Metcash has released results for the first half of its FY2024/25 financial year, running from 1 May 2024 to 31 October 2024. This includes results for its two hardware operations, the Independent Hardware Group (IHG) and Total Tools Holdings (TTH).

These results echoed some of the features of the full-year FY2023/24 results for the Wesfarmers-owned Bunnings. One core question is the extent to which the performance standard for both hardware retail and hardware wholesale businesses should be treated as purely cyclical.

Metcash

Results for Metcash overall were described by the company as being "flat". Excluding charge-through sales, revenue for the first half was $8471 million, as compared with $7838 million for the previous corresponding period (pcp), which was from 1 May 2023 to 31 October 2023. This represented an increase of 8.1%.

Metcash states that revenues from Superior Foods, which was acquired on 3 June 2024 (hence contributing for five months of the half), came in at $555 million. Excluding that revenue for comparative purposes, Metcash revenue growth would be slightly under 1.0%.

Growth in earnings before interest and taxation (EBIT) was essentially flat compared to the pcp, at $262.9 million for the hardware, food and liquor divisions, and $246.1 million when corporate costs are included. Net profit after tax (NPAT), was also flat on the pcp, at $141.3 million.

For the food division, Metcash recorded revenue (excluding charge-throughs) of $4591 million for the reporting period, up 11.5% on the pcp. Earnings came in at $120 million, up 17.9% on the pcp. Excluding earnings for Superior Foods of $14.3 million, growth in earnings was 3.8%.

Metcash's liquor division saw revenue (excluding charge-throughs) of $2529 million, up by 1.4% on the pcp. Earnings were $49 million, down 3.3% on the pcp.

Independent Hardware Group

Total revenue for IHG, including charge-throughs, is reported as $1471 million, up by 2.7% on the pcp. However, a footnote indicates that excluding the revenue from IHG's two acquisitions, Alpine Truss and Bianco, revenues would have declined by 3.7% instead. This means that the two acquisitions contributed $53.2 million in revenue during the half.

Overall earnings came in at $52.6 million, representing a fall of 14.2% on the pcp. Using Australian Bureau of Statistics (ABS) figures for hardware retail, overall Australian revenues grew by 0.5% in the reporting period over the pcp.

Metcash indicates that online sales grew by 5.4%, while DIY-based loyalty sales added a further 1.8%, bringing the total close to 47% for this category of sales. The company reports that IHG's sales mix was 64% trade to 36% DIY during the period. DIY sales are reported as declining by 1.2%, while trade sales by 9.2%.

As the company has previously indicated, the second quarter of the half (August, September, October) showed a sharp decline in sales (on a comparative basis to 2023), though Western Australia continued to perform well.

Total Tools Holdings

Total revenue for TTH came in at $356.6 million for the reporting period, up 1.6% on the pcp. Earnings were $41.3 million, down by 16.2% on the pcp.

Metcash stated that sales growth was largely due to additional stores, and was offset by intense price competition early in the half, reduced trade sales due to cost-of-living concerns and a reduction in joint venture acquisitions.

Sales at joint venture stores fell by 0.3%, cash sales grew by 1.0%. For exclusive brands (encompassing own brands and captive brands) wholesale sales were up 25% and retail sales were up 6.0%. Like-for-like (comp) sales fell in the first quarter by 1.7% and increased by 1.3% in the second quarter.

The CEO approach

At the results announcement Metcash's CEO, Doug Jones, began his prepared remarks on the hardware division by saying:

As you're now well aware, this has been a challenging half for hardware in the face of continued weakness in trade activity. This impacts our retail stores through lower volumes which leads to profit compression, as we experience deleverage. Even though costs have been well managed, the reduction in GP dollars results in a lower EBIT result.

Mr Jones went on to outline the challenges facing TTH in the market. The three he nominated were: "localised" intense pricing pressures (through competition) in the first quarter; an increase in promotional activities; and weak market demand, due both to a slowdown in construction, and individual cost of living increases on tradies.

On the positive side for TTH, Mr Jones pointed to increased sales of exclusive brands (including home brands) and ongoing gains in online sales.

He went on to highlight the current strategies to boost IHG, and reflected on future growth potential. Strategies included:

He concluded by pointing to the ongoing demand for new homes in Australia, suggesting both IHG and TTH were well-positioned to benefit from future demand.

The analysts

In response to a question from analyst Tom Kierath of Barrenjoey, Mr Jones went into some further detail regarding the hardware acquisitions of Alpine Truss and Bianco Construction:

The underlying IHG core performance is down more than the total business. Obviously I tried to give you some more detail on Bianco and Alpine relative to the guidance we gave at the beginning of the year. So as I said, Bianco is actually performing really well in the market conditions. Alpine has been more affected. It's affected at a volume level and at a margin level, but that's what you would expect in these conditions. And I do want to point out maybe in anticipation of a question, when we valued these businesses, we did expect that market conditions would continue to be tough and again, I've always been transparent with you, and I said to you that they are tougher than we expected. So I don't think anybody saw the acceleration in that downturn, but again, we're confident and comfortable that we're managing it really well.

Mr Jones also commented further on the opportunities IHG is pursuing with volume builders in the construction industry. Replying to a question posed by Craig Woolford of MST Marquee, he said:

I do want to touch maybe and just to elaborate on my point around volume builders, because I'm expecting somebody to ask me whether that's a change in strategy and I want to confirm it's not a change in strategy. It's looking for opportunities with well-capitalised strong volume builders that we have long-term relationships with and making sure that we maximise the opportunity in serving those customers.

The basics

The best question for Metcash, however, came at the start of the Q & A session, and was asked by David Errington, a senior analyst with Bank of America. As is not infrequently the case, Mr Errington's questions cut to the essentials of not just the results, but also the underlying Metcash strategies. He asked:

I'm trying to delve into the performance of hardware and there seems to be a lot of moving parts. It looks as though as you say, [with] the Total Tools, there's three key things that drive your performance. It's franchisees, revenues, exclusive brands, and then there's the retail part of the business.

Now, clearly, it's the retail side that is really hurting you at the moment through the de-leverage ... I'm trying to work out what number can we look at that's really driving that and how do we measure as to how can we actually see the improvement ... I'm trying to really, if you could help me in a very simplistic way, unravel what's going on in that hardware business that's causing the - at the moment, the earnings and where can we believe that we are at the [bottom of the] trough, I'm trying to come out, when do we see the trough, if you like. So what number do I look at to identify where you are in the cycle, particularly for the retail?

Mr Jones responded:

I'll do my best but obviously if I miss anything feel free to follow up. Let's start with Total Tools. So you're right, those are the three key value drivers. We've got a slide again in the deck in the appendices that I think gives you all of the information you need. It's a combination of those three. When you think about the franchise fee income, that's very high margin because basically for every dollar of franchise income we only recognize $1 of sales and $1 of income. Exclusive brands is where we are essentially the supplier. And then as you correctly point out, the stores.

To come to the second point that you made. You're right, in any retail business, operating leverage is more variable. In other words, the leverage is higher in a retail business than it is in a wholesale business and in both of IHG and Total Tools, this case, something really important that we must not miss out here is that relative to, say, a food business, a supermarket, there are actually very few staff relative to the size of the business and so it's hard to materially take them out and you actually risk damaging the business if you take out too many.

And so certainly we're conscious of that. That doesn't mean that we're sitting with excess team members, it just means that we make sure that we serve our customers really well through the cycle and that we're well positioned as volumes lift, and as volumes lift, that is the primary driver of retail EBIT margins. So they're not that many moving parts across our business. I think we've given you all of them in Total Tools.

In IHG, it's actually quite simple. There's a wholesale business and we give you all the information there and then there's a retail business and I've explained why retail margins are under pressure.

Finally your question, I know you guys always want me to call the bottom, I'm just not going to do that. The timing is uncertain. I have given you some HIA data that's publicly available and as I said right at the end of my presentation, at some point those plan and finance approvals must translate into starts.

Mr Errington responded immediately:

You must be reasonably confident, though, that you are approaching it [the upcycle out of the trough] if you're talking that [in] the second half Total Tools is going to be better than the second half of last year, so you must be seeing something there that gives you a little bit of confidence. The retail sales volumes are picking up a little bit or is there something there?

Mr Jones replied by outlining the conditions of TTH in the second half of FY2024 (1 November 2023 to 30 April 2024):

I want to remind you that the second half of last year included the bulk of the intense pricing pressure that we saw so that we are hurdling that and provided we don't have a repeat of that, we can expect that we'll have a better result in Total Tools. You mentioned in one thing, sorry, one thing I'm remiss if I don't say, I'm not sure that I would quite use the expression green shoots, but we are starting to see in our frame and truss businesses a lengthening of the pipeline which is pleasing. So certainly from six months ago we have more prospective work in those businesses than we did before.

Mr Errington finished up the exchange with a reiteration of his - slightly bewildered - frustration with the data.

Is it that negative 0.3% that we need to see improve on the Total Tools slide or is there something else there? I'm trying to work out the retail side of the business. [It] is obviously doing it tough, but what's the number that we need to see turn around on that debt? There's a lot of numbers there. I think it's slide 14. What's the number that we really need to see move up before we start seeing the EBIT coming, the leverage hopefully coming the other side and really accelerating up on the other side?

The -0.3% number to which Mr Errington refers is for TTH's joint venture store sales, which saw that decline.

Let's mark this, firstly, as a really worthwhile exchange. Mr Jones is reiterating the information that has been provided, with some added interpretative detail, and saying "this is all we can give you". It is an ethical position for Mr Jones to take. In doing so he avoids a familiar mistake in any cyclical market - thinking that the way you get into a trough is also the way you get out of it. These are frequently asymmetrical.

There is also, of course, a sense of some frustration in this exchange. Mr Errington is, essentially, pointing to something that is missing, or he can't find. And, in the opinion of HardwareNews (HNN), he is absolutely right - there is something missing.

The closest to such a number to be found is in this line from Slide 14:

Decline in EBIT margin reflects change in revenue mix (-0.4%) and margin pressure in JV stores (-2.0%)

Reading between the lines, potentially prices were cut, reducing margins to maintain store volume sales in a competitive environment.

In perhaps overly simple terms, we could say that the information Mr Errington is being provided with consists of numbers which are adequate for a purely wholesale business, but less so for a business that is combined wholesale/retail. As an example, providing data on number of transactions (split to online and store-direct) plus median ticket size (expenditure per transaction) goes a long way to describing the nuance of retail - yet is all but useless in wholesale, where total throughput is the key number.

This lack of data hasn't come up previously largely because in an up-market the behaviour of retail operations more closely approximates that of wholesale operations. And there has only been an up-market (though slowing at times) since Metcash moved comprehensively to increase joint ventures and full acquisitions of Mitre 10 stores, along with the acquisition of TTH. It is only in a down market that retail begins to show its - from a wholesale perspective - quirkiness.

In the wholesale world, maintaining low price and reduced profit margins to enhance volume assures better stability, for both wholesaler and clients. The cross-benefit of that stability is the opportunity to reduce the cost structure - hence the key importance of Mr Jones hiring Deepa Sita as Metcash chief financial officer. In a sense you could say that in the pursuit of volume, efficiency becomes profit margin, and Ms Sita is deeply vested in that efficiency.

In contrast, the retail world is more directly concerned with margin. Consider, for example, the old adage that when the US economy turns recessionary, sales of lipstick increase, as a proxy for more expensive purchases. Some lipsticks cost USD3.00 to produce, but sell for over $30.00. Margin compensates for lower unit costs in a high volume market.

If that seems a little tenuous, the FY2023/23 full-year results from Wesfarmers paints a similar picture. While Bunnings had something of an off year, the conglomerate's discount department store, Kmart, surprised with relatively very good results.

That was down largely to Kmart managing director Ian Bailey's development of a new range of products, largely though Kmart's own brand Anko. Kmart has good logistics, but it also understands the rewards of innovation, and how that leads to better margins.

Analysis

While it's simple to pinpoint this behaviour in IHG and TTH, the reality is that this particular problem has become endemic to most of Australia's hardware retail industry since about 2010. The industry has become an innovation desert, especially as regards the DIY market.

You don't have to look far to find the cause of this. What some might call the quasi-monopoly that Bunnings has over the sector (at the very least it is a formidably strong influence) has developed the market into one that predominately responds to just one input: price.

Outside of Bunnings, deprived of both volume and margins, the industry has become centred on keeping prices low in a highly standardised market. This has all but totally eroded any capacity for creative retail development. That decline began with retailers just not having the funds - CapEx - to spend on experimentation and development, as margin vanished. Now, after well over a decade, there is a real lack of capacity as well.

DIY

That said, the DIY market is beginning to shift, and it is shifting in a way which is moving it out from under the influence of Bunnings. While Bunnings remains strongly focused on the Baby Boomer market with a small side of Gen-X, Millennials and Gen-Z are less enamoured of what might be called the "poverty-chic" of the Bunnings Warehouse layout.

If you want a good example of the aspirational elements of the newer DIY-inclined generations, one "sampler" would be the YouTube channel put together by Canadian couple Lindi & Russ.

They not only exemplify many of this market's attributes, they do a great job of communicating a DIY sensibility that goes beyond the clunky somewhat agricultural aesthetic of much of standard Aussie DIY.

The four videos that are most relevant are:

This area would include:

There are a number of attributes that Lindi & Russ do a good job in delineating:

One thing that should be clear, is that this market is only driven by price as a secondary concern. Its primary drive is an ecologically-aware aesthetics, which translates, for its proponents, into a sense of liveability. For them, the material input is relatively small, when it produces other daily benefits.

Trade

You can look at TTH in (at least) two possible ways. One is that it is an ideal vehicle for Metcash's wholesale-led approach to retail markets. This type of store - perhaps best exemplified by Sydney Tools (founded in 2001) - it has become an answer to the Bunnings cost imperative. In that view, what it needs is as much efficiency as possible in supply chain and logistics, to deliver very low-priced packages.

However, as TTH found out in the first quarter of FY2024/25, because there is limited product differentiation - even in price - marketing plays a key role in driving sales. That's not part of the wholesale-only playbook.

So in the second view, where TTH is today is only the start, and what it needs is further retail-level differentiation. Could TTH, for example, extend its mobile app to include some level of business support? What if it provided a base level of asset management for businesses - which would give the retailer access to data on all the tools owned by a customer.

There are probably a half-dozen good ideas along that line. The problem is, could TTH execute and deliver on such a program? It would need product development, A/B testing in the market, and, above all, a clear line to how the CapEx is used to produce RoI.

At this level, the question then becomes whether this kind of business capability is worthwhile developing. That is very much the same question as to whether it can be generalised across the business, as one of the standard plays that Mr Jones has worked hard to build at Metcash.

Conclusion

There is no doubt that the cyclical nature of the construction industry - and, simply, house prices - affects profitability in hardware retail and wholesale. But it is almost never the case that cycles are "all" that is going on. As the US investor Warren Buffet is credited with saying: "A rising tide floats all boats, but only when the tide goes out do you discover who's been swimming naked."

There are structural issues that hardware retailers face. Given the closed nature of the Australian market, with its minimal true competitiveness, the calculus is often not whether change is needed, but balancing the investment cost of change versus the potential losses from not changing and thus de-synching from markets. Those losses from not changing accelerate in down markets.

As a closing remark, it is important also to realise that the only reason we can have these conversations about Metcash is due to the good work Mr Jones has done with his team. They've fashioned a disciplined corporation capable of executing a well-defined medium-term strategy in difficult markets.

The Australian Bureau of Statistics (ABS) has released its stats for hardware retail sales through to October 2024.

Looking at comparative periods from November through to October, there continues to be a slowdown in New South Wales (NSW) and Victoria (VIC), while Queensland (QLD) and Western Australia (WA) showed growth.

The best performing state in percentage terms was WA, which increased by 4.5%, up $126 million. In dollar terms, QLD gained the most, up $162 million, or 3.1%. The Northern Territory (NT) saw the steepest fall in percentage terms, losing 5.9%, $16 million down. In dollar terms, NSW lost the most, down $196 million, or 2.6%.

VIC was also somewhat lacklustre, up by 0.6%, a gain of $41 million. South Australia (SA) also did not fare well, losing $25 million or 1.4%. Australian Capital Territory (ACT) also declined by 1.8%, or $10 million. Tasmania (TAS) managed a positive gain of 0.2%, or $1 million.

Australia overall saw an increase of 0.3% or $83 million, for a total of $25.6 billion. From p2019 to p2024, the Australian market has grown by 30.2%, or $5.9 billion.

New South Wales

While NSW reached new highs in November and December 2023, results for September 2024 were the lowest in four years, though sales recovered to the level of 2023 for October.

Victoria

VIC saw a sharp drop in retail sales for September 2024, followed by a recovery in October 2024 to a new record high.

Queensland

For most of p2024 QLD has been tracking close to the highs of p2022 than the moderation of p2023. For both September and October 2024 sales have reached new highs.

South Australia

SA saw sales track lower than p2023 in August and September 2024, but close the gap in October 2024.

Western Australia

With the exception of August 2024, sales in WA have reached new four-year highs throughout the year, with the largest gain in September 2024.

Tasmania

TAS sales for p2024 trailed those for p2023 in July, August and September 2024, but reached a new four-year high in October 2024.

Northern Territory

NT sales for p2024 have remain below those for p2023, except for a slight gain in October 2024.

Australian Capital Territory

ACT sales for p2024 have closely followed those for p2023, except for September 2024, which shows a steep drop.

Overview

The chart for Australia overall shows that p2024 was closely matched to p2023. It leads the previous period in five months, and trails significantly only in three - November and December 2023, and September 2024.

The chart for the percentage change between period shows that there is a wide degree of variance between all the states and territories

The real question that remains for the year is whether spending in November will revert to the September levels, or continue the rebound seen in most areas for October.

Construction has not yet commenced on the proposed Bunnings store in Ulladulla, (NSW) even though a development application was submitted in 2020. The retail outlet would be located between 189 and 197 Princes Highway, and represents a more than $16 million investment by the company.

The plans for the new facility are progressing but the company could not provide the Milton Ulladulla Times with a construction timeframe. A Bunnings spokesperson told the Milton Ulladulla Times:

It's still our intention to bring a new store to Ulladulla, but developments like this can take some time to work through and we don't have firm timings to share at this stage.

The new Bunnings warehouse will include the main warehouse, outdoor nursery, timber trade sales area, and playground and will span more than 11,000sqm. It will also have parking for over 180 cars.

The retailer's current site is earmarked for a major housing development.

Related

Albion Park

in regional NSW, a Charter Hall fund has sold Bunnings Albion Park to a foreign investor for $40.6 million. The deal, struck on an initial yield of 4.89%, was the largest Bunnings Warehouse sale in NSW in more than three years and the largest nationally since early 2023, reports The Australian.

The site last traded in 2017 for about $26.79 million when the Charter Hall fund purchased it from the Woolworths-backed Masters venture. CBRE's James Douglas handled the off-market sale, with Costi Cohen's Tas Costi and Jacky He acting as the buyer's agents and transaction adviser.

Mr Douglas said the deal showed the continued high demand for this style of retail asset type and lease covenant.

Despite the lack of recent transactions, Bunnings stores remain highly sought-after by a broad range of investors due to the typically long-term nature of the leases and in-built fixed annual rental growth.

Opened in 2018, Bunnings Albion Park occupies a 32,000sqm site on the Princes Highway, 110km south of Sydney, and spans a gross lettable area of 13,120sqm, with parking for 344 vehicles.

The property has a weighted average lease expiry of about six years, with lengthy option periods. Mr Costi said the Bunnings asset offered strong growth prospects.

The strategic location, coupled with a high-quality tenant like Bunnings, provides a stable income stream and aligns perfectly with our client's focus.

Uber deliveries expanded

Bunnings is using ride sharing firm Uber's delivery arm, Uber Direct, to introduce same-day parcel delivery from selected regional stores across Australia. Uber is already the official same-day parcel delivery carrier for 45 metropolitan Bunnings stores offering the service.

Under the new deal, Uber Direct will deliver from more than 63 regional Bunnings stores, for parcel-sized orders placed on the Bunnings website.

In the first phase of the partnership, Bunnings customers who place their order online by 2pm will receive their delivery by 7pm that day across more than 100 stores in every state and territory. Bunnings chief operating officer Ryan Baker told The Australian:

I think when you think about what customers are starting to come to expect in the market, that same-day delivery offer is the reason why we partnered up with Uber to be able to do that offering for our customers.

They can order by 2pm and have it delivered to their house by 7pm, so I think it gives customers that opportunity to get any of those items that maybe they didn't necessarily have the plan to purchase, and they can have it delivered straight to their house...

This builds on our current same-day parcel delivery offering across metro Australia, bringing more convenience to our regional customers, and hopefully helping to ease some of the stress this time of year can bring.

This deal with Uber means that deliveries in regional and metropolitan areas across Australia will incur a $15 fee. The delivery address must be within a 15km radius of the store to qualify for the same-day promise.

Related

Bowens partners with Uber - HNN Flash, April 2024

Tesla products

Bunnings stores are now set to sell and install some of Tesla's energy products as the result of a new partnership.

Tesla's Australia and New Zealand account posted on social media platform X that the Powerwall 3 household battery, Wall Connector, and Mobile Connector are available at select Bunnings locations. Two of the three products are for EV charging, making it easier for EV drivers to purchase a charger directly from Bunnings.

The select Bunnings stores are also able to perform installations for the users. In Victoria, the Tesla products are currently available in Box Hill, Epping and Hoppers Crossing. In NSW they are available in Castle Hill.

Tesla's Cybertruck was recently seen at Bunnings' Caloundra store on the Sunshine Coast (QLD) as part of a Tesla "activation" of the EV accessory and charging range launch. Bunnings director of merchandise Cam Rist said Bunnings is the first major retailer outside of the US and Canada to partner with Tesla on the products. He told The Australian:

We're launching a range of electric vehicle chargers and accessories across selected stores to make it easier for our customers to own and maintain EVs. The range, which includes wall-mounted EV charges that can be installed in customers' homes, is currently being rolled out to 40 pilot stores across Australia in a phased approach.

We know the EV market is growing rapidly in Australia and we're pleased to be making these products more accessible to customers at an affordable price.

Tesla officially released the next-gen Powerwall 3 in Western Australia in September 2024, following the product's debut in the US, Canada, the UK, and Germany taking place throughout this year. The Powerwall 3 comes with a built-in solar inverter, and able to handle a peak power level of roughly 30kW - or enough to manage a dryer and air conditioner, according to the Telsarati website.

Biosecurity investigation

Bunnings is investigating a potential biosecurity incident involving millet brooms at a store in the New South Wales Riverina region. A farmer spotted what he believed were rice plants inside brooms for sale at the store.

Keith Rowe, a former rice grower of 20 years, said he knew rice when he saw it and was concerned about a possible biosecurity breach. He told ABC News:

I could see these grains in the head of the broom and on closer inspection I nearly fell over because I'm absolutely certain they were rice grains. The biosecurity concerns are just mammoth.

The millet brooms imported from China appeared to have entire rice plants as part of the broom head. Mr Rowe said Australia was an ideal place to grow rice because there was little threat of diseases or pests to the plants.

A Bunnings spokesperson told ABC News the company takes biosecurity "very seriously" and has removed the items from shelves while an investigation is conducted.

[We] work with our suppliers and the Department of Agriculture, Fisheries and Forestry to ensure our products meet all relevant biosecurity and import regulations," they said.

As soon as we became aware of these concerns ... out of an abundance of caution, we removed the brooms from sale while we investigate the matter with our two suppliers of millet brooms and the quarantine regulator.

We strictly follow the biosecurity requirements for all imported products and can confirm the product underwent heat treatments at high temperatures for 24 hours and methyl bromide fumigation to ensure any seed material that may be remaining is unable to germinate.

Mr Rowe shared his concerns on X, tagging the Department of Agriculture, Fisheries and Forestry, which has since begun an investigation into the imported brooms. A department spokesperson said in a statement:

Biosecurity is a shared responsibility and we encourage all Australians to immediately report any unusual or unexpected items that may breach our strict biosecurity requirements.

Tassie-based Nubco has lodged a development application to the Devonport City Council for a two-storey, bulky goods building at Lot 100 Don Road. This would require moving from its location at 31 Wenvoe Street, Devonport (TAS).

The proposal includes a showroom and retail warehouse on the ground floor and an open plan office on the second floor. There would be a total of 28 car parking spaces, with 20 allocated for customers and eight for staff.

A total of four bicycle parking spaces as well as a motorcycle parking space would also be included.

A traffic impact assessment (TIA) said the developer also proposes a loading bay at the southwest corner of the site. The TIA said the 28 car parking spaces do not meet the "statutory requirements for the state planning provisions". In The Advocate, it said:

However, on the basis of the assessment undertaken above, the provision of 28 on site car parking spaces is considered to be satisfactory.

It also noted the proposed development is estimated to generate up to 232 vehicle movements per day, representing a 1.9% increase in the daily traffic along Don Road.

Collins Bros

Robert Collins recently pulled the sliding door across for the final time at his Tamworth store after more than 60 years. He told The Northern Daily Leader:

It's just got too hard. Getting stock, selling stock, competing, it just got too difficult. Every year you look at the figures and the margins were diminishing.

It isn't just the competition from the major chains such as Bunnings. He explains:

The problem you run into nowadays is most of your suppliers put a minimum order value on. So you may want $200 worth of stock for a customer, you've got to spend $1000 to get it.

So you've got to tie another $800 up and sit it on the shelf and fingers crossed you sell it within a reasonable amount of time.

Robert has closed up the shop now because he wanted to walk out the door with his "head held high" rather than "getting to a point where you've got to get out". Naturally, it has been an emotional decision, but he's taking the attitude that it's time to move on.

More importantly, he is proud of the legacy he has helped build with Collins Bros which is regarded as a Tamworth institution.

One of the city's longest-running family-owned businesses, Ron (Robert's father) and Jock (Robert's uncle) opened the doors to the distinctive cream brick building on Bridge Street in 1963. Robert tells the story:

They had previously worked for their father, who had a hardware and machinery business. He started in Peel Street in the mid-1930s, and then he built the building behind the Regent Cinema on what's now Kable Avenue [then it was Lower Street].

When the two boys left that business, they sort of both went their separate ways, and then they came back together in '63 and decided to open up [Collins Bros].

Robert started working part-time in 1983 after returning overseas on a rotary exchange and had been accepted to study economics at university. He was working full-time a few years later.

He and his father worked together for about 10 years, which was "very special". It wasn't always smooth sailing. They had their 'blues', he said with a laugh. They mainly stemmed from "different ways of thinking". Robert said:

I was the younger generation I suppose, and we thought a little bit different, outside the box.

The news of the closure was met with a flood of responses, many referencing the great service that Robert, and before him, his father and uncle, provided.

The customers will be one of the things he misses the most. When asked what the best part of the last 37 years has been, Robert had no hesitation in answering "the customers".

I've got to meet some real characters over the years. There's none of them left anymore.

He still owns the building but is in the process of trying to sell it. As for what his next step is, Robert admits he is not sure yet.

Faggs Mite 10

Fagg's Group chairman Barry Fagg recently told the Geelong Advertiser the business is Geelong's oldest continuously operating family business. He said:

Fagg's is more than a hardware and timber store - it's a place where generations have worked, shopped and built lasting connections.

Our longevity would not be possible without respect, fairness, friendliness and the mighty helpful service from our many past and present team members.

These days the business has eight Mitre 10 stores after joining the Mitre 10 group 60 years ago.

Long-time customers, suppliers, staff and friends of the business joined the Fagg family for a party to celebrate last month. The business also donated $70,000 to the Give Where You Live Foundation as it marked its 70th year. The organisation prioritises "security, homelessness assistance, inclusive employment and an inclusive economy", according to its website. It uses its resources to undertake a wide range of activities that help create change in their community.

There are two pieces of news you might have seen about the home construction industry in recent months. The first is that there is an increase in building approvals for multi-unit dwellings (flats, apartments, etc), and the second that growth has shifted from new construction to renovations (alterations and additions [alt/adds]).

As always, there is some truth to these claims, but it's also more nuanced. Due to their market size, New South Wales (NSW) and Victoria (VIC) tend to overwhelm general statistics, while the conditions in the rest of Australia vary more widely.

In this article we'll take a closer look at individual states and territories, so as to provide a more localised view of market conditions. We're relying (as ever) on the excellent statistics from the Australian Bureau of Statistics (ABS) relating to building approvals. In looking at stats for houses versus non-house approvals we're using figures for the greater metropolitan region around the capital cities of states and territories. For alts/adds we're relying on state and territory figures.

New South Wales

If we think of many major world cities, such as New York, London, Paris, Berlin, San Francisco, Milan, Lisbon, etc, their real estate markets typically fuse together the house and apartment categories. In most of Australia that is not the case, largely due to historical and cultural reasons. With the past rampant increase in house prices (slowing somewhat in during calendar 2024), apartments may be picking up more attention recently when it comes to new residential builds.

Non-house approvals

In this regards, over the past decade and more, Sydney has been far ahead of the rest of Australia in terms of the conjunction of the house market with the multi-unit market. In recent months, that linkage has increased, as shown in the chart below:

Perhaps the biggest surprise in this chart is just how subdued non-house approvals have been after a large spike in May 2023. In the period from May2020 to May 2023, there were six months when approvals dropped below 1000 per month; from May 2023 to September 2024, there were four months below 1000.

Viewed in another way, excluding the results for October 2024, in the 16 months post May 2023, there were approvals for 18,664 non-house dwellings, while in the 16 months before May 2023 there were approvals for 25,898 non-house dwellings. That's a decline of 27.9%.

For houses the equivalent figures are 18,226 post May 2023, and 20,319 pre-May 2023, a decline of 19.3%.

Given that, it's hardly a surprise that October 2024 saw a jump to 2146 non-house approvals, the first time the number has lifted over 1700 approvals since May 2023.

Alterations & Additions

Have alts/adds lifted in NSW recently? The chart would indicate this is the case.

This chart enables us to better compare monthly results for alts/adds approvals, as we get a clearer view of how seasonality affects the results. As always, we'll remind you that building approvals capture only those projects above a certain dollar value and complexity. Nonetheless, they are a good overall indicator.

For p2024, running from November 2023 to October 2024, the dollar value of alts/adds hit new highs for six of the 12 months. In particular, there's been a high degree of "seasonal infill", with unusually high results for April, June and July.

Total forecast expenditure on building approvals for p2024 was $4.14 billion, while it was $3.80 billion for p2023, an increase of 9.0% - which contrasts with a 3.7% decline in expenditure from p2022 to p2023.

Victoria

In contrast with NSW, VIC has always had a disjunction between its house and non-house markets - and there are few signs of this abating.

Non-house approvals

Non-house approvals for Melbourne can be seen as having two phases: prior to and post 2023. In the prior period, monthly approval numbers fluctuated mainly between 1500 and 2500; post 2023 that range shifted downwards to between 1000 and 2000. This can be clearly seen in the chart:

Despite the upward spike back to the 2500 range for October 2024, overall numbers are down for non-house approvals. For p2024 there were 26,464 approvals, while in p2023 there were 31,071 approvals, a decline of 14.8%. On a similar basis, house approvals rose 4.4% to 34,886 for p2024.

Alterations & Additions

For VIC alts/adds did reach new peaks in value for three on the 12 months in p2024, achieving a record all-time high in March 2024.

Total forecast value for p2024 was $4.05 billion, up by 5.9% on p2023.

Queensland

Non-house approvals

Overall, non-house approvals have declined slightly for Brisbane during the immediate post-Covid period. That might partly reflect the broader geographical reach of Queensland's (QLD) non-house market, with regions such as the Gold Coast and Cairns making hefty contributions.

Non-house approvals came in at 8324 for p2024, down by 19.2% on p2023.

Alterations & Additions

As the chart indicates, alts/adds did increase sharply for QLD in p2024.

In fact, new record highs were achieved in nine out of the 12 months in p2024. Of particular note was the high for April 2024, which was somewhat contra-seasonal. Total forecast value for p2024 was $3.04 billion, up by 13.2% on p2023.

South Australia

Non-house approvals

In contrast to the three east coast states, Adelaide in South Australia (SA) saw a sharp decline in non-house approvals.

Total approvals for p2024 were 3364, down by 17.8% on p2023.

Alterations & Additions

As with QLD, alts/adds for SA increased significantly.

New highs were reached in nine out of the 12 months for p2024, with November 2023 setting a record all-time high. Total forecast expenditure for p2024 was $732 million, up by 17.3% on p2023.

Western Australia

Non-house approvals

Non-house approvals for Perth, Western Australia (WA) entered something of a slump after October 2021, but showed mild signs of recovery from January 2024.

Total approvals for p2024 were 3274, up by 16.9% on p2023. That contrasted with a lift of 22.4% for house approvals in p2024, reaching 19,028.

Alterations & Additions

Alts/adds grew sharply for WA in p2024, with all 12 months of p2024 recording new highs.

Total forecast value for p2024 was $1.04 billion, up a considerable 33.5% on p2023.

Tasmania

Non-house approvals

Hobart, Tasmania (TAS) saw steep drops in p2024 for both non-house and house approvals.

For p2024 non-house approvals numbered 157, down by 39.9%. House approvals for the period dropped by 28.2%, to 1248.

Alterations & Additions

Given the small size of the market, alts/adds always show high level of volatility when charted for TAS.

Overall, alts/adds forecast expenditure came in at $213.3 million for p2024, down 4.7% on p2023.

Northern Territory

Non-house approvals

Given the small numbers in Northern Territory (NT) , stats don't always make that much sense, but this is what it looks like:

Approvals for non-houses in Darwin went from just 15 in p2023 to 64 in p2024, an increase of over 300%.

Alterations & Additions

Forecast expenditure on alts/adds in the NT in p2024 fell by 13.3% on the pcp, reaching $120.6 million.

Australian Capital Territory

Non-house approvals

Outside of Sydney, the Australian Capital Territory (ACT) is the only other area where the non-house market is joined up to some extent with the house market.

Non-house approvals in p2024 fell by 31.2% in p2024 over the pcp, reaching 4054. House approvals slumped even more, by 36.6%, reaching 1128.

Alterations & Additions

While alts/adds generally underperformed, the ACT did manage to set two mild highs, in December 2023 and October 2024. However, forecast expenditure for alt/adds approvals fell by 25.7% to reach $89.6 million.

Analysis

As we mentioned at the start, overall pronouncements about the Australian market tend to blur regional distinctions, in terms of both extent and direction.

In Australia overall, while there was an increase in approvals for non-houses in October 2024 as contrasted with the previous month, September 2024 of over 48%, that seems a largely corrective increase, given that, even with that lift, there was a decline of almost 20% for all of p2024 contrasted with p2023. It seems, in other words, unlikely to signal a general trend.

In terms of alts/adds, this is the chart for Australia as a whole, on a trailing 12-months to October basis:

This shows the percentage variations on a 12-month-on-corresponding-year basis:

Clearly, there are "winners and losers" in different regions, even though the overall trend for Australia shows an increase of 10%.

The question of Bunnings' power is being scrutinised in a parliamentary inquiry into the big-box retail sector. A Senate committee is exploring the role of big box retailers in Australia, and has received submissions for the inquiry with major players such as Bunnings, IKEA and Dan Murphys providing comments.

John Dahlsen, head of Dahlsens Building Centres, contributed to a joint submission alongside University of Sydney retail researcher Lisa Asher. Mr Dahlsen is also a former Woolworths chairman and a former director of Myer and ANZ Banking Group. In The Australian, Mr Dahlsen claims he was forced to sell small regional stores to Bunnings when it opened up against him and sent the stores into a loss.

Robert Gobleibson writes in The Australian that the 72-page submission estimates the hardware retailer achieves a huge 69% return on invested capital - twice the level of similar US businesses such as Lowes and Home Depot.

The Asher-Dahlsen submission said Bunnings' market share in 2023-24 reached 66% of the $26 billion Australian hardware and building supplies market. The next competitor, Mitre 10, had 13.4%.

The submission said a combination of market power and acquisitions has enabled Bunnings to rapidly expand its stores from 378 some four years ago to 513 in 2023-24, including 286 warehouses, 65 smaller format stores, 31 trade centres, 15 Tool Kit Depot stores, and 116 Beaumont Tiles stores.

Bunnings' key advertising message is that they have the lowest prices and offer to beat competitors by 10% if they are found to be lower. In areas where major non-building retailers have similar products to Bunnings there will be price differences, but the market concentration in hardware makes it very difficult for small rivals to beat Bunnings on price. Ms Asher and Mr Dahlsen ask the Senate to request Bunnings to disclose how many times it activates the 10% discount.

Bunnings' market share and the flexible design of its stores gives it the ability to change its product mix and enter new fields. That ability gives it great power over its suppliers. Some suppliers have only one buyer, which is - Bunnings - so they are heavily reliant on this relationship for ­viability.

Ms Asher and Mr Dahlsen say that in retail, those who hold the greatest control over the supply chain hold the most power. Bunnings has much greater supply chain power than Woolworths and Coles, as an expanding part of the Australian building industry is being supplied by Bunnings.

They say that Australia is now entering a new age of mega retail, where "we are seeing dominance of category killers". But Bunnings is now transitioning from this stage into an "industry crusher" as it extends from being a consumer retailer to be the major supplier to the building trade and from there to other sectors. They say greater regulation is required. This includes the need for a big box retailer code of conduct, and an ombudsman to assist in overseeing the sector.

Independents who trade in a limited number of categories have great difficulty coping with Bunnings' disruption because it invariably applies to the whole, or a significant part, of their business, putting them at a significant competitive disadvantage.

Meanwhile, Bunnings is reinvigorating its trade offer by expanding its presence in roof truss manufacturing. It has built huge, capital-intensive, robotic plants in Melbourne and Sydney and is proposing the same in Brisbane, Adelaide and Perth. This is vertical integration into its supply chain, and delivers greater control over that supply chain.

Bunnings, unlike all the other players, can absorb the losses and continue running at a loss without materially affecting its profit statement. Later it can lift prices, as there will be no competition.

The Dahlsen family company also submits it is being attacked by Bunnings in the roof trusses sector. Bunnings, in its submissions to the Senate, will put forward a different view to Ms Asher and Mr Dahlsen.

In the Australian Financial Review (AFR), Mr Dahlsen, said:

Bunnings' power is definitely worse than the supermarkets. I'm not critical of them. I think Bunnings have a brilliant business model. It is as good as anything around the world and I've got no criticism of the people.

They're working hard for their shareholders, they're not doing anything illegal, they've grown an enormous business and it makes it very difficult for us small guys.

Bunnings managing director Mike Schneider rejected the criticism, saying the company was not a monopoly and had a market share of about 20%.

A trained competition lawyer, Mr Dahlsen said the loss of independent trade and competition in hardware was bad for the country. He said market failure was a real possibility, with monopoly firms able to charge as much as they wish.

Mr Dahlsen said Bunnings is also a monopsony player. A monopsony is when a single buyer substantially controls goods and services offered by would-be sellers.

It's a problem for Australia. Like the four big banks, like in the media, like in energy. Bunnings is the biggest monopoly of all and the most profitable.

It's relentless because it is a very good disruptor. Any kind of new opportunity that comes up, it disrupts and grabs a lot of the market.

Dahlsens currently has 79 stores and manufacturing plants around the country. Mr Dahlsen said:

Whenever Bunnings goes into a small market, the local operator will fail. If retailers don't keep growing, they get gobbled up by their costs. That's the problem that Bunnings faces. They've got to keep growing sales. And where do they do it? It can only be done by crushing further smaller businesses.

Mr Schneider said hardware remained very competitive in Australia, including in Black Friday and Cyber Monday sales, and from smaller retailers. He told the AFR:

It's a pretty misguided comment, based on the fact that there's only one big box format store in Australia, but there's plenty of other alternatives across every category. You tell me a category, and I'll tell you, you know, a couple of competitors. It's that diverse.

Mr Schneider said he welcomed the parliamentary inquiry but questioned how consumers would be better off with a code of conduct.

If you speak with suppliers, they see us as an important partner. They see us as, in some cases, a significant part of their business. But a lot have other channels to market and their own direct channels.

We know that we have to go out every single day and earn the right to be chosen, not only by our customers but our suppliers.

A public hearing is expected to be held before the committee's report is handed down in February 2025.

Related:

GIA

Earlier this year, Greenlife Industry Australia (GIA) said the retailer controls 70% of all live plant sales, which it says gives Bunnings the market power to dictate terms to suppliers.

GIA chief executive Joanna Cave has told the inquiry, and an earlier probe into the pricing practices of supermarket giants Coles and Woolworths, that Bunnings' control grows to as much as 80% in some regions and towns. In the AFR, she said:

By volume of sales in their stores, plants are second only to tins of paint. Other big-box retailers include Mitre 10 and IKEA, with the much smaller remainder of the retail market made up of garden centres, supermarkets, green-life [plant product] markets and lifestyle stores.

GIA calculates its number using all sales to the public of plants for homes, gardens and veggie patches, and said Bunnings is wrong to base its calculation on a $2.9 billion assessment of the plant market. Ms Cave argues that the Bunnings total accounts for all plant production, including in farming, landscaping, revegetation and forestry.

However Bunnings said the (70%) figure is wrong, and puts its total market share at less than 25%.

Using private-sector economic modelling and figures from the Australian Bureau of Agricultural and Resource Economics and Sciences, GIA said the relevant value of the Australian plant retail sector is actually $1.4 billion. Ms Cave said:

Simply put, it is only growers who know with certainty how many plants they supply to each retailer in the market.

Not one single grower we have spoken to accepts Bunnings' claims that its share of the plant retail sector is 25 to 30%. Most growers agree that 70% is about right, with some growers claiming it is higher.

Mr Schneider rejected the claims made by GIA in a letter to MPs on the inquiry committee. He said Bunnings used data from analysts IBISWorld that put the value of the Australian plant retail sector at $2.9 billion. The company said GIA has misapplied figures from a separate research source.

GIA has failed to acknowledge that the value of plant sales by nursery producers to retail channels is substantially lower than the value of plant retail sales by retail businesses to their end customers.

The primary reason for the difference in these values is due to the margin earned by retailers and wholesalers on the sale of green-life products purchased from nursery producers.

Mr Schneider said Bunnings' market share did not distort its relationships with key suppliers. The company is one of the country's most trusted brands. (Bunnings has held the top spot in Roy Morgan's Most Trusted brands for four consecutive quarters, maintaining its position since it surpassed Woolworths at the close of 2023.)

Bunnings rejects any contention that we use market information to make 'take it or leave it offers' or that we request green-life suppliers to supply at or below cost.

Bunnings' processes involve green-life suppliers proposing a fair price and, if required, engaging in negotiations about that price in good faith. In any event, we simply do not have the information to set a price at or below cost.

Related:

The Australian Competition and Consumer Commission (ACCC) has set a deadline of January 10 for customers, suppliers and competitors to submit views or concerns about Elders' deal to pay $475 million for Delta Agribusiness.

Elders is buying rural NSW-based Delta's farm supplies, agronomy consultancy and rural marketing operations, including 64 stores between the QLD border and Perth. Delta businesses trade under several entities in different states including Delta Ag, North West Ag Services, Agrivision Consultants, Grower Supplies and EP Ag'n'Fert.

Delta was founded in 2006 and has become the third-largest agricultural supplier in the country. It has been largely owned by Odyssey Private Equity, which bought into the company in 2019.

According to Stock Journal, Elders and Delta remain confident the takeover is structured to not reduce agricultural market competition. However, the deal has been unsettling for some businesses, particularly in NSW, where Delta and Elders have a strong foothold.

In Stock Journal, Delta Ag managing director Gerard Hines said customer feedback to him has been positive across the board.

Elders CEO Mark Allison has conceded the company may be required to sell off branches in order to win over the competition watchdog for its bid to take over Delta.

Elders expects the deal to be completed in the first half of calendar 2025, and said it has the potential to generate annual EBITDA (earnings before interest, taxes, depreciation, and amortisation) synergies of $12 million.

If Elders' acquisition of Delta goes to plan, there should not be any noticeable changes at all, based on a report in The Land. That includes no change to Delta's pricing policy on agricultural input products and agronomy, livestock market, property and finance services. At the announcement of the acquisition, Mr Allisaon said:

Delta provides us with greater exposure to key local retail markets as well as a leading agronomy and farm advisory team to complement and extend our products and services. The culture and strengths ... will be preserved through our light touch integration strategy.

Although set to become part of the larger Elders group, Delta will maintain its branding, its full complement of staff, its graduate recruitment and training programs, crop trials, grain marketing business, precision farming data capabilities, and ambitions to further expand its market footprint with new stores or new members. Mr Hines told The Land:

We're certainly continuing to look for growth within our business model and with new partners who fit our culture. Our particular business style and look appeals to customers and potential partners - and we want to keep it that way.

In this industry, people follow good people, and good relationships stick. Over the past 18 years we have achieved 23 acquisitions and started 23 greenfield sites from scratch.

Mr Hines said Delta's board, chaired by former Nufarm boss, Doug Rathbone, did not originally intend to sell the entire business.

The plan was initially to secure a new partner to eventually replace Odyssey before its investment term expired, and to buy shares back from current and former staff looking to cash in for their retirement. A share market listing was an option, too, but never seriously considered. Mr Hines said:

We were not looking to raise capital. We were looking around for a new and aligned cornerstone investor.

As the process progressed and we became aware of the full Elders option we realised it could actually be a good fit, a good opportunity, and the best choice.

Our footprints are complimentary with minimal overlap and Elders liked the idea of buying Delta because we could fill gaps in their service and business footprint.

They liked our strong position in retail, agronomy and precision agriculture, and we liked the fact Elders is a historic Australian-owned company with a geographic fit and synergies which complement our business.

Elders also recognised Delta's service offering had developed differently and continued to look different to the Elders model. Mr Hines said:

Our relationship with Elders will be a bit like Bunnings or Officeworks, or Kmart operating as separate business entities, while still all part of the Wesfarmers conglomerate.

Our livestock business stays competing with Elders, our stores will be competing on price, service and product, and our private label brands will remain different.

That said, however, he expected Delta would be able to take advantage of Elders ties to enhance the animal health product range within its generic Four Seasons portfolio. Where it suited the Delta agenda, the company would also complement Elders' services.

In The Australian, Delta generated $835 million in revenue in the year to June, and EBITDA of $53 million. It will continue to be headquartered at Young (NSW).

ACCC

The ACCC said its public review of Elders' acquisition would involve consultation with interested industry stakeholders looking at whether there may be substantial lessening of competition locally or across a broader geographic area.

Its investigation will seek views on issues ranging from any likely impact on prices and service quality, to the supply of fertiliser, crop protection products, real estate and finance services, and agronomic advice.

Some farmers and farm service sector competitors have quietly expressed worries about the merger enabling the two partners to co-ordinate product pricing and supply strategies which could restrict choice and competition in the bush marketplace.

Related: Elders acquired Australian Independent Rural Retailers (AIRR) in 2019

The Victorian Building Authority, in the wake of recent scandals, has set out to revitalise itself. While promising to improve its current practices, and to become more "consumer-centric" rather than "industry-centric", the end diagnosis is that it simply can't do the job it needs to do in its current form.

As a result, it is set to amalgamate with several other Victorian government entities to form a super-organisation, which might have a better chance at holding back the wave of dodgy builders that have entered the industry.

For tradies that means increased awareness that their work will undergo increased scrutiny. Hopefully this will also mean a reduction in those cases where builders ask tradies to "cut corners" on work such as dodgy apartment builds.

Social media pressure

"Non-compliant!" "It's a complete schmozzle!"

If those phrases don't make you crack a smile then, mate, you're not keeping up with your basic Tik-Tok.

Following on (somewhat) from the success of some private building inspectors in the US who popularised their reviews of new house builds in states such as Arizona and Texas on Tik-Tok and YouTube, Australia has spun up its own generation of truly unique home inspection Tik-Tok and YouTube creators.

Cy Porter, Arizona, USA

Posting on TikTok and YouTube as @cyfyhomeinspections , starting with YouTube on 30 June 2020. He's achieved more success on YouTube than TikTok (his content is more complex than quirky), with his top "shorts" video receiving 116 million views, though the average outside of the 10 videos with over a million views is around 100,000 views.

Cy specialises in doing inspections for owners immediately before handover, as well as at the one-year and two-year warranty intervals. He's somewhat scathing about the quality of builders in his part of Arizona. Some major builders have complained about his actions, and sought to have him de-registered, but all these attempts have failed.

He focuses particularly on "flood testing" shower installations, blocking the drains and flooding them to two inches of water. Some the failures are immediate and near-catastrophic - more than one, on brand-new, professionally built homes, and no waterproofing at all.

Trey Hill, Gold Star Inspections, Texas, USA

For y'all that ain't no never done heard a proper Texas accent afore, well, y'all take it slow, y'hear? We'd take it right kindly ifn y'all'd pay 'tension to Trey Hill of Gold Star Inspections, 'cause he definitely got a mite he'd be tellin' y'all.

Trey uses a degree of country charm to wrap up his acute but still amusing observations into a highly entertaining package.

Zeher Khalil, Site Inspections, Melbourne, Australia

Melbourne has the very funny (but also very serious) home inspector Zeher Khalil. You can access his YouTube channel at: /https://www.youtube.com/@Siteinspections}Zeher Khalil Site Inspections

A former tradie turned site inspector, Zeher combines an earnest sense of outrage, with a degree of always-astonished good humour. He's made the simple phrase "non-compliant" into an instant punchline for those in the know.

Dressed in what seems like a mixture between riot cop, special forces and work overalls, Mr Khalil enthusiastically and entertainingly uncovers the shoddy work that has become more commonplace since around 2018 or so.

Be warned, though, as some of what Melbourne-based Mr Khalil does uncover is truly alarming. For example, the use of China-sourced steel framing that is painted to look like Bluescope's Truecore, broken trusses on new homes, a peculiar ongoing inability to get roof drainage right, and some truly dodgy waterproofing jobs.

The Project profile:

Videos:

One common focus for many of Mr Khalil's videos are state building inspectors, particularly those from the Victorian Building Authority (VBA). His videos show him standing in front of some near ruin of construction, wondering just how some state authority could have certified the build. Those laments have not, apparently, gone unnoticed either, with the VBA motivated to explore on some (but not all) of those featured.

The Victorian Building Authority mea culpa

Which brings us to a recent publication from the VBA entitled "Victorian Building Authority - The Case for Transformation", authored by Bronwyn Weir and Frances Hall of the independent firm Weir Legal & Consulting.

That the VBA has been problematic for over a decade is hardly an industry secret. According to the Executive Summary to the report:

The building industry has been the subject of negative commentary for some time. Confidence in the industry has been affected by reports about combustible cladding, the Porter Davis collapse, mouldy and defective homes and high rates of building practitioner insolvency. There have also been reports about poor culture within the VBA and its lack of effectiveness, with many consumers and practitioners unhappy with their interactions with the VBA.

The Government publicly expressed concerns about the VBA in early 2023 and in July 2023 the VBA Board appointed a new CEO, Anna Conin. In March 2024, Minister Kilkenny dissolved the VBA Board and appointed Anna Cronin as the sole Commissioner and CEO.

Those changes led to Ms Cronin appointing Weir to produce this report, with a focus on seven cases/complaints which demonstrate the extent of the VBA's utter incompetence in the past. As the executive summary states:

It is important that this report acknowledges very clearly the dreadful experience these complainants have had in their interactions with the building industry, the VBA and the legal system. Each and every one of them has suffered and continues to suffer severe financial, emotional and physical distress. Every aspect of their lives has been negatively impacted. They have watched their savings or superannuation be replaced with debts they cannot bear. The families and friends of these people have been called on for financial and emotional support, extending the impacts of defective building work and buildings well beyond the complainants in our case studies.

Going into detail for the seven case studies is not necessary, but they do make harrowing reading. One of the stand-out elements is that there is one builder responsible for cases 2, 3 and 4 - which shows the importance of acting faster than a two- or three-year delay in banning a builder. There are allegations not only of sheer incompetence, but also collusion between various parties to the disadvantage of the owners of the properties.

In terms of VBA incompetence, the following is part of the report into case study 6:

The complainant in case study 6 is one of 33 apartment owners. The owners first came to the VBA about defects in their 33-unit development in late 2014. They had just moved in. Twelve months later, despite the VBA not having undertaken any inspection of the site, the owners were told by the VBA their complaint had not been substantiated. Six months later, Council issued an Emergency Order and Building Notice because one of the balconies showed signs of imminent collapse. In late 2018, the site was assessed as part of the statewide cladding audit program which led to the issuing of a second Emergency Order just before Christmas.

So first, based one assumes on some previously unknown form of compliance seance, the VBA determines there is nothing wrong with the building. Then the balconies start to collapse. And then an emergency order is announced. That is a pattern that repeats in different ways throughout all seven cases.

To summarise this report's criticism regarding the conduct of many relevant building surveyors (RBSs):

Exercising their enforcement powers against owners, but not against builders. For multiple sites, rather than issuing a DTF to the builder, the RBS did not take enforcement action on more significant non-compliances, even where the owners had raised concerns with them on multiple occasions. Only after the building contract was terminated and the builder had left the site did the RBS issue a building notice to the owners which identified non-compliances and required their rectification. The reticence of the RBS to inspect more promptly and issue a DTF against the builder is concerning.

In line with this, what is perhaps the most relevant and important statement in the report is this, point 16.7, contained in Part C, titled "The VBA's handling of the complaints":

The culture at the organisation was focussed on practitioners, not on consumers and was risk averse, which resulted in an overly legalistic and defensive approach to carrying out of its functions including the investigation and discipline of practitioners. The VBA staff were working with poor IT systems and did not feel properly supported or managed in their roles. When combined with a significant backlog of complaints, this led to an approach where the procedures adopted were aimed at closing complaints and keeping investigations narrowly focussed wherever possible, to get through the workload.

In short, the VBA neglected its external responsibilities, and became focused instead on its internal requirements. The bureaucracy functioned to sustain itself, rather than to meet the needs of the people paying for homes to be built.

We can't say with complete certainty that this applies to the VBA, but what typically happens in similar situation with government departments, is that faced with a lack of funds, instead of directing their services to the most vulnerable, they instead direct those funds to least vulnerable, who are capable of fighting back. It is possible that to "stay out of trouble", they might cave into developers with big budgets and lawyers on call, while ignoring the plight of small homeowners whose limited budgets are already stressed to afford building a home in the first place.

Future promises

While this report is a litany of every problem you can imagine being developed in a state government authority, its positive side is that it does indicate some intent to change things for the better - why else the title "A Case for Transformation"? The following are some of the suggest improvements contained in the document.

Complaints

The VBA is in the process of implementing a new end-to-end complaint management system which will be applied to each complaint and be accessible to all staff. The system is designed to provide for complainants to lodge a single complaint which can be updated and added to.

Technical assessments of building work

The VBA recognises the need to increase its inspections, audit and compliance activity. In its 2023/24 budget, Government allocated $63 million for building reform, which included significant funding for the VBA. A significant component of this funding is to be directed to more 'boots on the ground'.

Prosecution of registered practitioners

The VBA is close to finalising a new Prosecutions Policy. This new approach will involve greater use of all the VBA enforcement tools, including prosecutions. It provides that the VBA prefers to use the disciplinary process for registered builder, but it will consider prosecution instead or as well, if appropriate. The policy says the VBA may also seek an injunction to secure remedial or rectification outcomes, where feasible and to complement disciplinary action or prosecution.

Interactions with complainants

The new Regulatory Policy Statement makes it clear that the VBA aims to be consumer centric. The VBA says this has been made clear to staff in management directions and in training. The VBA has created new policies on the management of complaints about practitioners and about the VBA. It also has a new VBA Services Charter which sets out service commitments and service standards. Staff have been trained on these documents and new procedures for interacting with complaints are being implemented.

Recommendations

"The Case for Transformation" includes a list of 20 recommendations. The most significant from the perspective of builders are:

A new authority

The next stage for the VBA will be to merge into the Building and Plumbing Commission. This will integrate the Victorian Building Authority (VBA), Domestic Building Dispute Resolution Victoria (DBDRV) and VMIA's Domestic Building Insurance (DBI) functions into a single entity. According to the state minister responsible, Victorian Minister for Planning Sonya Kilkenny:

For the first time, the Regulator will bring together all aspects of building quality control - regulation, insurance and dispute resolution - into a single agency.

Currently, the regulator can only direct builders to fix substandard work before occupants move in. Under new rules the Building & Plumbing Commission will be able to direct to fix work not just before move-in day - but beyond. The Government will work with industry to define the eligible time period.

New powers will also enable the watchdog to stop apartments with serious defects from being sold, as well as increased reporting requirements before occupancy certificates are signed off on new builds.

This is scheduled to occur in 2025 - which likely means March 2026, given past performance.

Bunnings said it intends to roll out facial recognition technology (FRT) to all of its stores if successful in its appeal of a ruling from the privacy commissioner Carly Kind. In its findings, the Office of the Australian Information Commissioner (OAIC) determined that Bunnings collected customers' sensitive information without consent and did not disclose it in its privacy policy.

The hardware retailer was found to have breached customers' privacy when it used FRT via CCTV cameras across 63 stores in Victoria and NSW. During a trial between 2018 and 2021 in these stores, Bunnings took the data of customers' faces and compared it against a database of individuals the company had deemed a risk due to past crimes or violent behaviour. It also worked with Victoria Police during a trial of the system.

In the Sydney Morning Herald (SMH), the company said it compared customers' faces with a database of fewer than 500 customers, and the FRT system was available only to six "specially trained Bunnings team members ... in a centralised location".

It said no customer biometric data was uploaded to the cloud or third-party services. The use of FRT also complemented extensive training, resources, leadership tools and policies Bunnings has in place to equip its team to handle threatening situations.

Bunnings managing director Michael Schneider said stores that participated in the trial had at least 10% fewer violent incidents.

There's no doubt that privacy concerns need to be balanced, but the technology is critical to reducing retail crime and harm to our team and customers.

Bunnings acknowledged that when it started using FRT it did not inform customers on its conditions of entry poster, but said that during the trial it started referring to its use of FRT on both its entry sign and in its privacy policy.

The company said it would go to the Administrative Review Tribunal, arguing the technology's use appropriately balanced privacy with the need to protect staff against violent and organised crime.

In the Australian Financial Review (AFR), Mr Schneider said:

We had hoped that based on our submissions, the commissioner would accept our position that the use of FRT appropriately balanced our privacy obligations and the need to protect our team, customers and suppliers against the ongoing and increasing exposure to violent and organised crime, perpetrated by a small number of known and repeat offenders.

If we protect even one person from injury or trauma in our stores, the use of FRT has been justifiable.

In an editorial written by Mr Schneider that appeared in the SMH, Mr Schneider wrote:

That is why Bunnings introduced facial-recognition technology: to identify known repeat offenders and people previously banned from our stores ... We deeply respect the role the commissioner plays to protect the personal information of everyday Australians. But we disagree on this occasion. We believe we have struck a balance that protects our staff and customers...

The pace of technological advance, including FRT, is something regulators, legislators and businesses worldwide are grappling with. CCTV and FRT have become a part of everyday life, at airports, railway stations, banks, concerts, sports venues and in cities. There's no doubt privacy concerns need to be balanced, but the technology is critical to reducing retail crime and harm to our team and customers.

We take this responsibility seriously. As we seek a review of the privacy commissioner's determination before the Administrative Review Tribunal, we are also talking to federal, state and territory leaders, industry peers and associations to try to bring legislation and regulation up to speed with the ever-increasing range of technologies that can help turn the tide on retail crime and violence.

In-store security

Bunnings released CCTV footage with examples of abuse and assaults in its stores. The footage shows multiple incidents of people physically assaulting staff and pulling knives and other weapons on Bunnings team members.

In The Guardian, Mr Schneider claimed that 70% of incidents are caused by the same group of people, and it was impossible to enforce bans on people given the high number of visitors. He said facial recognition tech provided the fastest and most accurate way to identify individuals and remove them from the store.

Bunnings reported a 50% increase in abuse, threats and assaults in 2023, and that FRT meant it could instantly spot the 10% of people who were responsible for 60% of store thefts. Mr Schneider said:

Statistics don't convey the real impact it has on the lives of our team and our customers, and we provided the OAIC with numerous examples of violent and abusive situations in our stores.

He said unless a facial image was matched against the company's database of people known to have displayed abusive, violent behaviour or criminal conduct, it was deleted in 0.00417 seconds. Mr Schneider also said:

Everyone deserves to feel safe at work. No one should have to come to work and face verbal abuse, threats, physical violence or have weapons pulled on them.

Bunnings said using the technology had nothing to do with tracking customers for marketing or convenience, but was used to report criminal, violent and aggressive behaviour, and to alert security when known offenders entered its stores.

OAIC

In its investigation, the OAIC found that FRT had been deployed at 63 Bunnings stores between November 2018 and November 2021 - likely capturing hundreds of thousands of people.

As the privacy commissioner, Ms Kind found Bunnings collected sensitive information without consent, and failed to take reasonable steps to notify people their information was being collected. She said:

Facial recognition technology may have been an efficient and cost effective option available to Bunnings at the time in its well-intentioned efforts to address unlawful activity, which included incidents of violence and aggression.

However, just because a technology may be helpful or convenient, does not mean its use is justifiable. In this instance, deploying facial recognition technology was the most intrusive option, disproportionately interfering with the privacy of everyone who entered its stores, not just high-risk individuals.

The use of FRT was paused when the investigation began, and Bunnings published a dedicated page on its website explaining why it used the technology.

Ms Kind said Bunnings had failed to comply with the Privacy Act, and ordered the company to not repeat or continue the practices, and destroy all the information collected via the facial recognition system. The company was not fined.

The privacy commissioner found that Bunnings had breached privacy laws by failing to appropriately inform customers about its use of facial recognition technology. Bunnings was ordered not to repeat or continue the acts and practices that led to the interference with individuals' privacy. Ms Kind siad:

Individuals who entered the relevant Bunnings stores at the time would not have been aware that facial recognition technology was in use and especially that their sensitive information was being collected, even if briefly.

Because facial recognition technology is a high-privacy-risk technology, it is not justifiable for entities to use it merely because it is available, convenient or desirable. Rather, businesses will need to ... satisfy themselves that it is reasonably necessary to collect this information in order to carry out their functions and activities.

Ms Kind also said FRT and the surveillance it enabled had emerged as one of the most ethically challenging new technologies, and that she acknowledged it could help protect against crime and violent behaviour.

Related: In 2022, consumer group CHOICE has found that Bunnings, Kmart and The Good Guys were using FRT.

Wesfarmers/Bunnings released its full year financial results for FY2023/24 on 29 August 2024. The results for Wesfarmers showed that the company has essentially kept pace with market growth overall. Revenue was $44,189 million, an increase of 1.5% over the previous corresponding period (pcp), which was FY2022/23. Earnings before interest and tax (EBIT) rose by 3.3% over the pcp to $3989 million, and net profit after tax (NPAT) lifted by 3.7% to $2557 million.

Outside of Bunnings, Kmart Group (incorporating Target) saw earnings increase by 24.6% over the pcp to $958 million and Officeworks lifted its earnings by 4.0% to $208 million. WesCEF (Wesfarmers Chemicals, Energy & Fertilisers) saw a decline in earnings of 34.2% to $440 million. Catch, which had losses of $163 million in FY2022/23, reduced losses to just $96 million in the reporting period.

Bunnings

Bunnings saw revenue grow by 2.3% over the pcp to reach $18,968 million. With a background growth rate of 0.5% for hardware retail turnover throughout Australia in FY2024, this indicates that Bunnings grew marketshare. EBIT for Bunnings came in at $2374 million, an increase of 1.2% over the pcp.

Total stores sales growth fell to 2.6% as compared to the pcp's 3.7%, but store-on-store (comp) sales growth was 2.1%, as compared to the pcp's 1.8%. Digital sales rose to 5.5% of all sales, where the pcp reported 4.4%. Digital sales in the first half of FY2023/24 were 5.1%, and this rose to 5.9% in the second half.

Presentation

In his introductory remarks to the results presentation, Wesfarmers managing director (MD) Rob Scott had this to say about Bunnings:

This year, Bunnings continued to expand its range with innovation across categories such as Smart Home, supporting an increase in customer demand. Bunnings also continued to invest in supply chain data and technology projects to strengthen the customer experience across channels such as the new Bunnings local delivery service.

The business continued to improve its whole build commercial strategy and in the second half, Bunnings opened a new state-of-the-art frame and truss site to supply customers with pre-made frame and trusses with greater efficiency at a lower cost.

The delivery service was further described in the results documentation:

A new last-mile delivery service, Bunnings Local Delivery, was launched and expanded to more than 50 stores, improving the delivery experience for customers.

According to the Bunnings website:

Bunnings Local Delivery is a service provided by selected Bunnings stores to deliver customer orders within their local communities. The Bunnings Local Delivery service is recognisable by our team members, in their Bunnings uniforms, delivering customer orders to homes, businesses and sites in our Bunnings-branded vehicles.

Further:

Bunnings Local Delivery is not an option for customers to select. Bunnings Local Deliveries are determined at a store level, factoring in product dimensions, loads and other delivery options.

In his remarks, Wesfarmers CFO Anthony Gianotti profiled the performance by Bunnings:

In Bunnings, sales growth of 2.3% was supported by growth in both consumer and commercial segments, driving growth in transactions and units sold. As household budgets remained under pressure, consumer sales growth was supported by Bunnings' strong value credentials with bulk pack quantities, own brand products and entry-level ranges all performing strongly.

Pleasing second half sales growth was supported by sustained demand for repairs and maintenance, online channel growth, and range innovation partly offset by a market-wide softening in building activity. Commercial sales growth reflected continued demand from trades, but demand from builders moderated through the year as new buildings starts will lower, relative to recent years.

The sentiments were echoed by the documentation, with an added note on the outlook for Bunnings:

The market-wide softness in building activity is expected to continue in the 2025 financial year, but population growth and the shortages in Australian housing stock are anticipated to support a recovery in building activity over the medium term.

At the end of the presentation's introduction, Mr Scott returned to the prospects for FY2024/25:

For the first eight weeks of the 2025 financial year ... Bunnings continued to see positive sales growth, but growth has moderated from the second half of 2024 financial year impacted by the continued market-wide softening in building activity.

Presentation questions

The majority of the questions at the results presentation focused on Bunnings. Tom Kierath from Barrenjoey started with a question about store growth at Bunnings. The reply by Bunnings MD Mike Schneider is interesting, as it outlines a shift in the retailer's thoughts on expansion. After outlining the actual store expansion that is in place, Mr Schneider said:

Then alongside that and complementing that is the work that we're doing inside the box to drive space productivity harder. So automotive for example, rolling into our stores at the moment and that's coming as we reduce some space in flooring because we can lean more on Beaumont's, for example. So hopefully that gives you a bit of a perspective that we sort of see space growth continuing to be sort of that 10% over the five-year period, but just some timing on some of the projects.

David Errington of Bank of America followed up on this line of questioning:

This is the only question I've really got front of my mind when I'm looking at valuing Wesfarmers as an investment, and that is whether Bunnings has got a lot of growth runway, or whether it's going ex-growth?

What worried me in listening to your answer to Tom's question, and it did worry me when I see the CapEx dropping off as significantly as it does for Bunnings (and it's ironic that I'm saying that about CapEx), but when I look at, like, a Woolworths that spends $2.5 billion on CapEx and Coles are spending over a billion, your CapEx on Bunnings is only $260 million. It's dropped. And when I'm looking at your working capital, you've really driven working capital extremely hard in Bunnings this year, a saving of $230 million despite an inflationary world, [where] I'm imagining inventory ... costs would go up.

So I don't want to poke the bear, but I am in a way, but I am poking you in a way that you're running Bunnings as if it's an ex-growth business. Now I know that there's delays in buildings and whatnot, but I was wondering if Mike [Schneider] can really basically talk about some of the growth initiatives that you've got. Because at the moment when I look at Bunnings' numbers, I understand it's a tough environment, but for me in valuing Wesfarmers, the most important thing for me today is to ensure that still a premium growth business and you are not running it as a mature business that's gone ex-growth.

In his response, Mr Schneider began by pointing out that the design of Bunnings' stores was highly modular, which meant new lines could be added with less effort.

What we don't find ourselves with is the need to go back and sort of hack into 50, 60 stores... We've built a lot of functionality and modularity into our racking in our layout so that when we roll in new categories and new ranges, it's very CapEx light, but it's very revenue positive.

He also pointed to new initiatives in the tool section of Bunnings.

We've got a new tool shop concept that we're rolling into 50 stores before Christmas that when you see them, our tool shop looks materially different. It's delivering some really interesting and very positive results both across our consumer brands and our commercial brands. But we don't have to go and build a new tool shop to do that, David, we just have to modify and adjust racking so we can do that in a CapEx light way.

He also defended Bunnings' further expansion into building, trade and commercial:

We've thought very deeply about how we drive growth in trades, how we drive growth in organisations and we're actually - not withstanding some of the headwinds from a domestic construction point of view - we're actually seeing some incredibly positive results in those areas.

Mr Scott added the comment that one thing which had retarded growth was the high price of construction. He also pointed to Bunnings' investment in frame and truss plants, which would likely only show returns in the medium term.

Pressed further by Mr Errington, Mr Schneider listed more of the growth plans that Bunnings has. In fact, in response to a range of questions, Mr Schneider mainly enumerated what he sees as the growth opportunities for Bunnings. So it is perhaps best to simply list a number of these here.

Analysis

The question about Bunnings is this: how do you manage a retailer in a market which sees extraordinary growth over a period of around three years, followed by a decline in growth that is set to last somewhere from 18 to 36 months?

The two main approaches are to: 1) take full advantage of the upward "blip", then ride out the downwards "blip", preserving the same basic structure to the business, while making as many non-structural accommodations as you can; or 2) see this pattern as being something more than a market boom-and-bust, and set about reforming the business to cope with a changed market.

Bunnings has very much elected to take the first option. Reading the above discussions with the investment analysts it is evident that the overall strategy for Bunnings, in HNN's opinion, is based on treating the current down trend in the building - and therefore hardware - market as a "blip", not a structural shift. In that view, once interest rates are reduced (which HNN expects for the second RBA meeting in 2025, not the first) the housing construction market will recover, at least back to FY2018 levels of activity, and Bunnings will pop back into revenue growth.

The main step the company is taking to deal with the "blip" is to cut back - temporarily - on investment in Bunnings. To blunt the force of the market setback, Bunnings is also expanding its product lines into areas such as pet products and automotive maintenance.

That approach will seem somewhat justified if the downtrend ends up lasting the equivalent of three halves - FY2023/24 and the first half of FY2024/25. But if it extends beyond that, through all of FY2024/25, and even into FY2025/26, it will be seen as a more questionable move.

Not all of the category expansion is based on growing revenue by relying on "convenience" sales driven by foot traffic, such as Christmas gifts for dogs.

There are also expansions that one guesses might have originated with Bunnings' Marketplace, such as kitchen appliances.

Notably, as hinted at in Mr Schneider's remarks at the results announcement, engagement with TTI's Ryobi brand seems to be ramping up. At the same time, HNN is detecting some signs that the Bunnings captive sub-brand, Ozito, is being de-emphasised.

That's a smart move by Bunnings, because while Ozito and Ozito PXC might have attractive margins, it's a somewhat limited sub-brand as compared to Ryobi. That is in terms both of product range and product depth.

For example both Ryobi and Ozito PXC offer circular saws in the 150mm, 165mm and 184mm ranges, but Ryobi offers these in a "basic" model as well as its "HP" range. The latter provides a considerable performance boost, offering customers an easy path to upgrade, while retaining the same battery platform.

In terms of range, TTI has been hard at work with Ryobi over the years, adding tools that extend into craft and "upscaling" uses, as well as engaging with the Maker community (which often combines woodworking with electronics and 3D printing).

That said, there is a continuing question as to whether Bunnings is innovating its products at the same rate as eight or nine years ago. Adding brands isn't really a substitute for sourcing new and exciting products.

The Australian Bureau of Statistics (ABS) has released stats for hardware retail turnover through to August 2024.

Looking at these from the point of view of trailing 12-month periods (e.g., the period from September 2021 to August 2022 will be designated "p2022"), for Australia overall there has been mild growth of just over 0.5%. The month of August 2024 showed a mild improvement of 0.1% over August 2023 for the nation.

However, with background inflation running at over 3.0%, and some building products subject to continuing inflation, these increases equate to an ongoing contraction in the market.

Western Australia (WA) showed the strongest growth in percentage terms for p2024 as contrasted with the previous corresponding period (pcp), which was p2023. Turnover for the state increased by 3.7% and $102.9 million to $2863.3 million. In dollar terms, Victoria (VIC) increased turnover by $114.5 million to $6632.4 million, an uplift of 1.8%. Queensland also showed a positive result, up by 1.8% or $97.3 million to $5396.0 million. South Australia (SA) grew by 0.7% to $1761.8 million, an increase of $11.3 million.

The steepest fall for p2024 in percentage terms came from the Northern Territory (NT), which fell by 8.2% or $22.9 million to $255.4 million. The largest decline in dollar terms came from New South Wales (NSW), which fell by $167.4 million to $7472 million, a drop of 2.2%. Both Tasmania (TAS) and the Australian Capital Territory (ACT) fell by 0.7%.

New South Wales

Comparing August 2024 with August 2023, turnover for NSW fell by 1.5%.

As the chart indicates, turnover for p2024 in NSW only exceeded p2023 in September 2023, February 2024 and April 2024. The largest gaps were in November and December 2023, as well as June 2024.

Victoria

Comparing August 2024 with August 2023, turnover for VIC rose by 0.7%.

The strongest improvement for VIC occurred in September 2023, with an increase of 8.9% over September 2022.

Queensland

Comparing August 2024 with August 2023, turnover for QLD rose by 4.3%.

As the chart indicates, in QLD p2024 has consistently outperformed p2023 post December 2023. The strongest gain was in the usually subdued month of February in 2024.

South Australia

Comparing August 2024 with August 2023, turnover for SA fell by 2.6%.

While the August result was disappointing, SA has largely managed to track close behind its p2023 numbers in p2024, with six months tracking above the previous period.

Western Australia

Comparing August 2024 with August 2023, turnover for WA rose by 2.0%.

While the August results was a little disappointing, this followed on from four months - April 2024 to July 2024 - of results that exceeded the corresponding period in the pcp by a substantial amount. The peak growth took place in June 2024, up by 9.2% over June 2023.

Tasmania

Comparing August 2024 with August 2023, turnover for TAS fell by 4.7%.

As with QLD, the most improved month for TAS in p2024 was February 2024, up by 5.4% on February 2023. However, while turnover for p2024 has mostly tracked closely on average to p2023, the results for July and August 2024 show a downwards trend.

Northern Territory

Comparing August 2024 with August 2023, turnover for NT fell by 1.3%.

In the volatile world of the NT's hardware market, p2024 has significantly underperformed p2023. The difference was most marked for September 2024, which was down 15.9% on September 2023. That said, both July and August 2024 are closer to the numbers for p2023.

Australian Capital Territory

Comparing August 2024 with August 2023, turnover for ACT fell by 1.9%.

For the most part in p2024, after seesawing through the first four months, the ACT has tracked close to p2023. The largest month-on-corresponding-month fall, was for December 2023, with turnover down by 5.0%. The best increase was form September 2023, up by 10.4%.

Analysis

The "scoreboard" for the past five years shows a hardware retail market that is pretty much doing what the Reserve Bank of Australia (RBA) wants it to do - steadily declining against a background of inflation which, while remaining stubbornly above the target range, continues to fall.

As a result of this, Metcash released a snapshot of its performance since its FY2024 results which shows a continuing decline in its hardware business. While overall growth is up, driven by expansion and acquisitions, like-for-like (comp) sales are down 1.6% for Total Tools, and 3.7% for the Independent Hardware Group.

The statement accompanying these figures stated:

As noted in the Company's prior trading update (period to 8 September 2024), the external market for the Independent Hardware Group (IHG) continued to be very challenging with Trade activity softening even further. It was also noted that retail store margins in IHG were facing pressure due to the impact of lower volumes on fixed costs. Since that update, there has been additional margin pressure in retail stores in September and October, particularly in Trade due to further sales weakness.

This weakness in retail store sales has been offset by lower-margin wholesale sales. Metcash is responding to the weaker trading conditions in Hardware by implementing additional cost management initiatives and accelerating its strategic initiatives to drive market share gains in both Trade and DIY. Cost initiatives have included a strong focus on all business expenditure, particularly labour, where there has already been a material reduction in hours.

The Hardware business remains ideally positioned to capitalise on any increase in market activity levels.

(It is so welcome to see such clear statements from Metcash, which truthfully reflect its current difficulties, as well as the potential upside in the near future.)

It is also useful to refer to just how far the market has come over the past four years or so, as reflected in this chart contrasting p2024 with p2020.

The real concern that HNN has for the market is the extent to which it is, under the surface of these stats, continuing to shift to a new alignment. We've spoken to a number of smaller retailers who are finding hardware retail very tough going at the moment - which, given the overall increase in market size, really should not be the case.

Part of what is happening is that the consequences of mismanaging the building industry over the past 12 to 15 years are beginning to become clear. The recent report by the Victorian Building Authority (VBA) into itself is highly negative, but not nearly as scathing as it perhaps should be. It's not just a matter of a lack of resources, a poor understanding by the people who work there of what they are supposed to be doing, poor performance of tasks such as assessments, and the imposition of impossible bureaucratic roadblocks (especially as regards freedom of information requests), it's also that the design of the VBA itself has not been fit for purpose.

What this means is that simply throwing money at building more homes, as well as setting desirable but fundamentally unachievable targets, is not going to fix the housing problem, nor necessarily see the hardware market return to above-average growth. It is going to take, optimistically, four to five years to fix many of the systemic problems in the building industry.

Outside of that are all the town planning consequences to consider. There are huge investments by various entities in the building and real estate industry in the current (broken) system of how building space gets allocated. Some of that is financial interest, but just as much is purely cultural. From HNN's perspective, what underlies these battles over space is largely the issue that Australia's major cities are now facing strong forces driving them towards some form of further decentralisation. That is less a matter of the now-permanent shift to a fixed percentage of hybrid-based work-from-home, and more a consequence of an ongoing decline in face-to-face meetings between businesses - there simply isn't the time for that.

All this means that those businesses in the hardware retail industry who think that a cut in interest rates will solve most of their problems are likely a little deluded. It will improve matters, but there is not going to be a return to a 2021 Covid-based boom.

Bunnings has provided a submission to a parliamentary inquiry into the price setting and market power of big box retailers, their negotiation practices and how they engage with suppliers.

The inquiry was called by Nationals Senator Ross Cadell, who sat in on the inquiry into supermarkets earlier this year that heard Bunnings had allegedly treated its plant suppliers like "slaves".

Senator Cadell told The Australian Financial Review (AFR) he wanted suppliers and smaller businesses to detail their treatment by big box retailers in inquiry submissions. He believes Bunnings "had to be investigated" over price gouging allegations.

They're only allegations at the moment. They are certainly, prima facie, interesting to me, and that's why we have this committee to interrogate them.

In response, Bunnings managing director Mike Schneider told the AFR the retailer takes its promise to beat any competitor's price seriously and critics would not find evidence that it had engaged in price gouging.

Mr Schneider said he was surprised by the claims (of price gouging), given the company had long advertised using the slogan "lowest prices are just the beginning". In the AFR, he said:

I had to read it a couple of times when I heard the words price gouging. To advertise using the word 'lowest' means we've got to do a lot of work to prove that.

Mr Schneider said the company invested "tens of millions of dollars" in a sophisticated pricing ecosystem to track competitor pricing and test claims that it had the lowest prices on items carried by other retailers. The business then invested tens of millions more to match competitor discounts and promotions.

Senator Cadell said Mr Schneider's comments were directed at Wesfarmers shareholders and would not dissuade him from examining Bunnings via a parliamentary inquiry. He told the AFR:

I think he's setting the baseline case for the financial markets and the stock exchange with what he says. He's got to do the right thing by his company and maintain investor confidence in his share price.

He's doing that and we will do the right thing by the Australian people and quiz him on it.

Mr Schneider said Bunnings' everyday low prices model also informed its operating model, which was designed to be low cost. He said that model explained why Bunnings stayed out of some product categories that were complex or costly, and why it preferred to pay staff above-award wages to ensure high retention of permanent employees.

While Mr Schneider said critics would inevitably find a dissatisfied supplier or former supplier given the size of his business, many suppliers had worked with Bunnings for decades. He said any parliamentary inquiry would be a "great opportunity to explain" the group's pricing approach and business model.

You don't want to hear [criticism], but it's important to listen to it and you understand it so that you can, if it is the problem, put it right.

The Senate committee will also look at whether big box retailers that sell grocery items should be included in the grocery code of conduct. Mr Schneider said Bunnings should not come under the grocery code of conduct as Senator Cadell had suggested but would adhere if required.

Brand relationships

Exclusive brands were discussed in the inquiry submission by the next biggest player in hardware retail, Metcash/Independent Hardware Group (IHG). Metcash claims the arrangements being locked in by Bunnings are problematic. Its submission said:

Our major competitor in hardware has exclusive arrangements in place with many national suppliers such as Ryobi, Irwin and Nylex. These brands were once available to consumers via the independent market and are now only available in the hardware channel via our major competitor.

Dominant market participants have the power to demand exclusive arrangements, detrimental to smaller independent retailers, suppliers and ultimately consumers.

The rise of exclusive brands in the tools space has also not gone unnoticed by independent hardware store owner, Frank Penhalluriack. He said they can lock customers into using tools only sold by one retailer, and make it difficult for his store in the Melbourne suburb of Caulfield to offer parts to customers who own these products. He told ABC News:

The batteries are compatible for that brand, but generally not between the brands.

Mr Penhalluriack said his store is struggling with lower margins as it tries to keep up with the larger retailers. For instance, it is currently selling a 15L tub of Dulux at the same price as Bunnings, at a very low margin. He said:

Our margins are squeezed down because we will match Bunnings' price. We can't afford not to because we don't want to have our customers going elsewhere.

I just fear that as too many of the smaller traders go out of business, then you will lose that competition. It's becoming very, very difficult, harder and harder.

Bunnings notes that exclusive brands are common in hardware retail, with Ozito having Bunnings and Metcash-owned Mitre 10 selling its range Rockwell. The retailer's submission said:

Whilst Bunnings uses exclusive brands to differentiate our offer, we do not use them to exclude operation of our lowest prices policy or as a reason to not apply our Price Guarantee.

Mr Schneider said exclusive supply relationships with brands such as Ryobi and British Paints were not only common in the global hardware sector, these arrangements were often required by large manufacturers.

ACCC

The inquiry comes as Treasurer Jim Chalmers announced new legislation to overhaul the country's merger rules.

The Australian Competition and Consumer Commission (ACCC) said in its submission big box retailers can acquire "significant market power" through large-scale operations and extensive supplier networks. It reiterated its limited power to control mergers, even where certain market share or market capitalisation levels are met.

The increased powers of the ACCC were introduced after concerns were raised by the competition regulator about acquisitions in the pet retail category. Specifically, Petstock made "a large number of acquisitions" that had eroded competition from small stores. The ACCC ended up ordering Petstock to divest 41 shops before Woolworths could take its controlling stake.

In the wake of the Petstock situation, the federal government is set to introduce laws that will require major merger and acquisition proposals to seek approval from the competition regulator.

Metcash also raised concerns that these merger powers don't go far enough. In its submission to the big box inquiry, Metcash said the ACCC should have "intervened" to stop Bunnings having "complete dominance" in a specific regional Queensland town, and that planning laws were failing to stop store openings that forced its smaller Mitre 10 hardware stores to close.

University of Sydney Business School retail academic researcher Lisa Asher told ABC News:

With big box retail, we've seen consolidation and expansion occur under single banners over a long period of time.

Ms Asher - who worked as a supplier to retailers for years before turning to academia - said a lack of competition is problematic because it increases the stand-over power that retailers have over their suppliers. She said:

When a retailer has a significant amount of market power, if anyone speaks out against them, there is fear of retribution. You could lose your business.

This fear is why Ms Asher doubts many suppliers to the big box retailers will front the looming inquiry.

While the big box inquiry may put more heat on big box retailers, Ms Asher isn't sure it will achieve much in the way of policy or law change.

The inquiry was called by the Nationals, which isn't the ruling power. The federal Labor government has already ruled out changes to powers that could help split up retailers that have gotten too big and powerful. Ms Asher said:

Suppliers need to know that if they speak up (to an inquiry that) something good could happen from it.

Hearings are expected before the end of the year, with the six-month inquiry due to report by February 2025.

New Zealand stores

"Opening Soon" signs for a new Bunnings store have gone up on fencing located at 1150 Cameron Road Gate Pa, Tauranga, a harbourside city in the Bay of Plenty region on New Zealand's North Island. It is located down the road from the local Mitre 10 Mega.

The signage comes about a year after a company linked to the Mitre 10 Mega store was fined NZD500,000 for engaging in anti-competitive conduct to prevent Bunnings from opening nearby.

Bunnings told the Bay of Plenty Times it was "looking forward to bringing a new, smaller format Bunnings store" to Tauranga.

Bunnings' overall investment for the new retail store was NZD23 million and "about 50 staff" would be employed. The retail space of the site was about 4500sqm including a nursery area, and there would be 80 car parks. The hardware retailer said:

We've started some works to prepare the site for construction and we're hopeful of a mid-2025 completion date.

Court documents show Bunnings acquired the site in 2018 for NZD7.9million.

In 2019, NGB Properties Ltd, the then sister company of the Mitre 10 Mega Tauranga operator, bought the site next door. After an investigation, the Commerce Commission accused NGB Properties Ltd of putting a covenant on that site preventing it from being used as a hardware store, to stop Bunnings from opening. In 2021, the covenant was lifted and the site was sold to another party. NGB Properties was fined NZD500,000 in the High Court at Wellington last year after admitting the covenant breached the Commerce Act.

Tauranga Business Chamber chief executive Matt Cowley said Bunnings' Cameron Road development had advantages for tradespeople, retailers and shoppers. He told Bay of Plenty Times:

Firstly, it shows that brick-and-mortar stores are far from dead with significant investments like these happening across the country. Consumers still want to buy in store and take it away, unlike buying online and waiting for the delivery a week later. Having these two retailers aggressively compete in price is good for tradies and shoppers.

For transparency, Mr Cowley noted Bunnings was an alliance sponsor of the New Zealand Chambers of Commerce. He said having the two competitors operating nearby on the same road, was "market forces at play".

As long as there is a good selection of players in the local market, such as Placemakers, ITM, Hammer Hardware etc, the competition will be good for consumers.

Mr Cowley said Bunnings and Mitre 10 served a diverse range of customers, and not everyone was just after the cheapest item.

Consumers weigh up several factors, such as personalisation, service, range, convenience, as well as the best price.

Tauranga Mayor Mahe Drysdale said the proposed Bunnings store still had to go through the building consent process but represented "an exciting opportunity" for Tauranga's growing city.

Tauriko ward councillor Martin Rozeboom said it was especially "good news" for Bunnings customers currently having to travel to the Mount Maunganui store.

I'm quite in favour of having more competition between retailers and businesses as it gives shoppers a greater choice and the opportunity to compare prices.

He said he shopped at both businesses as each had a different range of items and healthy competition was good for everyone.

Bunnings already has a retail store in Mount Maunganui (almost 6km away) and a trade store in Tauriko (just over 9km away).

Bunnings Westgate

New Zealand's largest Bunnings Warehouse in Auckland's Westgate shopping park has been sold by property developer Ben Cook to property investment firm Investore for NZD51 million. The 16,000sqm branch sits on a 21,200sqm site.

Investore announced on the New Zealand Stock Exchange (NZX) that it had "entered into an unconditional agreement to acquire Bunnings Westgate, for an initial purchase price of NZD51 million, payable in cash".

The NZX statement said the Bunnings deal was expected to settle in December 2024.

The Westgate Bunnings had been listed with Colliers agents Blair Peterken, Josh Coburn and Shoneet Chand and first hit the market in November 2023. The agents highlighted in their marketing that the property was leased to Bunnings in December 2020 for 12 years and earned NZD 2.869 million plus GST per year in rental income.

The Aura Business Park at Baringa, a new suburb on the Sunshine Coast (QLD), will soon have a Sydney Tools branch. It is a 2200sqm site and located at 7-13 Carnegie Street. Sydney Tools development manager Alex Newby said the area was a good fit for the business. He told Sunshine Coast News:

[It] was a logical location to service the trade activity behind one of Australia's fastest-growing communities (Aura), as well as the established market of Caloundra.

Aura is a master planned community being established on 2,310 hectares south of Caloundra's urban area. It is expected to have a population of more than 50,000 people once fully developed.

Sydney Tools will join other businesses in Aura Business Park including Mitre10, Samios Plumbing, Carpet Court, Bridgestone and Ultra Tune. Since the first stage of the business park was delivered in 2018, more than 100 tenancies have been completed.

Caloundra Chamber of Commerce president and RWC Northern Corridor Group director Michael Shadforth said there was great demand for retail in the area, which will soon have road upgrades.

The economic landscape of the Sunshine Coast today is undeniable and has it squarely on the radar of national developers and businesses alike. We are now seeing the community surpass the demographic catchment triggers of more and more national retailers and trade service businesses.

The Aura Business Park has reached a critical mass where the businesses are starting to feed off the activity of each other.

We have seen this pattern play out time and again across the northern corridor in the past, with business parks like Warana and Kunda Park as well as North Lakes and Corporate Park further south.

Sydney Tools has an established store in Kunda Park, approximately 27km away from Caloundra.

Total Tools

Total Tools has signed a 10-year pre-commitment lease to move into a new greenfield site close to its existing premises in Bundaberg (QLD) next year. It is located at 63 Johanna Boulevard, Kensington in Bundaberg.

Head of retail leasing - Queensland for Colliers, Will Goldsworthy said Total Tools would benefit from moving into the much larger, prime location positioned in the main retail trade precinct. He told Bundaberg Today:

With the new site offering about twice their current footprint, this an opportunity for Total Tools to expand, taking advantage of the large Bundaberg trade market.

The large format retail market has seen significant growth since 2020, as demand has seen retail sales grow 25% above pre-pandemic levels. The site is strategically positioned with prominent frontage to Johanna Boulevard and will benefit from future infrastructure upgrades.

Colliers Queensland retail leasing associate director Sam Quintner said Bundaberg strong growth in population, economy and jobs which was driving the success of the large format retail market.

The opulation is expected to increase to 112,203 by 2041, an 8% increase from the current numbers. Mr Quintner said:

Total Tools has been a go-to in Bundaberg and this new site offers locals the opportunity for a larger footprint in the commercial area to accommodate the future demand, and within close proximity of the soon to be built $1.2 billion Bundaberg Hospital.

Related:

Data breach

In September, it was reported that Total Tools experienced a major data leak that is believed to have affected 38,000 customers. The data includes credit card numbers, email addresses and log-in details.

The tool retail group had been working on the data leak for a number of days after it first discovered unusual and suspicious activity within its IT systems. Total Tools chief executive Richard Murray said the company believed the cause of the data leak had been fixed, and has written to customers impacted by the incident. In The Australian, he said:

The cyber incident has illegally compromised certain personal information, however Total Tools is confident that the cause of this incident has been removed from its website.

The data that has been illegally compromised includes customer name, email address, Total Tools password, mobile number, shipping address, and credit card details of customers who shopped or registered on our website recently.

Mr Murray said that as soon as the company identified the potential impact of the cyber incident, its team, along with a forensic and cyber security expert, took immediate steps to secure its website and assist with the response.

We continue to work with this expert on this matter. Total Tools' communications to impacted customers recommended precautions they can take to lower the risk of their information being potentially misused.

In addition to contacting impacted customers, Total Tools also implemented several additional cyber security measures to minimise the likelihood of this occurring again.

Mr Murray also said Total Tools alerted the Australian Cyber Security Centre and Office of the Australian Information Commissioner to the cyber incident.

Related:

Wesfarmers-owned Bunnings will launch a retail media business as a way to diversify revenue and improve profits.

Retail media refers to new sources of revenue for retailers that can use their customer data to sell targeted advertising to shoppers, either on their websites, in their own branded magazines, on social media, YouTube, or in-store on screens or on the radio.

For many retailers, it's a way for them to connect their shoppers with brands. The revenue comes from suppliers looking for a bigger in-store marketing presence.

According to the Australian Financial Review (AFR), Bunnings had been searching for a technology partner for its planned retail media business. An industry source also told the AFR that Bunnings already generates an estimated $150 million in annual trade marketing revenue.

In the US, big box retailer Home Depot works with retail media technology provider Pentaleap and uses the Vantage platform.

The AFR also reports that Morgan Stanley estimates the Australian retail media market is valued at $1.6 billion and will grow to $2.8 billion by 2027.

Co-founder of media consultancy Sonder, Jonathan Hopkins, said Wesfarmers' exploration of a retail media offering makes sense given the large trove of first-party data it has through its OnePass and Flybuys loyalty schemes. He told the AFR:

Data is a retail media network's secret sauce. They have vast foot and website traffic across their brand portfolio.

In another report, media companies Nine Entertainment and oOh!media, have pitched to work with Mitre 10 owner Metcash to monetise advertising in and around its stores. At an investor day this year, Metcash predicted its retail media network could drive new earnings of $30 million by 2029.

Related

Home Depot retail media

Earlier this year, the home improvement retailer held its first "InFronts" event where it gave suppliers an inside look at data it gathered on consumer insights, and business strategies to grow its retail media advertising channel.

The InFronts is an in-person marketing summit modelled after Upfronts and Newfronts presentations hosted by traditional and digital media companies.

At the event, Home Depot detailed its systems, reporting and measurement capabilities, and the new products and partners to expand its retail media network. Melanie Babcock, head of Home Depot's retail media business, said:

It's an educational moment for that supplier, because as they think about investing into retail media networks, where do they want to invest? They want to invest with a retailer that aligns to their own objectives and is in a growth position.

At a recent panel organised by US based Advertising Week, Ms Babcock said:

We have thousands of small suppliers who may only have one to three products ... and they don't know anything about how to buy an ad, so we have to help them succeed inside of Home Depot.

We have to think about everyone from the big guys all the way down to the small and we believe Orange Access provides this capability for every supplier at Home Depot to be successful.

On the same panel, Aran Hamilton, CEO of Vantage said:

Retail media is no longer a siloed business on the side of retail. It is becoming an integral part of the overall retail business model.

Chicago-headquartered True Value has entered into an agreement to sell substantially all of the company's business operations to industry rival Do it Best for USD153 million.

To complete the sale, True Value and some of its affiliates initiated voluntary Chapter 11 proceedings in the US Bankruptcy Court for the District of Delaware, according to a company press release.

True Value said it will continue its day-to-day operations serving 4,500 independently owned retailers while going through the voluntary Chapter 11 proceedings.

True Value stores are independently owned and are not a part of the Chapter 11 process, with the exception of the company-owned store in Palatine, Illinois.

Prior to bankruptcy announcement, senior vice president of retail store development at True Vlue, Eric Lane spoke to Hardware Retailing exclusively about its then-newly launched corporate-owned store program. He said:

Now that we've done the one store, we've announced more broadly that we are in the business of acquiring stores. We have a pipeline for future acquisitions, and as we roll into 2025, I would say it is a geographic acquisition strategy. We want to build scale in a region and build a model around our distribution network, which helps us from a service perspective in terms of having a regional manager and regional staff members.

Our goal would be to retain as much of each store's staff as possible, but have a regional manager running that region who can bring operational discipline to help the stores be successful.

Bankruptcy court filings detail True Value facing a significant cash crunch as the housing market stalled and consumers became picky about discretionary purchases. It has between USD500million and USD1billion in total liabilities, Reuters reported, citing its bankruptcy petition. True Value CEO Chris Kempa said in a statement:

After a thorough evaluation of strategic alternatives, we determined that the sale of our business was the path forward to maximize value and best serve our retail partners and other stakeholders into the future.

Do it Best is a member-owned hardware, timber and building cooperative and states it is the second-largest co-op in the industry with over USD5 billion in annual sales.

As part of the proposed deal, Do It Best agreed to assume certain liabilities as part of the deal, including up to USD45 million in administrative claims. The company also agreed it would hire some of True Value's employees as part of the deal, though court filings did not specify how many. Do it Best CEO Dan Starr said:

Do it Best has a proven track record of driving profitability through the most efficient operations in the industry. This acquisition, if consummated, would provide True Value and independent hardware stores the strongest opportunities for growth for years to come.

True Value said it expects the completion of the sale by the end of the year.

PPG

PPG said it agreed to sell its architectural-coatings business in the US and Canada to private equity firm American Industrial Partners for USD550 million, and outlined a cost-reduction program which will affect about 1,800 employees.

The transaction, subject to regulatory approvals, is expected to close late this year or in early 2025, executives said. On a call with investors, PPG said it will net about USD450 million in cash to the company.

PPG's goal is to eliminate USD175 million a year from its costs, which will involve closing some facilities.

The pending sale of the paints business to American Industrial Partners caps a monthslong strategic review process at PPG that also included the sale of its silicas business earlier this year.

The transaction includes manufacturing facilities; distribution centres across the two countries; and assets at more than 15,000 sales locations, including 750 PPG-owned stores, 6,600 independent dealer locations, and 8,100 major home improvement centres and retail stores.

Freeing itself from the North American paints business will help the company refocus on its high-growth areas like aerospace and infrastructure, while it waits for automotive and industrial to rebound, the company said.

The paint and coatings manufacturer said the sale of the businesses is expected to close in late 2024 or early 2025 and is aimed at boosting organic growth.

The company reported total sales of USD18.2 billion in 2023.

DIY retailer B&Q has launched a refurbished tools range and expanded its tool hire service as it looks for more ways to cater to shoppers.

Products under its "Refurbished by B&Q" line have been sourced from customer returns and processed by the retailer's technicians to ensure they meet "like new" standards. These products, which have been component checked and thoroughly cleaned, are sold at a discounted price on the retailer's website, diy.com.

B&Q - owned by Kingfisher - has also expanded its tool hire service, offering customers a choice of over 100 products to hire. The retailer's category director of building Steve Lodge explains:

At B&Q, we want to make it easier for our customers to complete their projects and help them make decisions they can feel good about - whether it be through affordable prices or minimising waste.

The new Refurbed by B&Q range allows us to give new life to something that would otherwise be discarded, and our expanded Tool Hire service offers a great and trustworthy choice for consumers.

Another Kingfisher retail brand, Screwfix which is focused more on trades, also has a refurbished tool range as a way of keeping products in use for longer. Sustainability manager, Olivia Green, said:

Something we realised is that we get return products back and we're always trying to reduce some of the returns we get. But we're always going to get some. But rather than recycling those products and losing that potential, we've started to refurbish them back into a working product and sell that by the Screwfix website for secondhand and discounted rates. That's been great way of getting the product back into use, back into life and avoid the resources needed to make a brand new one.

The customer response to refurb has been incredibly strong and we consistently have demand for our refurbished products, exceeding the supply of them, which is a good thing because it keeps the return rates low...We've not really had to do any marketing of our refurbished tools. They just sell out as soon as they're on our website.

From a customer's perspective, they get a tested, good as new product. It's got a one-year warranty from Screwfix, and it's cheaper than a brand-new version.

Store closures

Garden centre chain Dobbies said that 17 outlets will shut down, saying they are unprofitable. The restructuring plan will take its store count down to 60 shops in a bid to "address historically uneconomical rent costs and ensure a return to sustainable profitability".

In September, supermarket group Sainsbury's announced it is taking over 10 Homebase stores and converting them into supermarkets.

The Homebase stores will grow Sainsbury's supermarket coverage across England, Northern Ireland and Scotland. Once converted, the retail floor area of the leasehold stores will range from approximately 15,000 to 40,000 square feet.

The first of the 10 stores will open next June, with the aim to convert all new sites by the end of 2025. The gross investment value of the acquisition is expected to reach approximately GBP130 million. GlobalData lead analyst Emily Salter said:

The DIY market fell by 0.3% in 2023 as consumers had already made any improvements to their homes during COVID-19 lockdowns, and due to the weak housing market and low consumer confidence for purchasing big-ticket items. These trends continued into the first half of 2024, impacting DIY demand.

Dobbies is thought to have faced another difficult year after racking up losses of GBP130m last year driven by high inflation and unseasonable weather dampening sales.

The Australian Bureau of Statistics (ABS) has released hardware retail turnover stats to June 2024. The trailing 12 months to June are equivalent to the Australian financial year, so we will be referring to these as FY periods.

As the chart below for retail sales across Australia shows, while the year has not been regarded as being an especially good one for retailers, nonetheless record levels of sales were obtained in four out of the 12 months, and in another two months (July 2023 and April 2024) sales reached the previous equivalent high.

However, with the Consumer Price Index (CPI) running at 3.8% through the FY, it is likely that sales have, in real terms, declined significantly. We say "likely" because the true inflation figure for the year is tough to work out, and we will not obtain a better view of this until the National Accounts figures come out in early September 2024. We've already seen the effect of this in some FY reporting by listed retail companies, where sales have nudged upwards, and earnings before interest and taxation (EBIT) has fallen significantly.

In terms of winners and losers for FY2023/24, New South Wales (NSW) and Victoria (VIC) stand balanced, in dollar terms. NSW is the biggest loser for the year, down by $156.9 million, or 2.1% on the previous corresponding period (pcp) which was FY2022/23. VIC gained $153.0 million, a lift of 2.4% on the pcp.

In percentage terms, Northern Territory (NT) was the sharpest loser, down 9.6%, or $27.1 million on the pcp. Western Australia (WA) showed the steepest rise, of 4.0% or $110.5 million. Arguably, WA was the outstanding state in terms of overall performance for the FY.

Outside of NSW and NT, there were no other declines. South Australia (SA) grew revenue by 0.93%, Australian Capital Territory (ACT) went up by 0.9%, Tasmania (TAS) was positive 0.6%, and Queensland (QLD) was up 0.44%.

Overall, Australia saw an increase on the pcp of 0.5%, or $127.8 million.

New South Wales

It's not surprising that NSW follows the national numbers fairly closely, in that it is the single largest contributor. The two main differences are slightly higher numbers for September 2023 and April 2024.

Victoria

VIC saw revenues for FY2023/24 above the pcp for 10 out of 12 months, with all-time highs for five months: August through October 2023, January 2024 and May 2024.

Queensland

Perhaps the most interesting characteristic of the QLD chart is the stability that has developed over February to June 2024. Both FRY2020/21 and FY2021/22 were volatile in that period, and FY2022/23 had some volatility, but the recent FY is quite stable. That period also saw FY2023/24 well above the pcp, where for the rest of the FY it underperformed, or tracked closely to the pcp. All-time highs were reached in January and February 2024.

South Australia

SA's revenues for the reporting period closely followed those of the pcp, except for higher levels during September and October 2023. Technically, revenues hit all-time highs for eight out of the 12 months, but for both July and August 2023 revenues just nudged ahead of those months in 2022.

Western Australia

Every month of FY2023/24 outperformed the pcp, though December 2023 figures were very close to those of December 2022. The state had a particularly stronger than usual finish to the FY from April through June 2024.

Tasmania

Turnover in TAS followed the pcp very closely, though with a significant drop in December 2023. The state set all-time highs for revenue in April and May 2024, and just nudged ahead of February 2022 in February 2024.

Northern Territory

While FY2022/23 was a relatively good year for the NT, FY2023/24 was less so. The latter underperformed the latter for every month (though February 2024 was close). Instead the FY tracked closely to FY2021/22.

Australian Capital Territory

ACT set all-time highs from July to October 2023. After that, the territory closely followed the pcp, with the exception of December 2023, when it underperformed significantly.

Analysis

The chart below shows the percentage change in retail turnover.

While VIC has done well in FY2023/24, it could be argued this is something of a belated compensation for its poor performance in the two preceding FYs. WA remains the only state to have truly indicated growth during the reporting period.

There have been a number of indications that early results from July 2024 indicate a further downturn in hardware retail revenue. Once again, we need to restate the fact that this downturn has been deliberately engineered by the Reserve Bank of Australia (RBA), with the intent of bringing inflation back into the 2.0% to 3.0% range.

While there have been some rather lightweight suggestions by more fringe economists that this is somehow unnecessary, it is clear this is only responsible path to take. Experience in the US economy, where inflation rose even higher than in Australia, indicates that it is both possible to bring inflation down, and to do so with minimum stress on other aspects of the economy, such as employment.

Of more concern, structurally, is whether the high level of spending during the COVID pandemic will prove to be not merely episodic, but in part a bringing forward of expenditure, and hence leave a kind of "hollow" in future hardware retail spending. Though what is more likely is a series of "mixed" trends, where that plays a part as does further expansionary spending. This will likely vary across categories, with spending in "essentials" actually boosted, while more "discretionary" categories slump.

Independent hardware retailers are going to struggle over the next two financial years (FYs). That will be a result of two major forces: a declining market, and actions from the two major corporate players in the market, the Wesfarmers-owned Bunnings and Metcash's hardware division, which consists of the Independent Hardware Group (IHG) and Total Tools.

The equation for Bunnings is simple: growth in its prime DIY market is slowing, and even contracting. At the moment the least expensive expansion opportunity is in trade and commercial, with a side of industrial. We can expect the big box retailer to go harder in areas such as truss manufacture, where it has already introduced highly automated assembly plants. And remember, this is the company whose ultimate head, Wesfarmers managing director Rob Scott, referred without exaggeration to its investment in Tool Kit Depot as being basically "a rounding error".

On the Metcash side of things, while its hardware division did run into a rough patch for FY2023/24, it will really ramp things up business in calendar 2025. What we expect to see is a shift in strategy from defining growth in terms of the number of stores in-network, to figures that relate both to genuine growth in desirable markets, an a greater attention to profitability per store.

We also expect Metcash to turn up its acquisition strategy, making two or three purchases each year of really significant hardware store mini-chains. As far as Total Tools is concerned, one of the reasons Metcash hired one of JB HiFi's best former executives is they realise boosting trade tool sales is very much about marketing and developing truly compelling offers.

We all know that one thing independent hardware retailers love doing is running down the corporate opposition. In reality, however, the only number that comes out of either Metcash or Wesfarmers that matters is the topline total revenue. That's the measure of how much marketshare they get. If it becomes a game of who can hold out for the longest at a lower level of profitability, the big guys are pretty much going to win.

So what can independent retailers do? One of the major advantages they have is that many suppliers are not only on their side, but they are, today, developing and marketing products that are specifically aimed at boosting business for independent retailers.

HNN thinks these products are really not getting the exposure and attention they deserve, so we thought we would try to give some of them a bit of boost. These are our first round picks from the goods on display at the 2024 HBT Conference Tradeshow.

Senix Tools

HNN has said for some time that the advantage Bunnings enjoys through its exclusive Ryobi brand tends to be underrated. While it is often dismissed as being an under-specced DIY brand, the reality is it provides a near-perfect value-for-money curve not only for the slightly serious DIYer, but also for professionals in trades such as building maintenance.

While there have been several attempts to slot something into that space for independents, such as Kincrome's Katana brand, none have really had an approach that worked.

Senix looks like being the brand that finally does it. The modern origin story behind the Techtronic Industries (TTI) brands Ryobi and Milwaukee Tool (as well as Ridgid and AEG) is that they arose out of suppliers in China's Pearl River Delta that made tools for major brands such as Stanley Black & Decker. Senix is essentially doing the same thing, only in relation (un-confirmeed sources have indicated) to TTI itself.

One product highlighted at the HBT Conference is the 60 Volt Max 53cm Cordless Brushless Mower, available both in push and self-propelled models.

Its seven-position single point height adjustment lever tailors grass cutting height from 40-100mm. It features both a mulching side discharge for clippings, as well as a bagging facility, using a 65 litre bag. It delivers 65 minutes of runtime on a single charge with the included 60V 8.0 Ah battery.

What the numbers don't tell you is that this mower has a great "store presence". It's a bit of a monster of a mower, but the design has the crisp lines you would expect from a mower designed primarily for the North American market.

Gorilla Ladders

With Bunnings launching its Citeco line of value ladders for trade, Gorilla has clapped back with a boost in design that adds both lightness and improved durability to its aluminium ladders.

Better engineering has reduced the amount of aluminium used to construct the ladders, making them lighter.

Changes such as dropping the height of the lowest step have helped to boost structural rigidity, make the ladders less likely to become deformed and fail.

Unipro

Long a favourite of independent retailers, Unipro is lifting its profile above its utility range of painting tools and accessories, with the introduction of its Professional lines of accessories.

Its Professional Handcrafted brushes have a range of features to boost their performance over more standard brushes. This includes a taper that is 30mm instead of the standard 20mm to increase paint holding capacity, as well as a higher percentage of Poly Butylene Terephthalatel (PHT) filament mixed into each brush head, which helps to deliver a better paint finish.

The brushes come with a range of display options, including an on-counter wire rack.

Wagner

Wagner is launching its "light trade" range of paint sprayers and accessories. It's a range that features Click & Paint, a way to simply and rapidly change or add accessories to spray painters with a simple twist. The range is aimed specifically at independent hardware retailers.

The Wagner Flexio Elite features an adjustable spray jet width, variable delivery rate and variable airflow, making it possible to set up the ideal rate of application. There is a Universal Extra Extension, which adds 60cm length to the sprayer, making it easy to reach both the top and bottom of walls in a single sweep.

The Flexio Elite has a 630W motor, a max flowrate of 500ml per minute, and weighs just 1.7kg.

Work has begun on the Portland North Employment Precinct in regional Victoria that will feature a new Bunnings store as an anchor tenant. Construction of the store will span 5,300sqm and have 120 car parking spots when it opens in 2025. Bunnings regional manager Dave Roddis said:

This investment will enable us to serve the growing Portland region which our team is excited about, and we're pleased construction is underway.

The precinct has been made possible by $2.5 million in funding from the Allan Labor Government's Portland Economic Diversification Plan, as a way to boost local jobs and economic growth.

The Labor Government said its investment in the precinct including upgraded drainage and road infrastructure has been instrumental in attracting this major investment to Portland.

Preliminary works, including the construction of an access road on New Street, are underway with expected completion by the end of the year.

Led by Regional Development Victoria, this project marks a milestone in the ongoing development of Portland as an industrial hub. The project is a part of the government's record $45 billion investment since 2014 in projects and programs that support regional and rural Victoria to be an even better place to live, work and stay. In a statement, Minister for Regional Development Gayle Tierney said:

The arrival of Bunnings at the Portland North Employment Precinct will drive economic growth, create more local jobs, and position Portland as a hub for major employers, benefiting the entire Great South Coast region.

Glenelg Shire Mayor Karen Stephens said:

The Portland North Employment Precinct has been a long-term project that is starting to come together. It is an engine room for jobs and Bunnings will certainly provide those when it opens, with more than 50 ongoing jobs in addition to around 50 during construction.

According to a report in The Warrnambool Standard in 2022, Glenelg Shire Council had received a planning application for a Bunnings store.

Related

"Blueprint" for 2025

In its new fiscal 2025 plan called "Better Together", Bunnings will address the perception of alleged mistreatment of a number of its (mainly greenlife) suppliers following the public criticism it received from during the Senate supermarkets inquiry earlier this year.

The inquiry heard from aggrieved plant, flower and nursery businesses, and Bunnings, Woolworths and Coles were reprimanded in the inquiry's final report.

The plan details how the hardware retailer will deepen current supplier links and focus on the better use of store space, improved stock flow and productivity, reports The Australian.

There is also a focus on a more seamless offer for shoppers as they switch between channels, in store and online. In a letter to suppliers seen by The Australian, Bunnings chief customer officer Rachael McVitty and chief operating officer Ryan Baker wrote:

Later this month we'll celebrate 30 years since the opening of our first warehouse store in Sunshine, Victoria.

A lot's changed over that time and there is plenty that has stayed the same, but one consistent part has been our relationship and shared success with our suppliers and partners.

We have also kept a focus on deeper trust and partnerships with our suppliers. So many of our suppliers have longstanding relationships that have seen mutual growth over decades, and we don't ever take that for granted.

The "Better Together" theme is about looking for a better connection with suppliers and staff. The Bunnings letter to suppliers also said:

The outcome of this plan will be determined by how we bring 'Better Together' to more than just a slogan.

We met with 1200 team members last month to launch the plan and said to them that all of the focus points will have a key lead and will mean different outputs to different teams.

Innovating and expanding our ranges are led by Merch (merchandise team) but can't be achieved without input and offers from suppliers, then having those products marketed correctly and making sure team are trained and excited to fill the bays with stock and correctly answer customer questions.

While there will be a focus on reducing injuries, which will include looking at how products are packaged and designed to improve safety considerations, innovation will be driven by working closer with hardware suppliers.

As Bunnings changes its store layouts to take in new categories such as pets and expanded offer in home cleaning, it is seeking to capture better productivity and a better experience for the shopper in 2025. The letter said:

Better use of space or seamless customer offers across all channels will only work if Bunnings share that information and decision process with suppliers.

Improved stock flow, handling and deliveries has the potential to deliver big benefits, but will require collaboration from our stores, logistic companies, distribution and fulfilment centres and of course suppliers.

Related

British outdoor clothing and equipment retailer Mountain Warehouse plans to open four new stores in Australia by the end of the year. It launched its first Australian store as part of DFO at Skygate in the Brisbane Airport (QLD) in July 2024.

The retailer positions itself as a low-cost family focused alternative to Kathmandu, Macpac, Anaconda and The North Face. Prior to the Brisbane store, it has been operating an online presence for the past seven years, annually turning over about $10 million.

In the second half of 2024, Mountain Warehouse will open stores at DFO Moorabbin, DFO Essendon and DFO Uni Hill in Melbourne.

Established in 1997, Mountain Warehouse will have more than 400 stores around the world by the end of the year, mainly in the UK, with about 50 in Canada, a small presence in the US and stores in Poland, Germany and Austria. New Zealand is currently its third-largest market with 24 stores.

Mountain Warehouse has men's, women's, and children's clothing as well as footwear and equipment. About 30 per cent of its turnover is currently from online sales. In the beginning it was a multi-brand store selling other brands' products, but it transitioned away from that and now only sells its own brand.

The new Australian stores are part of a global rollout of 50 stores in 2024.

London-based founder and chief executive Mark Neale said Mountain Warehouse's range is different to its rivals and many products were up to 30% cheaper than comparable goods sold by the opposition. In The Australian, he said:

Our offer is a bit broader than some of the other guys and its definitely better value for money. That's always been our positioning. It's more of a family offer. We sell a lot of kidswear. Most of the other guys who you might think of as in our competitive space have pictures of guys with an ice axe hanging off a glacier. It's about value for money. We have pictures of a family taking their kids for a walk with their dog in the woods.

Mr Neale would not make any specific forecast about its new Australian business, which he said will have "the full offer" including a summer range of shorts, T-shirts, thongs and travel-related products such as backpacks.

We will see how the four stores go and if they get off to a good start we'll be looking at more next year as well as a distribution centre in Melbourne.

Six years ago, we opened a store in Queenstown New Zealand and we didn't know whether that would be one-of-one or one-of-many and it went well. In six years, including three during the Covid pandemic, we built it out to 24. There's a lot more people in Australia than in New Zealand so we'd like to think we will do more than that.

In 2018, UK-based private equity firm Inflexion took a 20% stake in Mountain Warehouse for GBP45 million, which is helping to fund its retail expansion.

In an interview with Retail Gazette, group AI director at Kingfisher Mohsen Ghasempour explains his team's efforts have been focused on creating initiatives that improve customer experience and internal operations - many of which have helped to increase sales under each of the group's banners.

(Kingfisher is the parent company behind UK retailers B&Q, Screwfix and French brand Castorama.)

Hello Casto is the first AI-powered assistant in the home improvement industry that uses generative AI to help customers with their DIY projects. Mr Ghasempour said customers can use the online tool, which is currently available at Castorama France, in their "natural language" to ask DIY related questions that they might typically ask a sales assistant in store.

When you talk to Hello Casto, you explain your problem, 'I want to remove my old wallpaper', and then our agent will tell you 'you need wallpaper remover, you need this part of product, you need this and you need that to do your project'.

It's quite new and we have to educate both internally and people to use this technology, but it's one that's potentially going to have a very big impact on the younger generation, especially those getting into DIY because we're providing that level of advice digitally to our consumer.

Mr Ghasempour said the team is working on launching an English version of the assistant for B&Q and Screwfix.

Product recommendations are also a key area. Last year, Kingfisher launched a suite of "best product" solutions for its app and online, as well as in multiple formats such as "frequently bought together" carousels, "substitute products" or direct personalised offers based on customer shopping trends and preferences.

For B&Q, where the solutions have been in place the longest, more than 10% of its ecommerce sales had come from product recommendations.

On top of that, its own recommendation engine had driven a more than 100% increase in online sales from product recommendations compared to its previous third-party solution.

Mr Ghasempour said it uses machine learning technology, which has been trained from the group's product data and sales history, to deliver the right recommendations.

The algorithm can also spotlight a very similar product if the one it would typically recommend is out of stock - something its previous third-party solution was unable to do.

Internal efficiencies

Mr Ghasempour notes the potential to use AI in the supply chain is huge, as there is "so much manual effort going into that process".

At the moment, Kingfisher uses AI for demand forecasting - predicting the quantity of products consumers will want - as well as working out how to clear stock in a more beneficial way for the business. Mr Ghasempour said:

About 12 to 18 months ago, we started a big project around mark down and promotions for B&Q [looking at] using technology to identify the best route to mark down a product.

When you want to mark down or get rid of a product, it's very important for you to understand discount you can put on the product and what period you have to leave it for.

The pilot tested in the first half of last year delivered encouraging gross margin improvements, while increasing the sell-through of seasonal stock and improving the efficiency of range changes.

Similar technology is being used for promotions, which combines demand forecasting and optimisation to provide "the best price for Kingfisher's customers", he said.

In our major strategy issue, HNN looks into the plans of the Wesfarmers-owned Bunnings, Metcash's hardware division (including both Mitre 10 and Total Tools) and the HBT National Buying Group.

Download here:

The most recent Wesfarmers Strategy Day in May 2024 proved to be a somewhat feisty event - in a good way. While the background of high inflation competing with unexpectedly high interest rates from the Reserve Bank of Australia (RBA) has seen retail spending curtailed, Wesfarmers has pushed ahead with its medium- and long-term vision. Central to this is OneDigital, we see Wesfarmers as one of the few large Australian companies taking innovation seriously, and understanding we're on the cusp of seeing markets radically reshape themselves.

Wesfarmers managing director Rob Scott was, as always, steadfast in defending and explaining his strategy, while investment analysts provided a rare level of engagement. The result is almost a conversation about how Australian business should shape itself moving into what could be a radical shift in the future.

Similarly, Metcash's Investor Day, held in March 2024, revealed a radically refurbished company, that is set to undergo further changes during FY2024/25. There are new CEOs heading up both the Food and Liquor divisions, along with a new CEO starting at Total Tools. An interim CEO has been assigned to the Independent Hardware Group (IHG), with long-term hardware stalwart Annette Welsh stepping aside. Results for FY2023/24 full-year reveal good performance from Food and Liquor, while Hardware has lagged overall.

Metcash CEO Doug Jones provided a rare look into Metcash's "meta-strategy". This consists of the company developing well-defined strategic "plays", which it can institute across its divisions, to acquire, grow organically and expand markets.

At HBT National Buying Group, managing director Greg Benstead outlines where the buying group for truly independent hardware retailers is headed. Much of this means making both technology and professional advice accessible to its members, while pursuing its overall goals of increasing volume of orders through its preferred suppliers so as to gain maximum rebates for members.

Bunnings Warehouse Property (BWP) Trust has reported $180.2 million profit for the 2024 financial year, up from last year's profit of $36.7 million.

In The Australian, BWP said it recently bought two properties - the Southport Showrooms (QLD) and Broadmeadows Homemaker Centre (VIC) for $10 million and $20 million respectively - as it looks to expand.

These acquired sites afford potential options for Bunnings' expansion, over time, and enable additional income generation for BWP...

These deals added to BWP's $540 million acquisition of the listed Newmark Property REIT that was completed in June. The merger provided BWP with nine properties.

BWP is also re-purposing and re-leasing properties vacated by Bunnings. At Hervey Bay (QLD) it put retailers Amart and Super Retail Group into a site. It is also re-purposing the ex-Bunnings Warehouse property in the Melbourne suburb of Fountain Gate.

BWP has sold sites in Wollongong and Belmont in NSW, in Albany (WA) and is looking to sell a former Bunnings Warehouse in Port Kennedy (WA).

Established and listed on the ASX in 1998, BWP Trust invests in and manages commercial properties throughout Australia.

The majority of the Trust's properties are large format retailing properties, in particular, Bunnings Warehouses, leased to Bunnings Group Limited.

Blood pressure trial

NSW residents have a new way to conveniently check whether they have hypertension (high blood pressure) at a Bunnings store.

The "Shop2Stop Hypertension" research study aims to identify more people with high blood pressure - the top risk factor for death in Australia - and raise community awareness by placing SiSU Health stations in 30 Bunnings stores across NSW.

This innovative approach to detecting hypertension comes from The George Institute for Global Health and UNSW Sydney in partnership with SiSU Health.

Alta Schutte, professor of cardiovascular medicine at The George Institute for Global Health and UNSW Sydney, said:

Efforts to reduce the rate of high blood pressure in the community have stopped being effective over the past 10 years, and the profile of those affected is changing.

For example, raised blood pressure is increasingly linked to stroke deaths in men aged 25-49 years but they wouldn't think of themselves as being at risk. We needed to think creatively about reaching this and other groups at high risk, in the places they already go, and Bunnings stores are a great way to do that.

Doing a screening at a SiSU health station takes about five minutes. Customers are asked a series of questions about their age, lifestyle and family history, and given the opportunity to accurately weigh themselves, check their blood pressure and measure their heart rate. They can also sync up with the SiSU Health app to capture their results and track their progress. Prof. Schutte said:

The check is free, and the self-operated machines are in discreet locations, so it's only the individual who sees and hears their results in the store.

Importantly, the SiSU kiosk gives people recommendations on how to reduce their blood pressure and, if needed, directs them to see their GP straight away. The good news is that if someone finds out they have high blood pressure, it can be effectively treated with medication and lifestyle changes.

TradeMutt

Bunnings Trade announced a three-year partnership with social impact workwear brand TradeMutt, to raise funds and awareness for mental health support among tradespeople. It officially launched in late July with a National Funky Shirt Friday Brekkie, according to the Mi3 website.

The partnership aims to support the free mental health care counselling service, This is a Conversation Starter (TIACS), founded by TradeMutt creators, Dan Allen and Ed Ross.

Allen and Ross, both tradies, started TradeMutt after Allen lost a close friend to suicide. The brand's colourful work shirts are designed to spark conversations about mental health, breaking down barriers in industries where such discussions are often stigmatised.

Bunnings Trade desks nationally will display "TIACS for your toolbox" cards, highlighting how to easily access the professional and confidential counselling service.

Bunnings Trade x TradeMutt work shirts and water bottles will be available in-store at Bunnings Trade desks, with 100% of profits from sales going directly to TIACS.

Ben Camire, Bunnings director of operations & commercial, said the retailer is committed to improving mental health support within the trade community.

Many of us can be unsure on how best to start a conversation about mental health, so we've partnered with TradeMutt to encourage our team and customers to check in with each other and raise awareness and funds for TIACS, a valuable resource there to help tradies.

We are committed to improving mental health support within the trade community and know the positive impact the simple act of starting a conversation can make. Breaking down barriers so tradies feel comfortable reaching out for help will help drive cultural change in our industry.

Related

Product packaging

Bunnings is changing its packaging and storage of lead products after concerns were raised about customers and workers being exposed to the material in its stores across the country.

Officials from the Shop, Distributive and Allied Employees' Association (SDA) in at least three states have inspected sites and contacted work safety authorities. Vision and photos supplied to the ABC showing potentially hazardous dust gathering on shelving.

Bunnings told the ABC it received "expert advice" the way the product was sold poses "little risk" but it is updating packing and labelling as "an additional safety measure".

In a report to SafeWork SA, the SDA alleges the state's work health and safety laws were being broken, with lead sheets stored "without an appropriate container" or safe handling equipment.

The report also alleges because the lead products were not being kept correctly, they had rubbed together forming dust on the shelving.

Bunnings director of merchandise, Cam Rist, said there was "nothing more important" than worker and customer safety.

While we've received expert advice that confirms the way the product was sold poses little risk, we have worked with our supplier to update the packaging and labelling as an additional safety measure.

Bunnings has liaised with work safety authorities in New South Wales, Queensland and South Australia about the changes it has made and says no formal notices have been issued against the company.

Areas of stores where the products were kept have been cleaned with specialist vacuuming equipment, wipes and appropriate personal protective equipment (PPE).

In a statement, Workplace Health and Safety Queensland said follow-up inspections showed the products were "no longer on shelves".

A SafeWork SA spokesperson said products "only pose" a risk of lead contamination if they were handled unprotected.

This can be avoided by appropriate packaging and the wearing of gloves.

Mitre 10 has leased warehouse and distribution space in a former Masters Home Improvement store located in North St Marys, approximately 47 kilometres west of Sydney.

The property's owner is investment manager and developer Centennial which recently undertook a major refurbishment and expansion to reposition it as a logistics asset. Centennial acquired the facility for $35.3 million from HMC Capital (formerly known as HomeCo) in 2022.

Mitre 10 is leasing 4114sqm at 243 Forrester Road in North St Marys for an initial seven years, according to Real Estate Source.

Key features a warehouse area of around 3,725sqm including an open plan office space over two levels (383sqm).

The warehouse has high clearance up to 11m (approx.) with 10m wide awnings for all weather loading and access via four on-grade roller shutter doors.

It has an ESFR (Early Suppression Fast Response) sprinkler system throughout and generous hardstand areas, allowing for multiple larger vehicle movements.

There is flexible industrial zoning to suit a wide range of uses (subject to Council approval) and ample on-site parking, separated from loading areas.

The property is located within 2km of the Pacific National St Marys Freight Terminal and within 3.3km of the Great Western Highway and 5.4km of the M4 motorway.

It is also close to Sydney's major distribution centres, Amazon's Fulfilment Centre and the future Western Sydney International (Nancy-Bird Walton) Airport, which is on track to begin operations in 2026.

Tradelink

New Zealand's Fletcher Building has sold its Australian plumbing supplies and distribution business Tradelink for AUD170 million and said it will use that to repay debt.

The company announced it had struck an agreement to sell the business to Metal Manufactures, a subsidiary of United States-based Blackfriars Corporation.

Fletcher will get AUD160 million cash payable on the settlement at the end of next month, according to the New Zealand Herald. In a statement, it said:

There are no regulatory or other conditions to be satisfied to complete the transaction. The remaining AUD10 million will be a deferred cash payment based on achieving separation milestones. Separation is expected to take up to two years and be completed by September 2026.

Fletcher acting chief executive Nick Traber said they were pleased to have signed the Tradelink sale agreement, and to have achieved an "attractive outcome for both parties".

We believe Metal Manufactures is an ideal proprietor for Tradelink given their long and successful history operating in the Australian trade distribution sector.

According to The Australian, Metal Manufactures imports, manufactures and distributes metal tubing, electrical, lighting, data and thermoplastic products, security and monitoring equipment, and sign, digital and display solutions. It has more than 4000 staff.

The company's owner, Blackfriars, operates across the US building sector with interests in electrical, plumbing and plastics. Blackfriars in controlled by the low-profile US-based billionaire Colburn family.

In a statement to the ASX, Fletcher said that based on the forecast net sale proceeds, it expected to record a non-cash impairment of the Tradelink business of about $32.5 million in its 2024 financial year accounts.

Seven Group chief executive Ryan Stokes said it was interested in acquiring the BGC cement division and associated assets after spending $1.9 billion to buy out Boral.

In July, BGC confirmed that it was back on the market and expected to fetch more than $600 million in a sales process.

Mr Stokes said Seven wanted to expand Boral in WA and that the BGC business was a good fit. In the Australian Financial Review, he said:

We look to invest where we can see growth, in quarry, in our cement supply, as well as in our concrete batch plants. In WA, we would like to see how we can expand and that could be through organic means, it could be through inorganic steps.

Mr Stokes said it was clear the BGC assets could deliver on those ambitions, but it would come down to price and how it stacked up against alternative options.

In the past year, AdBri has been purchased by Irish group CRH, CSR has been bought by Saint-Gobain, while Seven Group purchased Boral, and BGC sold its plasterboard business to Belgium-based Etex in what has become a period of consolidation in the listed building materials sector.

Mr Stokes said the demand and supply imbalance in Australia's capital cities pointed favourably to greater home building activity.

We've had housing supply issues in every capital city, and it just highlights that we do need to see a step-up in housing construction. What gives us confidence is we look at the core issue - you've got record population growth and a shortage of supply. We know that that needs to be addressed.

BGC was up for sale in 2022, but buyers were unwilling to take on the family-owned company's loss-making home building unit. That part of the business has since been separated.

Related

Iplex pipes

Sydney law firm Baker McKenzie has filed class action against Iplex in the Victorian Registry of the Federal Court.

The case against Iplex Pipelines Australia Pty Ltd is the latest development in the saga, which has impacted thousands of WA homeowners.

The class action is on behalf of "all persons in Australia who acquired Iplex Pro-fit polybutylene pipe products manufactured using TYPLEX-1050Resin at any time from July 1, 2017."

Lead plaintiff in the class action, Tracey Watters, from Perth, said she had experienced 10 separate water bursts and leaks in the past four years. She told The West Australian:

These instances have caused damage to my property and possessions including ongoing damp and mould issues, and at times my family and I have had to relocate to alternative accommodation while repairs have been undertaken.

This has caused severe stress and anxiety for myself and my family, and I am constantly living with the uncertainty of when another burst or leak will happen.

Iplex is a subsidiary of New Zealand-based Fletcher Building, which denies its product is defective and blames pipe bursts on poor installation by builders, most specifically BGC Housing, which used Iplex's polybutylene pipe products extensively in its new builds.

It is understood the suspect pipes have been installed in more than 30,000 homes across the country.

Related

The hardware retail co-op group recently unveiled its new store model called "ELEVATE3 Ace" that focuses on the customer experience. This experiential format will roll out over the next five years in both new and current stores, supported with a USD1 billion investment. John Venhuizen, president and CEO, said:

Elevate Ace is not just a new store format, it's our vision to become famous for four things in the neighbourhoods we serve namely Paint, Power, Backyards & Barbeque, and Home Preservation.

We believe in the power of local, and this initiative strengthens our community ties by creating experiential spaces that are not only places to shop but also places to connect. Our neighbours will benefit from locally relevant, premium products, expert advice, and immersive retail innovation. With Elevate Ace, we are setting a new industry standard as we aspire to truly be the best, most helpful store on the planet.

Key features of the ELEVATE3 Ace store model include:

In an interview with Retail Dive, Dale Fennel, vice president of merchandising, said:

[We] wanted to create more than just a space where customers could come shop but a space in which they could connect.

We think that Elevate Ace is a fundamental change in our store model.

Experiential retail is "one of the absolute imperatives" for the company, he added.

The store will focus on the handful of brands and categories that are behind most of the company's current growth. Mr Fennel said:

We set out to really elevate those brands and create this immersive shopping experience that you can't find anywhere else.

Ace Hardware last updated its store design five years ago, and the industry has since changed. Mr Fennel said the company is working to improve the customer experience by offering extra training to frontline associates. These employees will be able to serve as brand advocates who can help walk customers through purchases. He said:

We really are focusing in on trying to understand what the customer wants, whether it be by brand or features and benefits, and serving up to them all the products that are available at Ace either in store or in the case of grilling, for assembly and delivery.

Ace Hardware opened 111 new stores through June and plans to open 200 by the end of the year, its 100th anniversary year.

Globally, there are over 5,800 stores in 60 countries. Elevate Ace will launch in 4,994 stores.

Ace's latest store growth has been fuelled by existing retailers opening additional locations, competitor stores converting to Ace, and new investors opening their first Ace Hardware store.

Its cooperative business model offers local entrepreneurs the ability to be owners of their local store operation, and also become one of a limited number of shareholders of Ace Hardware Corporation.

Digital shelf technology

Software through its digital shelf labels from VusionGroup is expected to provide rapid, real-time updates of pricing, ensuring accurate price management as well as LED displays in stores.

Ace Hardware plans for the partnership with VusionGroup to maintain high standards of customer service while modernising its retail network.

With over 5,000 locations across the US, the implementation of VusionGroup's technology will help streamline operations, allowing store managers and associates to be more agile and responsive.

This partnership also positions Ace Hardware to explore further advancements, such as out-of-stock detection and in-store media solutions.

The Australian Bureau of Statistics (ABS) has released its retail turnover figures for the period up to April 2024. For hardware retail they have largely continued the trends of the previous three months, which is to say that while there is limited positive growth, there has also been limited negative growth as well.

In looking at this data we consider them in terms of "periods" running from May to April. So "p2021" refers to the period from May 2020 to April 2021.

Contrasting p2023 with the current p2024, Australia-wide there has been only 0.03% of growth. That's basically flat, with the added caveat that inflation is running at an annualised rate of over 3.5%. To that we can add a "reverse" caveat that some building supplies are going through disinflation, which means the inflation rate for hardware retail is difficult to determine.

The largest percentage gain in revenue for hardware, contrasting p2024 with p2023, was Western Australia (WA), which increased by 3.3%, with revenue up $88.9 million for a total of $2824.2 million. In revenue dollars, Victoria (VIC) was the strongest state, increasing by $136.0 million, or 2.1%, with total revenue for p2024 of $6633.1 million.

Negative growth in percentage terms peaked with Northern Territory (NT), down by 8.0% or $22.5 million to $259.3 million. In dollar terms, New South Wales (NSW) had the steepest fall, down by $208.4 million to $7547.6 million, a drop of 2.7%.

Both Queensland (QLD) and Tasmania (TAS) were close to flat. QLD had a loss of 0.6%, or $30.0 million to $5323.9 million, while TAS had a gain of 0.6%, up by $3.3 million to $607.9 million. South Australia (SA) rose by 1.8% or $30.6 million $1769.7 million.

The Australian Capital Territory (ACT) managed a gain of 1.9% or $9.8 million to reach $538.7 million.

As mentioned above, Australia saw overall revenues lift by 0.03% or $7.7 million, to reach over $25.504 billion. This represents a gain of 24.9% from p2020 to p2024.

New South Wales

The April 2024 result for NSW could be seen as a slight improvement over the March 2024 result. It manages to be above the result for both p2023 and p2021, though it is below p2022.

The weakness in p2024 originates in the four key months from September to December 2023. For the rest of the 12-month period results track closely to p2023.

Victoria

As with NSW, the VIC result for April 2024 falls within the range of the past three years, slightly above the turnover recorded for the same month in 2021 and 2023.

In some ways, VIC has had the most unique pattern of pandemic and post-pandemic retail turnover. The peak period for VIC was p2021, whereas for most states it has been p2022 - the second pandemic 12-month period. For VIC both p2022 and p2023 saw a contraction in turnover. In fact, it is the state that has benefitted - in percentage hardware retail turnover growth terms - the least from the pandemic.

Queensland

The April 2024 turnover number for QLD has proved surprisingly positive, just nudging above the April 2022 result, to produce an all-time high for this month. Similar highs were reached in both January and February 2024.

South Australia

For SA p2024 has been very positive. Out of the 12 months, only four have trailed behind results for p2023, with the other nine months setting all-time monthly highs for the state. This includes the result for April 2024, which just bested the April 2023 result.

Western Australia

As with SA, WA has seen significant growth in p2024. In fact, every single monthly turnover result has set a new monthly high for the state. Contrasting with p2023, the April 2024 result - which was flat to the March 2023 result - exceeded its p2023 equivalent by the largest margin for the period.

Tasmania

Ever since October 2021, hardware retail turnover in TAS has followed a very tight pattern. Results for p2024 closely matched those for p2023 from May 2022 through to November 2022, then underperformed for December 2022. Since February 2024, the results have improved over p2023, with its April 2024 result setting a new monthly high.

Northern Territory

For NT p2024 has performed significantly below p2023, though somewhat in line with p2022. The April 2024 result has shown a significant improvement, after low turnovers from January 2024 to March 2024.

Australian Capital Territory

While p2024 started off well for the ACT, with new monthly highs set from May 2023 through to October 2023, November 2023 through to January 2024 saw it underperform both p2023 and p2022. However, from February 2024 through to April 2024 the results have been very close to those for the two previous periods.

Analysis

The general news reflected by the ABS hardware turnover results for April 2024 is that there has not been much of a significant shift since the previous year. Any real economic news for the sector will emerge with the results starting from August 2024. Those stats won't be available until October 2024.

The April results, however, provide an ideal position to look at the pandemic-based performance of the states and territories. While the initial pandemic surge in sales did take place in March 2020, April 2020 was the first full month in which the pandemic had its effect.

Also, it's arguable that FY2024/25 will be the first full year that isn't pandemic or post-pandemic. Instead, this financial year represents something of a switch back to "normal" - whatever that is going to mean. Which is to say that the traces of the pandemic in the economy - including higher commodity prices - are no longer transient and based on misalignment of supply chains. Instead, they are at least semi-permanent.

We can also reasonably expect the current elevated spending on hardware, the legacy of the pandemic "jump" of around 25% in topline turnover, to continue for at least over the next couple of years. Turnover might drop back to FY2020/21 levels, but even that seems unlikely with the ongoing demand for housing, and the centrality of dwellings in Australia's culture.

This focuses attention away from the fortunate increase in overall revenues, and towards the prospects for future growth. From that perspective, we begin to see the immediate future does not seem so bright as the immediate past.

Take, for example, the chart of period-on-period percentage increases for turnover:

Comparing the pre-pandemic growth for p2020 with the most recent period (p2024) there is a definite downwards trend (with the exception of TAS).

This can be further clarified by the chart showing these percentage change in a stacked bar format:

One surprise is the extent to which VIC has not benefitted as much from pandemic growth as the rest of Australia in percentage terms (excepting NT). But it is also evident that we are seeing a dynamic slowing in growth, and this seems likely to continue through FY2024/25.

From the immediate perspective of independent hardware retailers, this is concerning, but probably not so consequential. The increase in retail sales has given them a much needed lift and enabled smaller stores to reinvest so as to improve their businesses and reduce ongoing operating costs.

It is a different story, however, for the two major retail operations, Bunnings and Metcash's Independent Hardware Group (IHG). Bunnings in particular is under pressure not only because growth has slowed, but because other retail segments is parent Wesfarmers - notably Kmart - have managed to find growth even in a flattening market.

As HNN discusses in more detail in the upcoming issue of HI News, the core problem with Bunnings is that it has reinvested its "windfall" earnings boost from the pandemic, but those investments - Tool Kit Depot and Beaumont Tiles - are longer-term investments, and unlikely to generate contributory returns before FY2026/27. (That's actually a general problem that Wesfarmers is experiencing.) While additions such as a pet food and accessories line are helpful, rejuvenated growth in 2025 will likely require structural change.

For IHG the picture is somewhat different. With the exit of Annette Welsh as CEO of IHG, and the advent of a new (and highly competent) CEO for Metcash overall, much of the "moral imperative" to retain the initial framing of the acquisition of Home Timber & Hardware Group (HTH, aka Danks) in late 2016 has been lost. That framing was that the acquisition would be more about preservation than transformation.

In the new environment, with decreasing growth per-store, it's likely that IHG will increase its acquisition and joint-venture activities in its lead brand, Mitre 10. While this is, to some extent, "non-organic" growth through simple acquisition, it is also a structural shift from wholesale-only to wholesale plus retail margins.

A somewhat feisty debate has developed about what happens now and in the near future with renovations in Australia. The conventional view is that when dwelling construction activity declines, spending on alterations & additions (alt-adds) increases.

However, as we've often pointed out at HNN, we are not currently living in conventional times.

One factor that seems difficult for many to acknowledge is that the Reserve Bank of Australia (RBA) is determined to bring the inflation rate down to something under 3.0%. That means slowing the economy, and part of slowing the economy is slowing the rate of value growth in the housing market, as this represents inflationary consumption.

This struggle with inflation is something of a global condition, and includes the US, much of the EU, and the UK. One important contrast with economies such as the US is the rate of productivity growth over the past few years. To quote from a US Bureau of Labor Statistics press release dated 6 June 2024:

Nonfarm business sector labor productivity increased 0.2 percent in the first quarter of 2024, the U.S. Bureau of Labor Statistics reported today, as output increased 0.9 percent and hours worked increased 0.6 percent. (All quarterly percent changes in this release are seasonally adjusted annual rates.) From the same quarter a year ago, non-farm business sector labor productivity increased 2.9 percent, the largest four-quarter increase since the first quarter of 2021, when the measure increased 5.9 percent.

Meanwhile, in Australia, according to a summary from the Australian Bureau of Statistics (ABS) for March quarter 2024 national accounts:

Labour productivity was flat. Output per hour worked was largely unchanged compared to the previous quarter and the March quarter 2023. Overall, we worked similar numbers of hours as the previous quarter, although hours worked in government-supported industries like health, education and social assistance grew faster.

Productivity is important because it represents the best "exit strategy" for inflationary economies. If you can make more for less, you gain growth without the creation of scarcities, and growth is likely to be channelled towards activities with higher productivity. Overall, that tends to be deflationary for prices.

Poor productivity growth narrows the options available to the RBA. It is perhaps worth remembering that in mid-2008, with the consumer price index (CPI) indicating that inflation was up around 4.5%, the RBA set interest rates at over 7.0%. What seems to have wiped this from collective memory is that from December 2011 through to March 2021 - just shy of 10 years - inflation as measured by the CPI remained below 3.0%, and from December 2014 to December 2019 it was mostly below 2.0% as well.

Given this history, current interest rates could easily be somewhere around 6.0%. The reason such aggressive interest rate rises are not in play is that the Australian economy overall is not doing well. That relates to the gross domestic product (GDP), which grew at just 1.1% quarter-on-corresponding-quarter for March 2024 - the continuation of a slide that started in December quarter 2022, and well below a desirable rate.

In close to simplistic terms, looking after the economy can be seen as something like looking after a lawn. If you put on lots of fertiliser (economic stimulus), the grass (economy) grows, but so do the weeds (inflation). If you put on weedkiller (higher interest rates) to get rid of the weeds, then the grass will also start to die. What works (somewhat) is a combined weed-and-feed supplement (productivity).

However, that weed-and-feed supplement seems to be in short supply in Australia. At the moment the only way forward for the RBA is to continue to apply the weedkiller in judicious amounts, so that the grass, though affected, does not actually die out.

A second factor at work is that since 2020 Australian society has come to - culturally - place a higher value on housing. The extreme COVID lockdowns were something of a shock, and it will likely be another couple of years before people stop - at least unconsciously - planning for the next pandemic. In particular, that has reduced the attractiveness of multi-unit dwellings, and thus created an even tighter market for detached houses.

Given all this, it would seem evident that the convenient cycle of "house construction goes down, alt-adds go up" is unlikely to be as much a given as it was in, say, the 2010s.

The dwelling market

What is the current state of the dwelling market? Perhaps the best stats to look at are from the ABS dealing with capital city dwelling markets. In this case we're using periods that consist of the June, September, December and March quarters, so p2022 runs from June 2021 through to March 2022.

Median house prices

Let's start by taking a quick look at the median house price for capital cities.

To summarise these charts briefly, there are two separate trends evident. For Sydney, Brisbane, Adelaide and Perth, median house prices have continued to rise. For Sydney and Brisbane there was a decline in median values, or at least a flattening of growth, for p2023, but this has to some extent reversed for p2024. Both Adelaide and Perth show continued growth straight through both p2023 and p2024.

For Melbourne, Canberra, Hobart and Darwin, there was a similar slowdown in p2023, followed by further falls for p2024.

Transfers of established houses

The ABS stats for the number of transfers of established houses (excluding new builds) gives an overview of market activity.

Looking at these charts from the perspective of comparing the number of transfers from p2023 with p2024, the first thing to notice is that with the exception of Darwin and Adelaide, the number of transfers for the most recent March quarter is below the number for March quarter 2023.

Broadening that regard to the entire p2024, Canberra, Brisbane, Hobart, Melbourne and Perth all show at least two quarters in p2024 where transfers were below those for the previous corresponding quarter. On the other hand, Sydney managed to set a seven-year high for transfers in September quarter 2023.

Conclusions

There is variance between the different geographical markets - as you would expect. Overall though, the alarming trend is that, despite the additional increase of 0.25% as recently as November 2023, higher interest rates, comparing p2023 with p2024, have become "normalised" in the markets.

To give some idea of just how "out of kilter" things are, we can look to a speech by the RBA's Jonathan Kearns, head of domestic markets, entitled "Interest Rates and the Property Market", which he delivered in September 2022. He stated:

In the April [2022] FSR [Financial Stability Report] we used a user-cost model to estimate that a 200 basis point [2.0%] increase in interest rates - which increases mortgage payments and so the cost of owning - would lower real housing prices by around 15% over a two-year period. While this 15% decline was commonly reported as being a forecast for housing prices, it was not actually a prediction of how much housing prices would change. Rather it was an estimate of how sensitive housing prices are to interest rates , assuming that all the other costs and benefits to housing don't change with interest rates.

Between April 2022 and September 2022 interest rates increased by 2.25% with little real discernible medium-term effect on house price growth in markets such as Sydney through to 2024. The reason for this likely rests with that last phrase by Mr Kearns, the caveat "assuming that all the other costs and benefits to housing don't change with interest rates".

As mentioned above, one factor that continues to dominate the housing market is the aftershock of COVID. Added to a period of very low interest rates, against a background of three decades of poor management of housing in most states, you end up with a housing market that is somewhat out of control.

The renovation market

How has all this played out in Australia's renovation market? As HNN has discussed in the past, measuring alt-adds is something of a difficult task. In this case, we're looking at three sets of ABS stats. The first and simplest is the stats from ABS building approvals, the original monthly data that relates to approvals granted through to May 2024.

The second set of stats is from the same basic series, but instead of original data, it is quarterly data for chain volumes. Chain volumes adjust for price differences (brought about by inflation and other causes). Chain volumes thus tend to provide a more "pure" reflection of demand.

The third is derived from the National Accounts stats relating to final state/territory demand. For those stats we're also using chain volumes.

NSW

While these charts tend to look both dynamic and confusing, in the end this chart shows that the value of alt-add approvals for NSW has been relatively stable over the past three periods. There was a decline of just 0.3% for p2024 over p2023, and an increase of just 1.6% for p2023 over p2022.

That said, the manner in which that value is delivered is radically different, with the noticeable spike in December 2021 probably a consequence of influences related to COVID lockdowns.

Equally, the activity for April and May 2024 (not covered by the other quarterly stats) is interesting as it suggests an increase in these approvals.

Dealing with much of the same data (excepting April and May 2024), this shows a quite different outlook, with the value for approvals in p2024 falling somewhat below those for p2023, and p2023 very much below p2022.

This shows roughly the same situation as the previous chart, though the increase from p2022 to p2023 is moderated, and the decrease from p2023 to p2024 is much larger.

As the Sydney market has shown ongoing increases in house values, this supports the legacy forecast that an active house market will see a decline in spending on alt-adds activities.

VIC

Again, while this chart looks slightly chaotic, p2024 is only 1.3% above p2023, and p2023 has lost just 1.0% on p2022.

This shows the extent of the actual decline in alt-adds from the highs of p2022, though there is an uptick for p2024 for March quarter 2024.

Looked at through the lens of national accounts, there is far more synchronicity between p2022, p2024 and p2024. The decline for p2024 is also more marked, especially for December quarter 2023.

Here we see something of a contradiction to the legacy analysis of countervailing markets for houses and alt-adds. Even as the housing market declines, so too does the alt-adds market.

QLD

The original data for QLD shows that new highs were achieved in six of the 12 months of p2024. That's despite the fact that median house values continued to increase. Overall, approvals for p2024 were 8.0% up on those for p2023, while p2023 were up 1.3% on p2022.

In this case the chain volume measurements reflect the original data, with p2024 following a similar pattern to p2023, but at a higher value level.

There are broad similarities with the previous chart, but with an interesting lift for activity in the December quarter.

Again, this broadly supports the legacy view regarding countervailing markets.

SA

It seems evident looking at this chart for SA that p2024 was a year of high growth for alt-adds. Seven months show new highs, and one month matches the previous high. In fact, overall p2024 grew by 12.8% over p2023, while p2023 grew by 4.1% over p2022.

In this case, the chart for chain volumes casts the previous chart's data in a new light. Overall for p2024 there was a 2.0% decline over p2023.

This chart essentially corroborates the previous chart, cancelling out the lift for December quarter 2024

Given the ongoing strength in the SA housing market, this again supports the legacy view that housing and alt-adds markets are countervailing.

WA

As this chart clearly indicates, alt-adds have grown significantly in WA. For p2024 the state grew by 31.4% over p2023.

That picture of growth is moderated using chain volume measures, but it still remains significant, with p2024 growing by 17.4% over p2023.

National accounts using chain volume measures moderates this increase slightly, but still shows a breakaway December quarter 2024.

WA represents a different departure from the legacy view. The house market is flourishing, but so is the alt-adds market.

TAS

This shows a general increase for alt-adds in p2024 of 8.0%.

This chart largely accords with the previous chart. Adjusted for chain volume, the increase in alt-adds for p2024 over p2023 remains around 8.0%.

Again, this chart broadly reflects the two previous.

The data for TAS broadly supports the legacy view. With a declining house market, alt-adds spending has increased.

NT

The sharp rise in October 2023 all but guarantees alt-adds for p2024 are above those for p2023. In this volatile market the increase for the 12 months is 27.9%.

The chain volume measure is more clear, indicating p2024 outperformed p2023 outside of the December quarter.

The national accounts do show a more mixed picture, with p2024 underperforming p2023.

Darwin and the NT are difficult markets to understand. Both the performance of the overall housing market itself and alt-adds are somewhat mixed.

ACT

With alt-adds building approvals touching on seven year lows for seven of the 12 months, it's clear that this sector is performing below p2023 during p2024.

This chart largely supports the conclusion above, but with unexpected strength in December quarter 2023.

This chart draws a very clear picture for underperformance for p2024 as compared to p2023.

With the ACT housing market in decline, this goes against the legacy view of how that market relates to alt-adds. However, as with NT, this is a highly volatile market.

Analysis

What these stats for alt-adds demonstrate is that this area is somewhat complex to understand and forecast at this point. It is certainly the case that the pattern which has dominated much the 2000s and the 2010s - of dwelling investment shifting between house building and renovations depending on market conditions - still has a major effect on the market.

However, it's also true that a range of other forces are likely at work as well, as in demonstrated by both VIC and WA, as well as the ACT. HNN would speculate that in some markets, expenditure on alt-adds has increased due to the ongoing surge in the housing market. At some point, the price of new houses becomes simply inefficient, and homeowners realise they can obtain the features of a new house on their existing property at a lower cost through alterations and additions.

Similarly, given high average house prices and increasing cost of living pressures, alt-adds have become the best coping mechanism for many homeowners. Economic uncertainty has enhanced the value of taking a more conservative approach.

All this means that alongside the behaviour in some markets of switching between the housing and alt-adds markets based on current prospects, there is an additional behaviour where when the housing market surges, the alt-adds market does as well - though to a lesser extent.

The local community in Wagga Wagga (NSW) continues to wait for new plans for Bunnings' relocation to one of the city's busiest intersections, according to a report in The Daily Advertiser.

In late 2023, plans were rejected by Wagga councillors for Bunnings' proposed move to 64 Pearson Street.

Car Wash owner Steve Kenyon - whose business is located on Person Street - said he has been talking directly with Bunnings over recent months, and there have been meetings with various stakeholders. Mr Kenyon is waiting for Bunnings to come back with a new plan that no longer include a traffic light outside his location's driveway. He said:

We have no objection to Bunnings going there, but we just want to make sure that the traffic movement doesn't affect the businesses on Pearson Street. The ball is in Bunnings' court as to going with a few of our wishes and changing their application.

The $25 million move that was initially approved with conditions by Wagga City Council in 2021. The rejected plans by Bunnings included traffic lights, a median strip, a Pearson Street exit and reduced on-street parking.

However discussions are continuing between Bunnings, council and regional transport and roads minister Jenny Aitchison, according to Wagga City Council general manager Peter Thompson. He told The Daily Advertiser:

While there has been some progress in relation to the issue, the concepts under discussion still present challenges. Discussions will be ongoing between all parties, including the community representatives and the businesses in the area.

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Greenlife suppliers

The federal government recently announced it would adopt every recommendation from the independent review of the Food and Grocery Code of Conduct led by economist and former Labor trade minister Dr Craig Emerson.

However, plant growers were disappointed the review decided Bunnings should not fall under the code alongside other big retailers such as Woolworths and Coles.

Greenlife Industry Australia (GIA) CEO Joanna Cave told The New Daily while she was pleased the code would be strengthened, the decision to leave Bunnings out was "deeply disappointing". She said:

The issue's acknowledged, but greenlife growers are left out in the cold. They're effectively the only growers within the whole of the horticultural sector that don't benefit from a code of practice protection, which is why we were asking for them to be included in the first place.

The review has recommended Bunnings work with GIA to develop a document setting out expectations about the supply of nursery plants, and progress of the relationship could be reviewed in two years' time.

The government's response to the review also outlined concerns about allegations of retailer conduct towards nursery plant suppliers, and said it would "continue to monitor conduct in the nursery plants industry".

Ms Cave said GIA would approach negotiations with an open mind, and she hoped Bunnings would do the same. She said Bunnings had placed some rebates under review, including one in which the volume of plants it bought had a direct effect on the discount growers were obliged to give it.

They've been very careful to say that any measures are likely to be temporary. We're interested to see what sticks now that the government has made its position clear that they won't be admitted to the Food and Grocery Code.

Will Bunnings breathe a sigh of relief and go back to business as usual? Or have they learned their lesson and are they willing to make some changes for the benefit of the greenlife growers?

In a statement to The New Daily, Bunnings managing director Mike Schneider said the company welcomed the recommendation that retailers outside the supermarket and grocery industry are not be taken into the code.

We note the report's suggestion that we work collaboratively to set out expectations relating to the supply of nursery plants, and we look forward to continuing to engage with suppliers and relevant industry associations.

We recognise that good supplier relationships are essential for the continued success of our business.

New code mooted

Ms Cave said GIA had been approached by the Department of Agriculture, Fisheries and Forestry to discuss potential nursery code of conduct. It is likely it would emulate the food and grocery code, but be more specifically tailored to the needs of greenlife growers.

Ms Cave said one of the areas in most need of attention included stronger commitments between the retailer and greenlife growers. A common complaint from growers is that Bunnings would not commit to buying specific volumes of plants, leaving many out of pocket.

A nursery code of conduct would also need to include an anonymous complaints mechanism, similar to the one that will become part of the food and grocery code, thanks to the review's recommendations.

In the current situation, Ms Cave said growers had little to no avenues for recourse when facing problems.

Bunnings does operate a complaints procedure of its own. But you can understand why growers would feel very reluctant to use a complaints procedure managed, funded and organised by the very organisation it wants to complain about.

And [regarding] the [Australian Competition and Consumer Commission], for example, the burden of proof is on the growers. It's very hard to successfully make a claim through that avenue. It takes a long time, costs money.

That's why we've been lobbying for a code that contains within it decent dispute-resolution mechanisms, because without that the growers really have no way of raising concerns.

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A Sydney Tools outlet has opened next to Wodonga Homemaker Centre in Victoria. Store manager Jerico Johns said there has already been a positive reaction to the "one stop shop".

A rival Total Tools store is being built less than one kilometre away adjacent to Bunnings, but Mr Johns is not concerned. He told The Border Mail:

One hundred per cent we will beat anyone's price. But we shouldn't really have to, we have the market covered.

He said customers, particularly tradies, are enjoying the range of "exclusive products".

Albury-based customer Kurt Jensen was searching for a nearby Sydney Tools and was excited to see one had opened in Wodonga. He said he saved "a few hundred dollars" by shopping at the store.

It's good to have a bit more competition. A bit more range, variety is always great.

Local resident Eckhard Greiner said the store looked good but "just like anything, it will be interesting to see how long they last". He said there seemed to be enough tool stores on the Border but he did walk away with a purchase of drill bits.

Sydney Tools has more than 90 retail stores across the country including one in Wagga (NSW), just over 134kms away.

Another customer Jason Toogood had previously shopped at the Wagga store and said it was great to see they were now on the Border as well. He said:

Competition is what we need.

A grand opening for the Wodonga store is tentatively scheduled for July 18, according to The Border Mail.

Reece

Plumbing supplies group Reece has opened one of its largest multisite locations with four different branches - Plumbing, HVAC, Fire, Irrigation and Pool - in Berrimah (NT), close to its previous premises, at 47 Pruen Road. It will be the first time Reece's Fire and Irrigation and Pool have been available in the Territory.

Reece general manager Ben Counsel said Territorians had previously been serviced by individual outlets.

Prior to the opening of Berrimah, Reece primarily served the Northern Territory through our network of eight plumbing branches across the Territory.

The investment to expand Reece Fire and Reece Irrigation and Pools into the Territory represents our commitment to continue investing in and supporting allied industries that maintain and support the development of essential infrastructure in the Northern Territory.

Centrally located, the new multi-site is designed to provide Territory customers more access to a wide variety of quality products, convenient delivery to site, and a dedicated team of experts across different industries.

Tradelink

Sydney-based private equity firm Allegro Funds is believed to be in a strong position to buy Fletcher Building-owned Tradelink, according to a report in The Australian. This comes after an earlier report that Los Angeles-based Pacific Avenue Capital Partners submitted a non-binding indicative bid in The Australian Financial Review (AFR).

It is now understood that Pacific Avenue Capital Partners has fallen away from the sale process. Also no longer believed to be bidding is turnaround specialists Anchorage Capital Partners.

Sources told the AFR that offers for the underperforming plumbing and bathroom supplies division have come in between $150 million and $175 million.

Fletcher Building is due to release its full-year results on August 21. Sources say binding offers for Tradelink are due to be collected at the end of July, with a signed deal expected to be signed in the first half of August.

Tradelink was placed up for sale by Fletcher Building after the company started wrestling with large debt levels of about $2 billion against a $2 billion market value and lower earnings as recessionary conditions in New Zealand and a weaker trading environment in Australia affected its bottom line.

Any buyer for Tradelink would want to know the extent of liabilities connected to the company's leaky Iplex pipes in Western Australia, as Fletcher Building negotiates a settlement over liability. WA builder BGC has blamed the pipes for the leaks, but Fletcher Building claims the problem rests with the installation.

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