The Australian Bureau of Statistics (ABS) has released stats for hardware retail sales in Australia to April 2021. These statistics show the first change for 2021 that could be seen as indicating the end of the COVID-19 "bubble" in hardware retail revenues.

When bubbles come to their end, we can speak of this as a "soft" close or a "hard" close. In the soft version, the established level of sales continues but growth ceases, or goes slightly backwards. In the hard close, sales tend to revert back to where they were prior to the bubble.

As Chart 1 shows, the bubble has been very good to most hardware retailers. As the trailing 12-month stats move through the pandemic year, the statistical gain will diminish for the most recent 12 months. At its peak, the number for stats taken from March 2020 to the end of February 2021, the increase is more than $4 billion, and represents growth of over 22%. In these stats, just off that peak, the gain is down to $3.4 billion and 19%.

New South Wales (NSW) led the gains with revenues of $7205 million, an increase of 21.85%. Queensland (QLD) was boosted by $869 million to $5053 million, a gain of 20.77%. Both South Australia (SA) and Western Australia (WA) had gains of around 17%, while the Australian Capital Territory (ACT) had the biggest percentage increase of over 28%, with total revenues of $508 million. Victoria (VIC) had the lowest percentage gain, at 13.17%, to $6719 million.

Chart 2 indicates just how strong the gains have been. While VIC's increase for the 12 months to April 2021 is within range of gains for the 12 months to April 2013, the other states and territories exhibit the steepest gains over the past decade.

Chart 3, however shows some clear signs of the end of ongoing growth in hardware retail sales. It portrays month-on-corresponding-month figures, which have, for the first time since January 2020, dipped into negative territory. The largest fall was in SA, which was down -14.81%, followed by QLD at -7.03%, and VIC at -6.50%. Sales in Australia overall fell by 5.05%. The strongest turnaround was in NSW, where sales for March 2021 showed a gain of 12.07%, but fell by -1.31% in April 2021.

In Chart 4, we've smoothed the numbers out over three months, for February, March and April, and compared these over the years. This shows a distinct slowing over the most recent period, with growth going back to that of the better years prior to the 2020 bubble. The exception to that is for Victoria, which shows a stark downwards trend from 2020 to 2021.

Analysis

The statistical question really comes down to whether the result for VIC represents something individual to that state, or if it is an early indicator of what is to come for NSW, QLD, and potentially several other states and territories. Simply that question itself, however, indicates, that after 15 months of Australia-wide forces dominating the hardware retail sector, we are likely facing a period where individual state and territory forces will see results vary more widely.

Victoria has, in many ways, been the state most affected by the COVID-19 pandemic, with the longest and most severe lockdowns. That could mean that it will suffer in unique ways, as JobKeeper and other assistance fades away, or it could mean it presages some effects that will make their way more generally through Australia.

It is still too early to call whether hardware retail is set for a hard or soft correction out of the bubble. One "wildcard" is what happens with the real estate market. To some the soaring prices of dwellings represent a structural revaluing of these assets (despite slowing population growth and increased decentralisation brought about by work-from-home and other changes in the commercial environment). Others see a situation more akin to the Global Financial Crisis (GFC) of 2007/08.

One aspect that continues to see only limited attention is that, for some reason, market analysts have decided Australians will essentially "never" return to multi-unit dwellings. A reluctance to live in apartment blocks has certainly contributed to the surge in house prices, but that surge has been so extreme that it seems highly likely apartment will see a surge in popularity in the coming financial year. That could trigger the flatlining of house prices for a period, and that flatline could itself trigger a further, widespread decline.

There is also the matter of the political situation. While many have seen the current government as being reluctant to call an election before 2022, it's quite possible that there will be ongoing post-pandemic economic effects that require a choice between continued support, or introducing a measure of austerity. The government will try to have the election over with before those choices become too difficult, which gives even probability to an election in mid-November 2021 or one in March 2022.

In terms of the long view, over the entire FY2021/22, HNN would predict that the market will "split the difference" on a hard or soft correction to the hardware retail bubble. Retail sales are very likely to decline from the level of the pandemic, but they will probably not drop to the level they were at pre-pandemic. The first strong indicators of what will happen will come with the September 2021 hardware retail numbers.

How complex can a tool become, before it becomes too difficult to use?

That's really the question we need to address when we look at Makita's latest "top of the line" impact driver, the Makita Cordless Impact Driver TD001G. This is part of Makita's recently launched 40V XGT line of tools. This range makes use of modern 21700 Lithium-ion battery cells to deliver either 40V (36V nominal) through a single battery or 80V (72V nominal) through a double-battery setup.

As Li-ion tools have developed, and moved to running brushless motors, the electronics which control them have grown more complex. Older tools with brushed motors relied on mechanical parts to make their motors work, but brushless tools use elaborate, very fast switching circuits to alter the flow of current in the electric motor's electromagnets. That switching can be controlled on the nanosecond level, which boosts the range of ways these motors can behave. Today even the more basic circuit boards offer a wide range of features, yet the majority of tools have only just begun to explore their possibilities.

The TD001G from Makita is one of the first of the Japanese company's tools to really dig deeper into what the tools can do. In many ways that is a great idea, yet it would seem to have run into some limitations that Makita has historically imposed on itself. The main limitation is simply that Makita has shied away from the role that software has to play in the modern power tool company. This means that while the number of modes the TD001G can enter into has multiplied considerably, the interface used to control those modes is copied from tools that might have a maximum total of only six or so modes to control.

The solution to these control problems which companies - such as Techtronic Industry's Milwaukee brand - have pursued is to move much of the interface from the tool to the smartphone. If you have thought this was a bit of an "overcooked" solution in the past, then just looking through the instructions for the TD001G might convince you otherwise.

Many of the tool's specifications are impressive, indeed. It has a maximum no load speed of 3700rpm, a maximum impact rate of 4400ipm, and a maximum tightening torque of 220Nm.

Where the problems start to come up is when we begin to look at just the instructions for running the tool. That all begins with this diagram, which sets out the interface panels that are available.

This is what the basic control panel looks like:

Here is Makita's description of how the modes enabled by these panels work:

Here is the diagram explaining how to use the "quick mode-switching button":

That's what you need to know to make one button work.

The impact force is relatively easy to set by comparison, as it is just a four-LED panel, which sets the number of impacts to 1100, 2600, 3600 and 4400 impacts a minute.

The "assist type" is a whole different matter. The following is the chart to help you adjust that.

Just to finish this off, this is the chart of "indication patterns" that communicate the state of the tool to its user.

Alternatives

There is no doubt that the TDG001 will be a great tool, just like all the other Makita impact drivers. But this interface is going to be really daunting for all but the most die-hard Milwaukee supporters.

What would be an alternative? Allowing the tool to interface with a smartphone over Bluetooth opens up a whole new world of configuration options. Here is a screenshot from a video produced by Milwaukee outlining processes for a One-Key drill:

Those are just the basics. It's a simple matter to add more esoteric settings as well, such as the ramp-up duration:

More to the point, to communicate what you need to do to set up a One-Key drill, the entire video is just two and half minutes long. It's that simple.

Analysis

HNN has been predicting for some time that Makita, pursuing its non-software path, would sooner or later run into limitations. This tool may still be a success, but at a guess the company is going to get some feedback about exactly how difficult it is to use. We would also suggest that most users are maybe going to learn how to set and use two or three settings, and let it go at that.

Hopefully, what Makita will learn from this tool is that it really has no choice but to enter the world of Bluetooth connected tools, if it wants to provide this kind of advanced features.

In Mackay (QLD), Porters Mitre 10 joint general manager Greg Porter remains confident the business can keep up with the current demand for timber and other building supplies despite the construction boom around the world.

Amid restrictions on movement to stop the spread of COVID-19, people around the world are looking for bigger homes or embarking on renovation projects, sapping supply and driving up market prices for the most important component, timber.

In Australia, the HomeBuilder grant was tipped to attract 27,000 applications, but so far has received more than 121,000 across the country. A combination of low interest rates, government stimulus payments during the COVID-19 shutdowns and border closures, saw Aussies turn to bricks and mortar either through renovations or new builds.

Master Builders Queensland Townsville regional manager Emma Peters said the issues facing builders and trade contractors are "substantial". She told the Townsville Bulletin:

The resulting demand has created the first-world problem of builders being extremely busy with the work they won while the grant was running - as well as dealing with the growing problem of trade and materials shortages, and price hikes.

At Porters, the business is using all available supply lines to meet the "unprecedented" level of building approvals. Mr Porter told the Daily Mercury:

I'm supplying more product than I've ever had to supply in a very long time.

He said the pressure on building materials was amplified by an "excessive amount" of construction activity around the country.

In the past, we've never had these challenges. We've never seen every state in Australia in a very strong position construction-activity wise. There's always been one or two states that aren't in a growth period.

Queensland-based timber and hardware business, Bretts said it has been fielding desperate pleas for material from local builders and other states. Bretts managing director Bill Nutting said the firm would normally produce frames and trusses for 1000 homes a year. But in a recent week alone, they turned away requests for 600. He said suppliers were doing what they could, but labour shortages were impacting too. He had heard several stories of builders receiving calls from roofing contractors due to start work the next day demanding an increase of $5000 to do the job or they wouldn't turn up. He told The Courier-Mail:

The market is so hot they could walk next door and get the money. This is going to go for 12 or 18 months. The prices are going to keep going north and there's going to be delays. It's inevitable.

It's very unhealthy. We'd much rather see this play out over two years, not over 12 months.

Building products group Williams Group Australia relies on softwood produced at Tumut (NSW) to help supply its needs. Sales manager Mark Pickett said the current climate was proving "very challenging" in light of the fact Australia can't produce enough timber to meet demand. He told The Land newspaper:

This is across the board in NSW, Queensland, Victoria - demand for timber in all the states is very strong.

Yes the [2019] fires had an impact and they have lost a shift at Tumut - the mill used to run two shifts - which means that we are dragging logs from further away and that raises the cost. The impact has been severe. In the US, the lumber price index is off the Richter scale and sawmills can't catch up, so they have gone to Europe for logs. In Australia we pay northern hemisphere prices for lumber and that equates to a significantly dearer price.

Mr Pickett said prices were forecast to remain strong through 2024.

Timber production is an investment, not just something that you can grow in a few years. It will be 25-27 years before we get a harvest from new plantings.

Mitre 10 Goulburn operations manager Matthew Lawler put the timber shortage down to Covid-19, international tariffs and the ongoing impact of the 2019/20 bushfires. He told the Goulburn Post:

The bushfires totally stripped supplies.

Mr Lawler explained that burnt material meant suppliers went through blades faster which made manufacturing difficult. He said that while Mitre 10 had a good relationship with current suppliers and was "one of the priorities", they were searching for alternative solutions.

He said alternatives included a laminated veneer lumber product (LVL) that could be used for frames and trusses. However, this product is also in short supply and manufactured in Europe and Russia.

Steel was another option, but Mr Lawler said supply was "drained" due to current demand. He said builders were also finding it difficult to get hold of metal reinforcing mesh for concrete.

In Orange (NSW), the timber shortage will cause delays in housebuilding for years to come. Brendan Kent from Kents H Hardware explains that pine framing is used for 90% of new houses. He told the Central Western Daily:

What I've been told by suppliers is that it's going to be an issue that will take years to improve, it won't be fixed overnight. I've been told by a few of our customers that they're being delayed by two to three months. I hope I'm wrong but as far as I can gather this will be the new norm. There's no light at the end of the tunnel.

Normally Mr Kent would import the timber from New Zealand or South America. But the global demand for the wood has seen prices skyrocket. He said:

Now the US and Europe are buying it off them for 30-40% more than what we pay. Unfortunately most places are now limiting how much people can buy, so full packs of timber we unfortunately can't sell to anyone.

The way we see it, instead of selling it all to one customer we're better off sharing it around so everyone can stay in work.

Philip MacGregor, executive chairman at Sydney's Hardware & General, said the worsening shortage of timber, steel and other supplies hitting the industry is simply "overwhelming". Over the past 35 years, Mr MacGregor has experienced the "bust and boom" cycle of the construction industry. He told AFR (Australian Financial Review) Weekend:

This is bigger than all of those because it's widespread.

The huge increase in demand for new homes and renovations is colliding with a severely stressed global supply chain for basic materials. Shipping and transport bottlenecks caused by the ongoing pandemic have left consumers and businesses struggling to get their hands on everything from cars to mattresses and pianos, according to AFR Weekend.

Hardware & General's biggest customers are builders that typically construct between two and five houses a year. Mr MacGregor said:

Everything is going full steam ahead to the point where supply can't keep up, whether it be labour or raw materials.

The result is a steep leap in prices and wait times. Canny builders are stockpiling more than they immediately need. Others, Mr MacGregor said, are turning customers away or absorbing hits to profitability.

Bruce Parker, group manager at Hardware & General said locally produced timber costs have gone up by 20% to 25% this year alone, with more increases to come. Imported timber has increased by as much as 90% and more. Part of the reason is that Australian timber buyers are now competing for supply from Asian mills with American builders, who are in the grip of their own construction boom. He told AFR Weekend:

All the costs in the supply chain have just gone crazy. This isn't going to ease off until global demand eases off.

Pricing pressure

Everything from steel reinforcing for concrete slabs to timber for framing and cladding, flooring, roofing, doors and fittings have soared in price, according to the Housing Industry Association (HIA), and are sometimes taking months longer to arrive.

Stephen Havas, housing chairman at Master Builders Queensland old The Courier-Mail:

[The costs] are not currently priced into building contracts or they are being gradually fed into building contracts. Builders have little or no margin left at the end of projects to pay wages or fix building costs.

Builders have to increase their prices to match both what they are paying now and what they might have to pay in the future. The cost of construction from a consumer perspective is going to rise.

Bunnings has also experienced "unprecedented demand" for timber products and expects elevated timber prices to squeeze its margins for up to another year. Managing director Michael Schneider said at its recent Strategy Day presentation:

We think about timber (and) we've probably got another six to 12 months of some challenge.

"Feedstock is in a reasonably good space, but getting it through the mills and, clearly, the strong demand is putting pressure on," added Mr Schneider, using the term for raw timber that is processed into usable wood products.

Mr Schneider said Bunnings was reluctant to put up shelf prices and hoped to tackle the margin pressure by cutting costs.

We do a lot of work with our suppliers to look at ways that we can offset costs through improved efficiencies in supply chain or volume purchases.

HIA chief economist, Tim Reardon, believes the shortage was likely to last for another six months. He told the Herald Sun it was expected the housing construction surge would continue until the middle of next year, and then return to a "more normal market level".

Mr Reardon said timber supply would also improve as domestic manufacturers to ramp up their output, which would come as they trained new staff, and open or commission new mills.

Related: Hardware retailers have been experiencing supply challenges in building supplies for some time.

The Bunnings store located in the Toombul Shopping Centre in Brisbane (QLD) is set to close after five years.

The small-format Bunnings outlet is accessible from within the shopping centre and opened in August 2016. However regional operations manager Margaret Walford said reviews of the company's place in the local community revealed the Toombul site was no longer needed. She told the Northside Chronicle:

As our store portfolio evolves and new investments are made, we continually review our network and our needs in the local areas in which we operate and our stores play an important role as part of that.

Because our lease expiry was nearing, we've made the decision to cease operations at our Toombul smaller format store and service the local community from our nearby stores in Virginia, Newstead and Stafford. Both our Virginia and Newstead Bunnings Warehouses opened in 2019 and offer customers a newer, wider and improved offer.

Staff at the Toombul store had "done an incredible job serving customers and the local community... and we thank the team for their commitment", said Ms Walford. She confirmed all staff would be offered transfers to nearby Bunnings stores.

She also said the closure did not affect plans for opening stores in other locations and said news of the closure followed development plans for an expansion of the retailer's Stafford store.

The significant expansion of the Stafford Road site was put before Brisbane City Council last year and would include an additional 6000sqm of additional retail space and 180 new car parks.

Modbury

The site where the Bunnings store is situated in Modbury (SA) has been sold to Inheritance Capital Asset Management (ICAM). It is leased to Bunnings until at least 2025 with four, five-year renewal options thereafter. The vendor was Adelaide Property Management.

Located in close proximity to the Modbury Triangle Shopping Centre and Westfield Tea Tree Plaza, the Bunnings-tenanted asset is viewed as "Covid-proof" because of its stable, long-term income stream.

Freestanding Bunnings-leased freehold properties are highly sought after by investors due to the certainty of income. Only 22 warehouses were brought to market between 2016 and 2019 ahead of Charter Hall's acquisition of a portfolio of six Bunnings assets in late 2020 for $353 million.

ICAM, which has $395 million in assets under management, said the site also had strong prospects for population growth.

The transaction was negotiated by Jamie Guerra and Ben Parkinson from JLL. Mr Guerra said Bunnings assets continue to attract core capital. He told The Australian:

Investors are particularly attracted to secure, well-leased retail opportunities in South Australia providing attractive yields and no stamp duty on commercial transactions.

ICAM recognised the value of the Bunnings lease and with their existing retail expertise were attracted to the tightly held Modbury precinct.

Related: Charter Hall Group and two Australian superannuation funds have acquired a portfolio of six Bunnings hardware stores.

On 3 June 2021 Wesfarmers held its strategy day focused on the 2021/22 financial year, which took place at the Fullerton (formerly Westin) Hotel in Sydney, Australia.

For Bunnings, looking back over the previous 10 years of these strategy days, this is probably the second most significant such event, over-shadowed only by the strategy day in June 2012, when Bunnings released details of its response to the launch of Masters Home Improvement, a retail venture by Woolworths.

This is also only the third strategy day since the failure of Bunnings' attempt to enter the United Kingdom (UK) and Ireland markets through the acquisition of the retailer Homebase.

It is worth briefly revisiting that history because it has indirectly influenced this strategy day. There has been a number of journalists who have made a complete hash of covering the rise and fall of BUKI. In terms of the operation of Homebase itself, there is really nothing complex about it.

In January 2016 Woolworths announced that Masters would be shut down, and Bunnings announced the formation of Bunnings UK & Ireland (BUKI).

The original plan was to acquire Homebase, make a few improvements, but concentrate on developing a Bunnings-branded offer for the UK market. This was a classic Bunnings strategy: develop a prototype, test it in the market, make improvements, and eventually roll it out.

Instead, Wesfarmers chose to make a substantial investment in Homebase stores, without any testing, and with a very poor understanding of the UK market. (Somewhat ironically, Bunnings' understanding of the UK was slightly worse than that of US retailer Lowe's understanding of the Australian market when it partnered with Woolworths in Masters.) This lack of knowledge was exacerbated by the wholesale dismissal of almost all of the Homebase management staff (including its very competent CEO). It was a case of a company being caught out by the "unknown unknowns" - it did not even realise the extent of its lack of expertise.

The question is, of course, why did Bunnings choose such a risky venture? In HNN's analysis, it's important to understand the situation of Bunnings at the end of 2015. The company's strategy - to face-off against the expansion of Masters through its own expansion - was incredibly successful. To achieve that goal, it had built up an outstanding management staff, capable of rapid and effective execution. With Masters defeated, what was going to happen to all that expertise and capability?

There really were only two ways for it to go. Either Bunnings would have to take the essentials of its current business and break these to reform into an even more successful company, or it would have to find new markets to enter with the existing model, and expand through access to more customers.

In 2016, Bunnings chose the latter.

What Bunnings managing director, Mike Schneider, announced on 3 June 2021 was, essentially, Bunnings choosing the former path. In typical Bunnings style, this was done in an understated manner. But it is, nonetheless, strategically very significant.

The reasons for this are fairly evident, and it is largely down to two influences the COVID-19 pandemic has had on the business. The first influence is simply that revenues have increased strongly- due both to the pandemic boosting stay-at-home DIY projects, and the increasing value of dwellings. The difficulty this creates is that Wesfarmers and Bunnings will be cycling these high numbers, probably not just for one year, but for three halves. To continue to "deliver shareholder value", the company needs to at the very least retain those retail sales, if not increase them by percentages somewhere in the mid-single digits.

The second influence is the type of customer who has been coming to Bunnings during the pandemic. Where the standard Bunnings customer is somewhat value-conscious, the most recent surge has seen growth in consumers willing to pay more. Bunnings has had the opportunity to introduce its offer to a wider market than before, and its future growth is partly based on keeping those customers coming back.

The situation of Bunnings pre-pandemic was similar to that of many larger Australian retailers: a relatively static market - demographically - to sell into, with the main task being how to derive the best sales from that market. Post-pandemic, Bunnings is closer to the situation of retailers in the North American markets, where engagement, bringing newer customers back to the store, has increased in importance.

What we will present here is a quick summary of the major points of what is new, and a roundup of the more familiar. More in-depth analysis will appear in the forthcoming edition of HI News digital magazine.

The new stuff

While much of this is new, it does build on existing structures, but takes those in unexpected directions.

Quality ranging

According to Mr Schneider:

Our focus is ensuring we have a true ranging diamond - entry, good, better and best - introducing products in line with customer aspirations and needs.

The big change here appears to be the addition of "entry [level]" goods. In the past, the Bunnings range has been mostly described as only "good, better, best".

It would be tempting to see this as being the introduction of a new "sub-level" of goods, but the truth is that a better description of much of what Bunnings has to offer is "entry level, good, better". So what this extra level really likely indicates isn't a new sub-level, but rather a new top level - which is reflected in the next point.

Style

According to Mr Schneider:

And we're upping our focus on stylish on-trend products, recognising our customers desire not only to access essential products for home repair or maintenance, but also to be inspired to undertake more diverse projects.

That's a clear reflection of a shift in market strategy. While Bunnings intends to stay with its "warehouse" look and feel, the retailer realises it needs to offer facilities for a wider range of projects, especially at the premium end.

Store layout

Commenting on changes to the display of goods, Mr Schneider said:

You can see an example of this on this slide where we've located all the products a customer needs to move their home or business in one aisle. This space optimisation work is enabling us to introduce inspiring new store layouts.

While this type of project-based layout is something we have seen before at Bunnings (the Chadstone, Victoria store had a similar area for moving supplies at launch), the fact that this is being called out indicates it will become more common.

Customer contact

Commenting on the influences on the in-store service teams, Mr Schneider states:

And when in store, we want our team members to spend more of their time with our customers to help them with the advice and materials they need.

From some comments HNN has heard from Bunnings workers, part of the training at some points in the past has included making sure staff minimises time spent with customers, so that they can perform a full range of duties, including restocking. That is a contrast to what is regarded as best practice at US retailers, where work systems are developed to minimise time staff spends on tasks that are not directly customer-facing.

Market segmentation

Discussing Bunnings' renewed focus on commercial customers, Mr Schneider commented:

Our commercial business continues to be a significant growth opportunity. We take a segmented approach to the market, with our three primary commercial customer groups. Regardless of the segment, we ensure we use a mix of leading brands and channels to serve our customers.

The previous managing director of Bunnings, John Gillam, was always very clear that Bunnings did not do segmentation. In his view, Bunnings functioned as a kind of endpoint to a global sourcing/supply chain operation. While this is perhaps the most "abstract" change, it is still an important one.

Appliances

In responding to a question from Brooke Campbell Crawford, an analyst with JP Morgan, Mr Schneider said:

We're also interested in categories like appliances that are sort of fitted to the home so we're not really thinking as much you know, TVs and sound systems, but more in sort of fridges and dishwashers. We do have a small range of those but clearly there's opportunities to look for growth in those, as we see our global peers do so you know, it is it is within that ranging lens. We're very focused on that. You know, we're not sort of considering homewares Or some of the softer furnishings. That's not what we sort of see in our purview.

First of all, this was perhaps one of the real "bombshells" of the presentation. Bunnings has for years been questioned as to whether it intends to go into appliance sales, and has always demurred, citing intense market competition and poor range fit. That kind of change will have reverberations across the appliance retail sector.

Secondly, it is couched clearly in terms of Bunnings moving more towards some of the strategies used by North American home improvement retailers.

There is just a little bit more going on here as well, though. The "announcement" was placed into the very last answer of the day, in such a way that HNN expects many analysts might miss it.

Business (more) as usual

To just quickly run through some of the other significant statements:

Acquisitions

Mr Schneider reported Adelaide Tools was trading well, with a new store launched in Parafield, South Australia, which is trialling some new layout ideas. On expansion, he said:

We'll open our first stores outside of Adelaide later this calendar year. These will be in Western Australia where we see strong prospects for growth with a new brand that will be announced in the next few months. A staged rollout across Australia and New Zealand will follow over the next 12 to 18 months.

On the Beaumont Tiles acquisition, he was just a little cautious, repeatedly stating that this was not yet a "done deal". Thats down not only to needing Australian Competition & Consumer Commission (ACCC) clearance, but also to some "internal steps" that need to be taken. At a guess, Beaumonts is a private, family company, and Bunnings was probably only granted access to the full accounting numbers post agreement of intent, so it may be processing some unexpected accounting practices.

In discussing the strategy behind the acquisition, Mr Schneider said:

Beaumont Tiles operates in a large competitive category that has the opportunity for strong growth. And this acquisition would allow us to build on the success of the Beaumont Tiles business and invest in its future growth. It's also a great opportunity to better address the needs of our builder customers and flooring trades as we help them with more of their build. Beaumont Tiles has a great leadership team in place and will be run as a separate and distinct business, much like Adelaide Tools.

(It's worth pointing out that Beaumonts is also a part-franchise operation, unlike Adelaide Tools, so it will be interesting to see how that plays out.)

It came down to Michael Simotas, head of consumer equity research at Jefferies (and the source of many an intelligent question) to ask the Total Tools question without mentioning Total Tools:

If you look at you guys, as well as a couple of the other bigger players, there are plans to put a lot of professional tools stores on the ground over the next three to five years, across the industry. Stores seem to be doing quite well at the moment. Where do you think the sales will come from and where do you model the sales to come from? Or is it expansion in the market?

Mr Schneider replied:

I think the way we've sort of thought about the business for a long time is grow the market and grow the opportunities that present within the market. It's really clear there's a very strong demand across Australia for trades and clearly a lot of pressure on different markets [to] actually get trades into that.

So we're seeing a lot more being done at the sort of apprentice level to sort of grow employment within the sector. And I think that's one of the elements. And then you know, it is really clear that across housing construction, there is real demand. And whilst from a Bunnings trade point of view, we don't play in that heavy construction trade market, the trades, they're actually working on those sites, you know, are very professional operators and they're looking for the sort of products and brands that specialist trade players are able to offer and we're able to do that through Adelaide Tools.

It seems quite likely that these predictions of an expanding market will hold true, at least into 2022. However, most industry analysts would also say that Bunnings will end up competing directly with Total Tools by the end of 2022. Though, the reality is that both Wesfarmers and Metcash are likely counting on taking a great deal of market share from smaller retailers in the specialist tools market.

Digital and supply chain

The overall approach to digital ecommerce, according to Mr Schneider, is to assume the company will have to support at least 5% of its overall sales through that channel. The peak, so far, has been just over 3%, and that has dropped back down to 2%. The 5% number is a decent target however, and, as Mr Schneider pointed out, at that level, fulfilment direct from stores to customers will not be possible.

One of the surprises of the day that arose from this is that Bunnings revealed it has a fulfillment centre set to begin operations in Melbourne.

A good example of this is our upcoming trial of a rapid fulfillment centre in the western suburbs of Melbourne to test and learn around more efficient online fulfillment for our customers. The site will also trial the central dispatch of items customers purchase in store, or decide to have home delivered with expected benefits to include removing tasks from stores, freeing up space and reducing manual handling for our team.

While that is a welcome direction of strategy, the analyst Ben Gilbert of Jarden Australia pushed the company a little on the possible need for deeper changes to the supply chain in the future. Mr Gilbert asked:

Just interested in supply chain, and also right to play categories. If you look at what Home Depot has done, the US, and I've spent a lot of time looking at some of these players, they've increased their SKU count to sort of a million odd when they look at dropshipping, and those sorts of things...How are you thinking about supply chain investment, increasing range and moving more aggressively into these right to play categories?

Mr Schneider responded:

I'll start with supply chain. So for me, the thing that sort of occupies our thinking is what happens is, as online penetration grows, I think we talked at the half about online penetration, sort of peaking it, just over 3% of revenue, it's dropped back down under, under 2%. At present, but that is going to grow, it's going to flow the global trends. And, you know, I think one of the things that you know, lock down does is push people to look, look to different channels, and you will eventually get some more stick from things like that as well. And we recognise that once we're sort of getting up above 5% of revenue coming from our online channel fulfilling from store becomes much less efficient than it is today. So you know, what we were looking at in in the western suburbs of Melbourne is: what's that going to look like? And it really is in a very Bunnings way, a test and learn environment.

And we're also looking, as I said in my presentation at, you know, are there opportunities to improve efficiency in store by having products that customers want to have home delivered big bulky products, kitchens, barbecues, and things like that, that they're purchasing in store, delivered to their home in a more efficient way. So that's that formed one part of our thinking. We do know that we've still got opportunities from back-dock to shelf, if you like, in terms of install logistics.

Mr Gilbert followed up on his question by further asking:

Just on that, do we need to be thinking about the next 12/24 months, there's going to have to be some, some firmer news around some larger centralised distribution points to then support those distribution centres that then allows you to push that range and bring more products in. Because it seems likely given the nature of the models historically, you probably need some bigger centralised sheds and some automation to do more of the cross stock, etc.

Mr Schneider responded:

Yeah, look, I think certainly over the next 12/24 months, we'll have we'll have more to say, you know, based on the things that we're doing now to sort of learn from it. So yeah, I think it's certainly going to be a stay tuned, there's more to come down the track.

Conclusion

That's pretty much just the highlights from what was said at the strategy day. As we said in the introduction to this piece, we'll be offering a more comprehensive analysis in the next edition of HI News.

The Great Nailgun Debate has long posed questions that have severely tried the minds (and even souls) of carpenters, framers and builders everywhere.

On one side, there is the ongoing development of cordless nailguns, which have increasingly become more powerful, longer-lasting (per charge) and lighter. On the other side, there are the much lighter pneumatic nailguns (even when you take into account the weight of the hose hanging off the nailgun). Their internal mechanism is relatively simple, easy to maintain, and can last a decade or more.

However, pneumatic nailguns do require considerable infrastructure to operate. There is the external air compressor, plus hoses running to each nailgun, and the fittings on those hoses, all of which need to be carefully maintained. In a workshop that is not a problem, but it requires some strategic planning on a remote worksite.

In recent years we've seen a number of tool manufactures attempt to bridge the gap between the two by bringing out smaller compressors (often with a flat round compressed air reservoir, earning them the nickname of "pancake" compressors). These have had some success, as they enable the compressor to be very close to the work, making hoses shorter and more manageable. They are also small and light enough to be moved around with ease.

It has been a natural step up from that development to add cordless capability, which frees them from either needing to be near a mains electricity source, or run by a small petrol motor, with the additional problems of both noise and carbon monoxide fumes.

Yet this solution has also brought compromises of its own to the field: weight, power/capability, noise and cost. It's not a surprise that what could be called the second generation of these compressors is now entering the market, bringing the two tool company arch-rivals, Stanley Black & Decker's DeWalt and Techtronic Industries' Milwaukee into a cordless compressor face-off in 2021.

The DeWalt unit has been in the market for some years, while the Milwaukee was launched in 2020, and will be available in Australia by June 2021. It's fascinating to see how the different strategies of the companies are illustrated by their approach to the design of these tools.

Dewalt

The latest DeWalt unit carries the designation DCC1054N-XJ 54V FlexVolt XR Li-ion Cordless Brushless 10L Air Compressor. It is part of the company's FlexVolt line, which means it requires the 54V battery. The compressed air tank size is 10 litres, and the unit weighs 11kg, can achieve 9 bar pressure, but operates at closer to 7 bar with air delivery of up to 31l/min. It is rated at 78dB in LpA (the position of the operator). It is 42cm tall, 30cm wide and 36cm long, and comes with one-year free service and three-year warranty periods. The street price is around $400.

Milwaukee

The Milwaukee unit is designated as the M18 FUEL Compact Quiet Compressor M18FAC-0. Unlike the DeWalt tool, this uses Milwaukee's standard 18V batteries, though the company recommends using its High Output batteries (which use the newer 21700 Lithium-ion cells). The unit has a smaller tank than the DeWalt, at 7.6l and weighs 14.2kg. It is 26.2cm tall, 47cm wide and 41.3cm long, making it vertically smaller than the DeWalt, but horizontally larger. It has the same 9 bar maximum pressure, with 7 bar continuous with air delivery of 31l/min. One of its major benefits, as stated by Milwaukee, is how quiet it is, with a 68dB rating at LpA. It has Milwaukee's standard three-year warranty. The street price is just over $600.

Comparison

On the face of it, it would seem that the DeWalt unit offers some real advantages. It has a larger tank capacity, is 10% smaller by volumetric measures, and weighs 3kg less. But the comparison is much more complex than that, in large part because the Milwaukee unit is designed to be much quieter than the DeWalt one. Numerically, the 10dB difference between the DeWalt's 78dB and the Milwaukee's 68dB doesn't seem all that much, but these numbers are on a logarithmic scale. In comparative terms, the DeWalt unit would produce sound at the level of a power vacuum cleaner, while the Milwaukee unit would be as loud as a normal conversation.

There are a number of reasons why that reduction in noise could be important. Working in an occupied dwelling, or a public space such as a school or hospital, a low noise level would be welcome - but it could also be just as important on a construction site, where being able to easily communicate with fellow workers could be important.

The second factor, of course, is the batteries. For a work crew that already has FlexVolt batteries, it's not going to matter that much - but FlexVolt is more a narrow niche product for high performance gear, rather than a general tradie choice. On the other side, the Milwaukee unit might work best with the 12Ah High Output battery (which is P3), but it will function just as well with the smaller and more common 8Ah High Output battery (which is P2).

The third factor is that the Milwaukee unit has been designed to integrate into Milwaukee's PackOut range of tool chests and trolleys. It might be heavier, but it comes with an easy way to connect to readily available wheeled transport.

That's not to say that, really, either cordless tool really "wins" over the other. What this does illustrate is the different vision for the construction market both tools mark out. The choice of the higher voltage motor on the DeWalt unit is difficult to understand in technical terms, as compressors are typically limited to lower revolutions of their pumps by thermal issues. Compressing air produces heat, and dissipating that from the compressor unit itself is quite a problem in such a compact unit.

That means the move to make use of FlexVolt 54V in the compressor is possibly more of a marketing choice than a technical one. One would suspect that DeWalt is segmenting the market into carpenters and others doing medium-heavy work, who would be nudged in the direction of the well-regarded range of DeWalt cordless nailguns, and builders on larger jobs, who probably have an air compressor onsite, but could use the cordless compressor in some areas.

That is backed up Stanley Black & Decker launching a second cordless compressor in its mid-range consumer brand, the Craftsman V20 Cordless Air Compressor. This seems, on the face of it, to be pretty much the same unit, but using the Craftsman 20V battery.

The split in the Milwaukee market is made at a different point. The company's 18V range, in particular its high-performance 18V FUEL range, is meant to be a comprehensive, versatile solution to just about any problem a house builder, construction company, or general tradie might face. Its MX FUEL - which is 72V nominal, 80V peak - is aimed at the heaviest handheld machinery, some of which relied on small petrol engines in the past.

The power tool market

It is interesting to note the approach the other tool companies are taking to the battery voltage situation. In general, most of them are adopting a version of the DeWalt approach to the market, though they are making a different split. Hikoki, for example, has its range of Multi Volt tools, which share a battery that can operate at either 18V or 36V. Makita has its 40V range, which cannot be interchanged back to its 18V range, but is doubled on some tools, providing 80V.

Bosch, meanwhile, is going much more down the Milwaukee path in its tool development, working to push its 18V tools just as far as they can go. At the high power end of those tools is the Bosch GBH 18V-45 C Professional rotary hammer drill, which produces a whopping 12.5 Joules of power, enough to drill a 45mm hole in concrete (though the optimal maximum width is 40mm). Bosch has dabbled in 36V tools and batteries as well (non-interchangeable), but it certainly seems to have shifted much of its development to 18V from 2020 onwards.

One suspects that the Bosch BiTurbo rotary hammer drill line is aimed at heavy construction industry favourite Hilti. Hilti's top cordless offering in this area seems to be the TE 60-A36 Cordless Rotary Hammer, which manages only 8.2 Joules. Hilti, which has long specialised mainly in simply being Hilti, has two battery sizes, 22V and 36V, which are not interchangeable in any way. Given the company's dedication to very reliable rugged tools, it seems likely that Hilti's solution to the need for more powerful rotary hammers is going to remain its highly regarded corded models.

Why more power?

While the answer might seem - superficially - to be evident, asking why the market has moved to expansion through offering more powerful tools is a good question to consider. Reframing that question, what really needs to be asked is: why are people in the construction industry willing to pay sometimes quite steep prices for more powerful tools?

One figure to point to is that the construction industry as a whole in Australia has trended to becoming less productive in recent years. According to the Productivity Commission in a 2020 study, during FY2018/19, the industry in Australia went backwards by 2.6% in terms of labour productivity, and 4.0% in terms of multi-factor productivity.

In fact, there is a steadily growing sense in Australia that the construction industry is getting increasingly out of control. For example, an academic paper from 2019 entitled "An examination of building defects in residential multi-owned properties", authored by Dr Nicole Johnson and Sacha Reid, interviewed a wide range of people involved in the construction and ownership of apartment blocks. The paper states:

Many of the interviewees suggested human error plays a significant part in building defects. Misuse of building products (due to lack of knowledge), poor workmanship, time pressures (cutting corners), poor supervision, lack of training, lack of licensing and trade accountability were common factors identified as contributing to defective building work.

A range of other causes were cited that also contributed to poor building work, including a private certification process that has to lead directly to either non-rigorous or even corrupt processes (builders will not re-hire certifiers who raise problems with their certifications), as well as a mal-distribution of responsibility between architects, engineers and builders. On top of that are regulatory processes that simply do not make any sense - such as Australian building standards being kept essentially "secret", in that they are not open source but require expensive fees to access.

In short, it is something of a mess. Trying to improve productivity through systemic changes is regarded as being an almost impossible task, so most workers directly involved in the Australian construction industry simply find ways to muddle through instead. The one part of the "muddle through" which they can influence is to invest more in power tools which will enable them to accomplish some tasks more swiftly.

Frustratingly, the end solution to this situation has been around since the 1970s, and was fully developed by 2007. That is, of course, Building Information Modelling (BIM). In 2019 its final stage of development was completed, with BIM receiving its own ISO number of 19650. Under BIM, information about a building's design, engineering, construction and maintenance is collected in a single database. Currently, however, there is a lack of determination on the part of the industry and regulators to make BIM mandatory rather than optional.

Conclusion

When Lithium-ion power tools first gained traction in the market, they brought with them a relatively new idea, which was that it was best to adopt a single brand of tools, as this enabled a more efficient use of shared resources such as batteries and chargers. What is emerging now, however, as a development of this, is a push to adopt not only a brand, but also an integrated set of sub-brands within that brand. DeWalt's cordless compressor requires the adoption of the FlexVolt system, while Milwaukee's cordless compressor works best when it is part of a more fully integrated system, including the PackOut storage and mobility system.

For retailers, this could mean that increasingly they will trend towards more product line specialisation. Keeping stock levels and the knowledge base up-to-date with the entire line of either DeWalt or Milwaukee products has become a full-time task. The market just might be at that inflection point where choosing to carry only one brand in-depth will result in stronger sales than carrying the most popular products from three or four brands.

Bunnings Plainland is expected to open shortly; a planned store in Dubbo (NSW) will no longer be built; construction has started on the Mt Isa store; and a traffic plan was revised for proposed Wagga Wagga store.

Plainland

The team at Bunnings Plainland is preparing for the official opening of its store. Complex manager, Simon Funk spoke exclusively to the Gatton Star about welcoming the first customers through the door, and leading a large team of locals, at the age of 22. He said:

The team have been working tremendous amounts of hours and putting in a huge effort to get the shop to where it looks today, and even more when it opens.

The Plainland store will cater to a regional and rural demographic. Mr Funk said:

Inside the store it's a bit more compact, but we have absolutely everything we would offer in a bigger warehouse but backed by an oversized timber and nursery.

We're carrying items that we might not carry in our metro stores - like ride-on mowers, rural fencing supplies, Besser blocks and bigger bags of products.

The store spans more than 9000sqm and has about 200 car parks. Having worked with Bunnings for six years, Mr Funk said the best part of the job was helping the customers.

We are here to help our customers and it's a business that's been built on that.

Also for me, I've got the opportunity to bring on more than 100 locals and provide them with careers. It's not just a job, but a career that is hopefully meaningful to them.

The Plainland store is also set to go up for auction through Burgess Rawson in late June. Real estate agents anticipating a sale fetching close to $20 million, according to The Queensland Times.

The store is part of the Plainland Crossing master planned community, which will have hundreds of new houses, school, childcare centre and an upcoming Aldi supermarket. The project is being delivered by development and construction company De Luca.

Bunnings Plainland is located at 4404 Warrego Highway, Plainland (QLD).

Dubbo

Dubbo Regional Council were recently notified that the development application (DA) to build a Bunnings store located on the old RAAF base site has been withdrawn.

The withdrawal comes after the Heritage Council of NSW refused to grant General Terms of Approval, according to a report in the Daily Liberal and Macquarie Advocate.

A statement from council said those who made a submission during the public exhibition period would be advised in writing of the withdrawal.

Several residents voiced their concerns over the proposal, with a petition started to stop the application. Over 200 people signed the petition which highlighted concerns over increased traffic, associated noise and safety issues for residents and businesses in the area.

Controversy has surrounded the DA since March, when deputy mayor Stephen Lawrence and councillor John Ryan called for then mayor Ben Shields to resign over a press conference he held about the DA.

At the time, Cr Lawrence said the mayor's conference had undermined public confidence in the process. The mayor responded to the allegations, saying he had not undermined council processes or misled perceptions in the community. Cr Shields said in March:

I've always welcomed a proposal if it goes to plan, so this nonsense that I've circumvented process is insane.

More recently, Councillor Stephen Lawrence has been elected as mayor of Dubbo with Anne Jones elected as deputy mayor following Cr Shields resignation.

Mt Isa

Old buildings have now been demolished as construction work for a new Bunnings Mount Isa store begins. It is expected to open its doors in early 2022.

This store will span more than 5500sqm, more than double the size of the existing store located on Camooweal Street. The new site is at 89 West Street.

Features include the main retail area, a fully enclosed timber yard, an outdoor nursery and 150 on-site car parks. It will also have a building materials landscape yard and a bagged goods area in the nursery, both not at the existing Mount Isa store. Bunnings area manager, Michael Rodwell, told the North West Star:

Bunnings Mount Isa has been part of the local community for about twenty years so we're really excited we'll be able to give customers a fantastic offer with the widest range of products.

The existing Bunnings Mount Isa team will transfer across to the new store once complete and will be joined by new team members, who will be recruited closer to store opening.

Hutchinson Builders are developing the site in a project estimated to be worth over $20 million.

Related: Progress on the Mount Isa and Plainland stores have been ongoing.

Wagga Wagga

An updated traffic plan for the Bunnings store relocation project in Wagga Wagga (NSW), on the corner of Pearson Street and the Sturt Highway were released for public review.

Last year the public was invited to have their say on the plan, with a number of concerns raised about road safety and congestion in the area.

Bunnings property director Andrew Marks said the company had listened to the feedback and adjusted the plans accordingly, providing three exit and entry points for cars and one for trucks. He told the Daily Advertiser:

We have taken on board feedback from the local community and council, and the amendment will provide an additional exit only onto Saxon Street, providing improved traffic flow and safety for Wagga locals.

Access will include left turn only entrances and exits for cars on both the Sturt Highway and Pearson Street, with an additional deacceleration turning lane constructed on the highway border. Trucks will have one separate entrance off the highway and one exit onto Saxon Street.

Additionally, car park spaces will be reduced to 421, inclusive of accessible and trailer parking. In the original report, which was lodged in 2020, 449 spaces were proposed for the new development.

A development application (DA) has been lodged for a Sydney Tools store on Johanna Boulevard in Kensington, a suburb in Bundaberg (QLD). Rival Total Tools was granted development approval on the same street, according to Bundaberg Now.

The Sydney Tools "Material Change of Use" application for hardware and trade supplies located at 20 Johanna Boulevard, Kensington was lodged by Baywater Holding Pty Ltd.

If approved, the development would have a gross floor area of 2424sqm and fill the vacant lot between Bunnings Warehouse and the Boulevard Lodge. The application said:

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

The business provides a facility that would be similar in appearance and scale to others in the locality and the commercial built form is typical of the type of development along Johanna Boulevard. In that regard the development is commensurate with the local role and function of the centre...the development also incorporates a standard of urban design and landscaping that would positively contribute to the streetscape...

Among the listed features proposed for this development are 51 car parks including two designated disabled parking bays, a proposed unroofed impervious area of 1,359sqm, 6-12 staff on-site and operating hours of 7.30am to 5pm Sunday to Monday.

The development application for Sydney Tools is currently with Bundaberg Regional Council's development group for assessment.

Related: Total Tools lodges DA in Bundaberg (QLD).

Bosch Power Tools continues to be just about the only global manufacturer of power tools intent on developing the low- to mid-end consumer market for power tools as a unique category. While HNN has been impressed with many of the company's past offerings, including the upgrade to the IXO pocket screwdriver and its larger consumer drills and impact drivers, Bosch's latest product is the most impressive of all.

The Bosch EasyHammer 12V is a hammer drill/driver which is close to pitch perfect when it comes to matching the needs of low-level, casual DIY customers. Many of Bosch's consumer offerings have been based on taking the standard model of larger power tools, and then scaling these down - with the addition of some clever electronics - for the needs of consumers.

The EasyHammer has actually gone in the opposite direction. It appears to be heavily inspired by the best-selling IXO screwdriver, scaling that up, a feature at a time, so that it can perform the most common and basic tasks a homeowner needs to achieve.

The tool Bosch ended up with comes with an integrated 12V Lithium-ion battery with a capacity of 2.0Ah, capable of drilling 10mm holes in concrete and wood, 6mm holes in metal, and setting screws up to 6mm in diameter. It weighs just 1.1kg.

Bosch have evidently worked hard to make using the tool as simple and intuitive as possible. For example, there is a single switch set on the top of the tool where it is easily visible, with three settings: hammer drill, non-hammer drill or screwdriver, and reverse.

There's a simple genius to that. Most drills have a separate selector for forward/reverse, and hammer settings. This removes that confusion, because the user will only ever have the one control to change if the tool is not doing what he/she wants it to do.

Charging the drill fits into the same category, as it charges via a USB-C port. There is a special charger for the tool (which operates at 27 watts), but that is optional. As many people today will have USB-C chargers for larger devices such as laptops, this eliminates one expense, and the "yet another thing" fatigue that comes with collecting multiple chargers over time.

The tool takes around an hour to recharge. Bosch claims the EasyHammer can drill 24 holes in concrete and over 160 holes in softwood on a single charge. The hammer mechanism is pneumatic (interesting, but we can't find further details) with up to 4300 beats per minute. Maximum, no-load speed is 850rpm. It comes with a "ring" light to illuminate the focus of the work.

As impressive as all that is, there is one more step that Bosch has taken, that is the genuine article when it comes to the proverbial "thinking outside the box". Bosch has used an SDS+ chuck on the drill. From an ease-of-use standpoint, having a spring loaded mechanism is a great idea, but HNN would guess that the SDS extends to the way the chuck integrates with the hammer mechanism. That means that instead of the entire chuck itself moving, the hammer action will affect only the drill bit itself.

This combination of low-level consumer hardware with a chuck construction usually only seen on heavy-duty rotary hammers is fantastic. It is design using all available resources to deliver the best user experience.

The market

What makes this such an excellent tool is that it answers a question that has gone without a decent answer for the past decade: what tool do you recommend to an amateur DIYer who simple wants to hang some pictures on the wall? In the past, most customers with that question have had to walk out of the store either with an inexpensive but clunky corded hammer drill, or with a complex drill, battery and charger to achieve what should be a simple task.

More serious DIYers can usually make a case for buying a little too much tool for what they need - because there will be that job that comes up once a year where they need a little more power. But casual DIYers really do know exactly what the tools will be used for, and how much of a tool they need. For them the "extra" is not a comfort zone of capability, it's just another drag on their lives. The EasyHammer can be kept in a kitchen drawer or cupboard, somewhere under the sink, or in a broom closet. When it is time to use it, it can be recharged on the laptop charger. It's a low fuss, high availability option.

While many hardware retailers today will scoff at this level of tool, this is an important area for them to integrate into their stores. Tools such as these are so simple and self-evidently fill a need, that it's likely Bosch's next move will be to skip selling this tool (along with the IXO) through regular hardware outlets.

That doesn't mean just selling it through Amazon (though it is an online sales "natural"), but these could start cropping up at supermarkets and homewares stores as well. If you are buying some framed pictures for your home, it would seem natural to pick up what you needed to hang them with from the same store.

And if a very casual DIYer decided to step up from a tool such as the EasyHammer, Bosch has the EasyDrill and EasyImpact waiting for them with a similar design, but exchangeable 12V batteries.

Entering the final month of the financial year, many retailers find themselves revisiting the product orders that will be needed during the December quarter. That means forecasting both demand, as well as the capability of the supply chain to deliver.

Making that prediction is really hard this year, due to the influence of the COVID-19 pandemic. We're beginning to get used to the way COVID-19 "works": periods of zero infection rate, followed by "spot fires" of outbreaks that require the re-imposition of restrictions at different levels. While that's not great for business, we can certainly overcome most of the obstacles.

What's of equal importance (in business terms) for people working in industries that rely on the construction and renovation industries, is what we might think of as the "secondary effects" of COVID-19. The Australian government reacted to the economic impacts of the pandemic by boosting the construction industry, both through direct grants in HomeBuilder, and by not only radically reducing interest rates, but also committing to low rates through to 2024, at least. That boost has seen house prices rise and construction activity increase, but it has also brought fears of an eventual collapse in the market.

There are also what we might think of as yet another level to the way COVID-19 has changed things (tertiary effects), where we've seen the pandemic begin to fundamentally alter Australian (and global) society in ways that will likely be long-lasting. For example, the move to "work from home" (WFH). If that persists - as seems likely - that means a big change in expenditure patterns into the future, with homeowners investing more in where they live.

So, to sum up, we're looking at 1) a relatively moderate negative force, that will be around for the medium term (COVID-19 itself); 2) a strong positive force that will exert a short-term effect (housing boom); and 3) a mild positive force that will persist over the long term (social changes stemming from COVID-19).

One way to get a glimpse at how those forces are working out in terms of the Australian economy is to look at some statistics. The housing market has been, if anything, over-analysed, and that has produced forecasts that run from a prediction the boom is here to stay for another three years, to an expected price collapse before December 2021.

A more predictable market to look at is planned spending on renovations. Some of the most revealing stats from the Australian Bureau of Statistics (ABS) are for building approvals related to renovations (which it terms "alterations and additions"). ABS series 87310DO035_202101 provides those numbers for private residential construction.

Charts 1 through 8 show the percentage change between corresponding quarters (so the quarter ending December 2020 is compared to the quarter ending December 2019) in the number of building applications made for renovations. While regions with smaller populations such as Tasmania, the Northern Territory and the Australian Capital Territory, tend to be volatile, the general trend through the other states shows, in general, strong growth in the December 2020 quarter, and more moderate growth in the March 2021 quarter. That is echoed in the figures for Australia itself shown in Chart 9.

Further insight is offered if we look at Charts 10 and 11. Chart 10 shows the percentage change on a quarterly basis for both the total value of renovations in Australia, and the total number of renovations in Australia. This shows negative growth in both for the quarter ending December 2019, followed by a surge up to growth of around 5% for both in the March 2020 quarter. In the subsequent quarter, for June 2020, there is slowing growth, with the number of building approvals not growing at all, and the total value of approvals with negative growth of over 5%.

That's followed by a steep rise, with the number of approvals growing by over 20%, and the value of approvals growing by around 12%, for that September 2020 quarter. That rise continues into the December 2020 quarter, with both value and number growing by around 30%.

The most interesting shift, however, happens for the most recent March quarter. At this point value continues to grow, increasing by 35%, while the number of approvals grows at a slower (but still considerable) rate of 20%. Chart 11 confirms what Chart 10 indicates. Here we compare the actual number of building applications to the average value of applications (in thousands of dollars). This shows that as the number of approvals grew for the June and September quarters of 2020, the average value actually fell - falling, in fact, below the median value for the period from the June quarter of 2017 to the December quarter of 2020 (which was $87,000). Then, for the March 2021 quarter, this reverses, with the average value lifting to over $98,000, while the number of approvals declines.

Putting this together, in 2020 there was a proliferation of approvals for lower-value renovations, but this has likely shifted in 2021 to fewer, but higher value approvals.

Building work done

Chart 12 shows the percentage change quarter-on-corresponding-quarter for building work done on alterations and additions (based on ABS 8755004). Much of this chart is "as expected, with the majority of states and territories showing continued growth from the September 2020 quarter through to the March 2021 quarter. Except, that is, for Victoria. While that state's growth in building work done is slightly better than the rest of Australian for the June 2020 quarter, it then flatlines through to the September 2020 quarter, and goes into negative territory for both the December 2020 and the March 2021 quarters.

It's difficult to interpret exactly what is going on in Victoria. It could be that all the resources of the construction industry are focussed on new house builds, which is constraining supply to renovations. Or it could be that Victorians are becoming wary, and beginning to put off major expenditures.

The problem with this kind of two-quarter anomaly is that it can be read in two ways: either it is "just" an anomaly, and we will see the number get more in line with the rest of Australia; or, it could be the first sign of a trend that could spread to other construction markets as well.

That said, while there are no guarantees as to what the second half of 2021 will hold, these stats do paint an overall positive picture. That is particularly the case in that we are dealing with renovations. While a potential sharp fall in house prices could see new builds decline, renovations tend to be more resilient, and with a high base already established, could represent a "safe haven" if the housing market declines in the near future.

But we do need to keep an eye on Victoria over the next quarter.

There has been a combination of confusion and speculation about how the development of Lithium-ion (Li-ion) power tool batteries would be affected by the change in cell size.

Just to go over the basics, virtually all power tool batteries use a standard size of cylindrical cell in their batteries. Each of these cells produces a nominal voltage of 3.7V. These cells are combined in "layers" of five batteries connected serially in their layer to produce an output of around 18V.

To increase the storage capacity (represented as amp-hours - Ah), more than one layer can be added to a battery, and connected in parallel. A single layer battery is referred to as a P1 (for Parallel 1), a two-layer battery is P2, and so on.

Up until about 2017, there was only one common type of battery cylinder that was available, and this has the designation 18650. That relates to the dimensions of the battery, which is 18mm in diameter, and 65mm long. That size and shape was developed in the early 1990s, and essentially copied the overall look of the AA battery (which is about 14mm in diameter and 50mm long).

The electric car maker Tesla was one of the driving forces behind the development of the new alternative to the 18650 cell, which is the 21700 cell. This designation relates, as you would expect, to its dimensions, which are a 21mm diameter and a 70mm length. Those dimensions were the result of scientific analysis, which showed this was a more optimised configuration when it came to producing power.

The result of its increased size and optimised shape is that the 21700 battery cells can each produce between 3.0Ah and 4.0Ah of charge. This is an increase over the 18650 cell rating of between 2.3Ah to 3.6Ah. In general, in fact, the 18650 cells when used in batteries for power tools are usually limited to between 2.5Ah and 3.0Ah.

We can see how this has played out in the development of the sizes of power tool batteries. Most of us probably have at least one small 2.5Ah battery - that is a P1 battery with five 18650 cells rated at 2.5Ah each. The most popular size of battery today is the 5.0Ah unit, which is a P2 battery, two five-cell layers in parallel, also rated at 2.5Ah per cell.

With the 21700 battery the P1 configuration can provide between 3.0Ah and 4.0Ah. These newer style power tool batteries are a little bigger than the standard 2.5Ah battery, of course, at least 5mm wider, 3mm taller and 15mm longer - but they are lighter and less bulky than a two-row battery of the 18650 cells.

As an example, the latest Bosch ProCore 4.0Ah battery (21700) weighs 510g, and is 77mm wide by 47mm tall and 117mm long. The older DeWalt DCB182 18V XR 4.0Ah battery (18650) weighs 620g, is 72mm wide by 62mm tall and 110mm long. Photo 1 shows what the DeWalt battery looks like when it is opened up, and Photo 2 shows the new Bosch battery disassembled.

One thing that is evident is that the Bosch battery uses higher quality interior components. Much of this design is actually through necessity. The 21700 can generate more heat than the 18650, and most of these components are designed to help better dissipate that heat. Without this change, excess heat would tend to make these batteries wear out faster.

Company strategies

Looking across the five major global power tool manufacturers - Milwaukee Tool, Bosch Power Tools, Stanley Black & Decker/DeWalt, Makita and Hikoki - we can clearly see three different strategies for introducing and marketing the 21700 battery.

The two companies with the most similar strategies are Milwaukee and Bosch. Both have decided to market the new and improved batteries as a "premium" range. Bosch is the most direct about this, branding these batteries as "ProCore", and promoting their advanced features. Milwaukee has essentially added the batteries more subtly to its existing range, designating them as "high output", but also marketing them on a feature basis.

There are some similarities between the strategies of Makita and Hikoki. Makita at the moment does not produce any 18V batteries using the 21700 configuration, but it does make 21700 batteries for its 40V range.

Hikoki makes 21700 batteries for its Multi Volt range. This is a very interesting range of tools. The technology is similar to that used by DeWalt on its FlexVolt range. Where DeWalt switches between a parallel and serial configuration to produce either 18V or 54V, Hikoki does the same to switch between 18V and 36V. The company relies on the power density of the 21700 to make batteries that are still compact and lightweight, but can support the 36V output.

As for DeWalt, its strategy is difficult to follow. As far as HNN can tell, there really isn't a specific designation for 21700 cell based batteries. It appears, for example, that it is not using the newer cells in its FlexVolt range, but some 18V batteries, such as its 6.0Ah XR, do use the 21700.

Product development

How will the 21700 batteries affect the overall tool market? Up until 2020 there has a great deal of emphasis placed on "maximising" battery size and capacity. Since about 2014, tool manufacturers have proudly announced the growing capacity of their most recent batteries, from 8.0Ah up to (today) 15.0Ah. There has also been a steady increase in available battery voltages, which now run up to 80V.

However, there is a growing understanding in the trades that finding the biggest battery and whacking it on the end of your impact driver tends not to be that good an idea. Coupled with tools that are becoming more lightweight and more efficient in the use of current, tradies now understand that smaller batteries have both ergonomic and health advantages.

Because of that HNN thinks that we will start to see the P1 configuration 3.0Ah to 4.0Ah batteries begin the dominate at least half of the market by 2024. Coupling these with slightly smaller, compact 18V tools will produce a better user experience for many trades, including tilers, electricians and plumbers.

It will also be interesting to see what effect the newer cells have on the 12V tool market as well. As you need just three cells to make a P1 battery, that means you can have ultra-compact 4.0Ah batteries, which could help to lift the smaller tools into a more competitive position.

In a recent survey commissioned by Bunnings, almost a third of respondents placed gardening at the top of their home "to do" lists. But many shoppers are taking shortcuts and opting for plastic plants. Bunnings' general manager of merchandise, Tracey Lefebure, told News Corp:

Paint and decorating products are always in demand, with the introduction of our new artificial flowers range...receiving very positive feedback with people creating everlasting statement floral arrangements that look just as good as the real thing.

The survey indicates many customers are enhancing their outdoor areas to enjoy during the colder months. Ms Lefebure said outdoor heating, outdoor lighting, and fire pits were among some of the top performing product categories.

Following the impacts of COVID-19, almost 60% of Australians (according to the poll) say they enjoy spending more time at home than they did prior, and customers are telling us that they are looking for ways to get the most out of every space of their home - including their outdoor area during winter.

The survey of 1000 Australians, conducted by Antenna Insights, also found almost half of Australians were planning to complete more DIY projects in 2021 that the generally would have outsourced.

More than 40% of respondents said they were more willing to start a renovation project since the pandemic started. Australians are planning on spending $4,100 on home improvement this year on average, and homeowners are set to spend $5,500. Ms Lefebure said:

As we get closer to winter, customers will shift their focus to indoor projects and products to make their homes feel warm and cosy including rugs, indoor lighting, indoor heating options like wood-fire and panel heaters, as well as insulation products to help keep in the heat.

Bunnings timber

Bunnings has also responded to a union plea for the Victorian government's help to negotiate with the hardware store chain over a ban to stock local hardwood on its shelves.

In a statement provided to The Mandarin website, Bunnings general manager merchandise Toby Watson said the store would not be reversing its decision to ban the use of trees logged in Victoria at this time.

Mr Watson explained that Bunnings' timber policy required suppliers to source from legal, responsibly sourced and well managed forest operations. While the recent Federal Court decision to uphold VicForests' appeal meant it had acted according to the law, this did not necessarily mean the operations met other standards under the store's policy. He said:

We've reviewed the court's decision in detail to understand the implications in relation to our timber policy. While the court reversed a single finding relating to the EPBC (Environment Protection Biodiversity Conservation Act) Act, it upheld the trial judge's 21 other findings regarding the effect of VicForests' forestry operations on the environment.

VicForests' current practices continued to fall short of the requirements of Bunning's timber policy, Mr Watson noted, saying that the store was open to working with stakeholders to find some future solution. He added that Bunnings remained committed to sourcing most of its timber supplies from within Australia and New Zealand.

We're committed to working closely with industry, government and environmental organisations to continue to improve our timber sourcing and help ensure the long-term sustainability of Australian forestry.

This includes continuing to purchase the majority of the timber we sell from sources within Australia and New Zealand that meet our policy requirements for legal, well-managed and responsible forest operations.

CFMEU Manufacturing, the union representing timber workers, said Bunnings exploited the original court decision to justify a ban on VicForests' timber and appease environment groups.

The union said it is asking the state government to put pressure on Bunnings to reverse the ban on timber from Victorian managed forests. In an interview with The Ballarat Courier, CFMEU Manufacturing national secretary Michael O'Connor said the ban introduced by Bunnings had affected timber workers and their communities.

[Bunnings] is a huge network, it's got a high profile. A ban from Bunnings is important symbolically. It could cause, and it did cause, grief for timber producers and people who work in the timber industry.

Mr O'Connor said it's unlikely overseas timber sourced by Bunnings to replace Victorian timber would have the same level of sustainable management.

We are calling for a reversal of Bunnings' unfair ban on Victorian grown, sawn and manufactured hardwood timber and wood products.

Bunnings implemented the ban in July 2020 after an initial decision by Federal Court Justice Debra Mortimer found VicForests had breached federal law by logging "66 areas of habitat critical to the vulnerable greater glider and critically endangered Leadbeater's possum.

That decision was overturned recently on appeal to the full bench of the court. Three justices found if logging is conducted within a Regional Forestry Agreement (RFA) zone it is exempt from federal law, even if that logging breaches Victorian law and the RFA.

Related: In mid-2020, the hardware chain said it would stop selling timber logged by VicForests.

A report in Merimbula News Weekly has confirmed that Pambula Mitre 10 will take up space which was previously occupied by Woolworths on Main Street, Merimbula (NSW). The supermarket has move across the street into a new purpose-built building.

Chris Flint, general manager of Mitre 10 Pambula said a tenancy agreement was nearly complete. He told Merimbula News Weekly:

On top of convenient hardware, paint and garden items, the new outlet will feature kitchen, bathroom and laundry displays and appliances, outdoor furniture and barbecues, greatly assisting the residential and accommodation markets.

The Pambula store went through a large redevelopment in 2019 and Mr Flint said the move into Merimbula offered a "natural growth opportunity". He said:

The new combined operation will provide full time employment opportunities for up to 10 people, plus the chance to develop and promote the existing team at Sapphire Hardware. An additional 15 part time and casual jobs will also be created to support the new businesses.

Separate to the Mitre 10 business, but taking the rest of the tenancy, is a Total Tools franchise of approximately 1200sqm or just over half the building.

When Jindabyne developer Bruce Marshall bought the site in 2018, the area measured 3846sqm with a building of 2355sqm and 94 car parking spaces.

Inspiration Paint and Colour

After 21 years running the Albury-based paint supplies shop, local identity and businessman Errol Gibb has decided to retire, passing the store into new hands.

Mr Gibb, formerly of Inspiration Paint and Colour on Kiewa Street, Albury (NSW) has a reputation for sponsoring various sporting teams, charities and men's sheds around the region. He told The Border Mail:

I hope I'm thought of as being generous with donations and what not. It helps the community. I think it's something people should look at more.

Mr Gibb plans to spend his retirement fixing up his house and travelling with his wife, but he said he'll still pop into the store occasionally to check in.

New owner Geoff Gray has relocated from Melbourne with his family and said Mr Gibb was "an institution" in Albury. He said:

I don't think we'll ever be able to get rid of him...The thing is, you struggle to go anywhere without running into anyone who knows him.

I don't think I've had a customer that's come in that hasn't mentioned him. We went for a walk down the street the other day and I think he said 'hi' to every second person, because they just know him.

Mr Gray has more than 15 years of experience in the paint industry and said although there had been a big uptick in business during the pandemic with people spending more time at home and wanting to do their own renovations, taking on the business was still a daunting task. He said:

It's a big step.

International garden tools brand, Darlac has just released the purpose-designed Splitting Axe, Chopping Axe, Camping Hatchet and All-Purpose Hatchet. Mr Fothergill's managing director Aaron Whitehouse said:

We are excited to introduce this selection of axes and hatchets to the Australian Darlac range. We pride ourselves on delivering visually appealing products that are made from top quality materials with precision engineering to withstand the rigours of our customer's projects.

Created with the end user in mind, our axe and hatchet features include drop forged carbon steel and heat-treated heads for strength, fibreglass handles and, anti-shock grips, which cumulate in a lightweight design that assist in the reduction of user fatigue. They're versatile and can be used both in the garden, and on farms, as well as when camping in the great outdoors.

The Splitting Axe is ideal for splitting, cutting, and shaping wood or harvesting timber, and suitable for landscapers, foresters, tree-surgeons, arborists and keen gardeners. It comes with a fiberglass sheath for storage.

The Chopping Axe is used for chopping logs, trees and branches or harvesting timber. It can make aggressive cutting angles and is suitable for amateur gardeners.

The All-Purpose Hatchet is for cutting small logs, trees, and branches, and useful for camping, farms and garden projects.

The Camping Hatches are the smallest of the range and ideal for splitting light density wood and kindling as well as for use in tight spaces that require less backswing. They are lightweight and suitable when camping or for small home garden projects. They are also weather resistant with a tough fibreglass handle, and comes with a fiberglass sheath that has an in-built sharpener.

The introduction of these axes and hatches are now part of Mr Fothergill's Darlac range that includes the Triblade Shear, Take Anywhere Tap and 5-in-1 Trowel, just to name a few. Mr Fothergill's also offers top quality seeds, propagation products, all-in-one kits, and garden gifts.

The Darlac Splitting Axe, Chopping Axe, Camping Hatchet and All-Purpose Hatchet are being distributed through select independent garden retailers around Australia and online at www.mrfothergills.com.au.

Related: Mr Fothergill's buys garden tool brand.

Mr Fothergill's expands through Darlac acquisition

The Australian Bureau of Statistics (ABS) has released retail statistics for hardware retailing up to March 2021. The overall results remain highly positive. On a trailing 12-months basis to March 2021, total hardware revenues were $24.25 billion, up by $4.24 billion or 21.2% on the previous corresponding period (pcp), which was the trailing 12 months to March 2020.

Chart 1 shows these statistics for the states and Australia overall.

In percentage terms, the Australian Capital Territory (ACT) recorded the highest gain, at 32.9%, with New South Wales (NSW) second at 24.6%. Except for Victoria (VIC) the rest of the states recorded gains between 19% and 25%. VIC had the lowest percentage increase over the pcp, at 15.7%.

In dollar terms, NSW led the field by a considerable margin, with an increase of $1426 million for the 12-month period, followed by Queensland (QLD) at $987 million, and then Victoria (VIC) at $917 million. Western Australia (WA) recorded an increase of $402 million.

Chart 2 shows how highly unusual the current conditions are. While VIC has come close to its current growth in the past, in 2012, 2014 and 2015, and WA had similar growth in 2013, these growth numbers are largely unprecedented. That's shown by the overall growth in Australia, which stands at 21.2%, while the closest it has come to that over the past 10 years was in 2015, with a 9.8% overall growth figure.

Chart 3 shows the month-on-corresponding-month figures. As this illustrates, after moderate growth in January 2020, sales spiked from May to July 2020, then began a gradual decrease in growth from August 2020. There has been a further easing of growth for February and March in 2021. However, only VIC has slipped into negative growth.

Chart 4 shows the comparative growth numbers for the month of March going back over the past three years. It seems likely from this that the slip in growth in VIC is somewhat due to its cycling a very high growth number for March 2020. There is a similar mechanism at work for NSW, which had strong but not outstanding growth for March 2020, recording the lowest in Australia, and in March 2021 has shown stronger growth than the rest of Australia.

Analysis

There are two forces at work on these hardware retail figures. The first is simply that there is only so much growth available in the market, and most of that has been absorbed during the strong performances during 2020. That said, it's likely we will see an ongoing drop-off in the comparative growth numbers through the rest of 2021, at least until September, as the high growth numbers of 2020 are cycled in the comparisons.

The big question that remains, however, is whether in the long-term Australia truly does represent a $24 billion hardware retail market, or whether, by the time 2022 comes around, the nation will begin to see a retreat back to a market worth closer to $20 billion.

The answer will depend, in large part, on what happens in the housing market. Much of the current surge has been driven not by the shortage of dwellings overall, but by a shortage of certain types of properties. In particular, multi-unit dwellings have worked effectively over the past six to seven years to not only supply demand, but provide a less-expensive comparator for people seeking to buy. If Australia does reach something close to an 80% vaccination rate by the end of 2021, it's possible multi-dwelling sales will return to their previous demand rate, and act to deflate housing prices.

That said, there are still longer-term trends that will continue to benefit hardware retailers. It remains to be seen how many workers return to full-time office work, but early signs are that most will end up working from home for at least two days out of the week. Similarly, while the opening of international borders (probably for second calendar quarter 2022) will see less money flow to household renovations, it's likely that DIY sales will continue to grow as compared to 2019.

Japan-based Makita Corporation has released its global results for its 2020/21 financial year, ending 31 March 2021. In line with results from most other power tool manufacturers, the company showed a strong surge in growth.

Overall revenue was up by 23.5%. Domestic (Japan-based) revenue grew by 12.3%, but overseas revenue grew by 26.4%. Total revenue for the year was JPY608.3 billion ($7.2 billion). Overall sales volume increased by over 42%.

The Oceania region, dominated by the Australian market, showed strong growth. Revenue for the region increased from JPY28.4 billion to JPY42.3 billion ($337 million to $490 million), up by over 45% (42% on a local currency basis). This follows on two years of low single-digit declines in revenues for the region.

In local currency terms, Makita's revenues in Japan grew by 12.3%, and by over 30% in both Eastern Europe (Russia) and Western Europe. In North America, the company went up by 28.9%, while growth in Asia was lacklustre at 2.4%. Central and South America grew by 38.9%, and the Middle East/Africa increased by over 18%.

Contrasting the proportion of non-domestic revenues for Makita for 2020 and 2021, Oceania grew by 1%, Europe by 2%, and North America remained the same. The other regions lost some share proportionately.

Makita produced close to 40 million units for the financial year. It expanded its manufacturing capacity mostly in Asia (from 17.8 million to 24.9 million - nearly 40%), and in Europe (from 5.8 million to 9.1 million - around 57%).

Analysis

Five years ago Makita would have been seen by most analysts as pursuing a relatively conservative, middle-of-the-market approach to its business. It really is a testament to how the power tool market is developing that today, out of the big five manufacturers - including Stanley Black & Decker, Techtronic Industries (TTI), Bosch Power Tools and Hikoki - its strategies are no longer in alignment with the other companies - though they are not that far from those of its fellow Japanese company, Hikoki.

Specifically, the other manufacturers are pursuing both better integration of their tools with the internet of things (IoT) and seeking to diversify their product offerings. Techtronic Industries is steadily growing its consumer and commercial vacuum cleaner business, Bosch Power Tools is going to what we might call "sub-DIY" household market, and Stanley Black & Decker has long had a very wide net of products into both the consumer and commercial markets.

Makita has comparatively recently emulated the other main manufacturers and brought out a 40-volt line of power tools - though these do not compare to the heavier tools from both TTI and Stanley/DeWalt. Makita's major push at the moment is into 40-volt tools in the outdoor power equipment category. It has also attempted to introduce a vacuum cleaner, which does not, at the moment, impress - however Japanese companies have a long history of taking to market what other companies would consider prototypes, then coming out with second and third generation products that are competent.

There is little doubt that Makita tools are very successful in today's market, but if IoT - for example - becomes steadily more powerful into the future, to the stage where it is required for larger contracts, especially for government entities, the company would face a severely steep development curve to attain market parity.

It's tempting to wonder if we are about to see a repeat of the "Walkman syndrome" with Makita. This is a recognisable phenomenon where Japanese companies master a difficult hardware task, but then fail when portions of what were once hardware become digital. Introduced in the late 1970s, the Sony Walkman was a portable audio cassette player that dominated personal electronics in the 1980s, then adapted to CDs in the 1990s. However, the launch of Apple's iPod digital music players in the 2000s - which were as much about software as hardware - saw Sony lose control of that market, and exit it in early 2010.

The difficulty with all technological developments like this is that they do not encroach on markets in a gradual manner. Over the space of a year, or perhaps two years at most, an established way of doing things that might have been around for 50 or more years can rapidly become obsolete. One can only hope that there are some of those great engineers working at Makita to plot out a future for the company that differs from its recent past.

Warrnambool-based George Taylor's Store has been purchased by a long-time employee; recent acquisitions and good seasonal conditions have helped Elders to a 31% rise increase in profits for the six months to March 31; and construction is expected to start in October for Sunshine Mitre 10's new store.

George Taylor's Store

Chris Snell and wife Simone Watts have taken ownership of the George Taylor's Store business in regional Victoria. They officially took over the operation of the three George Taylor's Stores on April 1.

This follows former owners Greg and Jacqui Malseed who have retired after 15 years of running the stores. Mr Snell has been working at George Taylor's Store since 1989. He told The Warrnambool Standard:

This was basically my first job when I left school. I started on the floor and slowly moved up.

Greg and Jacqui have now retired, but I was Greg's right-hand man for many years and prior to Greg owning the business, he was George Taylor's right-hand man for many years. The baton's been passed on to me.

Mr Snell spends most of his weeks travelling through the stores at Grassmere, Warrnambool and Camperdown, and Ms Watts has begun learning the ropes. Ms Watts explains:

I'm an accountant at Sinclair Wilson. But I work at the Warrnambool store on the weekend. It's something to break up the week and it's fun to play shops.

COVID-19 didn't slow down George Taylor's Stores and Mr Snell had no hesitation in taking over ownership. He said:

Last year was actually quite good. We traded quite well, and I think people started to purposefully look for Australian and locally made products. We sold a lot of camping gear and we're going to be building on that.

Since taking over the business, Mr Snell said he'd had a warm reception from regular customers and staff.

I've been doing most things for quite a while but of course there's always some challenges that pop up. It's always been a good place to work, I never found the need to look for work elsewhere. I think it's all worked out well that we've taken it over.

Elders

The 182-year-old farm supplies company said it has picked up about 900 new customers directly from its main rival, Nutrien. in the six-month period to March 31.

Half-year net profit after tax of $68.2 million is well above the $52 million recorded by the company for the same period last year. Revenue for the six months was $1.1 billion, 22% higher than the $900 million for the previous corresponding period. Underlying earnings before interest and tax were up 40% on a year ago to $73.8 million.

A sizable contributor to margin growth was the recently integrated Australian Independent Rural Retailers (AIRR) business which was delivering "above pre-acquisition expectations", generating $29.3 million in gross margin earnings, or almost double its results in 2019-20.

Managing director Mark Allison told the North Queensland Register that with the dust still settling on the Ruralco-Landmark merger 18 months ago, Elders expected to gain more agency and farm products supply businesses and customers, quitting Nutrien. In the first half of 2020-21 almost twice as many Nutrien customers had moved to Elders than were recruited throughout all 2019-20.

Former Ruralco farm services business YP Ag in South Australia, and five other new real estate and horticultural and general farm supplies ventures in NSW, Queensland, SA and Western Australia generated 21% of its growth results in the first half of 2020-21. Elders also established six new greenfield sites in the past half.

The company is currently weighing up another 17 potential bolt-on acquisitions which Mr Allison said would possibly add five or six new business to the group before the end of the trading year.

In the longer term, the company has its eye on significant growth and marketshare target areas in most states, with rural product sales opportunities considered most notable in Queensland, WA, Victoria and NSW.

Sunshine Mitre 10

Annecy Properties will be developing Sunshine Mitre 10's new $7.25 million store in the trade and construction precinct at Stockland's Aura Business Park in Caloundra.

Sunshine Mitre 10 has a 10-year precommitment of the site, according to The Courier-Mail. Annecy Properties director Neville Jensen said he expected doors at the new store to open in June 2022. He said he was in negotiations for some time with Sunshine Mitre 10 before the deal was struck. He told The Courier-Mail:

Sunshine Mitre 10 is already a tenant of mine in Caloundra and I have been talking to them for the last couple of years about doing this deal. They targeted Aura as a strategic hold for their future, but it still took a while to get over the line.

The 3309sqm building is on a 6051sqm site. Annecy paid $1.95 million for the land in a deal struck by Colliers International's Nick Dowling.

It is understood that Sunshine Mitre 10 will pay about $400,000 rent a year. Mr Jensen said he expected to hold onto the property for at least the next two to three years.

Related: Sunshine Mitre 10 is set to open another store on the Sunshine Coast.

The Northland Preston store is closing, and a new outlet is scheduled to open in 2022; construction company De Luca Corporation plans to sell Bunnings Plainland in Queensland at auction; and land for a new Bunnings store in Wagga Wagga (NSW) is caught up in legal dispute.

Preston

Bunnings area manager David Roddis recently told the Whittlesea Leader that construction had started on the Bunnings store at the corner of Bell St and Chifley Drive in Preston (VIC).

It will span 18,000sqm of retail area, and will be more than 5000sqm bigger than the existing Northland store. The store being built is expected to open in May next year.

It will also have a fully enclosed trade yard and drive through and about 500 car parks for customers, 170 more than the Northland store.

Existing Northland staff members will be transferring across to the new store and additional jobs will also be created for locals, said Bunnings.

Related: In February, Newmark Capital announced it has purchased the Bunnings store being built in Preston (VIC).

Plainland

De Luca Corporation is selling three properties - including Bunnings Plainland - in the next Burgess Rawson auction series, according to a report in The Courier-Mail.

Managing director Nic De Luca said it has already fielded off-market offers for Bunnings Plainland in the mid 4% yield mark, but he expects the auction to produce a better result. He told The Courier-Mail:

Upon securing the Plainland asset last year, we were always committed to run an auction process as sub $30 million Bunnings assets are extremely rare.

Bunnings entered a 10-year lease on the Plainland site, where construction began in early October 2020. The new store is expected to open in the second quarter of 2021. Mr De Luca told the Unwrap Large Format Retail website in December 2020:

The Plainland site was a strategic acquisition for our business, following the successful Kingaroy and Lawnton Bunnings developments.

We are extremely excited and proud to be delivering new Bunnings stores in Queensland, particularly during these challenging economic times. It is testament to our long-standing relationship with Bunnings.

The Plainland project adds to De Luca's previous experience with Bunnings, having constructed over 20 stores since 2011 and complementing De Luca's current construction pipeline, with new Bunnings Warehouses also being constructed in Pimpama and Yeppoon.

Plainland is a rural locality within the Lockyer Valley Region in Queensland and is 75km west of Brisbane. The town has been identified as a growth hub and the preferred location for several services to support the growing needs of the Lockyer Valley Region.

Related: Real estate company, Plainland Crossing recently posted an update (May 8, 2021) on the progress of the Bunnings Plainland store.

Wagga Wagga

Bunnings is continuing to plan for its Wagga relocation in NSW despite the Sturt Highway land set aside for the project being caught up in a legal dispute over a deceased's estate, according to a report in The Daily Advertiser.

In January last year, the hardware retail chain lodged a development application for a $47 million store on Wagga's Pearson Street at the Sturt and Olympic Highways roundabout. It is approximately 500 metres north of Wagga's current Bunnings store.

The proposed site is owned by Maria Limberger who died in January 2018. The property is currently occupied by her family's Rivcrete concrete business.

Mrs Limberger's three adult children, Joseph Limberger, Catherine Oakman and Steven Limberger, have been involved in legal action over the past two years over various claims to her estate.

Recently, the NSW Supreme Court handed down an interim determination that valued the Pearson Street property at $8 million and cleared the way for a sale in order to settle the inheritance claims.

Justice Justice Philip Hallen stated that the Pearson Street property would be sold along with some of Maria Limberger's other Wagga properties and the money distributed according to her will, subject to further legal proceedings.

Bunnings Warehouse is not involved in the Supreme Court case. Bunnings' property and store development director Andrew Marks said the company's "development application for a new store located at the corner of Pearson Street and Sturt Highway is still undergoing assessment by Council".

Sales for US home-improvement giant climbed to USD37.5 billion in the three months ended May 2, up 32.7% from a year earlier. Profit rose to USD4.15 billion or USD3.86 a share, from USD2.25 billion or USD2.08 a share, a year earlier.

Its latest results have been fuelled by a pandemic surge in renovations and homebuilding in the US. There has been an unprecedented burst of home improvement projects, most recently with the distribution of vaccines and the rebound of the economy.

Global same-store sales surged 31% for the quarter compared to 6.4%, a year ago. Paint was the only category to see same-store sales growth of less than 20%. Online sales grew by 27%. More than half of digital orders were fulfilled through stores.

Big-ticket sales - transactions above USD1,000 - also indicated a strong willingness by shoppers to spend on home improvement, rising by about 50% on a comparable basis year over year. The average ticket rose to USD82.37 or 10.3%, from USD74.70 in last year's first quarter. Home Depot's tally of customer transactions rose to 447.2 million or up 19.3% in the quarter, from 374.8 million a year earlier.

Some of that increase in consumer spending could be tied to higher prices. For example, the price for a sheet of oriented strand board timber has quadrupled over the last year, according to executives, but demand has kept pace.

Although timber has been cited in recent months by investors and businesses as a contributor to inflation concerns, it has continued to fly off shelves amid rising prices.

Home Depot CEO Craig Menear said that the supply chain bottleneck is in sawmills, where cutting capacity hasn't caught up with demand. He said:

We don't see a lot of capacity coming online, so we're probably not going to see a lot of finished lumber product in distribution, so as soon as that product hits our stores, it sells.

This is the first quarter that the retailer is facing year-over-year comparisons to its business during lockdowns.

Even as much in-person retail evaporated in 2020 Home Depot worked to keep its stores open, arguing that it should be considered an essential retailer. In the year since, it also has benefited from the strong housing market and government policies such as enhanced unemployment benefits and stimulus checks that have supported consumer spending.

Ace Hardware

Ace Hardware Corporation has announced record first quarter 2021 revenues of USD2.0 billion, an increase of 42%, from the first quarter of 2020. Net income was USD105.4 million for the first quarter of 2021, an increase of USD69.2 million from the first quarter of 2020. John Venhuizen, president & CEO, said:

Same-store sales growth of 29.9%, 51 new stores, a 220% increase in our digital business, and increased retail inventory depth drove the best first quarter in Ace's history. Elevated demand, limited supply, and a ridiculously disrupted global supply chain continue to create a difficult environment operationally...

The 29.9% increase in US retail same-store-sales during the first quarter of 2021 reported by the approximately 3,400 Ace retailers who share daily retail sales data was the result of a 12.3% increase in same-store transactions and a 15.7% increase in average ticket sales.

Ace added 48 new domestic stores in the first quarter of 2021 and cancelled 15 stores. The retailer's total domestic store count was 4,680 at the end of the first quarter of 2021 which was an increase of 114 stores from the first quarter of 2020. On a worldwide basis, Ace added 51 stores in the first quarter of 2021 and cancelled 16, bringing the worldwide store count to 5,498 at the end of the first quarter of 2021.

The Australian Bureau of Statistics (ABS) has released its data for building approvals up to March 2021. The stats for Queensland (QLD) are particularly interesting, as they reveal some unique characteristics about that state.

Figure 1 is a compilation of charts for both number and value of building approvals. All values are shown in thousands of dollars, and the time periods are for the trailing 12 months to March for each year (YEM).

QLD-1 shows a distinctive pattern. Numbers of house approvals peaked in 2018YEM, then declined in almost a straight line through 2019YEM and 2020YEM. That is followed by a sharp upwards movement, with numbers coming in close to those for 2018YEM. For apartments, there was a sharp peak in numbers for 2016YEM, followed by a steep decline through to 2020YEM. Townhouses and semi-detached (TSD)houses experienced much milder peaks and declines.

QLD-2 shows an interesting trend in that while the average value of approvals (total approval value divided by number of approvals) has risen for both houses and TSD, apartments have seen a steep rise in value. That rise in value corresponds almost exactly with the decline in numbers of apartment approvals, suggesting this has shifted to being more of a premium market.

QLD-3 shows the types of apartment approvals in the state. This has remained remarkably flat over the most recent three years, but there has been a significant shift towards taller (larger) apartment blocks, while mid-size block approvals have steadily declined.

QLD-4 shows that larger TSD approvals reached a peak in 2017YEM, then declined sharply through to 2020YEM, before a slight recovery. Meanwhile smaller TDS approvals have declined significantly since 2017YEM.

QLD-5 shows the percentage change in the numbers of building approvals for houses, smaller TDS and larger TDS. Houses saw two years of negative growth, in both 2019YEM and 2020YEM, while TDS in both categories showed steeper declines in those years. QLD-6 shows a similar trend across the value of building approvals.

QLD-7 is a month-on-corresponding-month comparison of the percentage change in building approval numbers. Perhaps the most interesting characteristic here is the sharp spike upwards in approvals for apartments in December 2020, followed by a small but significant decline in house approvals for January 2021 as contrasted with January 2020.

QLD-8 shows the value for the same range and type of building approvals, and mostly echoes QLD-7, indicating there was not much of a value shift.

Analysis

Chart 1 shows some of the significant shifts in the makeup of building approvals in QLD.

It's interesting to note that in 2016YEM, houses made up around 50% of the approvals, but this rose steadily since then to 68% in 2021YEM. In other nations, it's common to see a steady increase in the number of apartment approvals as the cost of housing increases. Though QLD tends to be a cost sensitive market, that trend is not apparent, as yet. Nonetheless, there is something of a certain strength to the apartment market in QLD, and it will be interesting to see if it shifts again in 2022 from being more premium-focused to providing less-expensive housing instead.

The Australian Bureau of Statistics (ABS) has released its data for building approvals up to March 2021.

Figure 1 is a compilation of charts for both number and value of building approvals for South Australia (SA). All values are shown in thousands of dollars, and the time periods are for the trailing 12 months to March for each year (YEM).

SA-1 shows a very strong surge in the number of building approvals for houses in 2021YEM, after strong consistency from 2014YEM through to 2020YEM. Meanwhile the number of approvals for both apartments and townhouse/semi-detached (TSD) dwellings have been fairly consistent, but trended down in 2021YEM.

SA-2 shows the average value for approvals (total value divided by total number). While both houses and TDS show an ongoing increase, the value of apartments has risen more sharply, albeit in a more jagged manner - perhaps as the market jostles about whether it is about premium living, or value for money. Also interesting is that the average value for house approvals actually goes down in 2021YEM, indicating that there must be growth in lower valued housing.

SA-3 shows represents the building approvals issued for different sizes of apartment buildings. This shows an unusual patter for Australia, with buildings that are between four and eight storeys growing sharply at the expense of taller buildings. There is also an overall precipitous decline post 2019YEM.

SA-4 is more in keeping with the pattern in other stages, with the number of approvals for larger TSD dwellings becoming more dominant, and exhibiting some resilience, even after the peak 2018YEM.

SA-5 shows the percentage change in the number of approvals for houses and two categories of TSD. There is something of a "reversal of fortunes" here, as house approval numbers have bumped along close to 0% since 2015YEM, but then grew sharply in 2021YEM, while TSD numbers declined from 2019YEM onwards. SA-6, which shows the value of those approvals, follows this closely, indicating that the market has not shifted much in this regard.

SA-7 gives the month-on-corresponding-month view of the percentage change in the number of approvals through the past two years. It illustrates just how whacky the apartment approvals have been. That is echoed in SA-8, which shows the percentage change in the value of approvals.

Analysis

When we look at the changes in the value of building types, we can see that SA had one of the strongest shifts in this area across Australia.

The shift from houses making up 72% of approvals by value in 2020YEM to 81% in 2021 is one of the strongest. This affected the total value of apartment approvals disproportionately. It's difficult to tell what the exact dynamics are that have affected the apartment market in the state. It is counter-intuitive, given that SA is suffering from a shortage of accommodation both in centres such as Adelaide and in more regional areas as well.

The Australian Bureau of Statistics (ABS) has released its data for building approvals up to March 2021.

Figure 1 is a compilation of charts for both number and value of building approvals for Western Australia (WA). All values are shown in thousands of dollars, and the time periods are for the trailing 12 months to March for each year (YEM).

WA has produced some interesting statistics. It is probably the single state of Australia that has best avoided some of the negative consequences of the COVID-19 pandemic, and that has given some unique characteristics to its approval stats.

As WA-1 illustrates, the number of approvals for houses has been in decline since 2015YEM, but this was sharply reversed in 2021YEM, with approvals back up to the level for 2016YEM. The number of approvals for both apartments and townhouses/semi-detached houses (TSD) remained relatively constant, however.

This makes WA-2 all the more surprising, as it shows the average value (total value divided by total number) of house approvals actually declined, while the average value for apartments shot up steeply, with TS showing a moderate to high increase.

WA-3 shows an actual increase in the number of building approvals for apartments, with a balancing between the largest category and the mid-size category, as smaller apartment building approvals continue to decline.

WA-4 shows that the steepest decline has come for the TSD category, with approvals reaching a ten-year low. Also surprising is that most of that decline has come for the larger TSD buildings, while one-storey TSD has shown some resilience.

Both WA-5 and WA-6 show how the house approvals have come to dominate growth, with 2021YEM showing a very strong growth in both numbers and value.

WA-7 shows the steady trend of increases in the number of approvals since August 2020, while the apartment approvals underwent a very strong spite in September 2020 which was sustained at a lower level in October 2020. The value of approvals, shown in WA-8, has tracked the same pattern.

Analysis

Even with the spike in approvals, and despite being a state less affected by the COVID-19 pandemic, WA has coasted towards being more dominated by approvals for houses during 2021YEM, as is shown in Chart 1.

While WA has always had a strong showing in house approvals, this did go up by nearly 5% between 2020YEM and 2021YEM. With low rental vacancy rates and ongoing demand for accommodation, we could be seeing the signs of a rebalancing towards more apartment approvals through the rest to 2021.

Lismore in north eastern New South Wales is the latest location for a Sydney Tools store following its recent launch in Shepparton (VIC). The 1800sqm store will carry around $3 million worth of stock across 19,500 product lines, according to founding director Jason Bey.

It is the tool group's 25th store in NSW and 51st in Australia. Mr Bey told The Northern Star that its sales data showed that Lismore was an ideal location to open a store. He said:

We have seen from people who shop at our Coffs Harbour and Port Macquarie stores as well as online sales data that we have lots of customers in Lismore, Byron and Casino. So we have made a big commitment to the local community to come here and have taken out a long-term lease of around $2.5 million over seven years.

Mr Bey believes the Northern Rivers is a go-ahead region with a strong future. He said:

There is a lot of work going on and coming up in the Lismore area. At Sydney Tools we are very confident of our business offering in terms of service, range and pricing for our professional and trade customers.

The Lismore store is scheduled to open on May 20, 2021.

Related: In 2020, Sydney Tools had store openings in Garbutt (QLD), Orange (NSW) and Darwin (NT) amongst other locations.

Yolla Co-Op

A new Yolla Co-Op store is being proposed for a site in Latrobe (TAS) with a development application (DA) submitted to Latrobe Council for public display and feedback.

Yolla Producers Co-operative Society general manager Ben Davis said if approval is gained, the Latrobe location would be its third store. He told The Advocate:

We have been looking for the past six to 12 months for opportunities to grow the Yolla brand. We are currently in the due diligence phase. The location is amazing. You couldn't pick a better spot with highway frontage and easy access for members and the public.

One of the great advantages of the ... site is its large yard which will make easy for the distribution of bulky goods.

The company is seeking approval to change the use of the site from a food services and tourism operation to bulky goods sales. Subject to approvals and about $40,000 in changes to the site, Mr Davis said they were hoping to open the new shop in November or December this year.

The co-op, which has stores at Smithton and Wynyard, has more than 920 members, which includes 270 in the Latrobe and Devonport area. Mr Davis said:

The business has continued to go from strength to strength over the past eight to nine years. We have a large amount of support and we currently service a lot of that area already with our delivery service and this is a logical next step as a business. If we get through due diligence the objective is to run it as a third shop front for us.

I hope that people in the area see the benefits of having a rural supply store that is able to provide competitive pricing. As a business we continue to support local communities where we can and will be employing staff.

The plans to transform the site into a rural merchandise store include removing the garden on the northern side of the building and the children's playground to make room for the storage of bulk goods, such as fencing material, water tanks and irrigation supplies.

It is expected medium to heavy rigid vehicles will be making deliveries to the store during operating hours, but there is "no reason to suspect that there will be a substantial increase in traffic volumes entering and exiting the site", said Mr Davis.

Seven Group Holdings has made a bid for Boral - valued at almost $8billion - as it aims to expand its foothold the company. The takeover bid is seen as an attempt to gain greater exposure to its building materials business across Australia and the US as the world emerges from COVID-19.

Boral has rejected the Seven offer, saying it was opportunistic and undervalued the company. Morgan Stanley analysts believe the bid would not be well supported by investors, according to a report in The Australian.

Seven Group's $6.50 per share takeover bid equates to 22 times forecasted 2022 net profit and eight times earnings before interest, tax, depreciation and amortisation, the analysts said. They said in a research note:

As it stands today, with the bid in line with the current share price, we expect limited take-up.

Seven conceded it would be content owning about 30% of Boral if existing investors do not want to sell their shares in the company. It said in a statement:

In making the offer, Seven is seeking to increase its interest in Boral and would be satisfied for the offer to result in it holding a total interest of around 30% of Boral. The offer provides Boral shareholders with the opportunity to sell their shares at a premium to recent trading performance.

A company cannot own more than 20% of a target without launching a takeover under Australian laws. However, under "creep" laws it can continue to boost its ownership by up to 3% every six months without embarking on a bid.

With more than 19.9% of Boral and having recently exhausted provisions allowing it to "creep" up the share register, the Seven Group is unable to buy more of Boral without launching a takeover offer.

Seven Group is controlled by billionaire Kerry Stokes and his conglomerate also owns Cat equipment provider, WesTrac, Coates Hire and petroleum company, Beach Energy.

CSR results

Building products supplier, CSR has been benefiting from the increased momentum in the Australian housing construction and renovation market as ultra-low interest rates and the Federal Government's HomeBuilder stimulus program fuel demand.

CSR chief executive Julie Coates said she expected the housing market to remain solid with the extension of HomeBuilder to 2022. Detached housing accounts for 54% of CSR's revenue. Most CSR products are used in the last half of a new home construction. She told the Australian Financial Review:

We've got a six-month lag in the build cycle.

Sales of building products in retail hardware outlets are also up 20%, according to a report in The Australian. She said the company had been able to push through a price rise of 4% for Gyprock products in April, which she described as largely a "catch-up" after steady pricing last year.

The group's building products business, which makes up around 70% of revenues, generated an 8% increase in earnings before interest and tax to $184.3 million for the 12 months ended March 31.

Revenue was down 4% to $2.1 billion after a softer beginning of the group's financial year, as a result of uncertainty in the early stages of the pandemic. It owns brands including Hebel, Monier roofing, Gyprock and Cemintel.

Shortages of tradespeople has emerged as an issue for the industry, while inflation is also on Ms Coates' watch list, according to The Australian. She said:

Shortages of bricklayers and roof tilers is a challenge for the industry, so we need to make sure we have enough of those trades coming through. We've not seen cost inflation yet in our business but we're anticipating as we go forward that's a potential impact that we're going to have to manage.

The CSR boss is also looking ahead to migration trends as a guide for the next few years. She said:

The extension of the HomeBuilder starts should provide demand through 2021 and 2022. The question is whether it's enough of a build to positive net overseas migration, which the government is expecting to come back in 2023. So how we build that bridge is important - I think we look to continue to work with government on that given the importance of the building industry.

I'd also say we're not through COVID-19 yet so the other assumption is we can have a vaccine rollout that's successful. So there are a whole range of factors required in terms of underpinning the economic growth we'd all like to see.

Private equity group Ares is selling upmarket British paint company, Farrow & Ball to Danish coatings manufacturer Hempel in a GBP500 million deal. Ares bought it in 2014 for GBP275 million.

The deal comes after a year in which protracted lockdowns and a shift to working from home have made some consumers more willing to spend on high-end interior design. Anthony Davey, chief executive of Farrow & Ball, said revenues had risen more than 30% in the year to March 2021. He told the Financial Times:

The home turned into a new frontier. It was a school, it was an office, it was a place where old hobbies were revisited and new hobbies began. As a consequence, people invested more time and more money [in their homes].

The company repaid more than GBP1 million in furlough money to the UK government when it realised "we were actually going to have a very, very strong year", Mr Davey said.

The deal values Farrow & Ball at almost GBP500 million, according to people familiar with the matter, although the companies declined to comment on the valuation.

Hempel, based in Lyngby, outside Copenhagen, produces paints and coatings for large container vessels, bridges and wind turbines. Decorative paints for homes, offices, schools, hospitals and public buildings made up a third of its revenue in 2020. The deal is part of its plan to double its revenue to EUR3 billion by 2025. Hempel's chief executive, Lars Petersson, said:

We believe there's an international scaling possibility here. We keep investing in the UK? ... but, of course, there are some limitations [on sales growth]. Outside of the UK, there are no limitations.

The company will continue to manufacture all of its paint in the UK because this was "a key part of the brand", Mr Petersson said.

The company has sought to attract younger consumers by hiring social media staff from fast-fashion companies "where online social inspiration is the lifeblood of that industry", said Mr Davey.

Not all Farrow & Ball consumers are sort of uber-affluent consumers - very far from it. Of course, affluence and price sensitivity play a role, but it is not the defining factor. It's their engagement and passion for interior design.

The company had gone through a "really painful process" to make sure it could continue to export its paints, which are manufactured at its factory in Wimborne, Dorset, to the EU after Brexit, he added.

Farrow & Ball is known for its eccentrically-named colours including "Dead Salmon" and "Broccoli Brown".

Related: Hempel also owns the Wattyl paint brand.

Next and Homebase tie-up

DIY chain Homebase will place mini garden centres in a number of Next fashion stores, according to The Guardian. The trial partnership between the two retailers will see Homebase garden centres open within the Next stores in Shoreham, Ipswich, Warrington, Camberley, Bristol and Sheffield.

Homebase said it aims to offer customers access to expert gardening advice, plants, pots and tools - alongside Next's range of clothing and homewares.

The new venture, which will be called Garden by Homebase at Next, raises the prospect of compost being walked through gleaming retail spaces containing expensive lingerie and dresses. Damian McGloughlin, chief executive of Homebase, said:

We're delighted to be joining forces with Next and bringing our garden products and expertise to its stores. It's all part of our wider commitment to make shopping with us easier and provide even more inspiration and expert advice.

We're a great nation of gardeners, with more and more people enjoying the benefits of gardening and being outside. The launch of these new garden centres means we're able to offer more gardeners, both experienced and those just starting out, Homebase products in more locations across the country.

In November 2020, after a period of strong sales, Hilco hired investment bankers at Lazard to sell Homebase. There have been reports that Hugh Osmond, the former owner of PizzaExpress and the founder of Punch Taverns, is preparing a GBP300 million bid for the DIY chain.

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

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

New South Wales

Figure 1 shows a summary of these statistics for NSW.

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

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

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

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

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

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

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

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

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

Victoria

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

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

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

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

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

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

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

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

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

Analysis

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Bunnings

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Sunshine Mitre 10

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

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

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

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

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

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

Mirco Bros stores sold to Nutrien

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

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

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

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

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

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

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

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

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

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

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

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

Land sales

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

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

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

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

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

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

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

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

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

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

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

Australia's tile market

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

The market

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

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

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

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

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

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

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

The challenges at Beaumont Tiles

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

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

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

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

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

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

Regulatory hurdles

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

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

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

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

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

Why Beaumont? Why now?

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

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

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

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

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

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

Analysis

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Bunnings managing director, Michael Schneider, said:

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

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

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

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

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

Brand status

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

About Stainmaster

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

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