In early May 2019 the Australian hardware retail buying group, Hardware & Building Traders (HBT), hosted what turned out to be a complex (even ground-breaking) National Conference, echoing the complex situation not just in hardware retail, but in the Australian economy as well.

Melbourne contributed its usual decently-grey weather, and the Melbourne Convention and Exhibition Centre (MCEC) contributed its somewhat challenged aesthetics, and equally challenging logistical systems.

In the absence of HBT's much-beloved doyen of its administrative team, Ashlin Fisher (happily on maternity leave after giving birth to a gorgeous baby girl, Finn), the conference had to rely on the ministrations of a third-party organiser for its day-to-day functioning. The result was an efficient conference, but one which lacked a little when it came to conviviality - even if the HBT members and staff worked hard to overcome that.

Though, on reflection, the mood of the conference likely had less to do with its administration, and more to do with its own nature. This was by far the most serious conference HBT has hosted for the past five or six years. In fact, in HNN's opinion, this conference will come to be seen as marking the second major inflection in the group's history since its founding in 1997, with the first marked by Tim Starkey taking over as group manager back in the late 1990s.

If anything really proves that HBT's current CEO, Greg Benstead, has throughly and swiftly absorbed the group's culture since joining it in early 2018, it was the way in which he oversaw the release of what is effectively a new strategy for the group. While other large buying groups tend to release new strategies with a degree of flashiness, the HBT way is to more or less back your way into anything new.

That introductory dialogue goes something like:

We're going to do this new thing - except, of course, it's not really new, as it's a lot like this thing we used to do, some time ago, only, well, yes, I suppose it is also new, a bit. OK more than a bit. But it's a good idea.

In other circumstances, that might seem wishy-washy, or just indefinite, but in the context of HBT, it's a form of courtesy. It clearly acknowledges that the members of HBT really are independent, that change can be hard, and brings a mixture of gains and losses - though hopefully more gains. It is also represents a deserved trust in the HBT members, that they will consider such changes, and, once they have understood what is happening, often wholeheartedly embrace that change.

The change

So, what is the nature of the change in HBT? To begin with, it's a change that is responding to a range of forces. These are forces within HBT itself, as well as forces within the hardware supplier market created by all its participants: HBT, the Metcash-owned Independent Hardware Group (IHG), the National Building Suppliers Group (Natbuild), and a half-dozen smaller - but significant - niche hardware buying groups.

On top of that are significant changes underway at the overall "market maker", the Wesfarmers-owned Bunnings. And beyond all of this are strong macro-economic forces in the Australian - and even global - economy coming into play.

What is most extraordinary - and, indeed difficult to grasp - is how fortuitous the combination of these various forces will likely turn out to be for HBT as a buying group.

Partly by chance, partly by a form of determined, long-term evolution over the years, as well as some interesting choices made by its current management, HBT has placed itself in a very healthy position. It is not a position from which it will dominate the industry, but it is strong enough to resist efforts by other groups to have influence beyond their membership.

Most importantly, it's a position from which it will be able to deliver to its own membership its promised benefits: a chance to be competitive, to retain flexibility, and to deliver a measure of real security in one of Australia's toughest forms of retail.

But what really marks this change, more than anything else, is its simple maturity. In his opening remarks to the conference, and at other moments, Mr Benstead was at pains to declare that HBT is not becoming "corporate", nor does it have any intention to go down that path. HNN is sure this is quite sincere. However, what Mr Benstead and others have delivered is something that is actually close to the corporate (though different): sheer professionalism.

The mark of this professionalism is that HBT has singled out the activity it needs to pursue to deliver maximum value to its members for the next 10 years. This puts it in a place where it can maximise value creation, for all participants in the independent hardware market.

That specific activity is unlikely to be at the centre of the sustained future development in retail at large, and specifically hardware retail. What HBT has done, very wisely, is to chose a prime secondary function, one which it is uniquely suited to deliver.

To put that in terms of a musical analogy, HBT has realised that in the marketplace set to develop in the near future, its role is not to play the saxophone and trumpet solos, but rather to establish a core rhythm through the bass and drums.

Origins of the change

The first clue that HBT was about to go down a different path came when the buying group began to evolve its operations out of its long-time office in the outer Melbourne suburb of Rowville. That started with the hiring of ex-Coles, Foodworks and Philips Lighting buyer/sales executive Jody Vella as leader of the buying group in August 2018. That was followed a couple months later by Mr Vella's hiring of three additional members of the buying team, Mark Sampson, Kevin Marshall, and Pete Hurley. Their numbers were rounded out by Val Skyba in a support role. And, of course, there is the ever-reliable Gavin Keane, who has brought his experience and deep knowledge of both suppliers and members to this new team. Fundamental change, without the support of "the Gav" (as many of us call him), would probably not be possible.

What this buying group set out to do, led by Mr Vella, under the guidance of Mr Benstead, was to refine, redefine, and re-envision how HBT handles its relationships with suppliers. That has meant delving into the essentials of how a hardware buying group should go about creating value for its members, while also looking after suppliers that agree to closely align with it.

This means taking into account the competitive situation of members' stores, the competitive situation of the suppliers in their marketplace, and also HBT's position in relation to other buying groups. Once these factors are determined and understood, the various parties can work out how to maximise value under current market conditions and, finally, how to divide that value up, in a sustainable manner, between these participants.

In business strategy terms, what HBT is doing is taking the buying group function, its relationship to its customers (the members) and to its suppliers towards a position that is beyond what we sometimes refer to as "game theory".

Game theory is based on situations where there is incomplete information available, with each participant in a market manipulating what is known and what is concealed to develop some kind of advantage for their own side. The insight that Mr Benstead and others in HBT have had is that, due to size and scale constraints, if they follow the game theory path, HBT will nearly always lose.

To use an analogy, it's a bit like HBT is playing poker with IHG and Bunnings. HBT gets dealt five cards, but IHG is always dealt six, and Bunnings probably about nine. The others start out with better odds, and will win most hands.

The alternative is for HBT to go beyond the game by releasing more information, and forming bonds of trust with suppliers and others in the market. Stretching the above analogy, HBT and the suppliers can show each other their cards, and agree to split their winnings (at least to some extent).

This strategy will, from time to time, not succeed. However, HNN believes that what Mr Benstead and others on the HBT executive team have worked out is that the hardware market is, at the moment in a very unique situation, one where this strategy has a good chance of delivering strong benefits to HBT members most of the time.

In HNN's opinion, this is a very strong strategy, and unique not only to hardware retail, but to retail in general in Australia. It's not just professional: it's truly market-leading.

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Independent hardware retailers, aided by buying groups, have done a great job over the past three years in closing the price/margin gap with the market's major competitor, the Wesfarmers-owned Bunnings. They have managed to narrow the gap to the extent that price has become less relevant to customer choice. At the same time they have highlighted the advantages they offer, introducing a new competitiveness into the market.

However, in the wake of these developments, and just as most hardware retailers are feeling somewhat confident about price/margin, a new competitive challenge is developing. It's one that, while its effects may be delayed by a couple of years, will prove to be just as significant as the price/margin struggle that began 15 years ago.

Resetting strategy

It's understandable - given the drive and effort involved in answering the price/margin challenge - that much of independent hardware retail strategy has focused on what, in managerial accounting terms, we refer to as gross profit and gross profit margin (GPM).

Gross profit is gross revenue minus the cost of goods sold (COGS). GPM is that gross profit divided by gross revenue, usually shown as a percentage. For most hardware retailers, COGS is simply the cost of buying stock, plus in-shipping costs (delivery to the store) and, in a few cases, out-shipping costs (delivery to the customer) as well.

GPM for retailers is thus really about the effectiveness of the wholesale supply chain, and how that measures up to current market conditions. Most retailers have a good sense of what the minimum GPM they need is, and it's a convenient "score card" for tracking overall progress.

Given the current market situation, GPM has also been used as a measure of competitiveness. It helps retailers to determine what their baseline profitability is, given the current wholesale cost of goods, in the context of market price constraints. For most hardware retailers, "market price constraints" comes down to "what does Bunnings charge?".

Retailers will often determine their prices by thinking about the customer value chain (CVC) for a product in the context of the Bunnings price. That goes something like: "Bunnings is charging $X, but my store is less of a drive for them, we have better store amenity, plus knowledgeable, personalised service, are community involved, and offer payment terms on accounts, so I can charge $X plus Y%". Keeping an eye on GPM makes sure that $X plus Y% remains clearly profitable.

There are good reasons why this has become a dominant approach, but it does lead to strategies that are purely cost-focused. The difficulty with cost-focused strategies is that they typically do not promote much in the way of either growth or productivity improvements.

Bunnings and other large retailers are very aware of this limitation. They are also aware that, when it comes to squeezing more value out of the supplychain, future gains are likely to be small and incremental. That's especially the case as, with analysts expecting the RBA to cut Australia's baseline interest rates eventually down to 1.0%, we could be looking at an AUD that is worth around USD0.61 to USD0.64. That makes imports from China more expensive than they have been in the past. This is a condition likely to continue for the next two years, at least. Such currency depreciation will wipe out most supplychain efficiency and competitive gains.

This is of acute importance to Bunnings, because the company's pricing focus remains on consumers, not competition. That means that relative pricing advantage, while welcome, is not the endgame. As former Bunnings managing director John Gillam famously told analysts at one Strategy Day briefing, "the margin is the outcome". In cases where that margin begins to become thin, Bunnings usually responds by influencing the outcome, rather than simply raising prices.

The realisation that the supplychain will yield low levels of growth is what has led many major retailers to adopt the next wave of competitive strategies. These were initiated over two years ago, but reached peak development during the past year.

It's easy to get a little distracted by the specific technologies and techniques that are being used to implement these strategies (such as data analytics), but it's the core strategic intent that needs to be acknowledged. That strategic intent can be represented by saying Bunnings (and other retailers) are taking a closer look at performance measures outside of GPM.

In particular, they are placing more strategic focus in the area of operating profit, which is derived by subtracting operating expenses (OPEX) and COGS from the company's net sales. OPEX is made up mostly of sales, general and administrative (SG&A) costs, along with costs such as those for research and development (R&D). The performance number that gets derived from this is operating profit margin (OPM), which is the operating profit divided by the net sales, usually represented as a percentage.

Where does CAPEX get spent?

If we look a little deeper, however, the situation is just a bit more complex than this. Some analysts see most company strategies as coming down in the end to the interactions between three, fundamental core components of large businesses: COGS, OPEX and capital expenditure (CAPEX). In retail you can pretty much split companies up into those that use CAPEX to boost COGS and those that use CAPEX to boost OPEX. US big-box retailer Wal-Mart is a classic example of the first category, and The Home Depot exemplifies the second.

Wesfarmers as a whole - and Bunnings in particular - is a company that is switching from the first category to the second. This explains - at least in part - why the company de-merged Coles into a separate entity. The supermarket business, as it exists today, will remain all about COGS, which means, given the supplychain constraints, it will continue to be low-growth.

While this may be a large change for Wesfarmers and Bunnings, many independent hardware retailers may wonder why it should be of concern to them - how much worse, after all, could competition from Bunnings get? But in reality, whether it is intentional, or a matter of "collateral damage", this shift in strategy by Wesfarmers is likely going to have a great effect directly on independent hardware retailers.

That effect is going to be sharp because, at least as things currently stand, the independents don't have a mechanism which will help them to catch up with Bunnings, as they did during its COGS-oriented strategy, where they were ably assisted by buying groups.

One major reason why the OPEX strategy is harder to counter than the COGS strategy, is that every COGS strategy is, at heart, based on the utilisation of scale. Bunnings' pricing helped it establish and retain scale, and that scale further enabled pricing. Independent hardware retailers fought back through increased discipline in their buying groups, a narrowed focus onto a limited range of suppliers, which resulted in increased volumes in strategic products from those preferred suppliers. They created scale, in other words.

OPEX strategy is, by contrast, not based on scale in a business, but on its size instead. Though they seem to be almost the same thing, they really aren't. There are businesses with large scale, but small size, and large businesses with small scale. Wesfarmers, of course, has both.

One question that independent retailers often have is, what are the practical uses of something like data analytics? One answer that surfaced during The Home Depot's May 2019 investor presentation came from the company's head of merchandising, Ted Decker, when he described new processes for changing up product ranges as they aged.

Previously, we would wait for a category to degrade, then we would launch a comprehensive line review, which takes months to implement changes. We're now establishing the process and tools to continuously review our assortments, line structure and space requirements so our merchants can better sustain category performance.

Our aim is to ride the crest of the wave rather than degrade and have to reset. To accomplish this at scale, we're building out the technology to support an automated end-to-end process that incorporates our assortment, planogram, fulfilment, project planning and execution applications. Going forward, we'll be even more agile and will update our assortments or change space assignments more frequently and with better accuracy.

Instead of tracking falling results for a product over two or three months, then taking another two to three months to bring in a solution, The Home Depot will be able to compress all that into less than two months. The company can do that because it's relying on a wide dataset drawn from a number of stores in a specific region. The impact on customer relevancy and satisfaction, as well as profits, will be considerable.

The size of Wesfarmers - at this point fully cashed-up from the Coles de-merger - enables it to invest considerable sums (likely over $800 million for data analytics) in developing new technologies, new connectivities, and integrating these into its businesses. On the cost side, that expenditure is amortised over its market reach. On the gains side, given this market reach, even a fractional gain will enhance its position across those markets, and bring significant returns.

Size has always been an advantage, but there are strong indications that it has become more advantageous since the global financial crisis (GFC). There have been increasing concerns expressed by global economists over the past five years, as they have noticed a growing disparity between the ability of two types of firms to grow in terms of productivity at a much higher rate than the overall slow productivity growth at the majority of firms. Those two types of firms are large firms that have a dominant market position, and those that are on the "cutting edge" of technological development in a market - frequently new entrants.

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It is not possible to talk about the global business of power tools without also getting into the key economic enablement on which its considerable success has been built, which is globalisation itself. That's mainly because globalisation, and the associated world of mutual trade agreements, has come under unprecedented attack since 2015. This culminated in both the UK's Brexit vote to leave the European Union (EU), and later, the imposition by the current US administration of harsh - and threats of still harsher - tariffs on trade between the US and China.

Both of these moves have had, and will continue to have, difficult negative consequences for the power tool industry. While some companies, such as Techtronic Industries (TTI) have, as promised, been successful in working around these difficulties, others, most notably both Bosch and Stanley Black & Decker (SBD), admit that this has been a factor in their less than stellar results for FY2018.

There are multiple problems in entering into even a brief discussion of globalisation. That's largely because globalisation has become a common scapegoat for a range of perceived social and economic ills. In particular, the changes that are being brought about by a rapid acceleration in the development of technology (especially software) frequently get conflated with the enabling arrangements of globalisation.

This is, HNN believes, one of the issues that the president and CEO of SBD, James M. Loree, did a great job of describing in his opening statement in the company's annual report for 2018. In part, this is what Mr Loree had to say:

The inexorable forces of the accelerating pace of technological change have been wreaking havoc with the status quo across all aspects of society for some time now as the decreasing cost of data storage, increasing computing power/cost ratio, and communications technology advances combine to create once unthinkable capabilities and applications. As these synergistic forces have gained speed and momentum, the combination has begun to challenge the ability of individuals, institutions and society in general to absorb the massive changes that are impacting all walks of life.

What once seemed like a relatively orderly world is now characterised by chaotic new unforeseen threats, disruption, growing inequality and divisiveness. In addition, the well-documented impact from climate change is becoming increasingly apparent. The ever-increasing rate of change and the sheer complexity of it all can be overwhelming to individuals and institutions. However, amidst all the turbulence there is opportunity. We believe that a new form of leadership and corporate citizenship is necessary to successfully navigate through these times.

This is a good description of the current state of many markets, as well as an under-reported, real contribution by Mr Loree.

In particular, it's worth drawing attention to that final sentence. While Mr Loree is talking explicitly about SBD itself, he's also referring to the industry in general - and it really includes hardware retailers as well. Basically, faced with these tough times all we can really do is to become even better at business. It's a great reminder of basic principles.

Undoing the economic voodoo

Given this, it's still worthwhile briefly considering the arguments used to bolster the case for actions such as the imposition of tariffs on China.

The mechanism of such tariffs goes like this.

The immediate effects of such tariffs are these:

Those are just the headline problems. The really deep problem is that tariffs are effectively taxes designed to subsidise the least productive parts of an economy. That means that an increasingly large part of a nation's gross domestic product (GDP) gets tied up in the area that grows the least, and produces the (economically) worst products. The truly productive parts of the economy, in fact, end up being weighed down by the need to pay subsidies to the least efficient parts of the economy.

To quote from an article first published in 2016 on the IMF Blog, titled "Tariffs Do More Harm Than Good at Home", by Maurice Obstfeld:

There is another big drawback of such tariffs: while they may give some relief to industries and workers that directly compete with the affected imports, they will be broadly contractionary, reducing output, investment, and employment in the whole economy. These negative effects follow even if trade partners do not retaliate, although if they did, the outcome would be even worse.

HNN is not even going to get into additional problems, such as the obvious use of tit-for-tat retaliatory tariffs. Nor are we delving much into the fact that balance-of-trade between nations is not a scorecard, or about "winning". It is a very complex issue, but the best short-hand way to understand why most respected economists regard balance-of-trade as a null issue is to think of it a little in terms of CAPEX for businesses. Partially leveraging CAPEX expenditure to enter into a high-growth area is a commonly accepted corporate practice, and in a modern economy, running a negative trade balance has much the same origins - planned or unplanned.

All of the above reflects a well-established understanding of global economics that has been commonly accepted since the early 1960s. There is just nothing new there.

The counter-argument that has been raised over the past decade or so to support tariffs is that moving wages formerly "exported" to foreign economies back into the domestic economy has to do a lot of good. That is like arguing that it has to be better to get 1% profit on $10 million than 5% profit on $3 million, because $10 million is bigger than $3 million. Net productivity is the measure of economic health, not the number of people with jobs.

The key to this is to understand that manufacturing labour markets are rapidly commodifying as automation is about to enter a period of near exponential growth. At the same time, service areas such as software development are actually entering a period of rapid decommodification. Expert knowledge is in high demand.

What the attempted argument about retaining manufacturing wages truly reveals is that many people simply cannot comprehend the way the economy has developed. It's just difficult for them to grasp that a busy factory of 300 people working long, sweaty hours, with metal being cut and welded, paint sprayed, gears matched and set, does not produce anywhere near as much value as 50 software developers, designers and marketers sipping their morning lattes in air-conditioned work environments.

Yet consider for just a moment the true global wealth - ongoing - that developments such as fully autonomous vehicles could bring. These new innovative products consist of around 90% software development.

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After finding success during a trial in Tasmania, Bunnings will implement a click and collect service throughout its network; and store planning continues in New South Wales and Queensland.

Click and collect comes earlier

During a visit to the Bunnings store in Glenorchy (TAS), Bunnings chief executive Michael Schneider told The Australian that a click-and-collect service will be rolled out in the Melbourne metro area before including more country regions. The big box retailer is also examining the potential of an online home delivery service. He said:

We anticipate the first (mainland) Australian regions will go live somewhere from the first half of fiscal 2020. It will be metro then followed by the regional market, but we would see that as a progressive rollout on a reasonably well-paced basis provided we didn't discover something we don't already know.

According to the article, Bunnings is releasing its online click-and-collect service around Australia at a faster pace than investors and the market were anticipating. This follows a trial in a Tasmanian store that Bunnings said is delivering a strong uplift in sales as the size of orders placed online is on average larger than the typical basket size of purchases made by walk-in customers. And some categories are proving more popular than others. Mr Schneider told The Australian:

...It is varied but what is quite clear is that customers are buying project-based quantities, so they are quite solid basket sizes compared to normal. So a simple project on the weekend might be to update a bedroom, door knobs and handles. A customer might be looking for 20 or 30 door handles, and they will make that purchase online because they can do the whole project in one go, rather than come in on the weekend and top up a few items.

The basket size has been bigger, for average transactions, and that is what we have seen with our overseas peers.

The Glenorchy store is typical of the click-and-collect plans for the rest of Australia. It has about 70% of its total products available for online orders to be picked up by customers at a desk within the store. Orders made before 4pm can be picked up by 9am the next day.

Bunnings' new director of digital and analytics, Leah Balter, has led the implementation of the service. Shelves near the Gelnorchy store entrance are used as the click-and-collect desk. Bunnings staff, no matter what area they work in, can link to a central booking system that allows them to pick up products from the shelf to fill online orders as they walk through the store and deal with customers.

For now, plants and timber are not available to be ordered for click-and-collect. Hazardous materials - such as chemicals - are also not on the site yet.

Web traffic

The hardware chain seems to have a ready-made digital audience based on data from online savings platform Cuponation. It indicates that Bunnings has more online visitors than any other Australian bricks-and-mortar retailer and is the third most visited website after eBay and Amazon.

Bunnings.com.au had 40 million visitors in the March quarter compared with 32 million for Woolworths, 29 million at JB Hi-Fi, 21 million at Coles, 21 million at Kmart and 20 million at Kogan.com.

The data includes all visitors, not unique visitors, to the retailers' desktop and mobile sites and was collated using SimilarWeb and Alexa tools. It also showed that more Australians are shopping online via their mobile phones.

At Bunnings, mobile penetration was well above average, with 65% or 26 million visitors using their mobile phones, reflecting demand from tradies and DIY customers checking specifications and prices on the road or in stores.

Bricks and mortar show

Stores are being planned in Campbelltown (NSW), Coolum (QLD), Tempe (NSW), Mt Isa (QLD) and Virginia (QLD).

Campbelltown

Bunnings will construct a new store on Blaxland Road after the Sydney Western City Planning Panel gave the green light to the development. This store will be constructed on council-owned land on the corner of Blaxland and Farrow roads, near Campbelltown station. It is expected to replace the existing Bunnings at nearby Kellicar Road.

A report prepared by Campbelltown Council staff to the planning panel said the development will employ more people than the current store.

The site of the existing Campbelltown Bunnings sits within land identified by the NSW Government for future high density development, as part of the Glenfield to Macarthur Growth Corridor Strategy.

Coolum

The long-running dispute between Bunnings and Sunshine Coast Council and ratepayers' associations was heard in the Queensland Court of Appeal recently.

Bunnings first applied to build a store on Barns Lane in Coolum in 2006, but the then-Maroochydore Shire Council turned them down. The company applied again in 2012 and in 2016.

Bunnings is appealing a previous court decision that sided with the council's decision to reject the warehouse's approval. Barrister for Bunnings, Daniel Gore said the judge made mistakes regarding the location of the proposed warehouse in regard to the planning scheme. He pointed to three occasions when the judgment referred to Coolum instead of Coolum Beach.

Similarly, Mr Gore said the judge had failed to take into account arguments regarding the scheme's definition of a store compared to a showroom. Mr Gore said the planning scheme would not allow for a Bunnings to be built in the Coolum village area, but said the proposed site in Coolum's west met the planning schemes requirements for a warehouse store.

Sunshine Coast Council's barrister Christopher Hughes said the previous court decision was not made in error and parts of Mr Gore's submissions were "inconsequential" to the planning scheme.

The court will release its decision at a later date.

Tempe

The proposed Bunnings store at Tempe (NSW) has been delayed again after an independent traffic expert said it would have an "unacceptable" impact on local roads.

The Sydney Eastern City Planning Panel deferred the $70 million proposal for a second time after residents opposed the use of a narrow street as the main entrance for the 20,000sqm store next to Ikea on Princes Highway. The panel has asked the expert, Rhys Hazell of GTA Consultants, to advise what impact the WestConnex M5 tunnels would have on the already congested highway.

In its reasons for deferral, the panel stated the tunnels' impact "is likely to be of great importance and may make the difference between an acceptable and unacceptable traffic impact".

Mt Isa

Plans for a Bunnings Warehouse in Mount Isa are on hold due to the sewer and stormwater mains at the proposed site on the corner of West and Alma streets. The new site was announced in 2017 with Bunnings conducting a public review of plans.

Mount Isa City Council told The North West Star newspaper that Bunnings was looking into the relocation of the West Street site's sewer and stormwater mains before proceeding with the construction work for the proposed new store. A council representative said:

The site is currently under contract, and has been for about two years, and the Development Application for the new Bunnings store is approved.

The new Bunnings store at the old council works depot and storage yard site, would replace the current Bunnings on Camooweal Street. Bunnings general manager - property Andrew Marks said:

We are still reviewing our options for the new development in Mount Isa and will update the community as soon as we can.

The development will have a total retail area of 5607.5sqm.

Virginia

Construction of Bunnings store in Virginia (QLD) began late last year at 1836-1840 Sandgate Road. It will be the second Bunnings Warehouse to open in north Brisbane this year, following the opening of a store at Newstead in March.

Documents lodged with Brisbane City Council show the store will have a total floor area of 17,246.11sqm.

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Mitre 10 in Kilmore (VIC) has trade hub ambitions; and Nubco will continue to be operated as a stand-alone business with no store closures and a focus on procurement synergies, following its acquisition by Coventry.

Kilmore gets Mitre 10 trade warehouse

Kilmore Mitre 10 has opened a trade-focused warehouse that offers quick pickups or deliveries for tradies. Director Simon Meyer said he had gradually been building the business into a more trade-focused business over the past four years. He told The North Central Review:

We've really focused on having the materials that builders need to have in stock and undercover so they're protected and ready to go.

The warehouse runs as a pick and pack or dispatch-only site, which means customers can't shop there but can collect goods. Orders are placed in-store and stock can either be picked up or delivered. It measures 2500sqm, and is one and a half times the size of the store site nearby, and currently holds enough timber to build 100 houses. Mr Meyer said:

We're really just reacting to what our customers demanded. We needed to have more available and to be able to react faster so that we're not constantly trying to get things in for people, we've got the majority of it available at all times.

Planning for the warehouse began two years ago, but the site only became available in October 2018. After stock, racking and equipment was put in place, it became operational in April this year. Mr Meyer explains:

The few builders who have been lucky enough to go down there to pick up stock, that we're been able to supply directly onto their vehicles, have been very impressed with what they've seen and the volume and stock quality we have on hand.

We're expanding on what we have had but making sure we have the fast-moving lines in volume so we're never caught short. We really want to be able to give the public here in Kilmore more than what they think we can give them.

We try to pack a lot in and try to make sure that our value is as close as we can get it to the biggest competitors in hardware...

Coventry Group buys Nubco

Coventry Group has completed its $36 million, 100% acquisition of Nubco, a hardware and industrial supplier with seven locations across Tasmania.

Coventry delivers industrial solutions to the mining, construction and manufacturing sectors, supplying a range of fastening systems, cabinet hardware systems and hydraulics, lubrication, fire suppression, refuelling systems and related products. The company, led by executives Robert James Bulluss, Rod Jackson and Ken Lam, in recorded $168 million revenues in 2018.

The Nubco acquisition offers synergies that will benefit Coventry's Australia-based business by delivering procurement cost savings and knowledge transfer. It is expected to also provide earnings and cash generation to Coventry.

Law firm HWL Ebsworth advised Coventry Group on the deal.

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Australian paint maker DuluxGroup is on track to be taken over for $3.8 billion by Japanese company Nippon Paint Holdings; and Wagners warned its 2018-19 earnings could be hit by $10 million if its court battle with Boral is not resolved in its favour.

Nippon Paint gains major foothold in Australia

Japan-based Nippon Paint Holdings is set to own local paint maker DuluxGroup following the Japanese firm's cash offer that will take the Australian company's market value to about $3.8 billion.

The Japanese company is prepared to pay a 27.8% premium, based on DuluxGroup's (Dulux) closing price of $7.67 on 16 April 2019. It said in a statement to the ASX:

The proposed acquisition is an important step in Nippon's global growth ambitions. DuluxGroup will be run as a separate division and will retain the DuluxGroup name.

As a result, no changes are expected to the DuluxGroup leadership, business portfolio, manufacturing and operations, and the company's name in Australia and New Zealand will remain the same. Chief executive Patrick Houlihan told the Sydney Morning Herald:

I really see this as the next chapter [for the company].When they look at our business here, they want us to continue what we are doing. They are very focused on what we have.

The deal would offer investors in Dulux an opportunity to cash out at the end of a long construction boom. Driven by population growth and rising home values, the building boom stoked demand for Dulux's paints, garage doors and garden supplies in Australia, doubling its share price in six years as its revenue climbed.

However Nippon Paint's offer comes as the steady pace of DuluxGroup's growth slows, with annual revenue growth in 2018 lagging the prior year, even as Dulux acquired new businesses.

Building approvals - a forward indicator of demand for home improvement products - have also hit their lowest since 2013 and home values are tumbling at their fastest pace in a generation.

Despite the cooling national housing market, Dulux said it was more heavily focused towards home renovations and maintenance.

DuluxGroup's board has unanimously recommended that shareholders vote in favour of the takeover by Nippon Paint. Shareholders of DuluxGroup are expected to vote on the offer at a meeting to be held in late-July, and the companies expect the deal to close in August.

In addition to securing court and shareholder approval, the deal requires the approval of the Australian Foreign Investment Review Board and the New Zealand Overseas Investment Office.

About Nippon Paint

Nippon Paint is considered a global leader in the paints and coatings industry and generated approximately $7.8 billion in sales for the financial year ended 31 December 2018. It operates in Asia, Europe and the United States, but essentially has no presence in Australia or New Zealand.

The company generates 60% of its sales from Asia outside Japan, mainly in China. But housing sales there are cooling off as the Chinese government clamps down on real estate investment. This has hurt Nippon Paint's sales in the country. In addition to China and other Asian markets, the purchase of DuluxGroup will help the Japanese company expand its sales channels in Oceania.

The acquisition is the biggest yet by Nippon Paint, which has said it's looking to buy global rivals to keep pace with consolidation in a USD140 billion global industry where the top 10 suppliers account for more than half of sales worldwide, according to Bloomberg.

It would catapult Nippon Paint, the world's fifth-largest paint maker, from a bit player to the biggest paint seller in the region. Although Dulux is Australia and New Zealand's top paint and coatings company, it ranks at 22nd in the world, based on data compiled by Bloomberg.

H1 results

Dulux also posted its first results since the Nippon takeover announcement. It said net profit after tax (NPAT) dipped 4.1% to $68.2 million for the six months to March 31.

The company pointed out that the reported NPAT of $68.2 million was $2.9 million, or 4.1% below prior year's adjusted NPAT, which excluded a number of one-off items that favourably impacted the prior year by $8.1 million. That means the $68.2 million was $11 million or more than 14% lower than the interim in 2017-18.

Sales revenue was $892.9 million. Dulux said that on a like for like basis, excluding the divested and exited paints businesses in China, sales revenue grew 0.2%.

It recently committed to a 10-year lease on a $27 million purpose-built facility in Maddington (WA).

Court next stop for cement supply dispute

Building materials supplier, Wagners has filed a statement of claim in the Supreme Court of Queensland against Boral after the two parties failed to settle their cement supply pricing dispute.

Wagners has a cement supply agreement with Boral, whereby the latter is required to purchase a minimum volume of cement from the company on an annual basis at a determined price.

Boral is entitled to issue a notice to Wagners if it has a bona fide offer from a third-party supplier of cement which is supported by market pricing evidence showing that it will charge a price lower than the current agreement. In this event, Wagners can reduce the price of the cement products supplied to Boral to the price in the notice or suspend supply of cement products for a period of up to six months.

In March, Boral issued a pricing notice to the company which "purports to refer to market pricing evidence in the form of an unsigned offer from a long-established supplier of cement within South East Queensland, offering a price significantly lower than that currently charged".

Wagners commenced a formal process disputing the validity of the pricing notice "on the basis it has concerns regarding the bona fide nature of the market pricing evidence provided and therefore the contractual basis upon which the notice has been issued", according to its update to the ASX,

As a result, it made a decision under the cement supply agreement to suspend the supply of cement products to Boral, pending resolution, or determination by the courts, of the dispute regarding the validity of the pricing notice.

Wagners management has warned that the potential impact of the pricing notice to the company's revenue in the event of a six-month suspension is around $20 million. It decided it was in the best interest of shareholders to challenge the notice due to the potential long-term impact it will have on the company and the cement industry throughout Queensland and NSW.

The company also warned that it now expected 2018-19 earnings before interest and taxation to drop to between $25-$28 million (from $35-$38 million previously) until the litigation was resolved.

Wagners said the drop in guidance took into account the disruption faced by its cement business and the impact on the concrete market, conditions in the precast concrete market and delays in projects starting.

The supply agreement requires Wagners to provide cement to Boral until December 2021, with Wagners having an option to extend the agreement another 10 years.

The price paid for cement is adjusted in line with inflation, with a price review every three years. The most recent price review was in July 2017.

Boral is Wagners' biggest cement customer, and accounts for one-third of Wagners' earnings and about 40% of its cement volumes.

Background

Boral competes with Wagners in making cement but after it bought the Queensland-based company's construction materials business in 2011, it agreed to keep buying cement from Wagners.

As part of the acquisition, Boral purchased Wagner's network of large fixed concrete plants and five of its quarries, its 60% stake in a fly-ash joint venture and its concrete pumping and bulk transport operations.

Wagners retained its cement grinding plant at Pinkenba in Brisbane. The long-term supply contract with Boral underpins this operation. Managing director Denis Wagner said at the time:

The sale does not include the Wagner's name and brand and the family will continue to operate the business under the Wagner name.

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The latest product releases from hardware and rural supplier AgBoss, plaster products maker Gyprock, laser company Imex Lasers and paint manufacturer Wattyl.

AgBoss back door splitter

The splitter axe with a hickory handle from AgBoss has enough weight to split larger logs and is ideally balanced to help end-users work their way through kindling.

The axe head is heat treated with polished ends. It is accredited by GS (German Standards) and has been TUV tested for safety, as well as Quality Assured by ISO accreditation.

The handle is made from hickory imported from the United States and FSC Sustainable Forestry approved. It has a triple lacquer finish with a hang hole at the handle end. The bright orange colour means this tool will be difficult to lose.

Small projects repair

CSR Gyprock's Pro-Repair 10 compound is suited to small-scale jointing jobs, patching holes and defects in Gyprock plasterboard and Cemintel fibre cement. It is also tinted for easy identification on painted surfaces.

Pro-Repair 10 is a setting compound with a defined working life of approximately ten minutes after mixing. This makes it ideal for repairing holes, nicks and cracks in new and existing plasterboard and fibre cement walls and ceilings. It also provides efficient coverage, with 8kg of Pro-Repair 10 providing approximately the same coverage as 10kg of a standard weight compound.

Guide to lasers

Specialist laser level manufacturer, Imex has introduced the Little Green Book to eliminate the confusion when choosing the appropriate laser level for different jobs. There is no longer one laser that suits all, and now that lasers have become more affordable many tradesman have more than one to fit their needs.

The Green Book gives tradie and laser level stockists a quick reference with a maximum of four questions relating to the tasks and budget so the correct laser level can be purchased.

Imex has also developed a free app available on Android Google Playstore or Apple App Store which provides instant access to the level selection guide.

Safety in paint

I.D Advanced, by Wattyl, has an ultra-low VOC formula at less than 1g per litre, which exceeds the Green Star requirements of the Green Building Council of Australia.

The paint's Total Protection TechnologyTM delivers a new level of protection as the paint resists the growth of mould and fungus while offering advanced cleanability, washability and stain resistance, according to the company.

Wattyl I.D Advanced interior paints are touch dry in just 30 minutes and ready for recoat in two hours. Coverage is up to 16m2 per litre.

Ikea Australia has opened its first small-format at Warringah Mall on Sydney's Northern Beaches.

Customers can purchase their kitchen or storage products online with the items delivered directly to their home. They can shop a digital wall of homewares, which they can add to their virtual bag and transfer to their mobile device for checkout.

This digital-first, personalised shopping experience is geared towards a different type of customer than the typical Ikea shopper, according to Ikea Australia country manager, Jan Gardberg.

The home improvement retailer refers to this 100sqm store as a "Home Planning Studio". Mr Gardberg said:

With the Ikea Home Planning Studio we have reinvented the traditional Ikea experience for a different audience, with different shopping needs putting digital at the heart of the customer's journey. However, the digital experience is delivered in our most personalised approach yet.

The customer's wants and needs for their kitchen or bedroom storage solution are the starting point, and the experience they will receive in the Home Planning Studio will be personalised from there.

The studio includes a projector tool, which allows customers to envision what their ideal wardrobe will look like by projecting it onto a wardrobe front.

Customers can also book a $99 one-on-one planning sessions with staff to design their dream kitchen or bedroom storage solution. The cost is refunded on the purchase of a kitchen within the session.

These small-format stores are able to be rolled out because the company is finalising its new fulfilment and distribution network. Mr Gardberg told news.com.au:

That was the key cornerstone we needed to get in place before we started to launch these different formats.

Mr Gardberg sees scope for about eight planning studios in Sydney and Melbourne and a handful in Brisbane and Perth, if the new outlet in Westfield's Warringah mall is successful during its four month trial. He told the Financial Review:

Ikea is also working on plans to open about 20 5000sqm stores carrying about 4500 products - half the range available in a full-size store. They will be in shopping malls and will be supported by its online store, which sells about 9000 products.

Homebase has revealed the extent of its restructure to date in its first earnings release since Wesfarmers sold it; and Kingfisher opens its GoodHome by B&Q store that it believes offers a simpler way of shopping for home improvement projects.

Homebase returns to design roots

DIY and garden centre retailer, Homebase said it has limited its losses in the second half of 2018 as a turnaround plan under new owners begins to show signs of progress.

During the half-year, the retailer reintroduced popular ranges such as furniture, brought back in-store concessions and laid the foundations to rebuild its digital offer. It also plans to reintroduce kitchen showrooms to its portfolio, Chief executive, Damian McGloughlin, said:

The benefits of the changes we have made are starting to come through ... Clearly, we are only 10 months into a three-year turnaround plan.

Homebase remains one of the most recognisable retailers in the UK and Ireland, and the progress we have made in reinvigorating our customer experience means we are very optimistic about the future.

Reporting financial results for the six months to end of December last year, with exceptional items, including the profit from the sale of a freehold store and other property-related provisions, losses narrowed by almost 96% to GBP8.2 million, while improved margins helped gross profit jump by a fifth during the period. However, sales slipped 3.5% to GBP497.8 million, from GBP515.6 million in the same period last year.

The company also cut costs by GBP100 million. Homebase said closing 47 loss-making stores and two of its six distribution centres, reducing headcount from head office by almost 40%, and removing complexity from processes, has helped it to achieve strong financial and operational performance.

A Company Voluntary Arrangement (CVA) allowed Homebase to close its loss-making stores and secure rent-reductions for another 70 sites. The firm credited the GBP95 million asset-based lending facility from Wells Fargo Capital Finance for supporting it with working capital.

Hilco purchased the company in June 2018 for GBP1 from Australia's Wesfarmers that had bought the chain for GBP340 million in 2016. Prior to its Hilco takeover, Homebase had 250 stores at its peak and 12,000 staff.

Home improvement made convenient

At its recent Innovation Day, home improvement retail group Kingfisher revealed its GoodHome concept that will provide a simpler way of helping renovators and professionals with their projects.

GoodHome is a way that Kingfisher's innovation becomes visible to customers for the first time, with a pilot store opening in the town of Wallington (UK). This store is an express format focusing on convenience and focusing on the most common DIY projects such as painting walls, fixing taps or installing new sockets.

The company describes the store as modern and a local outlet that offers more than just home improvement products. It has a team of skilled staff offering expert help in-store; an effortless digital shopping experience designed to make improving homes easier; and inspiration and information to help plan projects. It will also have a dedicated counter for professional tradespeople. There are plans to have more express store trials in the UK and France later this year.

GoodHome is part of the B&Q network and marks a departure from the DIY chain's larger sheds and its only other smaller shop, on London's Holloway Road. The 5,400sqft site has a sales area of just 1,615sqft and offers around 6,000 products. A typical B&Q store is around 100,000sqft and stocks 40,000 SKUs.

This core range will be available for same day delivery, with an extended range of over 20,000 products for bigger projects, available for next day Click and Collect in-store or home delivery.

Products in GoodHome are not stocked on the shop floor in the traditional way. Instead, customers either purchase items by using in-store digital screens, or by clicking and collecting through the B&Q app. Kingfisher chief trading officer, John Colley said:

We know that customers are shopping differently. They want convenience and access to products and services, however and whenever they want. This trial store is about offering them just that - a new kind of home improvement store that is simple, modern and convenient. It's just one of the ways in which we are making home improvement accessible for everyone.

As an international brand, Kingfisher said GoodHome aims to shake up the home improvement market by offering products and solutions that are design-led, high quality and affordably priced. Speaking at the Innovation Day launch, outgoing CEO Veronique Laury, said of GoodHome:

We started three years ago, and we have undertaken in-depth research to get knowledge on home improvement and customer needs. By doing this, we found that people are improving their homes with the same purpose - they want a home that is good to live in. However, this study also revealed that most improvement projects are abandoned either before they begin or before they are finished. It may be lack of inspiration, too much complexity, not enough skill, time or money. Whatever the problem is, there are often too many barriers to create a good home.

Our customers tell us 'home improvement can be a nightmare' and the heart of our purpose, everything that we have been doing for the last few years, and we continue to do, is about fixing the nightmare. The biggest change [in the home improvement market] has been the arrival of new players like Amazon and ManoMano. But so far, no market player is offering an end-to-end seamless home improvement experience. No one has solved the nightmare. And this is our potential.

GoodHome is our new international home improvement customer proposition, based on deep customer understanding. It stands for simple, sustainable, unique and innovative solutions that last and which are affordable. GoodHome is the name we put on everything we are doing to make home improvement accessible to the many, not the few: our new product offer, new services, new store concepts, our training centre and our new charitable foundation.

GoodHome products and services will be available online and in B&Q, Castorama and Brico Depot stores throughout the UK, France, Poland and Romania.

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Lowe's is strengthening its technology focus by taking on a retail analytics business; and True Value Company is moving into the next phase of hyper-local advertising.

Lowe's gets into retail analytics

Home improvement retailer Lowe's has acquired the retail analytics platform of e-commerce software company Boomerang Commerce.

Lowe's will integrate the platform's technology into its retail business as it looks to bolster strategic and data-driven pricing and merchandise assortment decisions across the business. The platform processes product and pricing datasets and converts them to insights and actions.

In addition to the technology and tools for the platform, some staff from Boomerang's retail analytics teams in Bangalore and the US will join Lowe's.

The acquisition includes tools and technology for the retail analytics platform, which is proprietary, but doesn't include customer contracts or related confidential information.

Following the transaction, Boomerang's Commerce IQ service will operate as an independent business under the CommerceIQ.ai name. In a statement, Lowe's chief information officer Seemantini Godbole said:

...Pricing and assortment planning have been identified as strategic areas in need of modernisation [at Lowe's]...Adding this team and technology to our existing capabilities helps us leverage the right data quickly, effectively and successfully.

Profits in Q1

Soon after it announced this acquisition, Lowe's reported a first quarter 2019 sales increase of 2.2% to USD17.7 billion from first quarter 2018 sales of USD17.4 billion.

Comparable store sales for the company's US business rose 4.2% while overall comps rose 3.2%. Profits rose 13.6% to USD1 billion in the quarter.

The company currently operates 2,002 home improvement and hardware stores in the US and Canada representing 208.8 million square feet of retail selling space.

Hyper-local True Value campaigns

To increase relevancy and reduce wastage hardware retailer True Value is working to redefine the concept of "location" in location-based advertising.

After the retailer made the decision to shift ownership from its shareholders and sell a majority stake to a private equity firm, it paved the way for the new True Value to embrace a "marketing-as-a-service" model, offering hyper-local and highly targeted marketing to stores. Company president and CEO, John Hartmann, told Forbes magazine:

Our goal is to drive profitable retail sales by offering these independent retailers the programs and campaigns that enable their stores to compete in an omnichannel world.

To this end, True Value has invested in the capabilities to offer retailers á la carte marketing and advertising programs that help promote their business locally. Mr Hartmann explains:

We stopped charging a national advertising fee so that our local store owners could optimize their approach to traditional and digital advertising. It all boils down into one word: customisable.

For consumers, highly customised marketing that is geo-targeted and supported by opt-in relevant messaging on their mobile devices delivers a better advertising experience-on their terms. For store owners, access to a digital marketing program tailored to their needs ensures shoppers come in the door-and keep coming back.

Dave Elliott, senior vice president Marketing, said in an interview with Hardware Retailing magazine:

In 2019, each store will have its own individual marketing program, and they will be able to adjust it as the dollars go up and down, right on the screen. We're putting that power in their hands because True Value marketing is about customisation, so we are relevant locally.

Rather than investing in advertising to reach consumers in the vicinity of a particular store, True Value is working with agencies and marketing tech partners to better understand and address audiences in the trade areas around physical shops. Sue Smolenski, divisional vice president, marketing strategy, told Forbes that it is part of a company-wide strategy to help retailers optimise their ad budgets, not waste them.

Marketing programs are a big part of the package that has allowed True Value to welcome more than 400 new retailers in the last year, according to Mr Hartmann. Since the restructuring, he said, True Value has also made a USD150 million investment to "modernize supply chain capacity and ensure True Value continues to offer the most competitive product fill rates for our customers in the industry".

At one level, Mr Hartmann said it's about serving and supporting independent retail. Store owners, equipped with marketing packages and services customised to their needs, are locally relevant and ultimately successful in driving in-store traffic and increasing sales.

True Value data suggests digital marketing drives sales "34% higher for advertised items in stores that participate in the True Value Rewards loyalty program". It follows that successful retailers have to restock their shelves more often-and they rely on one of the 13 True Value distributions centres to replenish the supply.

Boosting sales serves everyone in the ecosystem. But Mr Hartmann said the prize is understanding new and better ways to capitalise on the differentiating strengths of local retail.

Physical stores are in business today because there's something unique about being independent and local. Our own observations indicate that millennial consumers, particularly first-time homeowners, prefer local to the web-based trader.

It's a huge customer segment - 84 million millennials in the US alone - that will be the highest spending consumer segment in the home improvement market by 2020.

Fortunately for True Value's independent retailers, it's also a segment new to DIY jobs and eager to go to local stores for advice and supplies. Mr Harmann said:

Our retail stores provide a high level of expertise and highly personalised service that young consumers crave. That's something you can't get from a drone.

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The latest data from the Australian Bureau of Statistics (ABS) indicates that, while house and apartment prices might have dropped, the industry itself has not really suffered.

The ABS's 8755.0 - Construction Work Done, Australia, Preliminary, Mar 2019 figures, released on 22 May 2019, shows that current activity on building sites across Australia remains healthy.

HNN has used the Value of Building Work Done, using chain volume measures, for Australia. The chain volume measure means that, while the data is in Australian dollars, it has been adjusted to provide a measure of the volume of orders by taking out any price changes.

As hardware retailers operate further up the supply chain from building, it is the volume that really affects their bottom line, so these numbers are the best indicator of how current construction is contributing to their revenues.

The numbers for this data are gathered by the ABS using its quarterly Building Activity Survey. The most recent of these numbers should be treated as preliminary, and the two previous quarters will have been revised as well. This is one of the great services that the ABS does for businesses in the building and hardware sector – it's not an easy task getting this data together just six weeks after the close of the data period.

Value of Building Work Done relates to construction work which is underway, and has not been completed during the quarter. Completed work is represented in other ABS statistics.

HNN has used the original data (which means it hasn't been adjusted for seasonality or other measures), and we have consolidated four quarters, ending with the March quarter, into 12-month numbers. The data is extremely seasonal, so this takes out some of the ups-and-downs, and gives a clearer vision of what is going on.

In Chart 1, the blue line, which shows the value of new houses built, shows that while there was a slight decline in activity in the 12 months to March 2018, there has been higher activity in the 12 months to March 2019. It also shows there was a far stronger decline in the years post March 2011 through to the 12 months ended March 2014.

In the same chart, the green line shows what has been happening with the "not house" category, which is dominated by apartment buildings. This chart shows a very healthy, developing multi-dwelling building market, which climbed strongly post March 2012, up until the 12 months ended March 2017. Since then it hasn't declined, but has continued very slow growth.

The orange line shows construction activity related to alterations and additions, which are more commonly referred to as renovations. It's important to note that in these statistics these relate only to projects which require a building permit, which are generally those costing over $10,000. On this volume-based measure, this has not been a growth market, but has continued at a relatively good level over the past 10 years.

Growth

Chart 2 takes the numbers in Chart 1 and then derives the rate of growth for each 12-month period over the previous 12-month period. Again, it's worth noting that houses (the blue line) went into decline for the March-ended 12 month periods in 2012 and 2013. As we said above, apartments had a big spike in growth that has slowed, but remained positive. Alterations and additions have had positive growth for seven out of the past 10 years, which is an indication of stability.

Big picture

Chart 3 looks at the "big picture", combining both house and non-house numbers into a single bar, and showing the percentage of the total that is non-house. This chart shows that much of the boost in business for construction has come from non-house, multi-dwelling construction. While that growth has tailed off for the moment, the overall level remains high in comparison with five years ago.

It's also worth noting that hardware retailers typically gain only around 5% to 10% of the sales in this sector (for smaller constructions), so reduction in growth is not going to effect them very much.

Conclusion

In terms of a "real estate panic", these are the numbers that are influencing many commentators on the market. As usual, their comments are not really about market size, but growth.

For the hardware retail industry, these numbers show that the volume of work flowing through the construction industry remains at relatively high levels. If there is a falloff expect, it has yet to occur.

The Australian Bureau of Statistics has released its retail sales statistics for March 2019 (8501.0). Sales for hardware, building and garden supplies retailing for the trailing 12 months to March 2019 were $19,429 million, up by 2.69% for the 12 months prior to that period.

This was still well below the average growth for the preceding five years, which was 5.78%, with a median of 6.48%. However, it was a marked improvement over the numbers for the 12 months to March 2018, which showed growth of just 0.8%, below the inflation rate of 1.9%.

The state with the highest level of growth for the trailing 12 months was Victoria, which grew by 8.00%, followed by the Australian Capital Territory at 5.04%, and then South Australia at 4.99%. New South Wales grew at 2.26%, slightly below the national growth level.

Western Australia led declines for the trailing 12 months, losing 9.99%. The only other state to show a decline was Tasmania at 1.58%.

Looking at the graph for percentage change, we are seeing once again the highly compressed growth results which indicate that national level issues are dominating the market, rather than state issues -- the exception being Western Australia, which continues to adapt to fluctuations in mining activity.

The graph of the percentage of national sales on a trailing 12 month basis shows that over the past nine years, Victoria has made considerable gains, ending up over 5% higher. New South Wales made gains of less than 1% by comparison, while Queensland drifted down by around 1%. Western Australia lost a little over 1%, and South Australia fell by around 2%. The top three states now account for 78.6% of total hardware retail revenue, up from 73.2% in 2010.

Online platform for home renovation and design ideas, Houzz has released its 2019 AU State of the Industry report. It provides an outlook on 2019 as compared to 2018 performance for residential renovation and design businesses, including builders, architects and interior designers. The data is based on survey results reported for nearly 300 professionals in the Houzz Australia community.

The study revealed that a majority of firms across the industry are optimistic about business growth in 2019, following positive 2018 results. Nearly three-quarters of the industry anticipates that gross revenue will increase in 2019 (74%). Over half of businesses expect that revenue will grow by more than 10% (58%). Interior designers have the most confident view of 2019, with 84% of firms anticipating an increase in gross revenue, followed by home builders (73%). Building designers have a slightly less positive view of gross revenue growth overall with just 47% expecting an increase.

Nino Sitchinava, Houzz principal economist, said:

Residential construction and design service professionals in Australia are gearing up for another robust year. Positive expectations follow overall revenue growth in 2018 despite headwinds in managing consumer concerns over cost and unreasonable expectations.

Positive expectations for the year ahead follow a successful 2018 for firms across the industry, with more than two-thirds of businesses reporting that gross revenue met or exceeded expectations (69%). In fact, actual gross revenue increased by 10% or more for nearly half of businesses (45%). Interior designers saw the largest increase, with nearly half of businesses reporting that gross revenues grew by 15% or more from the year prior (45%).

To support revenue growth, firms plan to increase marketing and sales efforts and bring in larger budget projects (60% and 46%, respectively). The biggest change, however from 2018 to 2019, is a heavier reliance on improving employee productivity. Some 29% saw this as a key strategy in 2018, but that has risen to 38% in 2019.

Revenue growth was not without its challenges, led by increased cost of doing business (overhead, wages, etc.), managing consumer concerns over cost and managing consumer expectations (30%, 29% and 27%, respectively). That said, one-third of businesses were able to expand and hire new employees (32%). Home builders were the most likely to increase headcount (50%), followed by interior designers and building designers (24 and eight per cent, respectively).

The full 2019 Houzz AU State of the Industry report can be found here:

Houzz 2019 State of the Industry - Australia

The Houzz AU State of the Industry Study was conducted among home renovation firms in the Houzz Australia community that offer services related primarily to residential renovation and/or design. The study was fielded in December 2018 and January 2019. Total participants equalled 273.

Houzz says it connects millions of homeowners, home design enthusiasts and home improvement professionals across Australia and around the world. With the largest residential design database in the world and an active community empowered by technology, Houzz was created an easy way for consumers to find inspiration, get advice, buy products and hire the professionals they need to help turn their ideas into reality.

To read more about Houzz in Australia, go to:

Houzz talks marketing - HI News, page 83