuing as we speak.
    Bunnings UK

    Bunnings UK reported sales of GBP320 million ($554 million), as Bunnings completed its seventh month of operating the acquired Homebase stores. Another metric offered by the company was total customer transactions, which it says increased by 8.4% as compared to the pcp.

    Mr Gillam expanded on why Bunnings offered this particular measure, and the task that the company faces in developing Bunnings UK:
    The reason we have included this [number] is that we are rebasing sales quite significantly. If you recall back on the June strategy day, my self and PJ spoke about the best number to think of is GBP1.2 billion across the full year, and there is a bit of a washing machine of product that was Argos coming out, and reported previous revenue, like Habitat that was part of Homebase [also going out]...and closing stores -- with all of those changes it seemed best to provide some measure of what is going on.
    We are pleased with the progress, but there is a helluva lot to do. It is a big, big job we've got in front of us. Nothing too scary, but just lots to do. But eight months in, we're on track.
    Analysis

    The following map shows the normal, average rainfall pattern across Australia during September:
    Average Australian rainfall for September

    The following map shows the rainfall for September 2016:
    Rainfall for September 2016

    As these maps illustrate, there has been substantially more rain along the eastern seaboard of Australia during September 2016 than there is on average. Mr Gillam is correct in recalling this condition has not occurred since 2012, and is in this case slightly more severe. As Mr Gillam suggested, this kind of weather event is more likely to affect the timing of many sales rather than the extent. Lush conditions brought on by wet weather should help improve sales, and at the very least partially compensate for any renovation work that may have been postponed due to poor conditions.

    It is likely that any impact from the Masters liquidation will show up more strongly in the results for the second quarter of the current year, with peak sales from the liquidation reached during October and November. However, Bunnings will after that be the sole big box hardware retailer operating in Australia, through an expanded network, and it seems very possible that in the second half any losses due to the Masters liquidation will be compensated for by increased sales.

    It remains to be seen how competition between Bunnings and the two chains now operated by Metcash, Mitre 10 and Home Timber and Hardware Group, will play out. Given the difficulties of integrating a business that largely consists of independent retailers, it's unlikely a clear strategy will emerge much before the second half of calendar 2017.

    As HNN has remarked previously, it seems unhelpful to try to estimate how the Bunnings UK business is doing, until at least the completion of FY2016/17. The indications, based on the numbers Wesfarmers has provided, is that Homebase is continuing to trade successfully. The first Bunnings UK store is expected to open in February 2017 at St Albans, with another three expected to open in the following four months. These will provide the first solid information on how the Bunnings concept can be translated to the UK
    Companies
    DuluxGroup full-year results 2015-16
    DuluxGroup results FY2015/16
    DuluxGroup
    Paints and Coatings numbers for Dulux
    Dulux jellybean ad garners nearly 1000 views on the internet
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    Australian household paint and building products company DuluxGroup (Dulux) has reported its results for FY2015/16. The results were overall modestly positive, with the company itself describing them as "solid". Sales revenue for the year was $1716.3 million, up by 1.69% on the previous corresponding period (pcp), which was FY2014/15. Earnings before interest and taxation (EBIT), excluding non-recurring items, rose by 4.52% on the pcp to reach $201.1 million.

    Net profit after taxation (NPAT), excluding non-recurring items, increased by a similar percentage to reach $130.4 million. In Dulux's paint and coatings division, sales increased by 2.27% over the pcp, to reach $890.6 million, while the division's EBIT, excluding non-recurring items, rose by 6.61% to reach $156.5 million.

    In a Dulux press release, the company's CEO, Patrick Houlihan, is reported as stating:
    Our Dulux, Selleys and Yates businesses, which make up more than two thirds of DuluxGroup's revenue, collectively grew earnings by 6.2%, and individually delivered record profits. These businesses have done well despite short-term retail market challenges, including the impact of the Masters closure and stock liquidation. The Dulux trade and specialty coatings businesses were particularly strong, which demonstrates the value in our broad end-market approach.

    In his remarks at the results presentation to investment analysts, Mr Houlihan sought to portray Dulux as having fared well, despite significant negative factors in its markets.
    Dulux results FY2015/16
    Paints and coatings

    Sales for this division came in at $890.6 million for the year, up by 2.3% on the pcp, while EBIT excluding non-recurring items was $172.3 million, up by 4.7% on the pcp.
    Paints and Coatings numbers for Dulux

    Mr Houlihan said that the weaker than usual growth was a result of a number of factors. A major one was that the renovation and repaint market (stated as 75% of Dulux's market volume for paint, 65% for the company overall, according to the current annual report) fell by 4.5% during FY2015/16. While the trade sector of this market grew, the retail sector declined. Contributing factors to this decline included:
  • A change in product mix, specifically higher sales in low-end paint through retail channels
  • Promotional discounts used to launch Dulux's new variant on its Wash & Wear paint
  • Discount paint sales which resulted from the liquidation of Masters' paint stock

  • In response to an analyst's question later in the presentation, Mr Houlihan expanded further on the impact of the Masters' sales:
    We did see some impact late in F16, but not a material impact. I suppose the paint and coatings result speaks for itself in terms of sort of overall performance. If I think about paint specifically, remember what has been in Masters. The Valspar Company to my knowledge have taken the premium Solagard product back, so we're not seeing a discounting of a well known premium brand.
    We're seeing liquidation of effectively unknown brands: Sherwin-Williams, Pascol, and Valspar, which while as a brand it's been around for a while, in consumer research it's still effectively unknown. So we believe that that liquidation is flowing more into the mid to bottom end of the market, where we are less biased, and that is why we are seeing less of an impact, and even into the mid to lower end of elements of the trade market, where you might think of a handyman or the youth brigade or whatever is the best way to describe that.

    In his general comments on the paints division, Mr Houlihan also highlighted three positive developments that are under way. He nominated what he called the company's "iconic jellybeans promotion" (where customers receive a can of jellybeans along with the purchase of a set amount of paint), which he said had worked well with the launch of the new Wash & Wear paint. In addition, there is Dulux's growing range of speciality coatings products. Dulux is also seeing good results, apparently, from its Dulux Snapshot colour-matching device, for which the company has exclusive rights in Australia and New Zealand.

    In the company's annual report, it notes that input costs such as those of titanium oxide (known in the industry as TiO2) and latex resin were expected to increase in line with inflation during 2017.
    Acquisition of Craig & Rose

    Dulux announced it had acquired a small UK-based paint manufacturer on 10 August 2016. Craig & Rose is described by Dulux as manufacturing a niche range of premium paint products. The company does not seem to have actually disclosed the acquisition price. Instead it has listed three acquisitions as a group -- Craig & Rose, Munns lawn care business and the business Gliderol had in Western Australia -- and stated the total acquisition cost was $13.2 million, with goodwill accounting for $5.5 million of that cost.

    Mr Houlihan explained at some length the logic behind this acquisition during the analysts' presentation:
    As we have already mentioned, in the second half we acquired Craig & Rose, a small premium decorative paint company in the United Kingdom. Craig & Rose is based in Edinburgh, and up until we acquired it, it was the oldest independent decorative paint brand in the United Kingdom, founded in 1829. The business is small and operates at break-even level, however we believe that the acquisition will provide an excellent entry point for the UK, and has excellent growth prospects for DuluxGroup.
    The Craig & Rose brand itself has been under invested in, and has the potential to grow with better marketing and wider distribution. An in-country presence and manufacturing base will assist us in potentially launching other brands and ranges into the UK market, such as Selleys and Porter's.

    In response to a question from Mark Wilson, an analyst with Deutsche Bank, he elaborated further on this acquisition:
    What we've done with Craig & Rose is buy this business that's relatively small. You might think well why buy it, but what it does is it gives us manufacturing capability on the ground that can be easily expanded for some incremental capital. I don't envisage we'd be going to build new manufacturing capacity or new manufacturing sites there ourselves.
    It gives us a brand that has latent value, but it just hasn't been invested in. It gives us chemists on the ground. It gives us formulas on the ground. It might seem a bit unusual, but in Europe to sell any formulas that utilize raw materials, those raw materials need to be registered under the European REACH legislation.
    So suddenly we've got chemists, and raw materials, and formulas that all European REACH compliant. So we can do things that we otherwise couldn't do by shipping paints or formulas from Australia.
    It basically gives us a beachhead to explore how we can improve that business, let alone use the infrastructure it gives us to look at what we can do with Selleys, what we can do with Porter's. Let alone, as I say making Craig & Rose a better brand.
    Those comments are very UK specific, but it also gives us a platform to explore what else we might do in other parts of Europe.
    Consumer and construction products

    Sales in this division for Dulux's FY2015/16 came in at $253.9 million, down by 4.5% on the pcp. EBIT exclusive of non-recurring items was $29.5 million up by 1% on the pcp. This division consists of Dulux's Selleys and Parchem businesses.

    Mr Houlihan stated in his remarks to analysts that there were two main drags on growth for Selleys. The first was the "destocking" activities at Woolworths' hardware division. While he explicitly named the Masters' liquidation sale, by implication it may be that the Home Timber and Hardware Group (HTH) was also destocking, prior to its acquisition by Metcash. The second drag came from a reduction in internal sales of Selleys' products, as Dulux's Asian operations switched to sourcing comparable products locally.

    Mr Houlihan stated in his remarks that, exclusive of those factors, the revenue for Selleys had grown by 4% during the year as compared to the pcp. He said that as these were passing factors, growth should return to Selleys in 2016/17.

    The other business in the division, Parchem, is reliant on engineering-based infrastructure projects, and it was hard hit by a decrease in that kind of construction due to contraction in resources industries linked markets.
    Other divisions

    Cabinet and architectural hardware grew EBIT by 38.9% to reach $12.5 million, with the Lincoln cabinetry business making the biggest contribution. The "Other Businesses" category saw EBIT decline by 8.8% over the pcp to $14.5 million. Papua New Guinea declined sharply, Yates managed some growth in what Dulux describes as a "soft market", and a good performance by operations in Vietnam saw improvement in South-East Asia operations.

    Perhaps the biggest disappointment of the results came from the garage doors and openers division. Overall sales grew by 5% over the pcp to reach $177.9 million. According to Dulux, excluding the acquisition of the Gliderol Western Australia business, sales growth was just 2.2%. Overall EBIT declined by 5.8%, or one million dollars, to reach $16.1 million.

    Dulux reported that the division's market was flat. Mr Houlihan reported in his remarks that the company was satisfied with sales directly to builders, sales through B&D dealers was disappointing. However, he does see some upsides:
    The reality is that the business remains work in progress. There are positives on the market in innovation side of the business, particularly in relation to access control, but the manufacturing and distribution strategy requires further fine-tuning.

    Mr Houlihan made some further comments in response to a question from Andrew Johnson, an analyst with CLSA:
    There's been evidence, and we've seen the impact, of market softening particularly in parts of New South Wales and Queensland. That is more in the dealer channeled focused on home renovation which tends to be one of the more higher margin areas, versus say for example, new housing where we've got reasonably positive growth but it's an inherently lower margin business.
    ...
    Just recently in October, we launched our Home Safe Home campaign. If you go and have a look at the B&D.com.au website, you can look at this stuff firsthand. We've launched the world first Auto-Locks, that when you shut a garage door, unless it's key locked, it's actually not locked. It's just held down by gravity and a chain. You can rip it open.
    We've launched in effect a deadbolt system that comes out from the door into walls that can be automatically locked through your smartphone synced in with your electronic opener. Because the key thing in this category is to give people peace of mind around safety and security when they're not at home. The biggest source of burglary break-ins to homes are through the garage. When they are at home sleeping at night you don't want people breaking into your home.
    I'm feeling pretty positive on the marketing work we've done, and we're back on television with those ads. Again, they're on that website if you want to have a look. The innovation we're doing, but I still feel we've got to do more work in the distribution channel to get basically the conversion of the leads we're getting through to the home owner via dealer quality, dealer footprint, the discipline in our sales force, let alone in our dealers around what the mutual obligations are. That's the work in progress.
    Analysis

    One way of looking at these slightly lacklustre results from Dulux is that the company has spent a year "trading sideways" -- making some gains which were offset by some losses. The narrative that Dulux is providing is of a company that has been affected by a series of unforeseeable events that have prevented it from performing as well as it might.

    An alternative narrative is to consider whether Dulux may be facing a more profound shift in some of its markets. These shifts might have a more long-lasting effect on its revenues and earnings. In that view, there are two prime, somewhat linked vulnerabilities that Dulux currently has in the marketplace.

    The first is that Dulux is heavily reliant on consumers continuing to select high-cost, premium paints. While this has been a steady and strong market in the past, there is no guarantee that consumers might not switch to slightly less premium paints in the future. To some observers the consumer paint market seems ripe for a kind of true disruption -- where products with fewer features and lower cost displace the top quality products. Just how good does paint have to get before consumers start considering paint products in the next category or two down?

    The second vulnerability is that, when it comes to premium paints, there are generally two main strategies for promoting these to consumers. The first involves emphasising the durability and ease-of-care for surfaces coated with the paint -- which is the strategy Dulux has taken with its latest Wash & Wear paint. The second strategy is to emphasise the ease of application of the paint. There are few reasons, really, that a paint cannot meet both requirements, but in general paints need to be sold with a single, strong message.

    The question is whether Dulux has found the right message for the current market. Is what stops people from painting a fear the paint will not last long enough, or concerns they will not be able to do a good job?

    It's a point that brings up a possible third vulnerability for Dulux: a major competitor. US-based Sherwin-Williams, which now owns Valspar and therefore Wattyl, has long marketed its paints as much for their ease of application as their general quality. It's likely that Sherwin-Williams will have Valspar better integrated, and will become a better competitor in the second half of calendar 2017.

    Mr Houlihan has, of course, repeatedly dismissed the effect of any foreign competitor on the Australian markets where Dulux currently dominates. For the past two or three years, he has insisted that architectural paint is largely something that is reputational, and that local companies will always do better than multinationals.

    These repeated statements cast a rather curious light, then, on Dulux's own acquisition of a very small paint company based in Edinburgh, Scotland. It's not just that Dulux is executing a strategy abroad that it has dismissed domestically, but it is doing so in one of the most hard-fought paint markets in the world.

    Finally there is Dulux's garage door and opener business. It is of course possible that, as Mr Houlihan has suggested, this is a business that just needs to be settled in, with a clearer line to its markets established, before it begins to perform well.

    However, it seems equally likely that this is a category that will continue to develop in ways that are not familiar to the somewhat untechnical (in a computer/internet sense) Dulux. We're probably a year out from garage door openers that are voice-controlled through services provided by either Amazon or Alphabet (Google). While B&D's recent mechanical innovation, a deadbolt on the garage door (a version of which seems to have been available in aftermarket kit form in the US since 2009) is an advance, it brings the product no closer to true Internet of Things (IoT) integration.

    To put IoT integration in simple terms: will consumers prefer to have a separate app on their smartphone for each element of the home they control -- an app for the garage door, the doorbell/front door lock, the air-conditioning, house lights, dog door and alarm system -- or one app that controls everything? It's very likely the latter will win. It's hard to see a clear path Dulux can follow to that kind of integration. All it can do is to wait for its Chinese suppliers to go down this path, which could take another two or three years.

    It is also interesting that Dulux chose to make no mention of the $400,000 court judgement against the company over paint products it sold prior to 2012, resulting from a case brought by the Australian Competition and Consumer Commission (ACCC). (This subject is covered in this issue of HI News, in the article entitled "Paints ain't paints". ) It seems to be missing not only from the results announcement, but from the company's annual report as well.

    To be fair, this does relate to mistakes Dulux made dating back to 2008/9 in product development and testing, as well as changes to the way the ACCC enforces consumer protection regulations. There is little or no ongoing risk of this re-occurring.

    What should also be taken into consideration for the first half of FY2016/17 is that the full effect of the Masters paint discounts on Dulux is likely to come to bear during October and November, the first two months of Dulux's next financial year. How much of an effect they will have will be interesting to see.

    On a more positive note, Dulux now has distribution in the two largest home improvement operations in Australia, Bunnings and the Metcash-owned Mitre 10 and HTH. While Sherwin-Williams/Valspar/Wattyl may eventually mount effective competition, it's likely Dulux will have much of the premium market almost to itself for the next eight months or so. It is likely that will balance out any negative effects of the Masters' liquidation for all of FY2016/17.
    The challenge

    At the core of these challenges is the possibility that, in retail, consumer choice is beginning to move beyond brands. While Dulux is to be congratulated for the high status both its paint brand and its Selleys brand enjoy, is it possible that brands themselves are entering a period of decline?

    As HNN has suggested elsewhere, brands have relied heavily on television to build their presence, with campaigns in other media feeding into the TV ads. However, the influence of TV itself is steadily fading, to be replaced by online video viewing. The difficult for advertisers with this is that advertising simply does not work as effectively online.

    Quite recently the Dulux brand has based itself on "traditional" Australian values. Take for example a TV ad from late 2015, where an authoritarian father mildly disciplines a little girl in a pink fairy dress and a boy trying to play sports indoors in order to preserve the immaculate newly painted walls of a house. In the end, the clever wife shows that all this fuss isn't necessary, as the new Dulux Wash and Wear paint can be easily cleaned.
    Dulux Wash and Wear: traditional family

    It's an ad that would not be out of place in 1975, but might have raised a few eyebrows in 1995. It's difficult to see it having a broad appeal in 2015.

    There is, of course, also the Dulux "jellybean" ad, where the main selling device is that customers get a free can of jellybeans with the purchase of eight litres of Dulux paint.

    Is it possible that Dulux is relying on its brand in a way that will become rapidly outdated? If brands do become diminished, how will the Australian architectural paint market reformulate itself? These are questions that will need to be considered over the coming two years.
    Bigbox
    Big box update
    Bunnings UK and Ireland managing director PJ Davis at the BHETA in the UK
    HNN Sources
    Bunnings plans to build a larger facility in Shepparton (VIC)
    Another zoning review will be made of Bunnings-owned land at Tura Beach (NSW)
    Click to visit the HBT website for more information
    Bunnings unveils pilot store plans to the UK industry; larger Bunnings store planned for Shepparton (VIC); potential re-zoning for Bunnings-owned land at Tura Beach (NSW); Bunnings Yarrawonga is set to open; and Bunnings UK could present opportunities for some suppliers.
    PJ Davis presents at UK event

    Bunnings chose a recent networking forum run by BHETA (British Home Enhancement Trade Association) to outline plans for the roll out of the brand in the UK and Ireland.

    In a presentation held at the Ricoh Arena in Coventry, Bunnings UK and Ireland managing director PJ Davis revealed that the first Bunnings Warehouse pilot store would open mid-February at St Albans in Hertfordshire.

    This will be followed by at least three more pilot stores by the end of June as the company phases out the Homebase brand, and a further four to six by the end of 2017.

    Industry publication, Horticulture Week reports that Mr Davis said the pilot would have a "wider assortment than anything you've seen in this country before". The UK pilots will also have the warehouse format. He added:
    All the (range) changes we're going to make we've made.

    Duvets and cups and saucers have been replaced by a lot more home improvement, timber, hardware and storage. Mr Davis said:
    We'll buy where we can get best value and the best innovative product. It's not just value, it's easy to use. We'll source from wherever...

    Mr Davis also said he and finance director Rodney Boys made some mistakes this year when adding GBP80 million (AUD132 million) of product to stop out-of-stock issues. He said:
    We were not going to allow empty shelves. In some cases there was too much stock. Some stores were a bit messy.

    Mr Davis told 350 BHETA members there is a "big job to be done" at Homebase, with areas such as tills and systems up to 20 years out of date. There are also distribution, legal, property and head office issues to separate from previous owner Home Retail Group.

    Mr Davis believes the UK has a GBP38 billion (AUD68.2 billion) growing DIY market. He said Homebase stores are generally the right size and in the right places but he wants to add new builds as well as conversions.

    Mr Davis said the 200,000sq ft. or 145,000sq ft. average Bunnings warehouse in Australia is too big for Britain because it is "hard to drive around here". He said Australian stores have a 15.5-minute drive time ideally, and up to AUD90 million turnover, "but in the UK 15 minutes doesn't get you far". He added:
    We probably need a few more stores. I just don't think they will be as big. We'll convert a few pilots to find out what customers really want then convert a lot more. We also expect to build new stores and take over other properties, which is cheaper than converting our own stores.

    In terms of pricing, Mr Davis said it will be "very difficult" to put prices up because wages are not rising as fast as inflation.

    Many UK import prices have risen by up to 20% post-Brexit and retailers and suppliers are debating on who should bear the brunt of the increases. Mr Davis said:
    Inflation is going to be driven by exchange rates not wages, which makes it very difficult to put prices up. If we put prices up, less will be sold. If wages were going up and there was more disposable income, it would be a good reason for prices to move.

    He said pricing is about trust because people can search prices instantly on the internet.
    They know when you're ripping them off.
    Online

    Mr Davis said Bunnings' website was in the top five in Australia with 130 million hits but bunnings.com.au is all about pre-shop and advice with its 760 how-to videos.

    He explained how his father taught him how to change a tap washer and car tyre but younger customers are no longer taught these tasks. Mr Davis said:
    We don't do online transactions in Australia.

    He said customers don't like them and trust Bunnings to have product in stock so there is no need for click and collect. They also enjoy store visits "but this market is different. It will be a fully transitional site".
    Lessons from Masters

    Mr Davis said Bunnings had learnt from Lowe's setting up Masters as a failed rival to in Australia. He said this was "one if the most expensive case studies in the world when Lowes took us on", adding that they lost AUD3 billion and were "very arrogant" and Bunnings would not show the same attitude in the UK.

    He said that he did not want his buyers to try and develop innovation:
    We're hopeless at it and so are a lot of other retailers in this country...I want them [my buyers] to work out how to sell more.

    Mr Davis said he wanted DeWalt or Bosch to wake up thinking, "How can we make better drills for less money?"

    Mr Davis also sees advantages in older British homes with 40% being over 50 years old, in contrast to Australia's newer homes.
    Bunnings gets bigger in Shepparton

    Bunnings plans to build a brand new, larger facility on Benalla Road in the regional town of Shepparton (VIC).

    The store's larger facility, with more car parking, space and jobs comes on the back of several other major projects in the area - the $70 million magistrate's court precinct, the $40 million Shepparton Art Museum and the relocation of the Coles Express service station to Riverside Plaza at Shepparton's southern entrance.

    The investment should augur well for a growing city. It also poses some questions - what will become of the old Bunnings site?
    Community uses

    According to a recent article in the Gold Coast Bulletin, there are some interesting possibilities for empty Bunnings stores in Queensland, with local councillors checking out the recycling of large empty bulk goods stores.

    For example, the former Bunnings Warehouse in Burleigh (QLD) has been earmarked for conversion to a community centre by Cr Pauline Young.

    The councillor confirmed she was running the ruler over the store, which has been tipped by property industry insiders as a possible facility for the staging of the Commonwealth Games. She said:
    We're running very tight on community centres in Burleigh and would like to think that post-Commonwealth Games we would be able to put something together. It's only very early days as far as the process goes...

    This comes as the number of groups using council's community centres booms, with five new centres opening in the past four years. Cr Young also said buying a bulk goods centre offered other benefits.
    We don't want to go out and design something and this store has already got car parking which is not metered so with a large number retirees looking to use a community centre that's perfect.
    Bunnings' rezoning request

    Another zoning review will be made of Bunnings-owned land at Tura Beach (NSW) after the big box retailer asked council for its support.

    The review request follows the NSW Department of Planning and Environment's gateway determination that a change of zoning to B5 business, be refused. It is not the first time that owners of the land have tried to get the zoning changed without success, according to Merimbula News Weekly.

    Some of the issues raised by NSW Planning were that the proposal did not fit council's view of Tura Beach as a village and the "primacy role of Bega" which it said was a "major regional centre".

    The matter will be taken to the Joint Regional Planning Panel (JRRP). Director of planning and environment, Andrew Woodley said that it was council's submission going to the JRPP that, if successful, would go as a recommendation to the state government. If the government agrees to let the matter proceed, the rezoning would be publicly exhibited and receive submissions.

    Only then, after a successful rezoning would Bunnings be in a position to lodge an application as development of this type is currently prohibited on this land, he explained.
    Final prep for Bunnings Yarrawonga

    Local newspaper, The Yarrawonga Chronicle toured the new Bunnings Yarrawonga store prior to its official opening.

    A typical warehouse operation, it has an extensive garden and outdoor furniture range, paint supplies, a large tool shop and a two-lane trade drive thru. In line with the retailer's commitment to sustainability, Bunnings Yarrawonga will implement a number of energy and water saving design features including energy efficient lighting and rainwater harvesting tanks.

    The new store forms part of the redevelopment of the Kaiela Industrial Estate on the Murray Valley Highway in Victoria and is more than 6,000sqm in size. Development of Bunnings Yarrawonga represents an investment of more than $10 million including a lease commitment, fit out and stock.

    Deb Thompson has been appointed store manager and will oversee over 70 staff. She said:
    Team members have supported a number of community groups already, working together to assist in local community projects including refurbishing the Fairy Garden, building a Mud Kitchen and raising garden beds at Yarrawonga Kindergarten as well as refurbishing the school veggie garden, fertilising, weeding and mulching the garden bed and fruit trees and installing a garden shed at Sacred Heart Primary School.

    Bunnings Yarrawonga was sold to Chinese investors for a reported $11.5 million earlier this year.

    Related:
    Big box update: Bunnings Yarrawonga has Chinese owner - HNN
    Bunnings UK looking to suppliers

    There is an opportunity for garden suppliers to add to a broader offer being introduced by Wesfarmers-owned Bunnings UK, according to Horticulture Week.

    Phase one of the new Bunnings-branded offer will be introduced over the next three-to-five years to "combine essential local elements with the best of Bunnings to build new business". This will include more local sourcing, including plants.

    The warehouse format will include "lowest prices, wider choice with trusted brands and great service". Opening hours could be extended, and Bunnings will aim at trade as well as consumer customers, becoming more of a builders' merchant format.

    The "always low prices" approach will mean not having discounter-style seasonal plant promotions and having more customer-facing staff. There will be higher stock weights and wider assortments, including for plants and gardening goods.

    Wesfarmers will prioritise bringing higher store merchandising standards to Homebase, with refits likely. Bunnings stores are refitted every five or six years.

    Long-term growth will be through a stronger team, better stock flow, higher productivity and deeper community involvement. This will all include more customer value, a better customer experience, greater brand reach and more merchandise innovation, which will be led by big brands. Rival B&Q has moved towards own brands in recent years.

    Store closures have also stopped but Bunnings UK will not consider any new outlets until the pilots are working. Omagh in Northern Ireland is the latest of 18 stores to be reprieved within the chain after a renegotiation of tenancy.

    Bunnings UK managing director Peter Davis and finance director Rodney Boys are leading a team that includes general managers Craig Castelino (merchandise), Shane Mealor (store development), Craig Wallace (operations) and Keith Murray (marketing). Property general manager Andrew Mason is ex-Halfords and Wickes. HR general manager Martina Kay is ex-Marks & Spencer.
    Reports
    Europe update
    Travis Perkins has announced plans to shut stores
    HNN Sources
    B&Q is planning to launch a one hour click-and-collect service in 2017
    Wickes has launched its "Wickes Hourly" click-and-collect service
    Subscribe to HNN weekly e-newsletter
    Builders' merchant Travis Perkins issues profits warning; advanced click-and-collect services from B&Q and Wickes; and Laura Ashley exits Homebase stores.
    Store closures at Travis Perkins

    The Guardian reports the uncertain economic environment in the UK after the vote to leave the EU has led to Travis Perkins, the builders' merchant and owner of the Wickes chain, revealing plans to close more than 30 branches, putting 600 jobs at risk.

    Travis Perkins will close 10 distribution and fabrication centres as well as the 30 branches and is reviewing the future of its plumbing and heating business, which dropped 3.9% in year-on-year sales in the third quarter of 2016.

    The closures will be across the company's trade brands, which include Travis Perkins, Benchmarx, its kitchen and joinery arm, and BSS and PTS, its plumbing and heating businesses.

    Travis Perkins, which employs 28,000 people and has 2,060 stores, said it hoped to relocate some of the affected staff to other locations.

    Chief executive John Carter said the company was making the cuts because "levels of future demand remain difficult to predict". Mr Carter blamed the uncertainty on Brexit and an increase in stamp duty on second home purchases. He said:
    It [Brexit] is a big part of the uncertainty. If we were stood here now without Brexit I think it would have been easier to predict 2017. The government took the decision to change the tax status of buy-to-let and we had a massive spike in housing transactions in March [before the new regulations started]. That is still unwinding to get to a consistent level.
    There would have been some uncertainty about 2017 just based on the housing transactions, but clearly it is a big uncertainty because we don't know how Brexit is going to work.

    Mr Carter said he expects the market next year to be "soft". He warned:
    We are working on the basis that it is going to be soft, but we don't know how soft. None of us have experienced this before and really it comes down to the consumer -- disposable income and consumer confidence.

    Travis Perkins warned it would take a GBP40 million to GBP50 million (AUD66.3 million to AUD82.8 million) hit from the restructuring in 2016, although two-thirds of that will be the writedown of the value of its assets and not involve a cash loss.

    Although Travis Perkins enjoyed a 3.4% increase in group sales during the third quarter and a 2% rise in like-for-like sales, which was driven by a 9% rise in sales to consumers, the plumbing and heating business contracted sharply.

    Mr Carter said the plumbing and heating business was "structurally challenged" as homeowners turn to online alternatives for repairs and installation or defer major purchases. Asked if the company would consider selling the business, he added:
    If we could, I think we would. The sector is not attractive to investors, so it is our job to fix it.

    Travis Perkins is halfway through a five-year overhaul of the group, in which it is shutting unprofitable stores and expanding in better-performing areas. It is revamping its Wickes stores and said it has refitted 50 shops.
    B&Q offers click-and-collect in an hour

    UK home improvement retailer B&Q is introducing a one-hour click-and-collect service. It also announced plans to roll out its new format store -- introduced at Cribbs Causeway in Bristol -- across 10 stores.

    Speaking at Retail Week's Interior Summit, B&Q chief executive Michael Loeve said it would launch up to 10 similar stores by the end of March. He said the company is trialling it in different catchment areas to see how shoppers react, adding that he was keen to get to the stage where the profit on store refurbishments would be strong enough to justify a full implementation.

    Mr Loeve admitted that B&Q had "lost focus" in terms of its stores' designs with some starting to look "fairly functional" and "a little bit tired". The latest store concept aims to improve this with brighter and more visual displays, and better in-store navigation as well as shop-in-shops.

    And, despite the continuation of B&Q's plans to close 65 stores across its portfolio, Mr Loeve revealed plans to open more stores, particularly in and around London.

    B&Q is also planning to launch a one-hour click-and-collect service next year, enabled by the introduction of a unified IT system across parent company, Kingfisher. There were hints the system would deliver more innovation, with the promise of "digital services not seen in the market before".

    Related:
    Europe update: An inside view of B&Q - HNN
    Wickes' DIY deliveries

    Home improvement retailer Wickes has launched "Wickes Hourly", a delivery service that provides customers with a choice of one-hour time slots for their product deliveries. The service is made possible through a partnership with delivery technology brand, On the dot, following a successful trial.

    Introduced across the UK, hourly delivery is designed to make home improvement shopping quicker and easier. Whether it is power tool failure or running out of a product mid-job, this service offer enables customers to chose ultra-convenient delivery.

    There are over 7,000 products available through Wickes Hourly and orders can be made online or through the customer services team. Precise one-hour windows are available seven days a week and same day, from GBP9.95 (AUD16.50).

    Developed in 2015, On the dot is operated by CitySprint -- the largest privately owned courier fleet in the UK with a regional network of 41 service centres - and supported by its GPS, SMS and email tracking technology. Its open API (application programming interface) means it can be easily integrated into retailers' checkouts and ePOS, both online and in-store.
    Laura Ashley dropped at Homebase

    Wesfarmers has axed 22 Laura Ashley concessions that were operating as part of its UK-based Homebase stores that will be converted to Bunnings outlets.

    Laura Ashley is a listed homewares and fashion group and revealed to investors that it would remove its concession stores within Homebase by the second quarter of next year. It sold paints, wallpaper, home furnishings and other housewares through Homebase.

    In January, Laura Ashley's Australian business was placed in administration, with the local and New Zealand businesses run under a licence agreement with Laura Ashley UK.

    At the Wesfarmers investor day in mid-June, Bunnings chief executive John Gillam confirmed the removal of all concessions from Homebase stores was proceeding to plan.
    Reports
    USA update
    The Restorer is made under the Porter Cable brand and sold at Lowe's
    HNN Sources
    Lowe's Vision is one of the first apps using Tango, a Google technology
    True Value has achieved comp store sales increase of 1.5% in Q3
    Subscribe to HNN weekly e-newsletter
    Lowe's is stocking The Restorer, a new tool under the Porter Cable brand; the Lowe's Vision App allows users to envision their home improvement projects using augmented reality; and True Value reports its third quarter performance.
    Power tool invention at Lowe's

    When Robert Kundel Jr. couldn't find the right tool to remove rust from the surfaces of the metal products his family's company works with every day, he made one with the help of fellow employee Richard Schley. Mr Schley previously worked as a tool and die employee at Delphi Packard Electric.

    Seven years later, Kundel's invention, The Restorer, can be purchased at Lowe's across the US and next year is expected to go on sale in New Zealand, Australia, Latin America and Europe. Mr Kundel told the Tribune Chronicle:
    I don't consider myself an inventor. I'm a solutions guy. But because I work here and we needed a solution to get something done, I ended up creating a tool for our business. Now it's available to others who need it.

    He began working for his father's business, Kundel Industries, an Ohio-based manufacturer of trench shoring products, when he was 16. Eventually, he moved into the role of chief operating officer at Kundel Cranes, a division of Kundel Industries.

    One of the company's biggest expenses involved prepping surfaces before welding or painting them. Typically, Mr Kundel explained, it used an angle grinder to remove rust and paint, but that left jagged marks. He said the prototype he created, albeit crude, worked so well to restore surfaces that he decided to patent and market it.

    Mr Kundel showed his prototype to a tool company, which made him an offer that he declined because, he said, it didn't "seem right at the time". He bounced around among several companies the next few years before signing a deal with Stanley Black & Decker that would launch his invention into 1,671 stores.

    He enlisted assistance from Matt Gennari of Maryland-based Gennari Consulting to get the product produced. Mr Gennari, who worked for Black & Decker 20 years, is vice general manager of US operations for Jinding, a Chinese manufacturer that produces the power tool for Wellington Corp.

    Mr Gennari said the invention is a crossover tool that replaces three devices, two of which can actually be dangerous to use.
    He's created a product that replaces 85% of the applications in those three tools with a very safe, ergonomically designed tool. The physics of the tool, and how it works are what's truly revolutionary about it.

    The tool, which uses a wheel that is actually an expansive roller, allows the user to remove a lot of material rapidly, without generating the large amount of heat other tools create.

    Approximately 13,384 units have been shipped to Lowe's. The tool has become available under the Porter Cable brand, a subsidiary of Black & Decker.

    Mr Kundel started a new company, Wellington Corp., to contract, manufacture and distribute the hand-held power tool that can be used to polish, buff, sand, scrub or clean surfaces by using interchangeable accessories such as a buffing wheel or polishing roller. It can also be connected to a vacuum, and Mr Kundel said he plans to add other features including scrubbing brushes for the multi-purpose device that "takes the elbow grease" out of the job.

    He has entered into a reverse licensing agreement with Stanley Black & Decker, meaning Wellington pays Black & Decker a royalty to use its name.
    Lowe's augmented reality in aisle 3

    Lowe's is giving home improvement customers a new way to see their homes through Lowe's Vision, one of the first apps using Tango, a Google technology that enables computer vision software on a phone for augmented reality experiences. Using the app and the Lenovo Phab 2 Pro, the first Tango-enabled smartphone, customers can envisage virtual home furnishings, fixtures and accents in their real living rooms, kitchens and bathrooms. Kyle Nel, executive director of Lowe's Innovation Labs said:
    Lowe's Vision and Tango bring our customers one step closer toward eliminating the challenge of visualising a completed home improvement project. Tango transforms the smartphone into a digital power tool that helps customers measure and style spaces in their home with confidence.

    By leveraging Tango technology, a set of sensors and computer vision software from Google that senses and maps surroundings, Lowe's Vision creates a 3D depth sense allowing customers to measure spaces and envision how products like appliances and home decor will look and fit together in a room.

    Lowe's Vision features at launch include the following:
    Power Measure

    Quickly and intuitively capture room dimensions and other interior space and surface measurements with a powerful digital tape measure.
    3D Designer

    Select any item from Lowe's virtual library and place it in the home in real-time to style and preview indoor spaces.
    Save, snap & share

    After designing the perfect space, save the project and share photos online.
    Shopping lists and reviews

    Create a shareable shopping list and save to a myLowe's account. Find additional product information like reviews, related items and promotions.

    The Lenovo Phab 2 Pro will be available in December. Lowe's Vision is a free download in the Google Play Store.

    Related:
    USA update: Lowe's Tango app for projects - HNN
    True Value posts more gains

    US-based retail hardware cooperative True Value Co. has achieved a comparable store sales increase of 1.5% in the third quarter. It reported growth in six of the cooperative's nine product categories, led by farm, ranch, auto, pet, lawn and garden and paint.

    Revenue was USD1.16 billion, up 0.7% or USD7.7 million, compared to last year. Gross billings were USD1.59 billion for year to date ending Oct. 1, 2016, up 1.6% or USD25.6 million. On a gross billings basis, wholesale comparable store sales were flat versus the year-earlier nine-month period, the company said.

    The retail co-op posted net margin of USD20.5 million, up 88.6% from a year ago, driven primarily by continued efficiencies in lower inventory provision and adjustments, advertising costs and freight-in expenses. President and CEO, John Hartmann said:
    Despite a soft retail environment, True Value members continue to see the benefits of our strategic plan unfold as they grow their business and engage their markets. Our continued strong growth in net margin shows that we are making clear and steady progress.

    True Value also expanded its square footage and retailer base. In the nine-month period, the company added nearly 1,120,000 square feet of retail space, furthering its commitment to grow Destination True Value (DTV) and other relevant formats in its network. DTV comparable store sales were up 2.5% year to date.

    There are more than 4,400 True Value locations around the world.
    Companies
    Hitachi to sell power tool unit
    Hitachi gears up to sell its power tool and chipmaking equipment businesses
    Nikkei Asian Review
    Hitachi Koki posts 2015-16 results
    Hitachi-Koki kickstarts 2016
    Subscribe to HNN weekly e-newsletter
    Hitachi is preparing to unload its power tools and semiconductor fabrication equipment businesses.

    It is focusing resources on infrastructure and information technology, and related services such as maintenance, management and consulting as part of efforts to streamline its sprawling operations and clarify its business philosophy. Hitachi's power tools and chipmaking machinery operations focus more on the sale of equipment than on services and the company has decided that they do not fit the broader group strategy.

    Hitachi and its Hitachi Koki unit together own more than half of Hitachi Koki's outstanding shares, including treasury stock held by the power tool maker. Hitachi has initiated a bidding process with a goal of unloading the stake by the first half of 2017. The sale could total more than 50 billion yen (AUD632 million). US investment fund Carlyle Group is among those interested.

    Plans to sell Hitachi Kokusai's chipmaking equipment business could also happen next year. Hitachi could first buy all of Hitachi Kokusai's remaining shares on the market via a tender offer, before spinning off the chipmaking equipment business. Then it could directly sell a portion of its stake in the unit to another company.

    Hitachi is involved in a wide range of businesses, a factor that hurt earnings during the 2008 financial crisis. It got back on track after chairman Hiroaki Nakanishi and other executives clearly laid out a new focus on infrastructure and IT.

    Hitachi also hopes that the sale will breathe new life into restructuring efforts some say have stalled. It accepted investments by SG Holdings and Mitsubishi UFJ Financial Group this year in its logistics and leasing arms, respectively. It will continue pursuing reforms for non-core businesses, including selling them off.

    Hitachi sold its hard-drive business in 2012 and spun off operations in liquid crystal display panels, to create a revenue base competitive with companies such as General Electric.

    In 2014, the Japanese company relisted electronics maker Hitachi Maxell that had been made a wholly owned subsidiary back in 2010. It turned its business in thermal power generation systems into a joint venture with Mitsubishi Heavy Industries in 2014, and its air conditioning business into a joint venture with US-based Johnson Controls in 2015.
    Companies
    Stanley Black & Decker offloading locks: sources
    Stanley Black & Decker is looking for buyers for its mechanical locks business
    Reuters
    Stanley Security releases a wireless solution
    Stanley Black & Decker 2016 Q1 results
    Subscribe to HNN weekly e-newsletter
    Power tool maker Stanley Black & Decker is working with investment bank Goldman Sachs Group on a sale process for its mechanical locks business, which could fetch as much as USD1 billion (AUD1.3 billion), according to people familiar with the matter.

    The divestiture process for the unit, which sells and installs locking mechanisms and keying systems, would allow Stanley to raise cash by selling what it sees as a non-core asset.

    The business has not performed as well as competitors with more scale such as Allegion and Assa Abloy, and Stanley has been more focused on growing its electronic security systems.

    The locks business has 12-month earnings before interest, taxes, depreciation and amortisation (EBITDA) of around USD70 million (AUD91.2 million), sources told Reuters.

    Asked by an analyst recently about the company's review of its security business, Stanley chief executive Jim Lore would only say that "it will play out in the coming months, and that could be another source of funds if it goes in that direction".

    Mechanical Access Solutions, together with its Convergent Security Solutions, and Stanley Access Technologies, make up the Stanley Security Solutions platform. The business provides integrated access control and security solutions for institutional, commercial, and industrial businesses and organisations.

    Its brands include Stanley, Best, Safemasters, K2, Precision, OmniLock, and Sargent & Greenleaf.
    Retailers
    Tradelink put on notice?
    Fletcher Building announced Tradelink expansion plans in April 2016
    Financial Review
    Fletcher Building 2015-16 FY results
    Tradelink sells basins, baths, showers, toilets, kitchen sinks and mixer taps to plumbers
    Click to visit the HBT website for more information
    The 200-store Tradelink network may be the next hardware and building products business to have a new owner if its performance doesn't improve by the end of 2016-17 FY, according to a report in the Financial Review.

    Tradelink sells plumbing and bathroom supplies to trade customers in Australia with an estimated 18% of the market, a distant second to Reece. Reece has around 50% of the market and a market capitalisation of $4.4 billion on the ASX.

    New Zealand-headquartered Fletcher Building is the owner of Tradelink, and signalled at its recent investor day that if the business doesn't improve its performance, it may be put up for sale.

    Morgan Stanley analyst James Rutledge said that management had indicated that "Tradelink performance has been disappointing to date, and that a sale of the business may be considered" should the division not achieve earnings of NZD20 million (approximately AUD19 million) in 2016-17 FY.

    Tradelink is undertaking a turnaround program to try and lift returns in an Australian plumbing market, which general manager Alan Ball said in an earlier presentation in April, remains an attractive industry.

    Tradelink is part way through spending AUD10 million on 60 new stores over three years. The major focus of that expansion is an additional 26 stores in NSW and 23 in Queensland. During the company's presentation in April, Mr Ball forecast earnings of between AUD24 million to AUD28 million from Tradelink for 2016-17.

    Mr Ball is also overseeing a strategy shift, where Tradelink is moving away from supplying large construction projects and towards small-to-medium enterprises that are involved in renovations, smaller construction projects and maintenance.

    The "payback" time for the extra investment was outlined as two years in the April presentation. Independent operators make up about 31% of the total AUD4 billion plumbing market in Australia. Tradelink's annual sales are about AUD730 million.

    Related:
    Fletcher Building 2015-16 full year results - HNN
    Products
    Yamaha engines for lawn and garden
    Yamaha has launched its MXV-EFI Vertical V-twin series engines
    Market Wired
    The engines are purpose built for commercial landscape zero-turn radius mowers
    The specially designed stainless steel muffler will fit a wide variety of ZTR mower frames
    Click to visit the HBT website for more information
    The outdoor power equipment division of Yamaha Motor Corporation has released a line of vertical V-twin engines for the lawn and garden market. Yamaha's MX775V-EFI, MX800V-EFI and MX825V-EFI engines are purpose built for commercial landscape zero-turn radius (ZTR) mowers.

    The MXV-EFI series of engines combine Yamaha's high performance and durability standards with landscape ZTR-specific development.

    The vertical V-twin engines deliver substantial power and torque -- ranging from 29 certified gross horsepower to 33 certified gross horsepower. The result is a smooth, even cut with consistent speeds even in difficult high-grass conditions.

    Three valve hemispherical heads, closed loop electronic fuel injection (EFI) with variable ignition timing, and low-friction design result in the most fuel-efficient engines in their class.

    The MXV-EFI engines are made to create an easier user experience. Yamaha product planners and engineers visited commercial mower OEMs, dealers/resellers, large landscapers among others while developing the MXV-EFI line. This comprehensive research and development from multiple field visits has resulted in unique features, enhanced serviceability, and a compact design that minimises noise and vibration levels.

    Some of the innovative features include easily accessible hatches that make for simple maintenance, a rotating grass screen that protects against debris clogging, and a stainless steel muffler that will fit a wide variety of ZTR mower frames.
    Products
    Cat enters consumer outdoor power market
    Caterpillar has launched its new RP3600 portable generator set
    Diesel Progress
    Cat's RP Series will be available in a new multi-channel distribution approach
    The RP5500 model is suitable for homeowners and contractors
    Click to visit the HBT website for more information
    Caterpillar Inc. has launched its first-ever line of portable gasoline generator sets called RP Series, aimed at the home and outdoor power market. But the company says the four-model lineup is not necessarily limited to use by consumers.

    RP Series generators range in power from 3.6 to 7.5 kilowatts, and are designed to provide backup or recreational power to home users but also have enough juice for contractors to power tools and lights on the jobsite.

    The generators will be available for purchase through a multi-channel distribution approach called omni channel. Part of Caterpillar's newly formed marketing and digital division, omni channel brings a different distribution model to Cat for these and future products. Channel development manager, Tony McAllister told Diesel Progress:
    Omni channel is a new organisational designation within Caterpillar. It comes from ... a strategy of using multiple channels to take these consumer-type products to customers. We are developing omni channels for specific products for Caterpillar, starting with the portable generator sets.

    Mr McAllister said the distribution model starts with Caterpillar dealers/resellers who can choose to sell or service the line of outdoor power products, depending on specific territory needs.

    He said that while many of the contracts for additional distribution channels are still being negotiated, they are all retail based and would fall under terms like "big box" as well as contractors, wholesalers, and "etailers". Mr McAllister said:
    There are prime product channel sales and there will also be an authorised service network where they may not be selling products, but will be able to offer aftermarket service.

    As part of this strategy, Caterpillar is announcing a brand known as "Cat Home & Outdoor Power" that establishes a distribution identity for businesses that join the service network. The trademark will be rolled out on in-store signage, displays, clothing and service trucks to identify authorised sales and service centres that provide maintenance and repairs for the latest outdoor power products.
    Product features

    There are four models of RP Series of gen-sets in the initial US and Canadian release - 3.6, 5.5, 6.5 and 7.5 kW - with a 12 kW model to follow in early 2017.

    Nick Kelsch, omni channel marketing manager, said ease of use, safety and noise were the top three things they heard about from customers regarding RP generator sets. This led the design team to put everything a user actually touches on the gen-set in one place. He said:
    The controls, the plugs, the digital display are all in one place on one side of the unit. In our user testing we watched people spend a lot of time figuring out where the choke was, where the starter was, where the oil fill was. So our industrial design team paid a lot of attention to those touch points.

    Other RP series features include all-steel roll cage construction and a hinged handle to move the generator, which is mounted on two wheels. The gen-sets use Lithium-ion batteries on the electric start models, and have an LED light for night operation. There is integrated battery charging, a 7.9 gallon fuel tank (4.5 gallon on the RP3600 model), and what Cat referred to as a premium exhaust muffler and sound attenuating side panels.

    All of the wiring is fully protected to prevent snags and accidents and all products incorporate snap-fit weatherproof socket covers.
    Companies
    Tradies sing for hipages
    A tradie choir is front and centre of hipages' latest campaign
    Mumbrella
    Tradies sing about the different solutions they can offer in the ad
    The commercial shows a need for qualified tradie help around the home
    Subscribe to HNN weekly e-newsletter
    A choir made up of tradies is at the forefront of a new campaign for online home services marketplace hipages. The ad sees a group of tradespeople collectively singing about the different services they can offer customers such as plumbing, electrical issues, landscaping and tiling.

    The light-hearted scenes show a clear need for qualified tradie help around the home. The hipages tradie choir displays the breadth of challenges that Australian tradies solve everyday. Tracy Richardson, chief marketing officer of hipages, said:
    At the heart of our new brand campaign is the celebration of Australian tradies. Tradies are central to everything we do and so it was natural to place them at the centre of our communications. It's a salute to their everyday great work.
    The creative idea behind the TV ad is to take viewers on a journey of diversity and scale. Diversity from the breadth of problems Australians face when renovating their homes, right through to the diversity of expertise, gender and age of our brilliant tradies.

    David Kennedy-Cosgrove, managing partner at VCCP Sydney -- the agency that created the ad -- hopes the campaign will also share the diversity of personalities amongst Australian tradies. He said:
    From their legendary humour ... and their can-do attitude, hipages is saluting the great Australian tradie. We're pleased to be working with such a dynamic team to help introduce hipages to wider Australia.

    The TV commercial is being rolled out in one minute, 30-second and 15-second spots and was launched via Foxtel. You can view the video here:

    News
    HI News V2 No. 16: Lowe's and Woolworths battle
    Download the latest issue of HI News Vol. 2, issue no. 16
    HI News
    Boral's construction material and cement business FY2016
    Trio has launched its Patriot lock into the market
    Click to visit the HBT website for more information
    This issue of HI News features the inside story of what went on between Woolies and Lowe's at Hydrox.

    Just click on the following link to download this edition:
    HI News V2 No. 16: Lowe's and Woolworths battle

    Makita's "slow and steady" pace belies its high-risk, highly strategic global strategy. We take a closer look at the details.

    Other features in this issue include a review of Trio's Patriot lock and Bunnings' social website for DIY enthusiasts called Workshop. There are also results from Boral, GWA Group, Fletcher Building and home improvement retailer Kingfisher.

    In our regular section on Statisitics, we provide an update on the latest ratings for "The Block" before it goes into the finale auction episodes.

    We also highlight the new executive team at Mitre 10.

    There has been a lot of activity with suppliers with Hills Industries and Woolworths ending their deal early and Stanley Black & Decker taking on Newell's tools business. SawStop is also suing Robert Bosch in the USA.

    New products in this edition include Uniden's updated DIY wireless surveillance system, Hitachi's Triple Hammer tool, Toro's latest zero-turn mowers, brushless power tools from Porter-Cable and DeWalt's outdoor bower.
    Companies
    Boral results FY2015-16
    Boral results for FY 2015-16
    Boral
    Boral Construction Materials and Cement overview 2016
    Boral's geographic performance
    Subscribe to HNN weekly e-newsletter
    In its results for its full FY2015/16 Australian-based construction products company Boral has managed to continue the redevelopment success story it began in the previous corresponding period (pcp), which was FY2014/15. Once again, overall revenue has nudged down slightly, but earnings before interest and taxation (EBIT) has lifted.

    The company has moved clearly into the end stages of the "Fix, Execute, and Transform" program initiated by Boral's respected CEO, Mike Kane, several years ago. It stands in a good position now to take advantage of the increase in infrastructure expenditure over the coming two years, as civil construction comes out from under the lingering shadow of budget cuts and delays made in response to Australia's economic difficulties in past years.

    Total revenue came in at $4311.2 million, down by 2.34% on the pcp. Revenue from continuing operations, however, climbed by a modest 0.32% over the pcp, to reach $4311.2 million. EBIT was $397.9 million, up by 11.55% on the pcp. Net profit after taxes was $256 million, down by $1 million, or 0.39% on the pcp.
    Boral results

    The headline financial ratio is Boral's return for funds employed (ROFE) based on EBIT, which came in at 9.0% for the current year, up from 8.2% in the pcp. The importance of this is that Boral has begun to subtly shift its future strategy. While retaining a strong direction in improving efficiencies, the company is also moving towards better portfolio management, allocating its investments to the product lines and geographic regions where better returns can be planned for.
    Boral's focus on return on funds employed (ROFE)
    Company changes

    As Boral moves into its FY2016/17, the company continues to undergo changes. As announced earlier in 2016, its building products division in Australia will be combined with its construction materials & cement division to form a new Boral Australia division. As Boral's CEO, Mike Kane, said at the time:
    This is a sensible and logical next step for Boral as portfolio realignment has seen the building products division substantially reduce in size over recent years.

    At the time of its results release, Boral also announced the formation of a new joint venture in North America with US company Forterra, which owns Forterra Brick. The joint venture will grant both participants an even share. According to the media release:
    The joint venture will bring together Boral's US clay brick operations and distribution network and Forterra's clay brick and concrete brick businesses in the USA and Canada. The combined business will have a capacity to produce over 2.6 billion standard bricks per year, and will include 27 clay brick manufacturing plants, 2 concrete brick plants and 41 building products distribution centres.

    In answering a question from financial analyst Emily Smith of Deutsche Bank during the results presentation to analysts, Mr Kane expanded further on the reasoning behind the joint venture:
    Putting together these two leading companies who have the capability to reach the key segments for the brick markets in the US, and to get -- to drive up the efficiency from bringing these companies together, is going to be an important step. We've got to get velocity through the plants and through distribution. At 54% or 55% capacity utilisation, it's very difficult to get drive, but we were able to prove that when we took out almost 50% of our capacity in the past, that we can shrink back. Some consolidation has to happen between our asset bases, and the plans are in place. People know what we're going to do. We've identified -- we've tried to be conservative in our projections, but I'm an optimistic fellow and I'm telling you I'm looking for more than what we're saying here.
    Divisional performance

    The headline performance figures for the four divisions Boral had operating during 2015/16 was very positive. The largest division by far, construction materials and cement (CMC) saw its EBIT outside of property earnings lift by 4.0% over the pcp. However, including property, the total EBIT was $293 million, representing a drop of 2.7% on the pcp.

    Building products returned EBIT of $33 million, up by 11% over the pcp. USG Boral saw its EBIT lift by 27% over the pcp, to reach $179 million. Boral USA returned USD32 million (AUD44 million), up considerable over its EBIT of USD5 million (AUD6 million) during the pcp.
    Construction materials and cement

    Revenue for this division fell by 6% to $2900 million. The company states that this was largely due to a decline in liquid natural gas (LNG) construction projects. Other impacts included the sale of its landfill business, and a lower profit realisation from its property business, which has been anniverseried against a particularly strong year in FY2014/15. Additional costs included some restructuring to the logistics fleet in Western Australia and Victoria.

    Positive influences, which enabled the ex-property EBIT to actually lift despite revenue falls, included the receipt of $4 million in damages from the company's long-running (and highly commendable) action with the Construction, Forestry, Mining and Energy Union (CFMEU), and lower fuel costs. Boral reported a reduction of around $16 million in diesel costs for the company overall during FY2015/16. As a result, ROFE came in at 14%.

    In its concrete business, overall volumes are reported to have fallen by 2%, while prices increased, also by 2%, though the company reported that as the mix of products sold shifted, the average price increase for Boral was closer to 1%.

    Boral's asphalt business had a similar outcome, with declining volumes but improved pricing, delivering a steady result. The company notes that this remains a very competitive market.

    Quarries continued to provide good earnings, driven by ongoing growth in metropolitan Victoria and South-East Queensland. Results for New South Wales were mixed, with regional areas providing good sales, but the area around Sydney less so, due to materials produced by tunnel excavation activity.
    Boral Construction Materials and Cement overview 2016
    Transition

    The underlying story to this division is the movement, predicted by Mr Kane in 2015, of its business from resource-based projects, to infrastructure and residential construction. As he said during his response to a question from Ms Smith:
    Underlying, when you look at Australia, there is this transition. Last year I was talking about this transition. I think there was a lot of cynicism about what would happen with the housing market in Australia. There wasn't anyone in the room suggesting it would go up, even including me. But it did go up to 226,000 starts.
    The strength in the housing market in the eastern states in Australia is a phenomena. It's a phenomena that has sort of defied expectations of everyone in the market. We look at our forward order book, we look at the activity we have going on in New South Wales, which is extraordinarily strong, we see a strong base of business in Queensland, a strong base of business in Victoria, and we have to say there's nothing on the horizon that suggests any significant negative activity in housing in Australia, clearly dominated by multi-family, which we benefit from in our construction materials and cement division. So we're positive and we're confident that that will continue.
    I said last year we were moving from a resource base, strength in the LNG projects, into this new housing arena. We expected it to continue to be strong, and it was. It was even stronger than we expected. The roads, highway and infrastructure work, which was all sort of pending and talked about, and in the exploratory stage in the last financial year, came forward in financial year 2016 with projects being let, pouring having started, and the early stages of the road, highway and infrastructure work starting to pick up.

    Later, in response to a question from Andrew Johnson of CLSA, Mr Kane expanded further on his thoughts about the housing market:
    It's all about the eastern states. It's all about the footprint we have that covers those eastern states. I'm very encouraged and enthusiastic -- 226,000 housing starts. I had a question this morning from the media that said isn't the high price of housing in Australia, isn't that going to curtail the housing market? If that was true, we shouldn't have increased housing starts in Australia in the last year. I said high housing prices in Australia have been a phenomena for over 10 years, over a decade. So that's not having that impact. There are other things we can attribute to what's happening to the primary demand. This is a very robust housing market.

    Meanwhile, the pipeline of possible road projects for Boral continues to increase over the next three to four years.
    Boral major road projects pipeline for Australia

    In response to a question from Kathryn Alexander, an analyst with Citi, Mr Kane described some details of the project bidding process for roads:
    Unlike the LNG projects that as I've said in the past, where we took the majority of the LNG projects across Australia, we could do that. We cannot take all the infrastructure projects. We don't have the capacity or the capability of doing that.
    So you have to have a bidding strategy that says you're going to lose a significant percentage of these projects, you're not going to get them all. Which ones do you want to win? Which ones do you want to lose? And that hierarchy of decision making, you'll find that we'll bid on just about everything that's out there. But we'll have different expectations depending on the project.
    It has a lot to do with the simplistic notions of proximity to the project, proximity of our quarries, proximity of our fixed plant operations, whether or not a portable plant and we have the availability to report on plant as required. How long -- where -- can we get cement to this? Can we not get cement to this?
    Boral building products

    Allowing for a shift in accounting practices regarding the Boral/CSR Bricks joint venture, underlying revenue for this division grew by 1%, while EBIT grew by 11% over the pcp to reach $33 million. Bricks and roofing saw price rises of between 1% and 4%. Timber revenue grew, with hardwood seeing a 4% increase in price.
    Boral gypsum

    Revenue for this division grew by 10% over the pcp, while EBIT rose by 27% to come in at $179 million. The company sees much of this gain coming from efficiencies. Sheetrock brand plasterboard experienced high demand, and an increase in prices of 4% delivering a price premium of around 5%. Volume was particularly high in Australia, increasing by 13%.

    Boral put much of the 27% increase in revenue down to operational improvements, including better cost management strategies.

    In commenting on the growth strategies for this division, Mr Kane stated:
    Asia and North America are our growth platforms, and in USG Boral we are targeting organic growth through innovation, growth in Asian economies, and accelerating market penetration for interior linings and associated products.
    Boral USA

    Revenue grew by 8% to reach USD751 million, while EBIT recorded a substantial increase from USD5 million in the pcp to USD32 million. This came about through a combination of better margins along with volume and price increases. The company sees this as a result of the improvement in the US housing industry. Overall US housing starts increased by 13% during the year. Boral saw a 16% rise in starts in the US states where it sells tiles, and a 6% increase in the states where it sells bricks. That said, the increase in sales in the brick states was only 4%, due to starts occurring predominately in lower-cost housing.

    Roofing revenue increased by 11% of USD176 million, while revenue from fly ash grew by 5% over the pcp to reach USD170 million.
    Analysis

    One of the most important statements that Mr Kane made during the presentation was this:
    Boral's geographic diversification positions the company well to leverage growth opportunities. The priority for Boral Australia is to protect and strengthen our leading, integrated construction materials position, which will benefit from a significant pipeline of major roads and infrastructure work over the next several years, and to optimise returns across all building products and construction materials businesses. However, our ability to grow through cycles is limited by the scale and scope of the Australian market, which is why Boral has identified Asia and North America as our growth platforms.
    Boral geographic performance

    One aspect of this is something that is being consistently heard from the CEOs of big companies. It's not that they don't believe in the economic future of Australia, but they do see its as, in the medium term, being quite uncertain. The current wave of infrastructure building, for example, is largely servicing latent demand. Once that is done, the continuing level remains difficult to predict.

    Likewise, as Mr Kane hints, while the housing markets, especially in Sydney and Melbourne, do not seem to be all that price-constrained, the actual drivers behind the ongoing growth in the value of real estate do not seem all that well-defined. This leads to an uncertainty about predicting future demand beyond two or three years.
    Companies
    Trio wakes up lock market
    Trio Australia's new Patriot lock
    Trio Australia
    Assa Abloy Lockwood Paradigm lock
    Comparison of locking for Paradigm and Patriot
    Subscribe to HNN weekly e-newsletter
    Trio Australia has developed a double-cylinder lock, named the "Patriot", with some interesting features, targeting home renovators who want to upgrade their front door locks. It's a product that has potential, going into an accessible, highly desirable market. However, it's also going to be a real challenge for the company to master.

    That's not because there is anything wrong with the product itself. In fact, HNN would go so far as to say the Patriot itself is actually inspiring -- which is not something we ever thought we would find ourselves saying about a lock.

    Trio has really defined some specific problems and needs, and found a way to at least reduce the effect of those problems. It has then moved on to a core problem with locks such as this, which are sold predominantly as a replacement for existing locks: how to make it easier for the low-skill home handyperson to install it?

    All that sounds great, but marketers reading this are probably already nodding their heads as they see what's next. The problem? Instead of concentrating on one, single feature/solution, and making that the primary, marketable benefit about this lock, Trio has developed a device that has three -- arguably four -- features that would be of interest to a consumer.

    To make matters more difficult, these features all point in slightly different directions, so that tying this story into a single, understandable narrative becomes very difficult. How do you define and present the benefits?

    There is even another, additional marketing problem that Trio faces with the Patriot. This is that, in explaining how the lock works to a consumer, the consumer is likely to nod along, get to the end of the explanation, and glance at the sales associate with a look that says "So?"

    Because, in fact, the way the Patriot works is close to the way that people think most premium locks should work. Which means the sales assistant will have to get a lock that doesn't work that well, and demonstrate the difference.

    Well, nice problems to have, certainly, but they still are real, actual problems.
    Quiet pioneers

    All this points to the sense that the Patriot lock belongs to a class of products that we could label as being "quite pioneers". These are products that actually do revolutionise a category, but do it in such a subtle way that it is sometimes difficult for consumers to grasp what is going on.

    This is definitely both an advantage and a slight disadvantage. The disadvantage comes from the difficulty of getting the product started in the market, understood by consumers, and edging out that first 1% of adoption.

    The advantage, which is long-term and significant, is that for many consumers, once they buy one Patriot, they will buy others as well. With a little bit of encouragement, those early purchasers will also become influencers, and get friends and family to consider buying this type of lock as well.
    Reviewing

    These difficulties extend not only to consumers, but to reviewing the locks as well. Reviewing the Patriot on its own would not really reveal all aspects of its design, so we've chose to review it alongside two other locks. We should say that each of these locks has its own unique application, but comparing them reveals the contrasts more clearly.

    One lock that is a close competitor to the Patriot is the Assa Abloy Lockwood Paradigm lock. The other lock we chose to add to the mix is the Kwikset Smartkey lock, which enables the owner to "rekey" the lock, so as to grant temporary access to, for example, tradies, or even AirBnb guests.
    Deadbolt dilemma

    At the core of the developments in the Trio Patriot lock is the problem just about everyone with a deadbolt lock has faced at some time. The deadbolt lock enables it to become "double-locked", meaning that a key is required to open it from both the outside and the inside.

    The sole purpose of this double-locking is to prevent someone who has broken into your premises through a window or via elevated balcony, from being able to easily carry the occupants belongings, such as televisions and computers, out through the front door. Double-locking can be particularly useful in apartment buildings, for example, as even the very best second-storey man is going to have trouble climbing back down with your 60-inch flat-screen TV under one arm.

    One problem with double-locking is that a large number of consumers simply don't understand that this is the purpose of the feature. There's an understandable, but very misinformed, idea that double-locking a door somehow makes the occupant safer.

    Nothing could be further from the truth. Once a modern lock is locked, it's just locked. Double-locking doesn't really make it any more locked. All it does it prevent the lock from being unlocked from inside without a key.

    However, when occupants are inside the building and the door has been double-locked, if there is a fire they may have trouble getting out of the building. It is a mistake that results in preventable deaths every year. In the US between 2007 and 2009, over 18% of preventable fire deaths were caused by egress difficulties, including locked doors.

    Yet most people have at least one relative or acquaintance who not only doesn't know this, but also can't be convinced. You go to visit your Nana in her little flat, ring the doorbell, and she calls out "Just a minute!" There follows about five or six minutes while she looks around for the key to unlock the door. And you think, "if there is ever a fire..."

    Or, in some ways even worse, you go to leave for work for the day and find that the front door has somehow, inexplicably, been deadlocked through the night. In winter. With electric radiators going. And the children sleeping upstairs.
    Comparing to standard locks

    As was mentioned above, before getting into what makes the Patriot lock special, it's best to go over the way a "normal" lock works.

    First of all, there are the standard single cylinder locks, such as the Kwikset Smartkey lock we are illustrating here. This lock cannot be double-locked, because the interior portion of the lock can always be opened by rotating the lateral knob.

    The Assa Abloy Lockwood Paradigm is a double-cylinder lock, with keyed access available on both the exterior and interior of the lock. This is a quite advanced deadbolt design, and actually has some features that are a little like the Patriot. When the Paradigm is not double-locked, it behaves just like the Kwikset, with keyed access from the exterior, and simple lateral knob access from the interior. When it is in this mode, a small green indicator appears in a slot at the top of the interior knob.

    To double-lock this device from the interior, with the lock in the locked position, the key is inserted into the lock, and it is rotated about 20 degrees counter-clockwise. There is a slight "snap" sensation, and the indicator in the slot shows red.

    To double-lock from the exterior, the key is first rotated through 90 degrees to lock the door, and is then rotated a further 20 degrees.
    The Patriot difference

    The double-locking mechanism on the Patriot lock is quite different. The first noticeable difference is that on the interior portion of the lock, the bezel has a black plastic push tab sticking out to the left.

    As with the other two locks, operating it in single-locked mode is simply a matter of rotating the lateral knob. In the case of the Patriot, this mechanism is more highly geared than the other two, so locking/unlocking requires only a 60-degree rotation, rather than the full quarter-turn 90-degree rotation.

    Now, to double-lock the door, the first thing you need to do is, with the lock in the unlocked position, push the black plastic tab into the bezel. This has a nicely weighted action, so that it is quite a soft push, but quite definite. Once the black tab has been pushed in, to double-lock the door, you simply use the same action you would use when you single lock it: rotating the external key by 90 degrees, or rotating the internal knob by 60 degrees.

    As the lock moves into double-locked mode, the black tab is pushed back out of the bezel on the left, and on the right of the bezel, a slightly longer (about 5mm) red tab emerges. The lock is now in its double-locked mode, and this is clearly indicted by that red tab. It will require a key both externally and internally to open the lock.
    Advantages of the Patriot system

    While this seems to be a very simple mechanism, it carries with it multiple advantages.

    The single biggest advantage is that it de-skills the use of the double-locking mechanism for every user. One of the biggest problems with locks such as the Paradigm is that, especially if you are unused to using the lock, it is hard to know how far to turn the key from the outside. The temptation (and sometimes the accident) is to turn the key just as far as it can go, thus double-locking the door. It's quite common to see people when they first use one of these locks standing there with the door open, twisting the key on the outside portion of the lock, learning just how far they need to turn the key.

    While accidentally double-locking the door is one risk, the other risk is, of course, intending to double-lock the door, and not quite getting there. There is simply no way of having absolute surety about what state the lock in the door is in from the exterior. Again, it's not uncommon to see people locking this kind of lock play with the lock for 20 seconds or so, making sure they have locked it the way they want it to be.

    With the Patriot, none of these problems apply. Users of the lock must select the double-locking mode by pushing in the black tab, and once that tab has been pushed in, they can be absolutely sure the lock has been double-locked.

    Using the large red tab to indicate the double-locked status is also a very good design feature. While the paradigm goes part-way to providing the same feature, the slot that shows the red or the green dot is very small, about 4mm tall by 3mm wide. It would be hard to spot from more than a couple of metres away, and just about invisible for older people with failing eyesight.

    In fact, the Patriot's tab mechanism means that the status of the lock can also be determined by touch, making it easier to sense in the dark, and for people who are vision impaired.

    An additional feature of the Patriot mechanism is that a key is not required in order to double-lock the door from the inside. All the user needs to do is to push in the black tab, and manually rotate the lock closed using the lateral knob. This can be very handy when locking up a house, where there are multiple doors to get double-locked quickly.

    Of course, there is also a slight drawback to this. Users could, inadvertently, double-lock themselves into the house, if they do not have access to a key. While that is unlikely to be a problem for adults, a curious child could potentially get in a bit of trouble. For most households that will not be a major concern.
    Comparison of locking for Paradigm and Patriot
    Lock installation

    The other area that Trio has chosen to address with the Patriot lock is ease of installation. There is a very good reason for this. The Patriot falls into the classification of a premium replacement product (PRP).

    This means that most purchasers of this lock will not be being an installation for a new door, but rather upgrading an existing lock. The big difficulty with this is that many, if not most customers will likely have next to no experience at installing or replacing door locks. So Trio is actively taking the next step, finding some way to lessen potential objections to a lock upgrade purchase.

    The area Trio has chosen to concentrate on is the problem of how a lock can adjust to different widths of doors. It's an interesting choice because, if you do know something about installing locks, the width of the door really isn't so much of a problem.

    For example, the other two locks to which we are comparing the Patriot have common solutions to this problem that actually do work quite well. In the case of the Paradigm, this comes supplied with three different sized metal links between the exterior and interior mechanisms, and the installer simply picks the link that suits the width of the door.

    In the even simpler Kwikset mechanism, the rod that connects the interior and exterior mechanism is quite long, and it fits into a very deep socket in the interior knob. There is enough "play" in that setup to accommodate a range of door thicknesses.

    The Patriot uses a spring-loaded mechanism that is tensioned to provide easy use with a range of door widths. Of the three, it is certainly the most designed, and the easiest to explain. It also does offer some real advantages. Certainly the linkages on the Paradigm lock are annoying to get right on installation, and typically take a few minutes and several attempts to get just right.

    What is clever about this move by Trio is that is shows the company understands a slightly unfortunate truth about DIY: sometimes you have to spend as much time resolving imagined problems as you do actual ones.

    The person who purchases a Patriot lock wants to go home, spend ten or fifteen minutes reading instructions, fiddling with tools, and end up with a new lock they can be happy with. (Trio says four minutes, but let's be honest, there is a lot more to installing a lock than Trio takes into account. Making the coffee, finding the electric screwdriver, finding the bits for it, finding the bit that actually works for it, drinking the coffee, trying to install the lock upside down the first time, and so forth.)

    By paying attention to this one detail of lock installation, Trio is providing comfort and assurance. It's suggesting this is not a "pro" operation that requires experience and serious tools. (In the installation videos Trio has made to support the product, the installer uses the absolutely wimpiest electric screwdriver that could be found on the planet.) We've got you, Trio is saying, we know what you're worried about, and we've thought this through.

    For the sales associate in the store, this feature can also be used to answer customer concerns. In response to the question "Is it easy to install?" instead of offering bland reassurances, they can say: "It sure is. For example, unlike on other locks, this lock automatically adjusts to the size of your door, so you can be sure it will work for you."

    After installing and uninstalling each of these locks three or four times, HNN can say that the Patriot lock does seem to have a slight advantage in terms of overall ease of installation. For example, the links on the Paradigm lock that help it adjust to different width doors are a little fiddly to keep in place while fitting the lock. The Paradigm is also quite sensitive to the lock setback, due to the way the bolt itself connects to the lock. Being out by a millimetre or two requires some extra finessing to get everything to work.

    The Kwikset, which is a cheaper lock than the other, consisted of three components instead of two, and this created some problems as well.

    The machined fit and finish on the Patriot lock was slightly better than that of the other two locks as well. However, Trio Australia were kind enough to supply this lock, which came in a point-of-sale (PoS) presentation, while HNN purchased the other two locks. It's likely the PoS display locks are the pick of the current production run.

    In fact, the PoS solution by Trio looks as though it would work well. According to the Trio website:
    The Patriot range comes available in a highly vibrant and informative PoS stand. The top shelf is tiered to maximise packaging exposure for each finish. The shelving in the stand body is designed to hold additional stock of up to 4 units of each finish. Therefore a total range of seven SKUs of each colour.
    Use this POS stand as an off-site location for maximum exposure in-store and return on investment. The stand has its own working display included for customers to test out the Patriot.
    Analysis: The marketing problem

    As was mentioned at the beginning of this article, the Patriot is a very good product, but it does have a marketing problem. How do you go about describing how good it is, and how helpful its features can be?

    One direct way is to make sure that potential customers get a chance to try it out in the store, and it would seem that Trio has gone some way to taking care of that, by providing comprehensive point-of-sale material that includes a working lock.

    Looking at the rest of Trio's marketing materials and web presence supporting the Patriot, it is evident there is a problem developing. It's the same problem that just about everyone who has developed a product encounters, and it is a really difficult one to overcome. It's also the number one problem that gets mentioned in every marketing textbook, that every marketer knows all about -- and that every marketer struggles with throughout their career.

    Yep, it's our good old friend: inadvertently highlighting features instead of benefits.

    Trio does make a running at promoting benefits, but, aside from ease of installation (which is actually arguably a feature), the only core benefit that gets promoted is the safety aspect of not getting locked-in during a house fire. Having a better chance of staying alive is definitely a big benefit, but it's a little problematical when it comes to marketing. It's the kind of benefit you can appreciate, but you sincerely hope you are never going to need.

    So, what is the real benefit of the Patriot lock? One way of looking at this is to consider The Moment.

    What is The Moment? It's something most of us experience everyday. It's that instant that happens soon after you leave the house for the day, either at the moment when you have turned the key in the lock, or perhaps those four or five seconds when you've entered the car before you've started the motor. You think: Have I got everything? Have I done everything I need to do? Cat fed, iron turned off, thermostat turned up/down, curtains closed.

    And door locked. Not just locked, but locked properly.

    The Patriot absolutely, positively removes the door lock question from that list of concerns. It's about piece of mind, one less thing to worry about every day of the customer's life. That is the real benefit.
    Bigbox
    Big box update
    A range of Blanco appliances is being distributed through Bunnings
    HNN Sources
    A supplier says Masters has attempted to cancel orders
    Bunnings CEO John Gillam remains confident about the British market
    Click to visit the HBT website for more information
    A Blanco range is being distributed through Bunnings; supplier sources report that Masters has been cancelling orders; an update on the Masters inventory sale; Costco not interested in Masters sites; Bunnings CEO John Gillam is upbeat about Britain; decisions should be made soon on Bunnings stores in Coolum (QLD) and Warwick (QLD); speculation around Bunnings buying a site in Kingaroy (QLD); and the property where Bunnings Takanini in New Zealand is located is being sold.
    Blanco brand in Bunnings

    Appliance Retailer exclusively reports that a line of Blanco appliances including two ovens, a gas and ceramic cooktop, a telescopic and undermount rangehood is now being ranged in Bunnings stores. The move could represent a change in Bunnings' approach as it usually just stocks house brands, Everdure and Bellini, in the appliance category.

    German-made Blanco is distributed and marketed by Shriro in Australia and New Zealand.

    In the six months to June 30, 2016, revenue for Shriro fell due to a change in distribution for Blanco kitchen appliances in October 2015. The brand was previously sold in Harvey Norman and The Good Guys stores. It continues to be sold through Harvey Norman commercial channels. Shriro general manager of retail appliances, Craig Handley told Appliance Retailer:
    With the departure of Blanco from traditional retailers Good Guys and Harvey Norman, and many longstanding customers loyal to the Blanco brand, Bunnings presents an ideal opportunity to reach millions of people who highly value the Bunnings shopping experience.
    Bunnings is also one of the largest sellers of flat pack kitchens, so adding Blanco with the recognition and history it has will likely appeal to a large number of these kitchen customers.
    A tight range has been selected designed to offer the customer real value and quality synonymous with the Blanco brand, with all products made in Italy and offering a four year warranty. I believe the Bunnings partnership positions Blanco well for growth in the future, and both existing and new customers will be delighted with the offering.
    Masters "cancels orders"

    A supplier - who wished to remain anonymous - has told Fairfax Media that Masters has attempted to cancel orders and suggested the fire sale was not going as well as expected. He said:
    I understand week one of the sale went really well, the first week straight after the announcement, but after that it's been pretty terrible. What they had to do was go hard in the first week so people would buy and then tell their friends.

    The supplier said there was a view within Woolworths that stock divestment specialist Great American Group Australia (GA), which is responsible for the inventory sell-down, had moved too slowly and failed to capitalise on shopper excitement about the closing down sale.

    Some suppliers also claim Masters has tried to bring forward the delivery date for existing orders and warned it may not accept stock received after this new deadline which would free Woolworths from having to buy the products and limit the risk to GA of even more unsold stock.

    Masters confirmed it has tried to bring forward supplier orders, but a Woolworths spokesman claimed this was only to give it more time to clear stock. He said:
    It's not [on the basis that] if you can't bring the order forward it's cancelled. [It's] better for Masters, they have more time to clear stock and better for the suppliers, they get paid earlier.

    A spokesman for GA said the only reason suppliers had been asked to bring forward orders was because the sale was going so well and it expected to get a big uptick in sales now the football grand finals were over.

    GA claims the sale is ahead of schedule and the chain may shut down ahead of the December 11 deadline.

    However, the closing down sale is not just stock on the floor at Masters or in distribution centres, it is also understood there are as many as 5000 pallets "on the water" which have not hit Australian ports yet, let alone distribution centres or stores.
    Masters' inventory sale update

    A number of newspaper reports have indicated that sales of Masters' inventory has at times broken company records but has been marred by consumer complaints of discounts that don't live up to the promised bargains. HNN believes the main effects of the sale on the industry may not be seen until mid-November.

    Some customers have complained on social media about smaller discounts than expected, provoking angry exchanges with Masters more loyal supporters. On every occasion, Masters has apologised and promised to investigate.

    Fairfax Media gathered a number of customer complaints regarding the sale for its article.
    Masters fire sale doubles record daily sales with some complaints about price - Fairfax Media

    News Corp. had a similar story about the Masters sale and referred to it as a "disaster".
    This price tag perfectly sums up the disaster that is the Masters sale - News Corp.

    Smartcompany.com.au has taken a look at the complexities of liquidating stock. Insolvency experts told the website that going out of business sales are incredibly complicated, and some of the specifics on the Masters arrangement are not known.

    In broad terms, selling stock to a liquidator could lead to that liquidator setting prices and deciding on the amounts at which items are discounted to maximise the amount recouped -- then communicating the prices and information to a company's staff if they are still involved in operating the business. Managing director at Insolvency Guardian Jarrod Sierocki told SmartCompany:
    What they're doing is a controlled sell down -- they're trying to sell as much stock at the best price that they can. If Masters has set an end date of December, I'd say they will fire sale everything right up until that time.

    Gess Rambaldi, partner in the business recovery and insolvency team at Pitcher Partners, said a liquidation process doesn't have to have a formal time frame attached to it. If a public end date for a business is set, but all the stock is not sold by that time, it is possible for a liquidator to look at other ways of selling stock. He said:
    It could be sold through the use of other agents, brought to different markets to different forums. One of the things that can happen is that they can remove the stock from the businesses and sell them off site.
    Masters website shuts: complexities of liquidating stock - Smart Company
    Costco has no plans for Masters sites

    The Australian managing director of Costco, Patrick Noone said it would not be acquiring Masters' sites, referring to recent media reports as a "mix up". He said speculation the company was acquiring Masters sites around the country was "incorrect".

    Numerous media outlets reported the retail giant had its eyes on soon-to-be vacant sites. Mr Noone said the confusion appeared to have come from a consultant suggesting in the media that Costco take over the failed stores.

    Retail analyst and managing director of Marketing Focus Barry Urquhart told news.com.au that it would be a smart move for Costco to take over Masters sites. Purchasing the abandoned Masters stores would be a logical plan, according to Mr Urquhart, as they were built for shopping in bulk. He also believes purchasing the former hardware sites would not be a risky move for the discount supermarket. He said:
    Simply, Masters wasn't around long enough to establish an image or position in consumers' minds. Masters was not successful, all the stores had annual sales that never exceeded the annual profit of Bunnings, so there'll be a lot of 'virgin' consumers walking into these stores that used to be Masters.
    Costco sets its sights on failed Masters warehouses - News Corp.

    Ballarat has a Masters at Wendouree, which will close with other stores around the country by December 11.

    Plans for the Home Consortium - comprised of Aurrum Group, Spotlight Group and Chemist Warehouse - to take over the lease at Eureka Homemaker Centre and redevelop the site into a large format retail centre are unchanged, according to a company spokesperson.
    Bunnings remains confident about UK

    Bunnings CEO John Gillam spoke recently at an Australian British Chamber of Commerce event in Melbourne. He said the big box retailer is no "one-trick pony" and the fragmented nature of the British home improvement sector presents a lucrative opportunity.

    He also said it has experience running smaller stores, with a quarter of Bunnings outlets the same size as those it picked up in its British Homebase acquisition. He said:
    One of the things we are most remarkably misunderstood on is people think it is the same Bunnings warehouse everywhere. We have got about 330 trading locations across Australia and New Zealand and there are hardly two that are the same.

    Mr Gillam said Bunnings was well versed in getting the best out of smaller shops. He said:
    Twenty-five per cent of our fleet across Australia and New Zealand is the same size as the Homebase fleet so we understand merchandising intensity in that size format. We have embraced variability on property size as a way of fuelling growth versus trying to find the same site everywhere and being stymied by our inability to do that.

    Mr Gillam said the British market was highly fragmented, with the top two players having a combined market share of less than 15%.
    We see a more fragmented market and that is attractive to us...We paid for a platform...it's very hard to get a network and start from scratch and that has proven to be in this (Australian) market.

    Mr Gillam said the Homebase turnaround was a long-term project and Bunnings would be experimenting with various store formats in its early rollout.
    We don't expect the first store to knock the lights out. Stores one, two and three have got to do some different things as we work out what is more impactful and more space efficient and more customer friendly.
    Succeeding in Britain

    Mr Gillam also talked down the risks from Britain's planned exit from the European Union while urging patience as the group "learns like crazy" through its British expansion. He believes the long-term opportunity in the British market was exciting and its Homebase acquisition set a platform for a "new Bunnings", according to a report in The Australian.

    Eventually the group will completely overhaul all Homebase outlets with the Bunnings livery, but this will take place steadily over a broad two- to five-year time frame as it refines its strategy. He said:
    We could be in stage one for quite some time and that won't bother us.

    Mr Gillam added that the integration was proceeding "boringly well", while also warning significant supply chain work was needed to repair a business plagued by poor stock availability. He said:
    Out of stock levels were possibly the worst we've seen from any player of scale in our sector globally.

    Not long after Bunnings purchased Homebase, confidence in the British economy was hit by the yes vote in the Brexit referendum. It caused a severe weakening of the pound but Mr Gillam said the vote would not affect Bunnings' plans. He said:
    Brexit was a very obvious risk. [But] over the long term we think the market characteristics that attracted us to the UK don't change.
    The ageing housing stock gets older, the population ages and has more needs, and the population grows and has more demands. And the way that people use their homes and gardens...we think supports a strong home improvement and garden operator if we can get our offer right.

    Mr Gillam believes the shock Brexit vote could offer opportunities in expanding its network as property prices potentially stall.
    The UK property market post-Brexit has probably got a little bit more pause in it in terms of price appreciation than it had before and we certainly don't want to waste that opportunity.
    Decision expected on Bunnings Coolum

    Bunnings' third attempt at getting a store approved in Coolum (QLD) will be decided soon. However the Sunshine Coast Daily believes the big box retailer will be knocked back at establishing one of its warehouses in the region.

    Sunshine Coast Council officers have recommended refusal as the scale of the development sits outside the planning intentions of the area, with visual amenity a major factor in the advice given.

    Almost 1000 public submissions were made to the council on the proposal. Out of the 982 properly made, 980 were opposed to the development.

    One of the arguments made against the development has been the impact it would have on local employment. The other side of the argument is that a new Bunnings would be a boon for local employment.

    The council's economic development branch advised a 5850sqm store would deliver about 70 extra retail jobs, delivering about $15 million per year in economic impact and 113 ongoing jobs based on "economic modelling".

    The branch was broadly supportive of Bunnings' argument the development would not significantly impact other higher-order centres or "compromise the role of Coolum Beach and its intended function".

    Surveys conducted by opponents of the Bunnings proposal found 18 local businesses in similar sectors (hardware, garden, landscaping etc.) were currently operating below capacity. Coolum resident Fiona Sykes found 127 employees were currently employed by those 18 businesses, but that could rise to 184 employed if local stores were operating at full capacity.

    Bunnings' latest proposal for a 5850sqm store was the smallest of the three put forward. The previous two proposed stores had gross floor areas of 12,150sqm and 8600sqm respectively.

    Related:
    Big box update: Opposition gathering in Coolum - HNN
    Consideration for Bunnings in Warwick

    A decision on the Bunnings site for Warwick (QLD) is expected at the next Southern Downs Regional Council meeting.

    Public submissions on the plan for a new Bunnings store on the flood plain at the corner of Canning and Condamine Streets near Warwick East State School closed recently.

    It is understood that at least a dozen business and property owners in the vicinity of the site have lodged objections, with at least one engaging a professional planning consultant from Brisbane to put their submission together.

    Alan Olsen of Olsen's Home Timber & Hardware insisted it was not Bunnings the residents had a problem with. He told the Warwick Daily News:
    It could be any business that decided to build in the flood zone, and we would be equally as zone concerned. The matter is, no one should be building there.

    A group of 20 local residents gathered recently to discuss their issues with the Bunnings development lodgement, compiling a list of reasons why they thought council should knock it back. The group claims the development:
  • Compromised the planning schemes of the area;
  • Did not comply with the purpose of the zone;
  • Conflicted with the framework of the planning;
  • Was at a height above natural ground level that was excessive for the area;
  • Did not provide sufficient car parking;
  • Was over development of the site
  • Was subject to flooding

  • Flooding is the main concern, according to Mr Olsen, whose business is one of the first to go under during floods. He said:
    They have worked off a one-in-a-100-year flood model. What we want to know about are the smaller floods and what effect the Bunnings building will have on us then. Then there's the one-in-200 [year] flood; what effect will something more intense have?

    He feared that once one building was allowed in the flood zone, others would follow suit.

    Former Deputy Mayor Ross Bartley agreed, saying the land came under mixed zoning, something that would be compromised by the introduction of a bulky goods trade store.
    Bunnings in Kingaroy?

    Speculation surrounds the possibility that Bunnings may have purchased highway frontage in Kingaroy (QLD) which was to have been the site of a multi-million dollar motel development. That project fell over in late 2015 after initial earthworks had been completed.

    Recently, southburnett.com.au spoke to the real estate agents handling the sale of the land who confirmed that the block, which fronts the D'Aguilar Highway, was under contract. They would not confirm who the interested party was, only to say that it was not a motel development.

    No development application has been lodged as yet with the South Burnett Regional Council. Kingaroy developer Kevin Taylor said he had also heard that Bunnings had bought the motel site. Bunnings general manager - property, Andrew Marks said:
    Kingaroy remained an area of interest for Bunnings and we would consider opening a store there in the future if the right opportunity became available.
    Bunnings NZ property for sale

    The property housing Bunnings Warehouse Takanini in New Zealand, which is generating total annual rental income of NZD1,388,000 plus GST, is for sale. It is offering a new owner built-in annual rental growth of 2.5%. The freehold property comprises a 10,433sqm large format retail complex.

    Dave Stanley of Bayleys South Auckland and James Chan of Bayleys' international division are marketing the property by international tender.

    Bunnings developed the site and opened the store in December 2013. Mr Stanley said:
    They chose this site because of its prominent corner position and road frontage to both the main arterial Great South Road and to Graham Street, which gives the store huge exposure and profile. It is also close to many other major retailers.

    The store follows Bunnings' format and layout with a trade and retail offering and expansive high stud design, a separate garden centre, cafe and children's play area. There is also an open air parking directly outside the store as well as underground parking for close to 230 vehicles.

    Jacqui Coombes, general manager - Bunnings New Zealand, said the sale forms part of its long-term strategic approach of releasing capital on lease terms that provide flexibility from a long-term operational perspective. Ms Coombes said:
    It also provides investors with exposure to high quality retail properties backed by the strength of Bunnings' covenant.

    The 12-year lease with eight six-year rights of renewal has the potential to take Bunnings' occupation of the property through until 2076 and the annual 2.5% increases commence on the first anniversary of the lease commencement and subsequent renewal dates.
    Careers
    Seeking opportunities
    Ashdown-Ingram is seeking a category manager for its industrial supplies and tools range
    HNN Sources
    Spectrum Brands is looking to recruit an experienced Bunnings national account manager
    Techtronic Industries is recruiting for an area manager in Melbourne
    Visit the Mecca Website
    An opportunity for a seasoned category manager to build the industrial supplies and tools category at Ashdown-Ingram; a national account manager to look after Bunnings is needed at Spectrum Brands; and an area manager role at Techtronic Industries in Melbourne.

    To read more about each role, simply click on the company logos.
    Establishing a new category

    Ashdown-Ingram is seeking a category manager to source and develop its industrial supplies and tools range, in a newly created position. The Perth-based role involves strong product development and integrity of all master data. The individual will monitor and communicate influences that are likely to impact sales performance.
    Ashdown-Ingram has an opportunity for a category manager
    Managing the Bunnings relationship

    Spectrum Brands is looking to recruit an experienced Bunnings national account manager for its hardware division. This role covers key brands including Varta, Rayovac, Kwikset, STP and Armor All. Responsibilities include creating strategic business partnerships with key retail channel partners.
    Bunnings national account manager wanted at Spectrum Brands
    Growing power tools sales

    Techtronic Industries is recruiting for an area manager/trade sales representative to service Melbourne's eastern suburbs as well as a regional run of stores. The sales professional will be representing a portfolio of tools including AEG, Hart and Kango.
    Area manager for Techtronic Industries in Melbourne
    Companies
    Supplier update
    The deal between Hills and Woolworths has been cut short
    HNN Sources
    Stanley Black & Decker has agreed to purchase the Irwin Tools brand
    SawStop has sued Robert Bosch for patent infringement in the US
    Subscribe to HNN weekly e-newsletter
    The deal between Hills and Woolworths has been terminated; Stanley Black & Decker is buying Irwin Tools from Newell Rubbermaid; and SawStop has sued Robert Bosch in the USA.
    Hills' Masters deal ends early

    The demise of Masters has prompted Woolworths and Hills Ltd to scrap a deal where Woolworths took control of the manufacturing and selling of the Hills hoist clothesline and 240 other Hills products for up to 19 years, reports The Australian Financial Review.

    The unwinding of the deal will result in Woolworths paying Hills at least $6 million as part of the confidential settlement that covers the royalties and licence fee income that was due to be paid to Hills for the next three years.

    The initial term of the contract signed on December 3, 2014 was for seven years and there were three four-year options to renew, which would have taken it to 2033. A base royalty payment of $2 million annually was agreed upon in the original deal.

    Woolworths pursued the Hills brand as one of the "hero" offerings in the $75 million clothesline category in hardware as it sought to beef up its range inside Masters to compete against the Wesfarmers-owned Bunnings.

    Woolworths generated most of the Hills sales through the Masters chain, which is being shut down. The December 2014 deal gave Woolworths control of manufacturing, distribution and sales of 240 Hills products across a range of clotheslines, clothes airers and garden sprayers.

    Hills told the ASX recently that it was "considering potential permanent replacement brand licensing arrangements" for all Hills products and was commencing discussions with interested third parties.

    But the trouble for Hills is that by siding with Masters and Woolworths in the first place, it cut off important channels to the market. Bunnings sells a large range of clothesline brands such as Sunfresh, Whites, Morgan and Daytek.

    The Woolworths deal was struck during a time when former Telstra executive Ted Pretty was running Hills as he attempted to transform the staid Adelaide-based firm from an old world manufacturer into a company with strong growth prospects in security systems, health technology, and audiovisual.

    Hills appointed David Lenz as its new chief executive in September, taking over from Grant Logan. Mr Lenz has moved quickly to resolve the Hills clothesline situation.
    Stanley buying Irwin Tools

    Stanley Black & Decker has agreed to purchase Newell's tool business that includes the Irwin, Lenox and Hilmor brands for USD1.95 billion in cash, according to Bloomberg.

    Newell's tool division had sales of USD760 million in the last 12 months and Stanley Black & Decker expects to net cost synergies savings of USD80 million to USD90 million by the third year after close. Stanley Black & Decker president and CEO James Loree said:
    Newell Tools is an important step in our quest to further strengthen our presence in the global tools industry. The addition of the iconic Lenox brand and very strong Irwin brand, as well as their associated power tool accessory and hand tool products, opens up exciting new sources of global growth in similar ways, albeit on a smaller scale, to what Black + Decker did in recent years.
    Thus, the acquisition of Newell Tools, our first major acquisition since 2013, will provide both a source of inorganic growth in year one and an organic boost thereafter.
    SFS 2.0, our operating system, with its growth enhancing elements of digital excellence, commercial excellence and breakthrough innovation will also be deployed to rev up organic growth. This transaction, with our multi-faceted approach to revenue expansion, is entirely consistent with our strategy of driving above-market growth in a low growth world.

    For Newell, the sale helps streamline its sprawling product portfolio after its merger with Jarden Corp. in April 2016. The combination with Jarden created a company with USD16 billion in sales and pushed Newell into new categories such as home fragrances and outdoor products.

    The deal is expected to close in the first half of 2017.
    More tools M&A

    Sources also told Bloomberg that Sears Holdings has been shopping around its Craftsman tool division, which may fetch about USD2 billion. It has attracted bidders including Stanley Black & Decker and Hong Kong's Techtronic Industries. Other companies such as Apex Tool Group and Sweden's Husqvarna AB have explored possible offers for Craftsman too, according to the sources.
    Stopping Bosch saws in the USA

    Saw maker, SawStop has sued Robert Bosch and its subsidiary Robert Bosch Tool Corporation for patent infringement. The lawsuit is before the US International Trade Commission (ITC). Recently, administrative law judge Thomas B. Pender confirmed that the Bosch Reaxx saw infringes patents related to SawStop's implementation of active injury mitigation technology and components thereof. Here is an excerpt:
    Based on the foregoing, it is my Initial Determination that there is a violation of Section 337 of the Tariff Act of 1930, as amended, 19 U.S.C. SS 1337, in the importation into the United States, the sale for importation, or the sale within the United States after importation of certain table saws incorporating active injury mitigation technology and components thereof, in connection with the asserted claims of U.S. Patent Nos. 7,895,927 and 8,011,279. (U.S. I.T.C., Inv. No. 337-TA-965.)

    SawStop is asking the ITC to order US Customs to exclude Bosch's Reaxx saws from entering the United States, and to order Bosch to stop advertising and selling the saws and associated parts, which might include replacement cartridges essential to the saw's operation.

    Dr Stephen Gass, SawStop's president, notes that "the technology in SawStop saws wouldn't have made it to market except for the protection offered by the United States patent system". He said:
    We have invested millions of dollars in research and development to protect woodworkers from serious injury, and our inventions have been awarded numerous patents. Bosch chose to introduce the Reaxx saw in disregard of our patents, and we were left with no alternative but to defend our patent rights in court. We are very pleased Judge Pender confirmed that Bosch infringes our patents.
    Bigbox
    USA update
    The Home Depot CEO Craig Menear discusses targeting professionals
    HNN Sources
    Lowe's has launched Open House, a digital newsroom
    Canadian-owned Home Hardware looks to growth
    Click to visit the HBT website for more information
    Professional end-users are a priority for The Home Depot; Lowe's has launched a digital newsroom called Open House; mobile payments at The Home Depot; and Home Hardware in Canada is unfazed by its big box competitors.
    Digital engagement with Pros

    The Home Depot CEO Craig Menear recently spoke at the Goldman Sachs Global Retail Broker Conference where he discussed the use of digital technology to target the home improvement professional (Pros).

    Sitting alongside the enthusiastic amateur, the Pro customer is an individual with regular needs and a different, more specific, set of requirements. As such, they need to be targeted with particular care, he argued. Digital is at the heart of this with personalisation the key. He said:
    The marketing that we do to the Pro customers is now beginning to take advantage of the digital capabilities that we have. Instead of broad-brush marketing to the Pro as a Pro segment, it's individual marketing to a specific type of customer within Pro with defined messages that meet their needs.

    The Pro customer wants to engage with Home Depot via digital channels and in growing numbers. They are looking for very specific things from digital engagement. Mr Menear said:
    The thing that customer responds to is enhanced capabilities. Visual capabilities on the site are hugely important to the customer. The data that you provide around the product is important. We have seen strong engagement with the video content at a product information page level helps drive conversions. So the customer is definitely guiding how you engage with them in the digital world. And they are requiring upgrading content.
    One of the things that we have built into our app and mobile web is the ability for a consumer or a Pro to look up inventory in-store. We get a lot of feedback from our Pro customers that this is something that they value and benefit. So we are seeing the Pro engage. We are seeing the Pro engage in what we call BOPUS (Buy Online, Pick Up in Store). So they can be home at night, take a look at some things that they need, they can place their order and we have that ready for them for pickup the next morning when they swing by.

    But Mr Menear was also keen to emphasise that there are limited expectations for the firm's app play. He said:
    We don't believe that that The Home Depot app is going to be the first app that people are going to go to. But we also have to be relevant and continue to offer the app. But everything we put on the app, we also try and migrate to our mobile website as well as tablet and PC.

    Ted Decker, executive vice president - merchandising, believes that when it comes to pitching to the Pro customer base, there's an inherent advantage that the firm can exploit. He said:
    What we have with the Pro business is many of our Pro customers have our private label credit card. We have quite a bit of information. Other than digital marketing, we haven't done a lot of individual marketing.
    In data overall, we have always had a tremendous amount of data. And we are continuing to build tools and processes and in teaching our merchants and marketers how to better price the product and look at elasticities by market, how to assort our products, constantly looking to leverage that data map across the enterprise.
    We are increasingly contacting through e-mail campaigns those customers based on more in segmented customers as opposed to an individual customer. So we know someone is more engaged in garden, for example or may know someone is looking at a kitchen remodel. We will approach them as a segment, not so much individual.
    Lowe's debuts Open House

    Lowe's has launched Open House, a digital newsroom that will take consumers behind the scenes at the brand.

    About a year in the making, Open House was a "cross-functional" effort involving IT, recruiting, marketing, corporate communications, supported by an external agency, according to Colleen Penhall, vice-president of corporate communications. She said:
    People want to know more about the companies they shop with beyond the products and services they sell. At Lowe's, we are trying to build deeper and more meaningful relationships with our customers and, ultimately, more brand loyalty and advocacy.

    Open House serves as a digital avenue through which Lowe's can meet consumers "where they are," she added.

    The newsroom launched with stories such as the refurbishment of a Detroit school gym that was made possible because of a partnership between Lowe's and The Ellen DeGeneres Show. Ms Penhall said:
    We want to share authentic content they will not only share across channels, but they also feel is inspiring and relevant to them.

    Social media weighed heavily in the team's decision-making and the way consumers share "snap-able, bite-size" content, but long-form storytelling isn't off the table either. Ms Penhall said:
    [It's not] a cookie-cutter approach. We approach it from a variety of different ways people consume content and taking those [lessons] and applying them in the future.

    Lowe's marketing division recently launched "The Weekender," a 10-part DIY web series that shows homeowners how they can tackle a project in a weekend on a small budget, hosted by Monica Mangin, co-author of the East Coast Creative blog.

    The retailer also launched an app on Apple TV, and made content available on Amazon Fire TV and Roku TV.

    Rather than spearhead a campaign, Open House will serve primarily as a branding tool and "give people more insight into what went into the strategic thinking at Lowe's", Ms Penhall said.
    Mobile shopping expectations

    Retailers in the US such as The Home Depot are optimistic about the upcoming holiday season and they believe mobile payment users could be a big factor affecting their end-of-year sales. To cater to the mobile shopper, Home Depot is introducing chatbots.

    The home improvement retailer is pursuing beacons and chatbots for mobile consumers, who account for 50% of the company's online traffic, according to Mobile Commerce Daily. The chatbots can help consumers with advice.

    In a presentation at the MMA SM2 Innovation Summit 2016, an executive for The Home Depot stated that the growth in mobile is inspiring exploration of Internet of Things (IoT) technologies to drive sales. By focusing on mobile platforms, the company hopes to attract younger consumers from Gen Y and Gen Z, who The Home Depot calls "mobile prodigies". According to Yvette Davis, manager of media strategy for Home Depot:
    Mobile prodigies value personalisation, and they use mobile for shopping inspiration. Everything that we're doing is keeping those mobile prodigies in mind.

    The Home Depot is also experimenting with beacon technology and creative optimisation but claims it still has a ways to go. Ms Davis said:
    We have our beacon technology that we've acquired, but...we have to get mobile right. Mobile significantly drives foot traffic to my physical retail locations.
    Home Hardware focuses on growth

    Tony Flanagan, a 25-year veteran of Canadian-owned Home Hardware, operates in a tough retail environment -- the Home Depot, Lowe's and Canadian Tire are all in close proximity to his 18,500-square-foot store. He said:
    The reason I'm still here at the age of 69 is because I'm still having fun. I worked too many hours to develop hobbies, so now I'm turning my job into my hobby.

    Long service, such as Mr Flanagan's 25 years, is a common trait at Home Hardware, which has had just three chief executives since entrepreneur Walter Hachborn founded it in 1964. It's a retailer-owned enterprise -- the proprietors of its 1,100 retail locations across Canada are also its shareholders. Each dealer/retailer can tap into a range of services offered by corporate headquarters, in the heart of Ontario's Mennonite community. Chief executive Terry Davis explains:
    It's a culture of service. Retailers are normally controlled and owned by the head office. Our only purpose here is to serve those dealers in the stores, so we just have a different mindset. We are here to look after them. We are like a concierge service at the best hotels. I absolutely believe that makes us a strong competitor.

    Mr Davis, who is 65 years-old, joined Home Hardware in 1970 as a "picker" in what was then a modest warehouse operation, and he never left. Hired as the firm's 36th employee, he now oversees an operation with 2,300 employees at its head office and central distribution centre, and C5.8 billion in annual sales.

    Mr Davis admits Home Hardware's quasi-co-operative business model presents some challenges because the firm has neither the deep pockets of its publicly traded rivals, nor the top-down control of a franchise operation. But he says the model also offers benefits rivals can't match.

    He cites flexibility and communication as two factors that help Home Hardware compete. For instance, individual retailers select the goods that will best meet the needs of their local markets. Management conducts regular surveys of store owners' priorities.

    Twice a year, about 70% of the dealer-owners show up for big marketing events at its headquarters, where they can meet management, talk to suppliers and generally stay in touch with what's going on. Mr Davis said:
    One of the biggest challenges we face is having to be nimble and competitive and aggressive and all of those things without having the funding that's available to publicly listed companies.
    It must be nice to be a franchise organisation, and go out and tell every branch exactly how it has to operate, but we don't have that either. We don't dictate to our members as much as we persuade them. We are a group of 1,100 retail operations out there trying to work as best we can as one big team, and I think we do it very well.

    Yet Mr Davis also recognises the need to maintain quality. The company is four years into a five-year plan that targets 42 locations for termination -- ordering dealer-owners to improve their stores or leave. He said:
    There were a number we ended the relationship with. It was a difficult exercise, and the first time we've done anything like that. But we feel pretty strongly about what the brand stands for.

    So far, 29 of those 42 stores have closed; in nine of those markets, Home Hardware has recruited new retail members.

    Mr Flanagan shares the desire to protect the brand and concedes that the need for consensus among retailers can make the company conservative and risk-averse. For instance, there would be no agreement on moves like increasing loan funding for dealers wishing to open stores in Canada's biggest urban centres, where, he says, the brand remains relatively weak.

    But Mr Flanagan is very satisfied with the service he receives from the management team, a pay-as-you-go list of options that includes help with branding, design and display materials, as well as access to experts in fields like human resources, finance, health and safety, and real estate. He said:
    If I were to sum up the Home Hardware culture in one word, it would be 'helpfulness. We are run by a board of directors that are Home Hardware dealers, so it's the dealers telling head office what we require. We're a ground-up, not an ivory-tower-down, organisation.
    Products
    Upgraded surveillance system
    The G37xx series of security systems from Uniden can offer homeowners greater flexibility
    Uniden
    The spotlight from the G3700L model
    The Guardian wireless surveillance series offers a plug-and-play set-up
    Click to visit the HBT website for more information
    Uniden has refreshed its Guardian digital wireless surveillance system range with the introduction of the G37xx series.

    The new DIY security systems offer homeowners greater flexibility and a host of practical, advanced features. The new models -- the G3720 and G3710 -- each include a seven-inch touchscreen tablet and weatherproof cameras (two and one, respectively).

    The range can be expanded to include up to four weatherproof cameras. In addition, the ability to install cameras where cables cannot reach means users can change the camera configuration quickly and easily as required.

    Suitable for monitoring the interiors and exteriors of residential properties, the G37xx series cameras communicate wirelessly via the touchscreen tablet. This can also connect to the internet for remote access from a smartphone.

    The touchscreen tablet has full High Definition (HD) 1080p resolution for clear picture quality, allowing homeowners to clearly see details such as registration plates and facial features that are critical in the event of an incident.

    Unique to the market is the introduction of an optional motion detection spotlight with a weatherproof outdoor camera. Enhancing night vision further, this deters unwelcome visitors by casting a bright light when movement is detected. Additional features include an infrared LED with infrared cut filter for true representation of daytime colour, HD picture quality and PentaZoom 2x digital zoom-in on live videos.

    Remote access via an iOS/Android app means homeowners can log on from anywhere to watch and record footage live as well as switch the optional spotlight on to deter intruders. The app also sends push notifications and email alerts whenever the system detects movement.

    Secure, digital and interference-free transmission can provide peace of mind while a two-way talk function offers interactive opportunities. The Guardian wireless surveillance series offers a plug-and-play set-up and can be ready to use within minutes.
    Companies
    Fletcher Building 2015-16 full year results
    Results for Fletcher Building FY 2015/16
    Fletcher Building
    Fletcher Building's overall strategy
    Australian plumbing market from Tradelink perspective
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    New Zealand based building products and distribution company Fletcher Building has reported positive results for FY2015/16. Sales revenue came in at NZD9004 million, an increase of 3.96% over the previous corresponding period (pcp), which was FY2014/15.

    Overall company earnings before interest and taxation (EBIT) was NZD682 million, up 4.44% on the pcp. EBIT from Fletcher's Australian operations grew particularly strong, coming in at NZD 151 million, up 31.30% on the pcp. Australia contributed 23% of the company's EBIT, as compared to 18% for the pcp.

    Net earnings before significant items were NZD462 million, up by 4.76% on the pcp.
    Results for Fletcher Building FY 2015/16
    Divisional results

    Of Fletcher Building's five divisions, only International showed a drop in EBIT as compared with the pcp, down 7% to NZD133 million. Building products increased EBIT by 6% over the pcp to NZD274 million. Distribution added 19% to the EBIT of the pcp, to report NZD176 million. Residential and land development reported EBIT of NZD84 million, up 27% over the pcp. Construction increased EBIT from NZD74 million during the pcp, to NZD78 million, an increase of 5%.
    Fletcher Building's overall strategy
    Building products

    The star performer for building products was building materials, with good performance from plasterboard and insulation sales contributing to its 21% increase in EBIT to NZD93 million. Plasterboard sales increased in volume by 11% and earnings from insulation doubled across the Australian and New Zealand markets. The EBIT from Fletcher Insulation has reportedly increased by 150%.

    In answering questions from analysts during the results presentation, Fletcher Building CEO Mark Adamson remarked that demand for insulation had been high enough in Australia that extra capacity was needed:
    I announced that we are restarting Rooty Hill [insulation factory in New South Wales] - I never thought I'd hear myself say that - simply because we're full, because we've taken a lot of market share and the management team there has done a great job. So that will certainly alleviate any medium-term pressure in Australia.

    Similar capacity problems were also encountered with plasterboard, he remarked:
    I think wallboards is starting to get up against the buffers of capacity. Every few months they manage to eke out a little bit more, and that's where the manufacturing excellence program isn't so much driving cost as driving additional capacity out of the same kit. That should see us through certainly FY 2017 and we're working on plans as to how to address that going forward. That is a tight one.

    Another standout producer was Iplex Australia, which makes plastic pipes. It managed to turn a loss of NZD27 million during the pcp, into a break even result for the current year. Mr Adamson warned, however, that future growth for this operation would be more subdued.

    Other results included an increase in readymix cement volumes by 7%, in volumes for New Zealand cement by 6%, and a decrease in cement pipe volumes in New Zealand by 8%.
    Distribution

    The overall EBIT lift of 19% compared to the pcp to NZD176 million was largely driven by steel distribution. Australian steel distribution rose by 43%, and New Zealand steel distribution rose by 22%.

    The Australian plumbing supplies distribution TradeLink saw a 2% decrease in its revenue, and the operation went through a reset during the year. According to Fletcher Building's annual report for FY2015/16, its intentions as regards TradeLink are:
    The focus has been on cost-effectively expanding the store footprint, implementing a service guarantee oriented around the core requirements of the trade plumber, and on lifting the capability of people within the business. There remains much to be done to get that business to acceptable returns but we are clear on our strategy and the early signs of customer acceptance are encouraging.

    In response to an analyst's question, Mr Adamson expanded on the company's plans for the business:
    Yes I think Tradelink, it's fair to say, is the one standout turnaround that we continue to pay the most attention to. Partly because unlike manufacturing businesses - we say Iplex have a fairly rapid turnaround, Formica Europe is already making money from a fairly average first half. Distribution turnarounds tend to be longer because you've got to get customers to buy stuff from you in your new branches.
    I think what we take faith in is not some clever magic bullet strategy, but we're very much relying on the experience of Dean Fradgley and Alan Ball and their teams. They're extremely credible. We ask them the same question that you've asked me almost every week, and they remain very, very positive. The early signs from the store rollouts that we've done, we've done seven so far, in the last three months, two of them are already turning a profit, do look promising.
    But I think it needs to be a strong conversation at the half year. I think at the half year we'll be able to be more definitive from a numbers point of view around whether that's going to be successful. They are absolutely convinced we can get that business to the 40 million we keep on talking about.

    In an investor day in April 2016, Fletcher Building provided more details about its plans for TradeLink. One key to this is an increase in Trade stores from 107 in 2016 to 165 in 2019. These will be low-cost format options, which the company tested out in the Australian Capital Territory. The plans are to build 23 new branches in Queensland, and 26 new branches in New South Wales, will 11 branches spread out through the remaining states and territories.

    Tradelink also has plans to refurbish its showrooms, through a AUD1.5 million investment. Currently Reece is thought to capture 63% of showroom sales, independent operators 26% and Tradelink 11%.
    Australian plumbing market from Tradelink perspective
    Analysis

    As an overall company, Fletcher Building remains something of a challenge to analyse, as it deals with about 20 different markets, some of which interact, and others which are at least partially independent.

    From the building supplies perspective, however, it remains challenged by the problems of most building supply companies, in that it is difficult to know what level of market activity it should optimise for. At the moment in areas such as plasterboard and insulation, it is not able to comfortably meet demand. Some of the expansion it is undertaking in these areas relates to better efficiencies, and some requires the addition of more capacity. By the end of FY 2016/17, there should be a better picture as to how those strategies will work with the developing market.

    In terms of Fletcher Building's distribution business, while much of that business continues to product good results, Tradelink in Australia continues to recover from persistent problems. As Tim Salt, the managing director of GWA Group has commented, the company seems to be very willing to improve its operations, but it has yet to deliver on this.

    Meanwhile, competitors such as Samios in Queensland are finding ways to get better market share, and Reece continues to consolidate its leading market position.
    Companies
    GWA Group results FY 2015-16
    GWA Group results for FY2015/16
    GWA Group
    Graph of bathroom and kitchen segment results
    Door and access systems results graph
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    At this stage, Australia's GWA Group has all the makings of a good turnaround story. After seeing its business decline as it persisted with a diversified business with manufacturing capacity in Australia, GWA has narrowed its focus to two product lines, and moved to offshore manufacturing in China.

    Reporting its full year results in late August 2016, the company has declared revenue of $429.7 million for FY2015/16, up by 3.12% over the previous corresponding period (pcp), which was FY2014/15. Earnings before interest and taxation (EBIT) rose by 7.51% over the pcp, to come in at $78.3 million. Normalised profit after taxes (a non-standard measure devised to make a genuine comparison with previous results) was $51.9 million, up by 14.98% over the pcp.
    GWA Group results for FY2015/16
    Company evolution

    In its FY2013/14 GWA found itself in something approaching a crisis. The company wasn't doing as well as it should, and GWA sought external advice from Second Road Consulting. The conclusions the company reached, as detailed in GWA's Annual Report for FY2013/14 were this:
    It is clear that our market context is changing and while GWA remains Australia's leading supplier of building fixtures and fittings, our markets are evolving:
    - The relationship with our buyers is becoming more equal and also less predictable, through trends such as channel consolidation and digitisation.
    - Shifts in supply chain are required for us to be more efficient and effective.
    - Value does not lie solely in the products themselves but also in the systems and experiences that come with them.
    - Industry boundaries are not what they used to be - innovations from outside of the traditional building and construction spaces are becoming relevant.

    The solutions that GWA decided to follow at that time were also detailed in the Annual Report:
    - We recognise markets are changing and will deliver products and solutions that save time for tradesmen, builders and across commercial projects.
    - We will refocus our business units on their target market segments to ensure they have unmatched understanding of customer needs, able to reach and influence the key decision makers in these segments.
    - We will free up our business units to focus on their markets by leveraging corporate functions that will enable:
    -Increased innovation and market insights;
    -Closer customer engagement and information via group information systems;
    -Supply chain effciencies and responsiveness;
    -A supportive culture and pipeline of appropriately skilled management; and
    -Unmatchable scale.

    This resulted in a number of changes that were summarised in the Annual Report for FY2014/15:
  • The sale of the Brivis Climate Systems business;
  • The sale of the Dux Hot Water business;
  • The sale of the Gliderol Garage Doors business; and
  • The phased exit from manufacturing of vitreous china and plastic sanitaryware products at the Wetherill Park and Norwood factories and the subsequent sale of the Wetherill Park site.

  • In effect, GWA pulled out of Australian-based manufacturing altogether, eliminated its heating and cooling segment, and cut down its doors & access division by selling Gliderol Garage Doors to Reliance Doors.

    The other major change was that, having driven this transformation of the company, the then-managing director, Peter Crowley, announced his plans to step aside. GWA had already found a worthy successor, Tim Salt, who was at that time the managing director of Diageo for Australia and New Zealand.

    Diageo is an alcoholic beverages company, which markets Smirnoff vodka, Baileys and Johnny Walker whiskey, among other well-known brands. It has a strong focus on both sales and increasing sales through innovations in products. Tim Salt had held his position there from 2008, and prior to that he had worked for Arnott's in a series of increasingly senior management roles from 2004. His background also includes time at Lion Nathan and Pepsico.

    Unusually, Mr Salt began his time at GWA in charge of its bathrooms and kitchens segment in September 2015. He was made CEO of GWA on 1 January 2016, and assumed the full managing director role on 1 July 2016.
    April assessment

    One of Mr Salt's first moves as a senior executive was to provide an investment market briefing on 21 April 2016. He delivered a very focused presentation that outlined the strengths of GWA, and details of how the company would make the best use of those strengths.
    GWA group structure

    In particular, what became very clear was that, after some years when GWA had not really innovated much in its sector, Mr Salt intended to increase the role of innovation in the company as a means of delivering differentiated products with a higher margin. Further, it was plain that this innovation, in contrast with many of GWA's competitors, would have a strong basis in engineering, as much as in pure style and design.

    A second focus was market alignment. Many of GWA's products were aimed at detached dwellings, and it was underweight - in terms of building approvals and even completions - in the multi-unit residential area. Also, Mr Salt indicated that the company would be directing more resources at the renovation and repair markets, due both to their size potential, and their modest contra-cyclical trend to the new build market.

    Mr Salt identified a number of emerging opportunities, such as the movement towards "ageing in place", where "safe" bathrooms could form a major part of making houses more friendly to older Australians.

    Mr Salt's third focus was on reducing costs. He could see a clear path to reducing selling, general and administrative expense (SG&A), as well as improving logistics and therefore inventory expense.
    GWA operating model
    The results

    The clearest indication that GWA has met many of its targets is that the number of brands under its management has declined sharply. In the company's Annual Report for FY2013/14 it lists 15 brands in total for its bathrooms and kitchens business. In its current annual report it lists 10. Of these, it owns just five: Caroma, Dorf, Fowler, Stylus and Clark. The other five - Hansa, Schell, EMCO, Virtu and Sanitron - are just distributed.

    With many of the fundamentals in place, Mr Salt has begun to shift some of the priorities for GWA from restructuring to leveraging established assets to gain better revenue. The priorities he lists in the FY2015/16 annual report include:
  • Drive cost out in SG&A and supply chain to improve profitability and allow selective reinvestment;
  • Build an advantaged supply chain to deliver superior new product development, quality and service at best cost;
  • Build a "fit for future" culture, engagement and capability;
  • Add value to customers through improved insights, analytics and processes; and
  • Leverage and build on core assets and brands to drive revenue and market share growth.
  • Segments
    Bathrooms and kitchens

    The company's annual report defines GWA's operations in this area as consisting of:
  • Vitreous china toilet suites, plastic cisterns, seats, urinals and basins
  • Acrylic, pressed steel and solid surface baths
  • Tapware, showers, accessories and thermostatic mixing valves
  • Stainless steel sinks and laundry tubs
  • Solutions for aged care and commercial applications

  • Revenue for this segment came in at $342 million, up by 3.6% on the pcp. EBIT also rose, by a lower 1.6%, reaching $87.7 million.

    Queensland led sales growth with an improvement of 12%, followed by New South Wales and Victoria with 6% growth. Sales in both Western Australian and South Australia declined by around 6%.

    GWA suggests that the segments return on funds employed (ROFE) has been 24.1% for the year, an improvement over the ROFE of 22.5% for the pcp. The company sees this as a result of its exit from Australian-based manufacturing.
    Graph of bathroom & kitchen segment results
    Door and access systems

    The company's annual report defines GWA's operations in this area as consisting of:
  • A comprehensive range of door hardware and access systems comprising door handles (knobs and levers), door closers, hinges and other door accessories
  • Commercial locksmithing services for security systems and safes
  • Supply and installation of electronic access control systems and associated products including CCTV, alarms and intercoms.

  • Revenue for this segment increased by 1.6% over the pcp to come in at $97.7 million. EBIT was close to flat, coming in at $7.3 million, as contrasted with $7.2 million for the pcp, an increase of 1.4%. ROFE grew from 13.2% in the pcp to 13.7% in the current year.

    Victoria led with a sales increase of 12%, followed by New South Wales at 7%. Western Australia had a 7% decline in sales revenue.
    Door and access systems results graph
    Analysts' presentation

    Underlying all of these, however, is a very strong emphasis on new product innovation. This is something he highlighted during his introductory remarks at the analysts' conference call for the current results:
    I think the successful launch of Caroma CleanFlush demonstrates how we are leveraging our investment in research and development to bring innovative new products to market. We launched this product in the 4th quarter and initial sales have been strong. The product is being ranged in over 200 Reece showrooms and that creates a positive platform into FY2017. We have also strengthened our new product development pipeline, with a core focus on improving our share in renovations and replacements, which is the largest segment opportunity for GWA.
    The second priority is to add value to our customers. We have appointed a new executive general manager of sales in the bathroom and kitchens division, Craig Norwell. Craig has already made good progress with our major customers and merchants, particularly in working more closely with them on market initiatives, and that is a key focus for us.
    So as part of that Craig [Norwell] is establishing joint planning sessions with our major customers, working on mutual targets and initiatives that will benefit both GWA and that customer's businesses. Further to that we are also working with customers on tailored product innovation plans, where we are developing specific products for them.
    To better drive growth, we are realigning GWA resources to support our major customers. That is not just sales, but includes marketing and product development, to ensure we are genuinely harnessing our full resources to build a superior understanding of our customers' businesses so that we grow with them. We have also reorganised our sales team in the door and access business to drive sales growth in the multi-residential and commercial segments.
    Our third objective is to build a "fit for future" culture, engagement and capability. On that score we are implementing leadership development programmes to drive greater accountability and agility across the organisation. We are also improving our talent management processes to better identify the key talent, and capability gaps.
    A key component here is implementing a sales capability standard in the business. Ensuring our key customer facing staff have the right skills and training to support our customers' businesses.
    Our fourth objective is to build an advantaged supply chain to deliver superior new products, quality and service at best cost. We have made good progress here, particularly with the launch of integrated business planning across the business.
    We are betting on aligning sales and supply processes to better enhance working capital utilisation, reduce inventory, and improve service deliver to our customers. In the second half, that contributed to a $14 million reduction in inventory. We have also commenced the work to decentralise our inventory into Australian capital cities, which will enable us to get product from its origin to customers more quickly and efficiently. That is being supported by track and trace capability, to provide greater visibility over orders from supplier to port, and from warehouse to customer in real time.
    These initiatives together will drive sustainable improvements in our customer service as measured in a shift in our DIFOT (delivery in full on time).
    Our final objective, driving costs out in SG&A and supply chain to improve profitability and allow selective reinvestment. We have continued to reduce our corporate overhead in the second half. We have also implemented changes to our supply network across Asia, appointing a new sea freight partner, and commencing the work to consolidate our freight operations. That is designed to reduce freight costs, improve container yield, and enable shipping direct to port. That is contributing to our overall plan to generate $13 million to $16 million in cost savings progressively from FY2016 to Fy 2019, through a combination of SG&A and supply chain efficiencies.
    In an overall sense, while we clearly have a lot of work to do, the group has made good progress on our strategy this year.
    Progress on strategy

    In response to a question by an analyst from UBS regarding future price rises for products, Mr Salt explained the role that new product development could play, especially for the Caroma brand:
    I think the market is getting more challenging in FY 2017, and we've already seen this at the lower, cheaper end of the market. As a result, our focus in FY2017 is much more about how we drive mix, and improve profitability through looking at some of the higher end products. I talked about Caroma Cleanflush as an example of that where we have seen good growth in some of our higher end toilet suites, and that is what we want to continue to focus on to drive mix more aggressively across FY2017.
    Tradelink and Samios

    An analyst from Credit Suisse asked about GWA's relationship with plumbing distributor TradeLink, which has suffered from a diminished reputation in recent years. Mr Salt went into some detail about GWA's major customer base in his reply:
    I think the best way to characterise that at the moment is that we are seeing good intent [from TradeLink], but we are not seeing any improvement, as we speak.
    So that is probably the one from the customer's  perspective that is disappointing for us. We are currently working with them on programs to beef up the first half activity on TradeLink, to build momentum, but we didn't see that reflected through in FY2016.
    We had good performance with Reece, plus 5% [in revenue on sales] and Bunnings, plus 8%, among the other top 5 players being Plumbing Plus at plus 5% and Harvey Norman at plus 12%. So we had great growth across all of them.
    And then TradeLink was a challenge for us. It is interesting in our business, though, that I'm learning that as you move in those areas, another customer will come in to take some of that business. We've found that we've had very strong growth with a group called Samios out of Queensland, which for the year has grown just shy of 60%, and they are now our seventh largest customer. They are a similar type operation to TradeLink, and they have filled a gap with some of the underperformance we've had with TradeLink.
    That said, we are very clear that we need to get back, and improve our performance with TradeLink, and we are committed to that, and certainly with the new management team that we've got in TradeLink here in Australia, through Alan Ball and Steve Lewis, they are committed to getting us back into growth with them, and that's the key thing for us.
    Approval to completion lag

    In making forecasts for 2017, Mr Salt had mentioned the benefits of a considerable backlog of work to be completed, dwellings completed statistics lag behind building approvals granted. An analyst from CitiGroup asked him if he could clarify this further:
    Completions are running at around 190,000 versus commencements and approvals that are around 230,000. So we think the lag is still somewhere around the 30,000 to 40,000 units of stock, if you like, that still has to play out through FY2017. So even if the market does come off the highs that we're seeing in that new build area, we still think that over the course of FY2017 you will see a fairly robust building schedule going through. So we don't see that dropping off as yet.
    The unknown on that, we think, will be the impact of Government restrictions on lending to foreign investors, and that is the bit that I guess the unknown, how that is going to impact when new properties become available and settlement has to go through. But at the moment we're not seeing any pressure as things stand.
    So in terms of the actual time from that, it is a bit hard for me to say what it is, but it can be up to six to nine months, I think at the moment, the delta between when something kicks off and when it is finished. That is getting longer, not shorter, driven by the lack of labour.
    Bunnings/Homebase opportunities

    An analyst from Credit Suisse asked if GWA thought there were any immediate opportunities to supply Homebase in the UK through its relationship with Bunnings in Australia. Mr Salt replied:
    I think there is no doubt that Bunnings said they would be looking at some of their suppliers in Australia to potentially work with them in the UK. We would like to think that we could be considered in that, but as yet we have not had any further conversations on that.
    It is more just an opportunity for both parties. Our focus is on making sure we get the business with Bunnings right here, and then potentially leverage over into the UK at a later date. So definitely an opportunity but no plans in the pipeline at the moment.
    GWA revenue by end market
    Analysis

    Pulling off this kind of company transformation can be very difficult. That GWA has done so well so far can be put down to the efforts of the former managing director, Peter Crowley, in making some radical changes after he realised GWA could not go on in its previous form. It looks like Mr Crowley also deserves credit for having the acumen to help pluck Mr Salt out of his role at Diageo, and plunge him into a slightly unfamiliar business - one where it looks like he is set to thrive.

    While Mr Salt's predictions that GWA's results will be somewhat cushioned throughout FY2016/17 by the backlog of residential building work to be done, there is, of course, a problem that comes with this. If building approvals do fall off during the coming 10 months, then the backlog will come to work in reverse during FY2017/18 and possibly the first half of FY2018/19 as well, as it will take time for the effects of an improved building economy to filter through to purchases of "second fix" goods such as taps, basis, sanitary suites and locks.

    At least, however, such a lag will give Mr Salt nearly a year in which to pivot GWA somewhat away from the new build market, and towards the repair and renovation market, which has both a more steady base, and a slightly contra-cyclic trend to the construction new buildings.

    The other, longer term difficulty that GWA could face, particularly in its doors and access business, is not being able to stay in touch with the rapidly evolving technology, as this sector of the business rapidly becomes part of the Internet of Things (IoT) area. While today Bluetooth-linked locks and doorbells that work via smartphone apps are not mainstream, they likely will be within three to four years. Developing and marketing systems in this area will require a different skillset.
    Bigbox
    Kingfisher results 2016-17 first half
    Kingfisher first half results FY2016/17
    Kingfisher
    Video of Kingfisher MD Veronique Laury at the 2016 DIY Summit
    Range teams at Kingfisher
    Click to visit the HBT website for more information
    UK-based global home improvement retailer Kingfisher has released its results for the first half of 2016/17. The results on the surface show promising, though not extraordinary growth, with UK & Ireland and Poland doing well, and Kingfisher's French operations relatively steady. Both Russia and Spain show a concerning lack of growth. The retail "star" remains Screwfix, which has expanded both inside the UK, and in Germany.

    The financial numbers for the company show that sales revenue came in at GBP5749 million, up by 6.82% on the previous corresponding period (pcp), which was the first half of the company's FY2015/16. In constant currency terms, the increase would have been 2.7%.

    Underlying pre-tax profit was GBP436 million, up by 13.5% on the pcp. Statutory post-tax profit was GBP321 million, up 0.94% on the pcp.

    On a regional basis, B&Q UK & Ireland returned sales of GBP1997, slipping down by 1.8% over the pcp, with like-for-like (LFL) sales coming in at 4.6% in constant currency terms. Screwfix reported sales revenue of GBP612 million, up 24% overall on the pcp, with a 14.7% increase in LFL sales.

    Sales in France were worth GBP2175 million, up 10.1% on the pcp, but posting a more modest 0.3% gain in constant currency terms, with LFL sales in constant currency dipping slightly, by 1.6%.

    Poland recorded sales of GBP587 million, up 15.3% on the pcp, 11.4% in constant currency terms. Sales in Russia fell by 10.7% on the pcp, 0.6% in constant currency terms, returning GBP157 million.
    Kingfisher first half results FY2016/17
    Bunnings/Homebase competition

    During the presentation of results to financial analysts, competition from Bunnings and its Homebase acquisition did not form part of the formal presentation, but the analysts themselves did bring it up in questions. Andrew Hughes from UBS asked if Kingfisher could detect any positive benefit from the closure of some Homebase stores. The chief financial officer of Kingfisher, Karen Witts, replied that there may have been some slight benefit, but the main driver of growth for B&Q had been the increase in online sales.

    Claire Huff from RBC followed up on Mr Hughes' question, asking if there had been any disruptive effects from the entry of Bunnings into the UK market. Kingfisher's managing director, Veronique Laury, responded that:
    On Bunnings, I'll stick to where I've been since the beginning. I think they are very valid competitors and we are really looking at what they do. We value what they've done in Australia and - but the context is very different...And I think what is important is that we are not fighting against Bunnings. Of course, we have those competitors, but we are sticking to our plan.

    Ms Laury went on to comment on some of the competitive activities of Bunnings/Homebase:
    They've done a little bit of price activity over summer on certain lines. But again, I think the starting point was that they were owned, they were 15% more expensive than B&Q. So, even with what they've done, we are still much cheaper than what they are.
    Results and transformation strategy

    The narrative that is suggested by Kingfisher, with some numbers to support it, is that the real story for the company is happening beneath the surface of its acceptable but not great results. Aside from pure performance, these company results also represent progress for Kingfisher six months into an ambitious five-year transformation plan.

    For this financial year that will see the company transform some 4% of its overall retail floor space with product range changes driven by radical changes to its supply chain. In the next financial year, this will expand to cover 20% of the company's floor space.

    The narrative suggests that the situation with Kingfisher is "wait and see". The expansion of revised product lines in the coming financial year will, the company suggests, revitalise its bottom line.

    Ms Laury introduced this as a topic in her opening remarks. She said that the transformation would:
    ...create huge value for our shareholders, as well as our customer. This presentation is going to be, let's say, about 80% to 90% about the transformation. And you should expect to have probably a little bit more about the result in such a presentation. I think this is a choice we've made because we think it's very important for you to understand where we are in terms of transformation.

    Later she expanded on this idea:
    And it is really good to say that and to have delivered that set of numbers alongside of really starting the real transformation, because - and I will come back on that and you will see in the different integration - we've really started. We are really at the heart on the transformation now, much more than where we were six months ago. So, to manage to deliver that set of result of business as usual as well as really entering into that phase of transformation I think is a good result.

    Questioned by the analyst Anthony Shiret of Haitong about whether Kingfisher's results had really been a little mediocre, she expanded further:
    I think the performance on B&Q, I will be less harsh than what you are on the performance of B&Q. I think the performance of B&Q is okay actually, and I think to have so many quarters of positive like-for-like is not what happened in the past. Anyway, having said that, we are conscious that we need to improve our customer proposition in our B&Q store. I think part of that, I was talking about the fact that, next year, we are going to touch 22% of the footages across the group. It will be true as well for B&Q.
    So, I think there is two ways to improve. I think that the offer that is going to arise in the B&Q store, to be specific about that, is going to be much better than what we had in the past.
    Transformation experiences

    Much of the presentation was given over to Arja Taaveniku, Kingfisher's chief offer & supply chain officer, whose work history includes lengthy experience at IKEA. Ms Taaveniku talked through some of the process the company was going through in revitalising its product ranges. She outlined the scope of the project in these terms:
    The result from these ranges that we have been working on in the first wave is that we are going from 28,000 SKUs on growth level down to 7,000. We are going from 842 suppliers down to 131, and it goes without saying that those 131 suppliers are, of course, given much better conditions to put up highly efficient production.

    A natural concern arising from this kind of consolidation would be that individual preferences would be washed out. However, Ms Taaveniku indicated that Kingfisher was well aware of this problem, and sensitive to how its products would "play" in different cultures:
    We have been able to do this unification, but still continue to address the local needs, because there are some. And as an example, in Poland and Romania - and I would say Russia as well - there's still a need of having light-coloured sinks...We can add that into the unified range. We're not removing that.
    In the UK, you probably know about the Belfast sinks. We are still having that in the range, so we're adding that as a local need. We have also been able to add new good functions to markets that didn't have it. Example is scratch-resistant, linen finish sinks into the UK. We didn't use to have it here and we've been able to add that. Those local ranges, they are still benefiting from the cost price reductions that we're achieving on the unified ranges. In many of them, we can use the same supplier base. The Belfast sink is a porcelain sink and we are using the same supplier base as for the unified ranges.
    On the sinks, well, it's a fewer SKUs you see on the screen, we're going from group SKUs from 516 to 113 and it's now 13 suppliers as compared with 36 before.

    One area that was emphasised not just during Ms Taaveniku's presentation, but also during the questions from analysts, is that the transformation process is less about pricing and more about delivering the products customers want through a better customer experience. As she explained:
    This plan will deliver significant customer benefits, which is the main thing with our plan. This is not a cost price reduction exercise entirely. The main thing is that it would deliver much better ranges for our customers.

    She expanded on this further:
    These ranges are easier to shop for our customers in terms of how we have displayed the merchandising and how we created the packaging. But also how we have created the range composition, what we are really offering to the customers.
    It's newer products. And as an example, two-thirds of these bulbs will now be LED and sold under our own brand, Diall, where we have really secured a good quality at the very low price.

    That said, Ms Taaveniku also noted that the changes should bring about an overall cost benefit of around 5%, with some ranges benefitting as much as 15%. However, most of the cost benefits, she states, are being reinvested in terms of offering higher quality products at lower price points.

    A core part of this transformation process is that Kingfisher is getting involved in the design process for the products. This seems to be an involvement that goes further than that of, say Lowe's Companies, or The Home Depot in the US, or Bunnings with its "captive" brands, such as Ozito and Kaboodle. As Ms Taaveniku explained:
    We are setting up the new design hub in London. Our new design director started just a few weeks ago. And if you wonder why we are doing that, recruiting those new competencies, while we used to do - we come from a culture of just buying the products from suppliers. So, we are moving into a world of Kingfisher where we're also designing our own products and owning our own [intellectual property] rights. And we will do business directly with the factories. So, for example, one part of that cost that suppliers used to have baked into their costs, the R&D, much of that we will carry ourselves.
    Transformation organisation

    Ms Taaveniku used the example of taps to illustrate how the new organisation works at Kingfisher. Firstly she pointed out that half of the part of Kingfisher she runs, Offer & Supply Chain, consists of range teams. These teams are based in the UK and France. The kitchen team operates out of the UK, and the bathroom team operates out of France, for example. There are seven range categories, each with its own category director.

    Each new product project is assigned a product lead, who looks after that project. The project begins with an assessment of what the customer needs, and how the customer buys the product. This includes the timing of when these goods are purchased, and what part they play in the daily life of the customer. As Ms Taaveniku explains, this forms the basis for the development of the product:
    They will base that whole range offer on those customer needs. They will also look on the range composition. How many taps do we need to offer for use where you want to have a relevant offer as a customer? And they will also look at what price targets should we put at on those products.

    The next step is to determine how to source the products that are required. One of the insights that Kingfisher has gained is that beginning with a strong assessment of what customer needs really are frees up the company to explore a wider range of sourcing options. As Ms Taaveniku puts it:
    When you really start with customer needs, we have realised that we are much less dependent on international brands than we have previously thought. So, you will have designers, you will have engineers that are constructing part of it.

    Part of the process is to have internal quality control and specification teams go over the product requirements as well:
    There are also quality specification people here telling - saying that this is the quality requirement we have to set on this, and this is requirement we are setting on suppliers.

    Another important team looks after how the product will fit into the Kingfisher brand story, how it will be packaged, what will be printed on the display box, as well as the writing of any instructions or warnings that might be needed.

    Once the process has reached this point, it is time for the experts in sourcing to take over.
    They are handling, managing the whole tender process. So they are the ones who are putting out to suppliers and asking who wants to be part of this tender process. They are managing all the supplier relations and also deciding who is the supplier going to be that will supply these taps.

    Next there is the commercial part of the operation, where things such as merchandising solutions, and store displays are designs. Part of that is also the product data experts, who will work out how the data produced by the product will be integrated with that of the product range to providing meaningful results.

    Finally, there are the product logistics teams. As Ms Taaveniku describes:
    In the supply and logistics, we have currently project people working on - deciding on what are the routes to market on this one. How do we supply it? Does it go directly to stores? Does it go through distribution centres or how do we supply it? They're also managing the forecast, trying to estimate how much to sell of it?

    The end result of this kind of process is an insight into the products that is not available to most other home improvement retailers. Ms Taaveniku can easily describe the core aspects of Kingfishers' tap range:
    The commonalities on kitchen taps are really the type, brand, colour and the finish, and on product commonalities. Because the product as such, well, you have the body and the spout on the tap, there are product commonalities. And as a matter of fact, 94% of our sales come from three body types, only three body types. The customer needs are, of course, to secure quality because quality is the main thing in taps, and durability. And we also see that what saving is coming up as a big demand from customers.
    ...
    New trends are coming out while industrial taps are, of course, a very big new trend. We can also see that is coming, more demand for colours, other colours than only stainless steel. We have been able to reduce the number of group SKUs by 84%.
    Analysis

    Kingfisher's approach to product sourcing and ranging is quite unique in the home improvement industry. One way of thinking about this is that Kingfisher is moving away from a demand-driven model, towards a needs-based approach. If we think about demand as a demonstrated capacity in a market to purchase a product, then we could say that needs relate to the intent and potential to purchase elements from a narrow category of products.

    A pure demand-driven approach comes close to not registering one of the market resources that Kingfisher has mentioned extensively in the past, customers who abandon renovation projects (such as bathrooms), simply because the task becomes too difficult for them.

    Bunnings, for example, is very much a demand-driven retailer, and known for its laser-like focus on what customers want and what they buy. This fits with the statement by the CEO of Bunnings, John Gillam, that "the margin is the outcome". Demand and price have a close relationship, and the role of the retailer is to deliver a product at the "trigger price" necessary to make a purchase possible. Margin, then, is not something extracted from the customer, but rather the outcome of the entire sourcing process.

    Building the customer base from such a demand-driven approach is a highly complex task. Demand seldom expresses itself in terms of just a single product. Generally, it expresses itself in an intricate network of products. Someone installing a new door, for example, will need (obviously) the door itself, hinges and a lock. But they are also likely to need the tools to install the lock - a holesaw, a jig to make sure the lock is mounted correctly, and potentially a bit for a router as well. They might need a jig for the hinge installation as well.

    Satisfying all of those demands, all at the same time, in an easily accessible way, creates something new for Bunnings: a customer. What defines the customer is simply this: Bunnings first. In other words a Bunnings customer is someone who will begin most home improvement tasks by visiting Bunnings, because they are reasonably confident that they will find everything they need there, in one stop.

    HNN has become increasingly convinced that this creation of the customer, and the customers themselves, are the primary economic units for Bunnings' management. While total retail sales remains an important metric, what every Bunnings store is very much about is the creation of customers.

    The Kingfisher approach is quite different. Its role is less about satisfying a known demand, and more about transforming a need into a definite demand. The main tool used to achieve this in retail is the product narrative. These product narratives, which basically link things together with a "this goes with that goes with that" structure, become more effective the more specific they can be.

    One area where these two approaches produce very different outcomes is in regards to how vertically integrated the retailers choose to become in regard to the products they sell. With its demand-driven approach, Bunnings has almost no vertical integration into product production and marketing under its own brand name.

    Bunnings does have a number of major "captive" brands, such as Ozito and Kaboodle, as well as more minor ones, such as Clever Closet. Bunnings' relationship to these captive brands is not one of close design involvement, however. It is aware of demands in the marketplace, and communicates these to these brand suppliers, but it also expects the brands to innovate independently as well.

    Kingfisher has adopted a much more vertically integrated approach. Its primary insight is that, to a larger extent, "sourcing is sourcing". That is to say that the processes the company undergoes when sourcing a product from an external source, or by developing a product internally then seeking a supplier of that product, are very similar. That is because it is looking beyond demand, and is researching the core, basic needs of its customers.

    Vertical integration for Kingfisher leads to very specific products, and ones that closely integrate with each other from the point of view of the customer. That enables the company to establish a very tight narrative, and that tight narrative aids the customer in moving from generally expressed needs to specific demand for specific products.

    A good example of this in the Australian market can be seen with Reece bathroom products. Customers enter a Reece showroom with a vague sense of what they want. The tight integration of its products by Reece enables them to pick and choose the "look" they do want.

    It's important to note that neither approach is generally a "winner" or superior to the other approach. The Kingfisher approach, for example, requires massive investment of capital, and a highly talented pool of people to implement, factors which increase its risk.

    The Bunnings approach carries less risk and more certainty, but depends on a very quick reacting, agile organisation to keep it operating at maximum profitability.

    How these factors will play out in the UK market will be interesting to see. At a guess, each company will likely find success in different categories, with Bunnings doing better at the more "prosumer" end of the market, and where purchases are less integrated, while Kingfisher will do better with highly integrated purchases.
    Products
    Triple Hammer tool
    The kit for Hitachi's WH18DBDL2 Triple Hammer tool
    Hitachi Power Tools
    The WH18DBDL2 Triple Hammer Impact Driver is part of its cordless line
    Hitachi's promotion for the WH18DBDL2 Triple Hammer Impact Driver
    Click to visit the HBT website for more information
    Hitachi Power Tools' latest addition to its 18V brushless Lithium-ion cordless line is the WH18DBDL2 Triple Hammer Impact Driver.

    This professional impact incorporates a third anvil for ultimate torque, less vibration and faster tightening speed, according to the manufacturer. It is powered by Hitachi's new compact 3.0Ah battery that delivers the same capacity as an 18V 3.0Ah Lithium-ion battery, but in about half the footprint and weight.

    By incorporating a third anvil (thus the name Triple Hammer) compared to the standard dual-anvil system, this tool is able to achieve 1832 in/lbs (207 N*m) of torque, 4,000 max BPM, as well as reduce the vibration produced when using the tool. Weighing just 2.9lbs (1.32kgs), the WH18DBDL2 tackles heavy applications like tightening and loosening carriage bolts, driving lags and sinking deck screws with minimal effort. Additionally, it can drill into wood, metal and concrete.

    Being equipped with four different speed settings, a professional end user can tackle a wide variety of applications with just one tool in hand. It delivers a no-load speed from 0 to 2,900-rpm and an impact rate of anywhere from 0-4,000 BPM.

    The tool's ergonomic grip, lightweight and centre balance design is evident during continuous use operation. The WH18DBDL2 has a brushless motor, which plays a large part in decreasing the weight, while increasing runtime per charge as well as improving the overall life of the tool.

    Hitachi has also acquired IP56 certification, to add a degree of protection against dust and water exposure.

    This Triple Hammer Impact Driver has a white LED light, a low battery indicator, metal belt hook, 1/4-inch hex chuck for easy bit replacements and a responsive variable speed trigger to ensure the end user has a productive working environment, while achieving the appropriate amount of power for the application.

    The WH18DBDL2 Triple Hammer comes with two compact 3.0Ah Lithium-ion batteries, a rapid charger and redesigned stylish carrying case.

    The Hitachi compact 3.0Ah battery (model BSL1830C) is a brand-new addition to Hitachi's battery platform. These batteries have the same capacity as a conventional 18V 3.0Ah Lithium-ion battery, while the new footprint is 3/4-inch shorter in height and 0.6lbs (0.27kgs) lighter in weight (compared to Hitachi battery model BSL1830. The batteries are also equipped with Hitachi's Multiplex Protection Circuit to prevent over-load, over-charge and over-discharge, further extending the lifetime of the battery. They are compatible with all Hitachi 18V Lithium-ion slide type tools for more flexibility across Hitachi's cordless line.

    The Rapid Charger (model UC18YSL3) cools the battery during the charging cycle to prevent overheating and comes with a colour light indicator to clearly indicate the stage of charging the battery has achieved. The charger is produced with a USB port that can charge smartphones and other mobile devices for added jobsite convenience.

    The carrying case for the WH18DBDL2 Triple Hammer comes with two compartments; one designed to store the tool, batteries and charger, and the other to organise and safely hold a number of accessories.
    Products
    DeWalt adds blower to lineup
    DeWalt's new 12 Amp Handheld Blower is built for residential and jobsite conditions
    Pro Tool Reviews
    The DWBL700 model has been added to its outdoor power equipment range
    This blower provide construction pros with the professional-grade features
    Click to visit the HBT website for more information
    DeWalt has introduced a new professional-grade corded blower to its outdoor power equipment range. The 12 Amp Handheld Blower (DWBL700) is built for jobsite conditions. There is no mixing, cans or combustibles - and there are weight savings as a result of it.

    The new DeWalt 12 Amp Handheld Blower will provide construction pros with the following professional-grade features:
  • Performance - 409 CFM and 145 MPH
  • Durability - three times the motor life (vs. Toro 51619), impact-resistant Xenoy(r) housing, and pro warranty
  • Speed control - variable speed trigger and speed lock
  • Attachments - flat concentrator for stubborn debris (increases air speed to 189 MPH) and 1-inch round concentrator for blowing out holes and crevices in masonry (increases air speed to 210 MPH)

  • The DeWalt 12 Amp Handheld Blower comes standard with a three-year limited warranty, one-year free service contract, and 90-day money-back guarantee.
    The view from Pro Tool Reviews

    There is clearly still a market for corded blowers despite DeWalt's commitment to its 40V Max handheld and backpack blowers. That is going to be the segment that wants to avoid the mess, noise, and maintenance of gas blowers and the premium price tags that accompany Lithium-ion models.

    The design is reminiscent of the 40V Max model, minus the rotation-reducing bend in the tube. Performance is on par with the better battery-powered blowers on the market today - at least on paper - with one notable exception.

    With so many DeWalt 20V Max tools on the market, it may be surprised to find that dragging a cord around would be preferred to the cordless blower already in the system. That said, the bigger the space, the faster end-users can be done with more power on their side.
    Companies
    JELD-WEN expands its portfolio
    Breezway has been rated as a trusted window and glazing brand in Australia
    BusinessWire
    It has benefited from the louvre window's unique design for passive ventilation and high-end style
    Breezway is the third acquisition in Australia by JELD-WEN over the past 12 months
    Subscribe to HNN weekly e-newsletter
    JELD-WEN recently announced its purchase of Breezway, a manufacturer of residential and commercial louvre window systems based in Brisbane (QLD).

    With this acquisition, JELD-WEN broadens its product offering. Terms of the acquisition were not disclosed.

    However a report in The Australian estimates that Breezway sold for a price thought to be as high as $100 million. Its owner, private equity firm Crescent Capital held the division within its ArcPac Building Products business for about three years.

    Breezway, which has a development centre in Brisbane, is leveraged mainly to the Australian and New Zealand detached housing market and has been among the top two players in its markets of louvre windows and garage doors.

    It began manufacturing louvre windows in 1947 and prides itself on being at the forefront of window technology and design, with a constant stream of product improvements including automation and climate management systems. Peter Farmakis, executive vice president and president of JELD-WEN Australia, said:
    Like JELD-WEN, Breezway has a long history of innovation. It's a perfect fit for our focus on elevating the design and style that windows bring to beautiful spaces.

    Breezway is the third acquisition in Australia by JELD-WEN over the past 12 months. Previous Australian acquisitions include TREND Windows & Doors and Aneeta Window Systems. They are now part of JELD-WEN's existing family of brands in Australia that includes Stegbar, Corinthian, Regency, Airlite, William Russell Doors, and JELD-WEN Glass.

    Related:
    JELD-WEN acquires Australian window company - HNN
    Acquisitions continue for JELD-WEN - HNN
    Companies
    Hilti turns 75
    Hilti celebrated its 75th anniversary around the world
    KHL
    Hilti's BX 3-ME battery actuated fastening tool
    The company will focus strongly on increasing productivity in the construction industry
    Subscribe to HNN weekly e-newsletter
    On the occasion of its 75th anniversary, construction technology group Hilti pays tribute to its tradition of innovation.

    In 1941, engineer Martin Hilti and his brother Eugen established Hilti Maschinenbau in Schaan, Liechtenstein where they began producing engine parts, lighters and kitchen mixers. With their focus on innovative blot gun technology and direct sales, they soon created the cornerstone of today's global Hilti Group. It has over 23,000 employees in more than 120 countries.

    The events celebrating the company's anniversary reaffirm the continuity of the group's management. Michael Hilti, the son of founder Martin Hilti, became CEO in 1990 and served as chairman of the board for 13 years and remains a member of the board of directors. He said recently that the creative restlessness of innovative minds has always and will always be the engine of the company.

    In 2015, Hilti inaugurated a new innovation centre for more than 450 employees at its headquarters in Schaan. In the same year, it released the BX 3-ME battery actuated fastening tool.

    The tool is the first one in its category that generates enough power to set fasteners and nails into hard surfaces such as concrete or steel. The end-user benefits from a high level of comfort, low noise, a slight recoil and dust-free work.

    In addition to a wide range of premium power tools, site positioning equipment and other devices, Hilti also offers a service model targeting large contractors and rental companies. Through Hilti Fleet Management, a fixed monthly charge covers all tool, service and repair costs. The idea is to simplify financial planning for customers, while all tools in the fleet are replaced at regular intervals with tools of the latest generation, thus helping to avoid downtime and ensuring compliance with the latest safety standards.

    Going forward, the company will focus strongly on important trends in the construction industry. For example, increasing productivity will be a constant theme and it is currently being reinforced through digitalisation and modern industrialisation.

    The acquisition of the German PEC Group can be seen in this light. The move will strengthen Hilti's market position in the fastening solution segment and optimise its access to Asian markets.

    Related:
    The retail future: power-tools as a service? - HNN
    Construction power tool market to be disrupted - HNN
    Reports
    Ladies becoming tradies
    Recent data revealed one in 10 trades students at Box Hill TAFE in Victoria are females
    Herald Sun
    Hipages.com.au now has 28,600 tradeswomen members
    A TAFE college on the Gold Coast (QLD) offers an annual "Try a Trade Day" for female high school students
    Subscribe to HNN weekly e-newsletter
    Australia's largest online network of trade professionals, hipages.com.au, now has 28,600 tradeswomen members. Last year was the strongest year for women joining Hipages: almost 5000 signed up, a 490% increase on the year before. This year is on track for a similar boost. By comparison, the number of male tradies on Hipages grew by 259% in 2015.

    About 6500 of Hipages' women tradies are based in Victoria. It's 1000 more than a year ago, though they make up just 14.4% of the total.

    Hipages chief operating officer Roby Sharon-Zipser said the multiple trade specialties offered by tradeswomen on the website showcased the diversity of skills and qualifications of lady tradies. She said:
    This shows that, in an industry traditionally male-dominated, there is no job a woman cannot do. It is very exciting to see more and more tradeswomen entering the industry and being recognised for the great work they do.

    Helen Badger, who chairs the National Association of Women in Construction, said more women were entering construction and renovation industries as they realised "there's no career you can't do because of your gender".

    Recent Box Hill Institute of TAFE figures revealed one in 10 trades students are females.

    Ms Badger said they were proving to be jacks-of-all-trades, cropping up as painters, carpenters, electricians, landscapers and arborists. Many are starting their own businesses.

    Rebecca D'Angelo established Mrs Splashback in Bentleigh (VIC) about 18 months ago with her tradie husband. They have found the business is popular among women who feel male tradies "aren't paying attention to them".

    Sally Liddell, who has run North Melbourne's Right Connection Electrical for two-and-a-half years, said she received inquiries on a weekly basis from women who wanted to follow in her footsteps.
    NSW building boosts lady tradies

    Statistics compiled for The Daily Telegraph by Hipages show women now represent about 17%, or one in seven, of NSW's tradies.

    A factor in the growth of female tradies in NSW could be the number of jobs currently available in the building industry. The latest ABS statistics show Sydney reached a record month of housing approvals in July with 6341 homes approved for construction - the highest monthly rate since ABS records started in 2011.

    Building is now better paid than most white-collar jobs, with the average NSW builder earning $77.85 an hour. The average lawyer earns about $37 an hour.

    Supporting and Linking Tradeswomen president Fi Shewring said word is getting out to young women that becoming a tradie is a viable career. She said girls as young as 17 were signing up for apprenticeships.
    Gender gap closing in QLD trades

    More than 1000 Queensland tradeswomen are listed on Hipages. The female tradie trend hasn't gone unnoticed, with TAFE Queensland Gold Coast offering an annual "Try a Trade Day" for female high school students. General manager Jenny Dodd told the Gold Coast Bulletin:
    At TAFE Queensland Gold Coast, we aim to ensure that young females wanting a trade career feel supported in their search for an apprenticeship. In our endeavour to achieve this goal, we decided to launch the girls only 'Try a Trade Day' to inspire more young females to take up a trade career, by providing them with hands on experience across various trades.
    Products
    EDGE pushes runtime and performance
    Porter-Cable's 20V MAX Lithium-ion Brushless Impact Driver PCCK647LB in action
    Porter-Cable
    The new 20V MAX Lithium-ion Brushless Drill/Driver (PCCK607LB)
    The 20V MAX Lithium-ion Brushless Impact Driver features more runtime and shorter tool length
    Click to visit the HBT website for more information
    Porter-Cable's 20V MAX* Lithium-ion Brushless Drill/Driver (PCCK607LB) and 20V MAX* Lithium-ion Brushless Impact Driver (PCCK647LB) are both part of the new Brushless EDGE[tm] family of tools. They are extensions to the 20V MAX Get Linked System(r) tools. These two tools operate on any Porter-Cable 20V MAX Lithium-ion battery.

    (*Note: Maximum initial battery voltage [measured without a workload] is 20 volts. Nominal voltage is 18.)

    Integrating brushless motor technology for the first time in its system of tools, these two brushless products offer up to 50% more runtime** to minimise downtime on the jobsite.

    (**Note: PCCK607LB vs. PCC601 and PCCK647LB vs. PCC641, using 2-inch screws into 2x pine.)

    The 20V MAX Lithium Ion Brushless Drill/Driver (PCCK607LB) boasts longer runtime as well as 20% more power and improved bit retention compared to the prior model (PCC601). Its efficient brushless motor, high-speed transmission, and 1.5Ah battery deliver up to 370 Max Watts Out (MWO) to maximise drilling and fastening speeds.

    A two-speed gear transmission delivers 0-450-rpm in low speed for high-torque applications and 0-1,800-rpm in high speed for maximum fastening speed. Since compact size is an important feature for professionals, the 20V MAX Lithium-ion Brushless Drill/Driver is just 7.4 inches in length and weighs only 3.3lbs (1.5kgs) with its battery.

    Compared to its predecessor (PCC641), the 20V MAX Lithium-ion Brushless Impact Driver (PCCK647LB) features more runtime and shorter tool length. The brushless motor and transmission generate 1,400 in/lbs (158.18 N*m) of maximum torque for large fasteners and the variable speed trigger delivers 0-2,700-rpm.

    The Impact Driver is equipped with a 1/4-inch quick chuck for fast and easy one-handed bit changes. This trim tool is 5.8 inches in length and weighs only 2.9lbs (1.32kgs) with its battery.

    Both brushless unit kits come with two Lithium-ion professional-grade batteries and each tool hosts an on-board state of charge indicator to gauge battery life over the course of a job. Each tool is designed with an over-moulded grip for comfort and an LED work light that stays on for 20 seconds at a time to help illuminate dark work areas.

    There are rubber bumpers on the sides of the tool and a belt hook for storage at arm's reach.
    News
    HI News V2 No. 15: The geography of competition
    Download the latest issue of HI News Vol. 2, issue no. 15
    HI News
    Techtronic Industries results for FY2016 H1
    Chervon buys SKIL from Bosch
    Click to visit the HBT website for more information
    This issue of HI News features the mapping of hardware retailers around Australia and what it means in terms of competitive strategy in the industry.

    Just click on the following link to download this edition:
    HI News V2 No. 15: The new geography of competition

    In its first half results for 2016-17, Techtronic Industries reports good growth in its power tool segment, but contraction in its floor care segment. Makita's first quarter results shows a differentiated approach from the other "big five" power tool brands.

    We also take a look at the latest available hardware retail statistics from July 2016 and see some significant macro influences emerging.

    James Aylen, general manager of Home & Timber Hardware Group announces his departure in our indie store update. In addition, we provide an overview of big box retailers including Bunnings informing consumer affairs authorities that it will not be matching prices from the Masters inventory sale.

    Looking at the European and US markets, we include stories on how Bunnings is evolving the Homebase stores in the UK and Ace Hardware president and CEO John Venhuizen discussing the relevance of local neighbourhood stores.

    In supplier news, China-based Chervon buys the SKIL business from Bosch and we explore the impact of the Masters closing down sale on Dulux and Hills Industries.

    New products in this edition include the Blossom smart irrigation system, tiles that produce a 3-D look, Makita's fast charging battery and high performance MDF panels from Gunnersen.
    Editorial
    Lowe's alleges poor form by Woolworths
    The corporate headquarters of Lowe's in Mooresville, North Carolina
    HNN Sources
    The Kobalt 24-volt drill
    Analysis of Lowe's merchandising services assortment
    Give to Amnesty International
    Hydrox Holdings, Woolworths' failed home improvement joint venture with US big-box home improvement retailer Lowe's, continues to do damage to Woolworths even as it draws its final breaths.

    Two prongs of the three-prong exit strategy Woolworths has formulated seem to be going well. GA Australia is handling a slow sell-off of $700 million in inventory from Hydrox's Masters Home Improvement stores. The sale of the Home Timber and Hardware Group (HTH) to Metcash for $165 million seems to be remaining on track, with completion expected in early October 2016.

    The third prong, however, which involves the disposal of the property assets of Masters, is in danger of becoming somewhat bent and twisted at this stage. Woolworths had planned to dispose of these assets by selling them to an investment group, Home Investment Consortium Company Pty Ltd (aka Home Consortium) for a sum which reports peg at somewhere between $750 million and $820 million.

    Lowe's disputed this resolution, announced by Woolworths' newly minted managing director Brad Banducci immediately prior to the company's results announcement. Woolworths seems to have at first suggested that Lowe's consent might not really be required. Since then it has moved on to saying that the contract between Lowe's and Woolworths requires arbitration, and has put forward High Court chief justice Murray Gleeson as its candidate for this arbitration.

    Lowe's has moved directly to request that Hydrox be placed in voluntary liquidation. It disputes that arbitration would be possible, citing actions by Woolworths which it has termed "oppressive conduct"' and acts of "bad faith". In the case of such liquidation, the Court would appoint a liquidator.

    Lowe's is currently attempting to prove its allegations of less than fully ethical conduct by Woolworths. It has requested a range of documents from Woolworths, and begun to describe the events that led up to the closing down of Hydrox.

    In an affidavit from the assistant general counsel for Lowe's, Robert O'Neale, Lowe's claims that immediately prior to Christmas 2015 Woolworths proposed selling half of its 66.6% holding in Hydrox to Lowe's for $580 million, effectively swapping roles, with Lowe's becoming the senior partner in the joint venture, and Woolworths the junior partner.

    More recently, Woolworths valued the 33.3% share of Hydrox held by Lowe's at $180 million. That would be 31% of the $580 million Woolworths wanted to charge Lowe's for an additional one-third share.

    The affidavit also claims that at this time Woolworths valued its Home Timber and Hardware Group (HTH) wholesaling business at $255 million. HTH was recently sold to Metcash for $165 million, $90 million less than the proposed figure.

    Lowe's has put forward additional details of how the deals surrounding the disposal of Masters' assets were put in place. This includes a colourful account of the US directors of Hydrox being informed that the company was in danger of trading insolvent, which could result in criminal charges, and even their imprisonment. Meanwhile, it is claimed, Woolworths may have made moves to reassure its own representatives that this would not happen.

    Lowe's objections to the deal with Home Consortium put forward by Woolworths appear to be that this deal may have had regard for factors other than obtaining maximum return. Home Consortium plans to make the ex-Masters properties available for a range of retail operations, including those of consortium members Spotlight and Chemist Warehouse. It is notable that while Woolworths is noted as a possible future tenant, neither Coles nor Kmart are mentioned.
    Analysis

    It is easy to be distracted by the soap-opera-like elements of this dispute. Putting those to one side, one of the most interesting questions to ask is: why has Woolworths been so adamant in resisting voluntary liquidation? By continuing this dispute, the company is risking a high degree of damage to its reputation. If the deal with Home Consortium is a good one, surely a liquidator would go ahead with it, or put something in place that was at least equally as good?

    On a simple level, it may be that Woolworths is not used to losing, and doesn't know quite what to do when it does find itself clearly on the losing side. The truth is that the kind of near-invincibility that Woolworths thought it enjoyed for over a decade simply doesn't exist in retail anymore, and especially not in the supermarket business in Australia.

    Whatever the cause of Woolworths' current difficulties, however, one thing we can be fairly certain of is that its ongoing drama with Lowe's is going to have little effect on Australian home improvement retailers. With inventory sales in progress, Masters is still set to close entirely by 11 December 2016.

    Until next time,

    Betty

    You can contact me directly via email betty@hnn.bz or Twitter @HNN_Australia

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    HNN iPad App
    Bigbox
    Big box update
    Bunnings' price guarantee does not apply to stock liquidations such as the Masters inventory sale
    HNN Sources
    Bunnings has been denied a store at Tura Beach (NSW)
    Woolworths executives have resigned from the board of Hydrox Holdings
    Click to visit the HBT website for more information
    Bunnings will not be matching prices with goods sold during the Masters closing down sale; Bunnings is not building a store at Tura Beach (NSW) for now; Bunnings Warwick and Bunnings Hastings (New Zealand) both move to bigger sites; and Hydrox Holdings board lose Woolworths and Lowe's executives.
    Bunnings not matching Masters prices

    Bunnings CEO John Gillam has clarified his position on the Masters inventory sale. He has reiterated that Bunnings will not be reducing prices, and reminded consumers that Bunnings does not price match in this way.

    The Masters sale will likely see Bunnings miss out on $200 million to $230 million in sales over two months. However, with the Masters competition ended, a further $1200 million will be available in the hardware/home improvement market for calendar 2017.

    While results for the first and second quarters will be affected negatively, sales in the third and fourth quarter will be boosted. The net effect for 2016/17 will likely be positive at around a $150 million gain. The effect in 2017/18 should be a gain of around $500 million.

    HNN has reported earlier remarks Mr Gillam made in reference to the potential fallout from the Masters exit.
    HI News 2.3: Wesfarmers-Bunnings H1 results, page 12

    According to Fairfax Media, it is understood Bunnings has informed both the Australian Competition and Consumer Commission as well as the state-based consumer affairs authorities that it would not extend its "if you happen to find a lower price on a stocked item, we'll beat it by 10%" promise to undercut the closing down sale prices at Masters.

    Bunnings appears to be taking action to get ahead of any customer complaints from what could be a three-and-a-half-month closing down sale at Masters stores.

    Wesfarmers has already warned Bunnings could face some "short term volatility of trading margins" as a result of the Masters wind-up.

    Bunnings' price guarantee has never applied to stock liquidations and sources close to the big box retailer said there were concerns that cutting prices to below cost, just to beat Masters discounts could put it in breach of consumer law. A Bunnings spokesperson told Fairfax Media:
    It may be unlawful and it is not responsible for us to price match or beat stock liquidation prices where large volumes of stock are sold below cost. We believe this undermines our focus in delivering long-term value for customers and may damage competition in the industry as a whole.

    There is a lot of speculation over exactly how much stock there is in Masters, with hardware insiders telling Fairfax Media there is inventory in the stores, distribution centres as well as "on the water" in containers that haven't arrived in Australia yet.
    Bunnings rejected on rezoning

    The NSW Planning and Environment Department has refused the rezoning of two blocks of land at Tura Beach (NSW) for a Bunnings store.

    Minister for Transport and Infrastructure and Bega MP, Andrew Constance said he would meet with the big box retailer after its application was denied.

    Bunnings general manager - property, Andrew Marks said the company was disappointed with the state government's decision. He told the Merimbula News Weekly:
    The proposed new Bunnings Warehouse Merimbula would represent an investment of over $17 million and provide employment for over 70 local residents, as well as approximately 140 jobs during the construction phase. Bunnings appreciates the support of the Bega Valley Shire Council and will now evaluate its options to bring jobs and investment to the Tura Beach community.

    Mr Constance is also disappointed at the outcome but believes the matter shouldn't be written off yet. He aid:
    We need the job opportunities that come with Bunnings setting up in our community. There has to be a compromise so everyone wins. Planning has been sensitive to residents adjoining the land but ultimately there has to be a way through this.

    Council has twice endorsed rezoning the land to allow Bunnings to further explore its options and draft a development application. But voting was always close and the council staff recommendation, in the past, has been against rezoning to B5, business development.

    In rejecting the rezoning the Planning department said there was a need to protect the character of Tura Beach; rezoning was incompatible with the existing neighbourhood business precinct; there was a potential conflict with the adjoining seniors living development; and Bega was the major regional centre.

    Tura Beach resident, Chris Kunz has been a vocal supporter of the Bunnings development and said he believed there is an obligation on council to ensure that the regional strategy reflected the real situation. He said:
    Tura no longer fits the village marker with small shops just supplying people in the vicinity. The Tura Woolworths has the biggest turnover of any Woolworths in the shire.

    Council said there were already a number of suitably zoned sites in the shire that would support a development of this nature, and that it was keen to work with the proponents and advance the idea for the benefit of the community.

    Related:
    Big box update: Bunnings plans Tura store
    Bunnings Warwick moves location

    Bunnings will set up shop on a bigger site in Warwick (QLD). Bunnings general manager - property, Andrew Marks confirmed speculation it was taking over a bare Canning Street lot to build a warehouse. He told the Warwick Daily News:
    We can confirm we have recently submitted a development application for a new warehouse in Warwick. This development is in the very early stages of planning and we look forward continuing to work with authorities throughout the process.

    The confirmation comes after almost two years of speculation over whether the current site in Palmerin Street would move or be upgraded. In 2014, a Bunnings spokeswoman told the Daily News the Warwick store would be moved to a "bigger and better site if one were to become available".

    In February 2014, Southern Downs councillors voted in favour of allowing fill lot to be placed on the vacant site at the corner of Canning and Condamine Streets for the building of what a report termed a "bulky goods store".

    When the initial story came about over the move for the Bunnings to the vacant lot, reader feedback reflected concern about how the new building would face floods. The land, behind the KFC and BP service station on Albion Street, was hit hard in the 2011 floods.

    The initial 2014 application claimed the project would not worsen flood flows in the event of a future deluge.

    Photo credit: Warwick Daily News

    Related:
    Big box update: Warwick store move unconfirmed - HNN
    Bunnings moves to bigger NZ site

    Bunnings is moving to a larger store in Hastings (New Zealand), spending NZ4 million on stock and refurbishment. It will span more than 4000sqm and include a nursery area and parking for about 100 cars.

    Bunnings New Zealand general manager Jacqui Coombes said Bunnings Hastings was expected to employ about 50 people, with the existing team of 25 joined by about 25 new recruits.

    The new Bunnings Hastings is expected to be open in December this year and should give it a chance to compete with Mitre 10 Mega. Bunnings has had difficulty finding a suitable site for a large store in Hawke's Bay, Hastings - the present site is small by the company's standards.

    In 2004, Bunnings had an option to purchase the current Mitre 10 Mega site but let the option lapse while waiting on ratification from its Australian head office, allowing the Hawke's Bay-based Ricketts family to secure the property.

    In 2011 the Environment Court turned down Bunnings' appeal for zoning of a 10,263sqm site because it was zoned for food production.

    Bunnings closed its Napier branch in 2014 with the loss of 23 jobs, saying it was too small and it was actively looking for a suitable site in the area.
    Hydrox board loses Woolies execs

    The Australian reports that Woolworths has officially cut ties with its home improvement chain Masters after a mass resignation of Woolworths executives from the board of Hydrox Holdings, the joint venture with US hardware big box retailer Lowe's that owns Masters.

    They will be replaced with senior staff from Australian insolvency firm, KordaMentha.

    There has also been a clean sweep of Lowe's directors sitting on the Hydrox Holdings board with its nominees resigning, including Lowe's chairman and chief executive, Robert Niblock who has stepped down, according to documents issued by the corporate regulator.

    Woolworths has made KordaMentha founder and partner Mark Korda a director of Hydrox Holdings. Along with three other executives, David Winterbottom, John Mouawad and Ryan Shaw, they now form a majority of directors on the board that controls the soon-to-be closed Masters stores.

    Mr Winterbottom is a Sydney-based partner of KordaMentha and Mr Mouawad is an executive director of the firm.

    However, KordaMentha's founder and his colleagues now being in control of the Masters boardroom does not signal the hardware chain is about to be plunged into administration or immediate liquidation.

    A spokeswoman for Woolworths told The Australian the resignation of Woolworths executives and replacement by KordaMentha executives was simply to help with the orderly wind-down of the Masters chain, which will include a $1.5 billion sale of its properties, hardware inventory and Home Timber & Hardware business. Mr Korda is a consultant to Woolworths.

    Woolworths chief financial officer David Marr, its chief strategy officer James Goth, chief legal officer and company secretary Richard Dammery and group director Colin Storrie have stepped down from Hydrox Holdings.

    Mr Dammery has been leading the protracted negotiations with Lowe's since February to settle on a price for the supermarket giant to buy back Lowe's one-third stake in Masters. He said in a statement:
    Mark and his team are experienced directors in complex restructuring and closure situations. They were appointed to the Hydrox board to replace me and the other Woolworths appointed directors in order to allow us to focus on our day-to-day responsibilities.

    Lowe's has appointed a number of its legal officers to sit on the Hydrox Holdings board, taking up three seats, with Woolworths' nominees from KordaMentha keeping four directorships.

    Australian lawyer, Anthony Bancroft from the firm of Gilbert & Tobin has been nominated by Lowe's as an alternative director on the Hydrox Holdings board. Gilbert & Tobin is acting for Lowe's in its Federal Court action against Woolworths.
    Retailers
    Indie store update
    James Aylen, general manager, Home Timber & Hardware Group will leave his position in October
    HNN Sources
    Beaumont Tiles Castle Hill has been acknowledged for its sales performance
    Mitre 10 New Zealand is featuring store owners in its latest TV campaign
    Click to visit the HBT website for more information
    James Aylen will be leaving his role as general manager, Home Timber & Hardware Group in early October; Beaumont Tiles Castle Hill generates the most sales for the retail group; and Mitre 10 New Zealand is featuring store owners in its latest TV campaign.
    James Aylen bids adieu

    Sources close to HNN have indicated that James Aylen, general manager, Home Timber & Hardware Group will not be continuing in his role beyond the Metcash acquisition completion date. Mr Aylen writes in an email communication that his final day with the business will be 2 October 2016 after almost 39 years with Woolworths.

    He is thankful to members' support during his three years managing HTH Group and will leave with the friendships he has made during this time. In Mr Aylen's own words:
    I'm proud to have been a part of a talented, passionate and committed group and leave with a far better understanding of the challenges within the independent sector. !I hope that the coming period brings strong growth to all HTH Group stores as part of the united independent hardware network.
    I will take some time to have a well earned rest, go fishing and play some golf, before looking at what the new year may bring.
    Thank you for welcoming & accepting me during my time with HTH Group. All the best.
    Top sales for Castle Hill store

    Beaumont Tiles Castle Hill has been recognised as the retail group's best performing store, taking out the National Award Best Sales Performance 2016.

    The store is owned by husband and wife team Pieter and Kerene Myburgh and their son Jaco, who bought the franchise two years ago.

    Kerene Myburgh said the win, announced at Beaumont Tiles annual national conference and awards in Adelaide recently, reflected the family's service philosophy to help customers create their dream space. She said:
    Our main goal is for our customers to be comfortable and happy with their choices so while we give our customers advice we mostly listen, listen, listen. Renovating can be an expensive exercise so we take the time to show the various products and styles that will complement their space.
    Once customers have made a selection we encourage them to take some tiles home as the light in our showroom is different than what's in their home. That's a real winner. If someone comes in by themselves we encourage them to get a second opinion on their choices.

    Ms Myburgh said many customers come back to the store to have coffee, a chat, and to show their finished rooms. New customers can also see the many "before and after" shots from these renovations to guide their own choices.

    Beaumont Tiles managing director Bob Beaumont said his company was committed to being the best in the market by always aiming to offer Australia's best levels of customer service. He said:
    Our customer philosophy runs across the people we employ, the technologies we deploy, the products we offer and the value we place on our customers. Castle Hill regularly outperforms all other stores and receives great feedback from people. It's this dedication to customers and our brand that really sets them apart.
    Retailers star in Mitre 10 NZ campaign

    Mitre 10 New Zealand pays homage to its store owners located in the regions by featuring them in its latest series of TV commercials. The ad campaign shows rival store owners engaging in some light hearted banter about their favourite rugby teams. The ads are part of its sponsorship of the Mitre 10 Cup.

    The campaign aims to celebrate New Zealand's national game at a grassroots level, as well as Kiwis' tendency to give each other a good ribbing. It shows rugby-mad Mitre 10 New Zealand store owners wearing their team colours at a match having some friendly banter with owners from rival provinces.

    Meanwhile, a tool on Mitre 10's website called BanterMatic allows rugby fans to come up with an insult or picture to send to a friend in a rival region on social media.

    The main message the retailer wants to get across in the "We're from here" campaign is the fact that it is 100% New Zealand owned and operated retailer. Mitre 10 general manager of marketing Dave Elliott said that as each store owner is a staunch supporter of their local rugby teams, it made sense to incorporate them into the ads.
    The genuine passion and pride they have for their province is a core part of who they are, so we saw no better way to support the competition than to have our store owners say it for themselves.
    Simply by saying 'we're from here', stirring up some friendly rivalry and encouraging Kiwis to do the same we hope to help the game at this level get even stronger.
    Careers
    Seeking opportunities
    Klingspor is searching for a sales professional
    HNN Sources
    A retail sales consultant is wanted to join Austral Bricks in Melbourne
    Blackwoods is seeking a Brisbane-based account manager
    Visit the Mecca Website
    Abrasive supplier, Klingspor has an opportunity for a salesperson with knowledge of the Brisbane market; a front line sales representative for Austral Bricks is needed; and Blackwoods has a Brisbane-based role.

    To read more about each role, simply click on the company logos.
    Industrial sales at Klingspor

    Growth in Klingspor's Australian business has led it to seek a sales professional to join its team. Experience in abrasives is not essential for this position but a good understanding of industrial dealers in the Brisbane area is preferred.
    Klingspor requires a sales professional
    Retail consultant for Brickworks

    Brickworks is looking for an experienced retail sales consultant to join its Austral Bricks office in Deer Park (VIC). The role involves ensuring retail customers receive the ultimate customer service experience and promoting Brickwork products to this segment of the industry.
    A retail consultant for Brickworks
    Brisbane-based account manager

    Wesfarmers-owned Blackwoods is seeking a motivated, passionate and results driven account manager to be part of the team based out of one of its Brisbane locations. The successful candidate will report to the area sales manager.
    Account management at Blackwoods in Brisbane
    Bigbox
    Europe update
    The Homebase transformation is ongoing
    HNN Sources
    The B&Q avatars with their human store colleagues
    This year's spoga+gafa event had with over 39,000 visitors
    Click to visit the HBT website for more information
    Commentators are divided on how the Bunnings' transformation of Homebase will go down in the UK; high-tech avatars are being used at a number of B&Q stores; spoga+gafa 2016 had a slight increase in attendance; and revenue increase at Grafton Group for its first half.
    Homebase conversion process

    A number of commentators and UK-based observers have weighed in on the transformation of Homebase into Bunnings UK.

    According to UK industry publication Retail Week, Homebase is in early stages of being changed into Wesfarmers' DIY brand Bunnings.

    It writes that first impressions are looking good. Like-for-like sales at Homebase have increased 7.5% in the four months since Bunnings parent company Wesfarmers acquired the retailer.

    HNN has covered Bunnings' acquisition of Homebase extensively.
    HI News Vol. 2 No.10: Br-entry, Bunnings explains global strategy, page 37
    HI News Vol. 2 No.1: Bunnings acquires Homebase, page 3

    Upon making its GBP340 million purchase of the business in February, Wesfarmers unveiled plans to remove concessions from Homebase stores and to stop selling decorative and soft furnishings lines. It will gradually turn Homebase into a hard-end, home improvement retailer and core ranges are being rapidly reshaped to fit. There will be more tools and fewer cushions.

    Retail Week Prospect analyst Duygu Hardman points out that this is a dramatic shift away from Homebase's traditional proposition. She told Retail Week:
    Homebase's offer was differentiated before, but now its products are going to be similar to B&Q, Wickes and Screwfix, with an emphasis on trade.

    Referring to Screwfix's double-digit growth, Ms Hardman added: "This could be a good move, because trade has been one of the strongest growth areas in the market, mainly because of the Do-It-For-Me trend."

    Bunnings is also targeting a broader range of products and aims to hold more stock in stores as it moves away from the former Homebase model.

    Under Home Retail Group's (HRG) ownership, Homebase was developing its multichannel and online capabilities and benefiting from synergies with then-HRG stablemate Argos. Ms Hardman said:
    With consumer attitudes towards DIY shopping changing and younger shoppers preferring to go online or to more convenient locations, it seemed that Homebase's former omnichannel focus was a wise one.

    But she remains cautions: "I'm sure Bunnings will continue to leverage omnichannel capabilities, but changing stores into big warehouses like its signature mega-sheds in Australia may not necessarily be the root to success."

    B&Q, which currently stocks up to 45,000 products in an average store, is seeking to cut down stock levels, realigning its business away from big sheds towards a multichannel approach.

    Homebase's marketing slogans have changed, and in store, prices are being slashed. Its new strapline, "Always low prices" resembles Bunnings' marketing approach in Australia with its well-known "Lowest prices are just the beginning". Ms Hardman said:
    Previously Homebase had a very different marketing strategy, driving the quality of goods and appealing to female DIY consumers. The new marketing campaigns target more of a core DIY consumer - older and often male consumers.

    The way price is communicated has also changed. Similar to Bunnings' approach in Australia, large orange price labels are affixed to items of stock.

    Ms Hardman believes Homebase's new price focused campaigns and value-led credentials could present a challenge to B&Q. She said:
    Homebase can afford to cut prices because Wesfarmers and Bunnings are so big. They already have immense supplier networks and well-established direct sourcing capabilities in place. This puts them in a very strong position.

    The UK's first pilot Bunnings store is on track to open as soon as October, and between four and six Homebase conversions are pencilled in for the 2017 financial year.
    Bunnings' UK environment

    In the West Australian, Kim MacDonald writes that Morgan Stanley analyst Tom Kierath believes Bunnings will poach at least half of the $1 billion in extra annual sales it is targeting, on top of Homebase's current sales, directly from B&Q.

    The article goes on to day that Bunnings is entering Britain at a time when consumer confidence is at its highest level in almost a decade and employment is at record highs, with unemployment at only marginally above 5%.

    Even if it does stare down B&Q's parent Kingfisher, there may be challenges emanating from Wesfarmers' typically brash approach. It displayed its trademark brutality it sacked Homebase's entire executive staff.

    The move could well put the workforce offside by fuelling speculation of further job cuts, which IBISWorld's Britain-based Chris Edwards expects is likely. (It should be noted Mr Kierath does not think job losses are likely, given Bunnings' focus on customer service.)

    Managing director of British retail research agency Conlumino, Neil Saunders points out that morale is not the only potential pitfall in marginalising the locals.

    There are features of the British household to which Australian managers are not particularly well attuned, such as rising damp in walls. He tweeted:
    On the surface, retail in a foreign country can seem obvious and easy. In reality it never is. There are nuances and hidden traps.
    Wesfarmers' bold $4b plan for UK Bunnings - The West Australian

    WA-based business commentator Tim Treadgold visited the Homebase London Battersea store and gave it a 5/100, calling the store a "disaster zone" that was low on customers, with poor ranging. He said the garden centre was the best part of the store, but time, money and competition from B&Q and Wickes are issues Bunnings will have to face.
    Wesfarmers fighting on two fronts with Homebase in far flung Britain - Business News Australia
    B&Q tries out avatar service

    Home improvement retailer B&Q is responding to new research that reveals UK customers' reluctance to seek advice.

    Statistics confirm that 70% of Brits refuse to ask for advice and 26% would rather go online than consult a real person. In light of this research, B&Q is trialling a hi-tech customer service channel using "advice avatars" to help encourage people to overcome their phobia of asking for assistance.

    High-tech avatars were twinned with real life colleagues at the B&Q Wallasey store, to help customers with DIY tasks. The avatars, dubbed "iB&Qs" took live advice and tips directly into customers' homes, linking in real time with store colleagues. Each avatar is equipped with its own orange apron and a unique "I" name badge to match its human partner. For example, team member Megan Peters controlled iMegan.

    When looking at why the UK is so reluctant to ask someone for help, the research shows that 70% of people think they can manage on their own, 29% are too embarrassed to ask and 24% simply don't want to impose.

    Mums were edged out of the top spot for those who give the best advice in favour of those with professional expertise and experience. Of those who do feel comfortable asking for advice, they are more likely to ask for directions than they are for home improvement tips.

    The iB&Q trial is supported by team members across 300 stores, as well as a colleague takeover of Twitter and Facebook accounts as B&Q staff respond live to requests for tips and advice. DIYers can also find further help online at B&Q's YouTube channel and DIY.com, which feature 300 how-to articles and 250 videos. Richard Sherwood, B&Q customer and marketing director, told Retail Times:
    Some customers may be nervous about asking for advice, but help is always at hand at B&Q. Whether you're planning a project, buying your tools or materials, or needing a bit of guidance during your home improvement, our colleagues can help you in person, online, and from other new technologies in the near future.
    More attendees at spoga+gafa 2016

    This year's spoga+gafa event closed on 6 September 2016 with over 39,000 visitors from 106 countries. This compares favourably to last year's event that attracted 37,000 visitors from 108 countries, representing an almost 6% increase.

    Katharina C. Hamma, chief operating officer of organiser Koelnmesse said 60% of attendees came from abroad and the remaining 40% were from Germany.

    In terms of exhibitors, 2,032 companies from 57 countries (83% from international markets) chose spoga+gafa as the platform to present their latest products and services. John W. Herbert, general secretary of the European DIY-Retail Association (EDRA) said:
    This year's gafa was successful for our members from EDRA and GHIN (Global Home Improvement Network) ... I spoke to the four members of the our second largest Japanese member Komeri with over 1.000 stores and they were delighted with what they experienced and are taking time to look at other the stores in the region. Home Depot were also well represented with a delegation of buyers from the US and Canada.

    EDRA/GHIN has 121 home improvement retail members operating in 102 countries with over 23,000 stores and members' sales exceed EUR230 billion. For these associations, spoga+gafa is a recommended trade fair.

    spoga+gafa 2016 covered 225,000sqm of floor space and all four product sections were presented along the entire length of the trade fair boulevard. It showcased a wide range of ideas for the garden and outdoor category.

    In 2017, spoga+gafa will be held from 3 to 5 September.

    Related:
    spoga+gafa 2015 increases "internationality" - HNN
    Grafton Group's Irish boost

    Builders merchanting firm Grafton Group has reported revenue growth of 13% to GBP1.23 billion for the first six months of the year. The company posted an adjusted pre-tax profit of GBP68.4 million, representing a 12% increase.

    Average daily like-for-like revenue growth in the period from July 1 to August 21 was 1.8%, Grafton said, with the UK merchanting business reporting marginally positive growth. However its Irish merchanting business had growth of 11.2%, in line with the first half.

    Its core UK business which includes the Selco brand saw a near 1% year-on-year fall in adjusted operating profit to GBP46.9 million, despite revenue rising by over 8% to GBP884 million.

    The company said it has implemented a number of measures to help mitigate the competitive pressures in the UK market. These included organisational restructuring which resulted in an exceptional cost of GBP1.2 million in the period. Grafton said it planned further measures in the second half that will result in an exceptional charge of GBP20 million for the full year but should deliver benefits in 2017.

    The UK merchanting business has continued to see flat trading in the early part of the second half of the year - with pressure particularly noticeable in the plumbing and heating businesses. Chief executive Gavin Slark told the Irish Examiner:
    As with anything in life, the worst position to be in is one of uncertainty. Once you know what is happening you can plan accordingly. We can't pin everything happening in the UK market on Brexit but there is uncertainty because of it and that will continue until we know the terms and timeline [for Brexit].
    There are some fundamentals [in the UK market/economy] that will remain strong; the UK remains a mature and sophisticated economy.

    Grafton said its Irish business benefitted from strong growth in the residential repair, maintenance and improvement market and the early stages of recovery in the new housing and commercial property markets. Its Woodies DIY business also performed well due to increased household spending in the sector.

    Sales at its Irish merchanting arm rose almost 20% to GBP158.3 million, and were up 12.6% on a constant currency basis. Operating profit at the unit was 43.5% higher at GPB10.7 million. It was up 35.1% on a constant currency basis.

    The company said Belgium continued to be a challenging market but trading conditions in the Netherlands are expected to be positive as the economy and housing market there recovers.
    Retailers
    USA update
    Ace Hardware president and CEO, John Venhuizen
    HNN Sources
    Lowe's reboots customer engagement with in-store robots
    US-based True Value Company has reported a rise in revenue in Q2
    Click to visit the HBT website for more information
    John Venhuizen always strives for Ace Hardware to be better; Lowe's robots will be able to help customers with simple questions; True Value Company posted a rise in comparable store sales and revenue for its second quarter; and Compact Power Equipment Rental expands its range at The Home Depot.
    Ace CEO speaks

    Ace Hardware president and CEO, John Venhuizen, recently gave two separate interviews where he spoke about why he thinks there is still room for local, neighbourhood stores and the digital challenges for hardware retailers.

    (The interviews have been edited for length and clarity.)

    Mr Venhuizen maintains an underdog mindset despite its claim to be the world's largest hardware cooperative. He told the Chicago Tribune (CT):
    We duke it out with some of the world's best retailers, mostly with small family businesses.
    CT: There's been a lot of talk of hardware stores benefiting from a strong home renovation market. Does Ace also see that?

    JV: A rising tide lifts all boats so it doesn't hurt, but we get less upside [from renovation] since most of our stores do not have the kind of products you could build a home from scratch with. Generally speaking we're much more that convenience-oriented, home preservation place.
    CT: Is that something that's shifted or has Ace always had that different focus?

    JV: If you go back 30 years, pre the onslaught of the big box, it was probably more in our wheelhouse and the truth is the big boxes, particularly Depot and Lowe's, have changed the game with these massive stores. For the last decade, we are to Home Depot and Lowe's what Trader Joe's is to Wal-Mart. Wal-Mart clearly has the market share, Depot clearly has the market share, but if you want a convenient location, you want a lot better service and a little higher quality of goods, that's who we want to be ... We're not trying to be a lesser them, we want to be a better us.
    CT: How does being a co-op of independent stores help you, and how does it make it tougher?

    JV: We have the skill of the locally embraced and highly empowered entrepreneur who knows their community better than anyone ... coupled with the scale of a globally trusted brand. To us it's the best of both worlds. We have a large department that sources and procures product in massive quantities to try to bring locally relevant stuff to the local stores and empowers them to locally curate anything else they think will work in their market.

    Can it be challenging? Yes. When you have owners who are your customer, do they have opinions that we hear regularly? Yes. But we can cry and complain about that like we're "smarty pants know-it-alls", or we can say they're living it on the front lines. I would tell you with no false humility that most of our best ideas started in the stores who tried it on their own.

    Mr Venhuizen also spoke about digital competition to HBS Dealer at the Ace Convention and Exhibits event in Las Vegas.
    On improvements to Ace.com

    JV: There are three things. First, we want our websites to feel more local, so that when you go to Ace.com, it doesn't feel like a corporate site.

    Second is search engine optimisation. A lot of people pay for words on Google, we do too. But the real win is when your site naturally comes into searches. Our performance here is OK, but it needs to be great.

    And third, we intend to integrate more to the local store, adding local pricing that is specific to that store.
    On competition from Amazon

    JV: If someone does USD600 million in one day, they are your competitor. [Amazon] is becoming everyone's competition in almost every category to some degree. But we will go to our grave defending the idea that the local store with actual people serving their neighbours has got to be relevant. We have human beings with empathy -- you can't capture that on a computer.
    Lowe's debuts LoweBot

    Eager to streamline the in-store shopping experience, Lowe's will introduce a fleet of retail service robots through 11 Lowe's hardware stores in the San Francisco Bay area.

    Called LoweBot, customers will be greeted by these autonomous robots. The retail bot can answer questions and find items based on voice and typed queries provided through its rectangular touch screen.

    The robots, made by Fellow Robots, use a 3-D scanner to detect people as they enter stores. Shoppers can search for items by asking the bot what they want or typing items into a touch screen. The bot can guide them to those items using smart laser sensors, similar to the technology used in autonomous vehicles, said Marco Mascorro, chief executive officer of Fellow Robots.

    The kiosk-like robot will help consumers better navigate the store and merchandise, and check stock availability. Employees who use the device as a sales assistant will be armed with real-time information. This will enable them to deliver more personalised customer service.

    As customers follow the bots to find items on store shelves, location-based special offers show up on a second screen on the back of the LoweBot.

    The multilingual robot can also help stores determine if they need more staff with different language capabilities or whether people are asking more for certain items at certain times.

    Some people might call a robot that can perform duties like directing customers to items a "job killer." Not at all, says Kyle Nel, executive director of Lowe's Innovation Labs. He said:
    We designed this to be an assistant to the associate ... [It] is a response to things people wanted since retail began, but up until now there just wasn't the technology to be able to make that happen.

    The LoweBot is not a fancy looking device with a lot of bells and whistles. Its role is to find solutions to consumers' most basic problems, said Mr Nel.
    The LoweBot solves and serves our common cold problems. When I walk into a store and I want to know where something is I want to know right then - I don't want to have to download an app - a robot can really help with that.

    As the robot scans shelves using computer vision to send up-to-date information to store associates, it can show people around the store. Inventory tracking may seem mundane and boring, but is incredibly important to a retailer, said Mr Nel.

    It never calls out sick and doesn't need to take coffee breaks. That said, the goal is to augment the work of store associates and free them up to work on advising customers on products and projects, not replace them, said Mr Nel.

    For example, the LoweBot can serve as a translator, since it is impossible to find store workers who understand every customer, he said.

    Could the LoweBot one day eliminate jobs? "Most definitely not - my phone doesn't make me obsolete," said Mr Nel.

    The LoweBot is the younger sibling of the OSHBot, an earlier version that Lowe's tested in Orchard Supply Hardware stores over the past two years.
    How Lowe's robot serves customers in-store - HNN
    True Value posts increases in Q2

    US-based hardware retail co-operative True Value Company has reported a rise in revenue to USD438.7 million for the second quarter ending July 2, an increase of 1.6% from the same period a year ago.

    Retail comparable store sales were up 2.5% in the quarter, with increases in eight of the co-op's nine product categories, led by farm, ranch, auto and pet, lawn, garden and paint.

    It posted a net margin of USD13 million, up 40.5% from a year ago. The net margin increase for the quarter was primarily driven by improved gross margin in areas such as advertising, freight-in expense as well as higher handled sales volume, according to the retailer.

    During the second quarter, True Value grew its square footage and member base. In the six-month period, the company added 736,000 square feet of relevant retail space, continuing its commitment to grow Destination True Value (DTV) and other relevant formats in its store network.

    The DTV format consistently provides returns for True Value member-retailers with DTV comparable store sales up 2.3% for the quarter. President and CEO, John Hartmann said:
    Last year was the first full year of our significant reinvestment in the company. Our second quarter net margin performance is a strong indication of the upward momentum from where we finished in 2015. We still have important work left to do, but we are clearly heading in the right direction.
    Equipment rental expands at HD

    US rental distributor Compact Power Equipment Rental (CPER) said it was rolling out new equipment from Ausa, Gehl, Genie and Toro at selected Home Depot stores.

    CPER equipment is available at more than 1000 Home Depot locations throughout the US and Canada. Equipment includes skid steers, aerial equipment, tractor loader backhoes, mini excavators, trenchers, aerators, chipper shredders and stump grinders.

    Now, CPER said it would add the Genie GR-20 Runabout aerial lift, the Gehl 3640E skid steer, the Toro TX100 mini skid steer and TX427 Dingo, and the Ausa TH2513 telehandler. Compact Power chief operating officer Richard Porter said:
    As our customers' projects continue to evolve, so must our equipment. With the additions from Genie, Gehl, Toro and AUSA we've expanded our existing equipment partnerships - as well as creating new ones - to ensure Compact Power Equipment Rental remains customers' source for heavy equipment during their renovation and improvement projects.

    Earlier this year, CPER launched a new mobile app (@compactpwrrents) designed to make renting heavy equipment more convenient. The app features a catalogue of all the equipment that's available at nearby Home Depot locations to help tackle both DIY and professional contractor jobs.
    Products
    Smart yard systems
    Blossom's controller hardware is manufactured in China
    OC Register
    Blossom currently attracts 3-star reviews on Amazon
    Blossom founders raised money through investors and a Kickstarter campaign
    Click to visit the HBT website for more information
    David Witting lives in Southern California and was enjoying July 4th fireworks with a few friends on his backyard deck when, suddenly, his garden sprinklers went off. He said:
    I didn't have to rush into my garage with a flashlight to find the controller. I just pulled out my phone and turned them off in a second. It was pretty cool.

    This is what the "smart yard" is about.

    Mr Witting's irrigation system can be adjusted from an app on his iPhone that connects to the controller in his garage. Through his home WiFi, the controller also pulls satellite and local weather data from the internet. It automatically turns off his sprinklers when it rains.

    Mr Witting lives in a place where drought continues and water supplies are shrinking, where his tech-friendly systems could be crucial to conserving enough water for a growing population.

    His system is designed and manufactured by US-based Blossom, and is one of the latest inventions in the fast-expanding market of home automation.

    Manrique Brenes, Blossom chief executive and co-founder, holds 14 patents covering home networking and industrial Ethernet applications. He has worked with Blossom co-founder Kaido Kert at Skype and Microsoft. Mr Brenes said:
    Traditional irrigation controllers are just timers. They go off on a given schedule. But plants consume water as a function of the weather. As it gets cooler, they need less. And if it rains your sprinklers should turn off. What we do is 'smart watering'.

    With real-time weather data accessed through the cloud, watering in each section of a yard can be tailored to layout and vegetation.

    The two colleagues began shipping Blossom's first product, a 12-zone controller, in March 2015 after raising money through investors and a Kickstarter campaign.

    The 12-zone model is sold at selected Home Depots, Best Buys and online.

    A smaller, more modest version, Blossom 8, which covers up to eight zones, launched in June. It is offered on Blossom's website and on smarthome.com, with a broader rollout planned over the next two months.

    In California, where water is often priced in tiers with the higher tiers costing more, Blossom can lower homeowner bills by as much as 30%, the company estimates. The controllers connect to existing wiring, valves and sprinklers. Most users say installation is easy, taking less than half an hour.

    From the start, however, Blossom has faced competition. A Denver-based start-up, Rachio, sells a 16-zone smart water controller. It can work with other smart-home systems such as the Nest Protect smoke alarm, turning on sprinklers when smoke is detected.

    Rachio's 16-zone device is more expensive as well as larger than Blossom's 12-zone controller. And it garners superior reviews on Amazon: 4.5 stars out of a possible 5, as compared to Blossom's 3 stars. Recently, Rachio launched an 8-zone version that has also garnered 4.5 stars. Mr Brenes said:
    Much of our development has focused on our cloud-based infrastructure and we have returned to enhancing our Blossom App with new features.

    And Blossom's ambitions aim well beyond selling individual units to homeowners. Its founders are in talks to partner with Scotts Miracle-Gro that released a "connected yard" platform and a mobile app called "Gro" at the SXSW interactive festival this year. GRO app's information on individual plants, their geography, planting and fertiliser schedules could be integrated with Blossom's watering system.

    This video shows how Blossom works:


    Related:
    The smart home moves outside - HNN
    Smart sprinkler controller at Lowe's - HNN
    Companies
    Techtronic Industries results for FY2016 H1
    TTI Group results FY2016 H1
    Techtronic Industries
    Joe Galli, CEO of TTI, interviewed on Bloomberg TV
    The Radius Light from Milwaukee illuminates large worksites
    Subscribe to HNN weekly e-newsletter
    Hong-Kong-based global power tools and floor care company Techtronic Industries Group (TTI) has reported its results for the first half of FY 2016. Overall sales were US$2686 million, up by 8.6% on the previous corresponding period (pcp), which was the first half of 2015. Excluding fluctuations in foreign exchange transactions, the increase in revenue would have been 9.7%.

    Gross profit underwent a 9.9% boost over the pcp to come in at USD969 million, delivering a 0.5% boost in gross margin to 36.1%. Earnings before interest and taxation (EBIT) were USD201 million, up 11.3% over the pcp. This resulted in a net profit for the half of USD177 million, up 11.6% on the pcp.

    Expenditure on research and development expanded to USD71 million, up 8.4% over the pcp, with selling, distribution and advertising costs also rising, by 11.3% to USD400 million. Capital expenditure (CapEx) rose to USD81 million, a 22.2% increase over the pcp.
    TTI Group results FY2016 H1
    Regional

    Earnings were somewhat affected by currency exchange fluctuations. North American sales were USD2023 million, up 9.7% on the pcp, and would have been up 10.1% without currency effects. Sales for Europe, the Middle East and Africa (EMEA) were USD465 million, up 5.5%, but would have been up 7.3% in a stable currency situation.

    For "rest of world" (ROW) sales (which includes Australia), the figure was USD197 million, up 4.8% on the pcp, and would have been up 11.4% without currency fluctuations.
    Power equipment

    Overall, the segment recorded sales of USD2204 for the half, up by 12.6% on the pcp, and up 13.6% in local currencies. The operating profit also rose, coming in at USD185 million, up by 15.4% on the pcp.

    The TTI industrial/construction power tool brand Milwaukee saw an increase in sales of 20.2% in local currencies. For the brand, North American sales grew by 19.9%, EMEA sales grew by 22.0%, and ROW sales grew by 20.3%.
    Floor care and appliances

    This segment contracted during the half. Sales were reported as USD481 million, down by 6.7% on the pcp. Operating profit also fell, down by 20.8% at USD16 million.
    The CEO speaks

    The CEO of TTI, Joseph (Joe) Galli, delivered his usual enjoyable and enthusiastic appraisal of the company. He began by pointing out that, while floor care results had declined, the rest of the company was doing very well. He also noted that one reason for floor care being down was due to a strategic reallocation of resources:
    Remember this business includes appliances which we're exiting. We have a lot of OEM business that we have moved away from and there's parts of that business that are no longer strategic or profitable. So the top line is down but we have tremendous enthusiasm about our floor care business out over the next three years.
    It's not a business that's going to change overnight but you will see and I'll show you today some direction. We are very, very confident that floor care will contribute to this company's profit growth as we go forward and I think our credibility is pretty good because 82% of the company is setting record after record with one six month period of success after another.

    Mr Galli returned to the topic of the floor care segment near the end of his presentation, outlining its future strategy:
    So in floor care our results are down in the first half. Our enthusiasm about the business is high. Why? We have an outstanding plan in floor care here to develop this business in terms of sales and profit. We believe the future in floor care is cordless, robots, and commercials. So those three areas. We're going to focus on cordless floor care products, on robots which is a brand new area for us, and on commercial which is a massive opportunity for the floor care business.

    Perhaps the biggest surprise of this strategy was for the robots -- by which Mr Galli means Roomba-type floor sweepers and cleaners. Elaborating on this strategy, he said:
    Now remember, when you look at our floor care results, we've never had robots. The robot market is almost as big as the entire upright vacuum cleaner market. It's a massive market. It's an area where cordless matters a lot because these are all cordless and guess what, we are very very good at cordless technology. So we're optimistic that we can compete and flourish in a robot market that has a lot of promise.

    Mr Galli also outlined the development of a new research and development facility established just for the floor care business:
    And I can tell you in the last six months which you don't see when you look at the results that we announced, we established a new global floor care headquarters in Charlotte, North Carolina. The headquarters is a very exciting dynamic product development environment consistent with what we've done with Ryobi and Milwaukee. We have significantly upgraded our floor care teams both in North America and in Europe. So we have a much stronger and I would say we have a floor care team that's aligned much more closely with TTI's core competence of high speed product development and really obsessing over what the customer really wants and then finding ways to solve those questions better than our competitors.

    In speaking of the power tool business, Mr Galli began by describing Ryobi as having become the "number one brand" in the DIY sector. He went on to discuss the latest product to come out of Milwaukee, a 9 amp-hour, 18-volt battery, which he described as "the world's most powerful battery for a power tool".

    He next described Milwaukee's recently developed cordless mitre saw. He said that the ten-inch saw differed from those of Milwaukee's competitors by being custom-designed for cordless, featuring both a large sawing diameter and lightweight construction. Other recent innovations from Milwaukee he mentioned included its newly released cordless nailguns, a full-sized cordless polisher, and a cordless drywall screw gun.

    The area that Mr Galli focused the most on, however, was lighting. He described how Milwaukee was replacing the halogen lighting that is common on many construction sites with LED-based lighting using cordless technology.
    Here's an example. This is a light we call a Radius light. This is a light that you would put in a room like this if this room was under construction and it was dark. You'd have a light like this that would light up the room so that workers can get their job done. Historically all these lights that we compete with are floor mounted and they're huge. So in the middle of this room you would have a giant light, so that workers can get their work done.
    Now the problem with that is first of all you have to plug it into a generator which makes a lot of noise. Secondly halogen is 150 degrees Fahrenheit, it's dangerous, and third how do you work if the middle of the room has a big giant light in it, so you have to you have to manoeuvre around the light. So we have the ceiling-mounted light called a Radius light. By the way, it's connected to One-Key, so your iPhone can be used to set where to point the light, when to turn it off and on. These lights can connect together so you can put ten of these in a room in a large ball room, interconnect them, and control them on your iPhone.

    (An edited transcript of Mr Galli's presentation is presented in this issue of ITN.)
    Analysis

    It's interesting to note that the share price of TTI fell by close to 10% around the release of its results. That is likely partially caused by currency exchange rate concerns, but also the underperformance of the company's floor care/appliances segment -- despite the high performance of its power tools segment.

    In the end, being an advanced company in an area dominated by more traditional companies has advantages and disadvantages. On the plus side is the possibility to discover and capture new markets before competitors do. On the minus side, however, there will be times when the market, judging performance by conventional metrics, will miss some of what you achieve.

    The main way in which TTI is different from most other power tool companies is that it is something that is sometimes called a "front-loading" company, while the other companies are "back-loading".

    The way back-loading companies work is to have a base set of established power tools, and then to offer innovations as a premium line -- at a premium price -- above these. Over time -- usually two to three years -- the premium line becomes the base line, and a new premium line is developed.

    Front-loading companies do the reverse. They develop new, innovative products and launch these immediately as the new base line. The previous generation of products is discounted in various ways, and offered for sale as an "almost but not quite as good" line.

    For a very competitive company such as TTI/Milwaukee, this has some obvious advantages. While the competitors slowly develop and release to market new innovations, TTI releases rapidly and often. This not only makes the company's products look good in comparison, it also drives upgrades among loyal customers.

    It's hardly overstating the case to say that TTI has now developed products that are designed to out-compete products of its competitors - products that have yet to be released, or, in some cases, not even developed yet.

    The Ryobi QuietStrike is a case in point. This uses hydraulic action instead of the spring-driven anvil of an impact driver to help drive screws. In TTI's Ridgid oil-pulse driver, this delivers faster driving times and reduced noise. In the QuietStrike -- for domestic use -- Ryobi has tweaked this to concentrate on less noise. It's a great customer insight, and a tool that will be unique in the market for some time.

    Front-loading companies find themselves often facing up to two difficulties. The first is simply that they develop so fast, they start to outpace the market slightly. Milwaukee is just on the verge of that at the moment, and, at least in terms of market releases, it is concentrating more on widening the application of its existing technologies than continuing to release advances.

    The second difficulty is that sometimes the areas front-loading companies choose to invest in do not make much sense to investors. TTI's floor care business doesn't look all that good at the moment, for example. However, for front-loading companies where you need to look at is how areas such as this integrate with the company's core business.

    As Mr Galli indicated, one of the main areas the floor care business will expand into will be robot floor cleaners. As TTI's highly-respected chairman, Horst Pudwill, pointed out in some comments at the results presentation, TTI has some expertise that applies in this area, such as cordless, battery operation, the high-efficiency electric motors, and compact, lightweight design.

    However, there is just as much technology needed that TTI does not have access to, such as robotic "vision" to determine obstacles, and machine learning to help the robot navigate a floor space. While systems exist that can be bought-in from third-parties, it's likely TTI will want to develop these further.

    Could that investment be deployed elsewhere? Are there any similar devices for which a market is developing? Yes. Robotic lawnmowers.

    Bosch Power Tools -- which is a division of Bosch itself transitioning from being back-loading to front-loading -- has released a down-sized robot lawnmower this year. As a guess, we are probably about 18 months out from seeing a Ryobi version.

    The possible integration goes deeper than that. What if the cordless vacuum cleaner in the kitchen also gets a Ryobi Li-ion battery -- or a battery identical and interchangeable with Ryobi but with a slightly different brand? Then there's the remote surveillance camera on the front gate, the hotplate serving plate for the dinner table, a toaster you can set down anywhere, a cordless hairdryer, mixer, and so on.

    Over the next five years, the floor care business might be the entry point for TTI products to move from the garage to the kitchen and living room.
    Construction infrastructure

    Some of the same kind of integration thinking applies to TTI's Milwaukee brand, especially as it is used in construction. Its One-Key Bluetooth-based, internet of things (IoT) integration has so far been highlighted as a cordless power tool management and control system. It assists with tool location and inventory. Tool use can be monitored. Tool settings can be pre-established and downloaded for use in specific tools.

    Mr Galli has, however, indicated another use for the technology in this presentation. In highlighting the company's move into construction site lighting, he chose as his example Milwaukee's Radius light, which is due out in a One-Key version in October 2016. These lights can be tied together using One-Key, enabling a number of them to be turned off and on with a single smartphone, and providing monitoring of battery charge.

    As Mr Galli mentioned, these lights can be mounted on the ceiling in the centre of a work area. From that position, what else might they provide? They might support both Bluetooth connectivity, and a wireless router, establishing a WiFi network. That could provide real-time access to tool data from a remote location.

    These lights could also incorporate a video camera, or three video cameras, each with a 120 degree angle of view. And, perhaps also a speaker. With all of these tied into the WiFi network.

    That would mean, effectively, that someone could sit in an office on the other side of the world and monitor what was going on in the construction of a building, on a multi-floor, multi-worksite basis. With safety being the major concern on any construction site, it would be possible for a remote monitor to observe potentially unsafe work practices, shut down any Milwaukee tools being used via One-Key, and use the remote speaker to explain what has gone wrong.

    Effectively, one of the ways in which TTI could develop would be away from only providing power tools for use on construction and industrial sites, and towards providing a complete technical infrastructure for construction.

    HNN is not, of course, entirely sure that is the direction in which TTI will go. What does seem to matter is that of all the power tool companies active today, TTI would seem to be the only really positioned to take full advantage of this kind of technological development.
    Companies
    UK's Toolstop selling DeWalt handsets
    A review of the DeWalt MD501 phone
    Mobile News
    The new phone pairs rugged looks with tough durability, ideal for tradies
    The DeWalt MD501 phone has a 13-megapixel camera
    Subscribe to HNN weekly e-newsletter
    Global Mobile Communications (GMC) has signed up UK-based retailer Toolstop to supply DeWalt MD501 handsets. The agreement will see the device made available online via Toolstop.co.uk.

    GMC managing director Stephen Westley claims 5,000 of the phones have already been sold since its launch in May this year - and will account for GBP7 million of its revenues over the next 12 months. He told Mobile News:
    Nobody has ever sold a smartphone in this kind of retail environment before. Tradesmen won't necessarily look in a conventional phone shop for a work phone, but they'll spend the majority of their time in a tool shop.
    Having the brand in this environment is beneficial to both ourselves and Ingram. Tradesmen already see DeWalt as a high-quality and well-established brand. I'm confident this agreement will help us achieve our targets.

    In April, GMC signed a three-year deal with Ingram, an American distributor of computer and technology products, to distribute the MD501. Power tool maker DeWalt first entered the mobile market after partnering with RugGear, a manufacturer of "tough mobile phones".

    The new phone pairs rugged looks with tough durability - it is rated IP68 for water resistance (up to 2-metres of immersion for 30 minutes), 810G for drops (survives 2-metre drops to concrete), and can work in temperatures from -20 degrees up to 60 degrees centigrade. The MD501 can also work with gloves, even though it's a full touchscreen device.

    DeWalt doesn't actually manufacture the MD501 - that job is handled by GMC - the company is just providing the brand on the device. In addition to its rugged specs, the MD501 has LTE (Long-Term Evolution) support (for UK and European networks), a 13-megapixel camera, 1.3GHz processor with 2GB of RAM, 5-inch 720p display, 3,950mAh battery, Qi wireless charging and Android 5.1 Lollipop.

    DeWalt also said it has amplified loudspeaker for clearer speakerphone calls at noisy jobsites.
    News
    HI News V2 No. 14: Masters' last stand
    Download the latest issue of HI News Vol. 2, issue no. 14
    HI News
    Mitre 10 returns as a key comer commercial partner on The Block
    The Housing Industry Association see more spending on renovations
    Click to visit the HBT website for more information
    This edition of HI News focuses on the story of Masters Home Improvement, from the opening of its first store in Braybrook (VIC) to the sell-off of its inventory and property sites.

    Just click on the following link to download this edition:
    HI News V2 No. 14: Masters' last stand

    Bunnings' full year results are included in this issue along with the latest quarterly results from home improvement retailers, Kingfisher, Lowe's and Ace Hardware as well as bathroom and kitchen plumbing supplier, Methven.

    Local retail group, Beaumont Tiles is aiming to have 130 stores by June 2017 and listed lighting retailer, Beacon Lighting admits Masters' discounting had an impact on its revenues.

    In our regular section on statistics that are relevant to the industry, we take a look at the growing influence of multi-unit dwellings over the more traditional, detached housing market.

    We feature news on suppliers KIngspan and seed company Mr Fothergill's, and listed Australian plumbing company Reliance Worldwide will have its SharkBite product stocked at Lowe's.

    Other news includes Mitre 10 returning as a major commercial partner in the current season of The Block TV series and the Housing Industry Association's forecast on renovations.

    The products highlighted in this issue include a smart home video doorbell, a ladder system for easy transportation, a paint accessory for quick touch ups and flooring from Boral.
    Editorial
    Masters' last stand
    Masters is holding sales to clear inventory
    HNN Sources
    Great bargains on minions
    Not such good deals on a fridge
    Give to Amnesty International
    The final collapse of a major retail enterprise can, it seems, be every bit as exciting as its launch.

    In late August 2011, when Woolworths launched its first Masters Home Improvement (Masters) big-box store in Braybrook, a suburb in the outer North-West of Melbourne, Victoria, it seemed that a whole new way of doing home improvement retail was about to enter the Australian market. Based on principles borrowed from US partner Lowe's, the new stores would be of higher amenity, and include new categories such as whitegoods and high-end kitchens.

    Fast-forward to August 2016 (nearly exactly five years later), and it is evident that this new enterprise has failed significantly. Not only have the hardware retail operations of Woolworths managed to rack up around $3.2 billion in total losses, but the other operations of what was once one of Australia's highest-flying corporations are also experiencing tough times. It's so bad the company has posted a $1.23 billion loss for FY 2015/16. Much of that was made up of write-downs, but even outside that, earnings from its supermarket and discount department store Big W have failed to meet even downgraded expectations.

    (This is an abridged version of the complete article. To read the full original, please download issue 2-14 of our publication HI News. That is available at the following URL):
    Download HI News 2-14

    On 24 August 2016, Woolworths announced that it had finalised plans for its exit from the joint venture home improvement company Hydrox Holdings (Hydrox). Hydrox is 67% owned by Woolworths, and 33% owned by Lowe's, the US-based big-box home improvement chain. The announcement stated that the company's assets would be split into three parts: the Home Timber & Hardware Group (HTH), which would be sold to Metcash for $165 million; the inventory assets of Masters, the sale of which would be managed by retail inventory liquidation specialist GA Australia; and the Masters property assets, including its store sites, and property obtained for the purpose of later development, which would be bought by a group of investors calling itself the Home Consortium.

    While Woolworths presented these deals - in a somewhat terse press release - as being all but fait accompli, on 29 August 2016 Lowe's made a move that indicates this is anything but the case. Lowe's has made a filing with the Federal Court of Australia, which asks that the Court appoint an independent liquidator to oversee the winding up of Hydrox. Lowe's has issued a press release explaining its actions, which states:
    Lowe's Companies, Inc. today filed a motion requesting that the Federal Court of Australia appoint a liquidator to oversee the equitable and orderly wind up of the Masters Joint Venture vehicle, Hydrox Holdings, as part of a liquidation process that has been initiated by Woolworths.
    ...
    Despite every effort to reach a fair resolution with its JV partner, Lowe's has been left with no other option but to seek the guidance of the court to achieve an equitable and orderly wind-up of the Masters business. Lowe's has acted in good faith at every stage in both the development and operation of Masters, and has been at all times an engaged investor, a committed partner and proud employer. On the other hand, Woolworths has engaged in oppressive conduct, including by invalidly and in bad faith attempting to terminate the JV.

    Subsequent reports have clarified that Lowe's believes it was, among other issues, given inadequate time to review lengthy documents related to decisions on how Hydrox would be wound up, a claim that Woolworths so far seems to have deflected. As things currently stand, both parties will complete their submissions to the Federal Court in New South Wales by 15 September 2016, and events will proceed from there.

    Fairfax Media is reporting that the Home Consortium remains confident that the sale will go ahead. There is no indication as to the basis for this claim.
    The windup basics

    As of 24 August 2016, we know that the joint venture company that owned the hardware retail operations of Woolworths and Lowe's, Hydrox Holdings, has plans to dispose of its assets in three parts. These are:
  • Home Timber & Hardware Group (HTH). These operations (owned by the holding company Danks Holdings Pty Limited) will be sold to Metcash's hardware division, Mitre 10, for $165 million. This sale should complete by the first half of October 2016.
  • The remaining inventory allocated to Masters. GA Australia, part of the US-based Great America Group, which is a subsidiary of B. Riley Financial Inc., will take over the sale of these goods. The Great America Group has special expertise in the sale of this type of inventory.
  • Masters' property assets. This is by far the trickiest of the three parts. These assets will most likely be acquired by Home Consortium. This is a group of retail property investors, along with key retailers such as Chemist Warehouse and Spotlight Group.

  • What appears to have been suggested is that Home Consortium has agreed to acquire 100% of the shares in Hydrox. However, Woolworths can only provide the 67% of those shares it owns. The other 33% has to come from Lowe's. Exactly how that is going to happen is not at all clear.

    In the long run, the discount sale of ex-Masters inventory stock, and the acquisition of HTH by Metcash/Mitre 10 are the more important aspects of this for the home improvement retail industry. The inventory sale will affect earnings during September and October 2016 for many retailers. The combined force of Mitre 10 and HTH will help to define much of what happens in independent hardware retailing during 2017/18.

    Nonetheless, we should probably start by examining what will happen with the Masters real estate, as this is likely to shape both public perception and much of the reporting on the home improvement retail industry for the next six months or so.
    The end of Masters

    For the home improvement retail industry, there are really only two details that will matter past January 2017: Masters is to completely exit the industry, probably by 11 December 2016; and some 15 of the Masters sites will, under the current arrangement (and likely any different future arrangement as well), go to Bunnings.
    The dispute

    The background to the current dispute between Woolworths and Lowe's, at least as it has been publicly discussed, is that an agreement has been in place that states if Lowe's chooses to end the Hydrox joint venture, the two partners will provide their own valuation of its worth. Should the partners not be able to agree on a shared valuation amount, then a third valuer agreeable to both parties would be appointed.

    What seems to have happened is that the two valuations are very far apart. It would also appear that the two parties have, in their discussions, not been able to agree on a third valuer.

    If those statements somewhat reflect the reality of the situation (and we can't know), then Lowe's move to have a court-appointed liquidator determine the value of the enterprise would be quite logical and valid.

    At a guess, Lowe's has a number in mind for its total involvement in Hydrox that it wants to reach. In announcing its write-down of Hydrox-related assets for its FY 2015/16, Lowe's had this to say:
    As previously announced, the Company provided notification to Woolworths Limited, its joint venture partner in Australia, of its intent to begin the process of exiting its investment in the joint venture, which operates Masters Home Improvement stores and Home Timber and Hardware Group's retail stores and wholesale distribution in Australia. Woolworth's owns two-thirds of the joint venture, and Lowe's owns one-third. The [USD]530 million non-cash impairment charge, which includes the cumulative impact of the strengthening U.S. dollar over the life of the investment, was based on the Company's best estimate of the value of its portion of the joint venture, and is subject to possible adjustment based on completion of the valuation process.

    Lowe's is estimated to have invested $1110 million into Hydrox. As recently as October 2015, Masters listed the put option held by Lowe's as being a potential $866 million liability.

    A likely number, given the current circumstances, might be USD400 million ($565 million), which would put the value of Hydrox at around USD1200 million ($1595 million).

    Fairfax Media initially reported the sale price to Home Consortium as being $725 million, but later changed this to over $800 million. If that is a payment for two-thirds of the business, that would mean the value of the Lowe's one-third share of the business would be $400 million. However, Fairfax Media is reporting estimates that Lowe's has instead been offered around $180 million.

    The filing by Lowe's in the Federal Court would indicate that Lowe's believes that any independent arbitrator would be likely to award it substantially more than whatever sum it has been offered.

    (As a side issue, it is currently unclear how much, if any amount at all of the $165 million that is to be paid to Woolworths for the HTH holdings of Hydrox will be paid to Lowe's.)

    The three most likely outcomes are: 1) the case before the Federal Court will appear likely to succeed, and Woolworths will seek to resolve the matter by offering Lowe's a greater share of the proceeds of the Masters' sale; 2) the case actually does succeed, and an administrator is appointed to oversee the liquidation; or 3) The case does not succeed, and the arrangement currently in place goes ahead.

    Of the three, the first outcome is the most likely at the moment. If the third succeeds, the deal will go ahead. Even if the second outcome happens, a deal with Home Consortium might still go ahead (though that is closer to just a 50% probability). Bearing that in mind, it's worth taking a closer look at the details of this deal.
    The details of the deal

    Unfortunately, very little information has been released directly about this aspect of the Masters liquidation, with the information instead shared with a few journalists at Fairfax Media and News Corporation. For the public and investors in Woolworths, what seems to be a very complex deal is covered in a few terse paragraphs of Woolworths "update" on its home improvement business, released on 25 August 2016. The basic facts are:
  • An Australian company named Home Consortium has agreed to acquire 100% of the shares of Hydrox.
  • Woolworths has granted Home Consortium a call option (right to buy) over its 67% stake in Hydrox.
  • Woolworths has terminated its joint venture agreement with Lowe's, as a result of a dispute about how to value Lowe's share of the joint venture.

  • Home Consortium is made up of three main groups of investors. The driving force behind the company are investors currently involved with aged-care operator Aurrum. According to reports in the Australian Financial Review (AFR), these include: the chairman of Aurrum, David Di Pilla, who was formerly with UBS; UBS managing directors Robert Vanderzeil and Matthew Grounds; Greg Hayes; Mary Shaw; and Alex Shaw.

    Two retail companies are also involved. The first is Spotlight Group, which operates both fabric stores under the Spotlight brand, and outdoor equipment/fashion stores under the Anaconda brand. This company is owned by Zac Fried and Morry Fried. The second retail company is the Chemist Warehouse chain, which is owned by Mario Verrocchi and Jack Gance.

    The total number of properties to be transferred in this deal has been reported elsewhere as 82. In fact, however, there were 97 properties made available in the original packages of properties. The former number results from the pre-allocation of 15 properties to Wesfarmers for use by its home improvement big-box retail chain, Bunnings.

    In a press release dated 24 August 2016, Wesfarmers has courteously outlined the broad details of this deal. To quote directly from that release:
    Assuming the above-mentioned consent is obtained, the transaction between Home Consortium and Bunnings will provide Bunnings with 15 new sites comprised of 6 freehold trading locations (to be leased from Home Consortium), 2 freehold development sites (to be leased from Home Consortium) and 7 leasehold trading locations. 11 of the 15 sites will be replacement stores and 4 of the sites will be new locations.

    In a further comment from the managing director of Wesfarmers, Richard Goyder, more light is shed on the nature of the transaction. Mr Goyder states:
    The 15 sites covered by this agreement is a small proportion of the overall 97 locations that were offered, and they are of high quality and a good fit with our existing store portfolio and pipeline. 11 of the 15 locations will be replacement stores and provide us with a great opportunity to improve our offer in these areas. We're also pleased to have the opportunity to bring the Bunnings offer to 4 new locations.
    Wesfarmers press release on potential purchase of ex-Masters properties

    Outside of the Bunnings allocation, there are 61 properties currently operating as retail outlets, comprising an estimated 700,000 square metres of floorspace. This means that 21 of the properties are proposed development sites. The Spotlight Group is believed to be interested in acquiring the 21 undeveloped sites.

    Speaking to the AFR, Mr Di Pilla suggested the remaining retail space would be acquired by a wide range of Australia's mall-based retailers. These include: JB Hi-Fi, The Good Guys, Super Amart, BBQs Galore, Boating Camping Fishing, Super Cheap Auto and Amart Sports. The operations of both Spotlight Group and Chemist Warehouse will feature prominently in the retail space provisioning. Woolworths is also likely to open supermarkets at some of the sites, along with outlets for its Dan Murphy's liquor retail business.
    Retail effects

    Outside of the closure of Masters, the addition of four new Bunnings Warehouses in new locations, and the expansion of another 11 Bunnings Warehouses in new premises, much of what Home Consortium does with the retail space will not affect the home improvement retail industry.

    It is likely, however, to have a marked effect on the other aspects of retail, especially in Sydney and Melbourne. With increasing road congestion, consumers have become more reluctant to travel distances of over five or six kilometres to get their shopping done. The addition of a wide range of what well be "mini-malls" to retain in these major cities could begin to undermine both the larger, more established shopping malls, and some of the surviving strip shopping areas.
    Analysis

    How much will these changes affect the day-to-day operations of hardware stores both already associated with Mitre 10, and those currently associated with HTH?

    In the short term, during the remainder of 2016, any effects are likely to be fairly muted. In 2017 some of the initial challenges will relate to both getting the delivery logistics working in an effective and efficient manner, and integrating the entire operation into a single IT system.

    For the first half of 2017, there is likely to be a certain amount of "churn" in the members of Mitre 10. Some of this will come from those who find it difficult to get along with aspects of that enterprise, and some will come simply from hardware stores that think it is not a bad idea to "step out" of those arrangements for at least a couple of years while things get sorted out.

    The real effects of these changes are going to be felt during FY 2017/18. It is at that time that the underlying strategies of Mitre 10 will begin to emerge. Will it seek to own more of the stores that carry its banner, either wholly or in a joint venture arrangement? Will it use the Sapphire upgrades as a means to exert more control over the stock stores choose to carry? Will the company adopt a more conciliatory attitude toward members, or continue its current hardline, driving style?

    Most importantly, will Metcash actually begin to invest in Mitre 10 in direct proportion to its EBIT contribution, or continue to rely on it as an earnings source to help drive its expansion in the independent supermarket business?

    We can't know. One thing is clear, however: Mitre 10 is going to receive more attention, both from investment analysts and the media than it has in the past. It will be interesting to see how it chooses to deal with that.
    Who is at fault for Masters' failure?

    This has been a source of endless speculation over the past six months. The two main camps are those who think the idea was simply "wrong" from the start, or deeply flawed at best, and those who think the idea had potential, but the execution was very poor.

    One of the more interesting patterns in the media reporting on the Lowe's/Woolworths conflict over the value of Hydrox, is an effort by some Australian journalists to somehow assign most of the blame for the failed Masters enterprise to Lowe's.

    Certainly Lowe's played its part, but there seems little doubt that Woolworths made many significant mistakes. In a slightly wry comment at the 2016 Wesfarmers Strategy Day, Mr Gillam seemed to make an offhand reference to one of the major mistakes Woolworths made. Asked to disclose more information about the strategy Bunnings is pursuing in its UK expansion, Mr Gillam noted that he would not reveal more and that "we are currently seeing the consequences" of what happens when you telegraph planning and strategy to the market - a likely reference to the failure of Masters.

    As HNN has reported in the past, the failure of Masters seems in many ways more of a Bunnings story than a Masters story. As impossible as it seems today, it was as though the then-management of Woolworths did not see the possibility of Bunnings responding swiftly to the threat, doing even better deals with distributors, expanding its store fleet, upgrading the amenity of its stores, and actively competing with Masters for property.

    For anyone who has any doubt about how big a part Woolworths played in the failure of Masters, HNN strongly recommends reading the legal case of North East Solution Pty Ltd v Masters Home Improvement Australia Pty Ltd [2016] VSC 1 (28 January 2016), which is available on the Austlii site:
    North East Solution Pty Ltd v Masters Home Improvement

    Not only does this provide a clear illustration of the poor management of the property acquisition process at Masters, there are also some haunting similarities to the current conflict between Lowe's and Woolworths.

    The Australian law firm Corrs, Chambers, Westgarth provides a good summary of the case:
    In North East Solutions Pty Ltd v Masters Home Improvement Australia Pty Ltd and Woolworths Limited, the parties entered into an arrangement whereby North East Solutions Pty Ltd (NES) agreed it would develop a Masters store for Woolworths at a particular site in Bendigo. Once the store had been developed, Woolworths would lease the store for a period of 12 years, with options for a further five terms of six years each.
    So as to not to delay the development of the store whilst the suite of technical and design documents was being prepared, Woolworths agreed that NES should commence the development as soon as possible, and that because a precise price could not be ascertained without the suite of technical and design documents, Woolworths would contribute the difference between the estimated cost of building a Bunnings store and a Masters store on the site.
    The arrangement also included a provision that allowed either party to terminate the arrangement if the parties, acting reasonably and in good faith, were unable to resolve any disagreement that arose in relation to Woolworths' contribution of the construction costs (being the difference between the estimated cost of building a Bunnings store and a Masters store on the site).
    Ultimately a disagreement did arise as to Woolworths' contribution to the construction costs, and Woolworths terminated the agreement on that basis. NES commenced proceedings against Woolworths, arguing that Woolworths did not negotiate "reasonably" and in "good faith". Woolworths countered by arguing that the relevant provision of the arrangement was not sufficiently certain to be enforceable, and was instead, merely an "agreement to negotiate".
    Justice Croft found that, in the circumstances and having regard to the express terms of the arrangement entered into by NES and Woolworths, that the parties committed to act reasonably and in good faith in an attempt to resolve differences in relation to a cost estimate. The object of this process and of the clause itself was to enable the parties to quantify the difference in cost as between the development of the site as a Bunnings store and the development of the site as a Masters store, costs which Woolworths had already committed to pay.
    Good Faith In Commercial Contracts: The Journey And The Destination

    The end conclusion of Justice Croft stated:
    In conclusion, for the preceding reasons, I do find on the evidence that Woolworths, in breach of cll 2.2(b) and (c) of the Agreement for Lease, did not act reasonably and in good faith to resolve differences in relation to the estimate of the Landlord's Works Costs by NES and terminated the Agreement for Lease for reasons that were not permitted under the agreement.

    The outcome of the court case was an award of nearly $11 million in damages, paid by Woolworths to North East Solutions.

    Until next time,

    Betty

    You can contact me directly via email betty@hnn.bz or Twitter @HNN_Australia

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    Bigbox
    Big box update
    Residents do not want a Bunnings store in Panorama (SA)
    HNN Sources
    Could China Lesso Group be a threat to Bunnings?
    Masters staff will be integrated into Woolworths and its other businesses
    Click to visit the HBT website for more information
    Bunnings will have to rethink its plans for a store in Panorama (SA) after local residents refused the development; challenges to the proposed Bunnings Warehouse at Coolum (QLD) are gathering steam; Bunnings' 3000sqm store is set to officially open inside Toombul Shopping Centre (QLD); Bunnings has gained approval for a new store in Virginia (QLD); a Chinese company has been described as a "threat" to Bunnings in a mainstream newspaper; and Woolworths CEO said Masters staff will be integrated into its other businesses.
    Bunnings Panorama bid defeated

    Residents have rejected Bunnings' proposal to open a store in Panorama (SA) after Mitcham Council's Development Assessment Panel turned down the hardware retailer's $42 million proposal.

    After a four-hour debate, residents made the decision to refuse the development on the grounds it did not suit the area, was too big, out of character and would create traffic issues. Say No to Bunnings Panorama Group Spokesman Peter Bryant told Adelaide Now:
    What I am most impressed with is as a community member I feel like we have been genuinely listened to.

    About 10 residents spoke on behalf of about 80 people at the meeting, raising concerns about traffic in residential streets, car parking, more traffic lights and the building's design.

    Amanda Price-McGregor, who spoke on behalf of Domain Mitre 10 in Westbourne Park, Banner Mitre 10 in Blackwood and Mitre 10 Barrow & Bench in Malvern, said if the development was approved, local hardware stores could be forced to shut their doors. She said:
    It will have a detrimental impact on other businesses (in the area) ... It cannot be supported.

    GT Legal spokesman Mr Adrian Tisato, representing about 12 residents, said even though the development would create jobs, more in the area would be lost. He said:
    This does not take into account the jobs that will be lost in the surrounding areas.

    James Levinson, from Botten Levinson lawyers on behalf of Bunnings, said the development would have benefited the community.
    Opposition gathering in Coolum

    Local residents challenging the proposed Bunnings Warehouse at Coolum (QLD) hope to gather more support for its upcoming legal battle following a community meeting recently.

    Bunnings is appealing the Sunshine Coast Council's rejection of its original 12,150sqm proposal.

    Community group Development Watch is a co-respondent to the appeal alongside the council while Coolum Residents Association president Mark Bizzell confirmed it too would co-respond, supporting the fight against the proposal.

    Coolum Business and Tourism president Malcolm Chilman would not take a position on the Bunnings proposal.

    Development Watch president Lyn Saxton told the Sunshine Coast Daily she expected some to be put off from joining the legal battle for fear of incurring legal costs.

    Coolum resident Fiona Sykes said a survey conducted as part of submissions on previous Bunnings proposals had indicated many local businesses were not operating at capacity already, and she feared the Bunnings development could lead to business closures and job losses.

    Her survey had found 18 local businesses in relevant trades (hardware, landscaping etc.) were currently operating below full staff capacity. The data showed that 127 employees were currently employed by those stores but 184 people could be employed if the stores were at 100% capacity.

    Ms Sykes said that indicated the area was not ready for a Bunnings and that the introduction of the retail giant could see jobs lost.

    An economic development report handed to councillors in June indicated even the scaled-down, 5850sqm Bunnings proposal would deliver an extra 70 retail jobs.
    Small format store opening

    Bunnings will soon officially open inside Toombul Shopping Centre in Queensland. The 3000sqm store on the site of the old Bi-Lo recently served its first customers and hopes to partner with community groups keen to host fundraising cake stalls rather than the traditional sausage on bread. Store manager Jodie Ianna told the Courier Mail:
    As much as they are very similar to the warehouses, it's obviously a slightly restricted range. We have full ranges in most of our hardware and paint is very close to the full offer.

    The Toombul store is about half to a quarter the size of Bunnings Warehouse outlets.
    Bunnings building in Virginia

    Bunnings has received development approval for a new warehouse in Virginia (QLD), a nine-minute drive down the same road from the Toombul branch.

    The big box retailer was given the green light for a 10,012sqm warehouse, 4368sqm timber trade area, 3329sqm nursery area, and 388-space underground car park, soon after the Toombul store opened its doors.

    The site is just 5km from the small format store at Toombul, and 8km from Bunnings Albion.

    Bunnings general manager - property Andrew Marks has not given any indication when works on the Virginia store would start. He told the Courier Mail:
    While we don't have any timings around the development at this stage, we will continue to keep the local community updated as things progress.
    Another "threat" to Bunnings?

    China Lesso Group Holdings, a major Chinese building materials and homewares company has been characterised as a "looming threat" to Bunnings. It is buying two sites in Sydney as it lays the foundations for a local operation.

    The Hong Kong-listed group has bought a bulky goods site in the inner western suburb of Auburn and is picking up a warehouse development in the western suburb of Prospect.

    China Lesso manufactures a large range of building materials and interior decoration products from about 20 "production bases" in mainland China. The company's move into Australia may be driven by its diversification from its core business that also includes plastic pipes and pipe fittings - into e-commerce.

    It set up Lesso Mall, a platform for hardware, electrical equipment and building material products in China, last year out of a warehouse in the central Chinese city of Wuhan. The firm now hopes to take this global. China Lesso said in its annual report:
    With continued investment in information technology and logistics, enhanced customer services and more diverse products including hardware, electrical equipment and building materials, the introduction of Lesso Mall to the southern China market has already generated a revenue of 621 million yuan.

    The group also warned that this would be a challenging year in China because of market volatility but said its Lesso Mall would be developed into a competitive business.

    The Chinese company purchased the Auburn site for $65 million. The office park has been identified as more suitable to being a large goods centre and could serve as a pick up point for products bought from Lesso Mall.

    China Lesso is also eyeing the acquisition of a parcel of industrial land in Sydney's Huntingwood East. The 21.56ha of vacant industrial land carries general industrial zoning and fronts the M4 Motorway and Great Western Highway.

    The property is being sold by the NSW government. A spokesman for Property NSW told The Australian that "following evaluation of tenders received, a contract for sale was exchanged early August 2016".

    China Lesso hopes to develop Lesso Mall into an e-commerce business for sourcing of hardware, electrical equipment and building materials. It is planning to expand to Toronto, Bangkok and further in the US.
    Masters staff integration

    Woolworths said most of the staff from Masters can be redeployed across its other businesses.

    The company's soon-to-close home improvement businesses employed around 7,700 people - about 6,300 in Masters and the rest in Home Timber and Hardware (HTH).

    The HTH staff are likely to be safe in their jobs, with the operation being bought by Mitre 10 owner, Metcash. Woolworths chief executive Brad Banducci has offered hope for the Masters staff. He told the ABC:
    Everyone of those team members will have an opportunity to come and work somewhere else within the Woolworths group. We recruit 30,000 people a year, so it's not like we can't accommodate it. But even if we have to be slightly over-resourced in the short-term, I think it's incredibly important for us in terms of the culture we want to build in our business.

    The president of the Shop Distributive and Allied Employees' Association (SDA) - the union that represents retail workers - Gerard Dwyer said he was working with Woolworths, as well as its rivals, to find new roles for the workers. He said:
    We've actually already commenced discussions with Masters, with HTH and also with Bunnings.
    Careers
    Seeking opportunities
    Evolve Lifewares is searching for a general manager
    HNN Sources
    A national sales manager role at Melbourne-based Agcare
    Super Retail Group has an opportunity for a business development manager
    Visit the Mecca Website
    New business opportunities have led Evolve Lifewares to seek a general manager; Agcare has a position for an experienced sales manager selling into the home and garden channel; and the Super Retail Group has a new position for a business development manager.

    To read more about each role, simply click on the company logos.
    Hands-on general manager

    Evolve Lifewares is an SME that supplies a wide range of products to hardware, supermarket, DDS (Discount Drug Stores) and specialty retailers in both Australia and New Zealand. A general manager is required who will be deeply involved in all stages of product, range and market development.
    Evolve Lifewares is searching for a general manager
    Home and garden specialist

    Melbourne-based Agcare has an opportunity for a national sales manager to sell its range of weed and pest control products. Key responsibilities include research and analysis of the current market environment and developing new distribution networks to grow sales.
    A national sales manager role at Agcare
    Growing wholesale at SRG

    The Super Retail Group (SRG) commercial team has an opportunity for a business development manager. The purpose of this role is to grow the sales and profits of the wholesale business through the identification and development of new business opportunities within the convenience and specially retail markets.
    Business development manager wanted at SRG
    Companies
    The Block seven
    The cast of The Block 2016 season 12
    B&T
    Mitre 10's Accent is the official paint of The Block
    Aldi's brand integration in The Block is very effective
    Subscribe to HNN weekly e-newsletter
    Mitre10 is among the commercial partners of season twelve of The Block TV series. Other partners include ALDI, Domain, McCafe, Stayz, Suzuki and Telstra.

    The seven partners will integrate their brands across all facets of Australia's longest running realty reality program, as five new teams of renovators go head-to-head to modernise the derelict headquarters of a historic Australian soap and candle factory in Melbourne. Lizzie Young, Nine Entertainment director of innovation, partnerships and customer experience told B&T:
    Advertisers' appetite for quality Australian content has never been more apparent, and when you consider five of the seven commercial partners on the next season are returning year-on-year it demonstrates the impact such a format has when it comes to delivering real outcomes for clients.

    Returning for its ninth season to help build The Block, Mitre 10 will launch an online how-to series featuring Mitre 10 ambassador and The Block host, Scott Cam.

    As the official supermarket partner, ALDI will fuel The Block, feeding contestants as well as inspiring consumers with a range of affordable Special Buys. ALDI will also give one viewer the chance to win $30,000 in cash.

    New partner, Telstra, will harness the power of the renovation format to unveil its connected home of the future, showcasing the latest smart home technology innovation.

    Property portal Domain will have a weekly 360-degree photo series that brings viewers closer to the Sunday room reveals.

    McCafe will feature The Block All Star and resident "Foredan", Dan Riley as a quality controller across a weekly content series on 9Now, profiling him in its TV commercials and with coffee opportunities within the show.

    As the official car partner, Suzuki will keep The Block moving with its latest Suzuki Vitara Turbo and Suzuki Baleno models, and a viewer car giveaway.

    As a new partner for The Block, holiday rental site Stayz will offer viewers the chance to win one night's accommodation for two at The Block in their apartment of choice, along with a $20,000 giveaway to spend on Stayz escapes all over Australia.
    Audience numbers

    The Mumbrella website reports that last year The Block posted its lowest finale audience to date, with 1.57 million tuning in for the grand final, climbing to 1.81 million when Dean and Shay Paine were declared the outright winners.

    Since 2010, the show's premiere and grand finale, traditional audiences have slowly diminished. However Ms Young asserts the audience is simply consuming the show in different ways. She told Mumbrella:
    We've spent this year addressing that and ensuring our content distribution strategy meets what the audience wants and to that end we launched 9Now, our live-streaming and video on demand product in February, and we've got 1.5 million signed up subscribers to that product - and that means for this season of The Block it is available to the entire audience anytime, anywhere, on any device.
    And with our new affiliate arrangement with Southern Cross Austereo we now have coverage all around Australia of The Block as a brand and with that comes our ability to drive The Block as a fan and to drive fans to consume it either on linear broadcast or on 9Now.

    Related:
    Is DIY TV over - HI News, page 19
    Retailers
    Beaumonts aim for 130 stores
    The new Beaumont Tiles Clearance Outlet is behind its flagship store in Grote Street, Adelaide
    Adelaide Now
    Beaumont Tiles is aiming to have 130 stores nationally by the end of June 2017
    The company is on track to deliver 15% year on year growth
    Click to visit the HBT website for more information
    Beaumont Tiles has launched a new clearance centre in the Adelaide CBD as part of a push towards 130 stores nationally by the end of June 2017.

    Managing director Bob Beaumont said the tile, bathroomware and stone products company was on track to deliver 15% year on year growth despite a slow retail environment.

    Mr Beaumont referred to the performance as "excellent'' and put it down to the company's strong brand and the eastern states property boom. He told Adelaide Now:
    In a hot housing market it's more and more expensive to sell and buy another house so many people are renewing what they have. Rather than just doing one aspect of a home, they're ripping out and starting again, room by room.
    It may be a slow retail market but we're growing at over 15% a year due to growth in the number of outlets - we will crack 110 outlets next month - and the strength of our brand.
    The Beaumont Tiles moniker has enormous credibility and our focus on a broader range, especially in designer ware, is winning us more business in upmarket housing and in commercial sectors.

    In South Australia, Mr Beaumont said trading conditions were expected to remain challenging due to the pervading negative sentiment. However there are pockets of opportunity.
    In SA there is a lot of infill housing and we have not come under the influence of high-rise apartments as strongly as other states.
    Retailers
    Retail update
    Beacon Lighting expects sales and profit growth in 2017
    HNN Sources
    JB Hi-Fi has been given regulatory approval by the ACCC to acquire The Good Guys
    The Dick Smith website now owned by Kogan, has generated $6.5 million in sales
    Click to visit the HBT website for more information
    Beacon Lighting profit increases 8% after a weaker June half; the Australian Competition and Consumer Commission (ACCC) gave JB Hi-Fi the thumbs up to buy The Good Guys; Dick Smith boosts Kogan results; and The Good Guys partners with UK kitchen retailer Lakeland.
    Masters lighting impacts Beacon

    Beacon Lighting executive chairman Ian Robinson said he expects sales and profit growth in 2017 after aggressive discounting by Masters curbed its profit growth in 2016.

    The lighting retailer should return to double-digit profit growth this year once the Masters chain stops using downlights, desk lamps and globes as loss leaders. Beacon has blamed aggressive discounting by Masters and the weak Australian dollar for a slump in June-half earnings that restricted full-year profit growth.

    Chief executive Glen Robinson said sales and margins were squeezed when Masters, which is progressively clearing stock before being wound up, advertised price reductions of 40% on lighting nationwide. According to the Financial Review, Mr Robinson told analysts:
    This was the first time we'd seen these large DIY players advertising lighting on a national basis on TV.

    He revealed that Beacon's net profit had fallen 14.6% in the June half, cutting underlying profit growth for the year to just 5.1%.
    You're going head to head with a national player advertising on TV with average offers for 40% off all lights - they'd almost be selling at cost price or below cost. It's not sustainable for the future but there's no doubt it affected us in the second half.

    The company has lifted full-year statutory net profit 8% to $18.3 million. First-half profit increased 22% to $11.1 million, but profits fell 14.6% to $6.7 million in the second half.

    Sales rose 7.7% to $193.2 million, less than half the rate of growth in 2015, and same-store sales rose 2.7%, compared with 10.4% in 2015.

    However Mr Robinson said same-store sales had returned to growth in the first five weeks of the new year.

    Due to Masters' discounting, Beacon struggled to pass on currency-related price rises and gross margins fell from 65.3% to 61.8% in the June half.

    Earnings before interest, tax, depreciation and amortisation (EBITDA) rose 6.5% to $29.2 million, in line with the company's May guidance but well short of earlier forecasts of about $32 million. EBITDA fell 10.2% in the June half.
    More stores

    Beacon opened five stores in 2016, taking its network to 96, and plans to open six stores this year while growing its wholesale, lighting solutions and solar businesses and expanding overseas through e-commerce.

    Independent research had identified scope for a further 50 stores, which would take the network to 146, up from Beacon's previous target of 130 stores.
    JB Hi-Fi gains ACCC clearance

    JB Hi-Fi has been given regulatory approval by the Australian Competition and Consumer Commission (ACCC) to acquire whitegoods retailer The Good Guys but it is not clear if any takeover will go ahead.

    The decision comes after the electronics retailer declared it was in preliminary discussions to acquire its $800 million retail rival in May, with The Good Guys simultaneously weighing an IPO.

    The ACCC concluded that JB Hi-Fi and The Good Guys focus on different product categories and customers, so an acquisition would not significantly reduce competition. ACCC chairman Rod Sims said:
    JB Hi-Fi has traditionally focused on selling consumer electronics, with stores located mostly in shopping centres or CBDs. On the other hand, The Good Guys has mostly focused on whitegoods and other home appliances, with stores generally located in home centres or similar locations.
    Other retailers such as Harvey Norman have a much higher degree of overlap with the Good Guys than JB Hi-Fi.

    The ACCC admitted in a statement the deal did pose some worries given JB Hi-Fi's potential expansion in the home appliances sector, with the crossover in TV sales a particular focus. Despite this, competition was deemed strong enough to withstand a combination of two retail sector heavyweights. Mr Sims said:
    JB Hi-Fi and the Good Guys are clearly in competition with each other to a degree. [However], on balance, the ACCC did not consider that the acquisition would substantially lessen competition in any market.
    We considered that the combined company would continue to face strong competition from Harvey Norman and other existing retailers such as Betta, Retravision, Bing Lee and Radio Rentals.

    In response to the ACCC decision, JB Hi-Fi said it has yet to make a decision on any formal offer for The Good Guys. The company said:
    JB Hi-Fi understands that The Good Guys are looking at a range of options including an IPO on the ASX. JB Hi-Fi evaluates all possible opportunities against a range of factors and would only pursue an acquisition if it made compelling financial sense for its shareholders.

    The Financial Review reports that chief executive Richard Murray is keen to buy The Good Guys to accelerate his three-year old home appliances strategy. An acquisition of The Good Guys would boost JB Hi-Fi's sales from $3.9 billion to almost $6 billion, add $110 million to earnings before interest, tax, depreciation and amortisation - before synergies estimated to be worth as much as $40 million - and lift its total store footprint by 100 stores to 294.

    Billionaire Gerry Harvey said his retail chain Harvey Norman had approached The Good Guys to look at its books as a stepping stone to making a possible takeover bid, but to date has been ignored and not allowed to conduct any due diligence.

    Mr Harvey said even if Harvey Norman did make a bid for The Good Guys, an offer that topped everyone else, they could still be knocked back.

    IBISWorld estimates The Good Guys has a 12.5% slice of the domestic appliance market, while JB Hi-Fi has 13.9% and Harvey Norman is the biggest player with 15.3%.
    Dick Smith delivers for Kogan

    The Dick Smith website now owned by Kogan, has generated $6.5 million in sales in its first two months of operations, according to CRN magazine.

    Kogan acquired the website from the failed bricks-and-mortar retailer earlier this year for just $2.6 million after Dick Smith fell into administration. It reopened two months later as an online-only store.

    The acquisition included Dick Smith's branding, website, customer database and 1.2 million active subscribers. Kogan also revealed that Dick Smith had 32,000 active customers since re-launching in May.

    Kogan and Dick Smith's combined subscriber base topped 3.7 million for the year with 702,000 active customers.

    In its maiden financial report since becoming a public company in July, Kogan reported revenue of $211.2 million for the year ending 30 June, an increase of $10.9 million from the previous year. Kogan returned to profit with $800,000 for the year, up from a $300,000 loss in financial year 2015.

    Kogan's other new business, Kogan Mobile, was relaunched last year on the Vodafone 3G and 4G network. The telecommunications business grew its revenue by $100,000 to hit $500,000 for the year.

    Chief executive Ruslan Kogan said third-party domestic products out-performed expectations off the back of expanded vendor partnerships, including Microsoft and Dell. Third-party domestic products now count for 24.2% of Kogan's sales, compared to 38.6% for third-party international and 37.2% for private-label products. He said:
    The above-forecast expansion of the third-party domestic product division demonstrates the increased propensity of third-party brands to choose Kogan.com as an online retail channel partner. Our ability to instantly talk to over 3.7 million Aussie consumers provides a compelling platform for leading consumer brands.
    Kitchen concessions at The Good Guys

    The biggest kitchenware retailer in the United Kingdom, Lakeland, has partnered with The Good Guys, to roll out 12 "shop-in-shops" across the country by Christmas. It has negotiated a concession-style deal with The Good Guys, hoping to open 100 retailing locations in Australia over the next two years.

    Lakeland will also look to establish its e-commerce offering and first stand-alone bricks-and-mortar stores on Australian shores by early 2017.

    Tony Preedy, Lakeland's director of marketing and international development, told Fairfax Media that is a good fit for the retailer "both commercially and culturally." He said:
    The Good Guys is the market leader in kitchen electricals, so it seems like a very good marriage - their strength in electricals could be married to Lakeland's strength in non-electrical kitchenware and housewares.

    Mr Preedy hesitates to compare the business to fast-fashion retailer Zara, but said: !We are a fast-product company - we sell more than 4000 products and we introduce around 150 products a month...consumers who come in every six to eight weeks are likely to see a considerable amount of change each time they visit.

    The partnership enables Lakeland to quickly build scale and brand awareness through The Good Guys' national network of stores, identify the right locations for standalone stores, tap into The Good Guys' local supply chain and logistics expertise and overcome issues such as Australian specifications for electrical appliances.

    For The Good Guys, the licence agreement allows the chain to grow sales by expanding into complementary categories, attracting new customers, and moving into high-street locations and shopping centres with a new retail offer. The Good Guys chief executive Michael Ford told Fairfax Media:
    The Lakeland partnership forms part of The Good Guys' growth strategy and adds a whole new dimension to our 'Everything for the Cook' offering. As the market leader in Australia for large and small kitchen appliances, kitchenware is a logical category extension for us..

    David Gordon, retail expert and director at LZR Partners, believes The Good Guys' strategy makes sense, as the retailer is not strong in the kitchenware sector, being better known for its whitegoods. He SmartCompany:
    Partnering with Lakeland creates an area of capability and specialisation that they didn't have previously. Lakeland's standalone stores will be the first time The Good Guys will be opening up a secondary brand, so it will be interesting to see how that goes.

    The licence agreement will proceed whether or not The Good Guys' owner, Andrew Muir, decides to pursue an $800 million to $1 billion initial public offer or accepts an offer from suitors such as JB Hi-Fi and South African-based discounter Steinhoff, which owns Freedom Furniture, Harris Scarfe and Best & Less.

    Mr Ford has made no secret that he would prefer an IPO so the retailer can spread its wings after being constrained in the past by its joint-venture ownership model, which is now being unwound. He sees scope to open as many as 40 stores over the next five years.
    Reports
    HIA sees more renovations
    Annual spending on renovations is set to grow past $33 billion per year, according to the HIA
    Your Investment Property
    New home commencements are expected to fall away for the next three years
    The HIA has released its latest National Outlook forecasts
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    New home building is set to fall away in coming years as Australians turn their focus to renovations according to forecasts from the Housing Industry Association (HIA).

    According to the HIA's latest National Outlook, the current construction cycle is set to slow after peaking this year which will coincide with growth in the renovation sector. HIA chief economist Harley Dale said:
    The current new home building boom is unlike any other that has come before it. It is the longest and largest in Australia's history and has provided an unprecedented economic boost to the nation, without which domestic demand would be in or close to recession. This cycle is marked by substantial regional divergences in the levels of activity in various markets around the country; and the mix of dwelling types being built has changed dramatically.
    As the down cycle in new home building unfolds, the record pipeline of medium/high density dwellings in particular creates considerable uncertainty as to the timing and magnitude of the decline in construction.

    While this year may be the beginning of the end for the new home construction cycle, it is set to be the year growth in the renovation sector kicks into gear.

    The HIA expects the strongest growth in renovation spending in more than 10 years as annual spending on renovations is set to grow past $33 billion per year. Dr Dale said:
    National renovations investment got off to a great start in 2016, growing by 2.2% in the March quarter. HIA expects that renovations activity grew by 4.2% in 2015/16 - the fastest rate of increase in over a decade. Further growth over subsequent years is forecast to take renovations activity to a value of nearly $33.2 billion by 2018/19.
    New housing

    According to the HIA, new home commencements likely peaked over the 2015/16 financial year with 232,500 and will fall away for the next three years. Commencements are set to bottom out over 2018/19 at 166,500.
    Retailers
    New store growth at Ace Hardware
    Westlake Ace Hardware increased its revenue in the second quarter
    Businesswire
    Ace Hardware achieved near record highs in the second quarter
    The outdoor living category did well for Ace Hardware in Q2
    Click to visit the HBT website for more information
    US hardware retail cooperative, Ace Hardware has reported second quarter 2016 revenues of USD1.4 billion, an increase of USD8.7 million or 0.6% from the second quarter of 2015.

    Net income was USD63.4 million for the second quarter of 2016, an increase of USD3.5 million from the second quarter of 2015 and the second highest in company history. President and CEO John Venhuizen said:
    New store growth was the primary driver of our record revenue. While records are nice, we are not satisfied with the growth as the enterprise and our retailers are working far too hard to settle for modest increases...

    For the first six months of 2016, the 2.4% increase in retail same-store-sales reported by the approximately 3,000 Ace retailers who share daily retail sales data was primarily the result of a 2.2% increase in average transaction size.
    Revenues

    Consolidated revenues for the quarter ended July 2, 2016 totalled USD1.4 billion. Total wholesale revenues were USD1.3 billion, an increase of USD6.7 million, or 0.5%, as compared to the prior year second quarter.

    Increases were noted across many departments with outdoor living, paint and lawn and garden showing the largest gains.

    Retail revenues from Ace Retail Holdings - essentially sales from Westlake Ace Hardware -were USD87.4 million in the second quarter of 2016. This was an increase of USD2.0 million, or 2.3%, from the second quarter of 2015.

    Same-store-sales increased 1.6% compared to the prior year with the largest increases in outdoor living and lawn and garden.

    Ace added 42 new domestic stores in the second quarter of 2016 and cancelled 29 stores. This brought the company's total domestic store count to 4,315 at the end of the second quarter of 2016, an increase of 59 stores from the second quarter of 2015.

    Total wholesale revenues were USD1.3 billion, an increase of 0.5%. The company's Ace Wholesale Holdings LLC subsidiary contributed USD4.1 million of incremental revenue in the second quarter of 2016, which was an increase of 4.4% from the prior year second quarter.


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