The Australian Bureau of Statistics (ABS) has released its stats on building approvals through to March 2021. In this article we will look at those stats for new housing in the two "bellwether" states, New South Wales (NSW) and Victoria (VIC), and complete the series for the other states and territories in the near future.

Most of these statistics, with the exception of the month-on-month numbers, relate to consolidated stats for the year (12 months) ending March 2021 (YEM2021). All monetary values on the charts are expressed in $100,000 numbers.

New South Wales

Figure 1 shows a summary of these statistics for NSW.

The trends that we see here have become familiar when assessing activity in the construction sector during the first year of the COVID-19 pandemic. NSW-1 shows the number of building approvals for houses, semi-detached/townhouses (SDT) and apartments. It's interesting to note that even with the boost we've seen during the pandemic, the numbers for houses have not come back to the levels they held for YEM2016 through to YEM2019. For SDT, there's been a slight recovery. Apartments have continued a broad slide downwards, after their peak in YEM2017.

Looking at average values (the total value of applications divided by the total number of applications) in NSW-2, however, we see quite different trends. These numbers actually say quite a lot about the structure of the construction industry in NSW. It's more typical, in other nations at least, to see a decline in average values when there is a decline in number of approvals, but not in NSW. Both house values and values for SDT, there has been a broad and continuous climb in value.

Only apartments have shown a decline and levelling off before, surprisingly, regaining overall value during YEM2021. That said, these are averages, and apartment construction and therefore value varies significantly more than houses.

NSW-3 illustrates some of what is at work in apartments. The bulk of the market has been carried by those ranging from four to eight storeys, but these have declined since YEM2018, so that by YEM2021 these numbers are close to those for apartments in buildings nine storeys and above. NSW-4 shows that larger constructions also dominate for the SDT category, which peaked in YEM2018, and showed a significant recovery for YEM2021 - possibly absorbing some of the activity from the apartment sector.

NSW-5 shows the percentage change in the number of applications between one YEM and the previous YEM. It is evident that since YEM2014, there has been a steady decline in growth, albeit with an uptick in YEM2016. However, the growth numbers remained positive (though YEM2019 was less than 0.5% negative) through to YEM2019.

That ended in a steep dive from YEM2019 to YEM2020. The recovery in YEM2021 has been sharper, but still has not returned to the YEM2014 peak.

Looking at NSW-6, it's interesting to note some relationship between the growth of the value of building approvals for houses and those for SDT. Growth declined for houses from YEM2016 through to YEM2019, then fell into negative territory for YEM2020. Growth in SDT outperformed that growth through to YEM2019, and there is a broadly equivalent growth spurt for YEM2021.

NSW-7 and NSW-8 both deal with month-on-corresponding-month numbers. Looking at NSW-7, which shows growth in the value of building applications, it's notable that these numbers were trending negative to flat growth through to August 2020, then picked up to reach a peak for December 2020. The SDT category was somewhat more volatile, and the apartment category was very volatile from February 2020 onwards.

That pattern in repeated in NSW-8, which details the percentage growth in the number of applications. Again, it's not until August 2020 that significant growth for housing appears, while post that month the volatility for both apartments and SDT increases.

Victoria

VIC illustrates something of a contrast to NSW. For one thing, its property market is far more dominated by houses. Figure 2 supplies the charts for this series.

VIC-1 shows building approval numbers for houses, SDT and apartments. It's notable that the number of building approvals only declined for YEM2020, after holding steady to YEM2019. For YEM2021, the number of approvals for houses has hit a new 10-year high.

Meanwhile, apartment approvals managed to reach a local high in YEM2015, and then had only a slight decline through to YEM2018, and then declined through to a local low for YEM2021. SDT did a little better, in terms of growth but not actual numbers, with a local high for YEM2018, followed by falls, and only a very slight improvement for YEM2021.

In VIC-2, the average value of approvals follow a different path. Approvals for apartments actually increased their average value over that for houses, indicating the market has continued to shift towards high end apartment dwellings. It is interesting also that while the number of house approvals increased, the average value of these actually fell through to YEM2021.

VIC-3 shows how that is working out in the types of apartments that get approvals. The sector is dominated by apartment buildings of over nine storeys, while the share for apartments from four to eight storeys continues to decline.

Similarly, VIC-4 shows that in SDT, the share of approvals for smaller builds is sliding down, while there was significant growth for builds of two storeys and more through to YEM2018, followed by a decline back to YEM2016 levels in YEM2020, and then a small bump for YEM2021.

As with NSW, VIC really only recorded one year of negative growth for the rate of building applications for houses, which was YEM2020, as shown in VIC-5. The year before that, however, shows a steep decline negative rate for SDT applications. Applications for apartments outgrew those for houses from YEM2012 through to YEM2018 but went negative in YEM2019 and YEM2020. Looking at the growth rate in total values for approvals in VIC-6, these closely match the numbers show in VIC-5.

VIC-7 shows the month-on-corresponding-month growth rates for the numbers of new dwelling approvals. In contrast with NSW, the rates for both houses and SDT are relatively stable, but the growth rates for apartments are highly volatile. That's likely a reflection (in part) of the market being taken up by larger apartment projects, so the growth movements come in bigger blocks.

That behaviour is largely echoed in VIC-8, which shows the month-on-corresponding-month growth rates for the value of new dwelling approvals. The house numbers are very flat, and it's interesting that they reach a peak only in the final month of the series, March 2021.

Analysis

One initial conclusion from this work is simply that the NSW and the VIC markets differ substantially from each other. The accepted wisdom has been that homebuyers have become averse to apartments, as these are less suitable to periods of "lockdown" than houses, both detached and semi-detached. In the case of VIC, especially in the Melbourne market, that is likely to remain the case. However, the truth is that for people living in Sydney, choice is more limited, and the lockdowns there were not as severe.

Overall, though, the problem in both states - and both major cities - is that the property market remains, structurally, somewhat insulated from the kind of market forces that elsewhere in the world work to periodically reduce property prices. One reason for that may be that construction in Australia has a far greater reliance on subcontracting (subbies) than the construction industry in other areas. When the market for housing subsides, investors and the construction industry both pull back in term of housing builds. Because the construction companies have fewer permanent full-time employees, that makes economic sense.

While that might strike some in the industry as a "good" thing, it does come at considerable costs. Indications are that construction companies that rely on an employed workforce, that can be trained to a high level of expertise (and safety concerns) are inherently more efficient. Australia's construction industry, according to figures from the Productivity Commission, is one of the very few industries that has actually gone backwards, and become gradually less efficient in recent years.

That is beginning to change, however, with more construction companies signing on to better industry standards and practices. Given the increase in technology today, there is no longer even that much of a competition between the two models of construction company management. Those changes should start to bring about a change, where falling demand will lead to more investment in less expensive projects. However, that will take at least another five years to have any great effect.

Well-known UK retail information publisher Retail Week held an excellent online conference recently, called "Retail Connected". In an entertaining and enjoyable format, they hosted a global range of retail talent for brief, informative and entertaining talks on a range of topics. It's free to access the recordings of this event, and HNN urges you to go take a look at this link:

One of the people interviewed at the event was Jean-Jacques Van Oosten (aka "JJ") who is chief customer and digital officer at Kingfisher, which owns the UK home improvement retailer B&Q and Screwfix, as well as a range of retailers in France, Poland and elsewhere in the EU.

Like so many other home improvement retailers, Kingfisher found the COVID-19 pandemic to be something of a mixed experience in many regards. The first thing that JJ had to deal with was rapidly closing a number of stores, as the first wave of the pandemic hit the UK and the EU. As he puts it, the company was facing negative 80% like-for-like sales in the stores, and at the same time, positive 300% for ecommerce.

In the end, Kingfisher emerged in very good shape from the pandemic - at least so far - with strong gains in profitability and customer share. One element that JJ emphasises is that the company adopted the need for speed as one of the essential services it had to supply its customers, and that in many cases the way the company scaled up and delivered that speed was by making better use of its existing retail network of stores.

In fact, one area where they were lucky was that by chance, in the weeks before the pandemic hit, they had changed strategy in a very positive way. As JJ tells it:

The irony of all of this is that three weeks before COVID, we actually decided as a strategic move to put stores at the centre of our ecommerce proposition. That means making the entire range available online. So we decided to do that three weeks before the lockdown, though we had no idea the lockdown was coming up.

Our strategy was very much one of making that range completely available, as fast as possible, accessible to customers through either click and collect or for home delivery. Because we believed that speed is really the essence.

You know the "youngsters", they buy things on their mobile - even people of my age, if I may say! And that's even just for shampoo or something to eat. They don't go into a big shop, they just order it mobile, and it comes back minutes later. You can only do this if you've got local presence. So our stores, in our view, were real assets, and not liabilities.

Amazon, despite all of the fantastic, you know, out of this world type of logistics, they can't do same day, or within a few hours. We will be able to do that. In those extraordinary circumstances [of the pandemic], we put everything in place to make that happen very, very fast indeed.

All that came from a lot of work, and being willing to really invest in the process.

We invested very fast into digital equipment for colleagues to get all of the orders coming from the customers and located to the right stores. In the end, they could actually do all of this automatically, using a handset to go and pick [the orders] at Screwfix in one minute, and at other stores in under a few minutes. So it is quite fast.

As JJ describes it, this was far from just a surface change. The company had to rethink how it did retail almost from scratch, change the way the network worked, and adapt to delivering unusual items.

All that puts a lot of stress on your in-store routines in terms of availability, in terms of replenishment routines. You have to think about, if you want to do a home delivery from stores, you know, not all stores have got the depth of inventory to be able to do these. How do you optimize the network?

So we had to build - I mean it's obvious now - but we had to create the concept of hub stores for digital, which are slightly larger stores in the UK then in France. We had to really work extremely hard on availability, because we had actually such a high level of demand not just for the normal building materials, but also for things like live plants.

Beyond just the practical business of shipping what you had in whatever way would suit the customers, Kingfisher also focused on many of the intangibles it needed to help drive trade, such as delivering more choice.

We also had to go and think about providing choice to our customers. How do we provide choice? Because they were asking for that. For example, they did not have much choice for services.

For example, they were asking, "Do I go and set up a service with a tradesman? Or do I go instead to a marketplace for services?" So we actually went and bought a marketplace, which we are now rolling out to the UK and in Poland and in the other countries as well.

In doing that, we chose deliberately to use an open architecture. So we would welcome what would be considered by traditional retailers to be competitors, but we don't look at it like that. That way, you can monetise some of your web traffic.

While many retailers still look at recent events as bringing in a temporary state of affairs, JJ is quite clear that many of the changes caused by the pandemic will live on for decades.

We talk about mutational events, the pandemic is a mutational event. The direction, what I can say is, people say they will continue to work from home to achieve a better balance for their own life, for their private life. But they will also go and collaborate in the office because they value this.

So we'll have to have flexible working facilities at home, but they also want to see their homes as a place where they can relax. So that is important as well. They want to work in the gardens, on the balcony. They've also discovered the importance of local communities.

We've gained 10 million new customers, we look at the 18 to 34 age range, many of them are new customers and never did DIY before. So they've learned about it, and they enjoyed it. They want to do more. And I think across all of the sector, the importance of contactless and mobile is going to increase as well.

More importantly, though, JJ sees a profound structural change in the way retailers need to operate. Where in the past, retailers could dictate product availability to the customer, that will be much less the case in the future.

I think you need to be very smart as a retailer now. Once upon a time, retailers were telling customers what to buy, your buying team was deciding what would be bought by the customers. That is probably a little bit old-fashioned now. Today, customers are telling you what they want to buy, and you need to personalise your offer.

The level of automation is important as well. If you look in Walmart, they have invested heavily now in a lot of technology, they are looking at automating stores themselves with very advanced robotics.

Historically, we have for 120 years, since the time of Piggly Wiggly, consistently provided cost advantages to our customers. The customers are doing our job for us, they come to our stores, and they pick stuff for us. In exchange, they get a lower price.

Now, what customers are expecting is that we go to them, and we help them to do all these things. That increases our cost base. And that requires us to be far smarter to do that effectively and completely change our unidimensional economic model to add new lines of incomes. That might be marketplaces, it might be monetisation of traffic, or it might be a partnership.

Asked what he felt he himself had learned through the experience of the pandemic, JJ pointed to the need to provide colleagues and team members with real representation.

What I've learned is that, from a leadership perspective, is the importance of creating a safe environment, not just safe physically, because of the COVID situation, also mentally, where people can express themselves, and they can speak out. And I will always look for everyone around the table, the virtual table to be able to make a contribution.

Low interest rates, rising property prices, the government's HomeBuilder scheme and strong demand for extensions and renovations after COVID-19 lockdowns have resulted in record volumes of renovation applications and approvals, based on data from the Australian Bureau of Statistics and reported by the Australian Financial Review (AFR).

Timber and lumber prices are proving an acute problem for the hardware retail and construction industry as limited supply combined with a massive lift in demand - as people renovate their homes during COVID-19 and new homes are built - generates big increases in costs. A shortage of skilled tradies is also adding to rising costs.

A number of retailers said timber costs have already risen by up to 15% and say there will be more rises before year-end due to "serious constraints" on imports because of global competition.

Mike Barry, chairman of Natbuild, told The Australian prices in Australia haven't increased to the same extent as 400% plus rises in the US but that since November pricing pressure in the Australian market has been evident. He said:

The significant demand from new buildings and renovations has just skyrocketed and that is a global phenomenon, and the consequence is that we have not had the same supply of imported material. Towards the end of last year is where we started to feel the price effects.

Our intelligence is everybody is feeling the same supply pressure here, and same supply disruptions, and our intelligence also says that the price increases are flowing through fairly consistently across the market.

Ashley Waller, a Home Hardware director, has described "extreme and unprecedented demand" for timber and other building products, product shortages and "soaring" transport costs.

Mr Waller said timber costs had risen between 6% and 15%, with additional price rises expected before the end of the year. He told The AFR:

These circumstances have resulted in us not being able to source and supply many products that you would ordinarily expect us to have in stock or receive in-store within 48 hours.

Horsham Mitre 10 owner, Chris Jones, said he had never seen a shortage like the current scarcity of timber. Wimmera timber yards in regional Victoria are reporting shortages as construction projects across the region continue to be delayed by up to several years. He told The Wimmera Mail-Times:

There was a fair bit of disbelief in the industry, initially, due to the supply shortage because shortages are generally to bring the price up. That's not the case this time.

Mr Jones said Horsham Mitre 10 had received calls from places as far afield as Geelong and Melbourne looking for timber.

Pontings Mitre 10 timber manager Nick Slorach in Warrnambool (VIC) said while building projects weren't being help up, the shortage of supplies was starting to be felt. He recently told The Warrnambool Standard:

We're sort of at the stage where some suppliers aren't taking orders. Generally through winter they will build stocks. They just didn't get a chance to do that last year.

However, Mr Slorach said Pontings had been able to fulfill its orders and keep up a supply of stock.

Timber is getting hard to get. We've been able to get through. We are getting drip fed what we normally would, so we are getting by. Hopefully it gets better sooner rather than later.

Mr Slorach said pine framing, cypress, engineered products were the products that were very hard to get.

The framing shortage means they can't build the trusses, so truss companies across the state have cut off as well. There's a three-month lead time for jobs that are in the books, for jobs that aren't in the books, who knows. So that will hold things up at some point.

Mr Slorach said imports and shipping was part of the issue with other countries such as America paying more for timber - sometimes up to $500 more per cubic metre more.

So your imports are less because we don't have as much timber coming into the country, but we're not producing as much either.

Bunnings

Duncan Bryce, Bunnings' head of builders' solutions, said the building industry was "facing a number of significant challenges" and that boom conditions were causing "serious constraints""on timber imports because of overseas competition and shipping issues. He told the AFR:

The availability of product on a day-to-day basis is uncertain as our suppliers are working on a just-in-time basis, with limited inventory, making forecasting very challenging.

Industry sources told The Australian that since November local lumber costs are up at least 20% and imported lumber up 60%. According to a report in The Australian, Wesfarmers CEO Rob Scott told the Macquarie Australia Conference:

Lumber prices have gone up and there has been constraints there around supply, we have seen pricing pressure, similarly containing shipping is another area where there has been strong increases in pricing and there's also been some increases in other raw material prices, cotton and other categories, and I think what is important to note across all these areas the whole market is facing these cost pressures.

But Mr Scott said that Wesfarmers would do whatever it takes to maintain Bunnings as well as its other retailer brands credentials of offering low prices to shoppers.

The way we think about this is not just simply supply costs are going up, how much do we need to increase our price to offset that. That is not the way we think about it, we think about it far more holistically.

And that is certainly what Bunnings is trying to do with lumber, they are trying to resist the pressure to just keep on increasing prices because in times like this we want to deliver even better value credentials with our customers.

When cost prices go up the Wesfarmers business will do everything they can to keep our prices down because that's what our customers depend on us for.

Bunnings general manager for merchandise, Toby Watson, told The Australian the retailer had seen "unprecedented demand for timber products" for a number of months now due to Australians spending more time at home and the incentives for new home builds and renovations. He said:

This is creating a challenge for the entire industry with demand particularly strong for structural timber.

We're working with our suppliers and trade customers to forecast demand and plan earlier in the build process so we have additional time to manage orders as best as possible.

A Total Tools store could soon be located on Johanna Boulevard in Bundaberg (QLD).

A material change of use for a hardware and trade supplies development application has been lodged with the Bundaberg Regional Council for a site that previously had a Chipmunks Playland and cafe. STMC Enterprises is listed as the owner and applicant.

The proposed development would occur within the existing development footprint, not requiring any extensions to the building. The building footprint is just over 909sqm and covers about 35% of the site.

The tools and hardware business would expect up to six stock deliveries per day, mainly in the mornings.

Located within the Kensington industrial area, the application proposes that the new use would complement the location's zoning. According to Bundaberg Now, the application said:

Whilst the development does not directly support industry activities, the proposal would be compatible with the existing industrial and commercial uses within the precinct.

It also said that the long-term use of the land for industrial purposes would not be compromised because the existing building could be returned to an industry use.

The proposed development is a natural consequence of the established character of the precinct, the zoning of the land and is a logical development of the site.

The planning scheme sets an expectation that a mix of commercial and industrial activities are supported within the locality...

... the business would provide some secondary support to industrial uses through the selling of tools.

The Total Tools application also states the new business would provide a boost to the region.

The proposal provides a direct public benefit to the regional catchment with respect to economic development and employment.

The Total Tools Material Change of Use application is currently with Bundaberg Regional Council's Development Group for assessment.

Sunshine Mitre 10

Sunshine Mitre 10 Group has taken up three commercial blocks in the new Trade and Construction precinct in the Aura Business Park to build its latest store. It is located alongside the Bells Creek Arterial Road, which was due to be connected to the Bruce Highway.

Sunshine Mitre 10 general manager Neil Hutchins said the new store would be part of a steadily expanding network across Queensland. He told the Sunshine Coast Daily:

With Aura being a thriving hub of construction with thousands of homes being built over the next 20 years, we know there will be a huge appetite from tradespeople, owner builders and homeowners alike.

And with Aura to be home to 50,000 residents it fits with our focus on community, supporting community and sporting organisations in the towns in which we operate.

Stockland's senior economic development manager Matthew Byrne said Aura was positioned "in the heart of the largest investment zone in the region".

Once finished, the estate due to home 50,000 residents was planned to include two business parks, 10 sporting grounds, 25 community facilities, 20 educational facilities and 700ha of conservation and parkland areas.

Mirco Bros stores sold to Nutrien

Earlier this year, Nutrien Ag Solutions bolstered its local presence with the purchase of WA-based business Mirco Bros. The acquisition includes stores at Manjimup, Henderson and Neerabup, all located in WA. They will be rebranded Nutrien.

Mirco Bros was established by brothers Vince and Peter Mirco and their wives June and Jean in 1968 and has been owned and operated by the family ever since.

It stocks a wide range of fertilisers, chemicals, garden supplies and agricultural equipment to cater for commercial, market and backyard gardeners. The business also supplies tractors and associated implements to WA's vegetable, horticultural and vigneron industries.

Nutrien Ag Solutions region manager Andrew Duperouzel said Nutrien was proud to build on the knowledge and relationships Mirco Bros had built up during the past five decades of serving WA growers. He told Countryman:

We are very pleased that Martin Mirco (son of the late Peter Mirco) and the existing branch managers will remain within the branches to continue to provide the same great service, particularly to the horticulture industry in the South West.

The horticulture industry is an important and growing part of the agriculture industry in WA, and we are keen to support growers to be as productive and profitable as possible through great products and advice."

As a company, we have great confidence in the WA industry and are willing to invest to see it grow.

Related: In late 2019, North American-based Nutrien Ag acquired the former Landmark and Ruralco businesses.

Bunnings' newest store that has just opened to the public is located in the 9000sqm facility next to its previous store on Yeppoon Road on the Capricorn Coast in Queensland.

It has been about seven months of construction for the $23 million complex after the first sod was turned in October 2020, according to The Morning Bulletin. Complex manager Kath Dingley told the newspaper:

We've got a five-lane timberyard, we've got a dedicated nursery with an undercover landscape area, we've got a dedicated tool shop, and obviously we've got kitchen and bathroom displays, and a really good paint offer.

The store has 240 parking spaces, and the timberyard is bigger than the Rockhampton store.

Land sales

Bunnings is selling a 13,800sqm parcel of land in Mill Park behind its Plenty Road store in Victoria, according to a report in The Age.

It is understood the land located at 18 Bush Boulevard was originally intended as expansion space for the Bunnings but a newer store was instead built further up Plenty Road in Mernda.

Gorman Commercial agents Jonathon MacCormack and Stephen Gorman are running the expressions of interest campaign which closes on May 26. The land is expected to fetch more than $7.75 million.

Property at the busy Mill Park town centre is highly prized. The Bunnings store was bought by investor David Feldman in 2009 for $16.2 million.

In February 2021, the Gatton Star reported that Bunnings was planning to sell its block of land in Gatton in the Lockyer Valley region (QLD), which previously sold $1.6 million.

On 28 April 2021, Wesfarmers announced that its big-box hardware retailer, Bunnings, had entered into an agreement to acquire Beaumont Tiles. The managing director of Bunnings, Michael Schneider, was quoted in a Wesfarmers press release as stating that:

Beaumont Tiles is a well-run business with a proud family history that will remain separate and distinct to Bunnings, as is the case with Adelaide Tools which was acquired by Bunnings in April 2020.

Wesfarmers has released very few additional details, other than noting that the deal will have to pass regulatory requirements.

Beaumont Tiles is not a public company, so financial details are hard to come by. Estimates for revenues at Beaumont Tiles range from around $270 million to $290 million for the projected FY2020/21. As it is partly a franchise business, a slightly optimistic estimate of earnings before interest, taxation, depreciation and amortisation (EBITDA) would be $38 million to $45 million. Given its unique position in the Australian market, it's possible to guess at an acquisition price of between $180 million and $210 million.

By Wesfarmers standards, that is not an especially large acquisition. As with recent acquisitions by Wesfarmers (such as that of Catch.com.au), the question to ask is how, strategically, will the acquisition help to boost earnings from Bunnings? In HNN's opinion, looking at the next five years or so, that can be largely summed up in one five-letter word: Reece.

However, it's best to leave that speculation for later, and begin with a more general overview of tile retailing and wholesaling in Australia.

Australia's tile market

In top order, the three major retail/trade sellers of tiles in Australia are Beaumont Tiles, Bunnings and National Tiles. As mentioned, the revenue for Beaumont Tiles is around $290 million, and for National Tiles it is estimated at $100 million. Estimates for revenue generated through tile sales at Bunnings vary widely, but the best estimate would seem to be around $170 million to $190 million.

Beaumont Tiles was started in 1960 (according to the company's website, though some sources suggest 1962). Company lore has it that the idea for the company came about when Ray (RJ) Beaumont, a well-known entrepreneur in Adelaide, was chatting with a tiler working on a house - another one of RJ's endeavours, an up-market construction near his own home, which he planned to sell. One version of the story is that the tradie was complaining about the poor availability of tiles, while another version has it that RJ complained about the poor quality of the tiles being used.

In any event, the story goes that RJ set out for Japan to find his own tiles, and was so enthusiastic that he bought an extra 2500sqm of tiles. While it is rumoured RJ's family was not keen on the investment, it soon proved to be a success. What began as a one-shed business soon expanded into a shop (the Grote Street showroom is still there, and viewed as the company's flagship retail outlet) and warehouse in Adelaide, which employed four staff. By 1967, when RJ's son Bob Beaumont joined the company, annual turnover was $120,000.

Mr Beaumont eventually took over as managing director in 1978. The next major change to the company started in the 1990s. It was at that time Mr Beaumont began to pursue what would become a decades-long vision to consolidate smaller tile retailers. He explained his reasons for this in a 1993 article published in the Australian Financial Review (AFR):

Buying tiles at the nearest hardware or small tile shop is most often the way it happens in Australia. But for customers, whether they are tilers, builders or home handymen, it does not allow for choice, large showrooms of ideas, or exclusive ranges at competitive prices. At any time we stock more than $5 million in tiles, slate and marble from around the world, which our franchise members, and therefore their customers, can have next-day access to.

By 1993, the company had sales of around $36 million, and operated 15 stores in South Australia, which controlled about half the state's market. The company employed 150 staff, and relied on trade sales for 75% of its business. Its innovations included having tile makers produce custom tiles to which Beaumont Tiles held exclusive rights - partly in a bid to boost Australian-made tile sales - and setting up their own testing to give tiles a slip rating, to ensure customers could choose the best tile fit for purpose.

One of the company's riskiest moves came in that year, when Beaumont Tiles moved into the Victorian market in a two-stage push. That began with Beaumont Tiles establishing its first franchise operation, of some 20 owner-operated retailers. Added to that, the company took over the longest established tile retailer in the state, Crosby Tiles, which had five outlets. Describing that development on the company's website, Mr Beaumont stated:

My father and I had always been keen on the idea of grabbing an opportunity when it presented itself. In the early days, we were offered the Victorian outlets of a failing tiling business, which we decided to go ahead and buy.

It was very risky because it was losing a lot of money. However, we gradually built on it until finally, we became the biggest in Victoria. That then enabled us to leap frog into Queensland and other parts of the country.

Never one to shy away from a challenge, Mr Beaumont declared the company would have sales of $100 million in the year 2000. In FY2013/14, the company was estimated to have revenue of $200 million, with 100 outlets and 50,000sqm of total retail space, and opened warehouses in NSW and QLD with over 10,000sqm each. That success continued. The company claimed growth of 12% in retail sales during FY2016/17 to $275 million (implying sales in FY2015/16 were $246 million), with the company having a total of over 110 retail outlets.

However, in 2018 Beaumont Tiles began to speak of a possible decline in the Australian market, while at the same time insisting Beaumont Tiles had firm plans to expand. According to an article published in the AFR during March 2018, Mr Beaumont stated that the housing market had peaked at a point in the previous financial year, and he expected it to decline in the future. However, he also stated that the market could support a total of 180 stores, 65 more than it had at the time, and that it would reach that goal by 2022. In an article published by Inside Retail in 2018, Mr Beaumont stated he expected annual revenue in 2022 to be over $500 million.

In parallel with this, Beaumont Tiles began to suggest it would also consider expanding overseas. Asked about which markets the company would consider, Inside Retail quoted Mr Beaumont as stating:

It will depend at the time what opportunities and partnerships are available to us...we're very open to the US or Canada and we're very open to some of the Asian countries too.

It's perhaps a real testament to Mr Beaumont's business acumen that the proposed international expansion never took place. As the US big-box home improvement retailer Lowe's Companies learned with its partnership in Masters Home Improvement, and Wesfarmers learned with its attempts to enter the UK market through Homebase, national home improvement markets are intimately tied to local cultures, and this makes international expansion difficult.

Perhaps the best insight into what the company was going through during 2018 comes from a quote that appears in the tiling industry's leading publication, Tile Today, where Mr Beaumont is quoted as saying:

For Beaumonts to achieve greatness, we will become a very different business in some ways over the next couple of years, but we will also stay, in many ways, exactly the same, building on our tremendous strengths.

Over the next two years, I consider "greatness" as our warehouses achieving almost Amazon levels of effectiveness, a totally integrated computer system that talks to both suppliers and customers, new and spacious warehouses in all states, expanded stock and range and a company covering all states, including Western Australia.

(It is perhaps not at all coincidental that the number three tile company, National Tiles, had also begun exploring a different future around about the same time. According to the AFR's "Street Talk" column, National had hired financial group Flagstaff Partners to investigate different capital structures that could help it invest more in growth.)

It seems very likely that Mr Beaumont's entrepreneurial instincts were, again, spot-on. The fact is that Beaumont Tiles, on its own, was simply unable over the two years after those remarks, to make the kinds of transitions it needed to in order to become a company better suited to the new retail environment.

All this culminated to some extent in Beaumont Tiles' annual presentation for customers and media, held virtually in March 2021, where Mr Beaumont restated some of these optimistic growth forecasts, but over a longer term. These remarks were then repeated by the national buyer for Beaumont Tiles, Dean Booker, for an article in the Herald Sun of 6 April 2021. He predicted a further 50 stores would be added over the next five years - essentially 10 per year.

Obviously, Mr Beaumont was aware the acquisition was a strong possibility when he made his remarks - though that might not be true of Mr Booker. In any event, it seems pretty certain that this expansion will finally take place – but under the auspices of new ownership.

The market

The big question that looms over the tile market is whether some of the low growth it has experienced since 2017 is really due only to the housing market itself, and the way that drives demand for both new builds and renovations, or if there are also structural problems at work.

It is certainly true that, for example, the ability to do tiling on a DIY basis has become more accessible. As Mr Beaumont puts it on the company's website:

We were the drivers of switching the whole industry over to adhesives from the traditional "mud mix", which is what they all called it. This meant that DIYers could do tiling quite easily themselves and this certainly drove the renovation market.

Looking at the product itself, it's not only changed in look but in composition. Most of the tiles these days are porcelain, which are far less porous than the old tiles. However, the greatest change is in the evolution of digital glazing, where you can take almost any surface - timber, stone, slate or concrete - and duplicate it on the surface of a tile. This gives you an extremely durable, easy to clean surface which looks the same as timber, for example.

At the same time, virtually all of us have seen tile floors that were installed on a DIY basis, or even by a "handyman" which are simply atrocious. It's barely possible that a DIYer can get away with tiling a bathroom wall, or even the floor to a laundry area, but the complexities of alignment and grouting on a floor are more bewildering - especially when it comes to tiles 60cm a side and larger.

Meanwhile, much more accessible ways of laying attractive floors have continued to develop. Almost any DIYer should be capable of laying a laminate plank floor, and these have continued to improve in quality. The real "game changer", however, is the category now known as "resilient flooring", which includes vinyl planks. It's not only easier to lay than laminate, it is also 100% waterproof, making it ideal for kitchens and other wet areas.

We could be looking at a future, in other words, where the only commonly tiled areas will be bathrooms - and that largely due to our association of tiles with things sanitary. This means that even if spending on new house builds and renovations continues to grow, a smaller share may go to tiles.

The challenges at Beaumont Tiles

While the market has had its effect, it's also true that Beaumont Tiles seemed unable to do what it needed to do in order to unlock more growth. One clear point of reference on this might be the company's website itself. Website designs such as the one used by Beaumont Tiles are referred to in the tech industry as being "opinionated" designs. That means they make certain pre-decisions for the user, and insist interactions will follow a very set pattern.

The Beaumont Tiles website insists on slotting the user through a survey-like tile personality test.

A range of choices are posed to the user (along with personal questions such as age and gender), and at the end of that process the user is assigned a style. There are nine styles: Coastal, Classic Traditional, Eclectic Bohemian, Global Fusion, Modern, Scandinavian, Country Chic, Retro Vintage, and Contemporary.

The problem comes when a user dislikes the style to which they get assigned, or simply does not fit, in terms of taste, within any one of these categories. At that point, navigating the site becomes quite difficult.

By contrast, the National Tiles website provides a much simpler, cleaner interface to the tiles.

A drop-down menu lists, as the three top navigation choices: "shop by type", "shop by look" and "shop by room".

Regulatory hurdles

The acquisition of Beaumont Tiles by Wesfarmers is likely to end up facing more serious questioning by the Australian Competition & Consumer Commission (ACCC) than many other acquisitions in recent times. Essentially, this is about the two largest competitors in a market joining forces to take a commanding position.

This also comes at a time when previous definitions regarding what should trigger anti-trust considerations are being challenged. The previous standard was that such acquisitions should be judged on whether they did, or could in future come to disadvantage consumers. That disadvantage was thought of strictly in terms of price, quality and supply.

As concern has grown over the looming power of tech industry behemoths such as Facebook, Alphabet (Google) and Apple, attention is shifting away from pure consumer-based disadvantage, to look at the overall competitive situation, the need for consumers to have viable alternatives, and whether companies dominant in markets can stifle future innovations by smaller businesses.

The company that is likely to come under the most pressure is, of course, third-place National Tiles. It will be left with revenues of around $100 million a year, and earnings that have been estimated at around $14 million a year, facing a company with combined revenues of close to $500 million a year. All this in a market which is facing challenges when it comes to overall growth over the next five years.

While HNN believes that the ACCC will in the end approve the acquisition, we don't see this happening as rapidly as some past decisions have been made, which means it will likely be 2022 before it is completed.

Why Beaumont? Why now?

The most surprising thing of all about the acquisition is that it doesn't fit into the operational model that Bunnings has been pursuing for the past couple of decades. Particularly over the past decade, the company has been very concentrated on keeping its processes and models as simple as possible. Adding Beaumont Tiles to the mix stands starkly against that.

Not only will it add a highly complex retail model, with high levels of expected customer service, but there are also a number of entanglements the company has assiduously avoided. Warehouses, for example. Not to mention franchisees, with all the complexity of dealing with independent entities who can largely set the tone for the entire business.

What is understandable about this, however, is that Bunnings has few other choices. One way of reading what happened in its acquisition of UK retailer Homebase was that it was seeking a way of expanding without departing from its basic business model. As any expansion inside Australia would have meant adopting a different model, it chose to instead take the existing business model and apply it overseas. The purchase of Beaumont Tiles does represent something of a hard-earned maturity.

Just as pressing, however, is where does Bunnings see the growth coming from? The managing director of its parent Wesfarmers, Rob Scott, has been very cautious in investing in new businesses, despite the company being somewhat "cashed up" after the de-merger of Coles. Why did Beaumont Tiles get the green light?

As we mentioned at the start of this article, we think the real game for Bunnings is not just tiles - though that will be valuable - but rather bathroomware (and hence plumbing itself). It's interesting that Beaumont Tiles describes itself as a "tile and bathroomware" retailer. It is perhaps from bathroomware that Mr Beaumont in his earlier optimism expected additional revenues to eventuate.

The problem there, what would have blocked those efforts, is the colossus that sits over that area of retail, namely the Reece Group. Reece has annual revenues in Australia of around $3 billion, and about the same from its US operations. It has a lot of experience, expertise and capital for anyone in the tile industry to go up against. But it is certainly a market well within the capability of Bunnings and Wesfarmers to compete with.

Analysis

How will this acquisition affect independent hardware retailers? As tiles do not typically form that much of an income stream for most of them, it's unlikely there will be too much of an impact. Where the impact does come will be more in those supplies that support tiling, such as adhesives, waterproofing, and tiling specific tools.

The secondary concern this does bring up - which is really two concerns - is this: does this development really represent the kind of hardware industry that Australia should be developing? And the concern that is triggered by that one is: where and how and should independent hardware retailers be able to express what they think should be developed? Where is the concerted, developed voice of the independent industry, and how can that be used to better express broad industry concerns? What would the industry do if Bunnings were to buy a central supplier business, such as an Australian paint company?

Also, what is really surprising about this acquisition is that had the situation been described to many of us in the hardware industry, the position of Beaumont Tiles, of National Tiles, Bunnings and even Reece, how many of us would have instead picked National Tiles as the "natural" Bunnings acquisition? It isn't, of course, when you really think this through, and the reason is Bunnings has simply grown so big it doesn't need to take that kind of risk anymore. Instead, it can rely on scale.

Perhaps that's just good business sense. But to survive the kinds of challenges retail will develop this decade, something other than scale is going to be needed, and Beaumont Tiles may not be an acquisition that will deliver that.

The Australian Financial Review (AFR) provided a glimpse into the current Bunnings video production underway. The company's previous effort made two years ago, titled "Make It Yours", managed to lift production values and content high enough that it actually ran for a period on free-to-air TV.

At times the purpose of that production did seem a little muddled. It began as a series about how to renovate a space even when it was simply rented, and soon devolved into the kind of renovations only an owner could do. It also was aimed at neophytes to DIY who might not have that many tools - and yet just about every project ended up being reliant on using a $400 nailgun.

In that sense, as the AFR article suggests, it followed very closely to the formula made famous by the long-running Channel Nine renovation series, "The Block" - a lot of inspiration, but not all that much common sense. Or, in other words, it had all the probity and attention to important detail you would expect from any YouTube series.

As HNN has commented in the past, it was a vast improvement over some previous renovation DIY video efforts performed by Bunnings staff, where the DIYer would stop and do a bit of quick arc-welding when it was needed. (And very good welding it was, too.) The focus was as much on how different "influencers" would go about making specific rooms look better. Aimed at the "young people", it managed to evade the more difficult DIY tasks, while making styling up a space look fun and exciting.

According to the AFR, Bunnings has continued in its most recent series to rely on the communication, styling and DIY skills of yet more influencers, which include interior designer Lucy Glade-Wright, the founder of online publication "Hunting for George", Az and Jamie from Haus of Cruze, DIY style diva Geneva Vanderzeil, and organisational dreamer/YouTube star Rachel Lee.

The big changes for the current series in that instead of buying a house and renovating it, the renovations are being done to the houses of Bunnings employees.

HNN has to confess that we find that a difficult concept to imagine actually working, but we won't judge the results until we actually see them. We just hope that no housing was harmed during the production of these videos.

Related: Bunnings has launched different versions of "Make it Yours".

The Bunnings Helping Hand program is giving one community AFL club from each state and territory in Australia the opportunity to access grants worth $30,000 to help upgrade their facilities to be more user-friendly for female footballers. (Applications for the program close on June 9, 2021).

Since the establishment of a national competition in 2016, the number of girls and women playing football has increased from 194,952 to 586,422, according to the Bunnings Helping Hand website.

With such rapid growth, sporting facilities at community clubs are struggling to meet demand; in fact, a recent audit of facilities showed less than 30 per cent were considered female-friendly. So the inaugural provision of Bunnings Helping Hand grants will be entirely dedicated to the build and upgrade of infrastructure for female footballers.

AFL executive general manager of customer and commercial, Kylie Rogers, said the support and investment is significant in helping the future of the game.

Bunnings' support of female football has been significant, not only at the elite level with its sponsorship of the NAB AFLW competition, but at the grassroots level through its new Bunnings Helping Hands initiative.

Through the introduction of new female football initiatives like the Bunnings Helping Hands program, we hope more women and girls feel inspired to get involved in our game and be part of the continued growth of the NAB AFLW competition for many years to come.

Bunnings managing director, Michael Schneider, said:

We know the important role local footy clubs play in bringing communities together and through our partnership and support of the NAB AFLW competition, we hope to demonstrate our commitment to women and girls in sport and make a meaningful difference to the wider community.

Achieving change requires commitment from many and as a proud AFLW partner it's just a small way we can lend a hand.

Melbourne AFLW captain and Bunnings Helping Hands ambassador, Daisy Pearce, said this program is chance for community clubs to show their inclusivity and appeal more to female footballers.

Grassroots football clubs are the heartbeat of local communities everywhere and the place where I first developed my passion for the game, so I'd encourage all community football clubs to apply for the Bunnings Helping Hand program to make their clubs more inclusive of the next generation of female football stars.

The AFLW's popularity continues to grow with its fifth season selling out 13 matches and reaching a record number of 24,423 memberships, according to the Ministry of Sport.

Brand status

Bunnings has topped the list of "trusted iconic brands" in Australia, based on information collated by Reader's Digest Asia Pacific. Its report said:

With over 300 outlets, and employing tens of thousands of locals, Bunnings is part of Australian culture.

According to Harvard Business School professor Douglas Holt, few brand marketers know how to secure their brand that illusive iconic status. Why? "Because icons are built according to principles entirely different from those of conventional marketing."

Iconic brands like Bunnings, as well as Vegemite, the Royal Flying Doctor Service, WeetBix, Qantas, Bega, AVJennings and Victa are Australian icons with deep connections to our culture and lifestyles. They each enjoy culture share, as well as market share, and are tethered by history and symbolism that states what the brand stands for, not just how it performs.

Among the winning trusted brands in 2021, our iconic brands stand out in the market because of their place in Australian history - they are trusted icons as well as a source of national pride.

The ASX-listed, technology-driven company has optimised its shift from a one-time job payment business model to a subscription-based model that generates recurring (monthly) revenues, according to Hipages co-founder and chief executive Roby Sharon-Zipser.

The Australian Financial Review (AFR) reports that Hipages changed its business model in November 2019 from taking a cut of one-time jobs connected and completed through its online marketplace to encouraging nearly 30,000 tradies to get access to the leads generated through Hipages for a monthly fee.

It also announced it is launching accounting and job-tracking software for its tradie customers to help fuel the next phase of growth.

After researching the needs of the tradies who use Hipages, Mr Sharon-Zipser and his team found only 20% use some form of technology or software to manage and track their business. For the majority, old-school pen and paper still dominated. He told the AFR:

We were surprised. There is a lot of tech adoption that can still happen in this space - part of the reason they've been left behind is a lot of them operate as sole traders, whereas a lot of the focus in terms of this kind of software adoption has been on enterprise.

Offering this field-service software is all part of a trend we're seeing of the ongoing 'professionalisation' of tradies.

In a quarterly earnings update, Hipages said its total revenue was up 18% on the previous corresponding period, and its recurring revenue from subscriptions was up 26%.

Total revenue for the period was $13.9 million, with the quarter also marking a year since Hipages moved to a subscription-only model. Recurring revenue now accounts for 94% of total revenue, with Hipages forecasting total revenue growth of 15% for FY21 as a whole (with recurring revenue growth predicted to be 20%). Mr Sharon-Zipser said:

The business has performed ahead of expectations with 26% growth in recurring revenue in the December quarter due to a significant increase in ARPU (average revenue per user) and tradie subscriptions. A 31% lift in ARPU was driven by new subscribers joining the platform at a higher price point and existing subscribers upgrading to higher price tiers in order to claim more jobs.

Mr Sharon-Zipser also said Hipages wants eventually to offer tradies financial products, educational tools and even access to virtual assistants all within the Hipages ecosystem.

But rather than roll out products sporadically, he said incremental success and growth in software-as-a-service (SaaS) comes from understanding what the customer wants, needs and values.

Hipages successfully listed on the ASX in November 2020 after an IPO raised $100.4 million.

Related: In late 2020, Hipages was planning to raise about $100 million for its Initial Public Offering.

Lowe's recently announced it has acquired the carpet cleaning brand Stainmaster for an undisclosed amount from parent company, Invista. Lowe's president and CEO Marvin Ellison said in a statement:

...At a time when home has never been more important, customers are increasingly looking for high-performance products to meet their evolving needs and expectations.

We see great potential to leverage and extend the Stainmaster brand into other product areas to further serve our customers and deliver on our Total Home strategy.

The strategy has four key areas: focusing on the pro market, improving installation services, offering popular products in local markets like Stainmaster and investing online.

Sarah Dodd, senior vice president of global merchandising for Lowe's, said the Stainmaster acquisition should strengthen Lowe's family of private brands.

Research shows Stainmaster is the soft-surfaces brand customers trust the most when shopping for flooring. This acquisition further demonstrates our commitment to deliver a compelling product assortment for customers wherever they choose to shop with us.

Invista, which was formed from DuPont Textiles and Interiors in 2003, sold the Stainmaster brand including related trademarks such as Pet Protect.

Lowe's was the only home improvement store in the US to carry the brand exclusively for over a decade.

Bill Boltz, executive vice president of merchandising for Lowe's, told The Charlotte Observer the acquisition is also part of the company's ongoing market share rights with main rival Home Depot. He said:

It's important to know we're going to continue to invest in the (Stainmaster) brand and that Stainmaster and Lowe's are now one entity.

Stainmaster joins Lowe's private brand portfolio including Moxie cleaning supplies, Kobalt power tools and allen + roth home decor.

About Stainmaster

Stainmaster was started by DuPont in 1986, in a launch that shook up the flooring industry. The brand was built on stain-resistant technology, which wasn't new and, in fact, had been around a while. What set Stainmaster apart, however, was how much money went into advertising it to the consumer. The unprecedented USD85 million, three-year campaign made the treatment, in many instances, better known than the carpets that use Stainmaster.

Tom McAndrews, then-president of DuPont Flooring, said the initial USD5 million in advertising grew to USD15 million. Mr McAndrews challenged its advertising agency BBD&O to put the ads everywhere. He told Floor Daily, "It was a massive success", catching fire not only in the US, but also in Europe, the United Kingdom, Australia and Japan.

ClickUp! Is a "modern lifestyle system for the garden" according to GARDENA and consists of a handle and various attachments. The insect hotel, flower bowl, rain gauge, torch fireplace and bird feeder can be mounted on the handle with a single click. The geometric design of the attachments is simple yet sophisticated, combining a lifestyle product with functionality.

The wall-mounted and garden hose boxes from the RollUp range are suitable for walls or the ground. They enable the hose to be rolled up precisely and evenly, with little effort. As the boxes are usually permanently attached to the wall of a house, they have a restrained and more architectural design to enable them to blend in as much as possible with their surroundings.

Two new garden hose boxes are fixed into the ground using a ground spike, which allows them to be used in a flexible way.

The Red Dot jury was also impressed by the SILENO minimo. The smallest robotic lawnmower from GARDENA is extremely compact, and can be connected to a smartphone at close range and controlled using the Bluetooth app. With softly flowing, yet clearly defined lines, the design represents the lawnmower's cutting-edge technology and high-quality standards.

The origins of the Red Dot Design award go back for more than 60 years. To be given the highly coveted, internationally renowned Design Award, the products have to impress the jury in many different ways. Consisting of 50 international experts, the jury evaluates the products in terms of their degree of innovation, functionality and quality. However, the products must also meet ergonomics, durability and ecological requirements.

What would it take to convince many DIYers to re-purchase some of the familiar tools they use - such as levels, clamps and spanners - in the hope of gaining a key advantage? What's the biggest complaint about tools they make regularly, one which, so far, no one has really been able to solve?

The answer can be found if you look through the toolboxes of just about any DIYer. One thing you will notice quickly is the number of duplicate tools many of them own.

In most cases this isn't dedication to redundancy, or the need to equip multiple workers. No, the simple reason for duplicates is that DIYers tend to lose tools, and then find them again (typically the day after they've bought a replacement tool). It's an endless, really annoying problem, not just because it often results in the purchase of another tool, but because that follows typically an hour or more of searching, and feeling like something of an idiot.

It's not just that DIYers are careless, either. While professionals will sing the praises of their well-organised workbenches, and the multiple layers of storage they have engineered, most DIYers have storage limited to a corner of a garage, or even just a third of a hall closet somewhere.

These are subject to the ravages of life partners (who just needed to tighten the screw on the saucepan), children (amazing how many tools can double for spaceships), and pets (the soft chewy handles of modern tools are yummy, many puppies would agree). Not to mention the annual disaster of the "spring clean", which typically involves a seemingly random re-distribution of anything not deemed "important".

And, of course, let's also not forget, the DIYer him/herself. While being considered "careless" with tools carries a certain sting from many a childhood, there's nothing like having to duck inside for a Zoom meeting with your boss in the middle of fixing the backyard fence for ensuring you never will find that level again - or at least not until after you've purchased its replacement.

The Pro scene

When it comes to locating expensive power tools, some considerable progress has been made for professional and trade users. Milwaukee has led this development, with its breakthrough introduction of One-Key in mid-2015. One-Key helped to connect power tools, via the smartphone, to a smart backend which could monitor performance, adjust settings, and track location. (It also likely delivered Milwaukee a wealth of data to help it deliver future tools.) This led the way for both Bosch and Stanley Black & Decker's DeWalt brand to develop similar systems, offering both tracking and some degree of performance monitoring.

These systems have included increasingly sophisticated theft prevention technology, so that tools can be automatically disabled if they lose their connection to their owner's mobile phone, if they leave a specific geo-fenced location, or if the owner chooses to disable them manually.

These tracking systems have also become more general over time. Milwaukee now offers its "Tick" product, which is (basically) a Bluetooth beacon that can be attached to any tool or item that needs to be tracked, and integrates into One-Key. DeWalt has its Tool Connect Tag, and Bosch has its TrackTag, which operate in the same way.

These work by establishing networks of users. Each mobile phone that is running the tracking software from Milwaukee, DeWalt or Bosch can report location data for the tools/tags that belong to the specific network. That makes it likely they will be reported if they show up on any larger construction site.

However, as HNN pointed out at the time these systems were first developed, this location tracking has had some severe limitations. An important limitation is that the tracking is based on proximity and not location. For example, while Bosch promoted its tags as being a great way to ensure all a professional's tools were stored in his or her van, in fact the best its software could do was locate them as being within 30 metres of the smartphone.

That is because all of this technology is driven by long-standing Bluetooth beacon technology, which Apple popularised as iBeacon. Under the iBeacon protocol specification (and most other beacon protocols as well) these devices transmit two types of information: an identification number, and a general indication of how powerful the beacon is.

For a mobile phone that detects a beacon, it can absolutely identify the beacon, and it can, very roughly, work out how far away it may be. But the user will still usually end up with a search area of over 200 square metres, at best.

Some trackers, such as the Tile, which began as a Kickstarter project, offer similar networked location finding, but also feature a small speaker, which can be made to emit sounds when triggered by the matching app. That's helpful, but it depends on a quiet environment, and being within 10 metres or so of the lost object.

Air Tags

With the release on 20 April 2021 of Apple's latest new product, the Air Tag, many of the previous limitations have been removed. Where beacons make use only of Bluetooth, the Air Tag also makes use of ultra-wideband (UWB). This is done through one of Apple's own computer chips, the U1.

The two systems work together. Bluetooth typically has a transmission range of around 80 metres, and up to 100 metres in ideal conditions, while UWB works over ranges of around 30 metres (without obstacles). The system is designed to provide broad tracking using Bluetooth, and final location tracking through the U1 chip and UWB.

There is a U1 chip in every Air Tag, and Apple has been putting U1 chips in every iPhone since the iPhone XI (released in 2019). These UWB devices send out a pulse of data about once every two nanoseconds, which make them ideal for very close monitoring.

The UWB system is able to determine distance via the exchange of three signals. To do this, it uses time of flight (ToF) calculations, literally measuring the time taken to send and receive these radio signals, which are, of course, travelling at the speed of light. Light takes 10 nanoseconds, which is a hundred-millionth of a second, to travel over three metres.

As the Air Tag and the iPhone will not have clocks synchronised within a nanosecond, the devices record how long it takes to send and receive a response, minus the delay between receiving the signal and sending the response. This is done twice, once from the perspective of the iPhone, and once from the perspective of the Air Tag. These are added together, and the result divided by four. Accuracy in these mobile UWB systems (where the iPhone will be wobbling around) is typically 100mm to 200mm.

Exactly how the direction portion of the calculation is achieved is not clear, but it's likely that Apple uses two antennae at some separation from each other on the iPhone case. The difference in distance measurement between the two points would enable it to triangulate the location of the Air Tag, and provide a direction indication. A limitation on the use of the iPhone is that it must be held in portrait orientation, and the detection field is a cone projected from the back of the phone (where the main camera lenses are), roughly equivalent to the range of view of the phone's wide-angle camera lens.

In practice, when the iPhone user is within the range where the U1 chip can do its work, an arrow will appear on the iPhone screen indicating the general direction to the Air Tag. When the iPhone is within a metre or so of the Air Tag, the iPhone will vibrate with increasing intensity as it gets closer.

The Apple advantage

In terms of the general tracking tag marketplace, Apple has two key advantages. The first is its ability to fully integrate the necessary hardware and software to develop a highly customised solution. Competitors such as the original Tile have access to little more than the standard Bluetooth connectivity protocols, and those have a number of severe limitations.

While the competing smartphone system, Android (from Alphabet aka Google) has incorporated UWB into its core operating system, it doesn't seem this has been used for location tracking just yet. For example, the major Android competitor to Apple, Samsung, has added a tracking tag to its range, the SmartTag, but this seems to use only Bluetooth, and provides proximity but not relative direction capability.

Apple's second advantage has to do with the size of its potential tracking network. This is actually a little more complex than it seems at first. Firstly, competitors such as Tile might suggest they have a network of over a million - while Apple can count its network in the hundreds of millions.

More than that, however, the Tile network is only active when the Tile app is loaded (in both Apple and Android smartphones), though it will still work - usually - when it is running in the background. The Apple network has the capability to be always on, for every iPhone (unless the user specifically opts out).

Why is Apple doing this?

Apple at the moment is undergoing a subtle shift in its business model. Where much of its profits in the past have been driven by a rapid turnover in Apple iPhone sales, the company has begun to bump up against problems of market saturation. Not only are there fewer and fewer people who don't have an iPhone that want to buy one, but also the company is beginning to struggle when it comes to introducing significant advances to existing products at least once every two years.

This means the company is slowly turning from hardware sales to the sale of services to shore up its income and profits. This has multiple effects, as the need for services among its users can also drive hardware sales. To get the full benefit of Air Tags, for example, you need to own an iPhone XI, an iPhone XII or an iWatch Series 6.

That is also, partly, what is behind the company's moves to better enable users of its iOS 14 software to restrict access to personal data. If companies such as Facebook and Alphabet cannot access than information, Apple's own advertising business, which relies on direct contact with customers, will be strengthened.

What this means for tools

Apple has specifically stated that it will open up the UWB U1 chip and its code to use by third-party suppliers. Obviously, they will probably not give the go-ahead to a direct competitor to the Air Tag, but they would be open to the same technology being implanted directly in other objects.

There is a real potential here for tool makers - both hand tools and power tools - to introduce the first really useful location tracker for misplaced tools around the home - and for the occasionally forgetful tradie as well. HNN is quite certain that this kind of feature could help to drive tool repurchases at a relatively high rate. It's really a capability that DIYers have been waiting decades for.

What about retailers?

There is also the potential for the use of UWB combined with iBeacons to finally deliver on some of the location-aware applications that were first mooted back in 2013 - then fell to the wayside when the limitations of iBeacons became evident. Consider, for example, the Bunnings in-store app, which can help its customers find their way to products by telling them precisely in which aisle in their particular store they are located. With the addition of UWB, that app could guide them directly, with an arrow, to what they are looking for.

While other power tool companies have been concentrating on their higher-voltage tools, Bosch Power Tools has just released a pair of Pro (blue) 18-volt drill/drivers that set a new standard for torque in their class. It's a case of torque softly, but carry a big shtick - in this case an IoT shtick.

The Biturbo GSR and GSB 18V-150 C Professional 18V drill/drivers are designed for tradies looking for heavy-duty, powerful drills that are not overwhelmed by the size of a heavy battery. The GSR is a standard drill/driver, while the GSB is a hammer drill as well.

Maximum revolutions on both are 2200rpm, and both have high hard torque figures of 150Nm. Where they really shine, however, is in the soft torque (a better measure for screwdriving applications), which comes in at 85Nm. That easily tops out over the two nearest competitors, DeWalt's DCD998 18V Max Power Detect and the four-speed Hilti SF 8M-A22 22-volt cordless drill driver.

It's an interesting choice in product development. While the market has been overtaken by higher voltage choices in cordless tools, increasing power really does not require a boost in voltage. The physics of power is that it is the product of voltage times current, so power can be increased just as easily by upping the current carried through the tool's motor.

However, from a design perspective, increasing voltage makes for an easier way to design. Effectively, Bosch is leveraging the quality both of its engineers and its production processes in bringing out a pair of tools that can operate on the same Pro Core batteries as a wide range of tools, and yet (as Bosch claims) screw in up to 12 screws measuring 12 x 400 mm through soft wood on just one charge of the ProCore18V 8.0 Ah battery. (Though, to be fair, Hilti makes a point of under-stressing its tools; that's part of the company's design ethos.)

IoT

Even as these tools came out, the overall Bosch company released its results, showing a fall in overall sales but an increase in its profitability. The company is, according to the announcement, banking much of its future on combining the internet of things (IoT) - essentially networked smart sensors - with artificial intelligence, which will interpret what those sensors report. Bosch is calling this combination "AIOT".

While these two drills don't quite make it all the way up to AIOT, they do make an interesting contribution to IoT. HNN has commented in the past that it seems a pity that the "connected" tools we've seen seldom make it all the way to being what we might call a "smart tool". In some ways, these drills might be the best example we have seen as yet of what a smart tool could be.

That's because in addition to their high power output, they also feature "Electronic Angle Detection" (EAD). Bosch claims this is a first when it comes to the 18-volt drill driver market. It has added this feature in order to help carpenters and others comply with stricter standards of construction in the European Union, where the angle of screws will soon come under scrutiny.

The standard settings for 45 degrees and 60 degrees are built into the tool, and other settings can be established by connecting the tool to a Bosch's software on a smartphone. There is also a unique feature that enables the user to automatically adjust the tool's sensor to the pitch of a roof, so that screws can be set at an appropriately perpendicular angle.

Once the angle has been set on the drill, there is an on-tool screen that will alert the user when the drill angle drifts more than three degrees out of true with it. This all but eliminates the need for the bothersome cardboard and plastic guides that carpenters have been forced to use in the past.

Analysis

It's really encouraging to see Bosch Power Tools open up the software development for drills in this way. It's likely that this particular pattern of development, where a power tool maker finds a very specific niche in terms of power, weight and software capability, and then develops a specific tool, is one we will see more of in the future.

Though the next frontier in construction tools will likely be a move towards more automation, with developments such as mitre saws that include a wood-feed mechanism, meaning they could automate the cutting of specific sizes of wood, and similar advances.

Bunnings recently offered the use of its car parks as mass vaccination hubs if the federal government requested assistance, according to a report in The Guardian Australia. Bunnings' chief operating officer, Deb Poole, said:

We've previously supported the government and the community by hosting COVID-19 testing in some of our store car parks and we're always open to discussing further support directly with the government.

Using Bunnings car parks to vaccinate Australians en masse has the support of a few leading epidemiologists. Hassan Vally, an associate professor in public health and an epidemiologist with La Trobe University in Melbourne, said hosting mass vaccination centres in Bunnings car parks could provide a "nudge" to large sections of the population who would visit the stores and see jabs being administered. Mr Vally told The Guardian:

Everyone in the population seems to end up at Bunnings with some frequency ...they're convenient for people to get to. Most people haven't seen a vaccination occur in person, so if you're going into a Bunnings a few times and you keep passing the vaccinations, then the next time you're on your way out with your potting mix, you'll go up and ask.

Mr Vally also noted the "credibility heuristic" - a rule of thumb concerning vaccine hesitancy where epidemiologists observe "we trust people we can relate to - people in our social network". Bunnings has been rated as Australia's most trusted brand, based on research by Roy Morgan.

Mr Vally said religious and community leaders were best placed to address vaccine hesitancy but Bunnings stores would have an advantage when it came to promoting COVID vaccination.

If people go to Bunnings and can get their sausage sandwich after their vaccine on the way out, that's a good thing.

Prof Catherine Bennett, chair of epidemiology at Deakin University, said once Australia's vaccine supplies significantly increased using Bunnings car parks could help "normalise the vaccination process".

She pointed out that mass vaccination hubs identified by state governments so far were mostly in city centres and Bunnings' suburban locations would make logistical sense when rolling out Pfizer vaccines en masse later in the year.

That's because one way of avoiding wastage once multi-dose vials are open, is to offer the vaccine to anyone nearby who can quickly come in for a jab. Prof Bennett said:

For testing, Bunnings car parks worked really, as people could get tested in their cars. [It's] an identifiable site, it's got the space and can be adapted for this.

She said a sterile environment and waiting area would need to be cordoned off to administer jabs and provide recipients an area to wait the required 15 minutes following their injection.

Prof Bennett also said such a vaccination site would work best if it used a combination of bookings and walk-in appointments to avoid vaccine wastage.

Bunnings is an identifiable site, it's got the space and can be adapted for this. People are comfortable there and this type of plan would leverage Bunnings' presence in the community.

A number of Bunnings stores hosted testing clinics in carparks in the early weeks of the pandemic. National Australia Bank and the Business Council of Australia is also offering to help speed up the vaccine rollout and reopen the economy.

Related: In 2020, Bunnings car parks in Victoria were an option where people could

get tested for coronavirus.

Philippines version of Bunnings

Philippines-based Builders Warehouse is a close clone to Bunnings using its familiar red and green branding as well as the hammer icon but with a different tagline, "You build. We provide".

A direct comparison of the two types of stores was made by PEDESTRIAN.TV, a youth-focused online news and entertainment website.

Builders Warehouse has far fewer stores in its network than Bunnings with five locations in Dau, Mabalacat, Pampanga, Malolos and Bulacan in the Philippines. In addition to selling hardware and building products, the stores also offer groceries.

According to its website, Builders Warehouse was established in 2018 by the Racal Group of Companies with the "aim to be a purveyor of top quality yet economical products and services". It also says:

Builders Warehouse aspire to be a competent, well-founded home building institution by putting its employees under constant training to ratify professionalism, furnish every home with its trusted local and global brand suppliers, deliver remarkable services to its customer and trade partners, and above all, maintain a harmonious relationship with its company employees by creating a healthy corporate working environment.

For more information, visit the website in the following link:

The Racal Group of Companies also owns My Home Depot in the Philippines but has little resemblance to US hardware retail giant Home Depot event though it sells similar products.

Bunnings Eastgardens sold

The $75 million Bunnings store located in Eastgardens, about 9km south of the Sydney central business district, has been purchased by fund manager Newmark Capital.

It has been added to its portfolio of hardware stores, Newmark Hardware Trust, according to The Australian Financial Review (AFR). The acquisition of the Eastgardens Bunnings on 4.14% initial yield follows its deal in February to acquire a Bunnings outlet under construction in Preston (VIC) for $85 million.

The Eastgardens site spans 2.3 hectares. The Bunnings store, comprising 14,920sqm, began trading in mid-2017. It was developed by Bunnings and then sold ahead of its opening in 2015 to a private investor. The property serves a large catchment area in Sydney's east, including nearby suburbs of Maroubra, Pagewood and Botany.

Design 10, located at Fagg's Mitre 10 Belmont Timber, is the first of its kind for the Mitre 10 group. The idea to convert the space - previously home to Tait Flooring and Hardings - into one big showroom came after a flooding incident in 2019. However it provided an opportunity to start again. General manager Andrew Pitman explains that a mains pressure pipe on the street burst, causing water to flow through the showroom and destroyed everything. He told the Geelong Advertiser:

The idea came to life after that happened and change over took 12 months from idea to execution. This is the first Design 10 in Australia.

He said the vision is for customers to visit the showroom for inspiration.

The Geelong-based team created Design 10 as its own initiative and after seeing the results, Mitre 10 decided to buy in and roll it out across the country. Showroom manager Jules McDowall said it was discussed with Mitre 10 head office in the early days but was never picked up.

Andrew drove it at ground level here and we just built and built. It got to the point when Mitre 10 visited and went 'wow'...

We have flat pack kitchens but we have made them bespoke. We show people how you can take a flat pack and turn it into your own - for example, we have timber flooring on the sides of an island bench. Anything is possible.

Prior to having this facility we weren't geared to help them achieve that in a retail environment. Now [people] can come here and achieve just about anything they see on The Block or Pinterest.

Technology is also playing its part with a large in-built benchtop screen, allowing customers to explore different ranges virtually.

The team has the ability to design complete kitchens. While Design 10 supplies all the products and materials, it has an affiliation with WeDo, which project manages and installs it.

Solar energy at Mitre 10 Horsham

Chris Jones from Jones Mitre 10 in Horsham (VIC) has used the advice from local solar specialists at Wade's on how to maximise copious amounts of sunlight, extensive roof space and a scheme to make it work for his retail operation. He also worked in partnership with landlord Plazzer Builders to access the Sustainable Australia Fund (SAF) through Horsham Rural City Council.

After three months, he believes he is already seeing financial benefits. Mr Jones told The Weekly Advertiser:

We're not only saving thousands of dollars but through the program we're also guaranteed a pay back from the fund provider. We're basically locking in our savings. It's not only taken the sting out of the power bill, but also putting us financially in front with power use.

From my perspective the big part of the program is that I don't have to own the solar system - the landlord does - and the next tenant takes it on. It's a win-win situation for everyone.

The SAF's Upgrade Fund is a fixed-rate, long-term loan, with terms of up to 20 years, for environmental-upgrade projects for existing non-residential buildings. Adrian Wade from Wade's Horsham said there was never a better time for commercial enterprises to invest in solar power.

The Horsham council signing up with the Sustainable Australia Fund opens a large door of opportunity. It allows businesses to be able to finance environmental upgrades such as solar-power systems and to then pay them off a long period time through council rates.

This has enormous benefits for owner-occupiers and in the case of Jones Mitre 10, long-term tenants.

Mr Wade also said the fund removed some of the financial barriers that concerned many businesses contemplating a move to solar-power systems.

It has provided a way to make the most of every dollar while reaping the benefits of solar power.

Tool and power equipment maker and distributor Techtronic Industries (TTI) - owner of the Milwaukee, Ryobi, AEG and Hoover brands - will lease a 73,920sqm distribution centre in The Yards industrial estate located in Western Sydney. The Australian Financial Review exclusively revealed the tool supplier is the first major tenant in the new $1 billion industrial estate.

TTI is consolidating two existing facilities in NSW with the new warehouse that will have an end value of $188 million.

Jack Moroney, a director at industrial property and supply chain specialist TMX, negotiated the transaction for TTI after his team designed a flexible supply chain solution that supported the company's future growth.

TTI has signed a 10-year lease. The distribution centre, which will include a goods-to-person automated mini shuttle system, is expected to become operational in July 2022. Grant Edhouse, chief financial officer and chief operating officer at TTI Australia & New Zealand, told the AFR:

We are continuing to expand rapidly and need a new facility to support our future growth. By consolidating our existing sites into this new state-of-the-art distribution centre, we will be able to meet our future needs, while optimising our supply chain to the benefit of our retail partners and end users of our products.

The deal marks the first pre-commitment at The Yards, and TTI is also the first major tenant to choose the location as its NSW distribution hub.

The rezoned precinct is set to become an 850-hectare warehousing hub as part of the Western Sydney Employment Area. The site offers 77 hectares of developable area and is due to house about 400,000sqm of industrial warehouse and corporate office space once completed. It is being jointly developed by Singapore's Frasers Property Industrial, Aware Super and Altis.

The developers are targeting a Green Building Council of Australia six-star Green Star rating.

Boral's fly ash business

Building materials supplier Boral said it is looking at a potential sale, or a joint venture, as part of a review of its North American fly ash business. The move comes as the company is looking to exit the United States, in a retreat from its global expansion strategy that led to a hefty writedown in 2020.

A sale for a high price could enable Boral to reinvest its proceeds back in Australia, where it could embark on acquisitions. According to the Data Room column in The Australian, some are suggesting that Queensland-based cement producer Wagners as a logical target, or the privately held West Australian building materials company BGC, subject to clearance from the Australian Competition & Consumer Commission.

Boral's acquisition of rival Headwaters in 2016 made the combined entity the largest supplier of fly ash in US markets. However, since then, it has led to an impairment charge and earnings downgrades amid a soft housing market and a push towards cleaner forms of energy generation. Zlatko Todorcevski, chief executive officer, said in a statement:

We... remain confident in the long term demand dynamics for the industry, including significant incremental demand growth potential from the US government's proposed new infrastructure program.

New opportunities for supply exist from harvesting landfills and imports, he added, which is expected to more than offset the decline in fresh fly ash supply as the US transitions away from coal fired power generation.

Boral said it has appointed advisors for the assessment and will provide an update at its full year results announcement in August, or earlier.

Boral also recently closed the sale of its half-share in its US plasterboard business to Gebr Knauf for AUD1.33 billion, announcing it would use the proceeds to pay debt and buy back up to 10% of its shares.

Related: In December, Boral offloaded its share of the North American Meridian Brick business for USD125 million to Austria-based giant Wienerberger. The sale of Meridian Brick ended Boral's involvement in the brick industry.

A warehouse to sell rural and agricultural supplies employing up to 10 staff members has been proposed for Gracemere in Northern Queensland.

The development application (DA) was lodged on behalf of Australian Independent Rural Retailers (AIRR) which has more than 250 retailers in its network. It positions itself as the one-stop shop for farmers, growers, producers and pet owners, and sells a range of animal health, crop and pasture protection, livestock, fencing, farm management, water, pet, equine and poultry products.

The proposal is for a warehouse facility with three separate buildings and associated ancillary offices and amenities, to be developed over two stages. The first stage will include two warehouse buildings, which will both be six metres high, and the associated ancillary office and amenities area, sealed driveways, parking and landscaping.

Stage two will be for a third warehouse, which will have a 2170sqm ground floor area. The warehouses will connect to a covered loading area for deliveries. There will be no storage or handling of dangerous goods.

The proposed site in Gracemere is located on a corner block with a total area of 13570sqm and currently contains a few demountable buildings.

The DA was submitted by Gideon Town Planning to Rockhampton Regional Council and is now awaiting approval.

Gloucester Hardware

Gloucester Hardware owners, Jigna Vekaria and her husband are at a loss for how to thank all those who rolled up their sleeves before and after their hardware store flooded in March. Ms Vekaria told The Gloucester Advocate:

We closed the doors on [the] Friday after the SES told us about the flood warning but people just keep banging on the door to come in and help get our stock up higher.

Being relatively new to the Gloucester (NSW) region, the couple didn't know the full history of how the area has flooded over the years. And even as they learned more about it, they still didn't think it would be as bad as it was.

In fact, no one did. As the threat of more flooding was predicted to continue Ms Vekaria opted to keep their doors closed. Little did they know that a message was posted on Facebook calling for people to help them start cleaning up. Ms Vekaria was shocked when the group showed up. She said:

I couldn't imagine, with all the mud and dust, how to start. When the group came in - there are no words for that. It was amazing to see how many people came.

The clean up took place over two days and the shop was able to reopen after a week of being shut. According to Ms Vekaria, without the helping hands, the shop would have been closed for a month.

I cannot image where I'd be without the community. I really want to thank all the volunteers and builders - because of them we had a quick reopening.

As is often the case after an acquisition, working out how well Australia's DuluxGroup has been doing since August 2019 is somewhat difficult - and has been made yet more difficult by the COVID-19 pandemic.

That is particularly the case because the company was acquired by Nippon Paint Holdings (for $3.8 billion in August 2019), which is both a sprawling worldwide company and based in Japan, where reporting and management structures differ substantially from Australia, the US and the European Union.

Western companies tend to set sales and cost projections, then adopt a range of strategies to meet those targets. Japanese companies tend to develop strategies which will result in their meeting some more widely specified targets. Western companies that fail to meet their targets are assumed to have adopted the wrong strategies. Japanese companies that do not do well are more often criticised for not applying their existing strategies in an effective manner.

Results

In overall terms, NPH performed well during FY2020, bringing in JPY781 billion ($9.2 billion) in sales, above its projection made in 2017 that it would reach JPY750 billion in sales. However, its profit was below the forecast JPY105 billion at JPY87 billion ($1 billion). The company put its underperforming operating margin down to problems from the COVID-19 pandemic. NPH's current medium-term goal is to achieve sales of JPY1100 billion by FY2023, along with JPY140 billion in profit.

Dulux

As the slide from NPH's results presentation indicates, the Dulux sales contribution is set at JPY148.3 billion ($1.76 billion), with an operating margin of 11.6%. (Dun & Bradstreet suggests the number is closer to $2.0 billion.) NPH estimates that in decorative paints, Dulux grew its market share from 48% in 2019 to 50% in 2020.

It's difficult to tell exactly what NPH is counting as "DuluxGroup" in its operations, but that result is broadly in line with the sales results for the company prior to its acquisition, allowing for currency fluctuations. In its Integrated Report for FY2019 (similar to an annual report, only substantially more complex), NPH lists the revenue for that year as being $1.8 billion, which included eight months prior to acquisition.

A more revealing look at how the NPH sees Dulux is revealed in the 2020 "Integrated Report" (IR2020), which covers results for 2019. This shows the following diagram for its worldwide operations:

This illustrates what NPH refers to as its "spiderweb" approach to international management, where subsidiaries are free to interact with each other (across the web), rather than having to direct all activity through a central hub (the "radial" plan) than then connects to all the subsidiaries. It's interesting that NPH sees Dulux as having a direct connection with NPH's other recent acquisition, the Turkish paint company Betek Boya (aka Betek Boya ve Kimya Sanayi).

The IR2020 also offers some insights from former managing director, Patrick Houlihan, who has continued in his management role, now as CEO and chairman. According to Mr Houlihan:

Becoming part of Nippon Paint Holdings is a new chapter in DuluxGroup's rich history, but its focus remains on maximising shareholder value by leveraging new opportunities as part of the Asia Pacific's number one paint and coatings company.

Specifically, this includes: 1. Building on the company's market-leading positions in Australia, New Zealand and Papua New Guinea; 2. Contributing to Nippon Paint's position in Asia through DuluxGroup's own capabilities and portfolio-for example, Selleys adhesives and sealants; and 3. Continuing to explore pathways for material growth in the UK, Europe, and beyond-for example, Craig & Rose in the UK and Maison Deco in France.

DuluxGroup's businesses are already benefiting from collaboration with other parts of Nippon Paint, and everyone at the company is excited by this new opportunity.

The IR2020 also supplies some familiar graphs of the makeup of the Dulux business:

Perhaps the most interesting direct reference to Dulux is in the space provided to Wee Siew Kim, deputy president and executive corporate officer, Nippon Paint Holdings Co, and group chief executive officer, NIPSEA Group:

Last year, NPHD acquired the DuluxGroup (DGL) in Australia and New Zealand, as well as Betek Boya in Turkey. Besides learning from these two great management teams, NIPSEA sees growth by tapping into DGL's Selleys range of sealants, adhesives and fillers as well as its geographical expansion in the region peripheral to Turkey.

Judging by the press releases this seems to be a process well underway:

Chen Lee Siong, General Manager of Group Trade User Business at Nippon Paint Malaysia said, "The expansion of our product offerings through Selleys will further enhance Nippon Paint's end-to-end home solutions, designed to meet the needs and demands of Malaysian consumers. This strategic integration paves way for both Nippon Paint and Selleys to further grow within the Malaysian market - creating an accessible and convenient shopping experience for consumers."

Analysis

What is of most interest to the Australian hardware retail industry is how the acquisition of DuluxGroup will shape its development over the next three years or so. While it's good to see Australian technology spreading through Asia, the question has to be asked why it takes an acquisition by a Japanese company for that to happen? Not that DuluxGroup is necessarily to blame, for the government policies that once promoted Australia as being more a part of Asia, rather than some awkward outpost of the Anglo-sphere, seemed to have vanished post-Paul Keating. Given the growth opportunities, that might be worth a revision.

But for the Australian industry, the question will be how much technology will flow into this market from overseas. There are some new developments announced by NPH that could be of real interest. For example, alongside the development of anti-bacterial and even anti-viral paints, the company is developing DIY paint that resists splattering when used with a roller. If the DIY paint market continues to grow, that could be more attractive even than paint longevity and wear resistance.

One area that it will be interesting to see possibly change at Dulux under its new Japan-based ownership, is its gender imbalance. According to the company's 2019/20 Workplace Gender Equality Report, overall there were 300 male managers to 140 female managers. Within that management group, at the senior level, it's the same story: 95 senior male managers to just 49 female managers. Of those, 10 female managers were part-time, and three male managers were part-time. Those imbalances were carried through to the ratio of promotions to manager as well.

It's an easy guess that by the start of 2022, issues such as these will receive considerably more attention across Australian industry.

The Australian Bureau of Statistics (ABS) has released stats for both building approvals and housing finance through to February 2021. As this is a nearly complete overlap with the pandemic period, it's worthwhile taking a closer look at what these stats reveal about the housing and construction markets.

This analysis deals with Queensland (QLD).

Value

Chart 1 shows the value of building approvals for the trailing 12 months to February. As with both NSW and VIC, the chart indicates that much of the previous surge in building approval value had its origins in approvals for multi-unit dwellings. These reached a peak in the year ending February 2016. House approval value increased steadily until 2018, then fell through to 2020, as did multi-unit approvals.

As expected, for the year ended February 2021, housing approval value increased sharply, up to 2018 levels, while multi-unit approvals declined slightly from 2019 levels.

Number

Chart 2 shows the number of approvals for house and multi-unit dwellings in around Brisbane and in regional QLD. Combining this chart with Chart 1, it is evident that post 2016, as numbers declined, the value of individual approvals increased. It is also evident how, in contrast to both NSW and VIC, houses in regional QLD play a more significant role in the construction industry, at times equalling and even exceeding those for urban Brisbane. However, post 2018, Brisbane had tended to lead over regional QLD.

For the most recent period, 12 months ending on February 2021, multi-unit dwellings in both Brisbane and regional QLD have declined, while approvals for houses in both areas have increased.

Number percentage change

Chart 3 shows the change percentages for Chart 2. As this indicates, the sharpest rise in percentage terms was for house approvals in regional QLD, followed by Brisbane houses. Urban multi-unit approvals also grew, and only regional multi-units sustained an ongoing decline.

Loan purpose

Chart 4 shows the amount of loans that have been issued for one of three purposes: existing dwellings, newly erected dwellings, and the construction of dwellings. As with VIC, there was a strong increase in loans for dwelling construction in the final period, trailing 12 months ending February 2021, with purchases of newly constructed dwellings also increasing.

Chart 5 shows how the numbers in Chart 4 changed. There is very strong growth in loans for construction of dwellings, while both loans for existing dwellings and newly erected dwellings went up by more than 25% as well. This followed on from two years of declines across all three categories.

Analysis

The house price index produced by the ABS indicates that house prices in Brisbane have remained at more sustainable levels than those for Melbourne and Sydney, at below 5%.

That level has proved relatively sustainable since 2013. House prices have likely remained relatively low due to the supply of desirable houses and locations being relatively higher than in Australia's two most populous cities.

Where the other capital cities have seen a slight increase in regional house approvals, QLD has seen something more inline with a continued strength. At the same time, the peak reached for the 12 months ending February 2016 was driven largely by multi-unit construction in Brisbane.

As with the other capital cities, commentary about the real estate markets in these areas tends not to take multi-unit dwellings as a contributor to real estate values seriously enough. In both Brisbane and Sydney, the future market is likely to return to multi-unit, which could have deflationary consequences for the rest of the housing market.

The site of a former Caltex service station site located close to Pontings Mitre 10 in Warrnambool (VIC) will allow the store to expand on-site and use the additional space for storage.

Pontings Mitre 10 director John Ponting told The Warrnambool Standard he had been considering options for off-site storage because of the the region's building boom. He said:

We've been finding it hard to store a lot of the orders we get. When the former service station went on the market, we jumped at the chance.

The service station closed in July 2019, and expressions of interest were sought for the parcel of land where it was located (Raglan Parade) in late 2020.

Mr Ponting said the building on the site would be demolished and it would be used as a loading and unloading bay.

It will help us get trucks out of the main yard and will be good for storage. I had been looking at off-site options for storage so we were lucky it came on the market.

Mr Ponting said the business' last expansion was about 10 years ago.

It's an expensive acquisition but we think in the long-term it will be beneficial for the whole business.

Total Tools Shepparton

Total Tools in Shepparton (VIC) moved to a larger store in March, the fourth time in five years that owners Ray and Haxhije Cox have upsized. Mr Cox said told Shepparton News:

We started in a small store and it's grown over the years. It took us five years to get to where we are today and this is our fourth move, we're classed as a mega-store now.

He said while there were plenty of tradies coming through the door, the number of people doing their own handiwork or renovations had increased.

It's open to anyone, we've got plenty of ladies coming here and shopping as well so it's not just the traditional tradie types, it's a broad range of people.

When everything first happened with coronavirus, we had guys who'd never welded before coming in wanting to learn how to weld, so they were buying welders. The biggest thing now is it's a bigger store but it's busier trying to keep up with the amount of stock going out the door.

The new store is at 46-52 Benalla Road, Shepparton (VIC).

Mitre 10 NZ CEO

Andrea Scown has been appointed the first female chief executive of Mitre 10 New Zealand.

She has taken over the reins from Australian-based Chris Wilesmith as the trans-Tasman commute to and from Coffs Harbour (NSW) under COVID-19 restrictions became unsustainable.

Ms Scown told the Wanganui Chronicle her appointment represents stability within the business. She is focused on steering the company through the second year of its multi-year transformation program.

Anything I'm doing is a build-on rather than a change out. We've got a very clearly defined strategic path, we've got support from the board and membership around that, so [I will be] managing all of those things and taking care of the team. There could be some reprioritising of things [ahead] but no wholesale change.

The transformation is centred around enabling the business to operate more as a "bureau service" and is expected to be completed by 2025, said Ms Scown.

It is part of a major overhaul of the way the Mitre 10 operates internally and its model as a co-operative. The company is also looking at how it can use new retail technologies from store sales through to back-end fulfilment. Ms Scown explains:

We're a very inefficient business, again it's not unusual for retail, retailers don't tend to spend a huge amount of money in that real tech space. For us that inefficiency means we take a lot of people to do things and we'd love to have more people focused on customer service and value-added things.

About half of Mitre 10's 84 stores are Mitre 10 Mega outlets. The hardware chain is also New Zealand's largest garden centre. It is expanding the larger box store format with new stores planned for construction in Silverdale (a village approximately 30km north of Auckland in the North Island) and Papamoa (a suburb of Tauranga in the Bay of Plenty region). Ms Scown said:

We're at an age now with the store network that there is probably more ... refurbishments happening [than new openings]. We're also working on evolving [the concept] of what is our store of the future.

Mitre 10 is realistic that once the borders open to international travel the level of demand for its goods will likely peter out after very strong trading in the last 14 months. Ms Scown said:

The reality is if you're not travelling to Australia, you're going to build a new deck. Australians travelling here with their NZD5 billion spend [however] aren't going to buy decks or buy paint while they are here.

As a sector we should accept that it will pull back a bit, certainly in the retail space. Trade though for us continues to grow really strongly year-on-year pre-COVID and I would not see anything happening that will pull that back. We've still got a housing shortage, we've still got unprecedented levels of consents [approvals] that we haven't seen since the 70s. There's no proof point for me or other senior leaders in the business or our members to say that will ease off anytime soon - subject of course to being able to get materials to do that building.

Ms Scown comes into the CEO role as building materials company Carter Holt Harvey cut its supply to some of regular customers in New Zealand including Bunnings, Mitre 10 and ITM - as a result of accelerated house construction.

The timber shortage has had varying "pockets of impact" across Mitre 10's network up until now, according to Ms Scown. While she does not believe it will have a massive impact on Mitre 10 as the co-operative stores are able to share assets, for the industry it will "probably shake down and will end up in a new normal".

Ms Scown said there is no easy fix for the shortage as there are layers of complexity, and it is a situation she believes will stick around until at least the year's end.

Ms Scown joined the hardware store chain in 2017 after working at multi-channel retailer EziBuy and has a background in fashion and apparel retailing, as well as private equity.

At Mitre 10 (NZ), Ms Scown started as general manager of retail operations before later moving into the role of chief customer experience officer and then chief operating officer. She first applied for the role of chief executive at the same time Mr Wilesmith did in 2019 when former Pumpkin Patch boss Neil Cowie announced he would step down.

Ms Scown hopes her appointment inspires the next generation of women, and was surprised by younger women across the organisation reaching out to her following the announcement of her appointment. She said:

You forget how important those role model pieces are for younger women. [When] you do get reached out to from younger women in the organisation you realise actually they are looking [for representation], particularly in this type of industry, thinking it's hardware, building products, there's a lot of men about, is it a place for women - and I think it definitely is.

Ms Scown said some of her biggest supporters have been male colleagues.

Mitre 10's employee gender split ratio is slightly skewed towards a higher female representation versus male - just like its customer base. There are three women in Mitre 10's executive team and one - Tricia Indo - on its board.

With a big family - Ms Scown is a mother of seven and now five grandchildren -she has plenty to do outside of work and said she does not believe in 13 to 14-hour work days. She said:

There's always times when you have to put in the hours but I think as a routine it's about sending that good cultural message.

Ms Scown also said she loves being in the stores and spends two or three days a month outside of Mitre 10's Albany office in Auckland's North Shore, where she is typically based.

Related: In 2019. Australian executive Chris Wilesmith became CEO of Mitre 10 New Zealand.

After a builder was appointed for its store in Mount Isa (QLD), Bunnings anticipates construction will get underway in early May, with the new store opening its doors to local customers in early 2022.

Bunnings said it will invest more than $19 million in this store, located on West Street, and will span more than 5500sqm. It will be double the size of the existing store on Camooweal Street.

The store will include the main retail area, a fully enclosed timber yard, an outdoor nursery and over 150 on-site car parks for customers. It will also have a building materials landscape yard and a bagged goods area in the nursery, both features not seen at the current Mount Isa store.

Related: Bunnings in Mount Isa and Plainland

Google search trends

Research conducted by Macquarie found that Wesfarmers-owned Bunnings led the way - along with Metcash-owned Mitre 10 - in terms of online search activity (for hardware) on Google Trends. Macquarie said in its report:

Wesfarmers has seen favourable momentum in Bunnings and Kmart for online search activity as value remains a key driver for consumers.

As expected, Easter long weekend led to heightened search interest, as people continue home improvement projects.

The researchers added that strong turnover in a booming housing market was also a factor.

American online retail giant Amazon has started trending higher, Macquarie said, as it gained traction in Australia.

It said JB Hi-Fi-owned The Good Guys also fared well but suffered a notable decline in the first week of April, below pre-COVID levels. After reaping bumper revenue from December's holiday-season spike in spending, digital interest in JB Hi-Fi and Harvey Norman has diminished, close to pre-pandemic levels in January last year.

Interest also fell for Wesfarmers' online retailer Catch since the heights of Black Friday sales in November, while its Officeworks chain has continued to trend lower due to softer demand for school and office supplies after the back-to-school season in January and CBD offices opening up.

On-demand delivery start-up Rendr that describes itself as the "Uber for plants, home and hardware" has received investment from a consortium led by former Cache Group managing director Sonney Roth. Mr Roth managed the Antler luggage business in Australia for 30 years before selling it to Strandbags owner Michael Lewis recently.

According to The Australian Financial Review (AFR), the consortium includes Latitude Financial Group chief executive Ahmed Fahour and Steven Lew, chief executive of homewares retailer Global Retail Brands, his chief operating officer Darron Kupshik and Hairhouse co-owner Emad Nayef.

Rendr was launched in 2019 by young entrepreneurs James Fisher and Greg Leibowitz. Through the app, users can order plants, power tools, paint, basins and everything in between and get it delivered to their home or job sites. It included features such as a paint estimator tool and bundle packages for convenience and ease. Not surprisingly, it has direct appeal for tradies and DIYers.

At the time, Rendr had a network of about 80 crowdsourced drivers who bought goods in stores and delivered them to homes and work sites. It thrived during the DIY boom triggered by the pandemic.

When Mr Roth, a family friend, was asked to help scale the start-up, he overhauled the business model, ditching crowd-sourced deliveries in favour of partnerships with professional transport and logistics businesses. He told the AFR:

...[T]he app was fine, but they were using crowdsourced drivers ... and I didn't think it was scalable.

Since its initial launch, Rendr released a new app, website and online marketplace which integrates with retailers' websites and e-commerce platforms. It is recruiting retailers and brands including Mr Lew's House chain, Mr Nayef's Hairhouse and Antler.

Rendr's technology matches merchants and consumers with the best possible delivery solution, using a network of delivery partners from bike couriers who can deliver small packages in two hours to line haul carriers who can deliver goods weighing up to 1000 kilograms from interstate. Mr Roth said:

We have 20,000 drivers from bikes to semis so we can do any delivery, which Uber Eats and DoorDash [which have crowdsourced delivery networks] can't do.

Rendr is also in talks to provide third-party logistics for small brands and retailers, business-to-business deliveries to help retailers distribute stock from warehouses to stores, and is considering a buy now, pay later product and overseas expansion.

Mr Roth wants to make Rendr a household name and is already planning a Series B or pre-initial public offering round.

Background

Greg Leibowitz and James Fisher started their career together by establishing a digital marketing agency straight out of school in 2017. They noticed a boom in the "on-demand delivery service" industry. The duo also discussions with their tradie mates about the struggle of delayed deliveries and inconvenience of having to leave job sites to collect supplies.

By dissecting the retail landscape, they found that there wasn't an all-in-one platform available for DIYers and trades that provided on-demand delivery of the supplies. They recognised the gap in the market and decided to create Rendr.

Related: Getter app for tradies raises money in capital raising.

Lowe's Home Improvement has unveiled a number of perks for its professional customers, including a dedicated Pro Zone that makes high-demand items more accessible, free phone charging and air stations, extended trailer parking spots, and flexible credit.

Store staff have also been equipped with technology to improve the shopping experience for tradies. Fred Stokes, senior vice president of Pro Sales and Services for Lowe's, said:

We want to make sure any time spent away from the jobsite is efficient and productive for the Pro customer, especially small- to mid-size companies. We've enhanced our shopping experience, bringing in new products and services that help add value to each trip Pros take and cut down on the number of stops they make throughout the day.

Lowe's has placed increasing focus on the professional market in recent years, introducing more items that meet the needs of a professional customer and launching the Lowe's for Pros loyalty program in 2020.

Though there are concerns that businesses that did well during 2020 will see declines as consumers venture out and shift their spending once again, there's confidence that businesses related to the home will continue to do well. Speaking at the recent UBS Global Consumer and Retail Virtual Conference, Lowe's chief financial officer David Denton, said:

We still see the housing sector, the home improvement sector still very frothy at the moment, in the sense that demand continues to be robust across categories and across geographic markets, we continue to see interest rates, although they're ticking up, relatively at historic lows.

We see the consumers' balance sheet pretty healthy, still a lot of savings rate from a consumer perspective, so cash is building up into consumers' bank accounts.

And now that there is some distance between now and the beginning of COVID-19 when shoppers wanted to isolate themselves as much as possible, work involving professionals can take place. Bill Boltz, Lowe's executive vice president of merchandising, told MarketWatch:

Early in the pandemic, consumers didn't want someone in their home.

As time went on, Mr Boltz said consumers became more comfortable with tackling these bigger projects.

Outside projects, like decks, take precedence now with more comfort in having an installer in the home.

During its fourth-quarter earnings announcement, Lowe's said that DIY comparative sales "outpaced" professional comparative sales, but the pro business was still in the mid-20% range for the quarter and nearly 20% for the year.

With so much uncertainty across the retail landscape, Mr Boltz said the company is trying to control what it can, and the company's data shows that 90% of respondents who took on a project last year have plans to take on another this year.

Moreover, professionals are reporting that "their bookings are full". Mr Boltz said:

We know we still have a lot of room for growth, both online and store level. The market is very fragmented, there's lots of share to get ... There are a lot of pieces in motion and it's early innings in terms of being relevant to the pros.

The Australian Bureau of Statistics (ABS) has released stats for both building approvals and housing finance through to February 2021. As this is a nearly complete overlap with the pandemic period, it's worthwhile taking a closer look at what these stats reveal about the housing and construction markets.

This analysis deals with Victoria (VIC).

Chart 1 shows the value of building approvals for housing and other residential (primarily multi-unit dwellings) for the trailing 12 months to February. The clear indication in this chart is that the growth interruption for the 12 months to February 2020 has been overcome in the numbers for the 12 months to February 2021 in terms of approvals for houses. However, a slide in approvals for "other residential" - mostly multiunit dwellings - has kept the value below the peak reached in 2018.

Chart 2 shows the number of approvals for house and multi-unit dwellings in around Melbourne and in regional VIC. This shows an increase in approvals for Melbourne houses, and a decrease in Melbourne multiunit approvals. There is also a relatively strong rise in approvals of regional VIC houses, and regional VIC multi-units have remained a fraction of the overall market.

Chart 3 shows these changes in a more definite form. On a percentage basis, houses in regional VIC have actually outgrown those for Melbourne.

Chart four shows the amount of loans that have been issued for one of three purposes: existing dwellings, newly erected dwellings, and the construction of dwellings. The surprising feature of this chart is how much loans for the construction of dwellings has grown for 2021.

Chart 5 gives a clearer indication of the nature of the changes shown in chart 4. Loans for construction of dwellings shot up by over 50%, while the largest category, loans for purchase of existing dwellings, grew by less than 10%.

Analysis

There is a persistent line from commentators in VIC that the multi-unit market continues to suffer, with some projections seeing it face further declines in future years. While multi-unit has certainly been reduced considerably, it has still remained a major feature of the market. The rise in regional house approvals backs up the anecdotal reports that, after the severe lockdowns for Melbourne, and in the wake of more work-from-home now being offered by employers, there has been a general move to exurban areas.

However, it is difficult to predict how long-term these changes will be. As with NSW and Sydney, we're really looking at a market that has produced some improvement from 2020 to 2021. The question is whether, as the market absorbs the stimulus such as interest rates, it continues at its present level, or if the factors that were present in 2019 reassert themselves.

The Australian Bureau of Statistics (ABS) has released stats for both building approvals and housing finance through to February 2021. As this is a nearly complete overlap with the pandemic period, it's worthwhile taking a closer look at what these stats reveal about the housing and construction markets.

This analysis deals with New South Wales (NSW).

Chart 1 shows the value of building approvals for housing and other residential (primarily multi-unit dwellings) for the trailing 12 months to February. There are three aspects of this chart that are worth noting.

Firstly, we've been frequently told that the pandemic itself has been largely responsible for the fall in multi-unit construction. However, this chart clearly shows that, at least in value terms, that fall took place prior to February 2020, when the pandemic began. While there has been a slight further fall between March 2020 and February 2021, it is negligible.

Secondly, it is evident that while there has been something of an increase in the overall value of building approvals through in the final period to February 2021, the total value of the market is nowhere near the highs achieved in 2017 and 2018. That is largely due to the reduction in approvals for multi-unit dwellings. Specifically for private houses, the market has come back to close to where it was in 2019.

Chart 2 shows the number of approvals for house and multiunit dwellings in around Sydney and in regional NSW. Again, this shows that 2021 is essentially a repeat - overall - of 2020. There is an increase in houses in Sydney, a slight decrease in multi-unit in Sydney, an increase in houses in regional NSW, and a decrease in multi-unit for regional NSW.

Chart 3 shows these changes in a more definite form. As can be seen while houses are generally faring better, there is also a reduction in decline for multi-units in Sydney after three years of slow decline. It's also interesting that the year to February 2020 showed growth in multi-units for regional NSW, and that these have subsequently had the steepest decline.

Chart four shows the amount of loans that have been issued for one of three purposes: existing dwellings, newly erected dwellings, and the construction of dwellings. It's clear from this chart that finance for the purchase of existing dwellings has grown sharply, surpassing any prior year.

Chart 5 gives a clearer indication of the nature of the changes shown in chart 4. All three categories show losses for 2019 and 2020, but all three also recovered in 2021, with construction of dwellings growing at the highest rate (possibly a consequence of the HomeBuilding bonus).

Analysis

Generally speaking, most commentators would likely expect to see the pandemic year as providing far more growth than is evident in these charts, for NSW as a whole, but especially for Sydney. What we would have to conclude from this is that the dive in property construction and sales was likely set to be much stronger going into the early months of 2020 than we might previously have known.

In other words, the corrective work of the sharp reduction in interest rates and stimulus programs such as HomeBuilder might have been necessary just to pull at least the NSW economy out of what could have been a very bad period, when the pandemic added further retardation to an already slowing situation.

Of course, this also leaves us with a paradox as regards house prices.

Chart 6 shows the changes in the ABS house price index through to the December quarter of 2020. While the increases do not reach the peaks that have been seen in previous surges, these should have been enough for Sydney to stimulate more growth.

One conclusion could be that many developers are, to some extent, "sitting out" the current increases, as they still see the future of Sydney as being vested in multi-unit developments. HNN does not understand why there has been a shift for many forecasters towards discounting growth in apartment buildings through the next three years or so. While it is unlikely we will see a surge in this area for the remainder of 2021 (after vaccinations have hit so many problems), it seems likely that by the second calendar quarter of 2022, this market sector will return to favour.

The simple fact is that much of the most recent property boom in Sydney was built on multi-unit, and it seems clear this is where much future development will occur.

New Zealand Rugby (NZR) and Bunnings Warehouse recently announced a three-year deal to sponsor domestic competitions and support community rugby throughout New Zealand.

Bunnings Warehouse will be the primary partner and naming rights sponsor of the Bunnings Warehouse National Provincial Championship (NPC), Farah Palmer Cup (FPC) presented by Bunnings Warehouse, Bunnings Warehouse Heartland Championship and Super Rugby Aotearoa Under 20s presented by Bunnings Warehouse.

The new three-year sponsorship gives Bunnings naming sponsor rights to the men's provincial competition, which has returned to being the NPC after being called the Mitre 10 Cup and ITM Cup in recent times.

The last main sponsor of domestic rugby, Mitre 10 (NZ) saw its five-year deal run out this year. Mitre 10 took over sponsorship in 2016 from another hardware company, ITM. (Mitre 10 New Zealand has no affiliation to the Independent Hardware Group's retail banner, Mitre 10, in Australia).

NZR chief executive Mark Robinson said the Bunnings partnership was part of a shift in priorities for rugby's national body. He said in a statement:

The past year has provided us with an opportunity to pause and reflect on our priorities and in Bunnings we have found a partner who shares our goal of putting rugby at the heart of every community.

We are thrilled to have a partner who wants to help us grow the game and support the pathways that give the talented young people in our clubs the opportunity to represent their communities, whether it's through the Bunnings Warehouse NPC, the Farah Palmer Cup, Super Rugby Aotearoa Under 20s or the Heartland Championship.

Bunnings Warehouse are synonymous with DIY, so I guess it's fitting they have decided to roll their sleeves up and support our clubs, and NZR and our provincial unions will be right there with them.

After announcing the new partnership at the Ponsonby Rugby Club in Auckland, Bunnings head of trade Paul Connolly said the deal was about giving back. He said:

Our team live and work within the communities we operate and our focus has always been on contributing to our local communities in meaningful ways, so it was a no-brainer for us to get behind a sport that shares and values the importance of local community connection and teamwork.

NZR general manager community rugby Steve Lancaster said 2021 was shaping up as a special year for provincial rugby.

We're seeing a resurgence in interest in our communities after a tough year for everyone. A lot of people are going back to their clubs to connect with friends and whanau and no doubt that support will transfer into our flagship domestic competitions.

After looking at some format changes, the Bunnings Warehouse NPC will remain in its current 14-team premiership-championship format in 2021, including crossover matches between the two divisions. The Farah Palmer Cup presented by Bunnings will revert to the same format after splitting into north and south pools for the COVID-disrupted 2020 season.

The new sponsorship was revealed prematurely with an early update of the old Mitre 10 Cup website. Following this, NZR confirmed domestic rugby in New Zealand would now fall under the Bunnings Warehouse Provincial Rugby banner.

Independent store AG-PARTS located in Echuca (VIC) has recently been taken over by Kyabram-based Stuart Joyce, who already owns and operates Kyabram Bearings & Industrial Supplies and K2 Industrial Supplies in Echuca.

The store has agricultural supplies such as farming implements, seeders and tillage equipment, as well as industrial tools and accessories. It is a member of Industrial & Tool Traders (ITT) which is part of Hardware & Building Traders (HBT). Manager Darryl Clark said AG-PARTS is one of the only places in town to sell Milwaukee Power Tools. He told The Riverine Herald:

Milwaukee are a high-end, tradie's power tool and we stock a large range.

After a difficult year in 2020 dealing with COVID-19, Mr Clark said the business is very grateful to the community and its customers. He said:

We'd like to thank all our customers who supported us last year and stayed loyal by shopping locally.

AG-PARTS is also a Castrol Australia stockist which is running a promotion with the chance to "Win a dream holiday with Castrol".

Its local and knowledgeable staff are on hand to point customers in the right direction based on their budget and the task at hand.

The store is located at 39 Mundarra Road, Echuca (VIC).

Home improvement giant, The Home Depot is trying a different approach when it comes to curbing what it believes has become a growing problem with crime within its stores.

The crime typically involves an individual or team walking into a store, grabbing a stack of power tools, and then heading to the front of the store. Next, they either ring up a few smaller items in the self-checkout lane to mask the crime or simply walk straight out the door.

Either way, the tools are never paid for, and the individual or team will repeat the crime at the same store or various locations.

To combat such organised retail theft some power tools at Home Depot are kept on locked shelves, some are wrapped with security devices around the boxes, and security cameras keep watch on the aisles. But those tactics haven't stopped organised theft. Scott Glenn, Home Depot's vice president of asset protection, told local TV station, 11Alive:

We are working on a very strong strategy to, what we like to refer to as harden the target against these types of folks.

An evolving anti-theft strategy the big box retailer is now using involves a chip being inserted into power tools from DeWalt and Milwaukee brand tools.

Similar to how gift cards need to be scanned and paid for at a store to activate, the power tools need to be paid for, and then - using Bluetooth technology - the tool is activated. Tools that haven't been activated won't turn on, according to The Home Depot.

The technology is currently part of a pilot program in select stores in Atlanta, Georgia and in other Home Depot markets. The goal is to discourage thieves, while keeping employees and customers safe and keeping costs low, according to Mr Glenn. He said:

Theft and fraud are a pressure to those cost concerns, and we want to make sure we don't have to do anything to affect that pricing for our customers.

Mr Glenn added that often power tools stolen from The Home Depot end up in a few different places. For example, pawn shops and online marketplaces, from eBay to Craigslist, Facebook Marketplace, and a growing list of others. He said:

Ten, fifteen years ago, there were really one or two online resellers out there, and now we can think of 50. It is a fast, easy way to dispose of a stolen product.

Mr Glenn said if the technology proves successful during testing in select power tools, it could eventually be inserted into other products with an on and off switch. He said:

We want to lead in this space. We want to make sure the technology is not only where we want to be today, but where we are going in the future.

A recent survey conducted by US-based National Retail Federation found in 2020, organised retail crime increased significantly for 31% of retailers surveyed. Forty-four per cent reported a slight increase, 2% reported a decrease and the remainder reported no change compared to 2019.

Currently, lawmakers in Washington DC are considering legislation to target high-volume sellers of stolen retail items. The INFORM Consumers Act introduced in March 2021 in the US Senate aims to "prevent organised retail crime rings from stealing items from stores to resell those items in bulk online".

It describes "high-volume" sellers as people who make more than 200 sales or have more than USD5,000 in revenue during a 12-month period on a marketplace. The act would require such sellers to supply the marketplace with bank account information, government-issued identification, a working email address and phone number, along with a business tax identification number.

Home reno startup

US-based startup, Outfit wants to make DIY home improvements easier to tackle. Founder and CEO, Ian Janicki, said he has always wanted to make architecture and design more accessible to people. He told TechCrunch:

I realised I could leverage my knowledge of being handy to create a product that scaled.

For people who want to go through the Outfit process, the first step is submitting information about the space they're looking to renovate, such as dimensions and photos, as well as the maximum amount they're looking to spend. Outfit then provides information about the expected cost of the project, the handiness level required to complete the project and everything that would need to be done in order to complete the project. Mr Janicki said:

We make sure it's transparent and that you understand the amount of time that might be required.

Once someone decides they want to move forward, Outfit then sends all the necessary tools and materials to the customer. Through the app, Outfit offers a step-by-step guide for completing the project. In the event someone gets stuck, they can chat with Janicki or someone else from the Outfit team for support.

Outfit has had a small set of pilot customers - some who have completed their projects and some whose projects are still underway. Mr Janicki said:

The millennial generation is now starting to purchase their homes and has been accelerated because of remote work and COVID. They're the Ikea generation and can put together bookshelves and are really used to digital experiences and are now demanding this digital solution.

So far, the projects have ranged in cost from USD1,000 to USD15,000, but it depends on things like how invasive the project is, how big the space is and more, Mr Janicki said. In general, Outfit charges customers the cost of the actual materials (for eg. power drills, wrenches, cabinets, tiles, etc.) and then adds a percentage of the total on top as a surcharge to the customer.

Down the road, Outfit envisions offering rentals of the tools themselves, but Mr Janicki said he just wanted to streamline everything in the early days.

Reverse logistics is complicated to we're trying to take it one step at a time.

There are a number of home improvement startups out there such as Eano, Renno and others, but Mr Janicki said he's not aware of any direct competitors. He said he recognises that there are some people who are fully capable of buying all the necessary items themselves, watching a video on YouTube and then completing the project.

Meanwhile, homeowners are also just as capable of hiring someone to do the project for them. But with Outfit, Mr Janicki sees it as somewhere in between. He calls it "DIY plus".

In terms of being handy, it's a rare trait that everyone appreciates. If we can elevate people in their handiness level, I'm going to be super happy. It's that pride that you were actually able to accomplish that.

To date, the company has backing from Y Combinator, and previously raised about USD700,000 from investors like GitHub CEO Nat Friedman, B Capital Group's Crissy Costa, Gumroad CEO Sahil Lavingia and others.

Metcash's acquisition - and financing - of Australian trade tool franchise Total Tools Holdings (TTH) received significant attention at the company's Investor Day briefing for analysts, which has held on 16 March 2021. Despite this time and attention, however, Metcash did not really succeed, in HNN's opinion, in being very clear about what is going on.

That's not too surprising, as in recent years much of Metcash's presentation style has moved more towards what could be termed the "ornate" rather than the strictly factual. Some of that move has been driven by Mark Laidlaw, the former CEO of Metcash's hardware operations (including IHG, the Independent Hardware Group). Mr Laidlaw, has agreed to interrupt his retirement to return to Metcash in the role of the chairman of Total Tools - though for how long is not known.

Beyond the method of delivery, there are really two sources of a lack of clarity in the presentation of the Total Tools acquisition. One relates to the actual numbers that are being presented, and the other to the way in which this acquisition meshes with the overall strategy undertaken at Metcash.

Industry view

Before we get to that, however, we might focus on one slightly surprising statement that Mr Laidlaw made, which could have real consequences for independent hardware retailers. In answer to a question from analyst Simon Mawhinney of Allan Gray Australia about the planned expansion of TTH, and where the marketshare to support expansion would come from, Mr Laidlaw had this to say:

Phase two of this is the network opportunities sharing with Annette's [Welsh, CEO of IHG] business. So there'll be some regional towns, for example, that couldn't justify a Sydney Tools going there. Okay, population is too small, but there could be a Mitre 10 or a Home Timber and Hardware store. They could have a Total Tool store built next to it in some of those regional towns.

OK. Wait a minute. So in "phase 2", which comes after the TTH network had been built out to 200 stores or so, a Mitre 10 or HTH retailer in a small town could wake up one day to find that a TTH store was going to be built next door? With discounted prices on power tools, power tool accessories and hand tools?

Really?

If it's a corporate/joint venture store, it wouldn't matter, because it is all Metcash revenue. But if it's not? What happens then? This could end up being even a little worse than it seems at first. One response might be, for example, for the owner to sell that store - but it would have probably already lost some of its value. And, of course, IHG would have the right to buy the store with a matching offer, giving it a winning matched set in a small town.

HNN is very sure that this is in the category of "unintended consequences" - IHG really is not so devious. But you have to admit, that's a heck of an unintended consequence. And it goes to something deeper in all of this, which is that HNN just cannot help sensing that, for a $57 million investment, plus a further $95 million in CapEx to fuel growth from FY2022 to FY2044, there seem to be a lot of details that haven't really been thought out.

The numbers

To look at the numbers to begin with, the presentation slides from the Investor Day identify what Metcash terms "Network revenue June 2020" for TTH as being $658 million. According to the Australian Stock Exchange (ASX) announcement for 27 July 2020:

The retail store network generated sales of ~$555m for the 12 months ended 31 December 2019.

So, the assumption would be that the $658 million number refers for sales from 1 July 2019 to 30 June 2020. That would indicate that the first calendar half of 2020 outperformed the first calendar half of 2019 by $103 million.

Those numbers are not without meaning, as they reflect the overall market impact of TTH. But that revenue is not something that TTH - and now Metcash - fully participate in. As HNN mentioned in its initial coverage of the acquisition, Dun & Bradstreet estimated revenues for FY2019/20 as being around $98 million. Further:

Metcash has announced that in its two months of ownership prior to its first-half results, TTH declared $18.6 million in total revenue, and $4.8 million in total EBIT. Those numbers annualise out to $111.6 million and $28.8 million.

Metcash mentions in its ASX announcement of 1 September 2020, commenting on the completion of the acquisition:

The terms of the agreement, including the purchase price of ~$57m for the 70% stake, are consistent with those disclosed in Metcash's prior ASX announcements. The purchase price was determined based on a normalised annual EBITDA of $12.6m. Total Tools has however benefited from a change in consumer behaviour related to COVID-19 and is expected to report a significantly higher EBITDA for the year ended 30 June 2020.

If we presume that TTH can retain something close to its current numbers, and bearing in mind that Metcash only has a 70% ownership stake, that means the company will benefit to an amount around $20 million in earnings a year. This is far from being insignificant, but it is something of a step down from what the figure of $658 million in apparent revenues indicates.

Metcash hasn't made any misstatements, but providing more targeted revenue numbers and estimated EBIT would have better contextualised the acquisition.

Inside the acquisition

While better numbers might be helpful, the real problem in understanding this acquisition is that it requires an in-depth view of what is going on inside Metcash, how that interlocks with the external, macro environment in retail, and, finally, how all that plays out when it comes to the current state of the hardware retail industry itself.

HNN would suggest that what we're really seeing in the TTH acquisition is the final playing out of some less-than-successful strategies that have been at work over the past six to seven years in Metcash.

On a very high macro level, Metcash has tended to invest in short to medium term projects, and possibly has neglected a number of more long-term objectives. This is particularly the case as regards digital technologies. The CEO of Metcash, Jeff Adams, did call this out during the Investor Day. He indicated that the company would be making major investments through to FY2024 in replacing its internal systems, getting rid of what Mr Adams referred to as instances of "triple-handling" in some processes.

It is, however, a little bit less clear how Metcash's digital investment will play out when it comes to actual retail processes. Again, it is just very difficult to know when Metcash refers to some of its current digital assets as being "industry leading" whether that is simply a promotional attitude, or if the company actually believes this. As compared to, say, Amazon.com all of the Metcash digital assets seem evidently primitive. In hardware, they certainly don't have the functionality of the Bunnings website - though it, too, lags somewhat in international terms.

One clear indication that digital retail may not be everything it is made out to be is that the only performance indicators given are percentage increases over the previous corresponding period. And in the digital world, seeing numbers like a "150% increase" don't tend to indicate very high growth, but rather a very low starting base.

What still remains lacking at Metcash is the ability to conceive of digital as not just a secondary, cost cutting, market expanding business objective, but rather a primary objective, and one that is aimed at producing actual growth. We've seen, for example the parent company of big-box hardware retailer Bunnings, Wesfarmers, make a very large investment into data analytics. In a recent speech to a technology conference, the governor of the Reserve Bank of Australia (RBA), Philip Lowe, had this to say about the importance of data analytics to future growth in Australian businesses:

Looking across the economy, there are investment needs and opportunities in many areas. The one I would like to focus on today is investment in IT, digitisation and data science. Investment in these areas is critical to lifting our nation's productive capacity.

In many ways data is the new oil of the 21st century. Investing in data and our digital capability are critical to our future prosperity. These investments allow better decision making and a faster response to the changes in our economy and society. These investments are also crucial to organisations delivering the more personalised goods and services that many people are seeking.

There are opportunities for digital innovation in every sector of our economy. Almost every organisation needs a strong digital capability to perform well, to innovate and lift their productivity. Technology and data analysis also hold the keys to solving many of the great challenges of our times, including controlling the pandemic, dealing with climate change and responding to increasing cyber threats.

If a company has all but excluded itself from the primary driver of growth in the 21st Century, technology, it then has to look elsewhere for growth. The difficulty with this is that even those other growth opportunities are going to find themselves still altered by technology.

In 2018, HNN took a look at data analytics in the hardware/home improvement retail industry:

Food

For example, the difficulties that have beset Metcash's food business have been well-documented. It has lost some major wholesale partners such as 7-Eleven and Drakes, which pulled their contracts. Then there are the independent supermarket owners who built a smaller, competing supply cooperative. As described by Inside Retail:

Led by former Coca-Cola Amatil managing director Warwick White, through his independent grocery firm Stone Advisory, and with Ritchies Supa IGA boss Fred Harrison on the board, Co-Operative Supermarkets Australia [CSA] is expected to use its industry experience and contacts to collectively bargain with suppliers.

On its website, CSA states what was the inspiration for the move:

Following a trip by some leading retailers to Europe to see REWE and Leclerc, there was a new belief that grocery independent co-ops can beat the chains. The trip cemented the view that independents needed to control their own destiny.

Such a move would have been much less likely just ten years ago, but digital technology has made it possible for smaller cooperatives to manage order processing, fulfillment and delivery efficiently without the need for larger scale.

Hardware

The same forces that have been at work on the food business have appeared, more indirectly, in Metcash's hardware business. While Metcash has been broadly successful in agglomerating Mitre 10 with the retail assets of Danks, Home Timber & Hardware [HTH] as well as Thrifty-Link, it's an open secret that IHG has not succeeded to the degree it expected it would. While the company lost very few stores through the acquisition (far fewer than buying groups expected), IHG also did not gain as many additional independent stores as it had expected it would.

In large part that was because buying groups such as Hardware & Building Traders (HBT), led by Greg Benstead as CEO, innovated and made better use of digital technology along with other techniques to deliver solid results to its members. For example, IHG's Mitre 10 had long seen its printed mail catalogue as being a major part of successful marketing. HBT in 2020 introduced a system where individual members could digitally compose their own catalogue for their own areas, taking advantage of any HBT/supplier deals they chose. The catalogues could then be distributed in printed form, or accessed online.

In 2019 IHG made some belated efforts to approach buying groups with the suggestion that they could do better if they all joined forces. It was, however, a case for far too little far too late, and as far as HNN is aware no buying groups expressed interest in any kind of further integration with IHG.

What has been seen this year, as IHG has moved to close down its two minor brands, True Value and Thrifty-Link, and to increase the emphasis on its Mitre 10 brand over the HTH brand, is that Metcash no longer sees IHG as a real source of future growth through expansion. HNN would suggest the company will continue to be interested in getting larger stores from groups such as National Building Supplies (Natbuild) to join, but less avidly pursue smaller stores.

Finding growth

Given these contractions to growth, Metcash has been forced to explore new ways to achieve future growth. Like many companies that find themselves in such a position, one of the key changes it has made is to alter the risk profile of its investments.

Not that long ago, hardware at Metcash consisted almost entirely of its wholesale business, with only a small amount of full retail ownership - and much of that was purely defensive, preventing Bunnings from expanding by buying out Mitre 10 hardware stores. That began to change four to five years ago, and that change has accelerated to the extent that, according to data released at the Investor Day, where in 2018 some 40% of revenue came from joint stores, that has grown to 45% in 2021. While IHG was at pains to play down its future acquisition strategy, it's HNN's belief that JVs will come to make up over 50% of revenue for IHG by 2024.

Of course, this looks pretty smart. Selling only wholesale goods means that IHG misses out on the biggest slice of profit, which comes in the store to customer transaction. Why not buy into that, especially when it means taking over a store that not only has a good track record, but about which, as the main supplier, your company knows a great deal?

Unfortunately, as everyone knows, there is no such thing as free money. When a company moves from a wholesale to a retail operation, the risk profile undergoes a radical change. One advantage of the wholesale sales model is that, if the economy, or a sector of the economy undergoes a period of extended negative growth, the wholesaler is unlikely to be severely affected. Wholesale assets, and their attendant fixed costs, can usually be reallocated to different sectors, and the relatively less-skilled workforce can be laid off and later rehired without too much difficulty.

That's not the case with retail. In a down cycle, retail fixed operating costs can be deadly, and staff cannot simply be let go and rehired later. So when companies move from wholesale to retail they assume a great deal more operating risk. This is not always fully acknowledged.

The acquisition

There is one more factor to take into consideration about the TTH acquisition, and that is the effect of the COVID-19 pandemic. While there was a real effort made by Metcash to suggest that the pandemic will somehow result in fundamental structural change to its markets, that does not seem to really be the majority view. While current conditions might just stretch to November 2021, there is little doubt that once COVID-19 vaccinations are in place, Australians will return to their habits of eating out as much as they did in 2019, and grocery sales will slump. In terms of hardware, there may be a marginal increase in sales, but that will depend in large part on what the housing market does, which is far from certain.

This means that come the second half of FY2022, companies like Metcash will be running direct comparisons back to FY2019, and perhaps even then contemplating sliding results.

It is the culmination of all these factors - poor technology adoption in the past, sliding growth in the food business, a failure to fully capitalise on investments in the hardware sector, and the hangover from COVID-19 - that has made the investment in TTH "make sense" for Metcash. It makes sense, because the company is likely faced with just two choices: don't take the chance, and then pay the price for low growth, or take the chance and just possibly do better.

If Metcash is lucky, it might benefit from a new source of growth. Even if it isn't lucky, and TTH proves to provide more neutral than high growth, Metcash might buy itself "cover" for as much as the next two years, by which time, hopefully, some of its digital transformation benefits will kick in.

The core reality of that investment is perhaps best revealed by this question asked at the Investor Day by investment analyst Andrew McLennan of Goldman Sachs.

It looks though that this is going to be very much a space race. You've flagged how many stores you're looking to roll out, but you've got a competitor starting from way back, but having a huge amount of capital, obviously you've got different skillsets in terms of trade versus DIY, etc. Just wondering how confident you can be that allocating this capital and accelerating the growth profile can continue to enable you guys to run ahead of the Bunnings funded competitor.

This is, of course, the background to this acquisition: TTH is widely regarded as having backed out of a potential ASX listing and put the company on the market out of concern when Wesfarmers/Bunnings entered the trade tool specialist market with the purchase of Adelaide Tools.

Mr Laidlaw's response to the question partially affirms this supposition.

So you're absolutely right. I mean, what the franchisees of Total Tools were saying [was], "We've got a great business here. We've got great franchisees. We've got a good plan, but do we have the capital to compete with Bunnings?" That's a fact. So we bring that, but I'm very confident with the expertise that Paul [Dumbrell, CEO of TTH] has in his team that we will stay ahead of that competition. Adelaide Tools, just five stores. I'm not sure if the owner's staying around. So Bunnings have to acquire that expertise from somewhere. We've got it out there in 88 stores.

This does identify the extent of risk that Metcash is facing. Bunnings has plans to build out its network of tool retailers to around 30 stores over the next two to three years. However, perhaps characterising it as a general "space race" - the retailer with the most stores wins - is not quite accurate. It is a space race, maybe, for Metcash, but it really isn't for Bunnings.

One of the factors that was not mentioned at the Investor Day, and that perhaps has not been quite figured into the TTH acquisition, is the extent of the relationship Bunnings has with Techtronic Industries (TTI), the company behind the Milwaukee, AEG and Ryobi power tool brands. The volume of goods made by TTI sold through Bunnings would be substantial (Bunnings has exclusive rights in Australia for both Ryobi and AEG), and one would imagine that this, along with a very long and good relationship between the two major companies, could guarantee good supply agreements.

Every indication that is currently coming from Bunnings is that the company plans to take things slow, and make sure the retail offer is an appealing one. The real question for TTH, in this circumstance, isn't the competitive moves Bunnings may make, but how long it will take the bigger company to develop a performant, verifiable model. At that point, and only at that point, is Bunnings likely to increase its investment and start building out the store network.

Understanding Bunnings

What Mr Laidlaw's answer really does show is something of an ongoing problem that has persisted at Metcash, which is really not understanding Bunnings. That was evident in his opening remarks to the Investor Day presentation:

Annette [Welsh] and I have been fortunate enough to travel the world, looking at home improvement businesses, hardware businesses, looking for best practice and gone to many good places. And it's amazing when you come back to it, if you categorised the Big Box DIY best performers in the world, you look at B&Q, you look at Home Depot. Bunnings is the best in the world, in our opinion, at Big Box DIY. Very, very good. They've absolutely captured that weekend warrior. You only have to drive past car parks on the weekend to see how successful that is at capturing the heart and soul of the DIY customer. They're not so good at trade, but we'll talk about that as well.

We also looked at a lot of good individual businesses around the world. There were some great businesses in the US, entrepreneurial. There's a business called Orchard. Unfortunately, the big guys always then go and buy them out and you lose the entrepreneurialism. But the best at actually trade and DIY, not so humble, is absolutely Mitre 10 New Zealand, who are outstanding at it, and Mitre 10 Australia is becoming very, very good at it, and leading the way in many areas. Having those trade drive-throughs for the trader to get in and out, get on with it, is outstanding.

With all due respect to both Mr Laidlaw and Ms Welsh, Metcash is an Australian company with a market capitalisation of around $3.5 billion. At its peak, revenues from its hardware segment have been around $2.4 billion, and the majority of those revenues come from its wholesale operations, not retail.

Home Depot has a market cap of USD329 billion, and revenues of USD132 billion in FY2020. B&Q is owned by Kingfisher in the UK. Kingfisher has a market cap of GBP6.7 billion, and had FY2020/21 revenues of GBP12.34 billion.

Bunnings is owned by Wesfarmers, which has a market cap of $60 billion. It had sales of $31 billion for FY2019/20, of which $15 billion came from Bunnings. If we accept that 17% of that revenue was due to trade sales, that means Bunnings earned $2.6 billion in trade - about double the trade portion of the wholesale/retail revenue of IHG.

Of course, everyone in hardware has an opinion about every other retailer in hardware - and is entitled to that. It's difficult to see, however, what role such opinions really should play in evaluating CapEx investments of over $100 million in a franchise operation. Far better to plan based on a clear vision of a competitor, rather than working off of potentially erroneous assumptions.

Analysis

What effect will Metcash's investment in TTH have on the overall tool market in hardware retail? Most hardware retailers are going to be less concerned about how many Milwaukee drills TTH sells, and more concerned about the market in power tool accessories, such as bits, cutting disks and replacement batteries. As the franchise expands, will it see tradies go to TTH for their actual tools, but return to hardware stores for those accessories? What happens when both TTH and Bunnings are expanding their operations?

There is really no way to tell, and it's likely to be a store-by-store, customer-by-customer situation. Perhaps the real impact of the TTH investment is not so much directly about TTH itself as it is the signal that Metcash plans to deal with its hardware business in a different way. The industry will likely only understand the consequences of that once 2021 is over.

In general terms, however, what we are seeing play out at Metcash is similar to what we see at many other listed and unlisted Australian companies. Many of these companies have reported reasonable performance over the past five years, but this has been due, at least in part, to not realising how much they should have been investing in technology. As the 2020s roll by, we'll see more of these getting into trouble as their sources of growth dry up. Like Metcash, they will invest in riskier projects, in the hope of shoring up their share price and future outlook.

Some will eventually make the transition to technology, but more will likely fail, or find themselves in receivership, being scavenged for whatever assets they have left that will be of value. HNN would suggest that will happen more quickly than most would suspect, as soon as 2025. Let's hope Metcash - and IHG - evades that fate, but to do so it will need more significant action than has been envisioned so far.

The Australian Bureau of Statistics has released its retail stats for February 2021. These show that for hardware retail growth has continued at a relatively high rate, but there are beginning signs of a potential slowing to a more normal - though still positive - rate of growth.

It is worth noting that we are about to enter a whole new period for retail stats, as we will start to lap over the period when COVID-19 first made its appearance. It will be interesting to see how this modifies the generally high month-on-month comparison growth rates. For these February figures, we're seeing a mixed result, but much of that is down to some states experiencing further lockdowns during the month. That said, there is an overall general trend towards the growth rates climbing less high.

Overall, for Australia, hardware retail sales for the 12 months trailing to February 2021 hit $24.2 billion, an increase of 22.52% or $4.44 billion, over the previous corresponding period (pcp), which was the trailing 12 months to February 2020. The Australian Capital Territory (ACT) had the highest percentage increase, of 35.24%, while New South Wales surged ahead of other states and territories in dollar value, increasing by $1.4 billion, or 24.79%.

Queensland performed well, with an increase of over $1 billion, or 25.07%. Victoria (VIC) had the lowest percentage increase, of just 18.51%, or $1.1 billion. South Australia (SA) and Western Australia both showed increases of over 20%.

Looking at the month-on-month percentage change numbers, there is a significant drop-off in terms of gains for some states, led by VIC. The growth between February 2020 and February 2021 was only 4.19%, with WA also showing only 7.19% growth. By contrast, NSW showed growth of over 20%.

Some of this is due to these months lapping the months at the start of the COVID-19 pandemic, which had started to show strong hardware retail gains. This is likely the result of the lockdown from 12 to 17 February 2021. It is interesting that just those five days of Stage 4 lockdown had so severe an effect on retail sales. WA was probably also impacted by its lockdown, which ended on 5 February 2021, but had some lasting restrictions as well.

Building materials supplier, Brickworks believes the outlook for housing is so strong and stretching well into next year that it has decided to restart a mothballed brick kiln in New South Wales.

Its flagship Australian building products business recorded a 60% gain in earnings to $16 million. The federal government's HomeBuilder program has been a major driver, but Mr Partridge said he was worried about what might occur from mid-2022 without immigration and international students because of border closures. Brickworks chief executive Lindsay Partridge told The Australian:

Demand was relatively subdued early in the period. However, as government stimulus packages were progressively introduced, consumer confidence improved and this translated into increased building activity and greater demand for our building products.

Our orders are running exceptionally strong ... Every builder in the country has a full order book, and it is going to run strong for the next 12 months, until I think what happens in the middle of next year which is the question. Does the economy continue to grow, how does housing stay strong with a lack of immigration?

People to regional towns would keep demand high for at least another year, according to Mr Partridge. In the pandemic, people were steering away from apartment living, in favour of detached houses, he said. The trends were delivering robust sales in the company's main brands, Austral Bricks, Austral Masonry and Bristile Roofing.

Mr Partridge said the short-term outlook was positive but warned lack of tradies could slow the pace of projects.

As demand grows, we anticipate sales volume will be limited by the availability of tradespeople such as brick layers and roof tilers, and this is likely to extend the existing pipeline of work, resulting in an elevated period of activity for at least a year.

Mr Partridge said a fall in bricklayer wages on the west coast had seen many professionals leave the industry, creating a shortage. Meanwhile roof tilers flocking to Queensland following hailstorms before Christmas had seen other states scrambling for available roof workers.

On the west coast we had a long downturn and wages dropped, tradies went off to do other things and that won't come back until wages go up. On the east coast we had the big hail storms in Brisbane before Christmas so all the roof tiling trades have been busy doing that.

Mr Partridge also said further brakes on sector growth could come from qualified tradies soon being engaged on repairs and rebuilding projects across flood-affected areas of NSW overseen by insurance companies willing to pay high prices.

We don't know what the demand for trades is going to be after the floods ... in Sydney, but of course there are going to be tradies demanded and insurance companies who want to get their clients back into houses are always going to pay top dollar to get the work done quickly.\

And while the slowdown in high-rise towers could free up workers for residential projects, there remains a danger strong order books will see residential construction projects potentially slowed and the pipeline stretched out to next year. Mr Partridge said:

On the east coast we need the tradies that are involved in high-rise construction to move across to residential housing.

The warning came as the company posted a 22% lift in first-half profit to $71 million. Its revenue fell 4% to $449 million and underlying profit was $90 million, down 10% from the prior period.

US business

Brickworks is one of the largest brickmakers in the US and is benefiting from the trillions of dollars in stimulus being pumped into the economy. It won the contract for the Walmart global headquarters in Arkansas, which will have 11 towers and require tens of millions of bricks.

However, its North American businesses' earnings were significantly impacted by the COVID-19 pandemic, exacerbated by uncertainty in the lead-up to the US presidential election in November and severe winter weather from December. Some US state authorities paused infrastructure and building projects because of battered finances. Lockdowns in some states also crimped demand in the north-east and Midwest. This resulted in a 33% decrease in earnings to $4 million. Mr Partridge said:

We have been hit harder by the pandemic in North America, with around 90 COVID-19 cases amongst employees, and more than half of all staff unable to work at varying times during the period. This has created significant workplace challenges, just to keep some of our plants operating.

Investments

In addition to its core building materials businesses, Brickworks' investments include a 39% stake in the ASX-listed Soul Pattinson which rose $720 million in value over the period to be currently valued at $2.9 billion. Its half-share of a property trust with warehousing specialist Goodman Group which is heavily exposed to industrial properties increased by a further $50 million to $777 million in the half.

HeidelbergCement

Dominik von Achten, chairman of Heidelberg­Cement, recently told investors and analysts during a fourth quarter update that he was more optimistic about Australia than many of the company's competitors, as COVID looked to have been beaten and the economy was benefiting from rising commodity prices.

The Australian reports that Dr von Achten said he was looking forward to an improved second half of 2021.

COVID is basically over ... OK, they cannot internationally travel, but the life is fully back to normal in Australia. So that's why we are pretty optimistic for, at least, the second half in Australia.

I know that our competitors in Australia, based on their communicated guidance, may have a little bit of a different view on this.

Australia was a little bit tough for the last one or two years. Started quite well into this year and from our perspective [with] solid expectations for the second half.

Dr von Achten highlighted the infrastructure projects that were banking up and would help drive sales and activity. He said:

From what we see ... on the back of good infrastructure pipelines ... there are significant infrastructure programs locally by state and nationally in place. We are optimistic for Australia.

Dr von Achten said Australia, for a long time, had been riding the commodity boom and that despite some impact from last year's worsening of the trade dispute with China, the recent rise in commodity prices should flow through to the economy and sentiment.

They were, for a long time, very much dependent on the commodity boom that has then come to a clear end in 2020.

They are a little bit of an insight in some of the commodities with China and also the Chinese not being able to travel to Australia and the slight decrease in the Chinese effect of the Australian economy may have had an impact on that. But in general, I have to say commodity prices are now up again, which then should also help in a commodity-driven nation like Australia and also sentiment in Australia.

HeidelbergCement bought British rival Hanson for GBP8 billion in 2007, giving it a foothold in Australia with Hanson's local operations. It also owns a 50% share in Cement Australia through Hanson, with its partner in the subsidiary LafargeHolcim.

Dr von Achten said Australia remains an important market to HeidelbergCement, with no changes to the Cement Australia partnership required at this point.

I think Australia is an important market for us, that we have a very strong business down there, highly vertically integrated and that includes Cement Australia.

From our perspective, that partnership works well and I think that, for us, there's no need to touch this at this point. If there is some change necessary from our partners' perspective, then we'll reconvene. But from our perspective right now, we are happy with the set-up.

Home improvement retailer Homebase will introduce the Powerbase range of outdoor power equipment products in time for its spring season.

Designed to make gardening easier, Powerbase is user friendly, catering to different levels of gardeners whether they are novices or more experienced. With 31 products, from lawn mowers and chainsaws to hedge trimmers and pressure washers, this range will provide customers with more choices when taking on garden projects.

The range includes lightweight cordless options, and using the latest in rechargeable lithium technology. Using Powerbase means that one battery platform can power up to 12 different garden power tools. This can save customers time and money as well as being more environmentally friendly. Stephen Pitcher, director of trading for garden & seasonal at Homebase, said:

We know that our customers have had to readjust to a new way of living over the past year and outdoor spaces have become one of the few places we can see friends and family.

Tackling garden projects can be intimidating, especially for the less experienced gardener. As the garden experts, we're committed to providing our customers with the tools they need to bring their projects to life and the new Powerbase range does just that.

All Powerbase products are covered by a two-year warranty.

Wickes

DIY retailer Wickes has taken another step towards becoming a standalone, listed business. Parent company, Travis Perkins, submitted its prospectus for a demerger of Wickes to the Financial Conduct Authority recently. Chief executive of Wickes, David Wood, called it a "milestone" for the business, according to The Times.

FTSE 250 building materials group, Travis Perkins has been wanting to offload Wickes since 2018 when it believed that a younger British generation had fallen out of love with DIY, and it wanted to focus on its trade customers. Its spin-off plans were put on hold during the pandemic as companies across the UK hunkered down to ride through the crisis.

However, Wickes has enjoyed a revival from a DIY spending boom as people have used their extra time at home to carry out renovations. Wickes has 233 shops and employs about 8,000 people.

Investors will be given one share in Wickes for every share held in Travis Perkins and it is expected that there will be some volatility in the first few months of trading as shareholders have mixed views on UK retail stocks. (Travis Perkins has been valued at GBP4.03 billion).

Nick Roberts, chief executive of Travis Perkins, said the separation "will allow both businesses to allocate capital to drive growth and further enhance their market leading positions".

Wickes boosted like-for-like sales by 5% last year and increased total sales by 20% to GBP1.34 billion. While the group was boosted by a surge in first-time DIYers, it suffered a 27.8% drop in sales from tradesmen as COVID restrictions limited their work. The company increased click and collect orders by 450% while home deliveries rose by 120%.

Mr Wood said there was a "large cohort of millennial first-time DIYers who have found the process enjoyable and have learnt a new skill over the past year. There is new blood in the market, which will be helpful to the business and the market".

He added that there remained pent up demand in the professional trade sector because of projects that had been put on hold during COVID restrictions, while an uptick in housing transactions would lead to more renovation work on kitchens and bathrooms.

The group said that it expects its retail growth to "moderate against tougher comparatives" but that hiring help will return and has had a high level of enquiries from trade clients. Wickes said that sales in this division were 50% lower than last year.

Related: In early 2020, Travis Perkins put plans to spinoff its Wickes DIY retail arm on hold as the coronavirus outbreak continued.

To inspire people to tackle craft and light home improvement projects around the home, Dremel has introduced the fast-heating, cordless and rechargeable Dremel Home Solutions[tm] Glue Pen.

This tool features an integrated 4V MAX rechargeable lithium-ion battery and USB port for convenient charging. At 6 5/8-inches long, the glue pen is compact and designed to provide exceptional performance for its size.

The Dremel Home Solutions Glue Pen is ideal for craft projects, decoration, frame embellishment, costume repair, glue-pen art and minor home repairs. Unlike corded glue guns that can take around five minutes to heat up, the Dremel Glue Pen heats up in approximately 15 seconds with its indicator light letting users know it is ready or when it needs to be charged.

It also has a precision nozzle tip that is ideal for detailed gluing and reducing drips. The unique design allows users to hold it in a natural, comfortable position easing hand fatigue throughout your projects. Michael Landt, director, DIY tools at Dremel, said:

A glue gun is always a handy tool to have around the home but the Dremel Home Solutions Glue Pen will transform your craft with ease and speed. This fast-heating cordless glue pen lets you freely move around your workshop or craft space without getting tangled in a cord or worrying about hot glue dripping with our innovative nozzle feature...

The Dremel Rechargeable Glue Pen comes complete with the glue pen, four glue stick refills, power adapter and USB cable.

WORX

The WORX 20V MakerX Rotary Tool and Airbrush Combo Kit brings a fresh approach to creative crafting tool design, precision handling and portability. The kit includes a MakerX Hub, 20V Power Share battery, 45 accessories with case, charger and storage bag.

The rotary tool and airbrush crafter kit is part of the WORX MakerX system, which is centred around a MakerX Hub. Each compact tool in the system connects to the portable hub via a 4-ft. power cord. The hub is powered by a 20V, 1.5 Ah, Max Lithium, Power Share battery.

Since the tools, themselves, don't contain batteries, they are lighter weight, better balanced, leaner and more compact than other models. Micro-ergonomic grips make the tools easier to handle and more comfortable, especially during extended use periods.

The portable hub also eliminates the need to be near an electrical outlet. Uses can just pick up the kit and carry it to any work station or project location, indoors or out. The hub has an on/off switch and a variable-speed dial, from 5,000 to 35,000 rpm, depending on the tool that's connected.

The MakerX Rotary Tool's applications include projects that call for cutting, drilling, detail sanding, polishing, engraving and etching.

The rotary tool features a brushless motor for long life and smooth operation. Brushless motors run cooler and with less friction and vibration than conventional brushed motors. It also is 20% slimmer than competing models and has a narrow pencil-like grip for handling projects with precision and control.

MakerX Rotary Tool accessories are not proprietary. The tool's 1/8 in. collet accepts other major brand accessories with 1/8 in. shanks. Other collet sizes, including 3/32, 1/16 and 1/32, also fit the tool.

The MakerX Air Brush is the only 20V airbrush on the market today. It's ideal for light duty and intricate jobs, and handy for removing dust from woodworking projects prior to painting or staining.

The highly maneuverable airbrush has a dual-function trigger control that separates air flow and paint volume. This allows the user to go from a wide spray pattern to a fine line, or vice versa, in a single stroke. It also helps avoid initial splatter by introducing paint gradually.

The tool's diaphragm pump generates 14 to18 psi air pressure and has a run-time up to three hours. Its 0.04 mm nozzle provides a balance between fine detail and ample width of coverage.

The airbrush accepts a variety of water-based and acrylic paints.

The MakerX, 20V, Max Lithium battery is compatible with more than 35 other WORX DIY and lawn and garden tools through the company's Power Share platform.

All Gyprock products are now certified to display the Australian Made and Owned logo. Gyprock executive general manager, Paul Dalton, said the company takes great pride in its local manufacturing operations and is committed to protecting Australian jobs.

We are proud of our history as an Australian manufacturer. Not only do we take pride in supporting the continuation of local jobs, but there is also a satisfaction that comes with producing a nationally recognised Australian Made product.

The Australian Made logo is globally recognised and aligns perfectly with our mission statement - when you purchase Gyprock products, you are buying quality. It also demonstrates our commitment to local manufacturing and provides our customers with the peace of mind that comes from purchasing locally made products. We believe our commitment to local manufacturing has contributed to Gyprock's outstanding reputation for quality.

Gyprock is proud to have its products certified with the Australian Made logo. The logo also adds a lot of weight to our country-of-origin claims. Carrying the Australian Made logo and directing decision-makers to our products on the Australian Made website provides transparency. It clearly communicates our manufacturing processes beyond what we could independently.

Ben Lazzaro, Chief Executive of the Australian Made Campaign, said:

The Australian Made logo is the true mark of Aussie authenticity. It's exciting to see Gyprock's range of Australian Made product proudly carrying the iconic green and gold kangaroo.

Aussie products are made to some of the highest standards in the world. They are trusted, known for their safety and quality and increasingly preferred by builders and home renovators. When you buy Australian, you are also helping to pump money back into our economy, which helps to keep Aussie jobs, strengthen local industries and supports local communities.

A 2020 study from Roy Morgan Research found that Aussies favour Australian Made products, with 68% of Australians preferring to buy Australian-made building and renovation materials, and 58% preferring to buy Australian-made tools and hardware. The research also found that high quality, use of ethical labour, and supporting local jobs and employment are all attributes associated with the Australian Made logo.

Gyprock has developed a portfolio of leading design support resources for designers, engineers and architects, reducing uncertainty and risk, and allowing professionals to remain on top of the ever-changing codes and products. DesignLINK partners with clients to workshop complex design issues, provide value engineering, rationalise system specifications and deliver better building performance while maintaining buildability for both builders and contractors. The Red Book is the industry's respected fire and acoustic design guide and offers best-in-class performance detail and technical guidance for selecting fire, acoustic and thermal wall, ceiling, column and beam systems. Mr Dalton said:

Our Australian Made products have been designed with the expectations and needs of Australians in mind, providing appropriate market solutions that consider Australia's standards and regulations with no compromises...

It's more important than ever to support and grow the local manufacturing capability. A thriving manufacturing sector is critical to Australia's economic future and prosperity, and will help create jobs, strengthen local industries and support local communities...

Gyprock is part of CSR Limited.

While the Independent Hardware Group (IHG) strategies announced at Metcash's Investor day in March 2021 were, for the most part, not entirely new, they did amount to a new pattern for the hardware wholesaler/retailer to take. To summarise the overall strategies quickly:

A new IHG?

How do these strategies relate to each other, and what sort of IHG can we expect in the future?

Perhaps the simplest way to see what is happening is that much of this is everything that HNN and a range of other analysts predicted would take place once HTH was merged with Mitre 10. A good deal of future growth for the company looks like it will come from operational alterations, rather than from expanding sales revenue.

A clear example of that is the move to eliminate the True Value and Thrifty-Link brands, and to shift the emphasis on store branding towards Mitre 10 and away from HTH. While, as IHG points out, the two minor brands do account for only 3% of total revenue, these are, of course, real stores and with real owners, not just numbers on a spreadsheet. As the CEO of IHG, Annette Welsh pointed out in response to an analyst's questions about whether moving the smaller brands into the bigger brands might dilute the latter's market position:

It's certainly the conversation that we have at the national advisory council in terms of how do we ensure that the brand isn't diluted. So there's standards that each store will hit in terms of their movement, depending on which brand they go to. But we see the majority of those stores probably moving into the [HTH] brand rather than into the Mitre 10 brand. It's the right one for them to go. It's the smaller model. It's probably more closely to aligned to DIY. And so that's probably how we see that tracking out.

Very logical.

What the analysts might have missed, however, was how these moves will directly improve the revenue for IHG. Many retailers have persisted particularly with True Value because the fees are much lower. Forcing some of them into HTH or Mitre 10 will likely increase the fees they pay to IHG.

The same holds true, of course, for the move from HTH to Mitre 10. According to IHG predictions, the proportion of sales through HTH will move form 46% in 2017 to just 22% in 2021, and further down to 20% in 2024, while Mitre 10 sales will move up to 80% of sales by 2024. With Mitre 10 store contracts in general more expensive than HTH contracts, that should boost profits for the group.

How popular that will be with smaller stores remains to be seen.

Corporate/Joint Venture stores

According to IHG, the amount of revenue that is derived from non-independent stores grew from 40% in 2018 to 45% in 2021. A number of statements were made which said that IHG planned only to acquire stores when either there was a sale due to members deciding to cash out for retirement and similar purposes, or when an "aggressive" offer was made for a store by a competitor. (Part of the contracts with IHG, it is HNN's understanding, include a provision which enables IHG to make a matching offer to buy a store offered for sale.)

While that might seem like a slowing down of acquisitions, it seems highly likely that by the time 2024 comes around IHG will be deriving over 50% of its revenue from Corporate/JV stores. According to Ms Welsh:

One of our great strengths is the strength of our independent members who are very supportive of the company store and joint network portfolio that we have, because they see it as us walking in their shoes, us experiencing what they experience every day, but also the opportunity for us to test and trial all of these initiatives and ensure that they are commercially proven before we roll them out.

What that delivers for them is confidence that when we come to them to say, this is the right initiative for your business in your local community at this time, we can demonstrate to them that we have absolutely put it through the wringer and it is right for them to take advantage and deliver top and bottom line sales.

This is a familiar suggestion from IHG, but, anecdotally, HNN seldom encounters hardware retailers in the group that are entirely comfortable with the increasing numbers of corporate stores. In order to "walk in retailers' shoes" you would surely only need about 25% at most of the revenue flowing through the corporates. It is HNN's estimation that this situation could become much more acute if Metcash continues with its roll-out of Total Tool stores, which will bring increasing competitive pressure to the established IHG retail network. For IHG itself, between Total Tools and its corporate stores, those retail dollars are completely fungible, but they could represent a substantial loss in sales from hand tools and power tool accessories for some Mitre 10 store owners.

Sapphire

As Ms Welsh mentioned, Sapphire upgrades have been one of the main ways the group has moved HTH members into Mitre 10 - which would indicate a reversal of its past policy which extended Sapphire upgrades to HTH as well.

The story about Sapphire is itself interesting. With 130 conversions expected to be completed by the end of Metcash's FY2021, to meet its target of 200 a year later, they would obviously have to do 70 conversions. The new target is 300 stores by 2025, which means instead of doing 70 conversions in year, they need to only manage 170 over four years, or 42.5 per year - about 40% fewer.

No doubt the COVID-19 pandemic slowed down the rollout of Sapphire, but this does cast doubt on whether IHG will be able to meet even this greatly reduced target. It represents a clear failure to deliver on past projections.

Digital integrations

This is how Ms Welsh describes one of the recent big digital leaps forward at IHG.

Just this month, hot off the press. We have improved our offer to our customers and made our inventory click and collect in a store live. Not something that we had before. So remember a customer previously would go on to click and collect, they'd place an order, and then we would find them to tell them whether we had it in store. They would need to wait for a few days before we can get it. They now can see that for themselves. And it's a much more convenient offer than we've had before.

OK, really? So, up until March 2021, ordering something for click and collect took from three to five days? That's honestly difficult to believe.

Of course that really reflects the whole difficulty that IHG has had in implementing digital sales over a network which is widely distributed. One area where they at least seem to have done better, is with providing some data insights directly to store owners. According to Ms Welsh:

In addition to our digital solutions for our consumers, we've got some fabulous solutions for our members themselves. This is part of that continuing strategy for us to add value back to the members. The members have been generous in trusting us with their scan data. What we now do is build that scan data and return it to them. What they have is an iPad on which they can then search their own insights related to their business that we've provided back to them. They can see benchmarking across the whole group. We indicate to them where they've got aged inventory, where their price is not competitive and where there are opportunities for them to create even better value.

Probably the greatest advantage in that list of features is the capability to see benchmarking across the group. Other than that, most point-of-sale systems can provide this kind of information. To provide real data analysis would require more points of information, such as geographically linked demographics, perhaps an indication of what people from their geographic area are browsing online and so forth. Maybe some of that will be forthcoming, now that they've sorted out click-and-collect.

Whole of house

While the "whole of house" approach is something that Ms Welsh pioneered at IHG, it seems a very difficult area to quantify in terms of expected growth. The point that Ms Welsh makes is that currently the average involvement by a builder results in IHG supplying around 35% of their needs. However, there are builders that rely on IHG for 70% of their needs. While this is an identified growth area, it remains unclear exactly how IHG is going to achieve this growth.

Though it is not especially clear, it seems that one way IHG might do this is through what it calls its Design 10 centres. As Ms Welsh explains it:

A big portion of build trade is that fix and fit-out perspective. That piece at the end, that finishing touch that's really important. And for those familiar with our business, we've got some real strengths in here. We have our Harding's business, appliance and front of wall business. We have our Tate's flooring business. We have timber connected home kitchens, right the way through the whole gamut. So the pictures on the slide that I show you here are a brand new Mitre 10 design centre. We're calling it Design 10. Hopefully you see that cheeky connotation and that link between Mitre 10 and Design 10.

...

The purpose of this is that ability for the builder to bring their consumer in and really finish off the home side-by-side with the expertise that we have. It's to bring the renovator in, to give them that real vision of what could be in their home. And that serious DIYer also has the opportunity to learn and connect with our teams to build their new kitchen or a new bathroom.

This isn't just a bricks and mortar solution. We plan on probably having about 10 of these in central locations or major regional centres, but it is also an online solution that we should be building and ensuring that we compete with the best in the market here.

This loops around, to some extent, to our sense of the difficulties that Metcash has as a whole when looking at the potential of digital enterprises. To HNN's knowledge, by far the most used resources for designing houses, renovations, kitchens, bathrooms and so forth are found online. Houzz, for example, or Pinterest, and videos on YouTube. Does it really make sense to invest in physical locations to which a limited number of people can travel? And while those showrooms do provide more than just an image downloaded online, or a video watched on a mobile phone, they are also very limited in terms of the products and designs they can offer.

The forecasts

The other area of great interest in IHG's Investor Day presentation was its forecasting. There seemed to be a real earnest wish expressed throughout most of the Metcash presentations that some of the exceptional circumstances brought about by the COVID-19 would stick around another two or three years. The food segment, in particular, seemed to express a strong hope that somehow Australians have been permanently converted from dining out, and there was similar sense of hope on the part of the liquor segment.

While it does seem likely that these hopes will prove futile post 2021, there is some potential that areas such as DIY expenditure will show longer lasting increases. After you've painted a couple of rooms, or refinished a chair, there is a high potential that you will consider that work in the future as well.

However, as Ms Welsh repeatedly makes clear, the DIY market is something of a side benefit and the real focus is on builders and trades. IHG makes use of the figures produced by the Housing Industry Association (HIA) in her forecast of future growth.

While HNN has the greatest respect for the HIA, it's pretty clear to us that these forecasts are more likely to be incorrect. We're already seeing strong signs that the housing market is overheating in Australia, and without the potential to raise interest rates so as to slow the growth, there is a clear possibility of a crash.

Outside of that, however, the HIA shows sharply reduced rates for growth in multi-unit dwellings. While the COVID-19 pandemic has certainly reduced the attraction of living in an apartment, it seems inconceivable to us that this will continue much past the end of FY2022. The simple fact is that with house prices continuing to increase, many younger families will need to choose between renting or purchasing some kind of multi-unit dwellings.

That potential insight flows through to another of the charts offered by IHG, which shows their vision of the market they service:

What that graph clearly shows is that if we do see a radical increase in multi-unit dwellings, at the expense of detached dwellings, IHG could be exposed to a declining market. Ms Welsh states that:

We have, and have had for some time, a diversity of our consumer, which we think puts us in a very strong position. A little bit in that multi dwellings, which is going to become challenging in terms of its growth for the next few years, as there's an overpopulation of apartments, but the split between detached and renovation.

It seems unclear where the notion of an oversupply of apartments comes from. Certainly there has been a reduction in demand, and current building approvals show a slow down in construction, but, post the COVID-19 pandemic, it would seem this form of habitation will retain its previous popularity.

Analysis

Ten months is not a long time to be in charge of a complex business like IHG, no matter how long you have worked as IC2. It will likely be another 18 months or so before we really start to see the kind of imprint that Ms Welsh intends to make on the hardware retail industry.

One of the difficulties of the role is the shift that needs to be made between the needs of the members, and the needs of the sharemarket, as represented by the investment analysts. Members want to know that you care about their needs, that you value their human contribution, and that in seeking to profit yourself, you will also provide a path to income stability for them as well.

Investment analysts are very different. Their primary need in a business such as hardware is that they need to see a clear path between CapEx and future growth. They want to see that a company is anticipating future change, and positioning itself so that it will benefit from those changes, and provide self-funding for future growth as well. The main requirement they have in communication is not promises, high aspirations or reassurances, but rather to be given the tools they need to make risk assessments.

To achieve that, the major requirement is true coherence. They must be able to look at any single element of a strategy - for example, Design 10 - and be able to trace the logic of that investment through to how that reduces costs, grows markets, adds certainty, or anticipates future trends. Supplying instead what might best be described as a list of stuff that we did that was great, and more stuff that we are going to do that is also great, simply will not pass the test.

For the hardware industry itself, as mentioned in the introduction, what we're seeing is IHG move to the position most of us predicted it would. In terms of the balance between letting independents to what they want, and exerting corporate control over them, the latter is going to come to dominate more at IHG. The countervailing force is that IHG is willing to offer more services, more help, to drive more sales to them, and to make the system more efficient. How the current members will feel about all that two or three years from now is not something HNN can predict.

However, what we do feel really needs to be addressed is a word that both Ms Welsh and Mr Adams brought up in what we might term a disapproving way: fragmentation. There is a drive at IHG - and has been for some time - to seek to remove fragmentation from the hardware retail industry.

The contrary viewpoint to that, as expressed by Hardware & Building Traders (HBT) and others, is to accept fragmentation, but make it work much better than it has in the past. Fragmentation is not disarray, it is the adoption of a different kind of order, and a different set of relationships. Pre-digital technology, it might have been true that there was an established trend to move from the fragmented to the less-fragmented. But today, with digital technology, that has changed. Efficiency has moved from the highly centralised to the decentralised.

The real flaw in the hardware retail industry today is not that it is fragmented, but that it is lacking in innovation. A prime driver of that is the dominating presence of Bunnings in the market, which, aside from a high level of competition, makes obtaining capital difficult, not only for retailers, but also for companies that might service hardware retailers. In terms of where those innovations - despite the obstacles - will eventually come from, HNN is quite sure it will be from the "fragmented" portion of the industry.