HBT Business Solutions conference
HBT hits 670 members
Steve Fatileh, Anthea & Chris Moorfoot, Mike LoRicco, and Julie Murphy
Steve Fatileh, Anthea & Chris Moorfoot, Mike LoRicco, and Julie Murphy
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HBT consolidated its state conferences into a single event this year, held in Melbourne
HNN Sources
Hardware Building Traders (HBT) decided to change up its usual state-based conferences for 2017, and instead host a single conference entitled "HBT Business Solutions" hosted at Melbourne's Etihad Stadium, near the Southern Cross railway station.

The single event made it easier for suppliers to concentrate their resources, so some 62 suppliers (including 22 of HBT's key suppliers) attended, along with 150 representatives of 92 retail stores. True to its promise, HBT served up a mixture of speakers on subjects ranging from succession planning and internet ecommerce, to insurance planning and better retail space design.
The state of the group

To get things going, HBT's group manager, Mike LoRicco gave members an overview of the industry today, followed by HBT's two group buying managers, Gavin Keane and Steve Fatileh, who outlined what the supplier/retailer interface looks set to develop into the future.
Mike LoRicco: four becomes three

Mr LoRicco concentrated on providing an overview of how the industry has changed through 2017, especially after the exit of Masters Home Improvement in late 2016, and how that is affecting retailers.

The main change has been, of course, the move from four different supply chains to just three: Bunnings, the Metcash-owned Independent Hardware Group (IHG), and HBT. While this opens up some new opportunities for HBT, Mr LoRicco is more concerned with its effect on HBT's ongoing development of the key suppliers to the group:
So, what the reduction in supply chains means is that as the suppliers realign themselves there are going to be some suppliers who will be left out.
This makes it a good opportunity for us to grow our relationships with our suppliers. What is really important - and I know that we have a lot of suppliers - is that our key suppliers get the support of our members. These guys are the ones that are putting extra effort into supporting our stores. We need to show support for them. Over the next 12 months, my goal is to concentrate on the key suppliers, get our relationship with them to work even better. As part of that, we are working on a list of standards as to what a key supplier should be. And we're going to support them, just like they support us. Obviously, our focus is on both the member and the supplier, and there needs to be a win for both of them in any deal. It is not a one-way street.

Mr LoRicco also shared more information about HBT's ongoing growth story. From around 240 members in 2014, the buying group has now grown to 670 members. The top 100 stores in the group account for 62% of its purchases by value. A sub-group of HBT, the Industrial & Tool Traders (ITT) has grown rapidly over the past four years, and now accounts for 22% of the group's purchases by value.
Gavin Keane: value from the second tier

Mr Keane provided a historical perspective on ITT, the part of the group to which he devotes most of his time. It began, as he describes in his inimitable style, almost by accident back in early 2013, and has now reached 162 stores, or 24% of the store numbers.

Mr Keane was particularly eager to point out how one of HBT's main strategies, finding high quality suppliers who were held in the second or third tier of the market, and then making them first tier suppliers for HBT, had worked over the years.

One of his main examples was Haymes Paints.
Great company, family owned company. Based in Ballarat. They now represent 56% of our paint business, as compared to Dulux [from Australia's DuluxGroup] which has around 16%. It's a good supplier, they work with us, understands us, and are passionate about independents. They are our number one.

Mr Keane spoke of other suppliers who had also become number one for the group. Macsim was one of the first fastener companies to take HBT seriously. Klingspor, makers of specialty cut-off wheels for grinders, now holds around 50% of the HBT demand for the product. Silicone and adhesive maker Soudal is another HBT success story, beating out other well-known brands such as Bostich and Selleys, to be the number one supplier in its category for the June 2017 quarter.

Later Mr LoRicco revisited this issue, explaining that, from HBT's view, accepting less valuable deals from top tier suppliers meant that HBT effectively subsidised the exceptionally low prices these suppliers offered the competing supply chains going into Bunnings and IHG.

One of Mr Keane's ongoing concerns is that the Australian market simply has too many suppliers for its size. As he put it, HBT members have access to around 483 of these, and there are probably almost as many they don't have access to. He expects that the coming years will see a degree of rationalisation, with some companies exiting over-supplied markets. Mr Keane sees this as a further reason why HBT should stand by and support its key suppliers.

In a rapid overview of the industry, Mr Keane gave some numbers for other buying groups. AIS now has 80 stores, CSS has grown to have 86 stores. Synergy, which was a breakaway group from CSS, now has 52 stores, and Tradesmart has 64 stores.

In terms of the tool sector, Total Tools now has 66 stores. Mr Keane remarked that this was quite an aggressive group, but they did seem to have higher overheads, with something like 50 head-office staff, in his opinion and estimation. United Tools has 47 stores, Trade Tools has 16 stores. Sydney Tools has just reached 15 stores, with news it is opening a new store in Bayswater, a suburb of Melbourne, Victoria.
Steve Fatileh: a better deal

Mr Fatileh began by saying that the acquisition of Home Timber & Hardware (HTH) by Metcash to form IHG had created some anxiety in the hardware retail market. Part of that anxiety was among members of the newly formed IHG, who face changed conditions, but it was also a fact for the suppliers to that group. As IHG uses more of its buying power to narrow its supplier base so as to improve individual supplier volumes and crack down on supply prices, more suppliers are turning to HBT as a means of securing future retail outlets.

This has opened up new opportunities for HBT, according to Mr Fatileh.
This gives us a position of power when we are negotiating. Never before have Gavin and I been in this position. We are not accepting every deal that a supplier presents to us. We are their next option. If they have been kicked out, or they have been hit "with a big stick" by IHG, they are coming to us. As a consequence you will find that the new deals that are coming through have higher than usual rebates attached to them.

This isn't just smaller suppliers either, according to Mr Fatileh. Among newly acquired suppliers is global lighting company Philips.

Mr Fatileh's special passion has been HBT's move into "H" branded hardware stores. These stores provide fully independent retailers with a brand identity. In 2017, in addition to expanding the number of branded stores, the H has also been active in launching special H branded products, and starting to distribute a catalogue for participating stores as well.
There are currently eight H branded products that we have put out there. The products that we have introduced have had a very good success rate. The H paint itself from Duralex has turned over $200,000 worth of purchases, just in that product. The Soudal H Brand silicone and adhesive package has taken off really well, and the branded measuring tape is doing great.

The catalogue has been as much an experiment as a commercial venture during 2017.
We dipped our toes this year into a new catalogue program, it is the first time we have ever done it, a little bit of teething problems, it is a lot of work, but we thought let's just do it, and if it is going to have some problems, or things that we can learn from, we will do it better next year.

Meanwhile, the H Hardware push itself has been going well. Mr Fatileh set himself the goal of ending calendar 2017 with 40 bannered stores, up from 26 at the start of the year. He just concluded a deal to secure the 39th store, and is "pretty confident" he will hit 40 before the end of December 2017.
Detail Retail

While many of the presentations given at the conference were impressive, one of the most interesting was provided by Melissa Guthrie of Detail Retail, a Melbourne-based firm specialising in store fitout.

Detail Retail is very much a full-service company, that is ideally sized to help provide small hardware retailers with improved store premises that generate a better return.

Ms Guthrie has a background in industrial design, and she is backed up by a fellow retail designer, Melanie Spinucci, architect and 3D modeller Manuel Perez, and 3D artist, animator and architectural modeller Simon Bolivar.

The company relies on advanced, modern techniques of digital rendering to both assist them in their design, and, just as importantly, to communicate their ideas to customers.

The company doesn't stop at just designing stores, but also helps retailers build them as well. It supplies retailers with shelvings, fittings and cabinetry. The company can arrange for these to be installed, or they can be designed so that retailers can install the elements themselves.

Ms Guthrie's industrial design skills means she understands "buildability", and she can help retailers combine all the aspects of helpful visuals with the practical needs of product display, stocking, cleaning and light maintenance.

Ms Guthrie emphasises that the company is very practical in its approach. While it remains focussed on delivering the best (and most profitable) experience to the customer while in the shop, they also work to make sure that dollars are spent wisely on aspects of store design that are going to deliver results. As Ms Guthrie put it in her presentation:
We have a really good understanding of marketing, of customer movement within the store, of product merchandising, how the customer will go through the store, what they will see when they first walk into the store, what catches their attention, and so forth.
We understand what messages you should have at what location in your store, how to orientate your fixtures correctly, and how to move your customers through, to the counter and to the sale, which is the most important thing.

The problem is, of course, that for retailers who spend more time in their stores than anywhere else, it is often difficult to return to the customers' perspective. As Ms Guthrie puts it:
It is very hard for store owners, because most retailers are so busy trading, to step back and see what the customer sees when they walk in the doors of your store.

It is this sense of new perspective that Detail Retail can bring to store design.
Design considerations

The company begins by looking at exterior signage, asking if it is at the right height, and if it is conveying messages that communicate what the store is about.

Some of the key questions that Detail Retail help retailers answer about their stores are:
  • What about the location of the checkout counter? While this seems simple, it is in many ways one of the most important centres of the store. Can it be seen easily, so customers can locate it when they have product in hand? Does it function as an additional sales area, with discount and impulse buys readily to hand?
  • What about supply stands? These often present retailers with something of a dilemma. While many stands are very well designed, and present product in an informative and encouraging way, they don't always play nicely with each other. Sometimes stores will have three or four of these stands jammed all together, with different shelf heights, radically different colour schemes, so that they present a kind of visual cacophony. Sometimes going with something simpler might actually improve sales.
  • Is a product a brand choice, or a price/use choice? A common mistake is to separate a particular line of items based on its branding, when really customers are more interested in a broad range and selection. If too much branding takes over a store, customers will wander about slightly bewildered as to where they can locate some of the simplest items.
  • Store navigation is a key item for stores to consider. This relates in part to signage, but also the relationship between the height and width of aisles is important. If really tall modules are used to form an aisle (2200mm to 2400mm), it is necessary to make the aisles wider - as wide as two metres in some cases. This is partly to avoid a "maze-like" feeling on the part of the customer, but it also relates to lines of sight. Standing in the middle of a 2400mm high aisle that is only 1200mm wide, it might be impossible to see the sign over the adjacent aisles indicating what is located there.
  • Use bright colours to emphasise what is important, wall colours to fade out what doesn't matter. Painting the door to the stockroom bright orange will make people want to open it. The same applies to stairs that lead to the administrative area.
  • Lighting. While fixing lighting has something of a bad reputation for being expensive, nothing is so expensive as a customer not buying a product because they can't see it properly. Ms Guthrie points out that there are some creative solutions that don't cost as much as many retailers think, such as embedding LED strip lighting into racks and shelving. Ms Guthrie is clear about what the goal of this should be: "What we are trying to do with lighting is increase the colour rendering index. Get that as high as possible to match the light."
  • Bulk materials. A persistent problem in many Australian hardware stores is a habit of "dumping" some products on the shop floor with little indication of what they are or how much they cost. Wandering through piles of cement, compost, sand and pool chemicals is not a great retail experience. Detail Retail has designed many systems to display bulk goods in a way where they are easily accessed.
  • Detail Retail website
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