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

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

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

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

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

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

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

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

Nino Sitchinava, Houzz principal economist, said:

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

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

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

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

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

Houzz 2019 State of the Industry - Australia

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

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

To read more about Houzz in Australia, go to:

Houzz talks marketing - HI News, page 83

Australia's independent hardware retail sector continues to contract, even as overall hardware retail revenue numbers grow.

The graph above illustrates the decline in the numbers of hardware retail businesses in Australia, categorised by revenue tranche.

The second datapoint is just this: overall retail revenue for hardware, according to the ABS, increased from $12.3 billion in FY2007/08 to $19.1 billion in FY2017/18, growth of 55.6%. Allowing for inflation, the increase would be from $15.2 billion in today's dollars, to $19.1 billion, a market size increase of 26.0%.

To summarise, despite strong growth in overall revenues, the number of stores is declining, except for those with revenues of over $2 million a year.

For most independents, the reason why this has happened is easy to determine: Bunnings. While the independents have found themselves increasingly hemmed in by declining gross profit margins, Bunnings has continued to grow, expanding in terms of both revenue and earnings before interest and taxation (EBIT).

The independent sector has had over 15 years now to develop a significant response to Bunnings. What it has developed, so far, is largely a series of survival strategies. Some of these have worked, but, as the stats show, they've worked better for larger stores.

What we've seen recently is a growing trend for independents to consider viewing their entire sector as more of a unified group. There is certainly a lot of healthy competition between independents, and between competing buying groups, but there is a growing sense that there may be areas where increased cooperation could produce benefits for all participants.

The only way for this kind of strategy to work at all is if it is strongly focused on growth. This could mean an increase in topline revenues, an increase in profit margin, or both.

If the strategy is not about the overall growth of the independent sector, then all it would do is redistribute existing marketshare differently between participants.

That growth could come from any of three areas: reclaiming marketshare in some areas; taking a larger share of new and emerging markets; and by increasing the role of service provision in areas currently dominated by products.

Another important value is that any strategy of cooperation has to mean that all participants have at least a chance to benefit, and those benefits should be, as much as possible, distributed evenly between stores of all sizes, in all regions of Australia.

A strategy

It's not enough to say "let's all get together", and hope that some kind of coherent strategy will emerge from that. If leaders at the various buying groups, and key, influential retailers in the industry want to see broader cooperation, then these strategies need to be developed first.

We can think about this as being achieved through something like a two-step process. The first step would be to find some common, agreed purpose that everyone in the independent sector would benefit from. Once that coherency is established, it can form a platform on which future, more developmental strategies are built.

First stage

In particular, HNN would caution against what might seem the "easiest" strategy to begin with, which is to use such consolidation to concentrate market power on fewer brands and suppliers, thus driving down wholesale supply prices to lower levels. While pursuing that strategy to some extent is necessary and good for the market, taking it beyond a certain point results in diminishing returns.

From HNN's perspective, the best clue as to how consolidation could be started is something that was suggested to us by Andrew Graham when we were profiling the Traralgon H Hardware store. In discussing the difficulties of the power tool market, Mr Graham said that, beyond pricing problems, one of the major obstacles was that most purchasers began their research on the internet, which meant that their initial searches brought back results from retailers such as Bunnings and Sydney Tools. Smaller hardware retailers simply can't achieve a high ranking in Google searches.

What is really needed by the independent sector is a well-designed, highly informative web presence that is all about hardware, home improvement and building. It needs to be a website that can become the foremost hub for all this type of information. Its purpose would be to draw in people starting down their path to purchase, and make it clear the independents represent a great alternative to the large and online-based retailers.

One of the best things about this concept is that, if it received broad industry support from the main buying groups, it could be mostly self-funded, primarily through the sponsorship of selected brands which would receive support.

In effect, such a project, while being very useful and making a real difference to all independent retailers, would also serve as both a "test" of industry resolve, and an opportunity to consider and further develop exactly how such a consolidation might work.

Second stage

Below we've listed three such possible second stage developments, which range from borrowing some techniques from Bunnings and others, through to radical new service offerings. These are really just examples, as HNN is certain retailers themselves would have very good ideas for future developments.

Captive brands

One of the big advantages that Bunnings has developed is its "captive brands", which are brands where it has exclusive rights of sale for Australia, including some in which it exerts a degree of input.

Ryobi, for example, provides Bunnings with a big share of the intermediate to high end of the DIY market, as well as some of the light trade market. Ozito is a more complex brand, as Bunnings seems to have a degree of input into the products produced, with many of these custom-tailored to the needs of the Australian market.

Even massed together, it's unlikely the independent sector could easily make these kinds of commercial arrangements. What it could do, however, is to find some brands that have become established overseas, particularly those for market sectors which need more of a boost, and bring them to Australia.

A good case in point would be the 24-volt cordless power tools made for the US-based big box retailer Lowe's under the Kobalt brand. These have been out for around four years now, in a line of tools that includes a drill, impact driver, grinder, reciprocating saw, circular saw, and even a jigsaw.

The general reviews of these tools are quite positive, reflecting high-quality. They are heavier than most 18-volt tools, but they do pack a punch when it comes to power. Most importantly, they sit at a very good price/performance point in the market.

In particular, they are ideal for the builder market, which often needs that extra grunt, and whose trades are used to dealing with heavier machinery. As a cordless tool, much of the local certification process is relatively easy, with the exception, of course, of the battery charger, which would have to be re-engineered for Australian current (converting it from 110-120 volt US current).

There would be many hurdles to overcome, of course, but such a tool would really hit the market in a place where Bunnings and online tool retailers are not well-protected.

Weekend rentals

Retailers such as Bunnings do make money through their volume of sales of DIY consumer power tools. So it makes sense that Bunnings might not want to consider expanding the rentals the company does offer, in everything from utes and trailers to floor sanding equipment, to more everyday tools such as drills and impact drivers.

In general, though, most hardware retailers in the independent sector don't make very much from power tools sales to DIY consumers. So why would they not consider some form of "weekend rental"? According to statistics Roy Morgan developed in 2015, only something like 54% of household actually own power tools, so it is certainly a viable market.

What has held retailers back is that developing this kind of rental business is far more complex than it might seem at first glance. You need some kind of software that tracks inventory, reserves tools, rents tools, and accounts for returns. You need a transactional website to arrange the rental itself. You probably need retrieval and return lockers, where renters can pickup and return rented goods. You'll have to track tool condition, ensure tools are safe for rental after return, and possibly provide some kind of basic safety information for tool operation.

That's too much, and too expensive for a single retailer to put in action — but it is something the entire independent sector could get behind and make possible. Of course, the main goal behind this isn't just to earn extra revenue from rentals, it's also to enable many more people to do DIY work, and thus increase sales of goods and materials they need.

3D printing of construction components

While this might seem like something that won't mature for anther 10 years or so, it's a field that continues to advance, and will probably enter the mainstream in two to three years. When we think about house construction, we know that one of the limiting factors is often that there is a defined set of (for example) joist hangers, with set angles and configurations. Architects and often builders on the ground "making it work" can find themselves having to make expensive alterations to plans when an unusual situation is encountered, and they need to stay within the constraints of these components.

The alternative, which many of us have seen on too many construction sites, is "altering" the joist hanger with a couple of whacks from a hammer. This creates a weaker joist hanger, and a potential hot spot for future failure.

It's possible to 3D print in metal, and there is also a developing practice using ABS plastic combined with carbon fibre, which creates very strong elements. The metal used in many of these printers is maraging steel, which is a special, low-carbon steel with around four times the strength of standard construction steel. It is supplied to the printer in the form of a powder, then fused in 40-micron thick layers to form the desired shape.

As with most of these developments in construction, there is an ongoing problem of adoption, as it requires acceptance by architects, builders, tradespeople, and regulators. That said, this kind of technology can solve so many problems for the actual builder, that we would expect it to get a substantial boost in acceptance once it clears the basic hurdles.

This would be well-suited to a sector-wide introduction because it requires not only an expensive (leased) infrastructure, but also training of store staff and education of the intended market. As a service-heavy element of the business, it would be insulated as regards competition from retailers such as Bunnings.

Analysis

It's important to acknowledge that the current dispersed nature of the independent hardware retail sector is not an "accident" of any sort. There are powerful reasons why creating any kind of consolidation is going to be difficult.

HNN also does not think, as some have suggested, that such a change is a direct response from anything like a "growing threat" from Bunnings. We do expect Bunnings to continue to grow over the next five years, but we also think much of that growth is going to come in areas that are outside of "traditional" hardware retail.

A good example of that would be a move into the area adjacent to its current flat-pack kitchen range, and into semi-custom kitchens. This is — in a phrase popular at the moment — a "highly-fragmented" market, where consolidation could see major benefits emerge. Given the minor role that kitchens play for most independents, the impact would be limited, with the main effect on suppliers such as IKEA, Freedom and The Good Guys.

We think, rather, that the change is in direct relation to the way the market itself is changing, driven in part by the wider acceptance of digital-based enterprise. We expect to see these kinds of affiliations growing in several retail sectors.

What we are beginning to see emerge is a new configuration in hardware groups. IHG is increasing its focus on trade, with its mix moving to 65/35, while simultaneously moving more stores into its Sapphire fitout. HNN thinks the company may be "cooling it" on DIY, but building the potential to snap-back into DIY in three years time.

Bunnings meanwhile is doing what it does best when the market gets tough, and decreasing costs to increase profitability. Questions remain about its shift into online ecommerce, as it launches an expanded click-and-collect service.

Meanwhile, in true HBT style, the retailers in the group continue to innovate, with Andrew Graham at Traralgon H Hardware showing how it is done.

Simply click on the following link to download this edition:

HI News Vol.5 No.1: Traralgon H Hardware

In addition to major retailers, we also speak to Jason Ellis, marketing manager at outdoor power equipment company EGO. He is part of a team that is educating end-users to make the switch to cordless.

Implementing digital strategies is also a recurring theme in this edition. Bunnings, IKEA Australia and UK-based Travis Perkins are in different stages of executing their digital plans that are expected to deliver growth.

There have also been some major acquisitions with Sika taking over its rival Parex and on a smaller scale, US-based Klein Tools has purchased Melbourne tool brands, Wattmaster and Alco. Australia's Ruralco including its Combined Rural Traders store network may be owned by a Canadian agribusiness giant.

Other companies mentioned in this edition include Stanley Black & Decker, Reece and Fletcher Building's Tradelink. There are also new product releases from Gerard Lighting, Gyprock, Victa and Imex Lasers.

In a presentation at its 2018 analyst and investor conference, Lowe's CEO Marvin Ellison identified areas to improve and on which the home improvement retailer can base strong growth.

As well as making fundamentals a priority, Lowe's is focusing on its pro customers and has a new marketing approach aimed at a wider audience which includes a new slogan: "Do it right for less. Start with Lowe's".

Back to basics

Mr Ellison said the home improvement chain had been geared towards the future, which isn't a bad thing, but channelling investment on things like smart home partnerships or opening branches globally that underperformed distracted from the core responsibility of having the right product, in the right place, and in stock.

After failing to find a new owner for its Iris smart home business, Lowe's recently announced it is shutting down the platform but allowing customers to be reimbursed for certain devices.

As he tries to scale back the vision of the company and previous efforts, which he believed was "broader than what it should be", Mr Ellison and his team are working on retail fundamentals. At an event hosted by the US-based National Retail Federation's (NRF) "Retail's Big Show" in New York City, Mr Ellison told a crowd:

This may not be too sexy or too innovative, but if you're a retailer, you have to be in stock. You have to have an efficient supply chain. You have to have productive use of your space. You have to have online capabilities with easy navigation, search and checkout, and you have to be multichannel, where customers can shop online, in-store seamlessly, and you need great service and good training of your associate population. All of these things are areas where we have to improve upon.

It starts with retail fundamentals first. … So as a management team, we're trying to be disciplined to focus on the fundamentals and not get distracted by all of the other things that we could be spending time on because we have to get this stuff first.

Only after these are mastered, "then you can start to have sustainable growth, both at the top line and the bottom line," said Mr Ellison.

Different customer needs

How Lowe's caters to its diverse customer base is another way Mr Ellison believes the retailer can improve.

Its customers vary from ambitious DIYers to customers who are not interested in the building process to professionals who know exactly what they want. According to Mr Ellison, the challenge is making sure staff know how to interact with each of these customers and can provide the level of service that makes sense for them. He told a panel at the NRF event:

When you try to paint a broad brush and say we're going to serve these customers and train our associates the same way, you miss out on a huge opportunity to serve the unique needs of the customer.

So we're going back and we're looking at those segments, we're understanding the needs of those customers, spending time with those customers and we're making sure we're addressing those things properly.

The diversity of Lowe's customer base means that employees at different times need to be relied on for product information, for a project manager mentality and simply to answer questions on when supplies will arrive.

The home improvement retailer will also step up its game with its pro customer, who spends more but has expectations for service and merchandising that Lowe's isn't adequately supplying. Mr Ellison said it had identified that professionals in construction and related trades spend five times more than the DIY customer. He said in a call with analysts:

We want to improve our overall service and engage DIY customers, but we want to have a more intentional focus on pro (customers).

Installation staff

As part of a transformation for how it operates its stores, Lowe's announced a major restructuring of its workforce. In a statement, the retailer said it is discontinuing its project specialist interiors program, which employs workers responsible for overseeing every phase of complex home projects such as kitchen remodels.

Eliminating the program is intended to help Lowe's "simplify our operations to better meet customer expectations," spokeswoman Jackie Pardini Hartzell told the Charlotte Observer. The employees in that program can apply for jobs elsewhere at the company.

Lowe's will still have workers responsible for managing simpler interior installations, such as cabinets or floorings, and keep its project specialist exteriors program, which involves work such as roofing, siding and fencing.

The retailer's overhaul will also involve hiring 10,000 permanent, full-time workers as part of a merchandising service team focused on inventory management. The team will have an average of eight employees per US store. In addition, it will be hiring 6,000 full-time assistant store manager and department supervisor roles at all of its US stores. Mr Ellison said in the statement:

We are investing in key leadership positions across our stores to enhance customer service while also creating jobs that will improve the availability of our most popular products, transform our technology infrastructure and provide more access for customers to the home improvement expertise of our store associates.

Omnichannel & IT

Furthermore, the retailer is working on its omnichannel capabilities, and Mr Ellison said that's "where the transformation is going to play out," noting that 60% of online orders are picked up in store.

It is planning to invest between USD500 and USD550 million in capital per year through 2021 on IT to address an "historical underinvestment" in technology. This will involve hiring roughly 2,000 software engineers over the next few years.

Not much has changed in the actual home improvement sector aside from accessibility in terms of customer's digital and mobile preferences, according to Mr Ellison. He said:

You want to serve the customer any way they choose to be served whether that's in-store, online, delivery, purchase or pick-up. However, the change in customer preferences is not in an abrupt or aggressive shift.

The need for data and data analytics will help the retailer fit the experiences each type of customer needs, and the company is working on better leveraging the data it already possesses.

In terms of deliveries, Lowe's is working with FedEx's same-day delivery services, the SameDay Bot.

The autonomous robot is designed to provide same-day delivery service for smaller shipments, and is being tested in several US markets.

To help FedEx and robot developers create the design and application, Lowe's is providing information about the unique delivery needs of its customers and business.

Don Frieson, Lowe's executive vice president, supply chain, said in a statement:

The convenience and capability of the FedEx Same Day Bot has the potential to greatly simplify and speed distribution for the full range of our customers. Consider pros who could save time and money by never leaving the job site for the critical tools and supplies they need from Lowe's…

The technology is also designed to be safe, efficient and environmentally conscious. The bot will travel along sidewalks and roadsides using pedestrian-safe technology. It will be equipped with multiple cameras and machine-learning, allowing it to be aware of its surroundings, navigating obstacles, road and safety rules, various surfaces and even steps leading to a customer's door.

Paint drives results

Its fourth quarter earnings report showed comparable sales at Lowe's increased 5.8% in January, which Morgan Stanley says provided the narrowest gap in two years when compared to Home Depot.

During the earnings call, Mr Ellison said the paint department in Lowe's stores was a bright spot for the quarter. After reporting comparable sales below the company average for the past 10 quarters, paint turned around in the fourth quarter.

While paint is only one category, it is the first area of the business where we implemented our retail fundamentals of improved staffing and in-stocks while remediating issues with previous resets.

Now, the retailer is expected take full advantage of its partnership with Sherwin Williams paint in the stores.

The transformation happened in the paint departments because changes could be made quickly as most paints and related products are sourced domestically in the US. Change is slower in other departments because, in many cases, the products are imported for sales in Lowe's stores, Mr Ellison said.

Lowe's delivered other mixed results for its fourth quarter. It reported a net loss of USD824 million for the period ending February 1, down from earnings of USD554 million during the same period a year prior.

Quarterly results included pre-tax charges of USD1.6 billion. That figure included, among other charges, USD952 million of goodwill impairment associated with its Canadian operations, USD208 million in lease obligations related to the closure of all 99 of its Orchard Supply Hardware stores and USD150 million in charges related to the closure of nearly 50 under-performing stores across the US and Canada.

Sales for the fourth quarter were USD15.6 billion, up from USD15.5 billion in the fourth quarter of 2017. Same-store sales or stores that have been open for at least a year, rose 1.7%. In the US, same-store sales rose 2.4%.

At its annual investor day in late 2018, Lowe's also confirmed its commitment to return excess cash to stockholders and announced a new USD10 billion share buyback program. The company informed investors that it planned to repurchase shares worth of about USD3 billion in fiscal 2018 and between USD6-7.5 billion in fiscal 2019. Lowe's CFO David Denton said in a statement:

We are committed to investing in the business while also returning excess cash to shareholders, and strongly believe we can deliver substantial value to all stakeholders.

New slogan

Among its transformational changes, Lowe's has adopted a new marketing tagline: "Do it right for less. Start at Lowe's". It marks a strategic shift by Lowe's to win over ambitious DIYers. Compared with most homeowners, that group spends more -- and as a result has long been targeted by Home Depot. Lowe's previous advertising attracted aspiring DIYers, but neglected those who take on the biggest home improvement projects, explains Lowe's chief marketing officer Jocelyn Wong.

Mr Ellison has also said:

Our new campaign is less whimsical than our past work and more authentic to what it feels like to do home improvement projects. It highlights real associates and provides a clear value message and call to action. This new creative should help us expand our core customer base to include the heavy DIY customer and create halo with the pro, a critical customer to us, as well.

A Link to the latest Lowe's ad can be seen here:

https://goo.gl/B8HVsm

That pro customer is front and centre in the new marketing initiative, which appears in digital, social media, TV and radio – "where we can use data to identify and target the pro," said Mr Ellison. The traditional airwaves, he added, are a primary medium to reach pro customers, "both on the road and on the job site. We know that the pro doesn't engage with media in the same way as the DIY customer, so we're focused on delivering messages to the pro in the channels that fit them best."

Mr Ellison has also outlined the company's multi-tier strategy to reach DIY consumers, since many of those "customers don't consume media in a linear way." He said:

This customer is streaming an episode of his favourite sitcom on his Smart TV when he learns that Lowe's now carries Craftsman products through an online video ad. We targeted him with online video because we have data that tells us he has a propensity to buy tools. He knows he needs a new mechanics toolkit for his latest project, but he is not yet sure which brand to buy. So he does a quick search on Google and clicks on a Lowe's search ad. We know he is close to a Lowe's store and now know that he is most likely to purchase at Lowe's.

https://goo.gl/XLpKXW

https://goo.gl/Qa4nUK

https://goo.gl/AUJqSV

To read these and other articles in our HI News PDF magazine, please download here: hnn.bz/pdfs/hinews-5-01.pdf

Home improvement and furniture retailer, IKEA said it now reaches most of the country via its online shop, compared with 25% of the population a year ago through its big box stores.

On a recent visit to Australia, IKEA Group global chief executive Jesper Brodin said the company is looking to use big data, smaller-format stores and next-day delivery to take more share of its customers' dollars.

IKEA did not launch a full e-commerce offer in Australia until about eight months ago. Despite being late to going online, Mr Brodin said IKEA was undergoing a "digital revolution". He told The Australian Financial Review:

We have given ourselves three years to roll this out – to push out digital across the world. We have been making massive investments in organisational structures in the past few months – the digital revolution is coming and that way, if you are in Sydney or Alice Springs, you have the same accessibility.

Mr Brodin, who took on the global CEO role in September 2018, said his goal was to offer same-day or next-day delivery of products, similar to Amazon. In metro areas such as Sydney, Brisbane and Melbourne, IKEA customers often can already get next-day delivery.

Mr Brodin said there has been a shift in thinking at IKEA, and it would use big data to gain consumer insights.

We are now increasing the knowledge and looking at customer behaviour because of all the activity on the mobile phones, mobile websites and our own website.

Australia country head Jan Gardberg said that while using big data was key, the shift is also about understanding what worked for families and different life situations.

At the same time, there will be smaller format stores in Australia. IKEA plans to test stores between 3000 and 10,000sqm and open planning studios between 60 and 100sqm in Westfield centres, where consumers can plan kitchens or cupboards.

However, many economic observers believe the Australian retail market is mixed at best, and it will not be easy to win consumers' dollars amid a tough backdrop with falling property prices, low wage growth and rising non-discretionary costs. According to Citi, Kmart and Bunnings, sales growth is slowing.

However, Mr Brodin remains bullish despite a challenging retail environment. He said the higher cost of living in Australia and bigger houses, compared with Europe or Asia, works in IKEA's favour.

We take market share in downturns. Of course we have concerns about the economy, but there is not much we can do about that but focus on bringing lovely solutions to the home. We have full-room sets for $1000 – you don't have to sacrifice your needs or dreams.

The IKEA footprint has doubled in Australia in the past five years. IKEA now has three distribution centres to support online shopping, which comprises 12 to 13% of its total Australian sales of $1.39 billion in fiscal 2018.

Broader kitchen offer

IKEA's parent firm, Ingka Group, has purchased a 49% stake in US kitchen installation firm Traemand. The two companies have been working together for the last 13 years.

Traemand partners with the retailer in the US and Canada and connects customers with subcontractors who can help them lay out and install IKEA kitchens. The company said in a statement:

With the investment in Traemand, the customer experience will be more simple and seamless … It makes it possible to integrate the planning and the installation service in the purchase.

The investment will also allow Traemand to expand its kitchen service concept beyond the US and Canada.

The price that Ingka paid for the stake was not disclosed, and leaves the door open for a full acquisition down the road. It follows its acquisition of TaskRabbit a year ago.

Both moves speak to changing market preferences, and consumers more used to being offered easy at-home delivery as well as installation services. The IKEA model – particularly its DIY home-build focus – has lost some of tis appeal with consumers in recent years. By offering more services associated with its goods –along with upgraded digital commerce portals – IKEA is moving to bring its offerings more in line with what today's customers might want.

https://goo.gl/16j2Vn

https://goo.gl/cHZMKv

To read these and other articles in our HI News PDF magazine, please download here: hnn.bz/pdfs/hinews-5-01.pdf

The big news at the end of 2018 was that, at long last, cordless outdoor power equipment (OPE) really began to take off, in both the consumer and the professional market. That's partly from a growing acceptance of electric power in general – driven in part by the success of premium vehicle makers such as Tesla. It's also all about the power, as well. Earlier versions of cordless OPE often either didn't really have the "grunt" to get the job done, or the batteries would run down too fast for professional and tradie users to take them seriously.

In a world that is becoming increasingly environmentally conscious, the frantic grumble of a two-stroke leaf blower in the morning is just not acceptable anymore. The oil-and-petrol exhaust smells not at all like victory, but more a permanent defeat for the climate. In Europe and the US regulations have been steadily clamping down on all small petrol engines, making the switch to quiet, clean electric steadily more appealing.

That said, it is still very much a question of balance. Professionals using cordless tools do have to stay conscious of charge levels, overall battery life, and that the top end of power in the tools might be below that of petrol tools. But the gains, on the other side, are really vast, especially when it comes to maintenance. Let's face it, "reliability" and "two-stroke" are concepts that simply don't go together, in the long run, while electric tools simply keeping going.

EGO marketing manager in Australia, Jason Ellis, suggests areas users don't often think about, such as trigger time, play a big role in broader acceptance of cordless OPE. He said:

When a person starts up a petrol mower, they've got it going constantly. When someone comes out and talks to you, the mower is still going, and you talk to them. With EGO cordless products, if someone comes to talk to you or you have to stop, it turns off completely. So you go from 'hero to zero' in less than a second. You're not using the juice so therefore your trigger time, or run time, is extended. You don't have constant noise or vibration. When you turn it off, it's off and that's the beauty of it.

When you want to turn it on, you hit the trigger and you're ready to go. The downtime is minimised with EGO cordless products because you don't have to go and get petrol at the petrol station. You've just got to make sure that batteries are charged, but you can do that through in-car or mobile charging.

Jason also mentions a new product the company has launched called the Backpack Link which can easily be attached to any of its handheld products. He said:

You can put this backpack on and attach our largest capacity battery to give you extended run times. Then you just plug the backpack into all the different tools. So you don't need to take that backpack off. You can go from a line trimmer to a chainsaw to a hedge trimmer to a blower, and all you're doing is plugging in the backpack component.

Jason can see quite clearly why there has been a reluctance to change over to cordless.

Historically a lot of cordless products just haven't met the demands of users in terms of power performance, runtime and charge time. That's really been the main hurdle for people crossing over to cordless. It's okay for the standard DIYer using it for 10 minutes but if someone's got a bigger block or they are a commercial user, up to now cordless really hasn't provided them with what they need.

EGO has been able to solve some of these problems for the end user by developing rapid chargers. Jason explains:

It's really being able to charge it in a time period that is convenient when a user has two batteries. In a lot of cases, if we've got a battery that runs for 50 minutes and we've got a rapid charger that charges it in say 60 minutes, you've got infinite runtime. By the time they finish using one battery, the other battery will be charged. So that's one factor.

On the runtime, it is working out the area that people need to cut and how long that takes. And then being able to have a machine with the right power battery that will cover that off for 80% of the cases. For instance, when we did research on lawn sizes, 80% are below 800sqm which means 80% of the population could be covered by our 7.5 Amp battery.

Jason admits that it is difficult to make direct comparisons between a petrol motor and cordless in terms of torque because there are more factors between the battery and the wattage of the motor in, for example a mower or hedge trimmer. He said:

It's the ability of the product to cut and perform, and get the outcome that users would normally get from a petrol unit. That's the feedback we are getting. People are saying it is cutting through branches, and logs with the chainsaw or it's cutting the grass as good, if not better, than a petrol unit.

Pricing and positioning

For hardware retailers and end-users to embrace a new product, it also has to be about selling it at the right price point. Jason explains that EGO is targeting the weekend warrior, the DIY enthusiast rather than beginners, as well as commercial users. He said:

We have people buying our products, not so much moving from one cordless product to another, but coming from petrol to cordless. That's the biggest market growth for us. People do move from cordless but once you're in a platform, most people will persevere with that platform as they'll use that same battery across many products. So what we find from a price point of view, EGO sits below a Husqvarna and STIHL – who have been in the market a long time – but our performance is equal to theirs, if not better.

Every single EGO product that is available globally is sold throughout Australia and New Zealand. This can be another argument for accessing the tool platform because once people get the batteries and the chargers then they can add other accessories as well. Jason said:

People who have been in trade working with power tools understand one battery fitting all tools, but a lot of people in gardening who have never touched cordless actually don't understand or are unaware that one battery can power all tools. They may never have owned a drill or a circular saw or anything like that, in terms of a cordless product. So this is new.

One of the things we constantly advertise is that our ARC Lithium 56-Volt battery powers all EGO tools. We have about 22 products in the range that is mixed among kits and skins. If you branched it out into all the kits, skins, attachments, battery chargers and accessories, we have 69 SKUs in the range. So we have a vast range covering the majority of outdoor power equipment requirements.

Jason said the EGO team has identified that there is work to do in terms of informing potential customers about a unified battery platform. His background in power tools makes him very familiar with the concept and something he brings to his current role.

Coming into OPE, it was obvious that people weren't understanding the benefits of getting a cordless platform that crosses many product categories … The battery is an expensive component because it is the fuel of the tool. Being able to utilise that one battery across many usages helps 1) manage costs and 2) get the most out of the product and the price you paid for it.

OH&S application

The recent changes to OH&S legislation has positioned EGO well in terms of targeting commercial users. Jason explains:

We will continually launch and promote product for the home user and the DIYer but the future of EGO is to look at every facet of outdoor power equipment for the commercial user ... We know that in Europe and Canada, councils are banning all use of petrol so it's not long before that will start to filter down into Australia and New Zealand. So we understand that there is going to be increased demand for cordless products, regardless of brand.

But we know that there are certain parameters through run time, charge time and power that is required by users to emulate petrol products and therefore EGO is challenging our development team, and our manufacturing team to create products that meet those requirements. So it's really important that everything we do at EGO is at its best before we launch it because we want to make sure that it will meet the requirements of commercial users.

As the company moves towards more trade-focused tools, issues such as noise and vibration is something that EGO's cordless products can easily address. Jason relates the story of a local gardening service where the professional end-user tried out EGO's cordless backpack blower. This has given them more flexibility when it comes to doing their work, especially at places where limiting noise pollution is very important, such as schools. He said:

What some of our commercial users are finding is that their day is more in control because they don't have to work very early mornings and late at night [when there is no-one around]. They can work throughout the day because they don't have noise restrictions placed upon them.

A typical conversation is about 60 decibels. A lot of our units are around 70 decibels or below. We only have two above 70 which is a chainsaw and a backpack blower, but a common petrol mower can be up to 93 decibels. So it's really important. And we want to make sure the performance of our products is there but, equally, we are constantly looking at ways to reduce vibration, reduce noise, and make the products easier for people to use.

The future of EGO products is also secure with millennials and Z-generation users because 19 or 20-year-olds aren't going to know how to re-point a spark plug or do similar mechanical maintenance. That's a lost knowledge. Mowers will have to be taken into a service centre to get that kind of maintenance done. With electric motors there's almost nothing that you'd need to do for their lifetime. Jason said:

For that younger generation, the millennials, it's easy for them. They understand cordless as a concept. They understand that you push a button and it goes. To have to prime an engine or change the spark plug, and then pull cord a number of times and then get the speed right, is foreign to them. So cordless really plays into that next generation. And also they understand Lithium because it is part of their culture.

Historically when we first had cordless, we were using the Lead acid, where you would use it for eight minutes, but have to charge it for 12 hours. And for a lot of the older generation, that's what they remember. So when you talk cordless to them, they can be quite negative about it, and put up barriers. That's their memory, and one of the reasons why they stay with petrol. When you get it in their hands, they can see all the benefits and how it performs. Then the barriers are broken down very quickly.

Becoming a dealer

There is a simple process for retailers to start stocking EGO. Jason explains:

We have a couple of steps for a dealer to come on board. They have to carry a certain amount of the range. Once they do, they get better pricing. They also get added on to our website where our store locator has been very important in directing end-users to dealers. We track the data that goes through that and a lot of people do go through our website. Seventy per cent of them research the product through the website ... and then they go to the retailer. Plus they get availability to promotions, specials, point of sale, in-store, and training nights. Our guys will go in and do training, and we have an Australia-wide service warranty and service setup. So that's for any issues that they may have and we fully look after and service the product.

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Fletcher Building recently announced a net profit after tax of NZD89 million for the first half of 2018-19, compared with a loss of NZD273 million in the same period, a year earlier.

Dual-listed in New Zealand and Australia, the company experienced a 38% decline in earnings before interest and tax to NZD33 million in the first half of 2018-19 in its Australian arm. Revenues from its Australian operations were up 1% to NZD1.55 billion. Australia is the company's biggest division in terms of revenue, but sixth in terms of profit.

Fletcher Building chief executive Ross Taylor, who has been in the role for just over a year, said it was already part-way through a restructuring of its Australian operations, and the housing market downturn would allow it to prune even harder so it could set the operations up to extract maximum benefit when the overall market conditions improved.

Fletcher's Australian operations make up 34% of its entire business and include Tradelink plumbing and bathroom outlets, Iplex pipes, Rocla concrete, Stramit steel products, Tasman Sinkware and Fletcher insulation.

The 240-plus network of Tradelink plumbing stores would be enlarged over the medium term. Mr Taylor told Fairfax Media:

There's probably another 60 or 70 locations we can go to.

Tradelink is now focusing more on small-to-medium business customers and "tradies" after having drifted too far into chasing bigger projects.

Formica sell-off

In December 2018, the company signed an agreement to sell Formica Group to Netherlands-based Broadview Holding BV for NZD1.2 billion, which Mr Taylor said was expected to be finalised by the end of the 2019 financial year.

The sale of Formica marks one of the biggest steps in Mr Taylor's remaking of the building products group into one focused on its core markets of Australasia. He has a five-year strategy of turning Fletcher into a pure-play building products group.

Three-quarters of the company's Australian business is tied to the residential and commercial markets where approvals have dived 10% in recent months. Construction activity had come off faster than the company's expectation, particularly in larger projects around the Sydney area, Mr Taylor told reporters.

Mr Taylor expected that to continue until 2020, triggering more fierce competition among suppliers and distributors of building materials. Its infrastructure business in Australia was stable.

Looking ahead, Mr Taylor said he would be focussed hard on resetting the Australian arm "for its new market reality".

https://goo.gl/XHCnVi

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Plumbing and bathroom supplier, Reece Group's US and New Zealand acquisitions have led to a lift in sales but new costs kept a lid on net profit.

For the six months to December 31, revenue doubled to $2.72 billion while integrating its $1.91 billion MORSCO purchase in the US, and bedding down the Edward Gibbons and Zip Plumbing assets in NZ.

The company said $30 million in acquisition costs and a softening property market in Australia weighed net profit down 7.6% to $97.7 million for the half. Minus the new purchases, net profit rose 20% to $127 million. EBIT increased by 25% to $192.1 million.

Total branch network in Australia and New Zealand was 635 outlets in the period, an increase of 20 outlets. This included establishing a HVAC presence in New Zealand and expanding the network in the South Island. In the US, MORSCO opened two new outlets.

Reece's first half results followed news that Australian home loans rose at their slowest monthly pace in more than four years in January, with the annual rate the weakest on record, as credit tightening by banks and a sharp fall in housing prices turn off demand. CEO and managing director Peter Wilson said:

Reece has had another strong result, including, for the first time, the performance of our newly acquired US business, MORSCO, which is performing in line with expectations.

We are seeing more moderate growth in the residential building market in Australia, while non-residential commencements remain strong. Business momentum in the US continues, with construction and investment in infrastructure returning to long-term averages.

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Metcash released its results for the first half of its FY2018/19 in December 2018. The company reported group revenue of $6.2 billion, an increase of 2.2% on the previous corresponding period (pcp), which was the first half of FY2017/18. Group earnings before interest and taxation (EBIT), also increased, up by 1.2% to reach $158.1 million.

For the company's hardware division, the Independent Hardware Group (IHG), EBIT and revenues also increased. EBIT grew by a reported 34.0% on the pcp to reach $37.8 million. This included organic growth, as well as an accounting for continued cost synergies from Metcash's acquisition of the Home Timber & Hardware Group (HTH). Revenue increased by 1.25% on the pcp, to reach $1.09 billion. Overall like-for-like (comp) sales increased by 3.3%, while comp sales for bannered stores went up by 4.2% on the pcp.

The CEO of Metcash, Jeff Adams, put the small increase in revenues down to outperformance during the pcp. In his prepared remarks, he stated:

Our IHG hardware business led by Mark [Laidlaw] and his team has performed well, but was comping against some very strong construction activity in the corresponding half.

Mr Adams detailed the makeup of the EBIT earnings as well:

Looking now at hardware's EBIT performance. Hardware has again delivered a very good earnings result. EBIT increased $9.6 million. And pre-AASB, the improvement was $10.2 million or 37.6%. The stronger result was due to additional synergies from the HTH acquisition of about $7.5 million and further cost efficiencies and earnings growth from the increased sales. This was partly offset by an increase in the weighting of trade sales in our mix. We expect total synergies for the year to be approximately $10 million, bringing the cumulative synergies from the HTH acquisition to be approximately $34 million.

Trade-only

Mr Adams also mentioned IHG's venture into trade-only stores, some of which are being brought to market under the IHG's higher-amenity Sapphire program.

Our pilot trade store-focused stores are continuing to perform well. And we expect to have 12 low-cost, trade-only stores operating by the end of financial year 2019, growing to 40 by 2022.

At a Strategy Update for investment analysts held in early March 2019, Mr Laidlaw went into further detail about this venture:

We are also setting up a trade only concept. We've done 11 of them. They're in the cheaper rental areas, low rents. They're certainly to be set up for the tradies to get in get out. And you'll notice the branding has changed. So Mitre 10, it is there but it's not prominent ... Our aim is to roll out 40 of these stores and overlay a digital program across these stores. No one's done this properly yet. Screwfix have. We can't see anyone else that's actually done this properly and we see a great opportunity for us to deliver that.

Hardware performance

Perhaps the most unexpected part of the announcement was that IHG stated that its revenue split between trade and DIY/consumer had changed from the 40/60 split forecast at the time of its acquisition of HTH, to a higher trade weighting of 35/65.

In response to an analyst's question regarding the negative impacts of a declining construction market, the CEO of IHG, Mark Laidlaw, played down the longer term effects:

What does it all mean going forward? I don't know. I'm going for the correction rather than the crash theory. I talk to our big stores very often and they're saying, there's going to be a tightening in the next two years, but it's not panic for us. And we believe there's enough opportunities and initiatives to cover that.

Mr Laidlaw expanded further on this outlook in response to another analyst's question.

We now have company stores, so we can see the pipeline. So of our big company stores, strong pipelines for about middle of next year. And then it's going to get tougher. So what do we have to do? We have to start to get a bigger share of the wallet. We have to get the whole of the house. At the moment, we are big on timber and not a lot more. So there's great opportunities for us to extend the Hardings part of our business which is plumbing. There's other areas which we're looking to move into frame and truss. So I'd agree with you, it is coming off. I can't tell you what percentage is coming off, but it is coming off. But we believe there are great opportunities to offset that with other initiatives that we've got in place.

In his prepared remarks, Mr Adams had also touched on the potential for growth through the company's Hardings plumbing business:

Our Hardings business has very strong market position in Victoria. In addition to opening a new store there at Tauranga, we have started the rollout of Hardings in New South Wales and Tasmania as well as starting to sell the Hardings products through the balance of the IHG network. The Hardings business is a very successful one, and we are quite excited about leveraging its growth opportunities across the whole IHG network of stores.

Mr Laidlaw also answered an analyst's question regarding the overall margins for the business, admitting that margins had not increased.

So the margin is flat. And I think it's fair to say because our trade mix has moved up to that from, say, 60% to 65%, we're seeing some margins come off, which are flat because there's been other synergies that have offset it, but the mix has changed.

Mitre 10/HTH mix

While Metcash did not go into further details about the tension in IHG between long-term Mitre 10 stores and the more recently acquired HTH stores, Mr Laidlaw did speak to this matter at the Strategy Update. He said in part:

The other big challenge through the integration has been the branding strategy that we talked about. So that has been a very emotional argument and we thought we would lose more stores than we actually have because they would think it's a takeover of Mitre 10 over the Home brand ... The two brands will stay. I mean it would have been very unwise even though we might have wanted to do it to move everything to Mitre 10, we would have lost stores.

I think that's really settled down. We had a conference last week, week before, and it's coming together. The members are far more united. There's a few non-believers there still that's true, but we're getting a sense that the Home stores are really feeling part of the family and now focusing the effort on the true enemy for us which is the big box.

Mr Laidlaw took up this theme later in the analyst briefing:

Something you'll notice on this chart: Mitre 10 now has 22 stores in Tasmania. It used to be about 11 on both brands. We have made that a blue and white state. The four Home Timber & Hardware stores there are predominantly little Thrifty-Links.

We have used this as an absolute test bed where we've made it a blue and white state. And think of the synergies we're going to get there because instead of running two catalogue programs, you now run one catalogue program, instead of running two television commercials, we'll be running one television commercial radio etc. So we really believe that's the test bed to see what other synergies we can drive out of the business.

Analysis

Metcash is a company that has become very adept at spin (some will recall its peculiar treatment of underlying profit after tax as an example), and one example of that skill has been its handling of the increased threat to its trade business from Bunnings.

According to most of what IHG has to say about this, Bunnings is failing at expansion into trade, while IHG continues to expand. One reason, it seems likely, that IHG is expanding into trade, is that it has lost considerable marketshare in DIY/consumer to Bunnings. As is well known, DIY/consumer carries far higher margins, which means IHG's EBIT numbers will be negatively affected in the long term.

There is a poor tendency in many commentators to dismiss the efforts of large businesses in new or expanding fields when these do not yield immediate results. A good case in point, and what HNN believes will eventually become an object lesson, is commentary on Amazon in Australia.

Some of that is happening in regards to Bunnings and trade. As HNN has pointed out since the amalgamation of HTH with Mitre 10 into IHG, that move has removed some of the unstated restrictions placed on Bunnings in terms of expansion versus market control. We do believe that Bunnings will continue to develop its trade business, and this is likely to heavily impact on future earnings by IHG.

Further, while IHG has done a good job of retaining HTH stores in its network, that has largely been due to a wise decision to hold back on pressuring more of these to switch to Mitre 10 branding. As cost pressures exert more pressure due to falling sales, we could see IHG effectively transplant its Tasmanian strategy to areas such as South Australia. The results in terms of store retention should be interesting.

An additional pressure on group cohesion could be its continued rollout of its Trade centres, with, as Mr Laidlaw intimated, an "internet overlay". It's difficult to see how such an overlay would be anything other than corporate, which could see a scenario develop where a Screwfix-like digital offer begins to erode sales by independent store owners.

Of course, IHG may escape many of the consequences of these actions as well – it's certainly proven itself adept at survival in its recent history. But these are very real risks, and they should not be underestimated. The IHG we see over the next two years in the down market could prove not to be a cyclical aberration, but instead the shape of the company's future.

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At its most recent earnings presentation in February, Bunnings Australia & New Zealand (BANZ) managing director Michael Schneider revealed the big box retailer broadened the scope of its PowerPass app and store credit facility for its trade customers.

Launched in September 2018, Mr Schneider explained the app allowed eligible members to search for products in-store, scan the item and use self-checkout.

Already trialled on click-and-collect power tools, he estimated there were already 30,000 users of the app. Bunnings has added trade credit and cash pre-pay facilities to PowerPass that allow online account management for ABN holders.

According to iTnews, this means that tradies can be steered away from more expensive payment instruments like credit cards and towards cheaper options like BPAY as services such as the New Payments Platform gradually get bigger.

A PowerPass Credit account for up to $5000 has a rate of 8.9%, much lower than many other credit cards. A 30-day account can run a facility up to $10,000. Interest free periods of up to 60 days and lower rates would also appeal to tradies.

Bunnings gets to harvest rich data off these customers. Digital receipting would also allow it to send data back to apps tradies use like Xero or MYOB. As payments migrate to digital wallets and phones, that could position Bunnings well in terms of using analytics and customer data.

Data breach

Bunnings recently confirmed it notified the Office of the Australian Information Commissioner of a data breach, after an individual staffer set up an employee performance monitoring database on his home computer and exposed it to the internet.

The information in the database related to a single Bunnings store and was not hosted on internal systems, a company spokesperson told iTnews. It was accessible over the web, and contained staff and customer information.

Lee Johnstone from security firm CTRLBox reported the data breach to Mr Schneider earlier this year. Within hours of the report, the database was taken down.

A limited number of Bunnings staff member details such as names and internal identification numbers were in the database, along with comments on employee performance. Most of the comments were positive, Mr Johnstone noted. The database also contained log in credentials for staff and developers. Contact details of almost 1200 customers were exposed, including email and addresses, and phone numbers.

The Bunnings spokesperson said the company was not aware of any malicious access to the database. Mr Schneider explained in a statement that the database was created by a Bunnings team member as an administration tool, and to assist in keeping local customers updated about activities and events.

Doing so however was a breach of Bunnings' data policy guidelines, Mr Schneider said, and apologised for what has happened.

Bunnings will reinforce its data and privacy policies with staff to prevent future data leaks. The retailer has contacted customers and employees affected by the data breach, Mr Schneider said.

https://goo.gl/63iRAs

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Brisbane-based hardware and building products company, Bretts opened a steel frame and truss fabrication facility at its Geebung (QLD) manufacturing plant in 2018. It is looking beyond its long-standing timber reputation as rising timber costs and shortages mean builders are increasingly incorporating steel into new homes.

Bretts manufacturing business development manager Darren Harris conceded the decision by a company that started operations in 1912 from a sawmill, raised a few eyebrows. Its slogan is "Let's Talk Timber and Hardware".

However Mr Harris said the move was already paying dividends with 15% of the company's housing frames and trusses now made of steel.

Each year, the company produces enough frames and trusses, both wood and steel, to make more than 1500 homes. While steel frame houses have been in Australia for half a century, a shortage of timber and price increases following a wave of mill closures has meant more builders are shifting into steel.

Mr Harris said Bretts' largest customer for timber frames informed the company last year that it would be using steel in 50% of its projects in the future. Within three months, Bretts had started its steel fabrication business at its Geebung site, where it also manufactures aluminium windows and doors. He told the Courier Mail:

We could have worn a $500,000 plus loss [by not switching to steel] but we simply focused on providing them with what they needed.

Traditionalists in the industry might see us as traitors but to survive in a business you need to be aware of market shifts.

Steel frames and trusses were easier to assemble in the factory and builders could generally put them up quicker. Mr Harris said:

Steel maybe saves half a day on a job.

The steel arrives at Bretts in large coils from supplier BlueScope where it is fed into machines that cut the flat sheets into the required lengths using a digital blueprint of the house. It is then assembled into wall frames and roof trusses before being shipped to the building site.

Mr Harris now expects steel frames to make up more than a quarter of Bretts' business by 2024. He said:

Commercial builders are leading the way in use of steel and we expect this to equate for 25-30% of our overall business within five years.

The company has put on 10 extra staff to make the steel frames, with plans to expand production this year. Mr Harris said that despite the move into steel, timber will always be an important product for Bretts, which remains a family-owned business.

Houses still look the same in that they have windows and doors but the technology and materials have changed. The old asbestos has gone and there are new types of cladding. But timber is still going to be around for flooring and timber posts.

From The Brisbane Courier Mail

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The Metcash-owned Independent Hardware Group (IHG) held its 2019 Expo in Adelaide on 19-20 March. HNN attended the plenery session at the start of the Expo. According to IHG, there were 852 delegates/staff attending, as well as 893 supplier personnel, for a total of 1745 in all.

Perhaps the best way to begin our coverage is through the lens provided by two endings. The first marked the end of a heartfelt, warm and at times very funny presentation by one of Mitre 10’s founding members, John Clennett. In part this was in recognition of the group’s 60th anniversary.

But, just before we get to that, let’s hear about Mitre 10’s founding moment, as Mr Clennett related the history, which took place in 1959 in the grand tradition of the founding of hardware groups (Hardware & Building Traders followed a similar path):

The four of them got together in a small weatherboard home in Union Road which still stands in Surrey Hills in Victoria. It was the home of a chap called Reg Buchanan who ... was the main driver and there were the four players Reg, Tom Danaher, Jack Womersley and Ian Davey together with Ian Nisbet. They had quite a number of meetings and then ... they said look we’ve been buggering around with trying to do something together, let’s have a big luncheon, let’s get legless, and finalise some decisions.

Reg was very keen to sell paint, so he said, “Bugger it!”, threw $5000 on the table, and said to the others, “Well, are you going to join me or not?”

So, before you could say “Jack Robinson”, they had $20,000 and then went off to a paint company and they were able to buy the paint at really less than half the price that they ever one of them [had paid before].

At the close of this interesting review of the earliest history of Mitre 10 (which began as “Mitre 8”), Mr Clennett offered these remarks, reflecting on Mitre 10’s history, and IHG’s present:

A lot of us remember when we as members ran the business. That was a time when co-operatives were reasonably successful. Those times are gone, and you’ve heard ... how important it is for all of us as small retailers to be supported by, in our case, Metcash is a publicly listed company with a real commitment to people ... and your individual businesses. So whatever you do, understand that Metcash actually care for us all and you need to support them, and you need to demand from them what you want from them. Thank you very much.

We can match that up with the closing remarks of IHG CEO Mark Laidlaw, at the very end of the Expo’s plenary session:

So, guys, it is time to unite. We’ve been spending too much time fighting each other amongst the brands. It doesn’t matter whether you are Home, Mitre 10, Thrifty or True Value. The thing that unites us is that we’re all independents. And Metcash for its part and IHG can add enormous value, as you’ve heard today in those areas that it’s hard for independents to do. We will invest in the brand. We will invest in store development. We’ll invest in the digital. We’ll invest in the warehouses, and we’ll invest in people — probably the most important.

We will also — now that we have started to get our model together — reach out to those other independent groups such as HBT and Natbuild. It is time that we all unite. They don’t have to come under our brands but we do need to get together.

We have great respect for Bunnings. But in this time, when the consumer is changing so rapidly, will they be flexible and adaptable enough to change with that? Time will tell. For our part there is a great opportunity to unite and become a genuine opportunity for Australian shoppers. Thank you very much.

These closing summaries suggest a similar basic rationale: the market has changed in such a way that independent retailers will likely be able to better survive and prosper when they are in some form of partnership with a corporate entity, such as Metcash.

Mr Clennett based his statement on what is likely a very genuine “gut feeling”, and many years of experience. Mr Laidlaw’s closing statement was more definite. It listed a series of activities that IHG would undertake:

• Brand investment, including advertising, etc
• Store development, which is likely a reference to the Sapphire program, and IHG’s “paintbrush” store ratings system
• Investment in the digital aspects of retail business
• Investment in warehouses, for the distribution of goods
• Investment in people, such as training and/or hiring IHG staff

This has become a familiar argument over the past five years or so. Mitre 10 and then IHG has presented itself as a “safe haven” from the market dominance of Bunnings. Much of that “safety” has come from its belief that its warehouse-based consolidation of demand across limited brands, which provides better bargaining power and therefore lower prices from suppliers, was one way of diminishing Bunnings’ dominance in low pricing.

The counter-argument from buying groups such as HBT and Natbuild has been that the costs associated with IHG’s model are high, while they have very low costs, a difference which diminishes the pricing efficiencies of IHG’s model. The buying groups also provide a less-hierarchical, flatter model, where individual members really can see suppliers they discover become part of the group.

It is the need to make these points and demonstrate them that drove most of the plenary presentations that Mr Laidlaw and IHG’s general manager - merchandise and operations, Annette Welsh, delivered. Mr Laidlaw concentrated on achievements to date, and the development of the organisation, while Ms Welsh provided an insight into innovations, and the direction IHG is taking towards markets and customer engagement — what Mr Laidlaw labelled “the sexy future stuff”.

Ms Welsh also outlined some possibilities that, if developed further, could really help change the independent hardware retail sector, across all buying groups.

Past and present

Mr Laidlaw’s delivery of the latest news to members is quite distinctive. It’s very far from, for example, an officer reporting HQ’s view of the battle to the troops. It’s more like a battle-hardened sergeant in a behind-the-lines bunker letting his comrades know what the last battle was like, and what he expects from the next one. He projects a sense of physicality, that at times leads you to expect he would, given half the chance, be willing to wrestle some of the more recalcitrant graphs and numbers to the ground.

There is certainly no doubt about his passion, and, as with all the top staff at IHG, there’s a clear sense that he is preoccupied not with his own success, but rather with that of the enterprise. It’s a passion that, while very welcome, can also lead to some over-statements. Perhaps that’s because Mr Laidlaw is seeking a balance, somewhere, between the strategic value of a percentage point, and the awareness that these numbers mean something also to the welfare of a family, to the value of a life spent in hardware retail, out there in the crowd of members gathered in the half-dark of the amphitheatre of the Adelaide Convention Centre.

So, what is it that Mr Laidlaw is so passionate about? In terms of IHG itself, two main, linked concerns he has are the cohesion of the group, and its potential for growth. A good place to start to pick this apart is with what is commonly accepted as the bellwether for the group’s health, the store numbers.

Store numbers

Not that Mr Laidlaw is terrifically keen on these numbers himself. As he commented:

We’re a public company. Couple times a year we front the analysts, we front our shareholders, and the first question that the analysts always tend to ask as they roll it into their modelling is, oh your store numbers, you’re closing stores, store numbers are going down. And that is true. So what we’ve done here, we’ve measured store numbers since we took over the business in 2010 and in the independent sector they actually have declined 28 percent. It’s worth having a look at that change.

At the actual results announcement in December 2018, Mr Laidlaw made this response to the query about store numbers:

The other thing that’s important to note that there were a 170 stores called Thrifty-Link that we took out from Woolworths that are about 20% of the stores that represent 2% of the [wholesale sales] volume. Those stores will continue to close and [this] will have minimal impact on our EBIT and indeed on our sales. So I’m not hung up on those. The other ones are with the company stores. We had 41 company stores that we acquired from Woolworths. Today, we have 37. We have got out of four poor leases, which has actually added to our EBIT. We did lose one large customer. We lost a large customer in Queensland.

Looking at these numbers for the past couple of years, in Metcash’s proposal for the acquisition of HTH, the number of bannered stores was set at circa 740. A slide to 690 indicates a decline of 6.8% (over two years). That’s inline with the background rate of the 28% over eight years provided by Mr Laidlaw.

The other element to note (as mentioned elsewhere in this issue) is that figures from Australian Bureau of Statistics (ABS) show there was a net loss of over 1000 hardware retail businesses with annual revenues under $2 million during the same period. It’s also worth noting that the ABS figures show there were 6127 hardware retail businesses at the end of FY2007/08, and 5325 left at the end of FY2017/18. That’s a decline of 13%, though allowing for mergers and consolidations, the real decline is likely around 11%.

This has taken place against a background of an increase in overall retail revenue for hardware, according to the ABS, from $12.3 billion in FY2007/08 to $19.1 billion in FY2017/18, growth of 55.6%. Allowing for inflation, the increase would be from $15.2 billion in today’s dollars, to $19.1 billion, a market size increase of 26.0%

For Mr Laidlaw and IHG, the reason for that discrepancy, the increase in overall revenue and the decrease in the number of viable stores, can be explained by a single word of two syllables: Bunnings.

Equally, other buying groups have seen membership numbers increase. In terms of general comments in the industry, however, several seasoned veterans have told HNN that they have been surprised at IHG’s retention number, and had privately predicted the group losing around 10 or more further stores. Mr Laidlaw’s very hard work has produced results.

Yet those same observers see 2019 as being quite a testing year in this regard for IHG. These observers see IHG moving to increase pressure on HTH members to cross-brand to Mitre 10. There is some support for this notion in remarks made by Mr Laidlaw when addressing financial analysts at a Metcash Strategy Update in early March 2019:

Mitre 10 now has 22 stores in Tasmania. It used to be about 11 on both brands. We have made that a blue and white state.... We have used this as an absolute test bed where we’ve made it a blue and white state. And think of the synergies we’re going to get there because instead of running two catalogue programs you now run one catalogue program, instead of running two television commercials, we’ll be running one television commercial radio etc. So we really believe that’s the test bed to see what other synergies we can drive out of the business.

As HNN has stated in the past, and as Mr Laidlaw’s remarks make clear, this is a great move from a corporate perspective, as it will decrease costs and increase earnings. However, many observers are not confident that all HTH members will see these moves as an entirely positive development.

Revenue performance

Quite rightly, Mr Laidlaw mentioned he was proud of the financial performance of IHG (formerly Mitre 10):

But our revenues — proud of this chart — only eight, nine years of being here we have grown our sales back... For full year 2011 financial year we were about a $750 million business. Very few of our stores were buying through us, our suppliers were going direct to the stores.

We developed a strategy. We stuck to it and through those next five or six years we continued to grow at about 5 percent a year and then fantastically and amazingly we took the opportunity to acquire the HTH business, and we doubled our revenues to $2.1 billion on a wholesale basis. We would expect of course the next couple of years that will flatten but then we’re confident that we’ll get a second kick after that.

The recovery of Mitre 10, and its transformation into IHG is indeed praiseworthy. The business of completing a merger between two separate organisations of near-equal size is complex, and many organisations fail.

The reason why IHG has not really received the recognition it deserves for this feat, however, is because — from the perspective of financial analysts — it has so far been more of a sidestep than a step forward. While revenues have grown, so has capital investment. Return, and in particular growth on return, is how corporations are judged.

Since the acquisition, IHG has returned considerable earnings before interest and taxation (EBIT) through additional efficiencies it has developed, but the company also announced that this kind of gain is almost over.

It’s very understandable, given the venue and the message that IHG had to deliver, that Mr Laidlaw not mention a recent, salient datapoint. The results from the first half of Metcash’s 2018/19 financial year were released in December 2018, and they are not encouraging. EBIT return was good, but overall revenue grew by only 1.25% — though like-for-like sales in bannered stores rose by 4.2%.

While performance in terms of savings are material and ongoing, the core question now is how the company can use its additional scale to create growth.

Trade

One of the slight surprises announced at the half year results in December was that IHG sees itself as having moved from around a 60/40 split between trade/DIY to a 65/35 split. In his session at the Expo, Mr Laidlaw did go some way to explaining that evolution, seeing it as an indirect consequence of the Woolworths/Masters business plan:

So Woolworths bought Danks first, and then they certainly acquired some of those other businesses. Hudson’s, Belmont, Tait’s, and they bought them 100%. And then, as we know, that madness stopped in 2016, and it was sold — [all] the businesses — and we took the opportunity to bring them together. And that’s why you then see today that we’ve moved to about 65 percent split between trade, 65% trade, 35% DIY.

Going back to the presentation for the acquisition from 2016, this shows that Mitre 10 had a 55/45 split trade/DIY, while HTH had a 62/38 split, and the projected outcome of the merger was 59/41. This new shift further towards trade indicates that, while the history is accurate, there is more than that going on.

To speculate, what is happening is that IHG has recognised two things: the first is that, for the moment, Bunnings has an almost unassailable position in DIY, and wresting marketshare away would be very tough — especially in the reduced demand situation of falling house prices and subdued activity in real estate markets. The second element is that Bunnings really is going into a situation of change, and it is possible that two years from now, a part of that market will be easier to take on.

Meanwhile, of course, IHG is working hard to experiment at expanding into new areas of the trade market. In introducing Metcash’s half-year results, the company’s CEO, Jeff Adams, said this in his prepared comments:

Our pilot trade store-focused stores are continuing to perform well. And we expect to have 12 low-cost, trade-only stores operating by the end of financial year 2019, growing to 40 by 2022.

That document also describes the “trade-only” store objectives:

The new Trade Only store was designed as a low-cost model to meet the Trade customer’s needs and attract new customers to the Mitre 10 brand.

Some more insight into the thinking behind trade-only was also provided by Mr Laidlaw in response to an analyst’s question at the half-year results presentation.

The traditional Mitre 10 business is a segment in the renovations. They didn’t deal with the big tier one builders, Mitre 10. It was good. It was a nice, safe place, and you make better margins in that area. So we have a large share of that 65% trade in the renovations. And then we also do have new dwellings, which is what we picked up with the big company stores. But we’re not in the multi-dwelling market.

Bunnings has recently commented that its trade market is confined to the trades renovator, and builders who do one to ten houses a year. The strategy with the Mitre 10 trade-only stores could be to capture more of the five to 15 houses a year builder market.

Sapphire/Mitre 10 crossbrand

At first glance, some of what we’ve said above about IHG “cooling” it on DIY for the next two to three years, while getting set for a later push, might seem to contradict the ongoing expansion of the Sapphire program. In Metcash’s annual report for 2018, it described the targets for Sapphire:

The success of the program to date has led to it being accelerated to target the completion of approximately 200 stores by 2022.

Mr Laidlaw commented on the program:

We’ve now completed 56 Sapphire stores. They are in three formats. We are at 27 stores at the time when we presented last year, so nearly 30 stores have been added. Some 37 are in that mixed-type business, they have a perfect mix ... maybe 55 trade 45 DIY now it’s the perfect mix of business. We also completed eight that are smaller convenience DIY stores.

This indicates that the company will pick up the pace of Sapphire conversions to around 42 a year, to meet its goal. This large investment in DIY (though trade also benefits from the program) might seem to not fit with the DIY strategy described above, but actually it complements it nicely. In terms of the strategy of a delayed push into DIY, IHG could be planning to make that push once it has a fleet of stores fitted to a higher standard.

HNN would predict that around 2021 Sapphire could further develop in two ways. There could be a new, higher standard introduced, which would relate more to the “connected store”, and internal infrastructure, as well as a “Sapphire Lite” program, which will help to improve the standard of amenity of more stores, without all the current requirements.

Mr Laidlaw also commented on the requirements for HTH stores which planned to switch over to the Mitre 10 brand.

So we may have confused a lot of people here last year when we talked about the opportunity to move to Mitre 10. And I think we left you thinking that to become a Mitre 10 you had to do Sapphire, you had to invest and you had to put in the core range that’s required under Sapphire. We had a lot of good discussion and debate with our National Advisory Council. We were very good and we developed a road map for the brand and it’s recognised that you do not have to make Sapphire standards to be painted up to Mitre 10.

He commented further that four stores had already been cross-branded, and that a further 30 would make the transition during 2019.

Outlook

At the end of his presentation, Mr Laidlaw provided a quick overview of the market as IHG sees it developing over the next two years. Along with most in the hardware and construction industry, he sees the current “crash” as being somewhat oversold, and suggests that housing levels will likely come back to 2015 levels, but not below that. He pointed out that the market structure of IHG, as it stands currently, should adapt well to the shift in the market.

The other thing ... to talk about is that we believe our business is quite well balanced in the sectors of the segments that we operate in. So in other words, if we’re 35% DIY and we’re 30% in the renovations and alterations and we’re 30% in the detached housing [then] we are only 5% in the multi-dwelling, which is the area that will get smashed the most.

While that identifies how IHG has moved to protect its marketshare, and limit the effects of the downturn, what this doesn’t account for is the big question: where will growth come from?

That’s really the question that Ms Welsh set out to answer after Mr Laidlaw’s presentation, by outlining some of the ambitious plans that she, Mr Laidlaw and the management team at IHG have developed.

Future and growth

After a field report on IHG stores that were doing well against the competition, Ms Welsh began a discussion of the market as IHG sees it:

We know how hard it is for marketshare movement in the DIY side of the market. But where there is opportunity is in the trade side of the business. This is a $17.6 billion market in Australia and we compete evenly for share at this moment in time with Bunnings, and there’s a big piece of the market under the expertise of plumbing. But the remaining 62 percent still sits in a very fragmented way, and that’s where the opportunity is.

She emphasised the importance of this market, not only for stores that are already trade-focused, but also for those with an established DIY business:

Even if you are purely, at this moment in time, DIY, I’m going to ask you to keep your thoughts open over the course of the next couple of minutes as I talk you through the trade part of our business. And, potentially, encourage you to think about the opportunities you may have within this market.

In what followed, she emphasised a series of market insights and directions. These included: exploring market adjacencies in house construction (whole of house); prefabrication; alignment between suppliers through a hardware retailer to deliver a complete solution to a builder; expanding markets through digital techniques; and making use of what IHG considers to be data analytics.

Though that list really does not do Ms Welsh’s message justice. It wasn’t a message about expanding current practices to new areas, but rather developing new practices that encompass additional market opportunities. To go back to the statement by Mr Laidlaw with which we began, he said IHG “have started to get our model together”. What Ms Welsh outlined was what that model could do, and the direction in which it is headed.

Whole of house: five stages

One of the major areas of expansion Ms Welsh highlighted was a move to supply builders with products for all five stages of construction, which she called the “whole of house” strategy. Those stages would be:

• foundations
• frame and truss
• lock-up
• fix
• fitout

She introduced this strategy like this:

There are five stages to the build of a house. Most of you and everyone of you I’m sure in this room knows this better than I do. So, five stages to build a house. And historically, traditionally, as an independent group, what we’ve done is really focus our attention on the frame and lockup stages, with a particular focus on selling quality stick timber.

As Ms Welsh pointed out, this is also a vulnerable market segment at the moment:

It’s given us a fantastic business but as the building cycle comes off that’s going to come under pressure in terms of our ability to maintain sales.

To explore further opportunities, Ms Welsh’s team took a look at the current business both company and joint-venture stores were doing:

We segmented our company owned stores and joint venture builders over 9000 account customers, and what we discovered was what, as much [about] what they are buying from us, as what they’re not buying from us.

What they discovered was that they did well in the frame, lock-up and stick timber business, but this consisted of only 34% of the total opportunity. Looking beyond that, there was a further 62% of construction materials that IHG was not servicing, and that existed in what Ms Welsh describes as “a highly fragmented market”.

Where we think the biggest opportunity is, is in the fix and fit-out stages. The good news that comes with that is that fix and fit-out comes absolutely with a better margin, higher profit return than perhaps the earlier stages of the build.

To enable this approach, Ms Welsh and her team set about enhancing supplier relationships.

To ensure we can complete a whole of house we were clear as a merchandise team that we were probably missing a few key relationships [needed] to make sure that we can offer product across all five stages of the build. So we went about making sure that we were able to fill every gap in the need of your builder.

One step was to build a better relationship with truss makers.

We created through Brett Martin a wonderful alliance with Melbourne Truss that is enabling our Victorian teams to start our relationship with the builder at the frame and truss level.

With timber supplies tight, the team extended this to steel frames as well.

We didn’t have a relationship with any supplier to enable you to support a builder on steel. We now do, through Steel Frame Solutions.

The end result of this is a comprehensive set of suppliers.

We have this, right suppliers with the right products and the right relationships, to ensure we can fill every single gap — or at least 90 percent of them. I’m sure there’s a few that we need to work on.

Sales alignment

With this background, Ms Welsh sees an opportunity for the trade sales reps in IHG hardware retailers to better align with their reps in supplier firms.

Within those stores what you all have is sales reps, sales managers that are the key to the relationship with the trade. It’s what makes us different to any corporate. Within our own companies we know we have 73, and if I was to add up all of the others around the country, there would be more than 200. What we’d like to do is really see how we can leverage that army alongside the similar army that exists within our supplier base and help build the value that we add to the trade every day.

Later in her talk she was more specific about what would happen in these relationships:

I’m creating and starting trials to ensure that the sales managers that are aligned to every member in the room can connect with an equivalent expert in the supplier base. [This is] to ensure that together we can go to a builder and align the best quality of information that the supplier has on the best product for the builder, with the best relationship and service proposition that comes from our sales managers and our teams, and put the two together. [Then you can] have a conversation with the builder, and get them to understand and recognise the increased value that bringing that business through the right group with the right source product from the right supply can [deliver].

One of the trials that Ms Welsh delivered was through Richmond Mitre 10.

We’re confident in that model ... because of the great work that’s been done by Ben Shaw and his team at Richmond Mitre 10 in Victoria. About six months ago ... we had segmented the builders of Richmond’s Mitre 10. We understood what they weren’t buying from us. There were a couple of key areas that Ben was clear that there was opportunity.

One of them was frame through Melbourne Truss, the other one was cladding, they were buying it through James Hardie, plaster through Boral, etc. [Ben] brought in the local state-based sales representatives from those three suppliers, and said, “I think we have an opportunity. Here are my top 17 builders that represent 40% of my trade business and I think together if we do this right, we can actually convert them to bring their business across to Mitre 10 Richmond.

Across those five suppliers that they engaged with, the sales growth for 17 builders in six months was 24 percent. That’s a whole of house strategy.

Digital

Ms Welsh also provided a quick update on how online sales are doing, and what IHG’s plans for its future are. Much of IHG’s online development has been about establishing click-and-collect ordering.

A year ago we sold through the membership $1.5 million dollars on click and collect. This year that number will exceed $6 million. It’s a huge amount of work and a massive amount of growth but over 500 stores every month receive an order from click-and-collect, and that provides that opportunity to drive a consumer to store and the connection that we’ve got with the consumers. Our expectation is next year that will be $11 million and the year after $30 million.

Digital enables collecting more data about customers, and Ms Welsh sees the profile of these customers as being very positive.

The average basket size on click-and-collect is now $220 and through the work that the digital teams have done it is attracting a brand new customer to us. A customer that wants to pay in a different way than a normal credit card or cash, [using] Afterpay or Zip-pay. A female customer, and a younger customer. All of this is really clear and key to the strategy I’ve talked about right at the front: can we grow the basket size of the customers we have, or can we attract brand new ones? And digital is doing actually both of those.

Data analytics

Ms Welsh also provided some details about the use of what IHG considers to be data analytics.

The key to getting digital right, the key to consumer driven is about making sure that we have data... It adds huge value in relation to ensuring shopper-led [and] that we have the planograms right. But what it also does is enable us to engage with each one of the consumers in a manner that means something to them.

And the way in which this is only going to succeed is if you and your teams continue to ask that awkward question, the one that the teams must become more used to is, “can I have your e-mail address or your mobile phone number?” The reason for that is we can personalise the product offer to the customer. What we want to do is ensure that we don’t bombard any customer with information that’s not relevant, that we give them information that’s going to add value to them.

Analysis

The developments put forward by Ms Welsh certainly would seem to offer some opportunities for growth. However, it’s equally evident that this is going to be difficult, long-term work to bring off successfully.

Importantly, most of these suggested developments rely on a more centralised, corporate approach to managing the business of IHG. The commercial deals with suppliers, for example, will rely on IHG/Metcash building a relationship with a fellow supplier corporation, which will enable individual members to benefit, through IHG. Along with the transition to more Mitre 10 branded stores mooted by IHG, this kind of deal will be able to unlock more value for all participants.

There is absolutely nothing wrong with this, of course. What is good about it, is that it more clearly defines the buying groups in the independent sector. IHG can represent the consolidated, corporate approach. Groups such as Natbuild and HBT can represent an approach where the “capital” consists of the people and the businesses that make up the group. For them, the “return” is not an EBIT number or a share price, but simply the success of those members and their businesses, on their own terms.

It’s a genuine choice.

At the same time of course, there is also some drive behind the idea of a more united independent sector, which Mr Laidlaw went some way to suggesting as an agenda item for the future. For that to happen, though, the sector would have reach beyond the corporate/non-corporate divide, and find common ground.

What would that common ground look like? HNN believes that there is a strong clue in the work presented by Ms Welsh at the IHG Expo. In very broad form, many of the plans she presented contain the possibility of a new, different model that the independent hardware sector could adopt. That model is based on changing from commerce that is based on selling products supported by services, to primarily selling services that are supported by products.

It would be a sharp change to the industry. What would drive it forward, however, is that this is the one model which would help independent hardware retailers get out from under the constant erosion of profit margin through competition with Bunnings, and other price-driven hardware retailers.

In what follows we lay out some broad outlines of what this might look like.

The Bunnings model

If we are talking about business models in the modern Australian hardware retail market, we really do need to begin with Bunnings. We can start by repeating Mr Laidlaw’s astute and accurate assessment of the state of Bunnings — and of the industry:

We have great respect for Bunnings. But in this time, when the consumer is changing so rapidly, will they be flexible and adaptable enough to change with that?

While Mr Laidlaw is applying this need for change to Bunnings, it is, of course, applicable everywhere in the hardware industry, and especially to IHG — as well as groups such as HBT and Natbuild.

The Bunnings model really begins with a specific relationship between profit margin and risk. This was developed during the time John Gillam was managing director. His realisation was that any increase in profit margin also increases business risk in retail, as, in an informed market, higher margins decrease the propensity of consumers to buy a product.

That risk is, of course, balanced by the countervailing risk that if profit margins are too low, the retail business will not generate sufficient returns to cover operating costs and return on capex.

Most retailers balance these two risks through externalities. The risk of the higher profit margin is reduced through high levels of marketing, high store amenity and, where possible, some control over the supply of a product.

The entire Bunnings business model is based on reducing any risk arising from profit margin to the lowest possible level. Once a business has that kind of low-risk ballast providing stability, it can then radically increase risk in other areas. That means it needs only minimal marketing, low store amenity, very lean logistics, and customer service that is adequate, but far from outstanding.

Of course, the only way for such a business to increase profits (which it must, in a corporate environment) is for it to continuously expand. But, as it turns out, increasing risk in all those areas — low store amenity, minimally trained staff — reduces the cost of expansion. As it expands, associated operating costs decrease, so that profit margin can go lower — and a competitive cycle is formed.

This model has proved to be a very difficult for other retailers to compete against. Lacking the scale and supply chain access of Bunnings, retailers find limited profit margins render some business lines unviable and also, at the very least, inhibit their ability to recapitalise and further develop their businesses.

The independent business model

The model for most independents is to charge slightly higher prices than the lowest in the market, but to compensate for this by value-adds such as advice, better store amenity, and being “local” businesses.

Looking at the raw numbers, as pointed out above in the business failure statistics, that isn’t working as well as retailers would like. They face what is really almost the equivalent of a “profit drought”, with retailers making do with less and less in order to survive.

But what if there were a different business model, which provided for higher profit margins, did not require a high level of scale, would appear first in trade/commercial, and then move to DIY/consumer, and would also fit with the existing infrastructure of today’s independent hardware retailers?

Such a model is in many ways implicit in the market approaches that Ms Welsh outlined during her talk. It has the potential to take hold over the next two to three years, and bring with it substantial changes to independent hardware retail in Australia.

The basics of this model are simple. Rather than, as they do at present, selling products, with those sales enabled by the provision of services, such as delivery and finance, instead retailers will sell the equivalent of services, and those sales will be enabled by products.

This solves the profit margin difficulty, because profit in service delivery is based not on costs, but quality, and quality of services is the result of skill and training. It is also a model that relies heavily on the digital, both in its marketing and delivery.

While this might seem far from today’s model and market, in fact the work of Ms Welsh comes surprisingly close to directly touching the new model. It’s a definite step in that direction.

If we look at what’s involved in IHG’s whole of house strategy, it is evident that this is a move from seeing a house build as a succession of product orders to be fulfilled, to regarding it instead as a continuum of build activities. When Ms Welsh speaks of what facilitates this market opportunity, it’s not about finding the lowest priced products and throwing them on the back of a truck for delivery. It’s about establishing an interlocking connection between suppliers, sales reps at IHG, a store owner (who may have relevant local knowledge as well) and the needs of the builders themselves.

This is based on knowledge sharing between participants, and it is the sharing of that knowledge that builds value. In fact, the single most brilliant thing that Ms Welsh had to say in her presentation was this:

Already, today, you are seeing 49,000 of those house plans. And when you get a house plan in hand, it offers up and opens up the opportunity for the world around all five stages [of the house build].

The architectural plan is the central document of a build, and lays out what products are needed, but also, suggests the order and cadence of the build. Retailers could provide a comprehensive quote or bid based on this information. This could be developed in association with the groups involved. It’s likely that in such a case, builders will not regard the quote in terms of the prices of individual components, but rather as an overall price for a sequence of service deliveries to the build site.

We could say that the move from products to services could change the main business model from the retailer-centric notion of using low profit margin to reduce retailer risk, to the consumer-centric notion of using knowledge sharing (driven by digital capabilities) to reduce consumer risk. In the latter case, value is not a matter of reduction to the basics, but instead something created from skill, trust, and better relationships.

Data analytics

While data analytics are useful in selling products, they are vital through the entire marketing process for services. However, the data analytics that are needed are what we might term “tertiary stage” analytics, which are quite different from both primary and secondary stage analytics.

Most of what IHG presented at the Expo as data analytics was very much secondary stage. That stage is dominated by processes of segmentation. At first glance, segmentation does look like it is consumer focused — because, after all, you are “looking” at consumers. Closer examination, however, shows that it is surprisingly retailer focused.

For example, on one slide Ms Welsh showed the need to segment builders by size. What is that really about? Size is usually used by retailers as a means to prioritise potentially more profitable customers over less profitable customers — and the less profitable ones, through this process, will likely lose out a bit. Yes, small and large builders do have different needs, but from a service rather than product perspective, it’s actually not all that different.

What’s the alternative? In tertiary data analytics there is a concept known as “behavioural identity” or BI. Rather that assuming identity based on characteristics such as size, BI tracks what the customer does, and determines from this what their current BI is.

BI seeks to understand what stage of the project development process customers are currently occupying. To take a consumer example, think of someone considering buying a kitchen. Segmentation divides these customers up into kitchen size, planned expenditure, materials, and so forth. The customer is then exposed to suitable products, based on this.

The advantage of BI is that it permits complex interactions from the retailer, that can help the consumer move through the different BIs necessary to complete the purchase. In a kitchen project, customers might have a diagram sketch of what they want, or just be trying to choose a style. If there is a diagram, perhaps the consumer can take a picture of it with a mobile phone, and the retailer can provide an interactive version. If it’s all about style, the retailer can help build mood boards. Over time, the data on mood boards could accumulate, and the BI system might be able to determine, just from a mood board selection, the type of kitchen the consumer might prefer.

To take a commercial example, an important characteristic to determine about builders is what their current attitude towards risk is. Some builders have a generally high acceptance of risk, others seek to reduce risk at all costs, but most vary the risk they are willing to assume depending on the project.

How do you work out a builder’s risk status? One way is to analyse building permits and plans to determine whether a build is in keeping with past builds in an area, whether it is like other builds the builder has done, and how successful the immediate past builds of the builder have been.

That’s not easy, and you really need a highly qualified data scientist to work out how to quantify those elements, and how to derive a risk profile from them. But the processing power to do this, which 20 years ago would have required access to a supercomputer, and today be purchased from Amazon, Google or Microsoft for a reasonable hourly rate.

Summary

All the buying groups have strong, unique identities. At the Expo you could experience a strong sense of fealty and fun in a robust, vigorous package. HBT, of course, is unmatched in the pure larrikin, creative cleverness of its members. Natbuild excels at a kind of store-by-store strategic approach, one which has made it surprisingly influential in the market. All of these have a place, now and in the future.

The IHG Expo 2019 indicated the possibility of a move towards a more mature independent hardware sector, across all the buying groups. While the competition for buying group membership is set to continue, there are other processes at work, which will most likely benefit everyone in the sector.

But what remains to do, if this potential is to be realised, is further hard work for all buying groups over the next three or four years. All the groups have a crucial contribution to make, and all the groups, should this model be developed, stand to benefit, and regain overall marketshare.

To read these and other articles in our HI News PDF magazine, please download here: hnn.bz/pdfs/hinews-5-01.pdf

The Wesfarmers-owned Bunnings announced its results for the first half of FY2018/19 on 21 February 2019. Revenue was $6909 million, an increase of $343 million or 5.3% on the previous corresponding period (pcp), which was the first half of FY2017/18. Earnings before interest and taxation (EBIT) grew ahead of sales, coming in at $932 million for the half, up by 7.9% on the pcp.

Total store sales growth was 5.5%, and store-on-store (comp) growth was 4.0%. While these numbers were down on past performance (10.1% and 9.0% respectively for the previous half), they are basically inline with Bunnings' performance pre-2014, which was prior to house prices really spiking.

The company also delivered an outstanding return on capital (RoC) of 50.2%, up from 47.0% in the pcp. For much of its history, this figure has been under 35% for the big-box home improvement retailer. (RoC effectively measures how well a company is managing the capital invested in it.)

The overall view of Wesfarmers is somewhat complicated by a series of sales and divestments. This includes the demerger of Coles and the sale of Kmart Tyre & Auto. In terms of net profit after tax (NPAT), the company states that it generated $4.5 billion, which includes $3.1 million from discontinued operations and other non-operational sources. For its continuing operations, Wesfarmers is claiming NPAT of $1.1 billion, which it says represents an increase of 10% over the pcp, which was the first half of FY2017/18.

Kmart operations excluding the Tyre & Auto division brought in EBIT of$383 million, down by 3.8% on the pcp. Officeworks increased EBIT by 11.8% to reach $76 million. WesCef increased EBIT by 2.2% on the pcp to reach $185 million. Industrial & Safety, affected by weak overseas markets, fell 19.2% over the pcp, to return EBIT of $42 million.

Bunnings

As Chart 1 indicates, while the growth in store-on-store revenue was not as good as some recent past results, it's not unusual for Bunnings. Chart 2 shows what the results really look like, which is a steady increase in both revenue and earnings, and outstanding growth in RoC, and even a slight increase in EBIT margin.

Michael Schneider, the managing director of Bunnings, explained why some of the numbers were not quite as robust as in the past in his initial opening remarks:

Our performance for the half was underpinned by continued growth in the consumer and commercial markets in all categories and across all major trading regions. This result was really pleasing given we were cycling high levels of sales growth [from] last year, and we experienced a wet and late start to spring early in the half ... as well as softening conditions in the residential housing market.

Mr Schneider provided some forward-looking statements, which will not come as a surprise to anyone in the hardware retail industry:

We expect moderating trading conditions to continue in the second half of the year on the back of continued uncertainty about the residential property market. Focused and disciplined execution of our strategy will ensure we continue to build on our recognised market strengths to drive growth and strengthen the core of our business. Bunnings is a good mix of discretionary and necessity spending, and this positions us well for the future.

In terms of operational matters, the half-year results are usually delivered in a very low-key way, with the division preferring to save any major announcements for the Wesfarmers Strategy Day in June. It's helpful to look at Mr Schneider's comments in three different categories: comments about past and present operations; comments about upcoming operational changes; and comments on new innovations in progress.

Present operations

Mr Schneider indicated that Bunnings would be investing in kitchens and bathrooms, which he regards as an area where the retailer has a low marketshare. He also pointed to an expansion for ranges sold for the following categories:

• home automation
• independent living (ageing in place)
• outdoor living
• outdoor power equipment
• storage

Operationally, Mr Schneider pointed to the following areas as receiving additional focus:

• events
• workshops
• in-store activities
• installation services linked to product sales

Mr Schneider also pointed to some newer categories the company would be pursuing, including:

• cordless cleaning
• outdoor structures
• trend green life
• advanced trees
• turf

Upcoming operational changes

Mr Schneider commented that:

We are increasingly using analytics to help us look at ways to drive productivity, inventory and range optimisation and improve performance. We will continue to evolve our thinking regarding the way we view the market, invest in our supplier and partner relationships so that, coupled with our developing digital and data analytics capabilities, we can continue to elevate our widest range and more value philosophy for the benefit of all customers.

New innovations

The innovations nominated by Mr Schneider for comment included: Bunnings' PowerPass app; a click-and-collect trial started at its Craigieburn store in Victoria; and the extension of that trial to Tasmania.

Digital

The overall narrative of exactly how Bunnings is setting about its expansion in digital, particularly converting its website to being transactional, is far from clear at the moment. That's largely because, it seems, the company would rather wait until the Wesfarmers Strategy Day in June 2019 to set out its plans. However, given the nature, size and timing of the changes, investment analysts need to know more now.

So, while Mr Schneider said really very little in his prepared remarks, he did provide more details in response to questions. It's not possible to document these answers by just repeating parts of the Q&A session. HNN would like to acknowledge the really astute questions that were asked by Ben Gilbert, executive director and analyst from UBS Investment Bank, and Bryan Raymond, VP and analyst, Citigroup Inc.

One of the core questions the analysts posed was whether this move to online sales was just for the sake of the thing, even though it might dilute profits, or if the case were the reverse, and by not moving earlier Bunnings had forgone a measure of sales and profits. Mr Schneider's thoughts regarding this included the following response:

I think one of the advantages for Bunnings in arriving at this online point at this point in time is that there's a lot of innovative technology and technology that's available that I think will allow us to be very competitive in this space, certainly, relative to our peers but also very much, as I said, focused on what the customers are looking for with the online purchasing.

This suggests that, in part, the decision was not only based on the internal situation of Bunnings, but also on the way the technology has evolved. The second part to this answer is Mr Schneider's suggestion that the needs of customers had also gradually evolved:

What this is, is a logical evolution of the business. So there's a recognition that the market continues to evolve and changing customer needs continue to change. We've always had a very interactive website. We have millions of hits a month, customers downloading information on how to do a project or information about products and services. So the sort of natural rollover, it just makes sense at this point in time. It's been about 12 months now since we took the 20,000 or so products we have in our special orders range online. It's there for customers. Customers will use it when it's needed.

So, changing technology, changing customer needs. Then the way Bunnings sees itself bringing this technology into the company is matching those needs to the technology through the process it calls "test and learn", which includes its pilot click-and-collect project at the Craigieburn Bunnings warehouse, and its later extension into Tasmania.

So the test-and-learn environment at Craigieburn, the test-and-learn environment we'll create in Tasmania will allow us to understand the model, the costs and the desire. And let us build the offer up from there.

...

But we want to do things in a way that is customer-led and customer-informed. So we haven't started with any predetermined notions around costs or model.

The other important element analysts sought to clarify was how Bunnings intended to handle the build-out of its logistics capability to cope with home deliveries. Mr Schneider responded in part to this by saying:

We haven't started with any predetermined notions around costs or model. But we have a big network, we have over 370 trading locations around Australia and New Zealand. So our proximity to our customers is pretty good. We continue to build out the physical network and invest in that as well. So it will give us a really strong all-market, all-channel type approach. But we'll obviously do it in the best Bunnings way we can, which will have a very keen focus on lowest cost so that we can continue to give customers the best offer.

The last word on where Bunnings – and Wesfarmers – will go in terms of digital transformation ultimately rests with the Wesfarmers managing director, Rob Scott, and the board of the company. Asked about potential future acquisitions, and the direction of the company, Mr Scott had this to say:

Well, as you know, we don't give too much away on the specifics, but the general commentary I'd provide, there's an enormous diversity of opportunities that we're looking at. Yes, there is a bit of an orientation to the industrial side across a range of areas. There are some areas that we're also looking at that are adjacencies to our retail businesses. And yes, a real combination of some small, really interesting bolt-on opportunities with a bit of a technology digital exposure towards bigger opportunities, some of which we've had on a watching brief for quite some time.

....

And really what it's about, it's not just about relying on where market prices are, it's also leveraging unique capabilities or relationships or synergies that we have. So something we spend a lot of time thinking about is what is it that is going to make Wesfarmers a successful buyer.

Analysis

Bunnings faces a series of new challenges as we look ahead to a changed strategy for FY2019/20 and beyond. One of those challenges is that the company is, for the moment, the prime growth engine for the whole of Wesfarmers. Its role in the past was to produce a reliable stream of EBIT, which could be used to, for example, fund the expansion of Coles. Now that Coles is gone, Bunnings is expected to go to a different place on the risk/reward curve.

Those changed expectations feed into increased pressure for the company to transform itself into more of a digital enterprise. The real question at the base of that transformation is how and where it will be achieved. One option is a "standard" Bunnings, that serves customers through its successful stores, with digital services somehow "bolted-on" – which is essentially what click-and-collect is. Or will everything become digital, in a sense, with its entire logistics strategy re-geared around this?

For those who are not aware, one reason why digital transformation poses some challenges for Bunnings is due to the nature of its logistics. One of the company's early innovations was to construct a logistics network which did away with the need (mostly) for a centralised warehouse system. Distribution to the store was left in the hands of its suppliers, as part of the supply contract. The only exception to this are Bunnings' captive brands, such as Ozito, where product is shipped directly from China to its own system of warehouses, for on-delivery to stores.

There are some areas where the company would easily benefit from online ordering and delivery. For example, in more remote areas of Australia, one could imagine Bunnings setting up delivery lockers in small towns, then running a regular, scheduled service that dropped orders off on a once-a-week basis for a nominal fee. For farmers and others who live 100km from the nearest Bunnings, that could save them a couple of hours out of their busy days. Not to mention that such facilities, which would expand the footprint of Bunnings, might play into its overall expansion plans as well.

In other areas, however, Bunnings will run into the conundrum that most online retailers face: can you charge consumers for the extra work of picking, packing and delivery, or do you absorb some or all of that as essentially a marketing cost? Do you formalise that marketing cost in an arrangement such as Amazon's much-copied Prime service? This is complicated by the fact that, given its logistics structure, all of that process would have to be performed at the store level. It's arguable that these are specialised tasks, so would this fit into its model of using employees in a mixed role of both customer service and stocking?

What seems likely, over the next year or so, is that we will see click-and-collect spread throughout the store network, and that this will be followed by very selective delivery services. For example, it's common that at certain seasonal points homeowners will buy large bags of fertiliser or mulch for their gardens. Bunnings could introduce something like an annual subscription service for those products, and then run single delivery runs, where trucks set out on a Saturday morning loaded down with bags of mulch, and follow the most effective delivery route through an area.

In the end, the most we can say about Bunnings' digital plans is that we don't know. Going on past experience, we are likely to learn more at the upcoming Strategy Day, but it's likely even then many questions will remain.

To read these and other articles in our HI News PDF magazine, please download here: hnn.bz/pdfs/hinews-5-01.pdf

When we imagine where –regionally – future developments will come from, most of us think of urban environments, or at the very least the suburbs and associated regions of major cities. Yet, in Australia at least, that's far from being the case. Rural and ex-urban areas have contributed more than their fair share of novel developments and inventions throughout the nation's history.

Given that, it's probably not so much of a surprise to find that many of the innovations in hardware retailing originate in regional areas. In the case of Taralgon H Hardware and Andrew Graham, these innovations are about finding ways to expand market reach into new areas. In particular, and what first caught our attention about Andrew, is his work on reaching out to female customers and tradespeople.

Traralgon is located 144km (or 160km by road) east and a little south of Melbourne, Victoria. It's in the Latrobe Valley, which is situated in the broader region of Gippsland. With a population of 25,500, Traralgon is Victoria's 11th largest town, just behind Mildura and Warrnambool, and ahead of Wangaratta at 18,600. The nearby towns of Moe and Morwell combine to add a further 28,000 to Latrobe's population, which recorded a total number of 75,000 in 2017. The entire Gippsland area has a population of 272,000.

The Latrobe Valley is well-known for its production of electricity for the Melbourne market through the use of its brown coal reserves. Traralgon also has a papermill, first established in 1936, and then expanded post-World War II. It shares an active dairy industry with much of the surrounding district of Gippsland, the verdant green paddocks supporting a Lions dairy plant, among other commercial enterprises.

Historically, Traralgon was sufficiently prominent in Victoria that 65 years ago it was one of the towns where Her Majesty, Queen Elizabeth II, stopped to greet the Australian people, on 3 March 1954.

All that sounds good, but what is really unusual and interesting are some of the less likely activities the area has nurtured. It is also home to Australia's only aircraft manufacturer, and is currently set to provide strawberries to Melbourne, via Australia's largest hydroponic strawberry glasshouse, covering 12 hectares. The Latrobe Valley has been selected as the trial site for an electricity-generation "microgrid", which will enable farmers and others to directly share excess electricity generation, without going through a central provider –a bartering arrangement that will be managed through blockchain accounting.

The store

Given all that, it's perhaps not such a surprise that you would find someone who is building a real presence in the Australian independent hardware retail industry working in Traralgon.

The Traralgon H Hardware is situated on Church Street, right near the town's centre, where it has been operating for several decades. It doesn't take long in a conversation with Andrew to realise you are talking to someone who takes hardware retailing very seriously. He has taken a new approach in areas such as marketing, product selection and staffing, but it's the fact that these ideas are built on an in-depth knowledge of hardware that really impresses. He's that rare combination of a second-generation hardware retailer who is able to retain the essence of long-term practice, while also integrating new business opportunities, and updating old practices.

The store in Traralgon was originally opened by his father, Rob Graham, in 1988, and his mother, Charmaine Graham (a nurse by training), worked alongside him. This followed on from a previous hardware store the couple had opened in suburban Mordialloc, in 1983, meaning the family has been in the business for 36 years now. (Andrew's parents are originally from Moe.)

Hardware retailing came after Rob's career in the Australian Navy, which he joined as a teenager. As Andrew tells the story:

Dad left the navy because he was stationed in Sydney. So, he came back to to Frankston and then did the store in Mordialloc, sold that, came to Traralgon, and a year later, bought this store. Which from memory was a tiling and hardware store.

We were a Homestead store for that period. Then I think it was 1996 or 1997 they had the merger and became Home Hardware. I think the population has grown like four times from what it was.

It wasn't just the store and the business sense that Andrew gets from his father. It's evident in what Andrew says that Rob also had a strong passion for the business.

Anyone who knew Dad, knew how passionate and vocal he was. I used that to go to the Home Hardware regional meetings, and pretty much pull him out of them!

He was passionate about the businesses. He was on the selection committees for the catalogues, when they used to have those. It would have been in the late 1990s to the early 2000s. Dad was on the board, which was something like the members executive, like I am on the members' exec for HBT.

He was very well-known and he would be very vocal about that because when they started setting catalogues nationally, he fought back against that. When something that works here, won't work in Queensland, for example. You are going to have that going either way, but it was really about having input and finding where it sort of does work nationally. That's what he was really asking for.

With a history like that, it's no wonder that when Woolworths bought out Danks, and Home Timber & Hardware Group (HTH) along with it, after decades with HTH, Rob decided to leave that group and join HBT instead.

When all that stuff happened with Woolworths – it was all too corporate for us. If I told the old man we were going to go to [Mitre 10] Sapphire today he would probably burn the shop down! And that's been the beauty of HBT. It's like every input you have is at least listened to and you get an answer back to it. Meanwhile, the corporate [stores] have got the blinkers on. They only feed the stores what they need to know.

While Andrew has been happy with the transition to the HBT brand, it's the shift up in HBT to H Hardware branding that he sees as giving his store a real spark. He sees the brand as having a very bright future, combining the best of what the corporate independent groups receive with the responsiveness of non-corporate, cooperative groups.

If I had of known about H Hardware when we left Home Hardware, I would have gone into it at 100% straight away. Trying to do your branding on your own is just hard. It costs a lot of money.

The exclusive products with H have also been good. We had a family come from the Mooroopna H Hardware store when I was working on a Saturday, and the kid saw my [branded] car at the front and wanted to come into the store.

His name is Mitch, from memory, and he does a lot of their Facebook posts. He's like a six or seven years old and he's like the mascot of the store and he wanted to stop in.

It's cool that we are getting recognition, there's more popping up everywhere. And that's all it takes, once you get a bit more traction in the industry, we'll start to get more known. Once there's more of us in a similar area, we can start doing some sort of marketing together today. That's what we used to do when we were a Home store, we'd all put money together, do some TV, and then you can spread your costs a lot more.

Today's hardware

While issues about buying groups and the role of branding in helping hardware retailers grow are important, in today's environment there are a couple of things you have to do right out of a dozen that are equally important.

To name some of those issues: there is hiring staff, firing staff, wage calculations, product selection that provides just the right price/quality/availability balance so that narrow margins can produce decent profits, store design, intrusive council regulations (notably about footpath displays and signage), planning regulations, technology –both for driving sales, as well as understanding new product technologies –sales reps that are overstretched by margin pressure on supplier companies, the exchange rate of the Australian dollar, as well as whole new ways of marketing.

We haven't even mentioned Bunnings yet. And not just Mum and Dad's Bunnings, but the Bunnings Masters built, which seems to be almost everywhere, and "coming soon" to any likely market that crops up.

For the next generation that will shape what hardware retail will be in the future, it must feel at times like reaching one of those unexpectedly hard levels in a video game (such as the tubular level of Nintendo's Super Mario World) where even though you've demonstrated good skills to come that far, you now have to develop a whole new set of skills if you want to continue.

The answer seems to be to not only absorb the lessons of the previous leaders of independent hardware retail –the importance of personal relationships, personal service, closeness to the community, forging good commercial relationships, and extending a helping hand to tradespeople when possible –but to equip themselves also for a dynamic approach to the retail environment.

The first step we see these leaders taking is to make an effort to step outside the hardware retail "bubble". For Andrew that meant working elsewhere in the hardware industry, and even stepping entirely outside of it for a time.

When Bunnings opened [in Traralgon, in June 2012], I went to work for some other businesses. So I had the opportunity to do something different.

I ran the Plumbtec in Frankston for about five years. I also worked for Beaconsfield Home Hardware for a couple of months, then sold cars for a couple of years. I really learnt heaps there, surprisingly, especially sales techniques.<

Then I ran the Plumbtec in Warragul, which is part of Burdens Bathrooms, and I also learnt a lot there. I had 250 staff, it's an old business so it had a boys club and I don't believe in that stuff. I'm not a politics person and I actually came in and about three guys in the business had applied for the job and didn't get it. I got the job so I was already on the back foot with those people –and I didn't care!

A big thing that businesses don't work on these days is culture. It's something I've been really pushing in the shop here for the last three years. That's what I learnt when I left Plumbtec, it had a poor culture, in my opinion.

While that kind of informal education is key, Andrew also knows that formal education plays a part as well. That's why he's currently in a program to obtain his Masters in Business Administration. It's a program that not only provides a structure to business thinking and strategy, but also the tools to understand and express what is happening in a business. Culture, understanding what it really is and how it works, is one of those tools.

Not that Andrew thinks that having a great business culture is an easy thing to pull off. As he points out, that is especially the case in hardware retail, where there are long work hours, and a range of stresses, from being polite, courteous and engaging with customers, dealing with the "big personalities" of some tradespeople, and, of course, more direct physical stress that comes from shifting heavy things, as well as dealing with hazardous substances daily.

So culture is a big thing. The boys are working 7:00am until 5:30pm sometimes. And it's physical and draining, so if you don't have a [good] culture in the business they're just gonna burn out. Be spiteful, talk behind the boss's back, and it festers into your customers. Because they're on site, they are the face of the store, they're talking to customers. They are supposed to be salespeople –not just your delivery drivers.

Andrew has some very clear ideas about what it takes to build a better culture in hardware retail:

It's things like chatting to staff more than anything. I don't like saying that you want to be their friend. Because if you want to admonish them, or even possibly dismiss them, then you don't want to be their friend. But you have to make that relationship with them. So you've got to get to know about their home life and hobbies, and be aware of of their actual personalities, how that affects them, because everyone is different.

But it's more than that, too, for Andrew. He's taken an active role in his community to employ people who have disabilities.

I've been hiring a few staff from one of the local disability agencies lately. The lady who I work with from Wise Employment is just awesome. She's come from corporate human resources and recruitment.

Most people think disability services is about hiring someone with autism or Down's [syndrome], or something like that –which is cool as well. My brother-in-law has Down's and he's completely hilarious. He works at Woolworths, so it's not like he can't work in this industry.

That's what everyone thinks of. They don't think that people with depression and anxiety also have disabilities.

So I'm a big advocate. My wife has been a respite carer for 12 years. Because her brother has Down's, she's always been involved with it.

It's not, Andrew is quick to point out, just some entirely charitable thing to do –there are other advantages as well.

Obviously it helps to get subsidies from the government, but also I'm finding the people I hire from Wise work harder. And not just work harder, but they really want the job so they are a lot more motivated.

Accepting people as they are, and helping them to fit into an enabling store culture, while at the same time keeping the productivity up, is something Andrew also extends to younger hires.

My Dad, for example, he really can't handle managing some of the younger staff. Attracting younger people to the industry and then managing them properly, that's a big thing when I talk to everyone at HBT.

One of my [MBA] subjects was about managing the millennials and how it is 100% different. It's not that they don't work hard, they just work differently. Different work ethics, different lifestyle etc. So we work long hours, and you have to embrace it.

We've got a guy who plays cricket, and we let him go home early on a Thursday so he can go to cricket training. That's worth more to him than any pay rise. Just so he can have a lifestyle.

That's a hard thing with a lot of these older guys in the industry. They don't understand, they just think this younger generation is outstandingly lazy. It might look like that, but, really, it's not.

One of the keys to getting HR matters sorted out, Andrew believes, is to make use of outside consultants for some of the important parts.

I make use of the local Victorian Chamber of Commerce, and I've got a woman named Crystal who really helps me out. It cost about $1200 a year, and you can call her and she'll just get the right person to call you. On their website, you can download every template you can ever think of.

Sometimes, however, Andrew has called in even more specialist help.

I employed a woman last year, who was an HR specialist. She wrote all my workplace contracts. Once, I also got her to help dismiss a staff member whom I knew had sort of a jagged history with employment. He had already taken someone [through the complaints process] for unfair dismissal. He came into work one day and was moving one of his elbows like he's hurt it.

And then I found out he had started recording conversations with my Dad, and with my sister who works here as well. So I thought, this is just going to become bad.

I got her in and she was like this silent assassin. She is such a nice, quiet young lady. She just let him know he was going to be dismissed with the most monotone, polite voice.

I learnt a lot on the spot watching her do it. One thing she did was to offer to provide him with support afterwards, like "if you want to sit down with me, I'm happy to go through everything with you". If I said, "do you want to sit down have a chat afterwards for some support?", it wouldn't work! But she was an independent person doing it. And that's something like $60 to take care of what could have been a big problem.

While that is something of the less pleasant side of managing staff, Andrew is more drawn to the side where a business can directly improve the worklife of people, enhancing both their productivity and earning potential. What dominates that area is supplying good quality training, for the right staff.

Something I went into the last couple of years is to find the best way to educate my staff. A lot of people in this business try to do everything themselves. Every self-help book you read tells you not to do this! Easy to say but hard to do!

One of our new guys has been with me for about four months now. I hired him from the local race club, he used to manage the restaurant. I hired him because he had management experience, and he used to manage the pub in Warragul so he can talk to everyone, which includes those tradespeople who have "big personalities".

But he turned out to be really good with our systems. I just unloaded everything on him. Like, information on every supplier I know, how to do everything on the computer. The growth in him was the quickest I'd ever seen in a staff member. He's just very good at absorbing stuff, which really helps.

Doing that, I could instantly see why it was such a good idea. It's made my life much easier. So I've been trying to do that a lot more. But you can see with the older store owners, like Dad –he can't do that. And he doesn't even really want to unload most jobs. Because the way he had to run the business, you had to do everything yourself. And at that time, 20 years ago, you actually could.

Marketing

Many retailers struggle a little with marketing, while for others it's a natural part of the business –and Andrew is very much in the latter category. As with most "switched-on" marketers in hardware retail, Andrew's first point of reference is the rise of Facebook as a marketing platform.

It's all marketing, and you want to gauge your return. That's why Facebook marketing is good, because you can see the actual return.

I tested the local paper. We paid for a Christmas ad in it. The ad said that if you bring it in with you, you would get 20% off as well as going into the draw to win a $500 gift voucher.

Only one response. It went out to 60,000 people in the area and only one came in.

You've still got to wade through the crap on Facebook but at least you can see people talk about it, you can see there is interaction. It's time-consuming, but you've got to do it.

I've been trying to work out how to get more people more interactive with the business this year like YouTube videos, so that's my next job to do.

One problem Andrew and others have encountered, and a reason why this kind of marketing can be so time-consuming, is that most suppliers have not really geared up to help independent retailers with marketing their products.

The problem is suppliers don't give us enough marketing material. The thing that really annoys me is a lot of suppliers do quite a bit of marketing for Bunnings, but don't contribute much to our marketing. Companies like Holman –they've got a great range and give a great deal to HBT members –but when it is advertised on TV, it's constantly Bunnings ads for Holman. I know Bunnings helps to fund that, but it's just frustrating that they don't give us videos or anything like that, that we would happily use. You go on to their YouTube page and there's Bunnings logos on some of the videos so you can't even use them. When they don't give you enough marketing you have to do your own which is very time consuming. For such good products, it's really frustrating.

Women

One of the areas where Andrew is far ahead of most hardware retailers is in understanding and getting better results from the women's market. We've seen a lot of efforts to engage better with this market which have come off as at best a little condescending. However, Andrew's approach has been very different, and very effective. It all starts with special events, a "Ladies' Night", but one with a very different focus.

I'd been talking to the ladies on staff about doing a Ladies' Night, and so we had one –and it went crazy! It went really well.

A lot of what my thoughts were that in the Latrobe Valley we have this situation. We have a lot of guys –because of what happened with the Hazelwood power plant shutting down in 2017 –who have gone into fly-in, fly-out [FIFO] work, so they're not home. Also, family separations are bigger these days, so a lot of ladies are trying to learn home maintenance on the fly.

So, they really needed to know how to do the work. I did things like getting a local tradesman to come in and show them how to fit a door handle. We had Sheffield here, Bremick, Amgrow, PPG. Ladies were buying hand tools, drill bit sets and more. It was a really good vibe. They were asking the tradesmen questions and pulling things off the shelf.<

The only criticism we had was that they wanted more crafty stuff. I didn't want to do that because one of our competitors do a lot of them and they do all the crafty stuff. I actually want to make this practical.

What's evident in speaking with Andrew is that what makes his approach to the women's market so different from other hardware retailers is that it is holistic. Rather than just trying to "bolt on" sales to women, he's integrated women into his sales staff, and into the tradespeople he markets to as well.

There are a lot more apprentices coming through who are women which is awesome. In the Valley, we've always had some of the best tradesmen in the area because of the power stations up here, and all that's being privatised now. It's all been changing, and it's good to see a lot more women coming through.

We get a lot of ladies coming in here, because I've got a lot of women staff in the store –it's a 50/50 split. And sometimes you see people gravitate to the women more.

I just hired the first lady to work in the timber yard. She's been here two months now, and she's picking it up pretty well. Her Dad was a plasterer and she also knows some of the builders. When I was at Plumbtec, I used to have a lady who worked with me on the trade desk. I find them more level headed, they don't get angry easily. However, you need to watch out, because they can hold grudges a lot longer than guys usually do!

It's not only on the supply-side of tradespeople that there is a better gender split, there's also a specific demand for female trades as well.

I am getting asked a lot more for lady tradespeople. I was speaking to a guy who does work for the Office Choice store, and he had to do a job for a law firm that specialises in domestic abuse and domestic violence. They asked specifically for lady trades, because they want to support that area, but it's also about being more comfortable.

There still are not enough lady tradies down here at all. I'm trying to build up a network of lady tradies. In fact for the next ladies' night, I've got a lady plumber, a lady builder, and a woman landscaper. That will be great for the training on the ladies night.

One reason why Andrew was keen to adopt the ladies' night approach is that he hasn't found "trade nights" to be very effective.

Builders just don't appreciate them anymore because there are so many. Also there weren't many coming in because they were knackered at the end of the day. So I started doing breakfasts, and still only a few turn up.

But what set me over the edge was we had a Christmas party for the builders not last Christmas but in 2017, and I bought a thousand dollars worth of grog and food. We had three people turn up. Then they complain that they don't get anything for free!

To read these and other articles in our HI News PDF magazine, please download here: hnn.bz/pdfs/hinews-5-01.pdf

Most of us in the home improvement and hardware industry will be familiar with the sometimes frantic predictions of falls in Australia's house prices. This starts with near-panic announcements of price declines, which tend to increase during the first six to 12 months, followed by uncertainty, with a mixture of dire warnings and more optimistic forecasts, followed by a price recovery.

That was pretty much what we went through from March 2011 through to September 2012, and in a milder form from September 2015 through to June 2016. The current panicky state started around December 2017. While we are still in a state of price decline, this has moderated from predictions of a 20% plunge in values, to falls in the mid-single digits, with some oversold suburbs hitting double digits.

For our industry, the real point of house price behaviour relates to how future sales of goods will be distributed. Overall sales for hardware retail tend to pretty much track growth in gross domestic product (GDP).

When dwelling prices are high, and trending upwards, there is increased activity in home and apartment building. When those prices decline, according to a long-held belief in the industry, if GDP is growing at an acceptable rate, expenditure shifts to renovations.

Graph 1 illustrates all these trends for Australia as a whole. While this is a very regional situation, we're using this graph because it does give a pretty good overall view of the situation.

The orange line represents the Australian Bureau of Statistics (ABS) numbers for the weighted index for house prices in all eight capital cities. HNN sees the bubble in prices starting with the strong increase in house prices beginning with the December 2016 quarter. This followed a moderated market from September quarter 2015 through to June quarter 2016.

The red vertical lines indicate reductions in interest on the cash rate by the Reserve Bank of Australia (RBA). There is an apparent relationship between these rate cuts, and the stimulus on the house price.

In terms of what led to an imbalance in the housing market, the interest cuts in May and August 2016 seem a little dubious. However, what needs to be understood is that the year-ended non-farm GDP growth figure for March quarter 2017 was just 1.8%, and for June quarter 2017 it was just 1.9%. The stimulus the RBA was applying at that time was intended for the broader economy, but, of course, it affected everything, including the housing market which was already sufficiently stimulated. Hence, the bubble.

In its statement regarding the first of those two rate decreases, the RBA said:

At its meeting today, the Board decided to lower the cash rate by 25 basis points to 1.75 per cent, effective 4 May 2016. This follows information showing inflationary pressures are lower than expected.

HNN's analysis of this, as we have written in the past, is that the Australian economy had been braked a little too hard as regards inflation, and actually entered a very brief period of deflationary activity — which the economy is still recovering from today.

At the time of making the second of these rate cuts, the RBA commented:

Supervisory measures have strengthened lending standards in the housing market. Separately, a number of lenders are also taking a more cautious attitude to lending in certain segments. The most recent information suggests that dwelling prices have been rising only moderately over the course of this year, with considerable supply of apartments scheduled to come on stream over the next couple of years, particularly in the eastern capital cities. Growth in lending for housing purposes has slowed a little this year. All this suggests that the likelihood of lower interest rates exacerbating risks in the housing market has diminished.

Unfortunately, that's not how it worked out — though the RBA was still definitely correct in cutting rates, given the state of the overall economy. The interest cuts contributed to five quarters of strong growth in house prices, with the ABS price index going up by nearly 11%.

The current "housing price crisis" consists of this: from the peak in December quarter 2017 through to the recent figures for September quarter 2018, the price index fell by 2.85%.

That would indicate that the price index would still have some way to fall before the RBA gets around to considering another cut in interest rates. If the index continues to fall, down below the level of December quarter 2016, cuts might come up for consideration. Even if that did happen, we would think the rate cut would be another 25 basis points, and happen in July/August 2019, after the Federal Election. It seems more likely, however, that prices will stabilise, and no rate cut will be required.

The other interesting aspect of the graph, from the perspective of our industry, is the green line, which traces the ABS statistics on alterations and additions, which we would all call "renovations". These numbers are derived from household expenditure estimates, and so track most renovations, including those that don't show up on building permit applications.

What we see here is a very sharp fluctuation, with spending dropping back to 2014 levels in the second half of 2017, before rebounding sharply to the highest level we've had in the September 2018 quarter.

If we were to estimate why this happened, we would suggest it was a response to the increase in prudential oversight on lending. For example, a typical way of funding a renovation is through a line of credit loan, which is by its very nature interest only, but secured by the value of a property. With interest-only loans receiving increased scrutiny, these could have been more difficult for borrowers to obtain — at least initially.

Probably what we are seeing in the graph for recent quarters is a combination of factors pushing up the spending on renovations. The first is that if regulations depressed lending for a time, there is a "catch-up" factor at work, as delayed projects get the go-ahead. Secondly, with the drop in house prices, more homeowners may be thinking of renovating rather than selling to trade up. Finally, with the drop of house prices, there has been a decline in building activity, making trades more available on the market, thus reducing the prices they might charge.

What happens next?

It's likely house prices for December quarter 2018 will show a further decline, while renovations will indicate a levelling-off, or slight decline for that quarter. The March quarter of 2019 will show similar trends, though house prices will further stabilise.

The results for the June quarter of 2019 will be crucial to interest rate settings. Given strength in other measures of the economy, we could expect anything from a mild decline to a mild increase, which will be very much a function of the number of properties offered for sale. If that is the case, interest rates will remain stable.

Renovation activity will be an interesting indicator to watch. HNN thinks this is likely to track numbers such as wage growth over the next year or two, as householders take a more conservative approach to credit. In general, 2019 is likely to be a more cautious year, as consumers — especially renovators — seek value for money, and more substance than flash in their home renovations.

That should mean an uptick in some standard home maintenance categories, such as paint, as well as an increase in less expensive renovation items, such as lighting, plumbing fixtures, cabinetry hardware such as handles, and DIY storage projects.

Other areas where we could see growth would include smarthome, both for controllers and appliances, as well as an increase in the sale of heat pumps for heating and cooling, spurred by the recent brutal summer we have endured.

Percentage change quarter-on-quarter for alterations and additions, by state and territory =

The Wesfarmers-owned Bunnings announced its results for the first half of FY2018/19 on 21 February 2019. To quickly run through the most interesting numbers: Revenue was $6909 million, an increase of $343 million or 5.3% on the previous corresponding period (pcp), which was the first half of FY2017/18. Earnings before interest and taxation (EBIT) grew ahead of sales, coming in at $932 million for the half, up by 7.9% on the pcp. Total store sales growth was 5.5%, and store-on-store (comp) growth was 4.0%. While these numbers were down on past performance (10.1% and 9.0% respectively for the previous half), they are basically in line with Bunnings' performance pre-2014, which was prior to house prices really spiking.

The company also delivered an outstanding return on capital (RoC) of 50.2%, up from 47.0% in the pcp. For much of its history, this figure has been under 35% for the big box home improvement retailer. (RoC effectively measures how well a company is managing the capital invested in it. It's evident that Bunnings is doing what it does when markets grow at a slower pace: concentrating on delivering profit, through curbed spending, and entering new product areas that provide better opportunities. One analyst did suggest that falling comp store sales might reflect an increase in "cannibalisation" (intra-network store competition) as Bunnings continues to grow its store fleet. Bunnings managing director, Michael Schneider pointed out that some cannibalisation was actually planned, such as with the Bunnings warehouse opened in Robina, Queensland.

A good example, is we opened a warehouse in Robina, in Queensland during the half, and it's a fantastic new warehouse, but it's actually taken some pressure off our Burleigh Waters warehouse, which overtrades.

He also stated, in response to a direct question, that sales per-metre continued to increase — which is the key measure for determining whether expansion is working or not.

HNN (Hardware News Network) would speculate that one reason for this boost in profitability has been a further increase in the company's share of DIY retail. The Metcash-owned Independent Hardware Group (IHG) in its results for the first half of FY2018/19 reported a shift in its revenue source to 65/35 on the trade/DIY split versus something more like 58/42 in the past. Given that IHG's sales were nearly static at around 1.25% growth in the half, it seems likely that Bunnings picked up the DIY business IHG lost. As is commonly known, margin in DIY is far higher than margin on trade sales.nUnusually, Mr Schneider, was very clear on areas in which the company is pushing harder, as well as some new initiatives. In his prepared remarks, Mr Schneider stated:

We're investing in categories where we currently have low market share, such as kitchens and bathrooms where we know we can deliver a competitive and quality home improvement solution. Range expansion in categories such as home automation, independent living, outdoor living, power garden and storage have been really well received by our customers as has our growing range of services that connect customers with local experts, making installation easier and more affordable. Importantly, we continue to focus on delivering better customer experiences, whether that is online or in-store.

Reading between the lines, what we see here is in part a response to demographic change, accommodating a higher percentage of elderly people, while also catering to the tech needs of the Millennial generation, and an increasing trend to combine purchases with do it for me (DIFM). In terms of the plans Bunnings has for the future, Mr Schneider had this to say:

Looking to the second half of the year, we will remain focused on further investment in customer value and broadening our product ranges in categories such as smart home technology, home storage, cordless cleaning, outdoor structures and on trend green life, advanced trees and turf, just to name a few.

One of the categories that stands out quite clearly is cordless cleaning. Bunnings has strong ties with Hong Kong based Techtronic Industries (makers of Ryboi, AEG and Milwaukee power tools). That company acquired a vacuum cleaning division five years ago, and has turned it into profitable line recently. This could provide the tools to make this a viable sector for Bunnings.

Services also remain a key focus for Bunnings:

We will continue to expand our services offering, creating meaningful and personalised customer experiences and meet their needs as behaviours evolve. Services will include facilitating installation and assembly offers, in-home design consultants to make projects even easier and partnerships with our suppliers to continue to innovate our offer.

We are also excited about the opportunities in the commercial side of our business. We will continue to focus on building more substantial commercial categories across all channels so that we have — so that we offer relevant brands at an attractive price and increased convenience for our trade customers.

It's no coincidence that services and commercial potential are mentioned together. The ability that Bunnings has — and which so far has not been matched by other home improvement groups — to provide fixed-price installation services to customers buying goods such as airconditioners will not only help it better secure some markets, but also help it to build stronger relations with tradespeople.

Digital

However, the biggest change has been Bunnings' move to focus more on the potential of digital and online retail. The company has already started testing click-and-collect, according to Mr Schneider:

During the half, we've launched a click and collect trial for our leading range of power tools at our Craigieburn warehouse in Victoria. We have since expanded the trial and now offer more than 20,000 products for purchase online and collection in store. We expect to roll out a click and collect pilot across Tasmania in April with the learnings from this trial to inform rollouts across other states next financial year.

Later, in response to an analyst's question, Mr Schneider said that company was around 18 months away from rolling out a fully-transactional website, with a broad range of products set for sale.

Analysis

HNN will be providing a more in-depth analysis of Bunnings and Wesfarmers in an upcoming issue of HI News. For the moment, it is worth noting that 2019 is probably one of the most significant years in the history of both Bunnings and Wesfarmers — more significant than 2014, when the former managing director of Bunnings, John Gillam, chose to take on Masters Home Improvement directly.

HNN believes that the internal growth targets being set for Bunnings are something like 50% over its current size over the next five years. This would mean target EBIT of $3 billion. Much of that growth will not be in areas that directly compete with the markets currently engaged by independent hardware retailers — largely because those markets are not profitable enough.

What we believe the managing director of Wesfarmers, Rob Scott, has spotted — along with Mr Schneider — is that technology, especially digital technology, can provide the way out of the particular box Wesfarmers has found itself in.

That box is of Wesfarmers' own making, and was, for close to two decades, a particularly profitable box to be in. Wesfarmers identified the use of the everyday low price (EDLP) strategy as key to growing businesses in Australia's newly post-tariff retail markets. It pioneered that model at Bunnings, and then extended it to Coles and Kmart.

However, once EDLP is adopted by the market at large, it becomes a trap. Businesses cease to deliver a high level of return on investments, and simply grind away at each other. This is what led Wesfarmers to demerge its Coles operations in 2018.

Digital technology offers an alternative to the low-margin EDLP businesses. In business economics terms, digital enables companies to scale at only a relatively small additional cost. This opens up the possibility of better margins in some business areas.

One slightly back-to-front way of looking at this kind of development is to ask what exactly Wesfarmers would do with its own data centre? Or, more to the point, what would Bunnings do?nData analytics has been the first answer to this question. Mr Schneider mentioned both bathrooms and kitchens as potential areas for expansion, and it is possible to see that analytics could play a key role in expanding these two lines of business.

But what else might be in store for Bunnings? There are a wide number of possibilities, from a business model more based on lease/rental of higher priced items such as tools, through to consolidating the data from building information management (BIM) into a repository that could be data-mined.nLikely we will get our first clues of what is to come at the Wesfarmers Strategy Day in June 2019. Until then, we have only the hints that Mr Scott gave in response to an analyst's question about future acquisitions by Wesfarmers:

Well, as you know, we don't give too much away on the specifics, but the general commentary I'd provide, there's an enormous diversity of opportunities that we're looking at. Yes, there is a bit of an orientation to the industrial side across a range of areas. There are some areas that we're also looking at that are adjacencies to our retail businesses. And yes, a real combination of some small, really interesting bolt-on opportunities with a bit of a technology digital exposure towards bigger opportunities, some of which we've had on a watching brief for quite some time.

....

And really what it's about, it's not just about relying on where market prices are, it's also leveraging unique capabilities or relationships or synergies that we have. So something we spend a lot of time thinking about is what is it that is going to make Wesfarmers a successful buyer.

The Diamond Valley Mitre 10 store in Diamond Creek, Victoria is an old-school success that is being managed for the digital retailing age. There are not many entrepreneurs like the store's founder, Norm Hastings any more but the business is being well managed by its current team that includes his children, Paige and Brock Hastings.

This issue features an in-depth profile of the store, and look at how it balances between being a member of a corporate group and maintaining its independence.

Simply click on the following link to download this edition:

As the group head of brand for Methven, Laura Keogh spoke about the importance to her of post-grad education, and her experiences working for a wide range of companies in her native US and Australia. We also caught up with David Banfield, Methven' CEO, who let us in on some of the secrets behind the company's diverse and innovative culture.

With the most recent season of "The Block" not managing to match the ratings for the previous season, the question mark over the "reality" renovation competition series is hovering once again. Is the franchise still really relevant to today's prospective renovators?

We also speak to Houzz country manager for Australia, Tony Been about the site and how it can benefit hardware retailers and suppliers.

Other companies featured in this edition include BGC, Stanley Black & Decker, CSR, SKIL and Portwest Workwear. There are also new product releases from Gerard Lighting, Kelso and Nylex.

The Independent Hardware Group 2018 Awards of Excellence were awarded to two Home Timber and Hardware (HTH) stores recently.

The team at Peterborough Home Hardware in South Australia have taken out a win for the state's best store, two years in a row.

The store were awarded for its cleanliness, outstanding customer service and large stock range. Store owners and managers, Nick and Konny Srour have been serving Peterborough and the surrounding towns of Terowie, Yongala and Orroroo for nearly 14 years. Nick Srour told The Flinders News:

For a regional country town, many people comment about the amount of stock that we have in the shop and ... we have travelled around a fair bit to a lot of country towns and it is hard work stocking a store in a country town but we realised early on that if you don't have the stock people go elsewhere.

Winning the award for the second time helped them realise that what they provide is award worthy. They strive for exceptional customer service and they believe this is what will keep their customers coming from far and wide, time and time again. Nick said:

I came in here when I was a builder many years ago and you used to have to badger the staff to find out when your order was coming in and we didn't want that to happen. We have a process in place and we try to get the products that the customers want as soon as we can.

There is also an added element to the store's customer service and that is their four legged friend Sandy, who wanders the store and greets the customers. Konny said:

Everybody loves Sandy, you can't not love her she is so cute. She came to us when she was five weeks old and everyone loved her. One of our customers brought her into the store and we couldn't resist. From then on, she gets upset if we don't bring her, and the customers are upset if she is not here.

The team want to thank Peterborough and surrounding towns for keeping them in business and supporting them as a local business choice. Both Nick and Konny pride themselves on being described as the "mini Bunnings of the Mid North" and "best store ever".

Dipper's store

In Moree (NSW), Dipper's Home Timber and Hardware won the Northern Region Store of the Year Over 1,000m2 and the Northern Region Garden Centre of the Year. The victory took owner, Rebecca Diprose, by surprise, according to the Moree Champion. She said:

I think these awards are reflective of our great staff and the hard work everyone has put in over the past 12 months. We've embarked on substantial physical changes that customers will notice - visual merchandising that is clean and fresh, de-cluttering so visitors can see through the store, and really efficient labelling - the right product and the right price.

Rebecca's vision for Dipper's is to encourage a retail outlet that "people can take their coffee and go for a wander in a genuine customer friendly shopping environment".

Our interior decorating, shelving, merchandising is all about increasing our store standards, and we believe there's still room for improvement, which we'll be focusing on over the next 12 months.

South Toowoomba

Toowoomba Regional Council officers have approved a proposal to create a nearly 500sqm hardware store tenancy at 19 Pechey Street in South Toowoomba (QLD).

The new development would be built in two stages, with the main store, 15 car parks, loading bar and landscaping down first before a warehouse tenancy and another loading bay were added later. Planning officer Peter Swan said in his report he was satisfied that the code-assessable application had met the planning scheme requirements. He told The Chronicle:

The proposed development generally complies with the assessment benchmarks or it can be conditioned to comply. Where the applicant has not provided sufficient information, conditions have been imposed to ensure compliance.

Those 81 conditions covered landscaping, waste management, fencing, stormwater and visual amenities.

South Toowoomba doesn't currently have a hardware store, with the nearest one being a Mitre 10 in Darling Heights.

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Foundations are taking shape for one of the biggest Bunnings stores in Delacombe (VIC); a seventh store is being built on the Gold Coast (QLD); Bunnings indicates it is continuing its legal fight to build a store in Coolum (QLD); and an appeal has been dropped against a planned Keperra (QLD) housing estate.

Delacombe

A $19 million Bunnings store is set to open in mid-2019 close to the Delacombe Town Centre (DTC) in regional Victoria. Construction works are underway, according to H.Troon developer managing director Steve Troon.

The Courier newspaper reports the site is owned by a group of Ballarat investors. DTC's flagship tenants are Woolworths, Kmart and Showbiz Cinemas.

The area surrounding DTC and Bunnings is expected to house as many as 12,000 residents by 2030.

Robina

Bunnings will open its seventh Gold Coast store in Robina (QLD). The Bunnings Warehouse, to be built next to Robina Town Centre and Robina Home + Life Centre, will be 12,500sqm and include 320 car parking spaces.

It is being built at the corner of Scottsdale Road and Christine Avenue on land owned by the Queensland Investment Corporation, which also owns Robina Town Centre. Robina Town Centre general manager Shaine Beveridge told the Gold Coast Bulletin:

Bunnings is set to complement our popular Home + Life precinct to provide a fully-fledged homemaker, hardware and bulky goods retail offer, alongside the ... retail, lifestyle and entertainment options available at Robina Town Centre.

Bunnings state operations manager Margaret Walford said the company was pleased to be expanding its presence on the Gold Coast. Construction of the Robina outlet began in September 2018.

Coolum

Bunnings has lodged a Supreme Court appeal against a previous court decision not to allow it to build a new store, service station and restaurant in Coolum.

Bunnings' Planning and Environment Court appeal against Sunshine Coast Council's 2016 refusal of the development application had been dismissed. The council received 982 public submissions in the lead-up to its 2016 refusal, of which 980 were opposed. That development application was Bunnings' third unsuccessful attempt to expand into Coolum.

But the Supreme Court appeal has breathed new life into the application as Bunnings' lawyers argue District Court Judge Everson erred in law in dismissing its Planning and Environment Court appeal.

Bunnings' submissions included that Judge Everson had failed to recognise the distinction between Coolum and Coolum Beach when referring to the superseded planning scheme, Maroochy Plan 2000. Its lawyers also submitted the judge had failed to properly interpret the terms "showroom" and "shop".

Bunnings has named respondents in the action including the council, Coolum solicitor Ray Barber, Coolum Mitre 10 owners Brennan and Jeneane Carolan, Coolum Residents Association and Development Watch.

Keperra

Bunnings has dropped its appeal against a large housing estate planned for the Keperra quarry site by Brookfield Residential Properties (BRP). The big box retailer lodged the appeal in December 2017, claiming BRP's 700-home development would cause "unacceptable adverse impacts" from stormwater entering adjoining lots, and the possible impacts from its business on homes in the development.

It also cited conflicts with the rural and extractive industry zones, and said impacts on "local amenity and values" had not been adequately considered and addressed. Bunnings general manager property Andrew Marks told North West News:

Following discussions with the relevant parties, we decided to withdraw our appeal.

Bunnings' Keperra Warehouse, which opened earlier this year, backs onto the BRP site. In addition to the 700 homes, BRP's $313 million plan for the quarry includes a 3000sq m shopping centre on the 48.6ha site.

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Marketing at many home improvement suppliers over the past five or six years has been an area that has taken something of a budget hit. Retailers' demands for lower prices on mid-quality items has driven suppliers to pare down marketing budgets to a slim 2010s version of their more robust 1990s numbers.

These things are somewhat cyclical, of course, but what has made the current down-cycle more pronounced is both the rise of the super-retailers, and the advent of digital as a major marketing channel. The first has seen store brands become often more important than individual product brands (consumers asking "What does store X sell?" rather than "Which stores sell brand Y?").

The second has caused companies to re-examine their marketing spend, as they realise that older forms of marketing (such as print magazines) don't work as well as they once did. However, not all digital is equal, and making the best choice - or combination of choices - is now more complex.

There is a solution to both these problems. That solution comes down to one thing: people. While it is tempting to see marketing as being driven largely by numbers, the reality is that the numbers are there to measure the creative impact of the individuals who implement marketing. Good marketers are now essential.

Laura Keogh, group head of brand at New Zealand plumbing supplies manufacturer Methven, is one of those good marketers. With post graduate business degrees in both marketing and information systems management, and a wide range of experience in different industries, Laura exemplifies many of the qualities needed today in a modern multimedia marketer.

Laura was kind enough to engage with HNN to tell us the story of her career trajectory, and how she became part of Methven's senior management team. It is a story of persistence, hard work and an ability to turn her academic experience into a very real, lively contribution to the businesses she has worked in. And, of course, true to form, she also provides us with some good insights into Methven's product lines, especially when it comes to its well-regarded showerheads - including their new VJet(TM) technology.

Marketing evolved into a personal career goal after finishing my undergraduate college education and leading the customer service activities for CellularOne in the late-1990s.

You see, my undergraduate Bachelor of Arts degree, was in History/Political Science, as I once aspired to be a lawyer. However, with more law students than lawyers at graduation time, I decided to put that dream on ice and enter a business sector where there were more opportunities to kick off my career.

My first job was with CellularOne (formally Vanguard Cellular) where I started as a customer service agent and moved up the ranks to manager in six years. During that time, I was constantly involved (and sometimes frustrated) with the marketing team. The more I interacted with them, discussing promotions and phone campaigns, the more I wanted to be in marketing. So, I attended night school at the University of North Carolina to complete the curriculum required to apply to Katz Business School at the University of Pittsburgh - known for strategic marketing and IT.

In graduate school, I decided to complete both the MBA and MS because the world of marketing was about to make a momentous shift towards digital. My MBA was focused on marketing/strategic planning and the MS on information systems management - where website building was a big part of that curriculum. Because I did not want to defer my earnings for very long, I finished both degrees in the same time as one - with distinguishing high marks. This required taking seven courses at once! I had to juggle a large work load through the identification of project synergies. I chose projects that could cross the material of many subjects, giving me and my study team a well-rounded (and efficient) result.

I am very proud of that time. I proved to myself that I could do anything that I set my mind to and developed a real affinity for working in high productive teams.

My experience leading up to the completion of my MBA/MS helped develop me into a marketer - I developed collaborative teamwork skills, a penchant for quality customer experience and the desire to create. I am glad I made that decision to pursue marketing. It was the right move for me and 15+ years on - I still love it. Marketing provides a well-rounded set of skills: strategic planning, collaboration, presentation, negotiation, brand communication, financial analysis and, of course, creative. It is a career that really reaps the rewards of personal satisfaction through accomplishment.

Post graduate school, I focused my career on various aspects in marketing, strategic planning, new product development, research and brand communication. I leveraged my MS education (in information sciences) to jump-start my hiring potential and later collaborate and push agencies to their online potential.

Working at an American airline, straight out from graduate school, did pose some challenges. When I would tell people that I work for an airline, nine times out of ten they would assume as a flight attendant. Funny, it was never as a pilot!

My first role was in an all-male Planning Department. As an analytical planner, I performed analyses to identify the high traffic domestic routes, recommend upgrade or downgrade plane sizes and assist in the negotiated entrance into new markets. I think the guys thought it was amusing how hard I worked and tried to fit into this male dominated role. It took a while to win them over, but my perseverance did pay off. They were very critical of my work, but over time I noticed that sometimes my ideas became their own - which confirmed my ability and increased my courage.

They challenged me in many ways. One event in particular springs to mind. For some reason, none of my colleagues were available to attend a scheduled meeting in the Upper Penninsula, Michigan. Although it felt a little like I was a last resort and was finally removed from the game bench, it did not faze me. I accepted the challenge!

I had two weeks to prepare. The Upper Peninsula is world-renowned for golf and the invitation said to "bring your clubs". So I bought golf clubs and quickly learned some basic golf skills. I used to go to the driving range with my Dad (in primary school) and was a decent field hockey player - so why couldn't I pick up some of the basics? I knew the golf course was the best place to interact with men and build affinity.

No time for lessons though, I needed to be "game on" with my upcoming meeting with the Upper Peninsula Airport Commission - a group of men - to discuss putting in 69 seater jets into the Upper Peninsula. We discussed this opportunity over a round of golf at one of those beautiful resorts on the water. All I remember is cringing as I struck the ball from the ladies' tees, replacing countless divots and missing putts throughout all 18 holes. However, in the end, our conversation yielded what we both intended. It was not an easy feat! Glad they "gave a girl" a go!

After a tough 18 months in Planning, I moved into the NPD/Research (new product development) side of airline marketing. That role was a lot of fun. We tracked our sales and NPS (net promoter score) performance versus the competition, initiated development of a CRM (customer relationship marketing) system, tested our new products (seats, menus, wine), new branding, and brand communications with our domestic and international customers. That was the role that really jump-started my classical marketing experience.

That is a great question. I have worked within many different industries in the USA and Australia over that course of time: mobile communications, airlines, FMCG, manchester bedding and now plumbing. In each company, the structure was different based on the number of hierarchy levels and size.

I'd say that in general, there are lots of women in marketing roles - which makes sense as so many companies are targeting the purchase decision maker (typically female 25-55 years of age), but you rarely see women in the marketing 'C suite'. I hope that picture changes in the future. I think we can all benefit from more women in these top positions.

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Diamond Valley Mitre 10 began in 1979 as a store name "Timber King". It was little more than a tin shed in a leased paddock outside the town of Diamond Creek, about 25km north of Melbourne. Flash forward 39, almost 40 years later, and the business Norm Hastings started in a tin shed while living in a small caravan has moved closer to the centre of Diamond Creek, and now occupies a block that is 1.4ha., with a main store of 2000sqm and an extension of 1380sqm of floor space, plus an additional 1300sqm under cover in the outside yard. The renamed Diamond Valley Mitre 10 (DVM10) also has a turnover of well over $20 million a year.

Though none of those numbers completely tell the story. The real value of the company is in its human capital, which extends through its 85 total employees (many of whom are, of course part-time). It's a crew that includes Norm's children, as well as an outstanding team of veteran retail staff, many of whom have been with the store for over 15 and even 20 years.

It's the kind of human capital that is valuable to everyone involved: the store management, because it gives the business excellent capabilities in the field, the staff itself as it means experienced, high performance people get to work with colleagues of equal standing, and can learn from experienced people at first hand - and, of course, it really benefits the customers, who get such great service many of them may not even realise just how lucky they are.

Progress

Obviously, all that didn't "just happen". The progress from the tin shed to the 2000sqm, high ceiling, high-finish store required lots of effort and even more risk-taking.

The development of the first store, the tin shed, started only a year after it first opened. As Norm tells it:

The tin shed that we had, we decided to put some hardware into that. We put some hardware into the shop but we ran out of space. So we were going to rebuild a double storey building onto the front of the tin shed, and we made that the hardware store. And we joined Mitre 10 at the same time.

The next really major change took place in 2007, when Timber King moved from its original location to the new store in the centre of Diamond Creek, and changed its name to Diamond Valley Mitre 10 (DVM10). Timber King had bought up a local company, Valley Outdoor Supply, and the new enterprise was partly a result of merging those two businesses.

That wasn't the only change. Timber King's long-time manager of hardware operations, Frank Benton, also bought a part of the business, becoming a partner. As operations manager, Paige Hastings explains:

Frank is the one who developed the whole retail side of things in terms of the hardware store. Before that, it was mainly timber, and Frank gave some pizzazz to it and developed that side (DIY and retail) of things.

Frank is a merchandiser. That's what he's done throughout his career. He's built that from scratch. He used to work for McEwans. He brought that to the store and he took my brother and various other people under his wing, and he's been very stringent in terms of the merchandising. Now he's starting to bring some of that theory out into the trade area, and it does help. It's your silent salesperson. It really attracts people to the area.

Frank's influence is really felt everywhere throughout the store. When you point out some very good feature of how products are presented and sold, the floor staff will just about always say something like "Yeah, that was Frank's idea".

Even with a great team, the store expansion, move and name change carried a high degree of risk. But it started to pay off almost instantly. The new store fully opened to the public on a Saturday, and by the end of Sunday demand had been so high that the store completely ran out of paint.

What makes this a really notable achievement is that at the time, in Mitre 10's pre-Metcash days, the buying group had opened a large number of "Mega" stores, almost all of which had started to fail by 2008. Sources have told HNN this was in large part due to difficulties in keeping them stocked - they had the stores, but they didn't have the supplychain. The one exception was an independently owned Mega store in Packenham, which, some of the floor sales staff told HNN, had been a source of inspiration for the original merchandising at DVM10's second location.

Sapphire

Ten years after the move to the new premises, in 2017, the DVM10 team decided it would be a good idea to make moves to keep the store fresh and at the forefront of good design and presentation. So the management decided to sign up for IHG's Sapphire store program.

As Paige describes the decision:

So we were 10 years old. Sales are still kicking along and about where we wanted them to be. However, we wanted to keep up with the industry. We knew that Bunnings were building new stores out in the northern suburbs. And we just wanted to stay fresh. We wanted to keep up with the market and to evolve with the community. So we needed to give them a reason to shop here instead of anywhere else, to keep shopping local and keep supporting the local community.

That's the main reason why we did it. Through the merchandising and the way that the store looks, people can actually see that you are investing in what you've got.

DVM10 store management is very pleased with the result of the Sapphire transformation. Talking to the people on the floor who manage departments, it's also evident that there was a great deal of give-and-take when it came to implementing "standard" Sapphire design policies. When HNN asked Paige about this, she explained:

We had to [make changes to Sapphire] because one of our biggest growth areas is garden and outdoor - which is quite unique for a Mitre 10 store. And the profits are quite healthy in that area as well.

We wanted to invest money in that department, and we changed some of the elements that Sapphire had. For example, they wanted us to have the paint counter right at the front. But we saw the need to push for placing faster-moving kinds of items up front for impulse buys. That is mainly because our store is so narrow and slim. It's not really wide like a lot of Mitre 10 stores are, so we pushed to have paint remain at the back, which is where it was before.

You can still see the paint desk from the front, and that was our compromise with them. However, we weren't missing impulse sales. Paint is ... you're only going to buy it if you really need it. It's not like you're going to just walk past one day say, "Oh, I really want that".

So we were very strict on the fact that we wanted to still have the "prettiness" at the front. A lot of our customers are female, so that's also very different to many other Mitre 10s. In fact, in the retail area, 80% of our clientele is female, and that's what we needed to keep pushing.

Part of the compromise on the paint desk was that, while the Sapphire team wanted the paint card display shelves at right angles to the desk (which is parallel to the front entrance wall), DVM10 pointed out it would be better if they were angled so that they, too, were visible from the front. The end effect is a "V" of display cards in back of the paint desk, all presenting to the entrance of the store. It's highly effective.

There was a similar development of the above-shelf signage. While this was originally a two-dimensional, flat display, DVM10 pointed out that it could be used instead to front additional shelving, making a handy storage place for additional stock. (That's important to DVM10 as they operate with minimal warehouse storage for stock.) The result works so well, that it's likely you will see a similar system appearing in more recent Sapphire conversions.

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Three colour temperatures in one luminaire from Gerard Lighting; Kelso small or medium folding trolleys; and the Nylex Sprayer Twin Pack for a simpler gardening experience.

Flexible lighting options

Gerard Lighting's Pierlite Colour Select range offers installers the ability to customise lighting to suit certain environments while carrying less stock, saving valuable space. Each luminaire in this range is designed with three popular temperatures.

The application of the luminaire determines the colour temperatures choice. For residential areas, colour temperature of 3000K and 4000K are the most common, while in commercial applications 4000K, 5000K and 6500K help to replicate natural light and promote work efficiency.

The Pierlite Colour Select range includes:

Equipment for moving day

Trolleys are a useful in a DIY move because they enable users to easily move heavy loads safely. The Kelso small or medium folding trolleys have 125kg and 150kg load capacities respectively, and can be folded and stored in small storage spaces in the car or home.

They feature a lightweight, durable steel frame and flat-free poly-rim wheels.

The Kelso large folding hand truck is specifically built for moving large furniture and white goods over staircases in a safe and reliable manner. It has a 250kg load capacity, 8-inch flat-free wheels, folding ergonomic handles and a lightweight aluminium frame for extra strength - and can still be folded for easy storage.

Kill pests with twin pack

Nylex has launched a 1.5L Heavy Duty Sprayer Twin Pack, giving professionals and garden enthusiasts a convenient solution to maintaining their gardens. "The Nylex Sprayer Twin Pack offers two separate bottles, one for herbicides and one for pesticides, minimising cross-contamination whilst still being compact enough for an effortless gardening experience," explains product manager Alyce Rigby.

It is the first time the brand has released a dual pack. "To mitigate any confusion for consumers who work with gardening chemicals, the bottles and nozzles are also colour coded and clearly labelled," adds Ms Rigby.

They have also been fitted with Viton Seals for enhanced durability. "They have a high chemical resistance making them tough and durable, so they can handle a wider variety of chemicals than standard garden sprayers which are fitted with normal seals that can degrade when used with harsh chemicals," she said.

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European-based home improvement group, Kingfisher said it will be exiting some of its international business to better focus on its core UK, France, Poland and Romania markets.

Kingfisher's plan to pull out of its mostly loss-making operations in Russia, Spain and Portugal means stores will continue to trade while it seeks buyers. The process is expected to extend into 2019. Chief executive, Ve´ronique Laury, said:

We are operating in a difficult retail environment. We face challenges and we are addressing them.

Moving out of these markets would allow Kingfisher "to apply its strategy with more focus and efficiency in our main markets where we have, or can reach, a market leading position ... by making home improvement accessible for everyone," Ms Laury said.

The withdrawal from Russia has been interpreted as an admission of defeat for Kingfisher, which has ploughed millions of pounds into opening 20 Castorama stores in the country since 2006. The division made an GBP8 million loss last year despite increasing sales.

The group has 28 Brico Depoot branches in Spain, where it has traded since 2003, and three in Portugal, where it made about a GBP2 million loss, offsetting a GBP2 million profit in Spain.

Third quarter

Pressure is growing on Ms Laury after a disappointing third-quarter performance cast fresh doubt on her ambitious strategy to transform the home improvement group.

The group reported a lacklustre 1.3% fall in group like-for-like sales in the three months to the end of October, impacted mostly by a poor performance from its Castorama DIY chain in France.

The company said Castorama had been affected by IT disruption, product and pricing changes introduced as part of the turnaround as well as a weak market. It admitted that Castorama was the "problem child" of the business but said that it had an action plan that focuses on the perception that it was more expensive than rivals among French consumers.

But difficult trading and national demonstrations over a fuel tax in France that led to blocked roads have taken their toll on the business, and Kingfisher expects this to continue into the next year.

In the UK, B&Q's comparable sales were down 2.9%, but about 1.5 percentage points of this related to the ending of its loss-making kitchen and bathroom installation services. Screwfix, the builders merchant with a very strong e-commerce model, reported a 4.1% rise in like-for-like sales.

B&Q store divestment

In addition to exiting some of its international markets, Kingfisher is seeking to sell six B&Q stores. This is seen as an effort to raise cash to fund Ms Laury's turnaround plan, according to a report in The Times.

Kingfisher is understood to be attempting to raise GBP125 million by selling and leasing back B&Q stores in Birmingham, Croydon, Southampton and Cardiff, plus two in the northeast of England.

It will sell the B&Q stores in a subdued market. The shift of retail sales to the internet and persistent uncertainty over Brexit have dampened investor demand for physical retail assets. The company values its property portfolio at GBP3.5 billion.

Ongoing transformation

The group is halfway through Ms Laury's One Kingfisher five-year transformation program, which includes simplifying and unifying its ranges across brands, seeking savings and aims to deliver an additional GBP500 million of profit a year by 2021. It also involves boosting e-commerce, lowering prices and launching a new marketing campaign. Ms Laury said:

We have accelerated our move to an everyday low price strategy and have launched a new marketing campaign to make it visible to our customers, however there is no quick fix.

Kingfisher's plan for the group is costing GBP800 million over the five years.

While Ms Laury and Kingfisher insist the plan is on track, in September the group reported a 30.1% drop in pre-tax profit to GBP281 million for the six months to the end of July. It also announced then that Arja Taaveniku, the chief offer and supply chain officer, who was appointed three years ago to operate at the heart of the group's restructuring, was being replaced. Karen Witts, its highly regarded chief financial officer, will also be leaving next year to join Compass, the catering company.

However Kingfisher pointed out that it had hit all the milestones planned for the third year of the program. It also increased its gross margin in the third quarter, reversing a fall in the first half. The group has also met its aim to return GBP600 million to shareholders through buybacks in the first three years of the plan. Ms Laury said:

Transformation on this scale is tough, and we are operating in a difficult retail environment. We face challenges and we are addressing them.

"We have set out a plan that we always said would be back-end loaded," she added, who argued that the revamp is taking time because it goes much deeper than other business transformation programmes.

Many others are just scratching the surface, adding more cost on top of their existing costs.

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US home improvement chain, Lowe's announced that it is closing 20 of its most underperforming stores around the United States and an additional 31 stores in Canada.

The stores set to close may have been hurt by their proximity to Home Depot stores and other Lowe's stores, according to Credit Suisse analyst Seth Sigman. He noted that of the US stores being closed, 75% have another Lowe's within 10 miles, and 90% have a Home Depot store within 10 miles.

The majority of the Canadian stores that are being shut down are under the Rona banner, a chain that Lowe's bought in 2016 for USD2.3 billion.

Lowe's currently operates 2,390 home improvement and hardware stores, including 1,740 in the US. The shuttering of the stores is expected to take place by February, the end of its 2018 fiscal year.

Mexico, "non-core" exits

Lowe's said it is exiting its retail business in Mexico, where it operates 13 stores, and exploring alternatives for the business, including a sale.

The company also said it has identified "certain non-core activities" to exit including its contracting service, Alacrity Renovation Services and Iris Smart Home businesses.

Lowe's CEO Marvin Ellison, in pursuing a buyer for the Iris home automation business, said the company will no longer pursue ventures that dilute its return on capital.

Lowe's decision to sell its smart home Iris platform is a major shift for the company. It was the first major home improvement retailer to target the mass consumer market with a broad home automation solution using the open platform by Iris for devices from different brands to connect with each other. Back in 2015, Lowe's Innovation Lab launched leading edge technology including robots at CES (Consumer Electronics Show).

While Lowe's plans to sell its Iris business, it will continue to sell smart home products. A Lowe's spokesperson said:

We will continue to carry Iris and other smart products on our shelves. However, we will focus on the retail side of the Iris business, not on supporting our own smart home platform. The smart home category continues to be an important part of our customers' home improvement journey, and Lowe's remains committed to carrying the breadth and depth of smart home products and brands to meet our consumers' needs now and in the future.

The moves to exit Mexico and divest its contracting and smart home businesses came as it reported a sluggish third quarter. Same-store sales rose 1.5%, trailing analysts' estimates of 2.9%.

However the home improvement retailer posted revenue of USD17.42 billion in the period, up 3.8% from the same period year ago, and beat analysts' forecasts who expected USD17.33 billion.

Lowe's said earnings for the quarter were USD629 million, down from USD872 million during the same quarter of 2017, mostly because of costs related to store closures recently announced.

CEO priorities

This was the first full quarter under Mr Ellison since becoming CEO in July. He has told investors that he needs time to focus the company on improving core operations, and he's removing distractions and underperforming assets to do that. The review of the business has been "substantially" completed, Lowe's said.

In an interview with the Charlotte Business Journal, Mr Ellison said making changes quickly was part of the plan.

It's best to do a detailed assessment of the business as quick as you can to limit the disruption over the long-time horizon.

After thinning executive positions at the company, Mr Ellison began paring away what he sees as non-essential in the aisles of Lowe's. That means rethinking some of the goods it sells, getting rid of lower-selling items, and focusing on the top 2,000 products it carries. Lowe's also wants to bolster its business with professionals, something that has been Home Depot's forte. He said:

The pro customers are looking for a great price, service that saves them time and brands they want.

Lowe's is working to regain those customers by expanding its offering of brand-named tools and through other methods.

In another interview with The Observer, Mr Ellison said he considers Lowe's a "transformation" and not a "turnaround" like J.C. Penney, where he spent the last three years as CEO. The priority for Lowe's right now, he said, is improving basic "retail fundamentals".

Retooling inventory is one of the "retail fundamentals" Mr Ellison said has to be addressed first. Another "fundamental" to be addressed is a need for basic engineering standards for unloading large trucks so as to make the best use of workers' time.

Home Depot, where Mr Ellison spent 12 years, including six as executive vice president of stores, has launched same-day and next-day delivery in a handful of markets. He said Lowe's is testing that service in select places, but that the company's supply chain isn't "mature enough" to roll it out chain-wide. He said:

I call it 'second mover advantage'. Sometimes it's not terrible that you're behind if you have the capital to catch up quickly. So we're going to learn a lot from our competition. And we'll be right there with them, if not right in front of them, in a few years.

However Mr Ellison believes that when its recently opened USD150 million direct fulfillment centre in Tennessee is in full operation, two-day deliveries will be possible to 75% of the continental US.

Down the line, Lowe's also will be looking at how to better position itself with social media, Ellison says, especially to appeal to young customers and first-time homeowners undertaking do-it-yourself projects. YouTube, for instance, is a huge opportunity for Lowe's to grow in, Mr Ellison said, as it helps to de-mystify DIY projects.

We're going to do a much better job of leveraging social media ... so that we can be more active and make sure customers know that we are relevant and we want to help them to make choices.

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BGC Group's rumoured sale is expected to be pitched towards Australian and offshore building and construction companies and private equity groups; power tool maker Stanley Black & Decker forecasts headwinds from cost inflation and tariffs; Irish-owned workwear firm opens Melbourne warehouse.

BGC Group potential sale

The Street Talk column in the Financial Review reports that building materials supplier BGC Group has hired Macquarie Group's investment banking team to run the company's mooted sale.

Sources told the newspaper that investment bank Macquarie Capital was chosen following a pitching process run by BGC Group's board. Macquarie's bankers are expected to start working with the company with a view to having a formal sale process up and running in 2019.

BGC Group generated $2.7 billion in revenue last year and is likely to be worth more than $2 billion. It has been controlled by late founder Len Buckeridge's sons, Sam and Andrew, since 2014.

The board - working on behalf of the company's family shareholders - is understood to be keen to sell the business in one piece, if possible. It believes there are material synergies between the industrial businesses. For example, raw materials for its building materials can be sourced cheaply from the company's network of quarries and the like, and flow into the residential construction arm, which is the country's biggest home builder.

The sale is also expected to include BGC's civil and mining contracting business, which has about $1 billion in annual revenue and services clients across the retail, energy and infrastructure sectors.

However BGC Group's real estate portfolio, which owns office buildings and other commercial property, is expected to be sold separately.

Stanley cuts costs, gains exclusivity deal

Stanley Black & Decker (SBD) announced a USD250 million cost reduction program during its third quarter earnings announcement in late October. The company cited "external headwinds" that included new tariffs, commodity inflation and foreign exchange.

As a result, the company will increase prices for many its tools to mitigate the impact of tariffs the Trump administration placed on Chinese imports. Donald Allan Jr., SBD's executive vice president and chief financial officer, said in a statement:

As we shift to 2019, we are now preparing for the carryover effect of the 2018 headwinds...We will continue to pass on these input cost increases to our customers as price increases. Additionally, we are taking actions to adjust our supply chain and cost structure.

President Donald Trump announced tariffs on billions of dollars of goods earlier this year as a way to try and force China to change trade practices he believes are hurting US manufacturers. Tariffs on certain goods will rise from 10% to 25% at the start of 2019. While the tariffs help US producers competing against overseas companies, they also hurt global companies that purchase raw materials from China as part of their supply chain.

Company executives said during an earnings call that they have been preparing their plan for dealing with tariffs since the trade war began earlier this year. Mr Allan said the products affected will include mechanics tools, power tool accessories vacuums and some hand tools.

CEO James E. Loree said he is not worried about losing demand as a result of price increases because the US economy remains strong.

SBD has favourable positions against its competitors because 50% of the company's North American sales are supported by tools production from North American facilities, Mr Allan said. The company has projected a USD35 million tariff impact in 2018.

The cost-cutting measures would be completed by year-end and the majority of the pricing actions will be implemented in early first quarter 2019, according to Mr Loree.

Q3 and The Home Depot

SBD reported third quarter net sales of USD3.5 billion, a 4% increase from third quarter 2017 net sales of USD3.4 billion. Net earnings declined 9.5% to USD248.3 million from net earnings of USD274.5 million in the same period last year.

Tools and storage net sales increased 3% during the quarter due to a volume increase of more than 5% and a price increase of more than 1%. Industrial net sales increased 10%, partially due to acquisitions while security net sales increased 1%.

Its Stanley Tools subsidiary also announced that it has signed an exclusive agreement with The Home Depot for hand tools and storage products, starting in 2019. The deal includes in-store and online sales, along with the retailer becoming the exclusive retailer of Stanley's Fatmax tape measure brand.

Workwear brand expands in Australia

Irish safety clothing and workwear manufacturer Portwest is investing AUD10 million in its Australian operations.

Portwest said its latest investment will allow the company to continue its global expansion and increase its Australian workforce over the next four years. The announcement was made at the official launch of Portwest's new state-of-the-art warehousing facility in Melbourne. Harry Hughes, CEO of Portwest, told the Irish Independent:

Our vision for the company is clear, by selling more products, in more countries, through more sales people selling to more customers, Portwest will continue its strong growth. Our sights are firmly fixed on our new markets of Australia and the USA where further investments in warehousing, staff and an outstanding pipeline of new designs and innovations will drive this growth.

The company paid AUD10 million for Huski, an Australian workwear brand earlier this year, and AUD7.5 million for Melbourne-based Prime Mover Workwear in 2017.

Portwest's brand is sold in over 130 countries. The family-run business has been based in Mayo, Ireland for over a century where the now global company is run by brothers, Cathal, Harry and Owen Hughes.

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Hardware News Network (HNN) has launched a podcast! It will complement each edition of its digital magazine, HI News.

In the first episode of HNN's podcast - we are calling it the HNN-cast - your hosts Betty Tanddo and Scott Lewis discuss Bunnings' latest builds and what they mean for independent hardware retailers.

They also talk about the 2018 Metcash Annual Report. It is the owner of Australia's Independent Hardware Group, which primarily includes Mitre 10 and Home Timber and Hardware. The group reveals more about its future plans in the hardware retail industry.

To listen to the podcast, simply go to any of the following options:

YouTube:

Apple's iTunes store:

SoundCloud:

There is an interview with Jason Ellis, national marketing manager for OPE company EGO. Jason offers some insights on how consumers can be converted to cordless outdoor tools. He also tells the HNN-cast hosts about the company's move into the trade and commercial sectors.

In this podcast, Betty and Scott take another look at the major features in the most recent issue of HI News, including the disruptive strategies of major global retailers The Home Depot, Kingfisher and Bunnings.

They take a deep dive into the results announced by Bunnings for its 2017/2018 financial year.

And, finally, they discuss the half-year report presented by Techtronic Industries - maker of Milwaukee and Ryobi cordless tools.

All that, and more, on episode one of the HNN-cast.

The strategies and actions of big box hardware and home improvement retailers have an impact on independent store owners. This is a fact not always embraced by in the industry, at large.

In this edition, we take a deep dive into how the biggest home improvement big box on a global scale are disrupting themselves in order to continue to grow and develop. We illustrate the strategies from The Home Depot, Kingfisher, Bunnings and Lowe's Companies.

Simply click on the following link to download this edition:

Non-corporate independent group, Hardware & Building Traders (HBT) held its Business Workshop event in a new format. The group's CEO, Greg Benstead, discussed some of its developing strategy, and later saw members break up into smaller interest groups to discuss ongoing developments that were relevant to them.

Hong Kong-based Techtronic Industries continues to develop innovative technology and produce global sales growth. HNN presents its results for its power tool products. As part of this feature, there is a transcript of the transcription by the always interesting TTI CEO, Joe Galli.

Other stories in this edition include updates on corporate-owned independent, Mitre 10, Australian-based online homewares retailer Temple & Webster and Beacon Lighting.

There are also updates on suppliers such as Stanley Black & Decker, Boral Timber, James Hardie and Dulux. New product releases from Imex Lasers, Fiskars and Mr Fothergill's are featured in this issue.

Crafting an ideal work boot; garden tool set for the sharpest cuts; setting standards for accurate measuring; and creating a pollinator friendly garden.

Reinventing the work boot

Boasting an oil and slip-resistant non-marking rubber outsole, the Detroit Boot by Keen Footwear is geared to ensure safety on site in the event of spillage or when faced with wet working conditions.

For further resistance against the elements, the boots feature a waterproof Nubuck leather upper for comfort and dryness. Coupled with Keen's waterproof breathable membrane, this boot ensures a dry foot and prevents undue sweating.

The Detroit Boot's durable contoured heel lock will also support and protect. The asymmetrical steel toes minimise the harm done by falling objects or sudden compression.

There is a dual density compression moulded EVA midsole for better support of the arch, and torsional stability ESS shank for reduced fatigue in a user's calf and foot.

Digital level technology

Imex has released the new improved 2018 model of Storm professional digital spirit levels. These highly accurate units in 600 and 1200mm include a 9-measurement recall, shockproof ends, magnetic bases and a 30-year vial guarantee.

These levels have been built with advanced electronics for precise measuring and are combined with a robust aluminium section. Specific features include:

Pruning pack stays sharp

Fiskars' PowerGear2 UltraBlade Ultimate Pruning Pack is a four-piece set that includes a pruner, lopper, hedge shear and saw. The PowerGear technology makes yard and gardening easier with an assisted gearing system, designed to greatly reduce tension on a gardener's muscles.

Providing up to three times more power on each cut, the pruner, lopper or hedge shear will help slice through branches effortlessly and efficiently, even during heavy use.

The pruner, lopper and hedge shear feature an UltraBlade coating which gives an edge that stays sharp five times longer than non-treated blades. This eliminates friction for a smoother cutting motion and excellent rust resistance for lasting value.

Shake and rake seeds

Mr Fothergill's Bee and Butterfly Seed Shaker Boxes contains100g of Shake & Rake mix - enough to cover 20sqm. The seed mixes are specifically selected varieties of flowers combined with vermiculite to aid germination.

The varieties in both mixes have been selected to attract bees and butterflies to gardens, and provide them with the nectar they need to thrive.

The bee friendly flower mix contains Calendula, Cornflower, Californian Poppy, Fineflower, Toadflax, Alyssum, Wallflower, Nemophila, Poppy, Marigold African, Chinese Forget-Me-Not, Borage, Evening Primrose, Lavender, Native Violet, Swan River Daisy and Sage.

Beacon Lighting believes consumer demand for "smart" lighting can lift sales; and Temple & Webster looks to capture a greater portion of the dollars that consumers spend on their homes.

Meeting the demand for smart products

Wi-fi has been deployed across all of Beacon Lighting's 109 stores, which the retailer will use to set up smart home demonstration zones in each location. Chief information officer Mick Tan told IoT Hub the wi-fi network would be used to help the retailer educate consumers on the benefits and requirements of smart home automation setups. He said:

What we're doing at Beacon is creating an area where we put smart lights by Phillips and LIFX in two different areas [of each store]. We attach them to a Google Home and Amazon Echo and we talk to them. We're actually demonstrating to customers how it works and what you need device-wise to have it in your house.

Mr Tan said that Beacon Lighting will also be launching its own brand of lights that would be more cost effective than the big brand systems already in the market. He said that he has been testing Beacon's own smart lighting technology in his own home. He said:

I'm experimenting with the products from our manufacturer and have become the test case for them. I like that when I'm watching TV I can lower the lights, or that if I'm not home in winter by 6pm the light is on [automatically] so my dogs are happy [and] can see where they're going.

Mr Tan revealed that Beacon Lighting may also use the wi-fi network to trial some beacon technology in stores for location-based marketing and footfall traffic measurement purposes. The retailer may be looking at smart price tags on products on the showroom floor.

Sales expectations

In a trading update at its annual meeting recently, Beacon said same-store sales were flat in the September quarter after growing 1.6% in 2018.

However, chief executive Glen Robinson expects consumer demand for "smart" or internet-connected lighting and strong growth in Beacon's international, street lighting, solar and architectural lighting businesses - to lift top-line sales. He told Fairfax Media:

There's been a lot of coverage of [smart lighting] on home renovation shows like The Block and [replacing standard lighting with internet-connected lighting] potentially has just as much upside as the LED transition has had.

That's been a real benefit to Beacon in the last decade and I see smart lighting in a similar transition.

Beacon also expects an uptick in renovation activity to counter the impact of weaker house prices, housing starts and churn. Mr Robinson said:

People aren't selling houses as much as they were, and that's had a bit of an impact on sales. However, we expect renovation activity will start to pick up and that should be positive ... at the moment we're in a lull between those two points.

New stores are also cannibalising sales at existing stores, but Mr Robinson said about 20 stores opened in the past two-and-a-half years were starting to mature and earn their keep.

Beacon Lighting's gross margins rose 230 points to a record 65.7% in 2018, helping to deliver a record net profit of $19.6 million. Mr Robinson said further gross margin growth was unlikely this year because of the weaker Australian dollar, which will push up the price of lights imported from Asia in US dollars.

Temple & Webster moves into home improvement

Online homewares and furniture retailer, Temple & Webster is targeting the home improvement market to expand its business.

The web-based retailer plans to add products such as flooring, window coverings, sinks, taps and baths to its existing range. Chief executive Mark Coulter told Fairfax Media:

Home improvement is a big category - a bigger category than furniture and homewares.

We won't go into selling timber and building materials - that's not our game - but what we will be looking at is categories that make sense and are a natural extension to our range...[For example, curtains and potentially larger appliances]

You may go to Bunnings for your building materials, but if you're looking for inspiration you come to us - we think there is an opportunity there.

The retailer has taken initial steps towards offering more home improvement and DIY products when it introduced a paint range in May 2017, but Mr Coulter said the company will begin going after the market more aggressively this year.

The home improvement category has even lower online penetration in Australia than furniture, with Bunnings only recently launching a limited e-commerce site and Mitre 10 offering buy online, pick-up in-store. Mr Coulter told Inside Retail:

I think Bunnings not being online is an opportunity for us, but I think we'll play in a different space. Like Amazon, Bunnings is definitely about convenience and price, whereas we're about inspiration and making a home beautiful.

Progress

The company sees the next phase of its journey as one all about growth. With only 4% of furniture and homewares being currently purchased online, it believes it is well placed for strong growth for years to come.

It predicts sales will shift online at a faster rate as Millennials aged 22 to 35 start spending money in the homewares and furniture category.

The web-based retailer recently reported a solid first quarter in what it expects to be its first profitable year of trading since launching in 2011. Gross revenue was up a record 39% year-on-year in the first quarter of FY19 and earnings before interest, tax, depreciation and amortisation (EBITDA) were in excess of $200,000.

The group finished the quarter ended September 30, 2018, with a cash balance of $10.5 million and net cash flows of $600,000.

The number of active customers grew by 30% year-on-year, reaching 214,000, and a record number of first-time customers were added during the quarter at a cost of $55 per customer. Forty-five per cent of orders were made by repeat customers.

First-time customers are profitable during their first year with the group, said Mr Coulter. He added:

This means that we can now begin to accelerate marketing spend beyond digital channels to ensure more of Australia is aware of Temple & Webster.

Expansion

The online retailer is planning for an app due to launch before Christmas. Mr Coulter explains:

Interestingly, we are thinking about it slightly differently. We want to make sure our mobile site is a fast, transactional site, and our mobile app is the place where you go to experience the world of Temple & Webster.

It also plans to open a small-format design store to provide in-person styling services and advice to customers out of its head office in St Peters, Sydney. Mr Coulter said:

It's a place to come and experience Temple & Webster in the real world, see samples of products, meet a consultant and have a more human experience. The whole point is to make [the customer's] shopping journey easier.

At the same time, it is an opportunity for the retailer to test a new bricks-and-mortar format, having already trialled a clearance outlet and a showroom in its Richmond (NSW) store. Mr Coulter said the company will continue to experiment with different physical formats, though its "main game" is online retail.

The company is also testing the market in New Zealand, setting up shop on TradeMe before possibly establishing a dedicated website and app. If the expansion is successful, Mr Coulter said the team will look to launch in other markets, with South East Asia a probable area of focus.

Plans are underway at B&Q to no longer have overnight stock taking roles leading to the loss of 200 supervisory roles; parent company Kingfisher replaces the head of its struggling French division; and artificial Intelligence (AI) will unify Toolstation's online and offline customer databases onto one platform.

B&Q cuts store roles, leadership changes

Home and DIY retailer B&Q announced it will move an additional 1750 staff to "customer-facing colleagues on shop floors", a move which will mean overnight operations will be scrapped.

Stock replenishment will now be carried out during the day by the extra staff on the shop floor, so that overnight shift management and supervisor roles will be cut, along with the higher hourly rate.

The retailer stated that it would offer "colleagues in overnight replenishment roles the opportunity to take a new daytime replenishment role instead, though we recognise that not all of them may want to take up these new positions". B&Q retail and property director Paul Crisp added:

The overall impact of the proposals will be to improve our customers' shopping experience in our stores...The changes in replenishment would mean...improving stock availability and customer service throughout the day.

In addition, we are creating greater consistency in the way we operate our stores, removing duplication of tasks and improving efficiency...

Senior management reshuffle

Parent company, Kingfisher also made a number of senior appointments across the business, with former Screwfix CEO, Graham Bell taking up the helm of B&Q UK & Ireland.

The home improvement group also revealed that current B&Q boss Christian Mazauric has been appointed CEO of Kingfisher in France to replace Marc Tenart who has decided to step down from his role.

The move, which became effective on October 1, has set in motion a number of other changes across senior management.

Mr Mazauric has worked at Kingfisher for 17 years, holding a number of positions across Castorama France, including operational roles and then four years as finance director. Other roles have included finance director of B&Q UK & Ireland and CEO of Brico Depot Romania. He took over the CEO role at B&Q UK & Ireland in 2017 and, since then, has successfully led the business through a significant number of changes.

Mr Bell will be replaced by Kingfisher group digital director John Mewett. Mr Bell has spent 20 years at Kingfisher, during which time he has been B&Q operations director and HR director. He made the move to Screwfix in 2006, where he led operations and property before his appointment to CEO last year. At Screwfix, he has overseen the rapid roll-out of the store network, opening 60 stores a year, on average, for the past five years.

John Mewett is the new boss at Screwfix, and has spent 10 years with Kingfisher, starting his career at Screwfix in 2008 as marketing and IT director. During this time he played a significant role in its growth and, most recently, has been leveraging the group's digital capability across the other business units.

Toolstation integrates AI into its marketing

Tools and building supplies retailer to the trade, Toolstation has expanded its partnership with marketing platform company Emarsys to include "personalised direct mail and link a physical channel to its digital marketing strategy". The deal will see Toolstation use the Emarsys Artificial Intelligence (AI) to support its direct mail, email, and SMS marketing strategy.

The news comes just weeks after it was reported that over 52% of UK shoppers believe that retailers need to offer a more seamless experience between online and offline commerce to retain their custom. This was one of the key findings from a survey of 1,000 shoppers, conducted by e-commerce agency, PushON, which stated that retailers should invest in technology that enables a better omnichannel experience, according to diy.net.

Toolstation customers can buy online, through a dedicated UK call centre, via a mobile website or at over 300 branches. Customer information is captured both in-store and online so the company can consolidate this data to get a clear view of its target audience.

Data consolidation is critical to enable a more coordinated marketing strategy across different channels. Using the Emarsys Offline Mail, Toolstation can also pre-set and optimise its direct mail marketing as part of wider multi-channel campaigns. Greg Richardson, head of marketing at Toolstation, said:

With all our customer data now in one place, we have a deeper understanding of the level of engagement we're achieving across various channels, and the different types of campaigns our customers like to see. Consolidating our data into one platform was always going to be a huge priority for us in a post-GDPR (General Data Protection Regulation) world, and Emarsys will enable us to be responsible custodians of all the information we hold.

Emarsys manages over 350 million daily interactions while analysing 3.9 billion consumer records and 2.5 million purchase events. It integrates customer intelligence, personalisation, predictive recommendations and omnichannel marketing at scale, across all devices and social channels into a single cloud-based marketing platform. Grant Coleman, vice-president and market director - UK at Emarsys, said:

Direct mail is one of the most powerful tools in a multichannel marketing strategy, due to its unique ability to drive and strengthen relationships with customers.

We're delighted to expand our partnership to help Toolstation get a 360-degree view of their customers and run more efficient and tailored marketing campaigns across email, SMS and direct mail.

A development application (DA) for a Bunnings Tempe outlet has been rejected; work is underway on a Bunnings store in Mernda (VIC); plans for a Bunnings Warehouse at Kembla Grange (NSW) have been approved; a Bunnings store will be part of a retail precinct in Lake Macquarie (NSW); the South Nowra Bunnings DA proceeds to the next phase; Bunnings has failed to gain approval for a site in Coolum (QLD); a Bunnings store is featured in plans to develop a former winery site in Old Reynella (SA); and a proposal for a Bunnings store in Merimbula is expected to be approved.

Tempe

Inner West Council has welcomed a decision by the Sydney Eastern City Planning Panel to defer approval of the Tempe Bunnings DA.

The proposal was for a $70 million 20,000sqm store that would use a residential street as its main entrance for traffic. Inner West Mayor Darcy Byrne said:

The panel made this unanimous decision based on Council's submission which identified very serious traffic and parking potential impacts from the proposed development.

Not only did the panel defer approval, they also requested an independent traffic assessment by a consultant mutually appointed by Council and the applicant at the expense of the applicant. This is a very good outcome for the community.

Council told the panel there were serious issues relating to the proposed development, and that the proponent had failed to address the council's and community's legitimate objections. Mayor Byrne said:

When I addressed the panel...I told them the impacts on traffic in Smith Street, Union Street, South Street and other local residential streets in Tempe would be completely unacceptable.

Bunnings and Council will now work together to find a mutually acceptable traffic expert to conduct, at Bunnings' expense, a peer reviewed and independent assessment that includes a local area traffic management scheme.

Bunnings has been set a 15 December deadline to submit the traffic assessment and management scheme.

Mernda

Construction of a 12,000sqm Bunnings Warehouse in Mernda is due for completion in early December.

The store is a major part of the new Mernda Town Centre, and will include a nursery, cafe and playground. The remainder of the centre will include a Woolworths supermarket, ambulance station and takeaway shops. It will have a mix of retail, commercial and community facilities.

Bunnings Victoria West state operations manager Tony Manzone told the Whittlesea Leader more than 120 people would be employed at the warehouse.

Kembla Grange

A $30 million Bunnings store planned for Kembla Grange was given the go ahead by the Southern Joint Regional Planning Panel. It will be built on a 40,000sqm block in Northcliffe Drive next to the Princes Highway. The store is set to take up about a third of the 40,000sqm site, with parking for 415 cars included.

Andrew Marks, Bunnings' general manager - property said it was pleased to have received development approval for the new store which will replace the current Bunnings Warrawong Warehouse. He told the Illawarra Mercury:

To accommodate the additional traffic in the local area, we will be undertaking improvement works to the intersection of Northcliffe Drive and the Princes Highway. Furthermore, Wollongong City Council and Bunnings will also be co-funding the construction of a new roundabout on Northcliffe Drive which will provide safe access to the new store, as well as bring forward a key piece of road infrastructure to service the West Dapto release area.

Bunnings rent its current site at Warrawong. Mr Marks said team members will transfer from the existing warehouse to the new one, and could be joined by over 30 more staff.

Lake Macquarie

Construction is set to start on a $90 million shopping complex in Lake Macquarie that will include a Bunnings Warehouse which will be located at the southern end of the site. It is due to be completed by December 2019.

The 30,000sqm retail centre is located on the Pacific Highway at Bennetts Green.

Spotlight Group, which owns the Spotlight and Anaconda retail chains, has received state government approval to start work on the first stage of the development.

Council initially sold the site for $20.3 million in January 2016 to Hydrox Nominees - a land-holding company for Masters Home Improvement. Approval was granted for a Masters outlet, bulky goods units and a restaurant, but with the retail chain's demise, the land was sold to Spotlight Group.

South Nowra

Shoalhaven councillors have helped to push along a DA lodged by Bunnings and Nowra Property Group that could see the South Nowra Bunnings Warehouse expand by almost two and a half times its current size. Bunnings development approvals manager Phillip Drew told the South Coast Register:

It will be one of the biggest stores in our network.

The matter was brought to the chamber as the applicants sought a height limit variation of more than 10% (from 11m to 15.5m). It is now up to council staff to make a determination on the DA.

The proposed expansion of the Bunnings store at South Nowra will take in the car park area and a separate block to the north.

Coolum

The Planning and Environment Court rejected an appeal by Bunnings to allow a big box store on the western entrance to Coolum. The site sits opposite Coolum State School and at the gateway to the tourist town.

Mr Marks said Bunnings would now consider its position. He told the Sunshine Coast Daily:

Bunnings is disappointed with the Court of Queensland's decision and will now evaluate our options.

Community organisations including Development Watch, Coolum Ratepayers Association, business owners and individuals joined Sunshine Coast Council in fighting the appeal. The judgment was handed down by Judge DCJ Everson who found the proposals in serious conflict with the superseded planning scheme.

He said the retailer opportunistically sought to place a large stand-alone Bunnings Warehouse in a location not intended for such use. He said:

The absence of any master planning makes for an inappropriate utilisation of the site in any event. No grounds have been put forward which are, on balance, sufficient to justify approving either of the proposed developments notwithstanding the conflicts.

Barrister for Bunnings, Danny Gore said the warehouse size differed in the company's two remaining proposals. Mr Gore told the court one plan was for a 5850sqm warehouse. The other proposed warehouse was 8600sqm.

The judgment also considered the development would have an unacceptable impact on the Mitre 10 hardware business in Coolum Beach. Peregian Beach Hardware owner Russell Lunn said if the Bunnings appeal had been allowed, it would have cost the business 20-30% of its turnover. Mr Lunn said the proposal had forced him to draw up long-term plans for his business.

I've had staff who have worked here for 20 years. They are loyal people. Eventually there would have been hard decisions. I've looked for savings but eventually we would have been squeezed out. I don't believe we would have survived long term.

Development Watch president Lyn Saxton praised the way the town had pulled together to retain the village nature of its retail precinct. She said:

Coolum is a tourist town and a big box development was not appropriate for the western gateway.

Ms Saxton said if a Bunnings had been allowed, up to 10 small businesses would have been forced out.

Prior to the judgement being handed down, economist Marcus Brown said local residents already had access to hardware stores, which include Bunnings stores at Maroochydore and Noosaville. He gave evidence during the Planning and Environment Court hearing.

Mr Brown said it was a 15-20-minute journey either way on high-speed roads to other Bunnings stores. He described the neighbourhood as a "sub-regional trade area".

The court heard the "trade area" under scrutiny had a population of 41,000.

Related:

Old Reynella

Bunnings wants to open a $29 million, 14,000sqm warehouse on an old winery site in Old Reynella. According to Messenger Newspapers, Tarac Properties, which owns the former Accolade Winery and Distribution Centre, has lodged a DA with Onkaparinga Council on behalf of Bunnings, to convert an existing warehouse into a store on Panalatinga Road.

The Bunnings store would be part of a $150 million proposal to redevelop the site with housing, retail and commercial businesses, health and wellbeing activities, education opportunities and a childcare centre.

Under the proposal, there would be traffic lights from Panalatinga Road into Bunnings, One regulated and three significant trees would need to be removed. Mr Marks said residents' traffic concerns would be addressed.

The development application included a traffic impact assessment report to ensure the safe and efficient use of the surrounding roads.

The site has a vineyard, warehouses, and state and locally heritage-listed buildings. The proposed Bunnings warehouse is about 100m away from the vineyards.

There are Bunnings warehouses 8.5km away in Noarlunga Centre, about 11km away in Marion 13.5km in Seaford and another, which is under construction, 14.5km distance in Edwardstown.

Local resident Maryann Nankivell is continuing her campaign to block the entire redevelopment of the site. Earlier this year, she started an online petition called "Make Old Reynella Grape Again". It has around 1700 signatures protesting against the proposed development.

She said the setting had too much cultural significance to be razed and should be used for wine production. Ms Nankivell planned to continue her crusade to "save the site", arguing that it should be maintained in its entirety, "just as a winery, and keep with the heritage of the area".

Merimbula

A proposal for a Bunnings store in Tura Beach, Merimbula is being considered by the local council. It will consider support for the proposal to rezone the land, owned by Wesfarmers, to a B5 business development zone. When viewed alongside council's Commercial Centres Strategy Review, it is believed the proposal will receive approval from NSW Planning.

If it does so, the DA which forms part of the document will also receive approval. The proposed Bunnings Warehouse will have a floorspace of 6930sqm. However there are concerns about its proximity to RSL LifeCare's Sanananda Park.

Merimbula News Weekly understands Bunnings' plans have been altered to accommodate the concerns by placing the car park at the rear of the store to provide a buffer zone. At its closest, the boundaries of Bunnings and Sanananda Park will be 12m and at its furthest 47m.

In its proposal, Bunnings states the site is the best location on the Sapphire Coast given its "excellent site accessibility, exposure to customers and proximity to trade customers". The company said numbers of new dwellings had increased from 148 in 2012, to 193 in 2016.

In its market assessment, Bunnings said the new store is forecast to achieve a turnover of $13.3 million in its first year of operation which is taken to be financial year 2019/20. The development is estimated to cost $9.5 million.

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The parent company of Bunnings, Wesfarmers, released its earnings for the FY2017/18 on 14 August 2018. The reported year has been both a difficult and a dynamic one for the company. Wesfarmers acquired a new managing director, Rob Scott, and a new chief financial officer (CFO), Anthony Gianotti, divested itself of its failing Bunnings United Kingdom & Ireland (BUKI) operations, divested its Curragh mining operations, and announced that it would split off its major revenue generator, Coles supermarkets, as a separate entity.

In what the market and most commentators greeted as a welcome change of direction, the company has recommitted to its Bunnings Australia & New Zealand (BANZ) home improvement retailer, and made a strong move into data analytics as a means of boosting its operations, especially the retail ones, which include Bunnings, Kmart, and Target.

According to the results announcement:

Following the demerger, Wesfarmers will have a portfolio of cash-generative businesses with good momentum and leading positions in growing markets. Continued earnings growth is expected across the Group's retail businesses. Growing addressable markets will remain a focus, along with ongoing improvements in merchandising and service, further enhancements to the customer experience both in-store and online, and investments in value supported by operational efficiencies.

BANZ saw its revenue break through the $12 billion mark, reaching $12,544 million for FY2017/18. This is a more than $1 billion increase over its FY2016/17 result, which came in at $11,514 million, and represents an 8.9% increase. EBIT also grew strong, coming in at $1504 million, up by 12.7% on the pcp.

Statements by the managing director of Bunnings, Michael Schneider, laid out be three main "themes" to upcoming changes to Australia's largest home improvement retailer. The first is the introduction and better use of certain core technologies, including data analytics. The second is a what could be a move away from the standard concept of "efficiencies" that Bunnings has successfully pursued for a long time, towards an approach to performance improvement through "lean" thinking (originally developed by Toyota in Japan in the 1960s and 1970s), which instead seeks to eliminate waste.

The third change could be a shift in the way Bunnings seeks to relate to its suppliers. There is a possibility in what Mr Schneider had to say, that Bunnings might be shifting to an approach that is more inline with the approach of US big box home improvement retailers The Home Depot and Lowe's Companies to their supply chains. This is a more active engagement in product development and design, somewhere between the advice and approval arrangement Bunnings currently has with many suppliers, and its closer ties to captive brands, such as Ozito power tools and Tactix tool storage.

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If you wanted to find a subtitle for the strategic content that HBT's CEO, Greg Benstead delivered at the conference, it might well be "How to avoid becoming collateral damage". What he has clearly understood - and this knowledge is surprising rare in the leadership of independent hardware retail groups - is that Bunnings (and other companies) are not, in any sense, out to "get" independents.

All that Bunnings cares about, in a strategic sense, is continuing and increasing growth, by finding new markets, and improving prices and efficiencies in existing markets. In the process of doing that, it can certainly harm independent retailers - but they are, to use a modern term, "collateral damage", not targeted victims.

As a consequence, what Mr Benstead understands and conveyed to HBT members in his opening address, was that what you need to do to survive one of Bunnings' periodic growth surges, is to make sure that you are, strategically and in your market orientation, not in "the wrong place at the wrong time".

Once you are clear that this is a good strategic goal, it's not really all that hard to do, as Mr Benstead showed by many of his comments about the market. You just have to get one of those conditions right - where you are at strategically, or the timing - to stay on the safe side of the market.

Probably the most laudatory part of what Mr Benstead and HBT's general manager, member services Mike LoRicco had to present is that they deftly avoided the trap that many small business groups fall into: they didn't press the "greed" button. It's always tempting to promise growth, to talk about profits, highlight canny deals and so on. The reality, though, for the solid, professional small retailers that make up most of HBT's membership, is that "security" will win out over "greed" anytime.

While that might seem like a cautious approach, the truth is that behind the scenes the new leadership at HBT has been anything but cautious. As Mr Benstead no doubt knows from his years of working for a large corporation, if you want to change things as a new CEO, the time to do that is right away, after you assume the position. While the temptation is just to stick with the expected practice of the past, and make changes in the second and third years, that just about never works.

As a result we've seen Mr Benstead moving to shake things up right from the beginning. One reason he's been able to move so fast is because Mr LoRicco has been his co-manager on many projects, acting like a personal database of the history of the past 25 years of the home improvement industry, and HBT in particular.

Recently those changes have meant shaking up the way HBT handles its buying, with three new buyers joining the group. But perhaps the most exciting news is that HBT is looking into launching its own tools brand. While HBT is not sharing many details on this, we can say that there was one session for ITT members that went on for a suspiciously very long time.

All we really know is what Mr Benstead had to say in his opening remarks:

Just as we launched H brands many years ago, it has been very successful rolling out, we also see an opportunity for the ITT Group to develop a tools brand as well, so we are going to show the look of that as well to the relevant members. We will be doing that a little later on today.

If they can bring this off, it will be not only significant for HBT, but also for hardware industry buying groups in Australia. Own-brand tools are one of the advantages that IHG enjoys, and is also a technique that Bunnings uses very effectively. This kind of partnership and sourcing for HBT could have very wide significance to the overall industry.

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If we had to place a label on the next five to six years of development for big-box retailers in the global home improvement sector, it would most likely read "the era of self-disruption".

The four big-box home improvement retailers whose recent results HNN has profiled in this issue - Bunnings, The Home Depot, Kingfisher and Lowe's Companies - are all companies currently undergoing a form of self-disruption. All four of them, we believe, have arrived at disruption after undergoing quite similar experiences, though at different times and under different circumstances.

Looking at the history of the four big-box home improvement retailers we are considering, it's possible to see some similarities in the patterns of their development. One constant is that all four have encountered an event, or a series of events, that have frustrated their plans for expansion, and led them to rethink their growth strategies.

The general pattern is that these companies find themselves close to maturity in certain markets under existing business models. Typically they are not in contraction, but growth rates have slowed, or they have become sensitive to certain fluctuations.

To grow and expand, they seek out additional markets. This could mean exporting their business model to new geographical markets, or applying the familiar model to additional categories in home markets.

These efforts fail, typically, because they are usually an attempt at a type of evasion. The existing business model is well-known, comforting, familiar, and not only has proven to be a good success in the past, it isn't really in trouble, yet. It's still producing revenue and EBIT, just not enough to justify ongoing capex investment.

It takes the rough shock of a real failure in new markets for these companies to fully understand that their only alternative to a slow drift downwards is to self-disrupt, change existing business models, and discover new sources of growth. Often the shock, and the need for sharp change is so strong that this move is accompanied by a change of senior management as well.

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The Home Depot is providing same-day and next-day local delivery; Stanley is bring out its new and revamped version of the Craftsman brand; Ace Hardware believes it is building an Amazon-proof business; Lowe's is using Pinterest to build customer intent; Reece-owned MORSCO HVAC Supply opens on the East Coast of America.

Same-day deliveries at Home Depot

Home Depot is meeting the needs of shoppers' "need it now" mentality and has begun express same-day and next-day local delivery to 35 major metropolitan areas across the US. This service is for online orders made before noon on more than 20,000 of its most popular items. Products include anything from Halloween decorations to power tools, that can arrive by van or car the same day, starting at a cost of USD8.99.

To use the service, customers simply choose "Express Delivery from Store" through the website homedepot.com or The Home Depot app, where available.

Mark Holifield, Home Depot's executive vice president of supply chain and product development, believes customers "want it cheap, but also want it to be quick". He adds:

We set an overarching goal for our supply chain to be the fastest, most efficient delivery in home improvement.

The big box retailer is partnering with start-up car and van providers, Roadie and Deliv to offer the new delivery options for smaller items and to quicken the shopping process. It is continuing to expand its supply chain network for faster shipments of large bulk deliveries.

Retailers are realising that to compete with Amazon they need to speed delivery of online orders, especially because web purchases are often the fastest-growing part of their business. Online revenue for Home Depot grew more than 20% in this year's first half.

Stores as delivery points

Many retailers are using stores to create an omnichannel network, because they are already closer to their customers than large distribution centres that tend to be on the outskirts of cities or in rural areas.

Using stores as distribution centres has created options that Amazon can't replicate, such as enabling customers to pick up online purchases at the closest location to avoid shipping fees. It has also given physical locations added value.

David Schick, director of research for Consumer Edge Research, told Bloomberg:

...This is the next iteration of giving consumers choice. If this decade proves anything, it's that consumers want control and choice.

But these kinds of deliveries can be inefficient and costly, with trucks not filled to capacity and taking longer in congested city streets. That's where start-up businesses like Roadie and Deliv come into play. They've created Uber-like online platforms that crowdsource delivery from drivers who are independent contractors.

While that helps reduce costs, Mr Holifield said the retail giant isn't passing all of the delivery expense to customers. Thanks to its size - USD100 billion in annual revenue and rising - the company can afford to subsidise some of it. He said:

Delivery can be expensive. What we look at is delivery helping us to make stronger customer relationships.

Supply chain

The expansion of its delivery offerings is part of the company's ongoing supply chain upgrade. This investment calls for additional direct fulfillment centres and more than 100 new distribution sites to further extend delivery speed and reach.

CEO Craig Menear recently said at the Goldman Sachs 25th Annual Global Retailing Conference:

About USD1.2 billion will go into our supply chain over the next five years that will allow us to essentially move to a same day, next day network for roughly 95% of the US population.

...the majority of that investment actually goes into the downstream network, which will move product from stores and distribution centres direct to customers' homes or job sites. And what we're building out is a direct fulfillment capability to handle all the variety of products that we sell in the project business in home improvement. That's everything from a small package that can be delivered in a car, for example, to a pallet of product that needs to be delivered on a flatbed...in a particular location on a job site.

Craftsman tool brand gets a reboot

The Craftsman brand has introduced 1,200 redesigned tools and products made by Stanley Black & Decker (Stanley). The latest range includes categories such as power tools, equipment and accessories, hand tools, storage and organisation solutions, lawn and garden power equipment, mechanic and automobile tools.

This line of products is the result of Stanley's purchase of Craftsman from Sears Holdings Corporation last year. When Stanley bought the Craftsman brand, the deal allowed both companies continue making and selling products under the Craftsman label. It also gave Stanley the right to sell Craftsman products outside of Sears.

That means a Craftsman cordless power drill or red metal toolbox can come from either Sears or Stanley, depending on where it's purchased. US consumers will continue to see Sears' version of Craftsman in Sears and Kmart stores, as well as Sears Hometown and Outlet.

Stanley's take on the brand are being sold through Lowe's and Ace Hardware stores. Metal storage products will go on sale on Amazon later this year, with more added in 2019.

Competing versions of a brand sounds like a recipe for customer confusion, but Stanley spokesman Tim Perra said the company isn't concerned.

Both companies have agreed to a set of brand standards and guidelines, Sears spokesman Larry Costello said.

Regardless of where the product was purchased, customers can expect that these tools meet the highest performance standards.

Under the deal, Sears will benefit from Craftsman tools sold by Stanley, which will pay royalties for 15 years.

In addition to the opportunity to expand Craftsman's reach, Stanley saw an opportunity to update the brand's look and feel, though the red colour scheme will remain, Mr Perra said.

Among the revamped products is a battery that can be removed from a drill and installed in a lawn mower, eliminating the pull start that makes it easier for users. The battery also can be used for other garden tools.

Other updated tools is a new Craftsman wrench, with its 27 tooth gear design increased to 120 teeth. And 30 Craftsman drills are smaller, lighter and feel better in the hand.

Stanley also wanted to make more Craftsman products in the US, though it wasn't a response to the Trump administration's protectionist trade policies or an effort to avoid tariffs, Mr Perra said.

In an interview with The Street.com, James Loree, Stanley chief executive officer said "one of the strategies behind rebooting Craftsman is to revitalise the products and make as many (of) them in America as possible".

We ended up simply buying the brand because the products had been left to devolve over time to the point where they weren't high-quality, respectable products they once were. They had migrated from made in America to virtually everything being made in China and Mexico.

Initially, 40% of the products will be made in America, with the share rising to 70% over the next few years, Mr Loree said.

Ace Hardware invests in supply chain, digital

The hardware retailer reported record second quarter revenues of USD1.59 billion, an increase of USD95.5 million, or 6.4%, from the second quarter of 2017. Net income was USD54.8 million for the second quarter of 2018, an increase of 7.2% from the second quarter of 2017. Same store sales were up 3.3%. President and CEO, John Venhuizen, said:

We continued to see revenue growth across all of our business units in the second quarter, with the strongest results coming from our local owners in the domestic business which increased almost 6%. And I'm delighted with our 7.2% net income growth despite the expense pressures from our material investments in both our wholesale infrastructure and our digital expansion. We successfully shipped our first order from our new 1.1 million square foot retail support centre...and launched our new hyper-localised Acehardware.com website...which was up 34% in the second quarter.

Mr Venhuizen told the Fox Business channel that the company is having success taking on Amazon. He said:

Don't misunderstand. We all know Amazon is the most disruptive company in human history. But there is a desire of ours to be owning the home preservation business - and a lot of that has to do with feel and touch. And we are sort of blessed that tends to be a little bit more insulated from the convenience of commoditised one-click ordering.

Ace Hardware currently operates 5,161 stores worldwide. It opened 39 new domestic stores in the second quarter and closed 34 stores. The company's total domestic store count was 4,423 for the second quarter, which was an increase of 66 stores from the second quarter of 2017. On a worldwide basis, Ace added 59 stores in the second quarter of 2018 and cancelled 35.

Ace "most helpful"

The Illinois-based hardware cooperative also topped a recent survey about US consumers' favourite home improvement chains.

In a new Market Force Information poll of more than 4,000 consumers, Ace earned a score of 68% on the composite loyalty index, far exceeding that of competitors Menards (57%), Lowe's (54%), Home Depot (53%) and Walmart (36%).

It ranked first in scores for many of the store attributes that matter most to consumers, including value for the price, store cleanliness, checkout speed, store layout and merchandise availability.

Respondents, with 64% identifying themselves as DIY enthusiasts and 68% saying they've watched a DIY tutorial video, especially love Ace's loyalty program, at 70%. And while Lowe's ranks second by that measure and has invested heavily in promoting MyLowes, its score was just 28%.

Brad Christian, chief customer officer for Market Force, highlighted what may cause a retailer like Ace to score markedly better than competitors in surveys:

Service is of the utmost importance in any retail situation, but particularly in the larger-format stores that are commonplace in home furnishings and home improvement. The customer experience relies on being able to find what you need and someone to help. Otherwise customers can quickly become frustrated and that can lead retailers to a missed sale.

The Market Force survey was conducted online in June 2018. The survey represented a cross-section of the four US Census regions and reflected a broad spectrum of income levels, with 55% reporting annual household incomes of more than USD50,000.

Lowe's suggests purchases on Pinterest

For the past five years, social media platform Pinterest has been helping Lowe's customers visualise home improvement projects by serving up products or collections that appeal to them based on their Pinterest profile interests.

Now the retailer will be adding transaction data to customer Pinterest profiles so it can suggest products as advertising, according to Digiday.

Transaction history will further personalise suggestions for customers based on data. For example, if the home improvement retailer knows a customer repeatedly purchases living room furniture, it can offer up pins that align with these interests.

The retailer wouldn't say if the test would be applied to all customers who are Pinterest users or a selected group of them, but Lowe's is growing Pinterest as a product discovery tool to learn more about customers' future intent - a way to target sponsored ads and content as it builds its relationships with customers and prospects. Shannon Versaggi, vive-president of targeted marketing at Lowe's, said:

One of the things we're exploring is the value of sharing our transactional data. We think there's an opportunity to better understand the customer journey using that combined data, to show interest and inspiration and when they pull the trigger to buy.

Lowe's plans to test the addition of transaction data with customer Pinterest profiles in 2019. It is also partnering with a location-based data provider to test the relationship between Pinterest interactions and traffic to physical stores.

Retailers that are selling or marketing home improvement projects to consumers are increasingly looking to Pinterest to assess and build customer intent to purchase products.

In June, Home Depot rolled out a feature called "Shop the Look" that lets customers peruse through curated Pinterest boards that suggest and pair products of interest to customers.

HNN covered this story earlier this year:

For Lowe's, Pinterest stands out among platforms because customers keep coming back to it as they plan their projects. According to Ms Versaggi, many customers who use Pinterest look at the boards months later - a strong signal of future intent.

Customers on Pinterest are also more likely to click through ads. For example, Lowe's said customers on Pinterest have a 20% higher click-through rate on shoppable pins compared to the average rate from Pinterest campaigns.

While customers searching on Amazon or Google likely already have an idea of what they're searching for, Pinterest lets customers get creative with design and conceive of ideas even though the purchase may take place months after the initial Pinterest exploration.

While customers don't directly convert from initial interactions on Pinterest, it's an early indicator of future intent that's measurable and where customer journeys can be mapped. Pinterest also has the added benefit of not presenting sponsored pins or ads in an obtrusive manner for the customer. Instead, it is just seen as part of the product discovery process.

Despite the brand lift with Pinterest, the challenge is to generate the level of interaction to ultimately build a noticeable bump in sales. Lowe's Pinterest page has more than three million followers and 10 million monthly viewers, according to the company.

East Coast expansion for MORSCO

US distributor of commercial and residential plumbing, waterworks and heating and cooling equipment (HVAC), MORSCO has acquired Ott Distributors, through its subsidiary MORSCO HVAC Supply. Texas-based MORSCO is owned by Australia's Reece Group.

In the transaction, all Ott Distributors staff and its location in South Carolina will operate under the Ott Distributors/MORSCO HVAC Supply brand. This will be the first MORSCO HVAC Supply branch on the East Coast.

Ott Distributors has been serving Charleston and the surrounding area with parts and equipment for more than 40 years.

MORSCO launched the MORSCO HVAC Supply brand in April 2018 to better focus its HVAC operations. Jim Mishler, president, MORSCO HVAC Supply, said:

The acquisition of Ott Distributors establishes our presence on the East Coast, where we see a large, attractive opportunity to expand and reach new customers.... We are excited to continue our growth strategy within our organic markets as well as expand into new markets via additional acquisitions and new locations.

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Stanley Black & Decker buys a 20% stake in MTD Products; James Hardie's executive in charge of international business will replace its current chief executive; Bosch will be trialling an electric van sharing service at a number of hardware stores in Germany; Boral Timber will study making renewable diesel from sawmill residue; Hillman is acquiring a safety and work gear company; and Klein Tools has taken over a manufacturer of safety products.

SBD extends reach in lawn and garden sector

Stanley Black & Decker (SBD) has entered into a definitive agreement to acquire a 20% stake in MTD Products, a privately held global manufacturer of outdoor power equipment, for USD234 million in cash.

Under the terms of the agreement, SBD has the option to acquire the remaining 80% of MTD beginning on July 1, 2021. James Loree, SBD chief executive officer, said:

This investment in MTD increases our presence in the USD20 billion global lawn and garden market in a financially and operationally prudent way. We have always viewed outdoor products as an attractive growth category for us to expand our presence beyond handheld electric products.

SBD said the partnership "significantly enhances" its existing commercial relationship with MTD, which includes the manufacture of select outdoor products under the Craftsman brand. SBD purchased the Craftsman line of tools from Sears in January 2017.

Going forward, the two companies said they will "work together to pursue revenue and cost opportunities, improve operational efficiency and introduce new and innovative products for professional and residential outdoor equipment customers, leveraging their respective portfolios of strong brands".

In an interview with thestreet.com earlier this year, Mr Loree said he wants "to get into the lawn and garden market in a very clever way that avoids some of the downside of the lawn and garden space".

The lawn and garden retail market is a market that is pretty competitive and seasonal, so it has those negative aspects.

Mr Loree also described his growth strategy for SBD, one that makes generous use of acquisitions.

We have pretty good luck finding deals. We have literally become the consolidator of choice in the tool industry, people just come to us with tool deals. We can afford to pay the highest price because we have the highest amount of synergy opportunities. We have a strong ecosystem internally and bankers, etc. Then we have financial screens that we apply and if they meet the needs and we can negotiate a deal then we do it. We just keep doing it year in and year out.

MTD chairman and CEO Robert T. Moll said the investment by SBD gives the companies "more tools in the toolbox". He told Crains Cleveland:

I know it's a bad pun, but it really does give us more tools to work with, with brands and technologies and complementary skills...

Mr Moll said if SBD decides to exercise its option to buy the remaining stakes in MTD, MTD will have "done our job". But the company will have to be profitable and secure its leadership position in the market, he said.

For now, the two companies are still operating independently, though SBD would have board representation at MTD.

The two companies will be able to leverage one another's retail portfolios and expand who they're selling to. MTD sells to a lot of independent retailers, which is a market SBD has not cultivated, Mr Moll said.

Overall, the investment from SBD could also affect manufacturing at both companies is by taking advantage of what Mr Moll referred to as "interesting sourcing opportunities" in terms of materials used and the sharing of technology.

Electrification is a trend in the outdoor power equipment market, and working with a company with the capacity and scale of SBD could be a benefit as MTD works to add electric power to more of its products. Mr Moll said, right now, he's seeing this in smaller products, like hedge trimmers, but he knows the time will come when the market moves toward putting electric power in larger products like lawn mowers and snow throwers.

Those are platforms that SBD doesn't have, and they are opportunities for us to change the fuel source to leverage the skills of both companies.

The deal with MTD is expected to close early next year and must be approved by regulators.

Boral Timber could make renewable diesel

The Australian Renewable Energy Agency (ARENA), on behalf of the Federal Government, has announced up to $500,000 in funding to Boral Timber to investigate the feasibility of building a "second-generation" biofuels refinery using the waste sawmill residues from the Boral Timber Hardwood Sawmill at Herons Creek, near Port Macquarie (NSW).

If the $1.2 million study is successful, the proposed biorefinery, which would cost an estimated $50 million to build, could convert up to 50,000 tonnes of waste sawmill residue produced each year into transport-grade renewable diesel and bitumen.

The sawmill residue - which includes sawdust, remnant woodchips, shavings and offcuts - is currently used for lower value uses such as landscaping and boiler fuel.

The study will consider a mechanical catalytic conversion technology, developed by Spanish-based Global Ecofuel Solutions SL, combined with the potential biorefinery at Herons Creek. It will be the first time the process would be used in a production scale facility.

ARENA CEO Ivor Frischknecht said the project further shows that big businesses are increasingly moving towards renewable energy solutions. He said:

The transport sector is a significant user of energy in Australia, with liquid fuels a key long term energy source for heavy-vehicle road and air transport since they cannot readily be electrified. Bioenergy comprises a growing proportion of Australia's energy mix, and this new technology could see residue from the production process be used to reduce Boral's reliance on diesel and bitumen derived from fossil fuels.

If this ground-breaking technology is successful, we hope to see a transition to similar biorefineries by other companies which have a waste stream in forestry or agriculture.

Boral executive general manager (Building Products) Wayne Manners said that if the feasibility study was successful, the transport-grade renewable diesel produced at the potential new biorefinery could eventually account for up to 15% of Boral's annual diesel needs.

Boral is one of the largest consumers of bitumen and has one of the largest truck fleets in Australia, using approximately 100 million litres of diesel each year.

Infrastructure boost

Boral recently posted a record annual profit, as a result of earnings from a new division in the US and an infrastructure boom that is offsetting Australia's cooling home market.

In the first full year since it bought US-based fly-ash maker Headwaters, net profit to June 30 rose 38% to $473 million, slightly ahead of analyst expectations. Total revenue rose by a third to $5.9 billion.

In Australia, Boral posted double-digit gains in revenue for concrete and asphalt, its biggest earners because of major roadmaking projects along the east coast.

The result underscored how the company's exposure across the building sector, from renovation supplies like roofing to pouring concrete at freeways, has insulated it from a downturn in home construction. Boral chief executive officer, Mike Kane, said:

Volumes from commercial, infrastructure and major projects activity, and margin improvements are expected to more than offset the impacts of a moderating residential construction sector.

Single-family homebuilding in the United States hit its highest level in a decade during the financial year, and while it has slowed a little, Boral expects renovations to drive continued demand for its products.

The a recent weakening of the Australian housing market some economists warning of heightened risks of a downturn. But a road and railway building boom, driven by state government asset sales, is driving steady demand for concrete.

Boral expects growth from all its businesses in 2019, with strong housing starts and benign weather expected to lift core earnings in North America by at least 20% and margin improvements expected in Australia.

Bosch van-sharing business with hardware stores

Bosch is launching an electric van-sharing service in partnership with DIY chain toom, a subsidiary of German retail group Rewe. With 370 stores, toom is a significant player in the home improvement industry in Germany.

From December 2018, it will take just a few clicks or taps via an app for customers at five selected toom hardware stores to directly book an electric van on site, and take items such as stone slabs, timber and outdoor furniture home with them.

The van-sharing service will initially be tested in Germany, at stores located in Berlin, Frankfurt, Leipzig, Troisdorf, and Freiburg. Wolfgang Vogt, toom's managing director for finance and personnel, said:

As a company committed to sustainability, we are always eager to constantly improve our contribution to environmental protection. We're therefore very pleased that we can now offer our customers an eco-friendly way of taking their purchases home.

At these stores, charge spots are already in place for the small electric vans, which are provided by StreetScooter. Vans can be returned to the same station that the shopper picked them up from. Bosch supplies the powertrain components for these vehicles. Users will pay a flat hourly rate that includes mileage and battery recharging in a completely digital process.

Bosch is already well versed in the sharing services business, as demonstrated by Coup, its rental service for electric scooters. Since its launch in 2016, Coup has constantly expanded, and now has a fleet of 3,500 scooters in Berlin, Paris, and Madrid.

In its Coup and van-sharing schemes, Bosch has opted exclusively for electrically powered vehicles. Dr. Rainer Kallenbach, president of the Connected Mobility Solutions division at Bosch, said:

Bosch is growing with digital services for urban mobility. A service for sharing electric vans has huge potential for growth. Fully electric driving is ideal for urban mobility - whether that means downtown delivery traffic or individual mobility in major cities.

Bosch believes that shared electric vans have scope for application outside the hardware retail sector. If the new sharing service proves popular, Bosch plans to expand it to furniture stores, supermarkets, and electronics stores.

Home improvement giant IKEA said recently that it plans to introduce home delivery by electric vehicles in Europe, US and China.

James Hardie confirms succession

Jack Truong, president of international operations at James Hardie, has been chosen to succeed Louis Gries as chief executive. Dr Truong, who currently heads the firm's Asia Pacific fibre cement business and the Europe building products unit, will become global president and chief operating officer for a six-month transition period as Mr Gries winds down his 13-year span in charge of the building materials supplier.

Dr Truong's appointment as chief executive will become effective toward the end of the firm's 2019 fiscal year, at which time Gries will leave the board, the firm said in a statement.

A former chief executive of Electrolux North America, Dr Truong has held his current role since April last year. Chairman Michael Hammes said:

Jack offers the ideal combination of commercial expertise, operational excellence, and leadership in order to continue to grow the business and maintain the industry-leading performance, across multiple geographies, established by Louis over a long period.

Mr Gries, who has been at James Hardie since 1991 and became CEO in 2005, said the establishment of a compensation fund for asbestos victims in 2007 was a highlight of his tenure.

The fund was established after the original fund James Hardie established for those suffering from exposure to asbestos in its products was found to be underfunded by more than $1 billion, attracting court action by ASIC.

Profit jump

James Hardie said its first-quarter profit grew 29% on a stronger US dollar and demand from US house buyers, and flagged further growth in its 2019 earnings.

Adjusted operating profit was USD79.9 million for the three months to June 30, up from USD61.7 million a year ago. Operating profit excludes one-off items like the company's compensation payments to people claiming asbestos-related illness.

The company said it expects adjusted net operating profit to be between USD300 million and USD340 million in fiscal 2019, compared to USD291 million in fiscal 2018.

The company makes most of its revenue in the United States, and benefited from a surge in new US home sales in April and May, although housing sales cooled in June.

The company's North America Fiber Cement segment achieved a 10% rise in sales, and benefited from increased sale prices. It said it expects earnings from the segment to be at the top end of its 20 to 25% growth range in 2019.

James Hardie's unadjusted net profit for the quarter rose 58% to USD90.6 million. The company attributed the jump chiefly to its closing of the Fermacell acquisition, which was incorporated into its first quarter results.

Hillman gains glove company

Hardware solutions supplier, Hillman Group has entered into a definitive agreement to acquire Big Time Products, a provider of personal protection and work gear products. Hillman president and CEO, Greg Gluchowski, said:

With the addition of Big Time, Hillman will expand its portfolio of product solutions for both DIY and pro customers...

The acquisition will enable Hillman to expand into adjacent categories with Big Time's products in the hardware, automotive, garden, and cleaning industries that include work gloves, household gloves, knee pads, tool rigs and aprons, and job site storage. Big Time's products are sold under its portfolio of brands such as Firm Grip, AWP, McGuire-Nicholas, Grease Monkey, and Gorilla Grip.

The transaction is subject to customary closing conditions and receipt of required regulatory approvals.

Klein Tools expands into safety category

US tool maker, Klein Tools has acquired Ergodyne, a manufacturer of safety work gear.

Founded in 1983, Ergodyne spent the last three decades developing products that Make the Workplace A Betterplace[tm]. What started with one product has grown into a line of Tenacious Work Gear designed to provide protection, promote prevention and manage the elements for workers on jobsites.

Tom Votel, president of Ergodyne, said the timing was right for the consolidation - a healthy US economy and a desire to grow the business compelled the agreement.

Klein Tools is family-owned and was established in 1857. Co-president, Tom Klein Jr, said:

Ergodyne and Klein Tools have much in common, including our commitment to innovation, safety, our customers and our reputations for producing high-quality products. We believe that our combined resources and expertise will enable us to grow more quickly together than we could have separately...

Together, Klein and Ergodyne plan to expand their brands and leverage their combined expertise, years of experience and industry know-how to accelerate innovation in the safety products space.

Ergodyne is a subsidiary of Tenacious Holdings Inc. Its current lineup includes ProFlex(r) Hand Protection, ProFlex(r)Knee Pads, ProFlex(r)Supports, Skullerz(r) Head Protection, Skullerz Eye Protection, Trex[tm] Footwear Accessories, Chill-Its(r) Cooling Products, N-Ferno(r) Warming Products, GloWear(r) Hi-Vis Apparel, Squids(r) Lanyards, Arsenal(r) Gear and Tool Storage and SHAX(r) Portable Work Shelters.

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Heatherbrae store, H&D Timber and Hardware regains its independent status; Toowoomba suburb poised to get a hardware and trade supplies store; Mitre 10 revisits its history in its latest campaign; Dahlsens' Warrnambool store shuts down; WA co-op that includes a Makit Hardware closes permanently; Porters Hardware in Mackay has been in operation for 135 years.

Timber & hardware store turns independent

H&D Timber and Hardware, located in Heatherbrae (NSW), has been part of the local business community for decades, in different configurations.

Darrell and Diana Haynes opened the original H&D Timber store in Raymond Terrace in the Hunter region of NSW, back in 1978. In 2009, Darrell and Diana's son James and wife Renee relocated H&D to 1 Archibald Place, Heatherbrae.

In that time the business has seen a few changes in name, but the family connection has remained strong. General manager, Renee Haynes told the Port Stephens Examiner:

James and I both run the day-to-day operation, with Darrell in the timber mill...and Diana taking care of the admin side of the business. On top of supplying timber and hardware, we always donate money, gifts or time to the community and sponsor the local soccer and football junior teams.

For many years, H&D Timber and Hardware were part of a group - Home Hardware and then Mitre 10 - but recently went it alone as a fully fledged independent operation. Renee explains:

It was time for us to take control back of our business and focus on what our customer base needed, but we remain a member of the Paint Place group and stock Wattyl and Norglass paints.

The decision to go independent has coincided with a new chapter in the family business, the opening of "Select Fasteners". Select Fasteners offers stainless steel and high tensile bolts, along with a range of construction glues, screws and tools. Renee said:

James has known for a little while that we were not able to serve our trade customer to the full 100% capacity due to lack of space for more construction and industrial lines...so he created Select Fasteners.

Store proposal in South Toowoomba

The Chronicle reports a new trade and hardware supplies store is being proposed for Toowoomba (QLD), as part of a new development. The council will look over an application from Coonan Industries to build a "hardware and trade supplies" store on Pechey Street in South Toowoomba, nearby the public hospital.

According to plans put forward by Precinct Urban Planning's Paul Kelly, the development will be split into two tenancies, including a warehouse as a second shop. He wrote in his submission:

The final development will be built to boundary on the northern and southern side boundaries and rear western boundary with carparking, access and landscaped areas within the front setback which comprises 19.3m.

The building will be slab on ground construction with tilt-up panel concrete walls that will include a textured finish to the front eastern elevation visible from the street.

The site currently features a warehouse, which is home to a MotoGear supply shop. But the applicant wants to demolish the current building and replace it with a new structure.

South Toowoomba doesn't currently have a hardware store, with the nearest one being a Mitre 10 outlet in Darling Heights.

The council will look at the proposal as code-assessable which means public consultation is not directly sought. Its decision on the proposal is expected later this year.

Mitre 10 plays on its history

The latest campaign from Mitre 10 promotes the brand's heritage and its support for tradies building houses in Australia.

It was created by Edge and features brand ambassador and host of Channel 9's The Block, Scott Cam. He is driving through time in a series of classic utes past period homes of the 1950s, 60s and 80s. Edge Group managing director, David Stretch, told Mumbrella:

While Mitre 10 was established in 1959, some of its member stores had been family-run businesses for over a hundred years, building relationships with their local builders, generation after generation. And this provides the perfect platform for the campaign.

Mitre 10's general manager - marketing, Karen Fahey said the campaign is a celebration of the brand's heritage but also showcases the group's state-of-the-art "Sapphire-standard stores" that are set up to service the trade.

From years of experience, Mitre 10 knows what tradies want and this has informed our store development program: drive-thru trade areas, dedicated trade desks, timber under cover, state-of the art colour centres. And of course, what works for the trade also works for the weekend warrior DIYers. Service, expertise and a trade quality range are all elements of shopping with Mitre 10, and they are all celebrated in this campaign.

The campaign includes a 45-second and 30-second brand TV commercials, supported by 15-second retail ads, airing throughout the 2018 season of The Block. Edge executive creative director, Matt Batten, said:

While last year's TVC celebrated DIY renovators...this year's commercial champions the unsung heroes who really do all the hard graft on The Block, and thousands of renos and new builds around the country - the tradies. It's a fun little drive through time with Scotty in some classic Aussie cars passing some classic Aussie homes.

Warrnambool loses Dahlsens store

Dahlsens Building Centre in Warrnambool (VIC) has closed its doors. According to a report in The Standard newspaper, management issued a statement that said:

Changing market conditions mean that businesses need to make some hard decisions to ensure they remain sustainable in the long run. Over the last few years we have witnessed flat market conditions and also a change in the demographics of our customer base in Warrnambool and the surrounding region.

With little indication that these trends will change, it is unfortunately no longer viable for Dahlsens to sustain the operating costs of the Warrnambool store. After careful consideration we have made the decision to close the site, with trading ceasing on September 27.

This announcement marks a big turning point for Dahlsens in the western region of Victoria and it will be sad to no longer have a presence in Warrnambool as part of our store network.

Management said staff would be informed about other vacant positions within the company and would "receive assistance during this difficult time". The statement also said:

For those affected, the company would like to publicly thank them all for their dedication and effort over the years.

The Warrnambool store supplied pre-fabricated truss and wall frames, posi-struts, timber, bricks, mesh, plaster, claddings, doors and door handles, fix out, front of wall plumbing, kitchen and bathroom joinery and power tools.

It was part of a chain of 20 stores, eight truss and frame manufacturing sites and one metal roofing centre across Victoria and southern New South Wales. Dahlsens has subsidiaries in Sydney, far north Queensland, Western Australia and the Northern Territory.

It is the largest independent hardware retailer in Australia. The fifth-generation family owned and operated group opened its first store in 1877.

WA-based co-op has closed after 98 years

The Broomehill, Katanning & Woodanilling (BKW) Co-operative in Katanning (WA) which traded as IGA, Cellarbrations, Makit Hardware, Bi-Rite Electrical and Telstra has shut its doors for the last time after liquidators rejected an offer from a local buyer to keep the business operating.

The BKW Co-op went into administration in August 2018 after $800,000 of losses over the last two years.

The Albany Advertiser revealed the co--op board was calling for expressions of interest in the business, which has operated for 98 years.

Co-op administrator Neil Cribb sent a letter to all co-op members to inform them he had selected a preferred buyer for the business. However, their offer has since been rejected.

The co-op was formed in 1921 by a small group of farmers and residents across the region. The shop has since become an iconic business in the Great Southern Region.

Co-op chairman Norm Flugge said multiple factors had led to the decision to enter into administration.

What really conspired against us was the perfect storm, it was a combination of the online competition, seven-day trading as well as the general decline of the retail industry throughout Australia.

Mr Flugge said the co-op's recent efforts to revitalise the shop's look and brand had proven to be a little too late to save it.

I believe we made some good changes in management late last year and the new manager brought a great deal of experience in retail. Unfortunately before those initiatives could really deliver values and turn some of those trading figures around, we ran out of time.

Porters enters 135th year of operation

Timber and hardware retailer Porters Mitre 10 celebrated its 135th anniversary this year, and remains a significant hardware and timber business in Mackay (QLD). Established way back in 1883 as Charles Porter & Son, it is a highly regarded family business brand.

Descendants of Charles Porter continue to run the business. Paul Porter is a director, Gavan Snr is managing director and Barry Porter is chairman of the board. The brothers told their often-told story to The Daily Mercury recently.

Porters has 11 branches operating under the Mitre 10, Inspirations Paint and Plumbing Plus banners. Stores are located in Mackay city, Cannonvale, Glenella, Marian, Proserpine and Sarina.

It won Hardware Store of the Year (over 2500sqm) and Garden Centre of the Year at the Hardware Australia Queensland Awards earlier this year.

The Women in Hardware feature is about what companies in the hardware retail industry have done in terms of gender equality. The data we present shows that while most major companies have made some progress, there is still far to go. As part of this feature, we profile Jacinta Colley, national account manager at Simmonds Lumber.

In many ways her story is emblematic. It is not just about setbacks, and real difficulties overcome. It's also about a woman who developed a talent for taking advantage of any opportunity, no matter how small, that offered itself.

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In this issue, we write about how bricks-and-mortar retailers can gain in-depth insights to their customers through digital merchandising displays.

We also explore how "Home Automation" has been replaced by the idea of the "smarthome". At the centre of this new idea is an array of devices that combine decent speakers with great microphones linked into speech processing on the cloud.

The edition is also about how kitchens are just starting to move away from the wave of white that swept through over the past two years. That is being replaced by three leading trends: black kitchens, technical kitchens (for cooks), and smaller, open kitchens.

In addition to our regular update on Australian big box stores and independents, international retailers in this issue include Homebase, B&Q, Travis Perkins, Home Depot, Lowe's and Ace Hardware. Suppliers include Methven, Stanley Black & Decker, Sika, Hilti and Imex Lasers.

Kitchens are approaching a new inflection point in their development. As HNN has remarked in the past, it's quite common for a phase when all-white kitchen styling dominate the market to be followed by a period of innovation and change.

While that relates mostly to the interior design dynamics of Australian households, kitchens are also one place where wider social changes that affect families are going to show up in terms both of style and function. Kitchens are one of the most functional rooms in a house, and as families see their needs and requirements change, they begin to seek different kinds of solutions from their kitchens as well.

Future trends

Two of those social changes are the increase in workforce participation by women, and an increase in takeaway food consumption over the past five years -- though the latter varies widely by state and territory.

Chart 1 shows the increase in workforce participation by women, which has accelerated over the past three years. Chart 2 shows the gap in participation rates between men and women (ABS statistics, trend estimates), which came in at an average of 10.5% for FY2017/18 (men 70.8%, women 60.3%), versus 19% for FY1997/98 (men 72.5%, women 53.5%).

Chart 3 is an interesting chart produced by the Reserve Bank of Australia (RBA) which shows the participation rates for men and women in different age ranges. Its two surprises are the increased rate for middle-aged women, and that the participation rate for those under 25 years-old is nearly equal for men and women.

Chart 4 shows percentage change in expenditure on take-away food across Australia. Chart 5 shows the increase for New South Wales (NSW), and Chart 6 shows the increase for Victoria (VIC). Table 1 shows the rankings for per capita expenditure on take-away food for all states and territories. It's no surprise that NSW tops that table, but it is somewhat surprising that VIC is at the bottom.

It's worth noting that according to the 2016 Australian Census, the average Australian woman spends between five and 14 hours a week doing unpaid domestic housework, while men typically do less than five hours a week. Studies indicate that when married, time spent on housework by men declines, while that of women increases. This trend accelerates (on average) after children are added to a family.

This is particularly important as regards kitchens, as women continue to be viewed as "responsible" for the majority of food related tasks, including planning, shopping, preparation, cooking, serving and cleaning up. Families typically have 16 shared meals (a number which excludes weekday lunches). Of those 16, however, the five weekday evening meals carry a larger burden of importance, lack of time for preparation, and a higher stress level. Many families would agree that out of the 100% total effort for food during the week, each of those evening meals account for about 10%. Given this, having take-away food for family dinners six or seven times a month makes a lot of sense.

Just as important is that, globally, the kitchen (and dining-room) is ceasing to be the place where people regularly eat their meals. In a survey conducted by IKEA in 2017, it found that 54% of Berliners and 47% of Londoners do not eat in the kitchen or dining room during weekdays, with a global average of 36% - a trend that is growing in Australia as well.

This range of changes - more women working, more stress related to families getting household tasks done, reliance on outside services (such as take-away food) to solve that stress, and a de-emphasis on the kitchen as a place to eat - will have an impact on kitchens, in particular when it comes to renovation.

One of the first effects is likely to be a slowing down in terms of when kitchen renovations get done. The number of kitchens that are renovated in the range of 16 to 20 years of age will likely increase, while those renovated in the range of 11 to 15 years of age will decline. Figures from the Housing Industry Association (HIA) in Australia broadly support this shift.

In terms of the renovations that do take place, we're likely to see a series of slightly conflicting changes. Kitchens could grow smaller and more compact, consuming less of the overall space of the house. (This will be boosted by the ongoing reduction in overall dwelling size, with even multi-dwelling living spaces growing smaller, as well as the majority of detached housing.)

With changing household interactions, rather than the "kitchen as living-room" we will see the kitchen continue to move towards becoming part of the living area. This means kitchens which provide easy access to the refrigerator and coffee/tea making facilities, but less workspace. There will likely be a move towards smaller in-kitchen eating surfaces, along with the provision of larger eating surfaces (counters and tables) nearby, that can be re-tasked for other household purposes.

While those changes indicate less expensive kitchen renovations and a diminished market, the other big change is going in the other direction. That is the move towards more "technical" kitchens. These are kitchens that will make use of more advanced cooking technologies. For example, the top range oven models released by Miele in August 2017 use a range of combined cooking technologies: electromagnetic waves, radiant heat from the top and bottom of the oven, and a convection fan, to produce better results than conventional-only ovens in a fraction of the time.

One part of that trend will be the "smart-kitchen". In brief, kitchen appliance manufacturers are conflicted about whether they need to fit into the home intelligence systems offered by Google, Amazon and Apple, or if they should develop their own. Developing their own would enable them to promote network lock-in, where you want to buy a Samsung oven to go with your Samsung refrigerator, for example. However, this would preclude other forms of interconnection.

Immediate trends

White to black

White is still dominating kitchen renovations in Australia at the moment, but the good news is that it will very likely change as we move into calendar 2019. Partly as a reaction to white (perhaps), and as a means of better blending kitchens into all the living space, there is a stronger trend towards black kitchens emerging in Australia.

New surface technologies that make matte and textured finishes (in wood and other materials) more durable and easier to maintain are also helping to boost the popularity of black. While black will never be an easy colour to keep looking good, matte finishes do ease the task, as at least every individual fingerprint will not be highlighted against a gleaming reflective surface.

Texture

These new technologies are also seeing an increase in the use of darker and more textured woods used as panelling on basic black kitchens. This is a move away from the somewhat nordic kitchen lines of recent years, and a definite shift in how kitchens can relate to the rest of a house.

Conceal/reveal

One area that remains conflicted is how to present storage space. Along with the shift to black has come designs that hide and conceal the functional parts of the kitchen, such as refrigerators and even cooking surfaces. This has extended to the storage of implements such as pot and pans, as well as pantry supplies.

At the same time, however, many kitchens are innovating with forms of open shelf storage, including suspended open shelves over the work areas.

Birth of the blue

If there is one colour that is coming through the shades of white to influence the design of many kitchens, its is blue. Not a pastel blue, or a blue/grey either, but a deep rich blue. Associated with the blue style, is the use of many different shades of blue, so that, for instance, a rank of cabinet doors will go from dark blue to a lighter blue, and then back again.

The steel

The final trend that is of great interest is a move to make greater use of stainless steel surfaces in kitchens. This is the surface most often used in commercial kitchens, as it is easy to keep clean and sanitary, is highly durable, resists very high temperatures and is relatively difficult to mark. (It does wear over time, but many regard this as a positive attribute.)

If HNN's predictions are correct, and kitchens do evolve to smaller, alcove-like units, open to the home, with a focus on cooking technology that makes life easier, it's easy to see that stainless steel might become more popular.

The kitchen market

Changes from 2017 to 2018

The kitchen trends study from online home ideas website Houzz indicates kitchens for 2018 are not all that different from kitchens for 2017 - with a few important exceptions. The one that stands out the most is that the demand for kitchens priced at over $40,000 has declined, while the mid-range of kitchens, between $10,000 and $35,000, has grown, with an average spend in 2018 of between $15,000 and $20,000.

The other change relates to technology, with fully 12% of renovators adding colour touchscreen displays to their kitchens (with this trending higher, surprisingly, with older renovators). Built-in apps in appliances are used in 8% of kitchens, and wireless controls by 6%.

The areas that have changed only slightly include:

Market size

One pressing question to answer is how the kitchen market will develop in terms of size over the next two years. Tracking this down in terms of statistics has always been a little difficult. One good indicator to begin with are the figures the ABS uses to help calculate the national accounts (from which gross domestic product is derived), the catalogue series 5216.0. These include numbers for alterations and additions, which is the label given to renovations by the ABS.

There seems to be something of a misunderstanding among economists and statisticians who report on these matters as to how these numbers are derived. To quote directly from the ABS guidebook, "Australian System of National Accounts: Concepts, Sources and Methods" published in 2000:15.22

The value of alterations and additions to existing dwellings is estimated using data from regular surveys of building activity, and from the periodic Household Expenditure Survey. The Building Activity Survey provides estimates of the value of work done on alterations and additions with an approval value of $10,000 or more.

As a significant part of alterations and additions activity is not covered in the Building Activity Survey, estimates from the survey are used only as an indicator to move forward benchmark estimates of expenditure on alterations and additions obtained from the Household Expenditure Survey.

Hopefully this will clarify that these ABS numbers do include renovations which cost less than $10,000, as well as those that do not require building permits.

Charts 7 through 15 show the percentage change between the trailing 12 months to March from 2009 to 2018 for each state and territory, as well as the total expenditures. Chart 15 shows the same statistics for Australia as a whole.

One element this last chart shows is a high degree of concentration in terms of outcome for five of the eight states, all indicating a downwards trend in expenditure. The last time there was a similar grouping was in the 2011/12 year, which was followed by a steep drop in expenditure for 2012/13.

These groupings would indicate that there are nationwide forces at work which are independent of the conditions in each state and territory. At the present moment, the most obvious candidate for this is the continuing slow fall in house prices and clearance rates at auctions. These in turn have been caused by two factors. One is increasingly tight credit, as banks move to reduce the number of interest-only loans - though, as the Reserve Bank of Australia (RBA) has noted, the average mortgage rate in August 2018 is lower than that in August 2017. The other factor is the expectation that the RBA is likely to lift interest rates in the first calendar quarter of 2019.

If we were looking for some kind of predictive statistic for kitchens, one that could give some indication, would be the ABS statistic for the number of purchases of owner-occupied established homes for which finance has been provided. This statistic would be linked to both home-owners prepping a house for sale with a kitchen refresh, and purchasers redoing kitchens to suit their own needs.

The Australia-wide changes in those numbers are shown in Chart 14. If these numbers have something of a lag effect, this would indicate that spending on renovations, including kitchens for the remainder of 2018 and the first three quarters of 2019 is likely to be subdued, in a range somewhere between a 0.5% decline and a 1.0% increase.

Kaboodle

Kaboodle has made two strategic changes in association with Bunnings. The first has been the introduction and ongoing success of its kitchen consultancy. This echoes the service long provided by IKEA, and helps to walk customers through the process of designing their kitchens. The second change to service, which is the inclusion of custom-cut cabinetry. The two fit together nicely.

In terms of its marketing, Kaboodle has made some decent TV advertising, and is running this at a higher rotation than its past ads. This campaign seems to be part of a positioning push to make Kaboodle a mainstream choice for kitchens, rather than the kitchen you choose as a compromise.

[Continued]

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The next two to three years could be some of the most transformative for independent hardware retailers since the 1980s. Just as the first point of sale (POS) systems and barcodes changed forever the operational aspects of retail, so now there is an informational change under way.

On the face of it, however, there has seldom been a time when things have looked tougher for non-corporate independents (NCIs) in hardware retail than today. The rise of Metcash's Independent Hardware Group (IHG) has created a division within independent retail itself, and one that is set to get wider over the next couple of years. Wesfarmers is backing a strong push by Bunnings, with the trade sector as its main target. All that adds up to a lot of internal industry stress on the NCIs that are outside of those groups.

Added to this is the more general stress from the current Australian economy that is affecting all of retail. Even as the numbers we currently use to measure the economy are pointing up, the economy itself has been very slow to respond. Business investment remains low, growth in wages is low, and this has been generally reflected in low growth for most sectors of retail. As HNN has suggested in the economics part of this series on the Future of Retail, it's very possible Australia has just barely escaped from entering a deflationary spiral. It is a close call that has come with some costs, and will take the economy some time to fully recover from.

Where hardware retail has been partially shielded from factors that affect retail in general over the five years from FY2011/12 to FY2016/17, buoyed by rising dwelling prices, which have driven the increase home-building and renovation activities, that is set to end, and the market will likely go slightly negative during calendar 2019.

Just to add to all of this, recent changes in retail technology also seem set to advantage larger retail operations over smaller ones. Data analytics, which makes use of broad and deep datasets to deliver market and customer insights which can drive bigger profits and increased customer engagements, requires size, which smaller retailers cannot deliver. Also, though the costs of these techniques have fallen steeply over the past 10 years, they require specialised knowledge, and remain relatively pricey for smaller companies.

The upside

Yet, despite all of these seeming difficulties, HNN remains very optimistic about the prospects for most NCI hardware retailers. It is our belief that both the economy and retail itself are undergoing transitions, and that what emerges will rebalance a part of the market in favour of NCIs.

One key factor in this is that HNN sees the Australian government as being forced into making some kind of economic stimulus spending in FY2019/20. This will follow on from some of the usual pre-election populist stimulus spending, which will likely land in February/March 2019.

Given that small businesses - and especially retail businesses - have tended to miss out on most government stimulus packages, there is a special obligation on the hardware retail industry, and particularly its NCI sector, to present the best possible target for any stimulus spending that might come along.

The key to garnering a deservedly large share of this likely stimulus boost is the combination of a "heartland", high-employing industry (such as retail) with technologies which are at least as much about software as they are about hardware. This can create what we might call a really enticing "three-fer", in terms of representing overlapping business minorities: the type of business the Reserve Bank of Australia (RBA) has identified as being in the highest growth category; a boost to a "traditional" business (as opposed to "scarier" high-tech software development); and a way to deliver funding in a visible, accountable, results-oriented way directly to a large number of small businesses.

Under investment

Of course, making these technological changes is not just about seeking government funding. Few sectors of Australian business have underinvested in the technological opportunities of the past 15 years as much as "traditional", physical retail. It's an area which is ripe for improvement, and where investment is likely to deliver immediate rewards.

This lag in development is a little surprising, as retail in general (and hardware retail in particular) made significant investments and undertook major risks during the 1980s and 1990s as they first adopted barcodes and basic POS cash-register based systems, then switched to complex retail software which, at the upper end, is really a form of enterprise resource planning (ERP).

One big difference is simply that the previous systems that were implemented were very much "replacement" technologies. Just as the spreadsheet was the technology that really encouraged the revolution in personal computing, because it represented simply an electronic form of the familiar ledger, so barcodes and POS systems were a way of doing something familiar faster and better.

The other problem is simply that most of the tech solutions being offered today are the same solutions offered four or five years ago, warmed over to make them look new. Even as part of the tech world (especially anything related to mobile, but cloud computing as well) has accelerated its development, retail technology has pretty much stayed the same.

What is especially lacking is any kind of "architecture" to the solutions, a commonality of purpose and implementation that ties together the many possibilities. However, at the present time that commonality is beginning to emerge, and at its heart is the need and the possibility of moving beyond what has come to be called the "omnichannel" strategy - as the blending of ecommerce and physical retail is often called - to a more unified approach.

The situation

Before we start to look at these new potentials, it is a good idea to get a better idea of the forces that are coming to bear on retailers today. While these are familiar, what is less familiar is how they combine to produce the modern industry.

The most recent industry change has been the combination of Mitre 10 and the Home Timber & Hardware Group (HTH) into the Metcash-owned IHG at the end of 2016. This has created a market that consists - broadly - of three groups: Bunnings, which has majority control over some sectors such as DIY power tools, and a strong influence in many other sectors; IHG, which is using a combination of corporate-owned and independently-owned stores to try to gain control over the "local" hardware market; and stores that are unaffiliated, which we might call the non-corporate independents (NCIs).

IHG has plans to expand both its trade and DIY businesses, primarily by providing unique tools and other products at low price points, driven by higher volumes and the use of its centralised warehouse distribution platform. Even those members of IHG not directly part-owned by Metcash will find benefits in more closely integrating - through data exchange and product lines - with the company's corporate-owned stores. This is turn should, according to the company's strategy, lead to more stores joining IHG, expanding its market reach.

Over the coming three years, Bunnings intends to grow its share of the trade-based market on top of its already high growth rate in DIY. It will do this by expanding the range of services and products aimed at trades, possibly including the introduction of more Bunnings Trade stores across Australia. HNN projects that Bunnings could take as much as $2 billion out of the trade market over the next three years.

As a result of this market consolidation, NCIs stand to come under pressure by the combined forces of Bunnings and Mitre 10 on at least four different fronts.

Retail brand promotions

Both Bunnings and IHG's Mitre 10 brand have the advantage of a strongly identifiable brand name that is backed by a range of advertising, including TV commercials, print ads, regular catalogues, electronic direct marketing (emails), online marketing, and outdoor advertising.

Brand product pricing

Bunnings and IHG pursue a similar strategy based on suppliers lowering their wholesale prices in exchange for guaranteed volumes. Bunnings, of course, has a considerable advantage in this area, both because it has higher volumes, and because it has complete control over its entire store network.

Home and captive brands

Allied with lower brand prices, both Bunnings and IHG continue to expand their offering of home and captive brands. The partnership between Bunnings and Stanley Black & Decker to redevelop the Irwin brand as a captive brand for Bunnings is a good example of this. Irwin is at a near-perfect price/quality/reputation point to aid Bunnings in growing its marketshare for trades.

Meanwhile, IHG continues to produce home-brand items. While these are at the moment, in general, at the lower end of the DIY market with offerings such as its Buy Right brand, there's little doubt that over the coming years these home brands will enter the low-end of the trade market as well.

Merchandising

One of the big changes in recent years has been IHG's revitalising of its Mitre 10 Sapphire store program. While early Sapphire stores were not very good from a customer perspective, more recent efforts have introduced new and innovative merchandising solutions. The Sapphire team now works closely with store owners, is flexible about requirements, and keen to learn and improve how best to equip stores.

The result is not only stores which deliver superior customer experience, but also stores that are clearly similar, making it easier for customers to identify with the brand, and to shop more conveniently at a range of stores.

Bunnings, of course, has long been a quiet master at merchandising. While their stores can seem almost causally laid-out, there is a lot of experimentation and expertise behind what they do. To name just one simple element, the dark-red base colour of their shelving creates a slightly festive and welcoming element to their stores (something that became evident when contrasted the colder blue of the warehouse stores built by Masters Home Improvement).

The drop palettes in the the broad aisles, and the seemingly accidental kick-boxes of helpful products that intrude into product category aisles, are all merchandising fine-tuning techniques that many other retailers have yet to really understand.

Digital transformation

Up until recently, digital has seemed to many Australian retailers to be as much a problem as it is a solution. That is in contrast to the US hardware retail market, where retailers have advanced quite far ahead of the Australian market in terms of digital experimentation and development. The Home Depot stopped building physical stores for a number of years, concentrating instead on building out the technical and logistical infrastructure needed to make online/digital work well for it.

Lowe's Companies has similarly invested in digital, including headline-grabbing store "robots" and virtual reality (VR) active displays. Nonetheless, Lowe's new CEO, Marvin Ellison, who comes from turning around discount clothing retailer JC Penney, after a history as a top executive at Home Depot, is expected to further boost the company's online presence.

Ace Hardware, which relies on independent member stores, has made strong moves into online, most recently through its acquisition of The Grommet. This company operates an e-commerce website that markets and sells new and innovative products created by independent entrepreneurs. Brands it has helped to launch include FitBit, IdeaPaint, OtterBox, SimpliSafe and SodaStream. Ace has taken The Grommet's online presence, and brought that into the physical stores of Ace members.

While it is true that going online is a good strategy in the US (and even the EU) hardware retail sector, it's probably right to be a bit doubtful about duplicating this in Australia. As Wesfarmers so recently found out when it attempted to export the Bunnings business model directly into remodelled UK Homebase stores, Australian hardware retail is something quite unique in the world, and deserves its own strategies.

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At the Hardware & Building Traders (HBT) annual conference in May 2018, Women in Hardware held an event, where Jacinta Colley was the main speaker. National account manager for the respected timber supplier Simmonds Lumber, Ms Colley told some of the story of her journey through the ranks to her present position.

It was, to most of us who attended, a really enrapturing experience. Both because it was quite a story, and also because Ms Colley was able to share some of the more extreme moments she had gone through.

It is a story that is not just about setbacks, and real difficulties overcome. It's also about a woman who developed a talent for taking advantage of any opportunity, no matter how small, that offered itself. Who conformed when it was necessary to go on, but who also blazed back when she could.

The following is the speech that Jacinta Colley gave. HNN has edited the original speech for the purposes of brevity and clarity.

In year 10 when I was doing work experience at a hairdresser's, sweeping the floor. I often wonder where I would be today if I had gone down that track. Because, I am here today in an amazing industry, full of amazing people.

When I was 20, I had moved in and out of my parents' home, and I was kind of annoying my folks a bit. They said to me, "What are you going to do Jacinta? Have you decided?" Well, I didn't know what I wanted to do.

My father was working for Carter Holt Harvey at the time. One day he came home and said, "There's a job going at Carter Holt as an internal sales representative and we think you should apply."

I'm like, "Are you kicking me out?" And he said, no no, you don't have the job yet.

I thought, okay cool. And he said, "You are going to move to Melbourne."

I said, "I don't have the job yet."

He said "You are going to do what I tell you. You are going to sell yourself and get that job."

In the end he won, and in two weeks I was gone.

Only now, in my late 30s, do I thank him - and then only after a couple of wines! Because I would never admit that to him.

Meyer Timber

After 18 months with Carter Holt Harvey, I was approached to work at Meyer Timber in Melbourne, which is a timber wholesaler. I got to work beside a man named Frank Assisi and he became a mentor to me. He was absolutely instrumental in me getting into the wholesale world. And really understanding the ins and outs of a house [timber company] because when I was at Carter Holt all I knew about was pine fascia and flooring. So he really helped me along. No question was ever too hard. He always gave me the time of day, and we are still very close to this day.

Brisbane: Carter Holt, then Simmonds

Carter Holt Harvey kept coming back to me and saying, "We want you to be a rep, we actually think you would do a pretty good job, but you have to move to Brisbane."

I thought, why not? I don't know anyone but I will meet people. So I did that. And if I hadn't taken a leap of faith, I certainly wouldn't be where I am today.

My time at Carter Holt actually turned out to be quite short. Roger Healy who was state manager for Simmonds Lumber at the time, said to me, "You need to come and work for us."

I said, "Why would I want to do that?" And he said, "We're fun and there is more for you to learn in the real world." So I decided to accept that invitation, and I moved over to Simmonds.

I would moved away from a corporate world of red tape, of being told what I can sell at what price and under restrictions. That move to Simmonds would be the best decision of my life.

The first day

I will never forget the first day I started Simmonds. I walked in wearing heels, and the whole bloody place was tiled. It was absolutely hilarious. I am click-clacking along, and one of the boys said, "Are you going to be wearing those every frigging day?"

I replied straight back: "Hell yes!" And when they all laughed, I knew I would fit right in.

I remember Roger taking me for a walk to the sheds and he pointed to different products. I asked him, can I sell anything in the shed? And he said, yes that is what you were employed to do.

So I asked, do I need to know the cost as well? He said, yes you have to make a margin. And I said, am I going to understand that?. He said, "Absolutely."

So these were very instrumental lessons for me.

The dumb email

Roger would also be, as it turns out, the first person I would tell that I would be taking maternity leave. He was thrilled, but my CEO at the time was not.

My then-CEO would send me an email in capital letters, in all RED TEXT and it said, "Jacinta, I have received your news that you are expecting. Do you know that company cars are not tp have car seats fitted to them? Do you know that this is why I was reluctant to hire a young female in sales?

He added that the next female he would hire would be over 50 years old.

I stayed at my desk for some time, and I really pondered over this email. I thought, "this could be fun!" But instead, I deleted it, and I moved on.

Now I'm sure that hasn't happened to all of you but maybe you have had similar experiences. That happened nine years ago and today I think I would be much stronger fighting back. But at the time, I didn't have the confidence that I have today. And I'm really fortunate now that where I work I have a bit more flexibility, and Simmonds are very family-supportive.

After Roger

About two and a half years ago, Roger made the decision to leave Simmonds Lumber. He had been a real advocate for me, supporting me in being a mum, and juggling work, which can be very tough. I was very pissed off at him for leaving because it was going to get harder.

But his decision to leave - and we are still very close to this day - would open the door for me to go beyond being a sales rep, and to step up and become a sales manager in Brisbane. And that meant having grown men in their 50s report to me.

After I had managed to do that, another door opened, and I was able to take the position of national account manager at Simmonds. This would be a first in Simmonds, having a female international role, reporting to the CEO. I was also the first female at Simmonds to take maternity leave. So I have experienced a lot of firsts at Simmonds Lumber.

There are some tough things that can happen in the wholesale game. There are some tough things you are confronted with in a very male dominated industry. What is quite unique about Women in Hardware is that there are a lot of you in hardware. There are not a lot of us in my part of the business [timber wholesale]. So I'm amazed at the turnout today [in Adelaide]. It is phenomenal.

Industry awards

I have worked very hard to gain respect in the timber and hardware industry, and that is something I have been recognised for.

After a year at Simmonds, I received my first Timber & Building Materials Association (Australia) (TABMA) award in 2005.

I remember when I had been nominated and someone at the time said, "Does she really have to attend?" The day of the award was Simmonds' annual golf day. But he was told it was important that I attend. It was hot that day and I had to hire a dress because I didn't have one. I was extremely sunburnt. I remember being so nervous that I almost fell off the stairs, it was absolutely hilarious.

In my ninth year at Simmonds, I was very fortunate to win sales representative of the year again.

This slide was in 2015 when I won the national representative of the year in my 10th year at Simmonds. So I am really honoured and proud people in my "game" respect me and feel confident that they can talk to me and ask questions.

I've also lucky that I have a multitude of people who I can look up to in our industry. There is Kirsten Gentle from TMA, Fiona Lucky who is based out of Brisbane, who is another woman who has defied odds and is right up there in the industry. And Tamika Smith, who I've recently just got to know, she is founding director of TSR Property Solutions and Aspiring Young Businesswoman of the Year in 2017 from the Women in Business Awards of Australia (Gold Coast).

I am also close to a group of women who are part of this amazing industry, Women in Forest and Timber Networks (WTFN). They comprise about 5% of the workforce. It is a forum for women to meet and exchange ideas, similar to Women in Hardware, and it was formed to ensure that our voices are heard. We aim to recognise contributions, we celebrate achievements and we support each other.

Looking back

I feel very fortunate to work in such an amazing industry. I don't have a university degree. I am pretty much self-taught by learning from people in my sector and believing in myself.

I was really nervous when I put my hand up and applied for the national role. Not because I didn't think I could do it, I knew I could but because I would be the first female in Simmonds in a national role in a very male dominated business. There are 89 staff at Simmonds nationally and I'm one of 11 women. There are two women in Brisbane.

So reporting to a male CEO, and every other senior manager is male, could that be scary? No. I actually think they are more scared of me, to be honest. In fact, I have a bit of a reputation in the office that if you want something done, then give it to Jacinta.

"Having it all"

Often people ask me how I balance it all - how do I "have it all" - wife, mum, big job, fitness etc. - how have I done it?

My reply is often "You need to know what you want and what you are willing to do for it."

And, of course, make sure you are aware that in our game there are gender differences, because there are. Make sure you're not talking too much - women tend to talk a lot, men less. Look for non-verbal clues, and don't fight everything. Sometimes it is best to pick your battles.

Also, be selfless, don't think about the next promotion or next job you are doing, think about what it is that you want to drive for the shareholder and the customer and your employee, rather than your self-interest.

I then back it up by saying - be authentic to yourself. Don't wear a mask, it is far too exhausting. I think that is the main thing, be authentic because that is what has got me this far and I'm not going to change now!

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One of the puzzles of retail in Australia is that, had Dick Smith Electronics (DSE) managed to survive up until the present day, it would likely be on the cusp of becoming a thriving business again.

As HNN has described in the past, the demise of DSE was largely down to most of its "natural" markets being eroded. After it had left its hobbyist origins behind, DSE's major product lines consisted of: telephones, music players, alarm clocks, laptops and accessories, still and video cameras, ebook readers, GPS navigation systems, calculators, and sundry electrical goods. Just about all of the main nine categories were upended from 2011 onwards by the advent of the popular smartphone.

Customers weren't spending $80 to $300 in each of those categories, they were spending $300 to $700 for a single smartphone that did all those things - often a lot better than the technologies it could replace.

However, dominant technologies such as the smartphone tend to go down an interesting path where, after a period of replacement, they give rise to new markets, or come to affect adjacent markets. Their inability to fully satisfy the demands of these additional markets can then lead to the creation of somewhat derivative but also new products.

For example, the modern zipper was invented in 1913 by Gideon Sundback, and it took until 1948 (and the advent of plastics) for George de Mestral to invent velcro. The two serve quite different purposes - with some overlap - but if the zipper had not established a market for one style of closure, it's unlikely that velcro would have developed in quite the same way.

In the case of the smartphone, one of the markets that it at first influenced, and now has changed dramatically, is home automation. Its influence is very clearly seen in the fact that today we've even moved away from the term "home automation", and have instead begun to refer to the "smarthome".

This new market is one that a retailer such as DSE could have served well. Where the smartphone initially narrowed much of the electronics market down to two categories - the smartphone itself and the accessories that went with it - it is now, via its influence on these overlapping markets, expanding other categories and creating new ones. Drones and smartwatches would be examples of these new categories.

Absent retailers such as DSE, the smarthome business does not really attach itself that easily to other retail categories. Companies such as Officeworks and JB HiFi are making efforts to enter the market, but these are half-hearted, and poorly directed. Bunnings has pointed out this market as one that is of high interest to it, but statements from the company indicate it has not really fully understood it as yet - and, in fact, views the smarthome with a degree of puzzlement.

The missing ingredient from all of these retailers - and something that DSE could have contributed - is providing knowledge and advice to consumers. For that reason alone, it seems likely that smarthome devices and accessories could end up being a good new market for independent hardware retailers, both inside groups such as Metcash's Independent Hardware Group (IHG), and non-corporate independents (NCIs).

Smarthome evolution

Prior to 2014 the vision most of the industry had for home automation involved using hubs. These hubs made use of new wireless communication protocols, mostly WiFi but Bluetooth as well, to hook into the internet, and enable forms of remote control and monitoring that had not been possible prior to 2000. The other half of the hub consisted of an array of legacy wireless communication protocols that pre-dated the internet, but were common to many home automation systems.

A major problem with these systems was how to control them. Early home automation typically gave users the option of either making settings work programatically, or using some kind of switching system, such as physical switches anchored to the wall, or sometimes a remote control. You flicked a switch or pressed a button, and the windows closed, the drapes were drawn, soft lighting came on, and music began to play.

As smartphones gained wider popularity around 2010, home automation began to make small steps to integrate these as a more sophisticated remote control. With hubs enabling internet connection you could, for example, lower or raise the garage door from your office at work, or possibly switch on the airconditioner before you turned into your driveway.

Enter the Echo

In 2014 the global online retailer Amazon launched its Echo device. This was a small cylindrical tower, about 180mm tall and 83mm in diameter, which was dominated by its speaker array. While the speaker system was good, the real magic to the Echo, however, was its array of seven microphones.

This microphone array, backed up by some powerful software, enabled it to "hear" human speech at low volumes and over relatively large distances, even over interfering noise. What it was listening for was its "wake word", which in this case was the name "Alexa" (though it could be easily changed to "Amazon" instead). When the Echo "heard" that wake word, it began listening for commands its online voice recognition system could understand.

Originally, these commands had mostly to do with enabling the speaker system to play music, which could originate from a number of online music services, including Amazon's own Music services. However, it could also answer basic questions that might be asked of it, such as how many grams were in a cup of flour, what the capital of Belarus was, and so forth.

While many reviewers mocked the device initially, it began to gain rapid acceptance by the public in the US. Amazon opened the system to developers, and, surprisingly, a large number of home automation tools began to appear. The device removed the awkwardness of having to find a remote, or pull out a smartphone in order to use home automation. Users could say "Alexa, turn on the living room lights", and it would just happen with surprising reliability.

Even what seemed at first to be small abilities came to assume an important place in households. For example, the original Echo enabled the user to easily set timers, by just saying "Alexa, set a timer for one minute and ten seconds". For a cook with his or her hands full, this was a great aid. It proved so popular that in mid-2017 Amazon added the ability to set named timers, meaning it was easier to keep track of multiple timers.

At home with Google

It didn't take that long for the Alphabet company Google to realise that the Echo posed something of a problem for it. Google seeks to "own" activities such as search as much as possible, and with the increasing success of the Echo, its share of that market could come under threat.

The Google Home was announced by the company in mid-2016, and released at the end of that year, in time for the Christmas market. While very similar to the Echo, the Google Home was somewhat more ambitious at its launch, with more features "baked into" the basic model, where the Echo relied more on third-party suppliers. The Echo was very reliable at what it did, while the Home did more, but would tend to fail more frequently.

Apple's Siri

Siri was arguably the first commonly available voice-based assistant to be made available on smartphones. It was originally launched as an app for the iPhone in 2010, developed by the SRI International Artificial Intelligence Center, which is a non-profit associated with Stanford University in northern California (and arguably home to the core developments for personal computing itself). The technology was rapidly acquired by Apple, and was included as a feature on the iPhone 4S when it was launched in 2011.

The abilities of Siri remain somewhat controversial, with many regarding the system as now being, as compared to the Amazon and Google systems, somewhat underdeveloped. Others see Siri as being a far more ambitious project, that is unfairly judged by comparison to much more limited systems.

What is certain is that not only did Apple not spot the potential of using its voice assistant independently of its smartphones, but also that it has continued to not understand how this market works.

Apple began getting into the smarthome market by introducing HomeKit in 2014. This provided a framework for home automation to work with Apple's mobile operating system, iOS. It was only with the release of iOS 10.0 in 2016, however, that Apple added an actual Home app to its smartphones, providing a single location from which all connected devices could be accessed.

What considerably hampered development of devices that could connect to HomeKit was Apple's insistence that anything that did connect needed to use a specific secure communications chipset. This meant that manufacturers would need to make a version specifically just for HomeKit, outside of versions that worked for Echo and Google Home. Few did so, and those that did typically made these devices very expensive, to compensate for the extra development work involved, and the very narrow market Apple offered.

The result has been, predictably, that there are very few HomeKit devices available - the online Apple store lists around 20, if you can find them after going through four layers of navigation.

In 2018 Apple has finally realised its errors, and, after four years of poor performance, has replaced its previous hardware security requirement with software requirement instead, which should see more devices become HomeKit compatible, hopefully at lower prices.

In general, however, this has been a real failure for the company, going from having a leading position in the field, to not even being considered much of a contender, in just six or seven years.

The future of the smarthome

There are big differences between the way that home automation developed prior to 2014, and the way the smarthome has been developing since then.

Home automation has always required a very high degree of integration for it to work properly. It has mostly relied on that integration through the fundamental controls, such as the actual in-wall powerpoints, light switches, custom security systems, and fixed cameras. These controls have mostly been relatively simple, "dumb" devices.

[Continued]

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Stanley buys maker of heavy equipment attachments; Sika acquires specialist foam systems company; Methven has a Chinese deal for its shower technology; Hilti wins Red Dot awards for product design; and a new pipe and drainage laser from Imex.

Stanley invests in industrial tool unit

Stanley Black & Decker (SBD) said it will pay USD690 million for a manufacturer of heavy equipment attachment tools, its third acquisition in two years.

The acquisition of International Equipment Solutions Attachments Group (IES Attachments) will diversify the company's presence in industrial markets and establishes another "well-defined path for continued profitable growth" according to chief executive officer James M. Loree.

IES Attachments' brands include Paladin, which makes excavators, wheel loaders, tractors and truck chassis; Genesis, which makes specialty attachments for the scrap processing, demolition, material handling and decommissioning industries; and Pengo, a manufacturer of augers and related parts for the utility, construction and agriculture markets.

Mr Loree said the brands generate about USD400 million in annual revenue, of which nearly two-thirds comes from after-market sales of heavy-tool attachments, like drilling augers, used in off-highway construction

The IES Attachments acquisition will be integrated into SBD's hydraulic tools business in its industrial segment. It is expected to add US25 cents to US30 cents in earnings per share by 2022. SBD posted USD8.04 in earnings per share last year.

The deal, which must be approved by regulators, will be paid for by available cash and proceeds from borrowing.

Q2 organic sales growth

SBD's 2018 second quarter financial results was led by continued double-digit sales growth year-over-year (YoY), including an acceleration in organic growth powered by its tools & storage segment.

The company posted total Q2 sales of USD3.64 billion, up 10.9% YoY, and up 13.5% from Q1's USD3.21 billion. SBD had approximately 7% organic sales growth in Q2, with strategic pricing actions responsible for one percentage point of that, volume comprising +6%, acquisitions at +3% and currency at +1%.

The company's Q2 profit of USD293.6 million also improved from USD277.6 million a year earlier and USD170.1 million in Q1. Gross margin of 35.3% in Q2 was down from 36.9% a year earlier and 36.3% in Q1, while Q2 operating margin of 13.2% was down from 14.3% a year earlier and up from 11.8% in Q1.

SBD's Q2 sales and profit numbers both exceeded Wall Street expectations.

It also announced the completion of the buyback of USD300 million more of its common stock, bringing its year-to-date repurchase total to USD500 million.

Sika acquires Swiss manufacturer

Sika has agreed to acquire Polypag, a Swiss-based manufacturer and developer of polyurethane foam systems. This acquisition will enhance Sika's expertise in the area of polyurethane foam development, expand its production capacity, and drive forward its specialist trade business.

Polypag was founded in 1980. Last year, it recorded annual sales of some CHF40 million (Swiss francs), with a workforce of 120 employees.

Foams based on polyurethane are used in professional construction applications as well as the DIY market. Sika EMEA regional manager, Ivo Schadler, said:

The acquisition of Polypag will significantly strengthen our sealing and bonding business. The combined technological and development expertise will open up new cross-selling opportunities. Moreover, by expanding the specialist trade business we will drive market penetration and establish growth platforms for both companies...

Sika's H1 profit

The company also reported a better-than-expected profit for the first half of the year recently, the first set of results since it settled its long-running feud with Saint-Gobain.

Sika said its net profit rose 11.4% during the first six months to CHF318.2 million, or AUD440.38 million, from CHF285.7 million (AUD395.62 million) a year earlier, beating analyst forecasts for CHF310 million (AUD429.06 million) in a Reuters poll.

The company said sales rose 16%, from CHF2.99 billion (AUD4.13 billion) to CHF3.47 billion (AUD4.80 billion), and said it was still on track for a more than 10% rise in sales to CHF7 billion (AUD9.68 billion). Sika expects EBIT and net profit to increase at a slightly higher rate than sales in 2018.

Sika repelled a hostile takeover bid from Saint-Gobain earlier in May 2018 after being locked in a bitter battle with the French construction materials company for three-and-a-half years. Under a settlement, Saint-Gobain dropped its plans to take control of Sika by buying the founding family's controlling stake. Instead, it agreed to take a 10.75% holding and not make a tender offer for Sika for at least six years.

Since then, Sika has adopted a simplified share structure and abolished the dual share scheme which enabled the takeover attempt to be launched.

Methven's China deal boosts share price

Tapware and showerware specialist, Methven's shares lifted 5% after it announced a deal with China's Jiangsu RuiZhiShang Building Materials Company to use its shower technology in a series of key projects over the next decade. In a statement to the stock exchange, the New Zealand-based company said:

By adding Methven showerware and tapware into RuiZhiShang's projects, Methven is targeting annual sales of between NZD8.5 and NZD10.5 million by 2020/21.

Methven is pursuing international growth in countries like China as it seeks to benefit from its investment in proprietary shower and tap technology. The Kiwi firm increased Chinese sales to NZD507,000 in the six months to Dec. 31, 2017, from NZD81,000 a year earlier, delivering earnings of NZD3,000 compared to a loss of NZD89,000 a year earlier. The company said it was in final negotiations with a number of new distributors to expand its presence in China.

Methven chief executive David Banfield said the company has delivered over 1 million Chinese yuan, or NZD217,000, in sales per month for the last four months and this current deal together with a national retail distributor it signed in March "further secures consumers' confidence in our brand, and enables us to deliver long-term profitable growth in China". He said:

The opportunity to bring our award-winning showerware and tapware into hundreds of premium hotels and high-end apartments allows us to tell our compelling brand and technology story to discerning Chinese consumers.

RuiZhiShang was set up in 2001 in China and specialises in supplying bathroom fittings. According to Methven, it signed its first distribution agreement with the company in November 2017, and they quickly brought Methven products into two large projects right after that.

Hilti wins product design awards

This year's Red Dot Design Award competition awarded the Hilti TE 50-AVR combihammer as the winner in its category. Judges cited the tool's "pioneering design". The tool provides improved performance at a lower weight than previous generations of the tool and features an optimised slip clutch which provides added user safety.

The sixth generation of the Hilti toolbox also received a Red Dot Design Award. It is equipped with a swivel handle, allowing two toolboxes to be easily carried in one hand, and a new interior which can be individually configured to hold various accessories.

Other Hilti products receiving Red Dot Awards include the range of cordless cutting tool, pipe crimper and punching tool. The TE 6- A36 cordless rotary hammer also received an award.

The Red Dot Design Award is a well-regarded international product design award. Submissions are assessed based on a criteria that includes innovation, ergonomics, functionality and quality.

Laser for major pipe works

Leading Australian supplier, Imex has released its latest technology pipe and drainage laser which combines a number of innovative features that increase efficiency and function for the professional civil contractor.

The new IPL3 series comes in both red and green beam and has a wireless remote setting. It auto tracks the target plate and fits in a 100mm PVC pipe.

This laser is also powered by an 8Ah lithium battery with a USB charging port - an Australian first - and is IP68 fully submersible for the harshest conditions.

A modern use for these pipe lasers is the setting up of columns for solar farms. To meet the needs of this new market, the Imex IPL3 has a unique lock-out grade mode which keeps the beam steady even when working in conjunction with pile driving.

The laser is set remotely via the remote control unit which can be used 100m away from it. The IPL3 has a working range of 300m at 1.5mm @30m accuracy.

The accompanying kit includes three target plates for different sized pipes, five different metal leg sets to suit pipe sizes from 100-500mm, a recharger and a USB charger and a remote. Main features include:

Also included is a five-year warranty from Imex, the first calibration free and standard Calibration Certificate. For more details:

A South Australian Mitre 10 store is shutting down in anticipation of a nearby Bunnings being built; a hardware store in Port Fairy (VIC) is on the market; Mitre 10 gets ready to compete with Bunnings in Kingaroy (QLD); Mount Isa store gets an ATOM industrial hardware store; hardware is part of new-look Hastings Co-op; and Terang Co-op records small profit in annual results.

Domain Mitre 10 closes before Bunnings opens

After 26 years, Domain Mitre 10 in Westbourne Park (SA) is closing down before a new Bunnings store being built just 3km away opens for business. Owner Chris Wauchope told the Adelaide Advertiser that his store could not compete with a $45 million Bunnings store being built in nearby South Road, Edwardstown.

Mr Wauchope said he chose not to renew his lease after predictive figures showed his business had little chance of surviving a loss of trade once the Edwardstown Bunnings opened. He said it was a "very tough decision" that had "far-reaching implications".

Port Fairy hardware business for sale

Ken and June Brookes are selling their Port Fairy (VIC) hardware business and property after 42 years in the industry. The couple has decided to retire and the sale of Brookes Home Timber and Hardware is expected to fetch in excess of $2.5 million.

While the couple is keen to sell the business and property as one, there has been interest from those who want to just purchase the property for redevelopment.

Mr and Mrs Brookes opened the store not long after they cut short a round-the-world trip and returned to Koroit (VIC) to help his ill father. The couple had left Australia in 1973, spent a year living in New Zealand before heading around the world via South America and Europe when word came that Mr Brookes' father needed help running his plumbing business. He told The Standard:

This is why we are here. We were going to head over to Canada so we'll take that up later, we'll resume our trip so to speak.

The couple's first store, called Port Fairy Hardware, opened in March 1976. In 1983 they purchased the Sackville Street shop and moved the business there, expanding the site over the years when they purchased about five neighbouring blocks.

Mr Brookes said he had built up the business to include electrical goods, tools, hardware, timber, paint and giftware.

We've grown it from nothing to what it is. Our aim was to keep business in Port Fairy for Port Fairy and district people. I just hope that whoever takes it on has a good feeling for Port Fairy.

Mitre 10 responds to Bunnings Kingaroy

Sunshine Mitre 10 Kingaroy in South Burnett (QLD) believes it already offers everything people need despite a new Bunnings Warehouse opening in 2019. Retail store manager Steve Miatt said he was extremely proud of his team and the hard work they did for the community. He told the South Burnett Times:

We employ more than 40 people and have many staff with 10 years or more service and some with more than 15.

Julie Hanson and Barry Collins are two such team members with 27 years of service to Mitre 10's Kingaroy store between them.

Sunshine Mitre 10 has been focused on supporting the local community since it opened in 1985 in its 4000sqm purpose built premises. Mr Miatt said:

We employ locals who have been a part of the Kingaroy community for many years and are proud of their long term connections.

The store has heavily supported many community and sporting groups for nearly over three decades, Mr Miatt said. And it would continue to look after their customers as well as they always have, no matter what new business came into town.

We pride ourselves on our exceptional service to retail and trade customers, providing a large range from our store as well as expert advice for everyone.

ATOM opens in Mount Isa

Industrial hardware supplier ATOM has opened shop in Mount Isa (QLD) thanks to resident, Mark Campbell.

Born and bred in Mount Isa, Mr Campbell has spent the past 20 years working in the mining sector. He saw an opportunity to develop the local supply market, so he approached the company.

ATOM chairman Jason Johnson flew up to Mount Isa to meet with Mr Campbell and was so impressed he spent the plane ride home putting together a business plan on the back of an envelope. He told the North West Star:

Mark approached us and told us there was a gap in the market, and we really backed him. We checked out his credentials and thought this is someone we can build a business around.

We could see that our business model would work here, provided we had the right local person. The original plan was to open a small to medium size business, but we were lucky enough to land two major Glencore tenders at about the same time we were opening.

ATOM's Mount Isa store is referred to as the "Bunnings for industry", selling giant spanners, gumboots, angle grinders and safety goggles.

Hastings Co-op re-development includes hardware

Construction work is progressing behind the scenes on Hastings Co-op's IGA supermarket, hardware and liquor store which will open in October 2019, as part of the Sovereign Hills town centre in regional New South Wales.

Chief executive officer Allan Gordon said the new store would be an integral part of Hastings Co-op's family of 15 businesses. He told Port Macquarie News:

Uniquely, our IGA store will incorporate a full-service hardware store where customers will be able to buy everything from a hammer to landscaping supplies. Covering more than 600sqm, the hardware component will add a great dimension to our offering.

The development will eventually provide 25,000sqm of amenity to the growing Sovereign Hills community and beyond. The open-air design will feature roof-mounted solar panels, with rainwater harvesting to be utilised for all landscaping irrigation, while recycled bricks and natural timbers will form the key architectural features of the building.

When it's completed, the Sovereign Hills master-planned community will be home to 2,000-plus new homes, onsite schools, childcare, recreation facilities and the area's new town centre.

Terang Co-op believes in its business model

Rural co-operative, Terang Co-op posted a modest profit for the 2017-18 financial year in what has been a tough economic period for south-west Victoria.

The supermarket, hardware and rural supplies business made a small net profit of $9900 from a turnover of more than $23 million. (The Co-op posted a profit of $150,000 for the 2016-17 financial year.)

Co-op chief executive officer Kevin Ford said although the Co-op's bottom line hadn't provided the result they'd wanted, the positive was that $270,000 of debt had been paid. He told the Standard:

We're in a financially stronger position than we were 12 months ago.

Terang Co-op chairman Brendan Kenna said the Co-op had grown sales against the previous year but costs had continued to climb. He also said the Co-op's rural services were still suffering from the severe downturn that hit the dairy industry. He told the Weekly Times:

Our business is reflecting their reduced circumstances.

Mr Kenna believes the co-operative model remained viable and important to rural communities. He said:

We were all shocked to watch the rapid demise of one of Australia's largest co-operatives, Murray-Goulburn. [We] felt the pain and disappointment of its members as they saw their business fail.

But as big business and the large banks increasingly turn their back on rural Australia, in the pursuit of higher profits at the expense of services, it makes the co-operative model more important than ever and we think it has an exciting future.

Membership continued to grow with 110 new members bringing the total to 2610. Highlights of the year also included the purchase of the DTS West business and the branding of dairy services as 360 Dairy Solutions.

Bunnings satisfies most customers, according to Roy Morgan Research; Morgan Stanley believes a slowing housing market could hurt Bunnings; another push for a Bunnings store in Coolum (QLD); confirmation for Kingaroy (QLD) opening; expansion for Albany (WA) store; early 2019 launch date for Port Macquarie (NSW); staff restructuring at Baldivis (WA) outlet; employment offered at new Bunnings Caringbah; and Victor Harbor officially opens.

Bunnings "best performer" for customers

Research company Roy Morgan has found that in the 12 months to May 2018, 89.5% of hardware store customers were satisfied, an increase of 2.2% year on year. All other significant hardware retailers showed improvement with Bunnings up by 1.3% points to 89.8%.

These are the latest results from Roy Morgan's "Hardware Store Satisfaction Report" which is based on personal interviews conducted face-to-face with over 50,000 Australians per annum in their own homes. This includes over 9,000 interviews with people who have shopped in a hardware store in the last four weeks.

With eleven million people shopping at Bunnings in an average four week period, they are the dominant player in this market with around 95% of hardware shoppers and have the highest customer satisfaction with 89.8%, according to Roy Morgan.

Its research also revealed Bunnings had an increase of nearly 600,000 customers over the last year and were the only retailer to show an increase, apart from True Value Hardware (up by 1,000).

In second place for satisfaction was Home Timber & Hardware on 89.4% (up 1.5% for the year), followed by Mitre 10 with 88.1% (up 0.1%). These top three performers are only separated by 1.7% points and all remain well ahead of True Value Hardware on 79.3% (up 4.7% year on year). Industry communications director, Norman Morris, said:

Satisfaction levels with hardware stores is higher than most other retail categories and over the last year they are showing that they are continuing their customer focus, with all four of the majors showing improvement.

To date there has been limited competition from online players but our research shows that in an average four week period around a quarter of a million people purchase some hardware online. With increased competition from new players like Amazon, bricks and mortar hardware stores will need to focus even more on customers, particularly the advantage they are likely to have regarding their ability to provide personal advice.

Online visits

Inside Retail also recently published a list of the most visited Australian shopping websites, based on data from coupon site Cuponation. JB Hi-Fi topped the list with approximately 74 million local visits between January and June this year.

Bunnings came second with 68.82 million local visits to its website in the same six-month period, according to Cuponation.

Slower housing impact on Bunnings

Investment bank and financial services group, Morgan Stanley believes Bunnings may start to feel the negative impact of a cooling housing market as lending for renovations appears to have peaked.

Government data seems to indicate that as banks tighten lending, less people are looking to update the house for sale.

Fairfax reports Morgan Stanley analysts suggest that Bunnings' strong trading is likely to slow from the fourth quarter of 2018, based on lower auction clearance rates.

They said, however, that Bunnings' like-for-like sales growth could continue and margins increase as either the housing slowdown reverses or proves counter cyclical. People may not sell but decide to update the couch or kitchen. Analysts said in a report to clients:

We think a combination of tightening lending activity from the banks and home owners losing confidence in the housing market has led to the decline in lending for renovations.

The latest Corelogic data shows that auction clearance rates are down 15 percentage points year-on-year, to 53% in July. Morgan Stanley analysts said:

Whilst Bunnings' Australia and New Zealand like-for-like sales growth has held up so far, we think the second half of 2017 and the first half of the 2108 period was supported by the Masters exit and the third quarter of 2018 result looks to have been assisted 200-300 basis points by weather, meaning that underlying like-for-like sales may have been as low as 4.7%.

According to the latest Australian Bureau of Statistics (ABS) figures, in trend terms, lending for alterations and additions (renovations) of homes fell to 17-year lows of $310.8 million in May, down 22.6% from the most recent peak of $401.3 million in September last year. The annual decline of 19.9% was the lowest in seven and a half years.

Ryan Felsman, senior economist at CommSec, said Aussies had found it incredibly difficult to find a local tradie in recent years as the housing market was going gangbusters. He said:

However, a decline in home prices, particularly in Sydney and Melbourne, and tighter lending restrictions and anaemic wages growth appear to be impacting homeowners' views towards their castles.

In fact, homeowners appear to be less enthused about taking out a loan to renovate their abodes. Loans for renovations fell to 17-year lows in trend terms in May, suggesting that more people are shelving immediate plans to add extra rooms or revamp kitchens and bathrooms as the housing market slows in some cities and regions.

The ABS defines alterations and additions as all structural and non-structural changes which are integral to the functional and structural design of a dwelling. The ABS says examples are garages, carports, pergolas, roofing and re-cladding. But they do not include swimming pools, ongoing repairs, or maintenance and home improvements which do not involve building work. Morgan Stanley analysts said:

Historically, there has been some relationship between lending activity for this purpose and Bunnings Australia and New Zealand like-for-like sales growth, hence we think this is an indication of the headwinds Bunnings faces in the near term.

Bunnings pursues Coolum store

Despite being rejected multiple times, Bunnings is pushing on with its Coolum development, reports the Sunshine Coast Daily.

The big box retailer has said its warehouse, restaurant and servo could boost local employment. However some opponents have cited the project's size and visual amenity as reasons for blocking it.

Sunshine Coast Regional Council recommended rejecting the retailer's plans. So Bunnings went to the Planning and Environment Court in Brisbane.

Bunnings's barrister Danny Gore said the warehouse size differed in the company's two remaining proposals. He told the court one plan was for a 5850sqm warehouse. The other proposed warehouse was 8600sqm. The servo and restaurant were 300sqm each, in both plans.

Judge William Everson said it seemed "very unorthodox" for Bunnings not to have decided which proposal to advance.

"The barrister said although Bunnings had already decided to ditch one proposal, with the two surviving proposals "it really will depend on the way the evidence unfolds". Ultimately, differences between the two surviving plans would probably be "marginal" but that too might change, Mr Gore said. He also provided a traffic engineer's report.

Judge Everson said traffic and parking issues might differ. He told the court that all sides had to agree on what the bones of contention were.

The court was also told local businesspeople and residents, including parents of local schoolchildren, might give evidence.

Related:

Albany store will be bigger

A time frame on the planned expansion of Bunnings Albany is yet to be decided after a major development of the store was announced late last year.

The hardware retailer is expected to double in size and expand by 6000sqm into three lots but details of when the it will begin are not yet known. Bunnings property -general manager Andrew Marks told The West Australian:

The timing and details of the expansion works have not been finalised at this stage...

The planned development is the first major expansion since the store opened 18 years ago.

Kingaroy store start date

South Burnett Regional Council announced that the Bunnings store in Kingaroy should be open by Easter 2019. Councillor Terry Fleischfresser, who has been working with Bunnings' property development manager on bringing the new store to town, said this was a huge confidence boost for the region. He told the South Burnett Times:

The new Bunnings opening by Easter will create 40 new jobs for locals. There is currently a lot of development in the region which means a strong future for our business sectors.

Cr Fleischfresser said having big retail stores like Bunnings in the South Burnett allowed residents to keep their shopping dollars in the region.

No longer will locals drive to Toowoomba or Dalby (to shop at Bunnings), they can do all their shopping right here.

Construction on the store is expected to start soon.

Port Macquarie warehouse on schedule

Bunnings' state operations manager NSW north, Cheryl Williams, said the construction work on the $43 million, 18,000sqm Port Macquarie store is progressing as planned. It is expected to open its doors in early 2019. She told the Wauchope Gazette:

Once complete, the existing team will transfer to the new store and will be joined by more than 60 new team members. Stock from the existing site will be distributed to other Bunnings stores and racking will be recycled within the store network. Bunnings has been a part of the Port Macquarie community since 2003...

Baldivis staff changes

Bunnings in Baldivis, which employs 108 people, recently offered some of its team members several "employment options", including redeployment to other stores, reduced hours and suspension of work. State operations manager WA Hayley Coulsen said the decision was not taken lightly and Bunnings would continue to work to find the best solution for all team members. She told The West newspaper:

As with any of our new stores we review and adjust team resources as required, and this has been the case for our Baldivis store.

We recently offered some Baldivis team members several employment options, including redeployment to other stores where possible, reducing their contracted hours or suspension of their role with the understanding that as other positions become available within the Bunnings network, they would be offered these roles.

Team members who take up other roles will have the option of returning to Baldivis in the future...

Caringbah store staff search

The Bunnings store on Koonya Circuit at Caringbah (NSW) is due to open in November, providing120 employment opportunities for Sutherland Shire residents and school leavers.

Complex manager, Emily Sakalis, started her career at Bunnings 14 years ago and has previously held positions at stores across NSW. She told The Leader:

I was the complex manager for the old Caringbah Warehouse, and am excited about looking after this bigger and better store. The Bunnings culture is positive and supportive and we strive to bring an element of fun to every day. This is something I've always valued.

Celebrations for the opening of the Caringbah store are planned for later this year.

Victor Harbor opening

Local community groups were strongly represented at the official opening of Bunnings' $25.3million, 10,000sqm Victor Harbor store in South Australia.

Complex manager Danny Leach outlined the company's policy of a partnership theme - using the skills and materials of Bunnings to support the work of community groups. The store has been involved in Whalers Housing in both Goolwa and Victor Harbor, kids' breakfasts and gardening projects in local primary schools, providing recyclable timber for Encounter Centre and help for dugouts at the Breakers soccer field.

The star of the official opening was AFL legend Malcolm Blight who coached the Crows to two premierships and scored 786 goals during his AFL career.

Quizzed by 18-year-old Bunnings team member Tahnee Thatcher, Mr Blight chose two career highlights - one was playing with his mates in the local Woodville footy team while the other was taking out two premierships as coach of the Crows. He told a captive audience:

Football is a team game so success is shared. People are the common ingredient in success. If you act enthusiastic, then you will be enthusiastic!"

The Mirka Leros sander is going to change the way that tradesmen work, according to its Australian distributor Tenaru; Nylex sprayers can help reduce single-use plastic in outdoor spaces; a trimmer head and line system can provide contractors with precision and speed; and safety gloves have an added level of cut protection.

Sanding reaches new heights

Abrasives specialist, Mirka said its LEROS product is the world's first and only electric random orbital ceiling and wall sander. Weighing less than 3.5 kg, this tool is the lightest wall and ceiling sander on the market.

Awarded the Red Dot Best of the Best Award 2018 for design, the LEROS features a 180-degree flexible 225mm sanding head and 5mm random orbital movement, which enables it to respond precisely to the operator's movement.

The dual suction points in the sanding head and full force system allows the complete force to be transferred to the sanding head. This means that there is no need to press the tool against the sanding surface, removing the weight from the user's hands and reducing tiredness.

The LEROS also has an optional 50cm-long extension shaft, specially designed for sanding high walls and ceilings.

Sustainable garden sprayers

Watering products supplier, Nylex, want homeowners to switch to re-usable products when fertilising, and managing pests and weeds. The Nylex 16L Heavy Duty Sprayer can be worn like a backpack so garden enthusiasts can easily cover large areas of tough vegetation in a single session.

Alternatively, the Nylex 500ml Trigger Sprayer is ideal for spot maintenance of blooms and maintaining indoor plants. Product manager, Alyce Rigby, said:

Ready-to-use weed and pest sprayers are notorious for being thrown in the bin after mere minutes of use, yet one bottle of concentrate lasts the equivalent of 32 on average single-use spray bottles -significantly decreasing the amount of plastic you throw away.

These single-use sprayers also cost on average 76% more than buying a good quality sprayer and concentrate, so in choosing an environmentally friendly option you also get more bang for your buck.

Simple reloading system

The Gator(r) SpeedLoad[tm] trimmer head and line system is the solution for homeowners fed up with a tangled trimmer line. It eliminates the common frustration associated with reloading trimmer line, and reduces reloading time to 20 seconds or less.

Designed for petrol-powered line trimmers, the system is made of a self-contained disk of double-ended line. With only two parts, the pocket-sized disk cartridges and the trimmer head, the Gator SpeedLoad is designed for ease of use. The innovative tongue-and-groove disk allows for a quick load double the durability.

The Gator SpeedLoad Cutting System fits most straight and bent shaft products, including Victa, Echo, Shindaiwa, and other popular trimmers.

Oregon is now available exclusively through Briggs & Stratton.

Cut resistant gloves

The Honeywell Rig Dog[tm] CR gloves feature moulded TPR (Thermoplastic Rubber) pads that are ergonomically placed to provide protection in impact situations along with an ANSI A7 enhanced cut-resistant palm to guard against cuts and slashes.

The polyurethane (PU) slip-resistant palm features EVA foam pads for added comfort and some vibration relief. Hi-Viz Spandex(r) fabric stretches for flexing to help reduce hand fatigue.

Hook and loop tab closure allows the wearer to tighten or loosen cuffs for a more comfortable and secure fit. The gloves are fully washable which helps to limit bacterial growth.

Applications include rigging, warehouse, mining, mechanical, parts handling fabrication, heavy machinery and construction, automotive, oil industry and railway.

Homebase's turnaround plans involves closing 42 of its 241 stores; B&Q will reduce the use of short-term pricing deals and discounts; Metabo Germany partners with power tool manufactures to form Cordless Alliance System (CAS); HOUSE opens fifth UK store; and Travis Perkins said a "challenging UK DIY market" has negatively impacted its consumer-facing brands.

Homebase confirms 42 closures, for now

DIY retailer Homebase said at least 42 outlets will be shutting down by early next year. The company is looking to close stores in order to cut costs after being acquired by Hilco for GBP1 earlier this year, with up to 70 more stores potentially at risk.

Homebase wants to cut rents - or close - on nearly a fifth of its 241-store chain, via a company voluntary agreement (CVA), a controversial insolvency procedure used by struggling firms to shut underperforming shops.

Under the process, Homebase will also promise to continue paying market rents on about half its stores but will ask for smaller rent reductions on another 60 and business rate reductions on all the stores where it wants rent cuts. Chief executive Damian McGloughlin said:

Launching a CVA has been a difficult decision and one that we have not taken lightly. Homebase has been one of the most recognisable retail brands for almost 40 years, but the reality is we need to continue to take decisive action to address the underperformance of the business and deal with the burden of our cost base, as well as to protect thousands of jobs.

The CVA is therefore an essential measure for the business to take and will enable us to refocus our operations and rebuild our offer for the years ahead.

The company added that the trading environment had been "extremely challenging", with weak consumer confidence. Homebase said:

Under the terms of the CVA proposal, all creditors receive a better outcome than any other likely alternative.

Restructuring experts at Alvarez & Marsal will carry out the CVA, which will require the support of landlords via a vote on 31 August. The process is designed to stave off administration and save the business, but landlords say it is being misused as a quick way to downsize during tough times.

A group of landlords settled out of court after challenging a CVA process at department store House of Fraser before it was bought by Sports Direct via a pre-pack administration.

However, Stephanie Pollitt, the assistant director of real estate policy at the landlords' trade body, the British Property Federation (BPF), said:

Homebase and Alvarez & Marsal have demonstrated best practice, engaging with the BPF in the process and therefore ensuring property owners' interests have been properly taken into account.

Under Hilco's ownership, the 24 stores that were trading as Bunnings will convert back to the Homebase fascia.

Amazon to buy sites?

According to the Sunday Telegraph, Amazon is looking to acquire Homebase stores around the UK as it looks to extend its network of warehouses. If completed, the Homebase sites, many of which are situated in urban locations in major towns and cities, could become "last mile" warehouses, allowing for quicker delivery times for items ordered from the site.

B&Q drops prices, adopts EDLP strategy

UK-based DIY and garden chain, B&Q plans to lower prices on 2,000 products by around 15%, as part of its "Do It For Less" strategy, in the hope that lower prices all year round will appeal to shoppers. As a result, the retailer will be reducing its short-term pricing deals, including multi-buys, and reviewing some of its loyalty scheme benefits.

It has already invested GBP100 million in dropping prices on both branded and own-branded products, with further discounts planned on additional lines later on this year.

Like EDLP (Every Day Low Prices), B&Q's pricing strategy is aimed at encouraging shoppers to take on home improvement projects straight away, rather than waiting weeks or months for the next promotion or sales event.

B&Q said its new policy means that customers can enjoy competitively-priced products any day of the week throughout the year, rather than having to wait for sales to roll around.

The company also said its "Do It For Less" plan will make DIY more affordable, and therefore accessible to homeowners and renters of all ages and incomes. Paul White, B&Q's commercial director, said:

People may enjoy hunting for the best deal, but at the end of the day there is much more comfort knowing that there's one place where you can always get a low price.

All customers want to have prices they can trust and, as industry leaders, it's our responsibility to look after their best interests by ensuring our customers get our most competitive price.

B&Q first introduced a "simplified pricing strategy" across its kitchens offer in September 2014. Describing it as a successful move, B&Q said the use of promotional pricing in the category makes it difficult for customers to know if they are getting the best possible price.

The retailer said the economies of scale afforded by being part of the Kingfisher group and the joint buying functions under the One Kingfisher transformation enable it to price products competitively, as well as building a "unique and unified offer".

B&Q started to promote its Do It For Less price drops in mid-July, in the mainstream press, and via digital and social media, as well as in-store marketing.

When Bunnings acquired the Homebase stores in 2016, it rolled out EDLP across the Homebase business with an "Always low prices" tagline. The converted Bunnings stores came with "Lowest prices are just the beginning" tagline that was later changed to help UK customers understand what the stores actually sold. It meant that Bunnings generally concentrated on beating the opposition with low prices but analysts believe B&Q was often able to match these savings, which often resulted in a race to the lowest price.

Q2 improves

A run of hot weather also boosted sales at B&Q parent company, Kingfisher in the second quarter as more customers stocked up on barbecues and other outdoor items.

However, shares fell 2.2% as analysts pointed out that Kingfisher's recent performance has relied too much on good weather conditions.

The retail group, which also owns Screwfix, reported a 3.4% increase in sales to GBP3.25 billion for the quarter ended July 31. On a like-for-like basis, sales grew 1.6%, rebounding from a 4.0% decline in the first quarter when snowfall and icy temperatures in February and March kept customers away.

In the UK and Ireland division, like-for-like sales increased 4.2%, including 3.6% growth at B&Q and a 5.5% gain at Screwfix. Kingfisher said sales at B&Q were buoyed by demand for weather-related categories while Screwfix sales were lifted by the opening of 12 new outlets during the quarter. George Salmon, equity analyst at Hargreaves Lansdown, said:

At first glance, UK results represent a marked improvement. However, the strong sales figures are more a function of a scorching summer than any underlying progress. Strip out the impact of summer items like barbeques and garden furniture, and sales, which headed south over the winter, have continued to fall. That's quashed any hopes that B&Q would benefit from the recent problems at Homebase.

Like-for-sales in France dipped 1% as its DIY retail store Castorama continued to struggle in part due to weaker footfall and the impact of restructuring efforts. In the other international unit, like-for-like sales edged up 1.4%, driven by growth in Poland.

Metabo Germany joins Cordless Alliance System

Metabo in Germany announced its partnership with other tool manufacturers to create the Cordless Alliance System (CAS).

Under the CAS partnership, nine manufacturers of similar company size and with a focus on power tools for professional applications, will be sharing the same battery platform and chargers produced by Metabo. This allows CAS manufactures the use of the same battery pack systems, providing compatible batteries to be interchanged with other CAS tools manufacturers.

It provides end-users more freedom, flexibility with a broader range of tools, costs savings and solves problems by sharing the same battery platform across multiple tool manufacturers. Currently, there are over 110 power tools that are part of the CAS manufacturers.

The partnership is the latest step towards expanding Metabo's vision of a cordless construction site and metalworking shop, entirely run with 18V Lithium-ion High-Density Battery operated tools.

Metabo Germany president, Horst Garbrecht, expects the CAS to continue to grow, with a variety of manufacturers joining in the name of advanced battery technology. He said:

With Lithium-ion High-Density Battery we have enough power for the most energy-intensive applications, allowing us to build any hand-held power tool in a cordless version in such a way it meets the professional user's requirements of power and endurance.

When choosing a technology partner, CAS manufacturer Rothenberger chose to go with Metabo for several reasons, according to managing director Dr Christian Heine:

Due to the developments in [previous] years, Metabo has conquered the technological leadership and currently offers the most powerful system in the industry.

Aussie HOUSE opens in Norwich

Homewares and kitchen specialist, HOUSE, has opened its fifth UK store in Norwich's intu Chapelfield centre.

The Australian-based retailer has already opened stores in Oxford, Bracknell, Sheffield and online at www.houseUK.com. Executive chairman and CEO, Steven Lew, said:

Our UK rollout has focused on opening the best stores in the right locations. Norwich is a natural fit for HOUSE...

The Norwich HOUSE store offers more than 4,000 products including cookware, bakeware, glassware, kitchen gadgets, small electrical appliances, knives, table linens and accessories. With online ordering available in-store, Norwich residents will have access to a large range of brands including Cuisinepro, Alex Liddy, LSA and Joseph Joseph, to name a few.

Established in Australia in 1978, HOUSE is a member of the Global Retail Brands (GRB) family. GRB is the largest private specialty kitchen & homewares chain in the southern hemisphere, with more than 170 stand alone stores. The UK is the first foray into the northern hemisphere with more planned.

Travis Perkins' DIY business faces market challenges

The challenging state of the home improvement market in the UK are reflected in the latest results from Travis Perkins' consumer-facing division that includes DIY chain Wickes and trade supplier Toolstation.

Sales fell 1.8% to GBP807 million in the six months to the end of June, though on a like-for-like basis the drop was 4.2%.

Travis Perkins previously warned householders was reining in spending and unwilling to splash out on major DIY projects such as kitchens and bathrooms. Uncertainty in the property market and poor weather in March and April compounded this, as building projects were put off.

However, the situation has become so serious chief executive John Carter has launched a comprehensive review of the business, with current market conditions expected to continue for the "foreseeable future". He said:

Wickes has had a far more challenging period as weaker consumer spending trends, combined with a difficult competitive environment, have held back profitability.

Consequently, the Wickes team is executing a significant cost-reduction program. Whilst these savings will help drive improved profitability through the second half of the year, Wickes' profits will be lower than previously expected.

While attention was focused on the consumer business, Travis Perkins reported a rise in group revenues of 4.4% at GBP3.4 billion, though it fell to a GBP123.4 million pre-tax loss from a GBP167.4 million profit for the same period last year. This was largely the result of a GBP246 million goodwill impairment against Wickes, with restructuring costs also having an impact.

Sales growth was driven by the continued growth of the store network in the UK, with 22 new stores opened in the half taking the total network to 317. The expansion of the Toolstation Europe network continued with further stores in the Netherlands and an extension of the trial in France, with encouraging sales results.

The other parts of the business performed better. General merchanting, the company's largest division which supplies builders, reported sales up 0.9% at GBP1.1 billion, plumbing and heating - which was restructured last year - was 15.5% better at GBP774 million, and the contracts business, which supplies larger builders, saw sales rise 6.4% to GBP718 million.

Mr Carter tried to put a positive spin on the business, saying "long-term drivers of market growth remain strong, centred on the UK's requirement for more homes and under-investment in the repair, maintenance and improvement of existing dwellings".

Home Depot is installing lockers in its stores for customers to pick up items they have ordered online; Lowe's CEO is working quickly to streamline the business; MORSCO enters Nevada plumbing market; Lowe's is using virtual reality technology to get people into stores; cloud-based platform makes managing hourly staff more efficient at Ace Hardware; and home improvement companies phasing out paint strippers with toxic chemicals.

Home Depot adds convenience to online sales

Big box retailer, Home Depot is installing lockers in many of its locations to support its in-store pick-up service. The move enables the home improvement retailer to get items to online customers right away instead of waiting for their purchases to be delivered to their home.

Those who order merchandise online are directed to the rows of orange boxes, where they unlock the designated one and then leave without having to seek assistance from an employee. Spokeswoman Lana Johnston has said:

...customers' expectations with shopping are changing, and they want as many options as you can possibly give them.

As a result, Home Depot hopes to have lockers in all its brick-and-mortar stores within three years. With 46% of its online orders picked up at stores, "the lockers allow us to simplify that process by providing customers with the convenience of self-service and time savings," Ms Johnston said.

Lockers at Home Depot were first tested in early 2016 and were rolled out more widely late last year. They offer three compartment sizes that can hold more than 60% of items available through the retailer's "Buy Online, Pickup In Store" program. Items that don't fit can be picked up at the customer service desk.

Lockers are a way that chains such as Home Depot are trying to leverage their network of stores - one is situated within 10 miles (16kms) of 90% of the US population - to provide customers with their merchandise soon after it is ordered.

Given the massive size of its stores and myriad items that it makes available online but are not sold in stores, the lockers seem to make sense. Rob Haslehurst, managing director and partner of L.E.K. Consulting, believes the lockers help reduce lines at the stores' customer service desks, which had become a "pinch point." And "many consumers don't like interacting with people, and the locker gives that segment a way to get their product in an all-digital experience."

The pick up locker option also meets the consumer desire to avoid shipping charges on their online orders, according to research from Astound Commerce, which found that 57% of shoppers (in the US) hunt for free shipping offers, making "low shipping rates" too expensive for most.

Q2 performance

The big box retailer also beat expectations during the second quarter as it boosted its full-year profit and revenue forecasts. Its second-quarter profit reached USD3.51 billion, or USD3.05 per share. That a much bigger per-share profit than the USD2.84 that Wall Street was looking for, according to analysts surveyed by Zacks Investment Research.

Revenue rose to USD30.46 billion, from USD28.11 billion, also topping projections of USD29.98 billion on Wall Street.

Sales at stores open at least a year, or same-store sales, increased 8%, and 8.1% in the US.

Home Depot said that big ticket sales - now being defined as transactions over USD1,000 - represent about 20% of the chain's US sales. It had previously defined big ticket sales as transactions over USD900.

In the second quarter, transactions over USD1,000 were up 10.6% compared to the second quarter of fiscal 2017. Big ticket purchases that contributed to growth during the period included vinyl plank flooring appliances. Its Pro customers also helped drive growth.

New Lowe's CEO hits the ground running

In less than two months, Lowe's chief executive officer Marvin Ellison has decided to shut down a division of smaller stores and eliminate USD500 million in capital projects that will be returned to shareholders.

Lowe's said it would close 99 stores of its hardware and garden chain Orchard Supply by the end of the fiscal year. It also said it would seek to cut back on inventory of slow-selling product lines and reinvest in faster-moving goods.

The acquisition of Orchard Supply, with stores based mainly on the west coast of America, accelerated the company's expansion into key markets like California. But it came at a price as the chain, which Lowe's purchased out of bankruptcy for about USD205 million, was often a drag on results.

For the shutdown of the unit, Lowe's took a USD230 million charge last quarter, and it expects additional costs of as much as USD475 million in the second half of the year.

Mr Ellison said the exiting of Orchard Supply was part of a larger strategic review of the company that will including looking at its real estate holdings and assets that don't involve its retail business. Cost cutting will also be a major focus. He said:

The company has unfortunately become distracted over the past few years. We must create a true expense reduction culture here.

Lowe's same-store sales growth has usually lagged Home Depot's because it focuses more on DIY customers compared to its rival's focus on professional contractors (tradies) with their larger purchases.

The home improvement retailer's same-store sales increased 5.2% during the period that ended August 3, capitalising on the delayed demand for spring season goods but missed expectation of a 5.34% increase.

However net sales rose 7% to USD20.89 billion, beating expectations. Excluding one-time items, the company earned USD2.07 per share, topping estimates of USD2.02.

Restructure

Under Mr Ellison, who took charge in July, the company has also eliminated four senior positions including chief operating officer, chief customer officer, corporate administration executive, and chief development officer, while creating two new senior roles for stores and supply chain.

To keep Lowe's from slipping further behind Home Depot, Mr Ellison said a shake-up was necessary. In a statement, he said:

We have taken a fresh look at our organisational structure and are realigning our leadership team to improve our focus, better leverage Lowe's omni-channel capabilities and deliver increased value for our customers, associates and shareholders.

The overall purpose of the changes is to "drive operational excellence," according to the company.

Reece-owned MORSCO enters new market

US-based distributor of plumbing, waterworks and HVAC products, MORSCO announced it has entered into an agreement to purchase the assets of Desert Pipe & Supply's Las Vegas location.

Desert Pipe & Supply is a plumbing wholesaler located in Palm Desert, California and Las Vegas. The company has serviced residential and commercial plumbing and mechanical contractors for more than 30 years.

As a part of the agreement, five associates and one Desert Pipe & Supply location in Las Vegas will become a part of MORSCO, operating under the Farnsworth Wholesale brand, following a transition period. Desert Pipe & Supply's Palm Desert outpost will continue to be owned and operated by the existing Desert Pipe & Supply ownership. MORSCO CEO, Chip Hornsby, said:

MORSCO is very enthusiastic to be a part of the booming Las Vegas market. This is certainly an area of the country we've had on our radar for some time and this opportunity with Desert Pipe & Supply fits well into our overall strategic growth initiatives for 2018. As the Las Vegas economy continues to recover from the financial crisis in the late 2000s, MORSCO sees plenty of opportunity here...

Australian plumbing group, Reece recently completed its acquisition of MORSCO. First announced in May 2018, this acquisition marks Reece Group's entry into the US plumbing market through MORSCO's 170+ branches within 16 states throughout the Sun Belt region of the US.

Related:

Lowe's attracting DIYers with reality tech

Augmented reality and virtual reality tools are being used by Lowe's to help customers visualise and "feel" a large home improvement product in the context of the customer's living space.

Josh Shabtai, director of lab productions at Lowe's Innovation Labs, said:

We look at age-old customer problems. These are problems that keep resurfacing that folks haven't solved yet. Our hypothesis is that as we move people closer to realising their visions, they'll feel more confident.

Lowe's Innovation Labs were established four years ago to delve deeper into these questions, said Mr Shabtai. Often working with startups, the company has since rolled out several pilot projects to test customers' comfort with virtual and augmented reality, including Holoroom How-To, which immerses a customer in a DIY project - such as tiling a shower - and gives them step-by-step instruction to complete the task; employee training programs that involve virtual reality; Holoroom Test Drive, a feature that uses VR to offer customers a chance to sense the feeling they are actually holding and using a power tool; and View in Your Space, a mobile app feature which lets customers visualise how a piece of furniture may fit within the physical dimensions of their own living spaces.

Of these pilots, two currently are still in market: Holoroom Test and the AR feature which went live for Android users in March.

While quick turnaround trials may suggest there are challenges getting customers to comfortably use the technology on a regular basis, Mr Shabtai said the timing is part of Lowe's approach to test new use cases, study the outcomes, and apply the lessons to future releases. He said:

We're trying to refine the experience and move on to an application that will be better and ready to scale.

Mr Shabtai said early results are showing that VR-and AR-enabled tools offer two key use cases: helping customers better navigate how they'll use tools or whether products are physically compatible with their homes; and helping employees learn more quickly to offer more personalised expertise. This will add more value to the in-store experience.

When [customers] come into a Lowe's store, they want to talk to an employee who is a real expert in the space.

According to company proprietary data, employees who are trained on machinery using VR are 76% more likely to try out a piece of machinery compared to those who were trained using conventional methods; and customers have 42% greater recall with VR tools compared to YouTube how-to videos.

He conceded that the biggest challenge standing in the way of more mainstream adoption is cost, while AR can be more quickly deployed given the ubiquity of smartphones.

Lowe's advantage is to tie the customer closer to the brand through these types of immersive efforts. Tactile experiences through virtual and augmented reality are ways legacy retailers can keep customers loyal, especially with competition from Amazon. Jim Cusson, president of retail marketing agency Theory House, said:

Amazon wins on convenience and selection, so how can retailers combat that? A lot of this has to do with the experience and brand engagement [derived from immersive tools like VR and AR].

Morningstar analyst Jaime Katz also wrote in a recent report that Lowes' business model is built off of customer service, knowledge, and innovation. Using VR and AR could help augment its reach.

Ace Hardware manages hourly staff with software

Several Ace Hardware locations have turned to workforce management software company Deputy to help manage an hourly workforce across a number of stores.

The software supports mobile clocking in and out capabilities, scheduling, meal and break compliance, task-tracking and performance management. This should free up managers and floor staff to spend time serving customers. Darrell Moseley, owner of a Washington-based Ace Hardware store, said:

I used to spend up to eight hours a week creating my staff's schedules, With Deputy's integrated timesheet and scheduling feature, this previously laborious task only takes a couple hours, leaving my time open to pay attention to other critical matters - bettering our store's performance.

Deputy is an Australian-based company that aims is to make managing employees easier. Ashik Ahmed, Deputy's CEO and founder, tells UK-based Techworld.com that Deputy is designed to reduce the stress of mundane tasks and automate team schedule management. He said:

Deputy as a product, what we do is scheduling, time and attendance, communication and tasking. These problems are universal for any hourly paid worker and Deputy solves them in a mobile-first, user-intuitive way that allows the product to get easily adopted.

The key part of what we offer is mobility. Everyone has a smartphone these days and 60% of our user base is actually on mobile.

Deputy's platform is a smartphone-based app, which is accessible by every employee to clock in and out and swaps shifts. Auto-scheduling is a new feature that is powered by artificial intelligence for workers to build their own schedules. Mr Ahmed said:

Quite a lot of businesses will be using an iPad app that we have for clock in and out, and of course we made sure it is all GDPR (General Data Protection Regulation) complaint. Because it is smartphone accessible, people can have their schedules and do everything they need to change their work lives.

For Deputy...what we want to do is get the best employees back on the floor working with the team. Everything that they have to do from an administrative perspective, they can do straight from their phone.

Home improvement firms ban toxic chemicals

Home Depot announced it will stop selling paint stripping products containing purportedly toxic substances responsible for consumer deaths. The big box retailer will phase out the use of the chemicals - methylene chloride and N-methylpyrrolidone - in paint removal products by the end of this year.

Banning the two chemicals is a way "to build upon our strategy to maintain continual improvement in health and environmental safety for products," it said in a statement.

The announcement came after aggressive lobbying by a group known as Safer Chemicals, Healthy Families, which includes more than 450 US-based organisations and businesses. At least 60 deaths are blamed on the chemicals commercial use, the group said.

Rival home improvement retailer, Lowe's was the first US retailer to agree to ban those chemicals, according to Mike Schade, a representative of Safer Chemicals.

Paint and coating giant, Sherwin-Williams also recently said it would stop using the chemicals.

The chemicals have been found to pose unacceptable health risks to the public, including cancer, harm to the nervous system and to childhood development, and death. In 2017, the US Environmental Protection Agency proposed a ban on the paint removers that contain the chemicals.

However, the agency has taken no action since Scott Pruitt became EPA administrator.

Wesfarmers' recent Strategy Day signified a firm move towards data analytics. In this issue, we explore what this might mean for the large and small retailers in the hardware-home improvement industry.

At the same time, Bunnings managing director, Michael Schneider, outlined areas of growth for the big-box home improvement retailer. It will utilise data sources such as its PowerPass loyalty card to drive future progress.

Simply click on the following link to download this edition:

In this issue, we also detail the latest results from Metcash, parent company of Independent Hardware Group that includes Mitre 10 and Home Timber & Hardware.

Plumbing is likely to be a big focus for the rest of 2018. Reece Group has acquired US company MORSCO, and HI News speculates this may have something to do with the company expanding its data analytics capability. There are also rumours about Bunnings' plans to change its plumbing range while plumbing specialist, Samios has developed trade-oriented showrooms to boost its sales. Linkware International has also developed an advanced hang-sell and window box packaging system, which makes it easier for DIYers to self service in-store.

In our occasional series of profiling people from the industry, we speak to Steve Fatileh, group buying manager for Hardware & Building Traders group. He has done a lot of work to expand the H brand of stores.

The statistics section features trends in the home improvement and renovation markets, as indicated by Houzz.

International retailers in this issue include B&Q, Screwfix, Home Depot, Lowe's and Ace Hardware. Suppliers include Stanley Black & Decker, Reliance Worldwide, Reece, Fletcher Building Australia, Knauf and Briggs & Stratton.