ABS hardware retail stats to November 2021

Growth continues

For all states and territories, except VIC, the period from December 2020 to November 2021 showed further growth in hardware retail sales, on top of the growth already achieved from December 2019 to November 2020. NSW grew the most, followed by WA and QLD.

The Australian Bureau of Statistics (ABS) has released stats for hardware retail sales through to November 2021.

Looking at Chart 1 (top), which represents the cumulative totals of hardware retail sales, excluding Tasmania and the Northern Territory (as the ABS has not provided stats for these areas), it is evident that for the most part sales through to this past November were flourishing. While the large increase from 2019 to 2020 did not repeat for 2021, sales not only maintained the elevated levels of 2020, but managed to improve on them.

New South Wales (NSW) outperformed all other states and territories in the 12 months to November 2021, growing by 6.7% over the previous corresponding period (pcp), which was the 12 months to November 2020. This growth represented an additional $458 million in revenue.

In percentage terms, Western Australia (WA) came in second, with 5.1% growth, and a revenue increase of $119 million, followed by Queensland (QLD), which increased by 4.9% and $233 million more in revenue. Victoria (VIC) was the only state to post negative growth, of -3.0%, with a drop in revenue for the period of $202 million. Australia overall (including TAS and NT) grew by 2.85%, an increase of $662 million on the pcp.

Trailing 12 months to November, percentage change

Following up on the actual numbers for hardware retailing, Chart 2 shows the percentage change, comparing trailing 12 month periods through to November.

This chart illustrates, yet again, how unusual 2020 was as a year for hardware retailers. The percentage changes for the previous period, the 12 months to November 2020, as compared to the 12 months to November 2019, fall within a very narrow range - with the exception of the Australian Capital Territory (ACT), which recorded sales growth of 28.6%. The other states ranged from a high of 19.4% for South Australia (SA), to a "low" of 17.9% for WA, a variance of just 1.5%.

The range for the most recent period is much broader, at 9.7%. It's evident that the 12 months to November 2021 saw a more regional response to the situation the COVID-19 pandemic has created.

Month-on-month percentage change

Chart 3 is a way to track these changes on a monthly basis by comparing the revenue of each month to the same month in the preceding year.

It is perhaps best to view this chart in relation to another two charts, which detail the COVID-19 pandemic over this period. (Note that all these charts go up only to 30 November 2021, and that the Y-axis of the growth is to a log scale. The log scale is used to better accommodate the high peaks of growth.)

Chart 4 illustrates the progress of reported COVID-19 cases, and deaths:

Chart 5 illustrates comparative rates that show the progress of the pandemic.

These charts are sourced from Our World in Data, a well-respected source of this and other statistical information:

Our World in Data

It is possible to see some link between the pandemic intensity and retail sales. In terms of 2021, there is an indication that during the time between high vaccination rates helping to contain the Delta variant of COVID-19 and the advent of the Omicron variant, hardware retails sales, while remaining at a historically high level, did begin to decline slightly. As the Omicron variant took hold, retail sales began show an increase over 2020.

There are so many secondary factors at work currently - such as supply chain issues - that it is difficult to draw any firm conclusion. But this could indicate that if Australia returns to a period of prolonged stability, hardware retail sales may begin to trend back to 2019 levels.

Analysis

At the beginning of the pandemic, when the current federal government was confidently predicting a "V"-shaped recovery, HNN suggested that what was more likely was what we termed a "K"-shaped recovery.

ABS stats: Building work done; The stimulus shows its effects - HNN, October 2021

The suggestion in this was both that there was not going to be some rapid "snap-back" in GDP growth in less than a year, and also that the recovery would be split, with some sectors faring much worse than others.

Viewed from today's perspective, this is, we would suggest, close to being just common sense. However, that original forecast by the government continues to haunt much of the policy around the COVID-19 pandemic. It's not just that the only "acceptable" outcome is V-shaped, it's that it perpetuates the core myth of the pandemic, that we have some measure of control over what happens in the near-term.

The major challenge that will face the hardware retail industry is what is going to happen as the forward shadow of 2023, and thus the likely increase in interest rates by the Reserve Bank of Australia (RBA), looms every closer. The Australian bank Westpac has recently moved its forecast for that interest rate rise forward to August of 2022. There is little doubt that such a rise will lead to a softening of the real estate market, and a potential decline in the price of housing.

The thing about the K-shape is, it's not possible to control what the pandemic does, or even what the secondary effects of the pandemic create. But there is a chance to ensure that your business is more likely to end up on the positive prong of the K than the negative prong. That's probably going to involve less a standard set of actions, and more a good dose of adaptability and persistence.

statistics

Retail update: tools and hardware

Sydney Tools Cairns opens after $4.5m fit-out

A 50-year-old Buttercup Bakery in regional NSW is set to be partly demolished and converted into a hardware store

Parramatta Park, a suburb of Cairns (QLD) is the location of the recently opened Sydney Tools store.

Area manager Ryan Luke said the family-owned business now has 65 locations across Australia - and opening in the Far North was a "no-brainer" with the current market demand. He told The Cairns Post:

We wanted to bring our brand and style of tools to Cairns to give the consumers the right type of shop to come to.

In a previous article, Sydney Tools director Elvis Bey told The Cairns Post the business already has a large online customer base in the area and preparing to take market share from local competitors, Bunnings, Trade Tools and Cairns Hardware. Its Cairns store could also be a reflection of a "retail resurgence" in the region, driving economic activity across the city with a large amount of industrial property being leased.

The tool retailer also just opened a new outlet in Nerang on the Gold Coast (QLD).

Related: Sydney Tools announced its Cairns store in late 2021.

Sydney Tools coming to Cairns -HNN Flash #69, October 2021

Hardware store development

Tamworth Regional Council (TRC) has given the green light to a plan to convert the former Buttercup Bakery building into a hardware store, reports the Northern Daily Leader.

The site of the old bakery in Taminda (NSW), which was built in 1968, is located across the road from Bunnings. It is still used for distribution of bread, with one section vacant, according to planning documents issued with the project development application.

The upgrade is expected to cost around $875,000 and replace the area used for the manufacturing side of the bakery.

TRC signed off on the plan on the basis the project was not contrary to the public interest. The council's development approval said:

The proposal is considered to be satisfactory, having regard to the relevant legislation, council codes and policies and will not have a negative impact on the site, or community. Accordingly, the application is recommended for approval, subject to conditions.

Conditions include that the building be built to national building standards, and require the developer to pay an $8,750 levy before opening, among other standard conditions. Once complete the building will serve as a "hardware and building supplies warehouse and retail sales facility".

Related: The town of Taminda in New South Wales may get a new hardware store.

Hardware store proposed for historic bakery site - HNN Flash #62, September 2021
  • Sources: The Cairns Post and The Northern Daily Leader/Country Leader
  • retailers

    Big box update

    Bunnings Mount Isa store gets ready for opening

    Wesfarmers provides an earnings update and could be entering the pet supplies category through a potential acquisition of Greencross

    The new Bunnings 5607.5sqm store site in Mount Isa (QLD), located on the corner of West and Alma streets, is set to open in mid-February and replace the existing Bunnings on Camooweal Street, according to the North West Star.

    Bunnings Warehouse regional operations manager, Marg Walford, said she was excited to confirm the store preparations were on track. She told the North West Star:

    The new Bunnings Mount Isa will create around 50 new jobs in the local community, over and above our existing team, and represents an investment of around $19 million...
    The new store is more than double the size of the existing store and will provide customers with a much wider range of home and lifestyle products. Features include the main retail area, a fully enclosed timber yard, an outdoor nursery and over 150 on site car parks for customers.
    It will also feature a new building materials landscape yard and a bagged goods area in the nursery, both features not seen at the existing Mount Isa store.

    The new store was announced in 2017 when the plans went out for review. It was only in March 2021 that the builder was appointed to the construction, after a delay due to sewer and stormwater mains plans.

    Related: Building is taking shape at Bunnings new Mt Isa store.

    Bunnings Mt Isa store on track for 2022 opening - HNN Flash #66, October 2021

    Wesfarmers update

    Bunnings continues to deliver strong results for Wesfarmers as householders take on another round of DIY projects at home and avoiding shopping centres, outdoor activities and eating at restaurants because of the perceived higher risk of being exposed to the COVID-19 Omicron variant.

    The company said while there had been a weakening of overall retail trading conditions in the final two weeks of December after rising COVID-19 case numbers in most states, the hardware segment remained solid.

    In the Australian Financial Review (AFR), JP Morgan analyst Bryan Raymond said Bunnings has a robust outlook for the June half, with demand in the trade business strong and DIY spending underpinned by "customers spending more time at home through the Omicron wave".

    Bunnings is currently playing to its strengths in the face of COVID-19: a big box format and stores outside major shopping centres with a drive-in and drive-away model, according to The Australian.

    Along with Bunnings, Wesfarmers owns the Kmart, Target and Officeworks retail chains. In a recent earnings update to investors, Wesfarmers said customer traffic to stores has softened in the first half of January, and higher levels of staff absenteeism because of COVID-19 are causing increasing pressures in the supply chain and distribution centres, impacting stock availability and forcing some of its retail outlets to cut their trading hours. Wesfarmers told investors:

    These issues are expected to persist while COVID-19 cases and the number of team members requiring to isolate remain elevated.

    Overall sales for the Kmart Group, which comprises Kmart and Target, fell 10.3% in the December half from the year-earlier period.

    Wesfarmers said the extra supply chain pressures had resulted in higher costs, with international freight charges rising and inventory costs increasing because of decisions to carry higher stock levels as a buffer against uncertainty in delivery schedules.

    However solid results in its chemicals, energy and fertiliser businesses, as well as good performance from Bunnings, meant Wesfarmers should still deliver a first-half profit for the financial year ending June 30, in line with market forecasts. The company expects to report net profit between $1.18 billion and $1.24 billion for the six months ended December 31.

    Wesfarmers is scheduled to provide an update on its results on February 17.

    Pet supplies

    Wesfarmers has also emerged as one of the major contenders to acquire Australia's biggest specialist pets and vets retailer, Greencross, according to the AFR. This will allow the conglomerate to enter the pets sector in what would be a big way.

    Wesfarmers is said to be one of a handful of potential trade suitors left in the process. It has intense knowledge of Australia's retail sector, the changing consumer spending habits that have boosted revenues at Greencross, and the power of customer loyalty.

    Greencross owner TPG Capital is understood to have been talking to potential suitors in an effort to bring its review closer to a conclusion.

    It comes as TPG's Australian team works through options for Greencross, which was acquired in February 2019. The review included confidential talks with potential buyers or minority stake investors, and assessing other options including a refinancing, a break-up or an initial public offering.

    Greencross has been pitched as a $300 million-odd a year business in terms of earnings, making it three times bigger than when TPG invested three years ago. It owns Petbarn and City Farmers, which have pet supplies shops and online stores, and Greencross Vets, which has a national network of around 150 sites.

  • Sources: The North West Star, Australian Financial Review, Sydney Morning Herald, The Australian and Townsville Bulletin.
  • bigbox

    Retail update

    Beacon Lighting's first half results in line with prior corresponding period

    Alceon Group is expected to acquire garden centre chain Flower Power that could value the retailer and its properties at close to $500 million: report

    The continued emphasis on home improvement and small renovations has generated solid revenues for Beacon Lighting's retail, trade, e-commerce, and international businesses. This has led the company to signal that its December half sales and profits would match those of a year ago, even though the retail sector has been through a very difficult time especially in Sydney and Melbourne because of extended lockdowns. Shares in the lights, lamps and ceiling fans retailer rose as much as 8% following this announcement.

    About half of Beacon's store network had to close during COVID-19 lockdowns in NSW, Victoria and the ACT from July.

    In the first half of 2020-21, Beacon generated sales of $151.3 million and net profit of $22.2 million.

    There had been supply chain disruptions and lockdowns and restrictions, but underlying demand from customers was strong, even though they had to temporarily shift to online ordering or click and collect.

    Chief executive Glen Robinson said there had been strong momentum across the retail, trade and e-commerce segments of the business despite it being a difficult time to run a business.

    Households were continuing to spend on their home at a time when the Omicron variant wave brought fresh disruptions to travel plans and more people stayed home rather than going out. Mr Robinson told investors:

    Despite these challenges, the group is aligned with the household goods sector and has benefited from the strong interest in the lighting and ceiling fan product categories from our customers.

    Beacon has 116 stores and is the largest specialty lighting retailer in Australia, with an estimated 22% of the retail market.

    Related: More stores for Beacon Lighting.

    Beacon Lighting wants to grow trade market - HNN Flash #66, October 2021

    Flower Power

    According to a report in the Australian Financial Review (AFR), investment firm Alceon is in final discussions to buy Sydney-based garden centre chain Flower Power. This follows chief financial officer Michael Spiteri telling the AFR in early 2021 that the company was seeking a new investor.

    The deal, should it be agreed, would take Flower Power outside the control of its founding family, the Sammuts, for the first time in more than 50 years.

    The late Nick Sammut set up Flower Power in 1968, and has since passed it on to his three sons including John Sammut, who has run the business for the past 30 years.

    Flower Power has 10 garden centre stores in NSW, and has established a cult-like following in some of its communities.

    Interested parties were told Flower Power recorded $24 million EBITDA (earnings before interest, tax, depreciation and amortisation) in the 2021 financial year, and that revenue and earnings were expected to grow by more than 30% a year in the coming five years, while there were also plans to build or acquire new centres.

    Bidders were told the business had performed well during the COVID-19 pandemic as a result of the lockdown-fuelled home improvement/DIY boom in which people spruced up their gardens and outdoor living areas. They went to businesses like Flower Power to buy plants and related garden accessories to upgrade their backyards.

    The main question for potential buyers is whether the strong customer demand and business lift was permanent, or would return to more normal conditions in the future.

    There is speculation that Flower Power was headed towards a $500 million-odd valuation, should the deal also involve its extensive property portfolio. It would be a large deal for Alceon, which invests in Australian real estate, credit and private equity opportunities.

    Related: NSW-based Flower Power is reportedly looking for a partner to grow the business.

    Flower Power is seeking a strategic investor - HNN Flash #34, February 2021
  • Sources: The Australian Financial Review and Motley Fool
  • retailers

    USA update: Home Depot

    DCs and new credit options for pro customers

    Home Depot and HD Supply will be stocking PPG's pro paint range at all their US locations

    The Home Depot is investing in its distribution centres to keep its lucrative pro (tradie) customers happy, according to Bloomberg News.

    Pros' needs are very different than the average customer's, and while they make up only 5% of Home Depot's shoppers, they account for 45% of its USD132 billion in annual sales. They often buy bulky items in vast quantities and want - or rather demand - to receive the orders on a stringent timeline. That has become an especially intense problem for Home Depot amid the supply chain crunch that's upended stocking and transport around the world.

    The new DC facility in Stonecrest, Georgia, which is a flatbed distribution centre, is designed with contractors and professionals in mind. The hub is the centrepiece of Home Depot's plan to ease the complexity of direct-to-consumer sales - and win market share from both its main rival, Lowe's, and independent distributors.

    Home Depot has built similar distribution facilities in major markets such as Dallas, Baltimore and Miami and more are coming. It's part of USD1.2 billion of investment over five years on supply chain improvements that started well before the COVID-19 pandemic roiled the world's shipping markets. The company is betting that if it can keep contractors happy, other customers will follow.

    Home Depot's DC made for trucks - HNN February 2020

    Additionally, funnelling the direct-to-contractor business to the facilities is meant to simplify store operations.

    In Home Depot's Georgia hub, most orders move in and out on flatbed trucks, with merchandise heading to stores or job sites up to 200 miles away. The Georgia centre is also located on a rail line, so boxcars carrying as much as four times what a flatbed truck can hold arrive directly.

    Prior to these distribution centres, orders for professionals were mostly filled from stores. This depleted inventory and put pressure on workers. Sometimes, purchases would have to be completed from two or three different stores, meaning that different parts of the order could arrive on different days, much to the chagrin of backlogged contractors.

    With the flatbed facilities, Home Depot is betting it can control last-mile delivery to earn its pro shoppers' trust. Stephanie Smith, senior vice president of supply chain, said the centres aim to carry everything that a contractor or pro might need. If Home Depot meets that goal, it expects broader success to follow, she added. Ms Smith said in an interview:

    In our history as a company, if we develop something for our contractor pro customers and get it right, then it really generally works well for our DIY customers as well.

    The initiative was well timed. As retailers struggle to adjust to widespread logjams, Home Depot is well into its overhaul. After the investment is fully deployed, Home Depot will have around 150 distribution facilities in its network. About 30 to 35 of those will be flatbed distribution centres.

    The investment in its supply chain is one of the biggest initiatives Home Depot has taken on since building out HD Supply in the early 2000s, said Keith Hughes, managing director of equity research at Truist Securities.

    The challenge, Mr Hughes said, is that there's no single solution to meeting the needs of contractors, whose work ranges from lawn and landscaping to drywall and demolition. He told Bloomberg News:

    I think one area where Home Depot has struggled is with time delivery. There are all these little idiosyncratic things you have to do around the pro that is very job-specific or trade-specific. The cookie-cutter approach doesn't always deal with it.

    Ms Smith said that since the flatbed facilities have opened in other markets, the company has been able to notch better on-time and complete orders. And the relieved pressure on store employees lets them "focus on the customers that are shopping there - and that's a better experience for them as well."

    Related: The Home Depot has been making major investments in supply chain distribution and delivery since 2018.

    Home Depot in the delivery economy - HI News, page 81

    Credit card for pros

    The Home Depot is expanding its commercial credit offerings for its pro customers and introduced the Pro Xtra Credit Card. It can be linked with the Pro Xtra loyalty program to earn registered users perks four times faster on card purchases.

    The Pro Xtra loyalty program provides member-only benefits, including volume pricing, exclusive product offers, paint rewards, and other perks. The company will reward Pro Xtra members with a USD100 credit on registering for the new credit card.

    The Pro Xtra Credit Card is a new iteration of the retailer's Commercial Revolving Charge, as well as an update to its Commercial Account Card. Both credit options are powered by Citi Retail Services, one of North America's largest and most experienced retail credit solution providers.

    To help ease the shopping and billing process, the Pro Xtra Credit Card and Commercial Account Card provide the following features:

  • The ability to issue cards to entrusted employees to make purchases on their behalf
  • An extended return period of up to a full year, four times longer than a non-commercial credit purchase
  • Easy-to-read itemised billing statements and simplified purchase tracking options.
  • Online account management including the ability to view, manage and make online payments from anywhere.
  • Additionally, Commercial Account Card members will receive flexible billing preferences including a 2% early pay discount if the bill is paid online within 20 days or an extended 60-day payment window.

    Home Depot's pro customer segment has been witnessing robust sales growth for the past several quarters. Pro sales growth outpaced DIY sales in the fiscal third quarter.

    Growth in the pro segment reflects significant demand for larger projects in the home improvement industry. In the quarter, the retailer experienced in several pro categories like drywall, pipe and fittings, and millwork. The company expects continued sales growth from pros as project demand is strong and their backlogs are growing.

    PPG Pro paint

    Paint and coatings company PPG is offering a line of PPG paint products and services designed specifically for professional customers through The Home Depot and HD Supply. It began rolling out on shelves in the fourth quarter of 2021. Jaime Irick, vice president, architectural coatings - US and Canada, said:

    We look forward to utilising PPG's team of paint experts, leading professional paint products, and national, digital fulfillment network in combination with The Home Depot's vast national store footprint to service the professional and drive strong growth for both organisations.

    The full product range will also be available through HD Supply, a wholly-owned subsidiary of The Home Depot and a national distributor of maintenance, repair and operations (MRO) products.

    Pros shopping The Home Depot and HD Supply will benefit from PPG's more than 135 years of expertise and product knowledge, network of knowledgeable sales representatives, same or next-day delivery, free professional colour rendering services, easy-to-use colour tools, and more. Chris Waits, vice president, merchandising, The Home Depot, said:

    We're proud to expand our relationship with PPG to ensure The Home Depot is a one-stop-shop for paint, supplies and other items to help pros complete their projects with ease and convenience. Our enhanced relationship with PPG will allow us to further deliver on the needs of our pro customers.
  • Sources: Bloomberg News, Industrial Distribution and The Home Depot
  • bigbox

    Hilti launches Nuron 22V in USA

    New power tool line relies on super 22V battery

    Hilti has launched a new line of tools, branded as "Nuron", destined to replace its existing Hilti 22-volt cordless range. The focus is on the batteries, which provide exceptional power, as well as data connectivity.

    Lichtenstein-based global power tool company Hilti has released a new line of 22-volt tools, branded as "Nuron". These tools are set to entirely replace Hilti's previous line of 22-volt tools. The company will continue to support the previous 22-volt tools, as well as its 36-volt and 12-volt tools. This includes providing an adapter that will enable previous 22-volt tools to work with the new Nuron batteries. Hilti has also indicated that most - though not all - Hilti accessories will work with Nuron tools.

    While Hilti is taking measures to safeguard the past investments of its customers in newly superseded platforms, indications are that Nuron will eventually become the sole platform to receive future development funding by Hilti.

    One sign of this is that Hilti is offering over 70 tools (according to company claims) at launch. These tools will produce over twice the power of previous 22-volt tools, and also be more powerful than Hilti's range of 36-volt tools. The company claims that these batteries can produce power that matches that of the 60-volt (max) tools from DeWalt, as well as the 72-volt tools from Techtronic Industries' high-end Milwaukee tools. It seems likely matching these other battery systems will involve pairing the Hilti's 22-volt batteries.

    Better batteries

    At the core of the Nuron power tool range is a new kind of battery that Hilti has engineered. This is a result, HNN would suggest, of an interesting insight that Hilti has had into its markets - resulting in what could be described as a bit of a strategic gamble.

    Firstly, it is probably best to briefly note the electrical characteristics of the batteries and motors used in most power tools. One misconception that power tool customers typically have is that increasing voltage is the best way to increase power. This isn't necessarily the case. A 22-volt tool can provide the same power as a 72-volt tool. The real point is that as power demands increase, keeping the voltage lower results in some serious design issues that need to be overcome.

    Voltage and power

    The word "power" is very easy for any actual user of a tool to understand - it's all about how thick a plank of wood a circular saw can cut, or how quickly an impact driver can drive a screw through a plank of decking. When we come to describe this in more abstract terms, it gets somewhat more complex. For electrical motors, power is defined in watts, which is derived by measuring volts multiplied by amps.

    If you needed a power output equivalent to 720 watts, for example, you could use any one of the following combinations:

  • 12 volts at 60 amps
  • 24 volts at 30 amps
  • 36 volts at 20 amps
  • 72 volts at 10 amps
  • But this is only part of the story, as it describes the energy that is available to the motor. In terms of actuating the motor, and determining the potential power it produces when being used, we run into a derivative of Ohm's Law, which describes how voltage (volts) relates to current (amps) and resistances (ohms). Basically the power produced (in watts) is determined by the voltage squared divided by the resistance of the motor. So as the voltage increases, the power increases on an exponential basis, for any given resistance.

    Lowering resistance

    However, this is only part of the story. There are, evidently, two ways to increase the power of a tool. The first is certainly to increase voltage, and the second is to decrease resistance - which involves not just the tool motor, but the battery in particular.

    That is exactly the strategy that Hilti has adopted with Nuron. According to statements from Hilti, the new batteries - available in at least the four standard sizes of 2.5Ah, 4.0Ah, 8.0Ah and 12.0Ah - are something of a technical tour de force.

    As stated in a promotional video supplied by Hilti:

    We start with highly efficient 21700 cells that run cooler, and a new high performance interface designed to deliver up to twice the current [higher amps]. This interface includes large braided copper wires that can handle heavy loads and last longer, with plugs [terminal connections] that are spring loaded to maintain solid contact, even in high vibration applications.

    (Hilti does note elsewhere that it will continue the use of 18650 battery cells for some purposes.)

    As with new batteries from DeWalt, Makita and Milwaukee, the cases of the battery hold the cells in individual slots:

    New cell holders encapsulate each individual cell in one solid continuous construction for better heat management.

    Protected batteries

    The company has also invested heavily in measures to ensure the batteries have a high degree of physical durability:

    Nuron batteries go beyond the industry standards of ABS housings with ultra-robust glass fibre housing and bumpers on the outside to help protect against drops.

    That protection extends to the electronics as well:

    The electronics are potted rather than lacquered, to provide a better seal against dust, moisture and other contaminants.

    "Potting" electronics means that rather than just protecting the delicate connections on circuit boards by coating them in a thick adhesive lacquer, the cavity housing the board is completely filled with an inert agent such as epoxy. That seals the board completely, and contributes to its rigidity.

    The Hilti video that supplies many of these details is worth watching:


    Beyond these physical protections, Hilti has added better monitoring of the battery's electronic state of health as well. Firstly, the charge indicator on the battery will remain always on, which means users can tell at a glance what their charge level is. Secondly, that same light will help users monitor the level of stress on the battery. As Hilti describes it:

    If your battery is too hot too cold or overloaded you get a yellow flashing light letting you know to either ease up on the tool, shift down a gear, or go up in battery class for the application.

    Thirdly, there is a button to press that will cause the battery to perform diagnostics on itself. If the battery has had its charge retention reduced to less than 50% of stated capacity, a red light will illuminate, indicating it should be replaced.

    The cloud connection

    The capabilities of the new Hilti battery do not stop there, however. Hilti has for some time lagged behind the industry, in particular Milwaukee Tool, when it comes to making possible the "connected tool", but with Nuron batteries, it plans to reduce that gap.

    In a pattern familiar across many industries, Milwaukee, with its launch of One-Key in 2016, essentially developed the technologies that Hilti should have developed, thus beginning to erode some of Hilti's competitive advantage when it came to tool fleet management. Yet, of course, Hilti was unable to develop those technologies, as that would have meant partially disrupting its own, highly profitable business model - which relied on largely analogue processes to do what One-Key could do digitally.

    (This is similar to what happened to Kodak. The company invented the digital camera, but chose not to pursue it, so as not to disrupt its main source of revenue, analogue chemical film products.)

    For Hilti, the batteries play a key part in connectivity. While tools are in use, they download data to the battery, which stores the information. When the battery is connected to a charge for recharging, the charger then utilises in-built connectivity to upload that data back to Hilti (but only if the user has opted-in to this feature). Writing in Pro Tool Review, ace writer Clint DeBoer had this to say about that connectivity:

    The battery charger features a global SIM and 3G cellular connection that automatically updates the data during the battery charging process. If the network isn't active, the charger retrieves the data and then uploads it when it next comes online.
    Hilti Nuron Power Tools and Battery Technology

    There is, of course, a bit of a problem with this - as the USA along with Australia and many other countries are shutting down their 3G networks. It's likely Hilti/Mr DeBoer really means 4G.

    For users who do opt-in to the service, Hilti is offering to perform fleet analyses that will assist customers in maximising the use of their tool assets. As the promotional video states:

    For instance, Hilti will automatically monitor the parameters of every battery and predict when a battery will wear out. In that situation, we will notify the customer to confirm where we should ship the new battery. In addition, customers can identify tools or batteries that are sitting idle or that were lost and transfer them to where they are needed. They can also see the overall utilisation of their tools and avoid unnecessary additions to their cribs. These data driven services and transparency will help our customers more efficiently manage their cribs and increase their bottom lines and they are just the beginning.

    The battery strategy

    What exactly is Hilti doing with the launch of Nuron? In HNN's view, it is partly coherent analysis, and partly a bit of a gamble by the company.

    The downside of the strategy is that, of course, these are going to be quite expensive batteries to make, therefore costly for customers to buy. Cost reduction through the use of less expensive materials (such as reduced use of copper) is one reason why power tool companies have looked to higher voltage tools to increase power. Hilti is, in part, wagering that the considerable advantages of just having one battery that works across every single new tool a customer will buy is going to outweigh other cost factors.

    The single battery strategy has advantages in terms of logistics in that it eliminates working out which battery needs to be where to ensure that construction work continues. It aids redundancy in reducing the number of "spares" that need to be on hand, and it also reduces the number of charges that will be required to keep construction teams up and running.

    On top of that there is everything that Hilti is doing with connectivity, one aspect of which is making sure customers get as much use as possible out of every battery they own. That should mean they need to own fewer batteries, making the per-battery cost easier to bear.

    Looking at the design of the batteries, and Hilti's in-field curation of them, one question also worth considering is whether there isn't a plan to re-use the battery casing and electronics. If Hilti is able to detect batteries that have dropped below 50% capability, and then replace those, might this be something more of a battery exchange?

    Could Hilti simply refurbish these batteries by replacing their Lithium-ion cells? That would help to amortise their cost over more years of service, and would also be a very strong statement about environmental sustainability.

    Yet, even all of this doesn't really fully capture what Hilti's strategy may well be. What the company is really saying is that, in its view, the part of the technological puzzle that is going to develop the fastest over the next decade or so will be batteries. We've already seen DeWalt come out with its "pocket"-based Li-ion batteries, and there are more developments set to make their way from the electric vehicle area to power tools. By having (essentially) just one type of battery, Hilti will be able to quickly adapt to these new technologies, and disseminate them throughout their range, while companies that rely on a range of different battery types will face a delay in getting them through production.

    If that is true, then this is quite the strategy - and also, really, quite the gamble as well.

    The company

    Overall, Hilti has shown an acceptable level of growth for the past five years, with the exception of the company's FY2020, which saw significant declines in both sales and net income. As the charts below show, its a less positive picture than that of several other power tool companies.

    However, according to a press release from Hilti in September 2021, things are looking up for the current financial year, with the results listed in Swiss francs (CHF):

    The Hilti Group achieved a sales growth of 13 percent up to CHF 3,872 million as per end of August 2021. Both the operating result and net income significantly increased compared to one year ago, with CHF 613 million (+38%) and CHF 466 million (+48%), respectively.

    Analysis

    With this evolution of its product line from Hilti, the global power tool industry is now in what is a unique position as compared to the past decade or so: every major tool company now has its own particular stance in the market. Those stances are largely demarcated by their battery strategies. These range from the single battery strategy of Hilti, to the "everything" battery strategy of Stanley Black & Decker (SBD).

  • Hilti
  • One battery, universally applicable across the entire range of tools.

  • Bosch
  • Bosch really has a battery strategy similar to that of Hilti before Nuron. In trade tools, it is mainly focussed on its 18-volt "ProCore" range of high-performance Li-ion. It does offer a good range of 12-volt (max) tools, as well as a limited range of of hammer drill/drivers and rotary hammers with a 36-volt battery.

  • TTI/Milwaukee
  • Milwaukee's 20-volt (max) battery dominates the brand, but there is also strong representation for its 12-volt (max) system. In addition, there is the 72-volt MX battery line, for high-end, heavy-duty tools.

  • Hikoki
  • The brand formerly known as Hitachi Tools, now amalgamated with Metabo, has pushed into what it terms its "MultiVolt" system. This means that its 36-volt battery system can also power its 18-volt tools - or at least most of them, if not all.

  • Makita
  • Makita at the moment has two parallel lines of tools: its "standard" 18-volt system, and its newer 40-volt (max) system. There is considerable speculation about whether Makita will drop its 18-volt system sometime in the next two to three years, or, alternatively, drop its 12-volt (max) tools, and move its 18-volt system into more compact tools.

  • Stanley Black & Decker/DeWalt
  • DeWalt is largely responsible for the move to higher voltage battery systems with its FlexVolt range released in mid-2016. It currently has the most integrated range of multiple voltage batteries, from 12-volt (max) up to its double-FlexVolt 120-volt (max) tools.

    While this range of diverse approaches is in several ways something of a good thing, as the home improvement and building/construction trades now have a wide variety from which to choose a battery platform solution, it is also more than a little confusing.

    One thing that Hilti has done with this announcement is to end any potential confusion for Hilti customers - they can make long term plans based on the Hilti single battery strategy.

    That said, it does seem likely that the future of power tools is going to go far beyond just how big and how good a battery system can be. It's far more likely to have something to do with automation and robotics, in particular the far wider introduction of computer numerically controlled (CNC) machines for performing precision repetitious tasks. That's the only real pathway towards improving productivity in the construction industry.

    In a more near-future sense, you also have to ask what the balance needs to be between system-wide efficiency gains, and more "tool-by-tool" efficiency gains. Having a centralised system of battery registration, tracking and checking will bring systemic gains to productivity. But, as an alternative, imagine simply implementing the kind of wideband tracking technology that Apple provides on its AirTags product on every tool a company has in its inventory.

    Rather than just providing the vague indication provided by Bluetooth tracking - alerting that a tool is somewhere in a 15-metre radius - wideband can track down to less than a metre of resolution, and provide directional arrows to aid location. At a guess, as wonderful as fleet management may be, eliminating the hours spent by construction crews trying to find a specific tool would provide an instant productivity boost.

    products

    Retail update: United Tools

    Stealth Global buys United Tools Limited

    As a distributor of industrial MRO (maintenance, repairs and operations) supplies and related products, Stealth is expanding its retail footprint in Australia with this acquisition

    WA-based, ASX-listed Stealth Global Holdings announced it has acquired all the shares in United Tools Limited (UTL) for $24,000 cash plus a deferred market subsidy of $1.25 million over two years. Stealth subsidiary, C&L Tool Centre, is a licensee member of United Tools.

    Additional details of the transaction include:

  • United Tools FY2021 revenue $8 million, EBITDA $0.3 million
  • Under Stealth's ownership, United Tools will pay to its members excluding C&L Tools, a marketing subsidy of $1.25 million over two years, 50% payable in March 2023 and the balance in March 2024
  • Assets to be transferred to Stealth on completion includes ~$1.22 million net cash
  • Expected to be accretive to adjusted earnings in the first year after closing
  • United Tools' network of 33 physical stores and two online marketplaces will be added to Stealth Group's 33 physical stores and two online marketplaces.

    The addition of United Tools to Stealth will boost its position as a major distributor in the Australian industrial MRO supplies marketplace. The company's store network will double from 33 to 66 across Australia, a combination of company-owned and independent retail outlets. Mike Arnold, Stealth Group managing director and CEO said:

    The rationale for this acquisition and merger with United Tools is compelling. It complements Stealth's existing business and delivers strong outcomes to our shareholders and stakeholders with our enhanced attractive business model.
    United Tools is highly synergistic, with a robust product offering and value-added service capabilities, an extensive MRO-specific distribution store network throughout Australia and an experienced salesforce that enhances the strong team Stealth has in place. Combined, it significantly enhances our scale, market position and further strengthens our buying power to accelerate profitable growth...
    Preferred suppliers will significantly benefit as we plan to consolidate arrangements held by United Tools and all Stealth subsidiaries into a new master buying and wholesale distribution business unit. This initiative will drive deeper commercial engagement, brand reach and create more value by leveraging group wide buying power potential identified to be more than $200 million.
    The MRO segment is large, fragmented and highly valued by Stealth in an estimated $40 billion marketplace as reported by the company at its AGM held 29 November 2021. This provides potential for significant shareholder value creation over the longer term. I'm looking forward to helping maximise each company's growth potential so they can be the best in their market.

    Completion of this acquisition is expected 1 March 2022 and is subject to United Tools' shareholder approval.

    Related: C&L Tool Centre is operating under different ownership.

    Brisbane's C&L Tool Centre acquired by Stealth Global in late 2020 - HNN Flash #31, February 2021

    About United Tools

    United Tools is headquartered in Melbourne (VIC) and operates under multiple banners, including the United Tools brand and independently owned brands. All stores are locally owned and operated and focused on the sale and service of a large range of big-name brand industrial and trade related products.

    About Stealth Group

    In mid-2021, Stealth-owned subsidiary Heatley Sales (Heatleys) purchased Skipper Transport Parts (STP) from Eagers Automotive firm AMCAP for $4.2 million.

    STP is a WA distributor of industrial maintenance, repair and operating, automotive, truck and trailer, mining, bus and agriculture products. The acquisition includes branch locations in Perth, Albany, Esperance, Karratha and Port Hedland, onsite store operations across WA and Queensland, along with around 1,250 customers and 300 suppliers. At the time, Mr Arnold told the ASX:

    ...The STP purchase and merger is transformational in terms of a significantly expanded product and high-touch solutions offering, distribution supply chain infrastructure, e-commerce platform and deeper customer and supplier relationships.
    STP's physical branch and onsite stores network will allow us to enter new geographic markets to strengthen our market position and provide an endless assortment product offering suitable for customers of all sizes...
    The depth of STP's wide-ranging Industrial MRO products in the customer markets of automotive, truck and trailer, bus, agriculture and mining, complemented with Stealth's existing business, will give the merged group significantly more scale and leverage from its distribution platform, branch store footprint, network reach, buying power and its broad in-stock product offering where Stealth can hold an advantaged market relevant position.
    Importantly, comprehensive value is created by offering our customers an endless assortment of brands, products and solutions that deliver better customer experiences with more touch points instore, onsite, online, click & collect and delivery options, supported by experienced sales, service, technical and distribution professionals.

    Stealth was founded in 2014 but only listed on the ASX in October 2018.

    In its most recent trading update, Stealth stated that given the most recent sales growth and the acquisition of United Tools, it expects its annual revenue from its Australian operations to exceed $100 million when a full year of United Tools operations is incorporated into Stealth's financial results. Stealth targets an underlying EBITDA margin target of ~6% before significant item costs relating to acquisitions and the full integration of United Tools and STP.

  • Sources: Stealth Group, Fully Loaded and Kalkine Media
  • retailers

    Big box update

    Bunnings' customers in data breach

    They have been caught up in a cyber security breach affecting 3.7 million people worldwide through online booking system FlexBooker

    Customers who have used Bunnings's contactless drive and collect service may have had some of their personal information stolen after the software firm behind the service experienced a major security breach.

    FlexBooker is a popular tool for scheduling appointments used by Bunnings for its drive and collect orders.

    A few days before Christmas, FlexBooker sent a data breach notification to customers, confirming the attack and that the intruders "accessed and downloaded" data on the its Amazon cloud storage system.

    "On December 23, 2021, starting at 4:05 PM EST our account on Amazon's AWS servers was compromised," reads the notification, adding the intruders did not access "any credit card or other payment card information".

    In the "incident alert", FlexBooker said it worked to restore a backup within 12 hours. It also said customer passwords included in the data were encrypted and the encryption key was not accessed or downloaded, and "will continue to work with Amazon to maintain security".

    Bunnings chief information officer Leah Balter said the company was aware of the FlexBooker data security breach, which might include the data of some customers who had booked a time slot with its drive and collect service. Ms Balter told 9News:

    The customer information shared through this third party provider is limited to full name and email address only. Bunnings' customers are not required to enter sensitive personal information through this provider, such as passwords, mobile numbers, or credit card information, so we are confident that none of these categories of customer data have been compromised.

    The retailer is working with Flexbooker to understand how the breach occurred and determine the extent of its impact.

    Bunnings also encouraged its customers to be cautious of any unusual activity in their email accounts and to regularly change passwords "as a precaution". Ms Balter said:

    Bunnings takes the security of our customers' and team members' personal information very seriously, and will carry out a thorough investigation into this incident.

    Bunnings said it had notified the Office of the Australian Information Commissioner (OAIC). It introduced the drive and collect service in April 2020 at 250 stores across Australia in response to the COVID-19 pandemic.

  • Sources: The Canberra Times, 9News, Bleeping Computer and Waikato Times (Stuff NZ)
  • bigbox

    Supplier update: James Hardie

    Chief executive Jack Truong has been abruptly sacked

    The board of the ASX-listed building materials giant fired the CEO over his "intimidating, threatening" and disrespectful behaviour towards colleagues.

    The abrupt dismissal of James Hardie CEO Jack Truong seems to be shift in the way public companies sack their CEOs over their behaviour.

    In a statement to the ASX, the company announced the immediate exit of Mr Truong, after an "extensive and material" breach of its code of conduct.

    Executive chairman Michael Hammes said terminating Mr Truong was a difficult decision but came after extensive due diligence from a third-party consultant and staff threatened a mass exit.

    James Hardie said the board had received reports from employees in recent months about Mr Truong's work-related interactions. The company hired a third party to help investigate the claims and said it offered coaching to Mr Truong, but he did not alter his behaviour and refused to accept the need to change.

    When executives threatened to leave, the board decided to remove him. Mr Hammes said:

    It was clear that sincere change did not occur. Jack's behaviour remained inconsistent with the James Hardie code of conduct. It was not discriminatory, but Jack's behaviour was cited by the management survey as intimidating, threatening and not respectful of the individual.

    Mr Hammes said James Hardie interviewed the 30 to 50 people who daily worked with Mr Truong, and about 80% of those people reported inappropriate behaviour.

    He is a very tough, very demanding kind of executive. That is fine, That is the culture of Hardie.
    But he started, over the last few months, treating people over the last few months with a lack of respect in intimidation, fear, humiliation, publicly and privately. And it wasn't a one meeting problem. Why? I can't answer that question but it was there, multiple times.
    This was not a chemistry problem between Jack and his senior team. It was something much more fundamental. Our code of conduct is to treat people with respect to all cases, period full stop, and that wasn't happening.

    On an investor call, Mr Hammes ruled out resetting James Hardie's culture, known for being "aggressive" and "upfront".

    That culture won't change and shouldn't change. It needs to be managed with understanding and respect for people and that's what we'll take.

    Mr Truong's departure comes as he oversaw a strategic transformation during his three years at the helm, which Mr Hammes praised while revealing a profit upgrade. Mr Hammes said:

    The transformation that has occurred over the past three years is truly remarkable. The company now has a clear, correct and very well-defined strategy that is aligned with what the board and management identified as necessary in 2017. This strategy is now deeply embedded throughout the organisation, from the line employee at our plants all the way to the executive leadership team.

    However Mr Hammes said the work environment under Mr Truong had become "too hostile".

    James Hardie has appointed non-executive director Harold Wiens, who persuaded staff who intended to resign to stay at the company, as the interim chief executive. Mr Hammes said a permanent chief executive might be appointed within six months.

    In response, Mr Truong has hired lawyers and is considering potential legal action against his former employer.

    A public relations firm hired by Mr Truong confirmed to the Australian Financial Review (AFR) that he was considering his "next steps" and had retained legal counsel..

    When the buildings supplies manufacturer fired Mr Truong, it scrapped his on-foot incentives, including unvested long-term bonuses. The executive walked out the door with just his statutory entitlements.

    James Hardie appointed Mr Truong in May 2017 as president of international operations before promoting him to CEO in 2019 when he was tasked with transforming the global building materials company, according to the AFR.

    Under Mr Truong's leadership, James Hardie recorded a rise in annual revenue of USD400 million, with shares climbing more than 363% since 2019.

    Before joining James Hardie, Mr Truong was the chief executive of home appliance maker Electrolux North America and an executive at industrial and consumer products company 3M.

    The company is now expecting full year net profit to be between USD605 and USD625 million, up from previous guidance of USD580 million to USD600 million. The increase would be driven by higher earnings across strong residential and market growth in the US.

    For James Hardie, there seems to be a question over the strategy unveiled by Mr Truong in mid-2021 which commits to a 3M-inherited lean manufacturing model and direct marketing push to homeowners looking to renovate.

    The company has profited from soaring demand for home renovations. The trend had been exacerbated by the COVID-19 pandemic, which required people to work from home and largely curtailed travel. Discretionary spending on renovations climbed despite shortages in building materials and difficulty in booking tradespeople.

    The firm benefited from television and social media campaigns that targeted homeowners directly, letting them know what options were available for an overhaul of an exterior and an upgrade inside.

    Related: James Hardie "pull" strategy delivers for Q2 results.

    Renovators boost James Hardie's latest results - HNN Flash #71, November 2021

    Workplace culture

    Management experts say companies and employees are losing tolerance for workplace bullies. In The Age, Natalie James, a former Fair Work Ombudsman who now leads Deloitte's Workplace Integrity Team, said the "MeToo" movement highlighting sexual harassment and misconduct in recent years had sparked a broader rethink of what was acceptable in the workplace.

    The heightened public debate about sexual misconduct has also extended into other conduct, particularly bullying because often the two come together.

    (Ms James was speaking in general terms and not specifically on any company or executive.)

    Ms James said many employees previously tolerated intimidating and humiliating behaviour from their managers because it was "just the way things are around here".

    Now people, particularly younger people, are saying: that's not OK by me and I have choices, and I'm not going to work in a place where this is how things are done. There has been that moment where people have reflected on conduct that was perhaps normalised or considered banal in the past and now it is being recognised as harmful.

    Social media also gave employees a direct way to speak out about mistreatment, Ms James said, with potentially dire consequences for a firm's reputation.

    It's around, first and foremost, reputation and it's also around talent retention in this age when people want to see purpose and value in their work.

    Mark Schmitt, who runs the workplace mental health consultancy Thrive In Work, said bullying remained "rife" in corporate Australia, but agreed it was becoming less accepted as companies realised workers would underperform and eventually leave if they failed to provide "psychological safety". He told The Age:

    Our expectations of how we are treated are changing, and it's obviously changing for the better.

    Mr Schmitt said it would take workplace safety regulators to start prosecuting more of these cases for employers to treat the issue with the seriousness it deserved. He said:

    When we think about workplace health and safety, we need to think about mental health and safety [too]. It will take one case from ... the regulator, and then boards will become very understanding of the risk they face.

    Tony Boyd writes in the AFR's Chanticleer column:

    Australian boards have a long tradition of obfuscation when it comes to telling the market about the departure of CEOs who get the boot for overly aggressive and disrespectful behaviour.
    The most common approach has been to say the CEO left for "personal reasons" and leave it at that. This leaves the market confused and allows all sorts of wild theories to fill the vacuum.
    Often, boards have bowed down to the demands of a disgraced CEO and kept secret the details of what really happened. This allows generous payouts or certainly payouts that are better than the terms allowed under a "termination for cause".
    Accountability is a critical aspect of corporate governance and should not be the subject of negotiation.
  • Sources: Daily Telegraph, Australian Financial Review, The Age and The Australian
  • companies

    IKEA and its place in home improvement

    IKEA sales up for FY2021, as 26% of revenue now from online

    After a difficult FY2020, FY2021 has seen IKEA improve back to FY2019 levels. Can hardware retailers do more to gain from the company's market share?

    Global big-box flatpack furniture retailer IKEA has released results for its FY2020/21 (FY21), which covers the trailing 12 months to 31 August 2021. The company saw sales of EUR41.9 billion, an increase by 5.8% over FY20. Really, however, this was a return to the sales performance of FY19 of EUR41.3 billion. Yet, in a sign of ongoing tough operation conditions, net income for FY21 was EUR1.4 billion, down by over 17% on FY20.

    In explaining its tough FY21, IKEA stated:

    In FY21, the continuing effects of the global pandemic forced a large number of IKEA stores to shut. Some were closed for even longer periods in FY21 compared to FY20. When most stores re-opened in late spring, customers returned and in FY21 IKEA stores welcomed 775 million visitors. This is below FY20 (825 million visits), causing a store sales decline of 8%.

    The composition of IKEA's sales channels changed sharply over the past year. Online sales grew by 73%, and now represent 26% of overall sales revenue, the result of over five billion visitors to IKEA websites worldwide. The shift to online, and ongoing problems in sourcing adequate supplies as global logistics slowdowns and capacity limits hit impacted overall performance. Speculation is that IKEA will be forced to increase in-store prices, possibly by as much as 9.0%. In fact, prices on popular products, such as the Billy bookcase, seem to have already increased in Australia.

    Despite these COVID-19 pandemic created setbacks, IKEA states that it has continued to innovate in products, and has further plans for expansion. As Jon Abrahamsson Ring, the CEO of Inter IKEA Group, stated in his review of the year:

    This year nearly all stores have re-opened and together welcomed nearly 775 million visitors. Around 45 new IKEA locations (including tests) opened in FY21, including the first stores in Mexico and Slovenia. In September, franchisees opened the first full-size IKEA store in Puerto Rico and launched e-commerce in the Philippines. Our first store in the Philippines is planned to open in November, and nearly 60 more locations are expected to open this financial year.
    In fact we're expanding as fast as ever. Between FY19 and the end of FY23, we expect to open 17 new markets in total and an average of 50 new locations per year (including tests).

    Mr Ring also highlighted IKEA's new range of lightbulbs, and a move to more plant-based foods as significant innovations:

    We've continued to launch new products and solutions to enable customers to live healthier and more sustainably. SOLHETTA, our next generation of LED bulbs, is one example. They're more affordable than our existing bulbs and on average 35% more energy-efficient. We also see an increased interest in plant-based food such as our HUVUDROLL plant ball and the VARLDSKLOK plant-based mince. By 2025, 50% of the main meals offered in IKEA restaurants should be plant-based.

    Perhaps the biggest signal of just how much IKEA is planning to change in adjusting to a different retail future, the company no longer produces its once-iconic catalogues. With online access to the same information, there simply is little need for it.

    IKEA in Australia

    According to an article in the Sydney Morning Herald by Sarah Danckert, the Australian operations of IKEA also saw an uptick in sales for FY21:

    Meanwhile, Sweden's IKEA has posted its first profit in five years as Australians spent their lockdowns with Allen keys in hand, putting together flat-pack furniture. Sales for the year jumped to $1.62 billion up from the $1.55 billion it posted in 2020. The strong sales drove IKEA to a net profit of $7.89 million for 2021 against a loss of $8.66 million in 2020, according to accounts filed in late December.
    SMH: Overseas retailers boom as local groups struggle in lockdowns

    IKEA and home improvement

    A year after Woolworths launched the initial Masters Home Improvement stores in late 2011, HNN had the chance to talk with one of that venture's senior executives. When we asked her how she planned to compete with IKEA, she just laughed. IKEA, she told us, was in a totally different business, and it would not affect Masters at all.

    While Masters hardly stands as an icon of sound strategic management for the hardware/home improvement industry, it was not alone in seeing IKEA as not affecting the home improvement market. Ten years later, many - if not most - hardware retailers would agree that IKEA is a considerable player in their market. Even with that realisation, however, they remain unclear what to do about it.

    That's largely because it is a confusing picture. Clear areas of direct competition are often hard to locate. Perhaps the most evident is the competition between IKEA and the captive kitchen brand for big-box home improvement retailer Bunnings, Kaboodle. Whether customers are planning to build their own kitchen, or are sourcing a kitchen to be assembled by specialists in flatpack kitchen installation, the two main choices remain IKEA and Kaboodle.

    Kaboodle is more affordable, in general, bundling high-style into systems that many regard as being made with inferior materials to those used by IKEA. On the other hand, basic IKEA kitchens are quite affordable, but once the designer goes beyond the basics, rapidly increase in price.

    But what about the other areas of IKEA? While it pulled out of laminate flooring several years ago, the company has remained competitive in other areas, particularly plumbing, kitchen appliances such as stoves and microwaves, and in general categories including light fittings, lightbulbs, batteries, and, increasingly, the smart home.

    While all those areas are certainly places where IKEA competes with some vigour, the real competitive pressure that comes from IKEA is actually somewhat subtler. Ethan Daniel James, who runs a YouTube channel on woodworking for DIYers called The Honest Carpenter, has a video on what he terms "The IKEA Effect". The problem that he outlines is that as a carpenter in North Dakota, USA, at one time he found himself driving to customers' homes to quote on work such as built-in cabinets and bookshelves. He would estimate a cost - typically around USD10,000 - only to have the customers protest that it would probably cost them just USD1500 using prebuilt items from IKEA.

    As Mr James himself says, he doesn't necessarily see this as such a bad thing. After all, it means that people with a limited budget have better access to stylish furniture that, with a little DIY effort, can look custom-made and built-in. The difficulty is that, depending on how it is treated, it won't stay looking good for more than five to eight years, while custom built cabinetry will last over 20 years, and just keep looking better.


    So the more subtle effect of IKEA is that it deprives some of the best customers of hardware stores - tradies, especially carpenters - of a certain proportion of their potential income. Which, of course, flows through to hardware stores.

    A secondary loss is that customers who can do "traditional" DIY are influenced to go with IKEA furniture instead. Materials for a simple bookcase to match the IKEA product (particle board/melamine/16mm with shelves 44cm) are going to cost somewhere between $150 and $200. Even with the recent cost increase for the basic white Billy bookcase to $99, this remains more cost effective for the average DIYer, let alone DIYers with only basic skills. A customer with three bookcases (which is a common number), will save $200 or so, not to mention less time and little need for power tools.

    IKEA opportunities

    While all this might seem something of a net loss for home improvement retailers, there is also an upside to all of this. Going back to the ever-popular Billy bookcase, hiring specialists to assemble IKEA furniture has proven so popular with customers that IKEA now incorporates these services into its online checkout page. For the bookcases, the fee is around $24 each - which doesn't seem too bad, except that there is also a $40 "callout" fee for each assembly service visit as well. That means the total cost for assembling three bookcases would be over $110.

    The market opportunity that exists here is for enabling the lowest skilled sector of the DIY market to be able to do the usually very simple tasks associated with flatpack furniture. When it comes to assembling the furniture, the major source of problems come from the various types of fasteners. And, especially for IKEA furniture, the fasteners that cause the most problems are screws and complex locking units that require the use of a hex Allen key.

    Three solutions

    There are two different solutions that could be applied to this problem. The first is to find some hex key drill bits that would fit in an existing or newly purchased cordless drill/screwdriver. The second is to purchase a cordless screwdriver that comes with at least an adequate number of hex key drill bits.

    A set of hex key drill bits

    The easiest and simplest way to overcome problems with the Allen key is, of course, to buy hex head screwdriver bits which can be used in a drill. So, here's some news for the home improvement industry: just about no retailer in Australia actually sells sets of consumer-grade hex bits, which would need to cost less than $15 for a set.

    For example - to go to the biggest possible supplier - Bunnings does not seem to offer an exact match at the consumer end of the line. The best fit is the Craftright 100 Piece Screwdriver Bit Set, which retails for $9.98, and provides six hex key bits.

    There are two problems with that. One is that for most inexperienced DIYers, the idea of buying 100 bits when they really need just seven (six bits and a bit holder) is just bewildering. The second is that, umm, let's just say experience indicates one often encounters screws that are made of stronger metal than these bits - in other words the bit strips before the screw does. (Of course, what do you expect for $9.98?)

    Bunnings Craftright 100 bits

    Amazon in Australia also doesn't have a ready solution (though US Amazon does), but you can find something decent on eBay, a set of eight hex bits for $9.99.

    eBay Hex Bit Set

    Looking overseas, neither Lowe's nor The Home Depot really have a good offer for consumers, but - perhaps not so surprisingly - B&Q in the UK does: an eight-bit set for GBP4.00 (around AUD9.30).

    https://www.diy.com/departments/universal-hex-screwdriver-bits-set-of-8/1738507_BQ.prd

    In fact, the B&Q website successfully makes just the right suggestion in its "frequently bought together" section for flatpack assembly:

    (Though, while GBP20 for the cordless screwdriver is a great deal, what's with the GBP3.04 for the bit holder?)

    A driver with a set of hex key bits

    The solution from B&Q is a way of bundling the requisite elements together, but there are - even in Australia - examples of "pre-bundled" cordless screwdrivers with just enough hex key bits to at least be of some help.

    To go through the basic details of what is on offer, we can start again with Bunnings, which offers the Ozito cordless screwdriver/torch model SDL-5000. This comes with 24 bits, including six hex key bits, from 1mm to 6mm. The SDL-5000 produces 3.5Nm of torque, runs at 3.6V, and takes three to five hours to charge over USB. Bunnings retails this for $34.98.

    This contrasts with the IXO version VI (as in "six") from Bosch. This comes with fewer screwdriver bits, but includes the 4mm and 5mm hex bits. It is also 3.6V, and can produce up to 4.5Nm of torque. It takes two hours to charge over USB. It costs $79 on Amazon Australia.

    Finally, there is what is apparently known as the Black & Decker Hex Driver - though that name does not appear on the tool, the packaging, or in the manual, though it is referenced as such on Amazon. Instead, in its materials it is referred to as the "furniture assembly tool".

    What makes this tool unique is that it does not come with any hex bits at all - not a one. Instead, the Hex Driver's chuck has been slotted in such a way that the user can slot in either a standard bent Allen key, or a double bend, two-head Allen key. It also comes with four standard screw bits, two flathead and two Phillips head. It normally retails for $40, but can be found on sale on Amazon Australia for $30.

    The Ozito SDL-5000

    How to even get started describing this tool?

    Perhaps the best place is the stand. The SDL comes with a stand that not only keeps it in the vertical position, but includes a clear acetate cover to the stand, all the better to display it. HNN is not sure exactly where you are going to display it (on a mantlepiece beside your Agorafocus wood burner?), but why else would it have a transparent acetate cover?

    The stand itself is a little reminiscent of the post-War, 1950s designs that came out of Italy, in that it appears heroic, but has some functional flaws. For example, the stand for the screwdriver is canted over the six-by-four receptacle for the 24 bits in such a way that it is impossible to remove the bits in the centre without taking out a bit at the edge. Worse, at the back, near the stand arm, removing one bit requires first taking out four other bits.

    The stand features four, large green LED lights. You might imagine these show the level of charge in the screwdriver, but they do not. Instead, while the tool is charging they flash in sequence, and when the tool is fully charge they all turn on. The same utility could have been achieved with a single (smaller) LED. (Perhaps as it can take five hours to fully charge, this is regarded as a event worth marking with a light display.)

    On the subject of lights, there is a white LED at the front of the screwdriver intended to illuminate - one presumes - the fastener being fastened at the end of the bit. It does not. Cleverly enough the chuck of the tool cuts the light off, leaving everything illuminated except the work area. The screwdriver does have one clever trick: by pressing a button and twisting the handle, it becomes a "straight" screwdriver.

    In terms of actually getting an Allen head screw to go into a pre-drilled hole in IKEA particle board, the SDL did this competently, and a little faster than the other two screwdrivers. That's mainly because the single speed that it can achieve is geared to be a little faster. It also has a torque clutch, with nine settings, and this appears to work, though determining the best setting is difficult.

    The screwdriver can be set in forward and reverse rotation, which is achieved by a "pass through" switch immediately above the trigger, similar to the system common to most larger cordless drills. This is, without question, the jankiest switch HNN has ever seen on a power tool, both loose and vague in its action.

    The SDL also features a flashlight, on the opposite end to the chuck. It works.

    Bosch IXO VI

    In contrast, the IXO is an exceptionally well-designed tool. It has a modest, flat case, which, while a little larger than it really needs to be, is designed to be conveniently stored on a shelf, or packed into a drawer.

    The tool itself is refined in every place the Ozito SDL is not. The light, for example, is placed on top of the screwdriver, so it directly illuminates the fastener and the work area. It also remains active for three seconds after the trigger is released, meaning it can be pre-triggered before fastening, so as to aid positioning.

    Charging is indicated by three small green LEDs on the top of the tool, and these do indicate battery charge, battery charging progress, and full charge. The LED's activate whenever the trigger is pressed, and during charging.

    The main upgrade for the version VI IXO over the version V is that the trigger is progressive, enabling the user to better start a screw with low revs, and making it easier to set the screw precisely flush, especially in the softer woods used in flatpack furniture. There is no apparent torque clutch - except that there is. Bosch realised that a torque clutch with settings is not what this tool is about, so the torque clutch is simply there, as an automatic safeguard against kickback.

    The tool can be placed in forward and reverse by moving a vertical switch at the back of the tool, where it is handy to the user's thumb. This is truly one of the best switches on any tool. Its action is quite soft and smooth, but its setting is also definite.

    Black & Decker Hex Driver

    While even the Ozito SDL-5000 probably deserves to be called a tool (though a flawed one), it's likely the Hex Driver falls more into the category of "gadget". It's not that it lacks features and utility, it's just that it delivers these in a slightly odd way.

    The biggest draw for the Hex Driver is, of course, its ability to use standard Allen keys. But why, exactly, is that so important? It's important because the people who will have most trouble assembling IKEA and other flatpack furniture will likely not be able to relate the idea of a hex bit to a standard bent Allen key. This tool isn't just convenient because it means it can work on any flatpack furniture using any Allen key, it's also conceptual.

    A good illustration of its gadget nature is how its work light functions. There is a translucent ring around the chuck, and there are two white LEDs in that ring that activate when the trigger is pressed. This does illuminate the work area, but with a widely diffused light that lacks intensity. It is, well, sort of a bit more towards "cute" than functional.

    Outside that it does its limited job relatively well. It's easy to insert an Allen key or a screwdriver bit. The trigger is single speed. It might be a little bit down on power as contrasted to the other two, but not by much. The forward/reverse is set by a sliding switch on the top of the tool. There's a single LED on the front of the handle that indicates charging condition.

    Conclusion

    If you throw away the case for the Ozito SDL-5000, and find a different way to store the 24 screwdriver bits, as a single-purpose tool for flatpack assembly, it might win purely because of its low price. If, however, the tool is destined to be used for anything more complicated than tightening the screw on a saucepan handle, or taking the covers off electric switches before painting, then the Bosch IXO is by far the better option.

    It might cost more, but the IXO is the "I've got you" tool. Need to see what you are doing? Want to always be safe from kickback? Want to be able to quickly recharge? To be alerted to a low charge level, rather than just guessing? It is just very well designed.

    That said, the Black & Decker Hex Driver is genuinely a clever gadget, and might make the difference from someone overpaying for outsourced assembly.

    Analysis

    When you think about the number of IKEA (and other flatpack furniture) customers there are out there, endlessly twirling their Allen keys, it really is a little mystifying that DIY grade hex bit sets are in such sparse supply.

    More than that, though, why has this entire, thriving sector of the DIY/home improvement market continued to be so neglected? There is ample evidence that "IKEA hacking" - as it has become known - has long been a thriving part of the market as well. People buy IKEA furniture designed for one purpose, and find creative ways to make it work in a different way, or take relatively plain IKEA products and turn them into something elegant and interesting.

    IKEA hackers is a well-known website that gathers such hacks (though it has become almost unreadable lately due to a plethora of Google Ads). One of its most popular conversions is about the use of the IKEA Pax closets to create a walk-in closet.

    Hands Down The Most Stunning Walk-In Closet

    The list of supplies needed to make this work includes:

  • 1/2? Poplar Plywood Sheets
  • Mitre Saw
  • Table Saw
  • Nail Gun
  • Construction Adhesive
  • Painters Caulk
  • BIN Zinsser Shellac Primer
  • Paint
  • Spray Gun
  • Laser level
  • Drawer Hardware
  • Unfinished Wood Hanging Rods
  • Obviously, that's not all that different from a typical DIY project list. This isn't just a small, niche activity either. According to website The Hustle, there have been over 64 million views of TikTok content tagged as #ikeahacks, and 500,000 posts on Instagram tagged with #ikeahack.

    The thriving business of 'Ikea hacking'

    Of course, what really stands in the way of Australian hardware retailers following this path is much the same cultural factors as prevent the Honest Carpenter, Ethan James, from adapting more to his available market. It simply isn't the kind of business that most Australian hardware retailers thought they would be in.

    Which brings us to the subject of broader strategy. If hardware retailers do want to continue to enjoy increased DIY sales going into 2022, it is vital that they contemplate this kind of shift in their markets. The fact that customers were virtually forced to go to local hardware retailers during the pandemic is a great start. But we know just about all of that trade is going to go away, if hardware retailers do not adapt, and actually start selling to customers in the way the customers want.

    products

    UK update: Screwfix

    Screwfix increases target after opening 70 stores in 2021

    The trade-focused, multi-channel retailer has ambitions to have 1,000 Screwfix stores across the UK and the Republic of Ireland

    A burgeoning demand for fast deliveries is encouraging Screwfix to open a further 350 stores, increasing the hardware retail chain to 1,000 outlets, according to The Times.

    The retailer started trialling its Screwfix Sprint service in mid-2021 with Gophr, a courier firm, to deliver items to tradesmen on the job.

    Screwfix trials 30-minute delivery service - HNN Flash #52, July 2021

    John Mewett, chief executive of Screwfix, said that the Sprint service had proved popular with builders, electricians and plumbers who typically charge about GBP80 an hour and have to take time off a job if they don't have the required tools or material. He told The Times:

    Often they don't know what they need to fix a job until they get to a customer's house, so this way they can carry on working while they wait for an item to be delivered.

    The company charges GBP5 for this delivery service, which is currently only available through its app, with a delivery time average of 44 minutes although Mr Mewett said the fastest time has been 14 minutes.

    Screwfix had already invested in its online business prior to the pandemic to offer tradespeople a one-minute click and collect service.

    Most Screwfix shops operate as a counter with a warehouse behind them filled with shelves of stock that staff can pick. Customers do not walk around its stores. Because the stores are already set up like distribution centres, they can be used as "dark stores" for quick deliveries, the only difference being handing over a product to a scooter driver rather than a trade customer.

    Mr Mewett said the most popular products ordered were typically items required at the end of a fitting, such as sealant and rubble bags to tidy away mess caused during a refurbishment.

    The service has been rolled out to 30 cities across the UK, while Screwfix has opened another 70 stores in 2021, higher than its original aim to open 50 stores. Mewett, said:

    ...The growth in our store network supports local communities with further job opportunities and the demand for added convenience from our busy tradespeople. Currently, 98% of the population live within a 30-minute drive of a UK store, so our continued expansion ensures we can bring Screwfix closer to even more customers.

    Mr Mewett said that there was still appetite for more of its stores, particularly in city centres, because "time is money for our customers. They're not going to drive past a competitor's shop to get to ours if they need a job finished."

    Screwfix recently launched as an online brand in France and has plans to open a store there in 2022.

    Kingfisher has been called a "pandemic winner" after enjoying soaring sales during the crisis as people used lockdowns to renovate their living spaces and turn spare rooms into home offices.

    The listed home improvement group employs 62,500 people and has 1,390 stores in Europe including B&Q, Castorama and Brico Depot.

    Related: In early 2021, Screwfix announced plans to open 50 more stores in the UK and Ireland.

    Screwfix store expansion - HNN Flash #37, March 2021
  • Sources: The Times and Retail Gazette
  • retailers

    USA update: Lowe's

    Lowe's wants to help its customers age in place

    The retailer also says pandemic-fuelled home improvement demand could cool in 2022

    Hardware-home improvement chain Lowe's recently formed a two-year partnership with AARP (the largest non-profit organisation in the US that has been serving people 50 years and older along with their families for more than six decades) to provide ideas and information for older adults ageing in their homes.

    During its third-quarter conference call, Lowe's chairman and CEO Marvin Ellison directly addressed this market segment. He said:

    For the past 18 months, the home has increased in importance for all of us and perhaps especially for our baby boomer customers, who are increasingly interested in ageing in place in their own homes.

    The partnership with AARP is an "online and in-store collaboration in customer education" and part of Lowe's Livable Home initiative that should help position it as the leading retail destination for aging-in-place and life-change solutions. It will offer tips and how-to information and inspiration through a library of articles and videos featuring ideas around smart home technology, lighting, kitchen and bath design, and topics such as caregiving, preventing falls and promoting independence.

    There will be guidance around home improvement and design techniques to support older adults and family caregivers to help make living spaces more accessible for everyone, and allow older adults to stay in their homes safely and comfortably as they age.

    A click into Lowes.com/LivableHome will take visitors to a virtual library of articles and videos that will be updated regularly.

    Lowe's collaboration with AARP comes at a time when less than 1% of US homes have particular features needed to support ageing in the home, according to AARP, while 77% of people aged 50 years and older would like to stay in their current home as long as possible. Eight in 10 adults aged 50 years or older want to stay where they live, but many people lack the expertise or resources to adapt their home.

    There is also an increasing need for functional and stylish home spaces designed with an eye toward accessibility for residents of all ages, as people spend more time in their homes, working, shopping online and socialising. In addition, households headed by people aged 65 and older are expected to grow from 34 million to 48 million in the next 20 years, according to the US-based Urban Institute. Mr Ellison said:

    Nearly every family in America at some point, including my own, faces the important and often intimidating responsibility of preparing a home for life's changes.
    Lowe's Livable Home is uniquely positioned to help address the customers' desire for a one-stop destination with trusted resources and affordable solutions they need throughout every step of the journey. It's a commitment to our customers who turn to Lowe's to make their homes better no matter what change they face in life.

    Lowe's said the in-store enhancements are underway in nearly 500 stores and are expected to continue expanding throughout 2022.

    In select locations, customers will be able to access free virtual assessments with Lowe's ageing in place specialists. Lowe's store staff and independent service providers network of professionals will provide ongoing customer service support for installations and remodelling ranging from low-threshold shower installation to more simple installations of grab bars and temporary or permanent stair lifts and ramps.

    Store staff and managers will participate in AARP training to better understand the needs of consumers aged 50 and above when it comes to home fixes, upgrades and renovations with long-term living in mind. Once complete, they will wear an AARP-branded badge that communicates to customers that they can help them find age-friendly options.

    Lowe's and AARP will also co-develop a "Livable Home" in-store resource guide for customers. Mr Ellison said:

    AARP's more than 60-year legacy of helping families 50 years and older brings a deep level of expertise and knowledge to Lowe's Livable Home.

    Rodney Harrell, vice president of family, home and community at AARP, said:

    This process of sharing information and articles with Lowe's is going to help people make better, more informed decisions about trying to meet their needs today, but also help people think ahead.
    You may not know that you will have a fall six months from now or six years from now, but you might think ahead about that rug that's a trip hazard or that doorway that is hard to get through.

    This collaboration, Mr Harrell said, will help people "take a lifetime approach to housing."

    Commentary

    Retailwire asked a number of marketing, retail and communications experts about Lowe's move to target the specific home improvement needs of baby boomers who want to age in place.

    David Naumann, marketing strategy lead - retail, travel & distribution for Verizon, said:

    The aging population represents a niche that retailers may not have paid special attention to with custom products and services. Many older adults can afford premium priced products and customised services and they appreciate new ideas that can help them enjoy living in their homes as long as possible. The older generation may be a prime opportunity for retailers that offer creative products and services that address their unique needs.

    David Spear senior partner - industry consulting, retail, CPG and hospitality, from software company Teradata, said:

    Most certainly this category or genre of products/services will grow consistently for many years, and it's a smart move by Lowe's...One of the biggest opportunities is "sensorized" products that enable digital connections so individuals can view, understand and leverage huge amounts of knowledge right at their fingertips. Retailers will be well served to not only offer unique IoT products, but also deliver analytical services in support of them. There is a long tail to this.

    DeAnn Campbell, chief strategy officer, Hoobil8, said:

    Seniors today are ageing up, not out, and are remaining more engaged and active well into their golden years. Baby boomers still control over 70% of discretionary spending in the US and are willing and able to spend money on products and services that help them live well and remain in their home. But at present there is still no place for people to view, test and understand how smart home products, services, monitoring devices or other "ageing wellness" solutions function or work together. This is relatively untapped white space for products/services that will see surging demand in coming years, especially as services like telemedicine become more user friendly. More retailers need to develop showrooms and display systems that demonstrate how smart aging ecosystems can work to improve life at home for this growing demographic.

    Bob Amster, principal, Retail Technology Group, said:

    This is a good idea with some runway, since the US population is getting older...The sector will travel less than they did and resist the idea of senior living facilities and thus will spend more on maintaining and improving their homes.

    Cathy Hotka, principal, Cathy Hotka & Associates, said:

    The success of this program will depend on the publicity that Lowe's can generate. A quick visit to Lowes.com doesn't reveal it and a search for "age in place" doesn't provide relevant results. I love the idea, but wonder about the execution.

    David Slavick, co-founder & partner, Ascendant Loyalty Marketing, said:

    Wow - everyone is on the bandwagon here. Do you think targeting the older segment of society is something new? Do you think Lowe's Home Improvement has had difficulty "finding" older consumers in and around their store trading radius? Do you think suppliers have somehow just started manufacturing goods and services for this segment? Partnering with AARP is a natural given their credibility with this segment which by the way "starts" at 50. It used to be that retirement age had you qualified to own a membership. Becoming a trusted destination for goods and services catering to a segment of the population with particular needs, and with buying power is all part of the format dynamic. In this case, seniors with specialised needs. Incorporating a service model to support the specifications, build and servicing of those needs - now that would be a very nice enhancement to this construct.

    Cooling DIY demand

    Lowe's recently indicated that the robust pace of home improvement sales could decrease during 2022, according to CNBC. The retailer said same-store sales could drop by as much as 3% or be roughly flat in fiscal 2022 compared with 2021 fiscal.

    Mr Ellison said the company can keep driving growth by launching new private labels, expanding its e-commerce business and becoming a one-stop shop for supplies to help older adults age in their own homes.

    For example, he said it is debuting a modern decor brand called Origin 21. He said it is speeding up deliveries of big and bulky purchases, such as appliances, with a new pilot in Florida and Ohio. That more efficient process is boosting profits and customer satisfaction, he said.

    Together, he said, those efforts will "expand our share of wallet with both the DIY and pro customers."

    Mr Ellison said the retailer will benefit from a favourable backdrop, too, including more money in consumers' savings accounts, historically low interest rates, rising home values and an aging inventory of US homes. About two-thirds of the company's sales are driven by repairs and maintenance, he said.

    Mr Ellison also said the pandemic has inspired people to invest more in their homes, from millennials who are buying first homes to baby boomers who are adapting an older home. He told CNBC:

    There's been a longer-term shift in the consumer mindset about the importance of the home. Our view of the home is a sanctuary that may need to serve several multiple purposes: residence, office, school, gym, and a gathering place for indoor and outdoor entertainment. And given the extension of remote work, we're expecting a permanent step up in repair and maintenance cycle.

    Lowe's sales outlook disappointed investors and raised concerns the pandemic-fuelled boom in DIY and decorating projects is cooling. It is estimating overall sales of about USD95 billion for the 2021 fiscal year, which is one week shorter than the 2022 fiscal year. Total same-store sales will range from USD94 billion to USD97 billion in its upcoming year. That fell below analysts' estimates of USD97.64 billion, according to Refinitiv Financial Solutions.

    During an analyst meeting, chief financial officer Dave Denton acknowledged that Lowe's is preparing for a "modest sector pullback in 2022" when compared with a year of such high demand and sales boosted by government stimulus.

    Lowe's sales have gotten a lift from Americans who fixed up their yards, tackled DIY projects and redecorated rooms during the COVID-19 pandemic. Even as some of those "nesting trends" recede, however, its sales have been buoyed by the strong real estate market.

    Separately, the company said it plans to buy back about USD12 billion in shares both this year and next year.

  • Sources: Retailwire, AARP, PRNewswire, Lowe's Home Improvement and CNBC.
  • bigbox

    Retail update

    DA for Total Tools store in Gladstone (QLD)

    Benalla Produce becomes part of PETstock store network and Inspirations Paint selling confidence, not just colour, to customers

    A Total Tools store is being proposed for the coastal city of Gladstone in Queensland; pet specialty retailer PETstock has added Benalla Produce to its list of regional stores; and customer experience research drives change at Inspirations Paint.

    Total Tools

    Developer Hutchings O'Brien has submitted a development application (DA) to Gladstone Regional Council for a Total Tools store in Gladstone Central (QLD), according to The Gladstone Observer.

    The 4,358sqm site would have a 9.5metre tall building, space for 34 car parks, and the plan is for Total Tools to be open from 6am to 9pm, seven days a week.

    The proposed location for the store is in the city centre on the corner of Hanson Road and Yarroon Street. It would be located next to a United service station and a McDonalds outlet.

    The new Gladstone store would be the second Total Tools in Central Queensland, with the other located in Rockhampton.

    PETstock - Benalla Produce

    Benalla Produce owners Mike and Lynne Morrison are handing over the reins of their home-grown business to PETstock, another family-owned business that has deep roots in regional Victoria, reports Benalla Ensign. Mr Morrison told Benalla Ensign:

    The Benalla community has been extremely supportive throughout the years, and after five years we couldn't be leaving it in better hands than with another, like-minded business such as PETstock. We know they will continue to show a dedication to the local community and cater to its needs for essential pet care and supplies...

    With plans to rebrand to PETstock Country, PETstock will continue to support the local community by catering to rural property essentials including fencing, crop management, weed and pest control, general rural merchandise, water equipment, livestock health and feed. PETstock state manager Samuel Flanagan said:

    ...Once transitioning from Benalla Produce to PETstock Country, we will be able to introduce new services and thousands of products from our general pet range, providing a comprehensive stock food range and offering specialist hobby farm equipment.
    In addition to expanding existing services, the store will support local organisations, such as rescue groups, by providing them with free in-store space, temporary or permanent, for our PETadopt program ... in a convenient and friendly environment...

    PETstock said the addition of Benalla Produce highlights its commitment to servicing pet owners across regional Australia and expanding opportunities for its dedicated supply partners.

    Inspirations Paint

    Joel Goodsir, head of marketing at Inspirations Paint, has been helping to oversee store upgrades as part of the company's transformational change that also includes newly built stores, according to The Australian. Mr Goodsir told the newspaper:

    From research all the way through to the implementation in our 100-plus franchised stores I am across it. I get stuck in with the guys, I know exactly how every shelf is put together and where every category of paint is going.

    He discussed the significant role that marketing and creativity has played in the group's success.

    Inspirations Paint's customer experience (CX) research, which included more than 60 hours of in-depth interviews with trade and retail customers to understand all the pain points in its stores. Mr Goodsir said it must match up across all customer touchpoints - digital and in-store.

    This consumer learning sees its stores and website mapped out in a simple colour-coded way with highly visible sections titled concrete, woodcare, metal, house et cetera. Following its research, which uncovered 34 in-store focus areas, the business came up with a design based purely around customer centricity.

    Inspirations Paint worked with its marketing intelligence agency The Navigators, brand design agency Public Design Group and creative agency The Village of Useful, Mr Goodsir said the benefit of working with boutique agencies meant the senior managers or owners that actually ran the agencies were the ones at the table working with the group on its transformation strategy.

    Our CX strategy is deeply rooted in brand and it's crucial that it links in with our all stores, comms, campaigns and our website. That's why having the best minds who run their agencies, working alongside us and working together as one has been such an important dynamic.

    Advertising campaign

    Mr Goodsir said its latest "Recall" advert, which launched in January 2020 and continues to sit at the heart of the group's messaging, has been its highest performing campaign yet.

    He said sales growth in FY19-20 and FY20-21, off the back of its COVID-19 accelerated digital pivot and the Recall ad campaign, had resulted in "unprecedented" store retail sales growth which was up year on year in consecutive financial years.

    The ad campaign, which is made up of 10 ads, used in rotation and seasonally adjusted, zones in on real painting concerns such as blistering, flaking and mould-related paint woes. Mr Goodsir explains:

    Our customers need one thing from us and it's confidence, but the paint industry doesn't work like that - some think it's colour and that's it.

    Instead of following the more traditional way of showcasing beautifully painted rooms as its rivals do, Mr Goodsir said that "room porn" style creative was not relatable to those who were in the throes of needing help and advice with paint. He said:

    We analysed the consumer buying process and the actual problems people are having is where the most emotion was found. People have very real and varied paint issues so it made sense to embrace the yucky stuff, to show people that we understood what they were going through and that we have the product and expert advice they need to tackle these projects.

    A new addition to the latest ads featured the 1975 released Dream Weaver song by American singer Gary Wright. As part of the strategy, the song was chosen for its likely appeal to the brand's typically older, aged 35 to 65, audience. Mr Goodsir:

    The song appeals to the more experienced painters who have owned and renovated more homes and taps into the emotion and memories they may have of this song - acting as a shortcut about good feelings and good times.

    The song, which likely would have cost the group hundreds of thousands of dollars to secure, talks about taking away "the worries of today" and during the "I've just closed my eyes again" part of the song, DIY painters can be seen closing their eyes for a moment before remembering they had the confidence and Inspirations Paint to get them through the painting challenge at hand. Mr Goodsir said:

    It took us six months to go through the creative process for the advert which is an unusually long period of time. But our brand ads need to last three years and this is not something that we could rush.

    The music is now used as part of its in-store music and telephone on-hold music.

    Long term success

    The paint retail group said it is witnessing its highest annual turnover since Mr Goodsir arrived nearly two decades ago. Since 2003, annual turnover has increased by 317%.

    Inspirations Paint also attributes its success to how quick it was to pivot to two-hour click and collect and its "sprint" to get its home-delivery options up and running during the pandemic.

    Since enhancing its delivery services and launching its speedy click and collect offering in December 2019, the company's online activity rapidly increased.

    During the peak of lockdown, with some stores in local government areas of COVID concern, more than 50% of some stores' revenue was coming from online. To date, nearly 20,000 transactions have been made online.

    Mr Goodsir said that while being part of such large growth had been rewarding, his number one reason for staying at the company for so long was down to his CEO, Robert Guy.

    It's really nice to have a boss who you like and respect, who supports you, gives you autonomy and understands marketing and its importance as a growth generator. That's the number one reason I have been here for so long and the other is that I just love the company and the people.

    Mr Goodsir added that he also relishes the fact that it's a franchise group as owners are operational, strong-minded paint store owners who don't necessarily know the ins and outs of marketing. He said:

    It's my job to inform, educate and bring them on the journey towards improving and creating value for them and customers simultaneously...
  • Sources: The Gladstone Observer, Benalla Ensign and The Australian
  • retailers

    Supplier update: timber

    OneFortyOne invests in Jubilee sawmill

    In late 2021, Timberlink announced it is spending $63 million on its Bell Bay operations

    OneFortyOne has committed to invest over $11 million in its Jubilee Highway sawmill over the next two years. Paul Hartung, general manager of Jubilee sawmill, said:

    OneFortyOne has invested close to $40 million since purchasing the mill in 2018, on state-of-the-art technology projects such as sorter bins, a Lucidyne scanning system, reducing boiler emissions and upgrading to continuous drying kilns.
    This most recent commitment will extend to an equipment and technology upgrade for Drymill A, replacing and modernising equipment as it reaches end of life.

    Mr Hartung said the new equipment will be manufactured in New South Wales under a licensing agreement, a first for Australia.

    OneFortyOne is committed to ensuring we remain one of the most progressive and efficient mills in Australasia. By investing in new technology, we are continuing towards our objective of valuing every strand of wood fibre that we process.

    The company estimates that through this upgrade Jubilee sawmill will reduce its emissions by approximately 268 tonnes of CO2 equivalent annually. These savings will be generated by reduced electricity consumption.

    The project is scheduled to begin in 2022 and will take two years to complete.

    Jubilee Highway is a large sawmill situated in Mount Gambier (SA) and processes softwood sawlogs into structural framing timber products used in residential and commercial construction of wall frames and roof trusses. The sawmill also produces some non-structural timber products including packaging and decking. Its products are sold to wholesalers, frame and truss manufacturers and retailers.

    Timberlink

    Beginning in 2022, Timberlink will implement a two-stage upgrade to its timber manufacturing facility in Bell Bay (TAS). It will include an expansion of the site's existing sawmill, and other infrastructure improvements as well as:

  • Offline log debarking and sorting
  • Residue and energy optimisation
  • Additional continuous kiln for drying of timber
  • Planer infeed systems
  • The project is expected to increase the timber manufactured at the site by more than 50%, providing material for an estimated 7000 new houses.

    According to Timberlink chief executive Ian Tyson, the upgrades were brought forward two years to support additional supply into the Australian market.

    The Advocate reports the sawmill upgrades have come about as timber supplies around the nation remain tight. The shortage has been further constrained by a housing boom around Australia, with many builders unable to source sufficient structural timber to complete houses. With that in mind, Mr Tyson said the increase in structural timber from the company's two Australia-based sawmills would help - but not solve - the timber deficit.

    When asked how Timberlink would feed the significant increase in output at site, a company spokesperson said agreements were in place with its pine plantations as part of a staged expansion.

    To date around $120 million has been invested into the Bell Bay sawmill, which Timberlink first purchased back in 2013 from the receivers of the then-defunct Gunns Limited. This latest round of upgrades is scheduled to be completed in 2025. In a media statement, Mr Tyson said:

    At the completion of this project, the combined output of Timberlink's Bell Bay Tasmania and Tarpeena South Australia manufacturing facilities will position Timberlink to increase supply of manufacture of structural timber for use in the construction of homes in Australia.

    The improvements will enhance the volume of renewable plantation pine logs that can be processed as well as the yield per log, resulting in a future workplace with improved precision, safety, and job security thanks to high-tech machinery.

    The anticipated investment comes on top of extensive modifications undertaken two years ago and the announcement earlier this year of the establishment of Tasmania's first Wood Plastic Composites manufacturing facility at the Bell Bay location.

    The plans for Bell Bay mirror the major investment the company made into its Tarpeena sawmill in South Australia, as part of a push by the company into new structural timber materials.

    Related: Timberlink began work on upgrading its Tarpeena (SA) sawmill in 2019.

    Timberlink sawmill upgrade includes a new electrical substation - HNN Flash #02, July 2019
  • Sources: Lesprom Network, OneFortyOne, Australian Manufacturing and The Advocate
  • companies

    Big box update

    More Tool Kit Depot stores open in WA

    Bunnings Group managing director Michael Schneider spoke to The Australian about the tradie market and how the hardware retailer dealt with some of its supply issues during the pandemic

    New Tool Kit Depot stores have opened in Western Australia in the suburbs of Rockingham and Malaga with a fourth soon to open soon in Mandurah, according to news.com.au (NCA NewsWire).

    There are plans for the Bunnings-owned specialty stores catering to tradies and DIY prosumers to grow to 75 stores around Australia, but the retailer will first add more stores in WA. Commercial chief operating officer Ben McIntosh told NCA NewsWire:

    Remember that Bunnings has a very, very strong DNA in Western Australia. We know the market well.
    It goes without saying from a macroeconomic point of view that the West Australian economy is booming ... the mining influence is strong, it was obviously sheltered from a lot of the Covid shutdowns and uncertainty, which is obviously an advantage.

    The Adelaide Tools acquisition in 2019 included five tool stores and a mowers outlet in South Australia. Bunnings tested out new concepts in the Parafield location before launching as Tool Kit Depot this year. Mr McIntosh said the first few months were spent understanding the Adelaide Tools business and its customers. He said:

    I am very passionate about being a leader that inspires a team to earn our way into a market, not just arrogantly expect to win. It was a successful business - hence why we liked it, hence why we wanted to buy it. We then thought, 'What is the future, where do we take the business for the next generation?'
    We want to make sure we are doing this in the way that is right and that is earning our stripes with our customers first, then talking about bold expansion after that.

    The initial expansion only came after the experiments in Parafield proved successful, he explains. COVID-19 restrictions also meant that Mr McIntosh has been unable to re-enter WA since March this year. He said:

    It's all about giving that specialised knowledge, that specialised service and also the full range of both brands but the commercial-grade models of the brands (and) highly specialised woodworking equipment that the Bunnings environment just doesn't cater for.
    We have specifically trained team members that know woodworking, that woodworking is their passion and they can have a good conversation about all things woodworking.

    Mr McIntosh did not confirm how long it would be before stores started opening up on the east coast, saying "a good amount" would open their doors in WA first. He said:

    We're not going the popular trod path [yet], which is Sydney or Melbourne. We didn't want to follow a normal formula. We wanted to invest where we think we can earn people's trust and we think Western Australia ticked that box. It's not an eastern-focused company. We've got more stores to open in Western Australia first.
    We've got more stores to open in South Australia - that's focused on rounding out the network in SA more than just Adelaide.

    Related: Tool Kit Depot store in Belmont (WA) caters for Perth tradies.

    Tool Kit Depot opens first store in Western Australia - HNN Flash #69, October 2021

    Related: Could Bunnings' acquisition of Adelaide Tools be the first step in establishing a new sub-brand?

    Adelaide Tools acquisition sees Bunnings set to sell Milwaukee brand tools - HNN Flash #10, October 2019

    Bunnings MD on tradies, supply and more

    In his role as the boss of Bunnings, Michael Schneider, recently told The Australian that he wants to build a tradie business as big as its DIY business. He said:

    We have had a great decade of really building trade credibility with trade customers through our PowerPass account program and our 2019 acquisition of Adelaide Tools is morphing into Tool Kit Depot.
    Our aspiration on the trade side is to have a business that is as big as our consumer business without actually slowing up on growth on the consumer side.

    The plans to roll out 75 Tool Kit Depot stores across the country is just part of the way for Bunnings to grow its share of the trade market. They will compete with Metcash-controlled Total Tools, privately-owned Sydney Tools, Queensland-based Trade Tools and Hardware & Building Traders' (HBT) Industrial & Tool Traders group amongst others.

    Mr Schneider sees the Bunnings brand of long trading hours, the trade reps on hand and local access to stores as the right foundation to build up and out. Another bolt-on acquisition, Beaumont Tiles, creates another pathway to customers who are builders.

    According to The Australian, Mr Schneider's growth principles are straightforward and involve growing the market, the ability to participate in that market; and then outperforming the market.

    In the last two years, the number of Bunnings staff have increased subsstantially from 45,000 to 55,000. Data analytics and a rethinking its floor space is refreshing familiar product categories and pointing to new ones.

    Related: In 2018, HNN reported on Bunnings potentially turning to the tradie market for growth.

    Bunnings goes shopping for tradies - HI News Vol.4 No.5

    Supply management

    At the height of COVID-19, Bunnings had to manage 13 or 14 different settings of how stores operated. Except for Victoria, hardware and home improvement retailing was classed as essential, but when the Delta variant surged in western Sydney LGAs (Local Government Areas), the directive came to shut down in those areas. Mr Schneider chose to close all stores across Sydney. He explains:

    In other markets where a local store was closed, customers would move about because they would still want the products we were selling, so we made the decision to close for about 10 days and purely trade online.

    When stores were closed to DIY customers, they remained open for tradies. He said:

    Even in Victoria we were allowed to be open for the trade customer and then the DIY customer could come up to the store and we'd pop their product in their boot in our contactless drive and collect model. We saw huge volumes go through that.

    Behind the scenes, the Bunnings team worked to convince governments of the important role the retailer plays in domestic production. Mr Schneider said:

    Being open meant suppliers like Dulux or PPG that manufacture paint or Seasol, that manufactures the fertiliser for your garden, or the hundreds of small businesses that are providing plants to us have the confidence to continue to stay open and keep their own manufacturing going.

    Within stores, the pandemic challenge has been inventory management. When Mr Schneider noticed elevated demand for home improvement products in April 2020, Bunnings made a sizeable bet on inventory investment even if it meant product being held at third-party sites. He said:

    We asked our suppliers to go the extra mile for us in having the confidence to bring more product into the country and that has paid dividends.

    However, access to structural timber remains difficult. Mr Schneider sees pressure on timber supply continuing. When timber product is available internationally, a lack of shipping containers prompted Bunnings to think laterally. He said:

    We have just brought a ship down from PNG with well over 100 containers worth of Merbau decking. Instead of containers, it was an open-air ship which was different but what it meant was you could problem solve for the lack of containers in that part of the world.

    Bunnings also had its own approach on last mile logistics, deliberately partnering with smaller delivery companies like ANC (Australian National Couriers) - Bunnings is its largest client - for what Mr Schneider believes is better service for customers. He said:

    We have avoided some of the challenges we know other retailers have faced with some of the bigger names in last mile logistics.

    To keep pace with online orders, Bunnings has a pilot site at North Laverton (VIC) for rapid fulfilment to take pressure off stores. It has focused on getting product to customers safely and quickly. Solvents, chemicals and big and bulky products don't easily fit into last mile logistics, which has made click-and-collect and drive-and-collect more popular.

    However, there are no plans for any major new distribution centre. Mr Schneider said:

    The team are out there having a really good look and also trying to understand what the cycle looks like. Supply is quite tight and demand is quite high which is good if you are a landlord. Those conditions probably won't remain as intense as they are now and as we think about evolving our network, that will undoubtedly create opportunities.

    Local community

    Bunnings has been redefining the idea of the "local hardware store" for almost three decades. The Bunnings brand is consistently pitched at the community level, and its car parks became mobile vaccination hubs during the pandemic. Mr Schneider explains:

    We had well over 140,000 people vaccinated at a Bunnings site, including somewhere where you could get a jab and a snag at the same time, very much the case in Queensland and WA. So the fact that people see Bunnings as a genuine part of the community gave many people the confidence to say, 'you know what? I should get vaccinated'...
    People are curious as to which store you work in. They don't see a big business, they see the store they shop at in the local community and the things that store does for its local community. If you've got that sort of brand recognition, it's hard not to be proud of it. I'm part of the Wesfarmers leadership team with fantastic access to capital to do the things we want to do.
  • Sources: News.com.au, NCA NewsWire and The Australian
  • bigbox

    Retail update

    Sunshine Mitre 10 plans North Lakes store

    Berry Springs Home Hardware and Dipper's Home Timber & Hardware win store state awards

    North Lakes, located approximately 26km north of the Brisbane CBD, is set to get a Sunshine Mitre 10 store.

    Plans for the store at Stapylton Street have been approved by Moreton Bay Council and construction is expected to commence early in the new year, according to The Courier Mail.

    Sunshine Mitre 10 general manager Neil Hutchins said the growing population in the south-east of Queensland is fuelling an "increasing demand for building supplies and construction materials". He added:

    More than 25,000 people are estimated to call North Lakes home and that population is predicted to grow by about 30% over the next decade, so the demand to service both trade and DIY customers is strong.

    Earlier this year, Sunshine Mitre 10 celebrated the opening of a new flagship store in Nambour that sits on a 13,000sqm site. Located at 980 Nambour Connection Road, it includes 4,000sqm under-roof and is one of the largest in the Sunshine Mitre 10 network.

    The retail group also signed a contract for three commercial blocks of land as part of the new Trade and Construction precinct at Stockland's Aura Business Park. The purpose-designed precinct will house key brands in the construction and trade industry to create a one-stop destination for construction supply needs. It is positioned alongside the Bells Creek Arterial Road, close to the Bruce Highway.

    Berry Springs Home Hardware

    The Northern Territory store recently beat out 22 other stores across the NT and SA to win Independent Hardware Group's state-based award.

    According to NT News, the team consists of owners Russell and Lindy Willing as well as staff members, manager Ben Guy, Judd Dendle, and Alana Simmons.

    Mr Russell attributed the accolade to the efforts of his staff who pride themselves on helping locals. He told NT News:

    Lindy and I are truly humbled by this recognition. It's been just over a year since we opened the hardware store and, I have to say, nothing beats recognition like this for the hard work put in by us and our small, but wonderful team.
    We're very thankful to the Berry Springs community for embracing our business with open arms.

    Mr Guy said customer satisfaction was the team's priority. He said:

    My favourite part is when they walk out the door with a smile on their face, ready for the next good experience. And they don't have to drive into town and spend $30 on fuel. We get really good community feedback, so we must be kicking goals.

    A garden nursery has been the latest addition to the store which offers over 10,000 lines of hardware and rural products.

    Related: The Berry Springs store officially opened in 2020 after a major revamp.

    New Home Hardware store in the Northern Territory - HNN Flash #18, October 2020

    Dipper's Home Timber & Hardware

    The Moree-based outlet has been named as been recognised as Home Hardware's top store in New South Wales. Owner, Rebecca Diprose said this was great recognition for her hard-working staff. She told the Moree Champion:

    You don't get it right all the time, but it gives you the confidence that for the far majority of the time, you're doing a really good job.

    There are about 20 staff working at the store. Mrs Diprose said:

    We have a great mix in the retail department of experience and youth. We are lucky to have a great team led by our retail manager Luke Cubis who is guiding them in a direction we have been working towards for quite some time.

    The store has made a lot of changes in the last few years including stock, display and ranging. She said:

    ...The business has evolved enormously since we bought it nine years ago. We have a far more customer-friendly shopping environment now.
    Our trade department has also grown substantially. We're building that team back up, led by Mark Baker, our trade and site manager.

    The store continues to grow its customer base as the drought comes to end, followed by a bumper harvest in 2020, and hardware retail getting a sales boost as result of COVID restrictions. Mrs Diprose said:

    We saw faces that we'd never ever seen in Dipper's before. No-one could have predicted worst case to best case in 30 days. That was particularly difficult period to manage. Our stock holding was substantially down and then we had a quick turn around in increasing stock.
    In our trade department, the boys have worked very hard at customer service. It's not to say we can't do better, we know we can, which is the next phase for us. Our next goal is to target our trade department store standard.
    I am particularly blessed to have the fantastic team at Dipper's. Mark, Luke and I work extremely well together leading the team. I'm the big picture of the business but they're the detail.
    And the other person who is absolutely crucial behind the scenes that doesn't often get recognised is Margaret O'Neill our office admin manager. It's been a big team effort.
  • Sources: The Courier Mail, NT News/Sunday Territorian and Moree Champion
  • retailers

    ABS business entries/exits stats

    Family businesses hire employees

    The ABS stats that track new and closed businesses indicates hardware retailers have been moving from the non-employing category to the employing category.

    The Australian Bureau of Statistics (ABS) has released stats for business exits and entries through to June 2021. This provides an opportunity to review the number and type of businesses that have managed to continue over the course of the COVID-19 pandemic.

    FY2020 vs FY2021 entry/exit rates

    Chart 1 shows the percentage change in the entry and exit rates for FY2020/21.

    The entry rate is shown as a positive percentage, and the exit rate as a negative percentage. With the exception of Victoria (VIC) and Tasmania (TAS), the entry rate for FY2021 exceeds that for FY2020. As we'll see in subsequent charts, in the case of VIC this is due to a high entry rate during FY2020.

    Western Australia (WA) shows the same rates across the two years, and the Australian Capital Territory (ACT) shows something of an exorbitant increase in its FY2021 entry rate. The net total for the year across Australia shows only a mild increase in the entry rate for FY2021 overall.

    The exit rate shows the same positive trend, with a reduced exit rate for FY2021 over FY2020 overall. Only South Australia (SA) and the Northern Territory (NT) show a higher exit rate for the more recent year. TAS shows a clear improvement in the exit rate, which is interesting when combined with the high entry rate for FY2020. Looking at the total for all Australia, there is an improvement from -9.1% to just -8.5%.

    Net gains/losses July 2019 to June 2021

    Chart 2 shows the change in the number of businesses in different number of employees categories over the two-year period from the start of FY2019/20 to the end of FY2021.

    The most striking element of the chart is that there are increased numbers of hardware retailers for the states that suffered the most during the COVID-19 pandemic lockdowns, while for those that were less affected, retailer numbers decreased.

    In terms of those gains it's interesting that for NSW, VIC, QLD and TAS, there is a reduction in the number of non-employing (family-run) businesses, and an increase in the number of businesses with 1 to 19 employees. That is most likely because businesses that were family-run have seen demand increase to the point where they need to formally employ some people to help run their stores.

    It's also notable that, with the exception of VIC, there was a reduction in stores with larger numbers of employees, in the 20 to 199 range. It's also possible that those retailers, rather than going out of business, reduced their employee numbers and helped to further boost the 1 to 19 stats higher.

    That position is illustrated in the numbers for the total across Australia, with the steep falls in the non-employing and 20 to 199 range counterbalancing the strong growth in the 1 to 19 range, so that the net total gain was really only 21 retailers across that two-year period.

    One reason for that low number is likely that while the market conditions did help a number of retailers flourish, problems with supply chains and hiring employees made it not a great time to start a new hardware retailing business.

    Chart 3 is a different look at these same numbers, this time representing them in terms of percentage gains and losses.

    This has the overall effect of reframing the extent of the moves in the marketplace, with the larger states seeing their numbers contextualised as being less significant, while the numbers for the smaller states and territories seem more significant.

    The standout statistic is the reduction in the retailer numbers for the 20 to 199 segment. This went from 41 to 29, a loss of 12 or 30%, which is certainly statistically significant. That same category is also highlighted for the totals across Australia, which show the loss in this category is the most significant.

    Analysis

    It's possible to identify two trends from these statistics. The first is a positive trend, where it seems retailers moved from the non-employing to the employing category, which would indicate growth. The second is less positive, in that it indicates some retailers moved from the over-20 employees category to the under-20 employees category.

    Both of those moves could actually be a result of the COVID-19 pandemic, with smaller retailers getting a good boost in revenue and volume of goods, while larger retailers might have found it difficult to retain all their staff.

    The two other background effects we need to point to are the ever-present impact of Bunnings on larger independent hardware stores, and the growing influence of trade-only tool stores, such as the Bunnings-managed Tool Kit Depot, and Metcash's Total Tools.

    statistics

    Worx MakerX competes with Dremel

    Unique system offers six tools

    Worx has developed craft tools that split the difference between corded and cordless. Using a standard Li-ion battery with an attachable hub, the MakerX system is portable and easy to use.

    Worx tools have long had something of a mixed reputation. On one side, they are seen as innovative, unusual solutions to needs that many homeowners have. On the other side, some of their tools can remind customers of the sort of thing their favourite crazy uncle/aunt comes up with - possible, but not necessarily practical.

    At least, that's the way things looked prior to 2021. One big shift that came with 2021 was that, Flex, a sister company of Worx (both are owned by China-based global top-ten power tool company Chervon) became a major player in the North American market with the release of a range of 24-volt cordless tools for professionals/tradies. These were not without their flaws, but were generally well-received in the market, distributed mainly through big-box home improvement chain Lowe's.

    (Part of the backstory to that move by Chervon is that Stanley Black & Decker's Craftsman brand is going to replace some of the Kobalt brand tools - which are also made by Chervon - in Lowe's stores. Effectively, the Kobalt tools, aimed at tradies, are being split into semi-DIY/handyman for Craftsman, and ultra-pro for Flex.)

    The main area where Worx has excelled in the past has been tools for gardening. Its earliest success came with garden line trimmers. One of its least-acknowledged, but really well-designed products is the Aerocart, which transformed the humble home wheelbarrow into a multi-purpose carry tool, along with a wide range of accessories which greatly expanded its capability.

    More recently, Worx has turned its attention to one of the sub-markets inside the wider DIY markets, with its new MakerX range of "hobbyist" tools. Actually, though it is not immediately apparent, it's about two such sub-markets. The most evident sub-market is the same one that the Dremel system (made by Bosch) is aimed at, which involves small-scale carving, mostly of wood, but other materials, including metal and hard plastics.

    To concentrate on that market for the moment, we could say that MakerX is pointed directly at one of the quandaries that has troubled Dremel in its tool development. Dremel were, of course, for a long time strictly a corded tool. When they went cordless, the designers had to choose between making a tool about the same size as a corded Dremel, which would have meant limited battery life, or making the Dremel thicker and heavier, due to the larger battery. The company chose the latter - and that was probably the right choice.

    That has resulted in a Dremel that has the convenience of being cordless but is - especially for those with smaller hands - more difficult to hold, and a little wearisome to use for long periods, due to its weight.

    Worx has done with its MakerX range is to more-or-less "split the difference". They have developed a "hub" that attaches to the tool slide on a standard Worx 20-volt battery, with an on/off button and a dial that controls the voltage (and therefore speed/heat etc.).

    While this doesn't give quite the "freedom" of a fully cordless device (there is still a cord from the hub to the tool), it does make the tool more manoeuvrable, and usable beyond the reach of an extension cord. This also means, of course, that without an integrated battery the tool can be slimmer and lighter. That means being able to hold it in the "pencil grip" for fine hand-motor control, and that its weight is reduced to the point where it will seldom create wrist fatigue.

    Worx has gone on to extend that basic system to include an entire range of small, easy-to-use "maker" tools, for the hobbyist/DIY market. These include:

  • The Dremel-like rotary tool
  • Soldering iron (described as a wood/metal crafting tool, as it can also be used to mark wood)
  • Heat gun
  • Air brush
  • Angle grinder
  • Rotary cutter
  • Hot glue gun
  • Mini-blower
  • These tools are further tweaked - just a little - to make them useful across a broader range of activities. For example, the air brush is food-safe - meaning it can be used for tasks such as spray-painting a cake, or applying a thin glaze.


    The other market

    While all that describes tools that will prove popular with a considerable slice of the hobbyist market, there is another market they also suit ideally: the makers who use 3D printing and CNC routers to build projects.

    In 3D printing, for example, most objects require some amount of "scaffolding" to prevent the object from drooping of collapsing during its construction. This is added on to the model by the software that controls the printer. After the print in finished, there is a finicky process required to remove all the scaffolding elements so as to leave smooth surfaces.

    Furthermore, many projects require additional steps. Large curved surfaces need to be smoothed over, parts glued together, and, very often, paint applied to the monochrome plastic.

    The range of MakerX tools are well-suited to those tasks. One sure sign that this maker community has spotted the advantages of MakerX is the number of 3D designs already available publicly to enhance the system's utility. These include accessories such as a clip-on belt holder for the battery and hub, and a range of nozzles for the blower.

    Analysis

    With 2022, the hardware retail industry is going to start to enter into what we might term the "new DIY". The experience during the COVID-19 pandemic indicated that there actually is more of an available DIY market out there; the question is, how do you successfully engage with it?

    One part of that is looking a little more towards the part of it that verges on craft. While many hardware stores do stock Dremel tools, these are usually isolated in power tool bays, rather than in craft-focused areas.

    Beyond craft, however, is the ongoing rise of the digital maker culture. While this is still a relatively small area of DIY, it's also the area – outside of the prosumers - which is willing to spend the most on its activities. These are people willing to pay over $3000 for some types of 3D printer, and they do need a range of accessories to support that engagement.

    And, of course, in relation to all this activity is that magic, golden word, one which all hardware retailers love to hear - accessories. There is range of supplies, from hot glue to abrasive disks and model paint, that these types of DIYers are going to need.

    In fact, this future DIY is probably going to be defined more by its diversity than its similarities. That's really the strategy behind Worx's MakerX products - building a highly versatile system that can be used in a wide range of circumstances. Hardware retailers might want to take note of this, and emulate that approach in their own stores.

    products

    ABS housing statistics to September 2021

    Prices, transactions, and value of house builds

    While prices have continued to rise, transactions and the value of new house builds seem to be more cyclical

    The exact effect of the COVID-19 pandemic period on Australia's building industry and housing market have been surprisingly difficult to track. The great debate that continues is whether the changes we've seen have some semi-permanent features to them, or if they will fade away after the effects of the pandemic wear off.

    In this set of stats from the Australian Bureau of Statistics (ABS), we're looking at a set of quite different views into the housing industry: house prices for established houses, the number of transactions in those established houses, and the value of loans taken out by owner/occupiers for house building.

    House prices

    The best chart to start with is Chart 1, which shows the percentage change in the ABS price index for established houses comparing each quarter with the same quarter in the prior year.

    The surprise for many looking at the chart is the ongoing decline in house prices immediately prior to the pandemic, especially for the two major markets of Sydney and Melbourne. Sydney's price index declined from the March 2018 quarter, through to the September 2019 quarter - seven quarters in all. Melbourne declined from the September 2018 quarter to the September 2019 quarter - five quarters. That was followed by a mild peak at over 10% growth in the March 2020 quarter, then a decline to the December 2020 quarter, followed by a sprint to record high growth numbers in the September 2021 quarter.

    What is very clear looking at this chart is just how unusual the market has been for calendar 2021, which is where all the major price index growth spurt has occurred. Over 30% quarter on quarter growth, which is what Sydney achieved, is not part of a normal market.

    House transfers

    Interpreting house transfers as it relates to house prices is always somewhat tricky. Chart 2 shows transfers for established houses comparing each quarter with the same quarter in the prior year.

    For example, transfers reached a peak for the June 2021 quarter, then the rate of increase declined sharply for the September 2021 quarter, going negative for every state except South Australia (SA). Yet the house price index climbed steeply for the June 2021 quarter, and rose even higher for the September 2021 quarter.

    What is clear is that where the pandemic had a generalised effect on house prices, in terms of transfers for established houses each state has produced a more individualised response. There was a shared reduction in transfers during the first real pandemic quarter, the June quarter of 2020. After that, however, for the September quarter of 2020, Victoria (VIC) dived still deeper while most states went into positive territory.

    What is interesting about this chart is that the activity immediately prior to the pandemic was just as anomalous as the activity during the pandemic. Economically, the pre-pandemic period was defined by an effort of the federal government to deliver a very small budget surplus - the slightly bizarre "back in the black" campaign. This was taken by most economists to be largely politically motivated, and it resulted in a near freeze in fiscal policy stimulus, which meant the Reserve Bank of Australia was forced to use monetary policy through reduced interest rates.

    Evidently that liquidity in the market contributed to the lower house price index during this period, just as the absence of that liquidity, rather than soaring demand, contributed to higher price index numbers in the first two quarters of the pandemic.

    Value of loans for house construction

    Chart 3 shows the value of loans to owner/occupiers for house construction comparing each quarter with the same quarter in the prior year.

    This is perhaps the most surprising of the three charts. There is a very sharp peak in growth at a very high rate - over 260% growth - in the March 2021 quarter. What's unusual about this chart is it shows the less COVID afflicted states are benefitting the most.

    That suggests a likely transfer of building intent away from, in particular, VIC and NSW - though those two states also do quite well. This is perhaps one reason why hardware retail numbers were boosted across Australia and not just in those states most deeply affected by the COVID-19 pandemic.

    Analysis

    The major element present in just about every chart of housing statistics we look at that covers the pandemic period is how much housing has changed over during 2020 and 2021. It does seem that such big shifts and high levels of activity simply cannot be sustained for a long period of time. At the same time, what we are also seeing is something of a "correction" in the housing market, as people shift their behaviours to deal with a unique circumstance that may be with us for some time.

    That primary shift may simply be that homeowners now see their houses as a kind of required guarantee that they will be able to get through the next crisis, if that should turn up. While full lockdowns may not come back, it's likely we'll see people remain cautious in their social activities, making homes a more important focus than they have been in the past.

    The primary delusion that still persists, however, is that the result of a "V-shaped" recovery will be a snap-back to 2019 or 2018 conditions. It's very evident that more permanent changes have taken place. It's also true, however, that current patterns in the housing market have more to do with adjusting to new realities, and we have yet to see what those new realities are really going to look like.

    statistics

    Big box update

    Green light for Bunnings Warehouse in Wagga Wagga

    Before construction starts, the hardware retailer must design traffic lights for a nearby intersection

    Wagga City Council has approved an application to build an 18,000sqm Bunnings store on the corner of the Sturt Highway and Pearson Street, subject to certain conditions, according to the Daily Advertiser. These conditions include multiple tweaks to the current plans, as well as the design and configuration of nearby traffic lights.

    Significant upgrades to the intersection were deemed necessary as the council has called for the only customer exit to the warehouse to be located on Saxon Street, which connects to the road network through Bye Street.

    Submitted plans for the development included entries and exits for customers on the Sturt Highway and Pearson Street. But to preserve traffic flow, the council has said the highway access must be entry-only and the Pearson Street accessway must be removed entirely.

    Bunnings' director of property and store development Andrew Marks said the company would review the conditions. He told the Daily Advertiser:

    We're pleased to have received development approval for a new warehouse in Wagga Wagga, however there are a number of conditions that require consideration. We are committed to bringing a bigger and better store to the local Wagga community ... however, we need to ensure an appropriate traffic outcome is achieved to allow customers safe and efficient access.

    Mr Marks said there was no timeframe for the development at this stage.

    The new Bunnings store is only 500 metres away from the existing Wagga Bunnings, but it will be 5000sqm larger and have parking for more than 400 cars.

  • Source: Daily Advertiser
  • bigbox

    Supplier update: Bisley Workwear

    US company Protective Industrial Products buys Bisley Workwear

    This company is expanding is footprint in Australia after acquiring Perth-based Paramount Safety Products in mid 2021

    New York-headquartered personal protective equipment company Protective Industrial Products (PIP) has acquired Australia's Bisley Workwear. This follows its acquisition of Paramount Safety Products which was announced in July this year.

    PIP said it had signed an agreement to acquire DJG Corporation, Bisley's parent company. The deal is expected to close towards the end of December and financial terms were not disclosed. Joe Milot, PIP's president and CEO, said in a statement:

    The Bisley brand will add new portfolios of innovative workwear and safety garments to the head-to-toe PIP product offering in different regions, including North America. This addition reinforces our key objective of serving customers globally by continually providing them with more opportunities for growth.

    Bisley Workwear is another example of PIP's acquisition strategy that is built upon strengthening its portfolio of products so that global distributor partners choose PIP first for all of their safety needs. PIP has over 20 locations around the world and is a portfolio company of Odyssey Investment Partners.

    Bisley has been shaping the Australian workwear clothing industry for nearly 60 years, and driven by "old fashioned ideals like quality, exceptional service and value for money", according to its website. The company has been recognised for its innovative workwear designs and its ethical and sustainable sourcing affiliations. The company's in-house design team has worked with leading fabric and material specialists to produce stylish and comfortable workwear, safetywear and technical protective wear. This includes garments for men and women that are used in oil and gas, construction, manufacturing, logistics, agriculture and maintenance and repair operations. David Gazal, CEO of Bisley Workwear, said in a statement:

    We are thrilled to join the PIP Global family. Joe and I have a very similar business path and values while sharing the same mission: Using our scale to engage with key distributors while giving them more of a reason to buy all brands under the PIP Global umbrella.

    About PIP

    In late 2020, private equity investment firm Odyssey Investment Partners purchased PIP from Audax Private Equity for an undisclosed amount. Founded in 1984, PIP offers a broad suite of recognisable PPE products and brands across numerous industries, including hand & arm protection, protective clothing, head protection, eye & hearing protection, and other safety protection. Headquartered in Latham, New York, PIP supplies its products through distributors, retailers, and e-commerce platforms. At the time of the acquisition, Henry Bendit, a principal at Odyssey, said:

    We look forward to pursuing a multi-pronged growth strategy for PIP, including both organic initiatives and strategic acquisitions. Given its scale and proven success with integrating prior acquisitions, PIP is uniquely positioned to capitalise on the fragmented global PPE market to grow within its current core offerings, while expanding further into adjacent PPE categories, both in the US and internationally.

    PIP supplies innovative PPE to wholesalers and distributors in the industrial, construction and mining industries. Its brands include G-Tek, Bouton, Ironcat, Assurance, Kut-Gard, CleanTeam, QRP, Ambi-Dex, Dynamic, Maximum Safety, Novax, JSP, and Boss. The company's West Chester division offers safety products to retail customers under the Safety Works, Boss, Brahma, Mud, West County Gardener and Hearos brands, as well as licensed brands.

    Related: Paramount Safety Products is now part of Protective Industrial Products.

    Paramount Safety Products has a new owner - HNN Flash #53, July 2021

    Related: Bisley Workwear is designed for lady tradies.

    Bisley Workwear asks women want they want in workwear - HNN Flash #12, February 2020
  • Sources: EHS Daily Advisor, Industrial Distribution and Industrial Supply Magazine
  • companies

    HNN Flash #76 podcast: Top stories in 2021

    HBT Virtual Conference and Bunnings' Beaumont Tiles acquisition

    The biggest story during 2021, from HNN's perspective, is centred on the power tool industry, and specifically, power tools for trades

    We look back at the coverage of the HBT Virtual Conference at the beginning of this year and the significance of Bunnings' acquisition of Beaumont Tiles.

    But the biggest story for the hardware retail industry is about power tools:

    ...Behind that, there have been three changes in the market for pro tools. One is just that where five or six years ago tradies/pros were very sensitive to the issue of only using one battery platform, today most tradies take it granted that they will be running at least two battery platforms, and sometimes three...
    The second factor is that as demand for construction has increased, tradies are more than ever focused on trying to get as much productivity out of their day as possible...
    The third change is just that power tools are benefitting from "spillover" innovations in two separate areas...

    You can listen to the podcast on the embedded player:

    %

    Or listen to it on Apple:

    HNN Flash #76 podcast on Apple

    Or go to the Buzzsprout website at:

    www.buzzsprout.com/1872420/9743093

    HNN's Flash podcast provides a deeper discussion on one or two of the stories we'll be covering each week on the HNN website.

    news

    Retail update

    IHG partners with Vietnamese firm for IT project

    Mitre 10 also chose Insider, the AI-powered platform to create individualised, cross-channel experiences, to boost its multichannel growth strategy

    SmartOSC, a digital commerce agency headquartered in Hanoi (Vietnam) has reached a deal with Independent Hardware Group (IHG), to become its development partner to replace two existing legacy business-to-business portals for the Metcash-owned hardware subsidiary.

    The initial phase of the B2B portal project is expected to improve customer experience by providing a "unified solution for cohesive interaction between their members and the IHG team", reports VietnamPlus (Vietnam News Agency). Adrian Wakeham, regional manager for Australia and New Zealand at SmartOSC, told the newspaper:

    SmartOSC and IHG share a vision for the digital ecosystem, so we're thrilled that this iconic Australian business has selected SmartOSC as their development partner.

    The deal comes at a time when there is an e-commerce boom as a result of the pandemic and it is happening alongside online price inflation and a tech talent shortage, according to SmartOSC. The company believes these factors combined with high logistics costs of up to 20% of the final cost of goods in some countries make it difficult to compete on price.

    It sees challenges and opportunities for businesses in this environment. SmartOSC founder and CEO Thai Son Nguyen said:

    Projects that previously would take nine months to implement now need to be launched in weeks.

    He added that a minimum viable product approach allows businesses to get a market foothold quickly, gain proof of concept, and then swiftly scale upwards and outwards.

    Mr Nguyen believes brands need speed and agility to scale up amid the e-commerce boom. He said:

    More people are shopping online and for a more diverse range of products than before, so brands need to offer consumers what they want, when they want it.

    Online inflation means consumers also have higher expectations for a personalised shopping experience, said Mr Nguyen.

    We've reached tipping points for both consumers and brands in e-commerce adoption.

    As companies look to scale rapidly, he believes a tech partner with the know-how and resources to solve complex problems is invaluable.

    At SmartOSC we're doubling down on our greatest asset: our people. We're hiring tech talents every day and are fostering an environment where our people can grow, so they're ready to take on the challenges our partners face.

    In addition to its head office in Hanoi, SmartOSC has offices in has offices in Ho Chi Minh City, Australia, Singapore, Japan, Thailand, US and UK.

    Insider AI

    Earlier this year, cross-channel marketing company Insider announced that it will be working with IHG brand, Mitre 10. Insider is known for its artificial intelligence (AI) powered tools. These enable companies to take dispersed points of contact with customers, and to develop a coherent view of their buying patterns and shopping behaviours.

    This can lead to the creation of new customer segments. The information is then used as the basis for marketing outreach, through delivering tailored experiences in mobile apps, and consolidating email marketing to more effective approaches.

    Mitre 10 will connect and add a layer of AI-powered capabilities to their customer data with Insider. At the time, Paul McGuane, national digital marketing operations lead, Mitre 10 (as quoted in Internet Retailing) said:

    We find there has been great synergy in this partnership. Insider is easy to work with, and we have seen the immediate impact on our bottom line. We've also improved our customers' experience onsite by creating a more personalised approach. Additionally, working with Insider resulted in a fast turnaround of testing marketing campaigns, which reduced IT costs and increased sales.
  • Sources: Asia News Monitor, VietnamPlus (Vietnam News Agency), Internet Retailing and Globe Newswire
  • retailers

    Supplier update

    Stanley Black & Decker selling its security unit to Sweden's Securitas AB

    Stanley Security will give the Swedish company a bigger global footprint as it aims to double sales from higher margin security solutions and electronic security by 2023

    The sale of Stanley Black & Decker's (SBD) security business to Securitas includes its Commercial Electronic and Health Care Security business lines, which have projected 2021 revenues of about USD1.7 billion. Automatic-door services provider Stanley Access Technologies is not part of the sale.

    SBD said net proceeds from the sale are expected to partly fund approximately USD4 billion in share repurchases. SBD's CEO James Loree said in a statement:

    The sale of Security is consistent with our commitment to generating substantial shareholder value and allows us to sharpen our strategic focus on growing our core businesses while also returning capital to investors through a significant share buyback. This transaction is a result of our active approach to portfolio management, and the attractive valuation we received reflects the investments we made in transforming our Security business over the last several years.

    SBD officials expect to close the sale in the first half of 2022, but timing is "contingent upon receiving regulatory approvals and other customary closing conditions."

    Based in Indianapolis in the US, Stanley Security has a 30-year history of protecting its clients world-wide through tech-enabled security services, ranging from alarm monitoring to systems integration, as well as a specialised healthcare offering. Today, Stanley Security is highly recognised as an electronic security provider with approximately 7800 global employees.

    Securitas, which is headquartered in Stockholm, represents one of the world's largest security services companies. Employing approximately 355,000 people, it delivers guards, electronic security, fire-and-safety and risk management services to more than 150,000 customers.

  • Sources: New Haven Register and PR Newswire
  • companies

    Hipages grows platform to New Zealand

    It acquired Builderscrack in a deal worth $11.8m

    The company also acquired a 25% stake in property management platform Bricks + Agent as part of plans to expand its offering

    Online tradie marketplace hipages has acquired New Zealand web-based trades platform Builderscrack. The 100% acquisition of MyQuote Limited, trading as Builderscrack, is for $11.8 million in (80%) cash and equity (20%).

    It gives the ASX-listed hipages group access to a new $26 billion total addressable market, in addition to Builderscrack's 4000 active tradies and 200,000 registered homeowners.

    Founded in 2007 by Jeremy Wyn-Harris, Mark Dickson and Keith Robert, Builderscrack is a website that connects tradies across New Zealand with consumers, allowing homeowners to post jobs, find trades professionals and leave reviews. It grew to post more than 95,000 jobs on its platform in the past 12 months, generating more than $67 million in revenue.

    Since it was established, it has facilitated more than $237 million of value from over 480,000 jobs posted.

    Hipages group chief executive and co-founder, Roby Sharon-Zipser told SmartCompany the deal was "a big milestone" for both platforms and an opportunity to share pricing models and growth strategies. He said:

    Builderscrack has done an outstanding job over the last 15 years and we see a huge opportunity to take what we've learned and what they've learned and bring it together to make an even better business.

    Hipages' take rate, which is the proportion of value the platform earns from the total value of jobs facilitated on the platform, is 2.1%. In comparison, Builderscrack's take rate is much higher at 3.9%.

    Mr Sharon-Zipser said Builderscrack uses more sophisticated pricing techniques allowing it to capture the intent of its users and generate a higher rate. He said:

    They know whether a user is more inclined to proceed with the job or not and then ultimately, they work on a commission model, so that's why their take rates are higher.

    Builderscrack's co-founder and general manager Jeremy Wyn-Harris will continue managing the platform in New Zealand with its 14-strong team. Mr Sharon-Zipser told New Zealand's The Daily Post:

    Jeremy and the Builderscrack team have built a great business around a strong technology platform and an incredibly loyal tradie base.
    We will supercharge their growth by leveraging the strategic and operational experience we gained from scaling our business in Australia, as well as helping them to grow their brand to capture the huge market opportunity in New Zealand.

    Mr Sharon-Zipser said the two businesses will remain separate and he has no plans to change the name Builderscrack because "it's just so appropriate to the New Zealand market".

    The acquisition follows its recent investment in a property management technology platform Bricks + Agent and the field service software solution Tradiecore.

    Tradiecore allows tradies to save customers' details, generate quotes and invoices, send them directly through the app and add individual notes.

    Bricks + Agent uses a cloud-based platform that allows tenants to post maintenance requests online, which can then be allocated to tradies, who can also be paid through the system. It has 360,000 users, a pipeline of almost 500,000 properties under management and 21,000 tradies on its platform, reports the Australian Financial Review (AFR).

    Hipages bought its quarter stake in Bricks + Agent for $6.25 million, an investment that would give hipages exposure to Bricks + Agent's user and tradie base.

    At the time, Mr Sharon-Zipser said Bricks + Agent was a great cultural match for Hipages and fitted perfectly with its strategy to expand into adjacent markets. He told the AFR:

    The $21 billion property management market is a huge opportunity for us.
  • Sources: Smartcompany, Australian Financial Review and The Daily Post
  • Related: Hipages has been growing revenue from tradie subscriptions.

    Hipages' subscriptions deliver growth - HNN Flash #43, April 2020

    Related: In the UK, Kingfisher purchased a majority stake in an online home services platform.

    Kingfisher acquires online DIY marketplace - HNN Flash #25, November 2020
    companies

    Metcash/IHG/TTH results FY2022H1

    IHG manages 4.4% organic EBIT growth

    Metcash has delivered its results for its FY2022H1. For its hardware segment, this included EBIT growth for IHG, ex of acquisitions of 4.4%, even as the hardware retail market saw negative growth for Australia overall of 2.5% in the report period.

    Australian wholesale and retail conglomerate Metcash, owner of the Independent Hardware Group (IHG) and Total Tools Holdings (TTH), reported results for its first half of financial year 2022 (FY2022H1) on 6 December 2021. The results cover the timespan of 1 May 2021 to 31 October 2021.

    For Metcash overall, sales revenue for the reporting period was $7151 million, up by 1.3% on the previous corresponding period (pcp), which was FY2021H1. (Including charge-throughs, the figures are revenue of $8.2 billion, and growth of 1.5%.) Net profit for the period was $129 million, up by 3.0% on the pcp.

    The company's food business saw sales fall by 4.9% to $4022 million (though excluding the loss of its Seven-11 contract, the fall was only 0.2%, according to Metcash). Liquor sales came in at $2170 million, an increase of 6.6%.

    Metcash chief financial officer, Alistair Bell, announced that the company expects to acquire an additional 14 joint venture (JV) TTH stores in December 2021.

    Hardware

    When it comes to properly assessing the success of the hardware segment of Metcash for the reporting period, a number of obstacles present themselves. There is, first of all, the influence of the COVID-19 pandemic, which resulted in the acceleration of hardware retail sales, and dominated almost all other factors, including seasonality, up until the present year.

    Hardware retail sales environment

    In fact, recent statistics indicate something of a return of seasonality. Chart 1 shows the pattern for retail figures for all Australia:

    The pattern the chart shows from August 2017 up to February 2020 also holds true for the previous five years as well: a peak in sales reached during the final quarter of the year, followed by a steep fall to February, a local high recovery in March, then a continued decline through the second quarter. The third quarter shows a gradual climb back towards the high reached in October.

    From March 2020 onwards that pattern was disrupted. That March saw a strong spike upwards, which continued to a new high for sales in May 2020. This declined to a local low in August 2020, and then the old pattern of a peak high in the final quarter of the year repeated, but at a much higher level. That older pattern continued through to July 2021, still running at that higher level, with an additional $300 million or so in sales each month. In August 2021 the upwards spike of the old pattern repeated, but to a level about $90 million higher than the previous high in December 2020.

    This return to seasonality can be seen clearly in Chart 2, which compares each year of hardware retail sales Australia-wide:

    In terms of the reporting period for Metcash, Chart 3 indicates the percentage change when comparing each month to its previous corresponding month:

    As this graph shows, during the reporting period the first three months (May to July) showed negative growth, while the final three months were mildly positive. Only the Australian Capital Territory went strongly negative, while Victoria remained consistently slightly negative. Australia-wide the result was net negative growth for the period of 2.5%.

    The hardware numbers

    That's the background, which is complicated enough. However, the numbers provided by Metcash for its hardware segment also have their own complexities.

    The two main numbers that are used to assess the operations of a retail company are its revenues and its earnings before interest and taxation (EBIT). Net profit after tax (NPAT) is also important, of course, but it can be affected by a range of factors outside the company's control.

    Generally speaking, while the overall numbers for revenue and EBIT are important, it's also important to find what has come to be called the "organic" numbers. These relate to the operations of the company absent the effects of acquisitions and demergers/spin-offs.

    For example, if a company sells off one of its divisions for a great price, in the next company reports the revenues from that division will be missing, so it will record a steep drop in revenue. Obviously, that is not a sensible number. So after such a sale, companies provide historical revenue numbers that remove the past revenues of the division that was sold.

    Metcash did just that after the sale of its automotive business to Burson Group for $275 million in June 2015. In company reports for FY2016 it changed the revenue it had reported for its FY2015 from 13,626.2 to 13,369.8.

    However, when the numbers run the other way, and companies purchase a business so that their revenue and EBIT numbers are grown non-organically, they tend to be somewhat reluctant to simply share the underlying, organic growth numbers.

    Such is the case with the revenue numbers from Metcash's hardware segment, which have been affected by the company's partial acquisition of TTH in 2020, and made even more complex by additional TTH-related acquisitions during 2021. Add to that the acquisition of three more hardware retailers, and finding organic growth numbers has become difficult indeed.

    To report the topline, fully non-organic numbers for hardware: Sales - including TTH - increased by 17.9% over the pcp to reach $1.48 billion. IHG sales - including the recent acquisition of three hardware retailers - grew by 7.2%.

    The numbers for IHG do not seem to be explicitly mentioned, but we can back into something close to them, as total revenue for TTH is listed as $153.5 million, which means, non-TTH hardware sales - which would be close to, but not equal to IHG sales - would be around $1.33 billion. Metcash also states that IHG sales increased by 7.2% (which, again, would include sales from recent retailer acquisitions).

    Perhaps the most relevant number is that given for like-for-like (comp) sales, which Metcash states were up 5.6%. However, that number is, according to the results: "Based on scan data from ... 282 IHG stores". Scan data would tend to select the stronger stores in the network, and on a store number basis this represents less than 45% of the total store network (including Mitre 10, Home Timber & Hardware, True Value and Thrifty Link stores).

    When it comes to EBIT, Metcash has done a good job in making more information available. The topline number, as provided by Metcash is that EBIT for the current reporting period in hardware was $98.9 million, up by 53.3% on the pcp, which reported $64.5 million in EBIT.

    However, that number includes, for the current reporting period, EBIT of $33.1 million for TTH, while the pcp included TTH EBIT of $4.8 million. Further, Metcash states that there was an additional EBIT contribution of $3.5 million from those other retail acquisitions. So, putting that together, organic EBIT would be $62.3 million in the current reporting period, and $59.7 million in the pcp, yielding an organic EBIT growth rate of 4.36%.

    While that would not, in normal times, seem like all that great a number, it actually does show good growth. As Metcash reminds throughout its results, and as HNN's charts indicate, this comes not only on top of considerable gains in overall revenue for the past 18 months or so, but also during that down-cycle of hardware revenue.

    On the other hand, of course, the numbers from Metcash have also been influenced by inflation, especially on some trade supplies such as lumber. In response to a question on inflation by analyst Tom Kierath of Barrenjoey, Metcash CEO Jeff Adams responded in part:

    On trade, just to give you a range, it would probably be in sort of the mid-single digit range on trade, in the first half. It seems, and we said it in the Outlook comments, it's very difficult to predict what we think what's going to be in the second half of the year, because we are seeing some movements up and down, in some of that trade pricing. But we do believe some of it will still be there in the second half, let's put it that way. In trade.
    DIY would be lower than that it would be lower than mid single digits on on DIY. But again, it'd be you know, those are not audited numbers.

    The CEO of the hardware segment, Annette Welsh, expanded on those comments:

    [Inflation] is very focused around the timber part of our business, doors, plumbing, and is linked to the balance of supply versus demand. So there's an uncertainty as to what it would look like going forward.

    That's a helpful reminder from Ms Welsh that the inflation being experienced is not due to sources such as currency exchange rate fluctuations, increases in material supply conditions, or cartel activity. This is one reason why inflation is not seen as an imperative negative by economists at the moment. It's largely down to a lack of capacity in shipping, which, unfortunately, will take a year to clear.

    As a final note on these numbers, Metcash also stated that, based on figures from all 94 stores, TTH saw comp sales grow by 1.5% over the pcp.

    Market characteristics

    Metcash was also more forthcoming about how its online sales in hardware have been progressing than it has been in the past, stating that online now makes up around 3% of its total revenue, which is $44 million. Metcash certainly owes Ms Welsh a vote of thanks for that figure, as it was she who pushed hard since 2018 to grow Metcash's online sales capabilities - capabilities that are now being duplicated by the company's other retail segments.

    As many predicted, IHG was not able to sustain the high level of DIY sales, with the balance between trade/DIY going to 64/36, where in the pcp it had been 60/40. In the comp sales figures, DIY went down by 0.1%, while trade grew by 8.9%.

    According to Metcash, the overall EBIT margin for the hardware segment was 6.7%. The EBIT margin for IHG was 5.0%, while the IHG wholesale margin was 3.0%.

    Analysis

    The two most pressing questions for the hardware retail industry remain: how long will the current increased sales last, and how bad is the "hangover" going to be after the "party" finishes?

    There is one strand of theory that states the market has been permanently altered structurally, and that some proportion (at least) of the increase experienced since March 2020 will remain. A competing theory is that the reverse will happen, and that there will be a severe contraction coming in the market, especially as market demand is set to fall with declines in both birth rates and immigration - both changes where the effects begin to show up two to four years later.

    Looking at the current charts for hardware revenue, it does seem as though the actual seasonal demand - the increase in the final quarter of the year - exists somewhat separate to the underlying increase in demand. That underlying increase is likely to be mostly trade building activity, with some DIY mixed in. It's the opinion of organisations such as the Australian Construction Industry Forum (ACIF) that the building demand, given restrictions on supply, will last until the end of 2022, and possibly into the first quarter of 2023.

    Mr Adams backed up that view in comments he made on the effects of supply shortages, while replying to a question by David Errington, a senior analyst with BankAmerica:

    I think because everybody in the market [is] sort of impacted equally, that what it's doing is really elongating, in hardware, more of the building cycle. Because, would our sales be higher if we could get everything that we're trying to get - absolutely. There's no doubt. But is it lost sales? I don't think it's lost sales, because again, it's a shortage in the market. So what that does do then is just elongate out this this current building cycle, because the builders are just not able to get everything.

    One way of looking at the mathematics of this increase is to look at the delta between the highs and lows of the retail revenue cycle. Using ABS stats for Australia, we can see that the average revenue Q4 of the calendar year for years 2017, 2018 and 2019 is $5467 million, which compares with Q4 revenue for 2020 of $6668.5 million, an increase of $1201.5 million, up by 22.0%. The average for Q2 over the same three past years is $5038.9 million, and for 2020 it is $6030.0 million, an increase of $991.1 million, or 19.7%.

    Looking back at Chart 1, one possible way of analysing this situation is to see there being a "baseline" of activity at around $1400 million through to February 2020, which is then replaced by a new baseline at around $1700 million from August 2020 onwards.

    Market changes

    One of the conclusions that we've reached at HNN is that what has shifted is homeowners' relationship to the housing market. We know that there will be various forms of monetary policy adjustment by the end of 2023, especially as regards interest rates. We can expect relatively conservative fiscal policy responses to those adjustments. Yet the decisions homeowners are making have less to do with medium-term investments, and more to do with acquiring security for their families. Buying a larger, better house is all about being able to better cope with adverse outcomes if the COVID-19 pandemic continues through to the end of 2022.

    That doesn't mean that consumer spending won't be negatively affected if house prices decline sharply, and some homeowners find their mortgages are "under water" (owing more than the value of the house). But it does mean that it is less likely that decline will be accelerated by homeowners choosing to sell to avoid that decline in value, possibly limiting how deep the decline runs.

    Total Tools Holdings

    Which brings us, indirectly, to the matter of TTH. One really good question that analysts have asked about TTH and its markets is, what is driving the expansion in this sector? Primarily that is by TTH and the new Bunnings-owned Tool Kit Depot (TKD), but there has also been substantial expansion from retailers such as Sydney Tools as well.

    The two main sources of that expansion are increased innovation in power tools, and increased demand for anything that will help builders and tradies achieve better efficiencies in a relatively inefficient industry.

    The result of those two forces working together is that the lifecycle in tool systems for tradies has shortened substantially. Just 20 years ago tools were expected to last at least seven or eight years, and potentially ten years if they were looked after. Today that cycle can be as short as three to four years, with tradies replacing their tools at the same time they need to replace their Lithium-ion (Li-ion) batteries. The market as a result has grown by something like an estimated 35% to 40% over the past five years.

    Tool companies, in catering to productivity needs, have responded by launching more and more specialised ranges. What was once a market largely divided into 18-volt mainstream tools, and 12-volt subcompact tools, has seen additional categories spring up, including voltages as high as 108-volt, new intermediate ranges of around 36-volt, and compact 18-volt tools. Tradies and builders are desperate to somehow squeeze out the equivalent of an extra hour in the day through more power to do things faster, or with specialised tools that make particular tasks easier.

    Of course, the difficulty with that kind of market is that should demand for construction fade out, tradies can very easily switch to not replacing tools every four years, and replace them every six years instead. There are not any external drivers to the demand, such as safety or reliability (many brands have five-year warranties, for example).

    The real problem, though, that HNN sees developing with Metcash and TTH is, as we've mentioned in the past, that there is a definite conflict of interest between TTH and the independent stores that make up IHG. The best question from analysts at the results conference call came from Brian Raymond of JP Morgan, who asked:

    Just on the Total Tools side. Just interested in that co-location or adjacent store base that you guys are highlighting there. I understand that's one of the first stores of that nature. Just interested in how that looks going forward of the 130 stores do you think there will be a sizeable portion that will be co- located? And do you think there is any cannibalisation of the Mitre 10 when you drop the Total Tools [stores] in there? So just interested in just generally how that impacts foot traffic and sales across the two on a net basis.

    The adjacent store that Mr Raymond was referring to relates to a photograph on slide 11 of the results presentation:

    The caption on that photograph reads: "Adjacent Total Tools and Mitre 10, Merimbula, NSW. Opened November 2021". That particular arrangement came about after a Woolworths supermarket left its established premises, and a regional Mitre 10 retailer decided to expand into Merimbula. There is another similar adjacency being developed in the town of Wonthaggi in southern Victoria.

    Mr Adams responded to the question by stating:

    Yeah, so we said from the beginning, this acquisition was quite complementary to the Mitre 10 business, because where in our tool business, there tends to be more DIY type of customers, whereas Total Tools is completely focused on the professional tool, and in tradies.
    That one [Merimbula] was a trial for us. It started out very well. And then I don't know, if you want to make some comments on it. We do see opportunities in the network, is it going to be extensive? I'm not sure, I would say extensive, but there are going to be opportunities in that 130 target for us to do some combined sites.

    Ms Welsh followed up with a comment of her own:

    I think it's an exciting moment in our history, where we've got an opportunity to ensure that we're growing the market. And we're leveraging that market into the vein of Mitre 10, and Home Hardware and Total Tools. So that's the first. And yes, it was always part of the percentages that we thought were available to the network of independents when we brought the two businesses together.

    Mr Raymond's references to foot traffic and sales on a net basis are very apt. Because, of course, if you do have conjoined stores, then the Mitre 10 retailer is essentially willing to give up sales of both power tools and power tool accessories in exchange for increased foot traffic, attracted beyond the Mitre 10 store's normal traffic by the TTH outlet.

    From a corporate perspective, of course, if almost all TTH stores are going to be wholly owned or JVs in which Metcash has a significant stake, there's actually an advantage to be had in transferring tool purchases from an independently owned Mitre 10 to the TTH outlet. If instead the transfer is between a corporate-owned Mitre 10 and a TTH, in most cases it's going to be something of a "wash".

    The difficulty comes in where there are independently owned Mitre 10 stores in a region where a couple of TTH outlets are introduced. The Mitre 10 stores will see a reduction in sales, most likely, and there will be no counterbalancing benefits.

    The statement by Mr Adams that "because where in our tool business, there tends to be more DIY type of customers" might mostly kindly be described as somewhat disingenuous. It is certainly true that IHG has more DIY customers than TTH. However it is also true that independent retailers in IHG - and particularly Mitre 10 - have expanded their marketing of trade-quality tools since 2015.

    Some evidence for this can be found in the videos that IHG has itself produced, highlighting (during a time of increasing corporate ownership) the "family based" nature of many Mitre 10 stores. A number of these videos feature - as, indeed, do many Mitre 10 stores - gleaming display "pods" of ranked high-end Makita cordless power tools. In fact, this seems to be a regular feature of IHG's Sapphire store upgrades.

    Diamond Creek Mitre 10 promotional video:

    "Industrial Power Tools" at Beck's Mitre 10 Launceston (TAS):

    "Industrial Power Tools" at T&H Mitre 10 Moe: (VIC)

    In contrast, the IHG line of tools for DIYers is somewhat lacklustre. It's made up of a bit of Bosch Green (with a larger range available through Bosch's Amazon store), the limited Rockwell brand from Chinese tool powerhouse Chervon, Worx which is also from Chervon, and some Black & Decker "orange" tools.

    There is nothing in that lineup that competes, for example, with the Bunnings Ozito line, which offers, for example, the PXC 18V 10mm compact drill driver kit, with a drill, charger and 1.5 Ah battery for $49. There's even a basic Ryobi drill, with 2.0 Ah battery and charger for $99. And with both those tools, the batteries can power a wide range of additional tools.

    But this misses a major point about power tool sales: it is just as much about the power tool accessories as the tools themselves. Smaller IHG retailers are not able to compete on price for many cordless power tools with Bunnings, but they do have reasonable sales of drill and impact driver bits, abrasive disks and circular saw blades. It is in that area where the impact of more TTH outlets could be felt most sharply.

    Strategic consequences

    In HNN's opinion, what we're really seeing in the TTH acquisition is the playing out of certain strategic consequences in Metcash's hardware segment. From the perspective of individual store owners, the amalgamation of Mitre 10 and the formerly Woolworths-owned Home Timber & Hardware (HTH) stores (aka Danks) has not turned out too badly. But from a Metcash corporate perspective, it is probably borderline disappointing.

    IHG did a very good job at retaining HTH stores, but the second stage of the business plan, continuing to grow past that point by gaining stores from other buying groups such as Hardware & Building Traders (HBT), simply did not work out. To a large extent, IHG under the guidance of Mark Laidlaw relied as much on emotional arguments as business analysis to encourage membership in the group. It wasn't a winning proposition in the broader independent retailer market.

    This meant the large investment made in creating IHG, an investment in capital, effort and opportunity cost, just did not seem to deliver the expected results that had been hoped for. The acquisition of TTH could be seen, in effect, as the next strategic play available to Metcash to make its hardware segment payoff as planned.

    There are dual risks that this strategy takes on. The first is whether IHG independent retailers will feel the competition from TTH outlets is unfair, leading them to leave the group. The second is simply that by late 2022 TTH will be directly competing with TKD owned by Bunnings. The ability to leverage the foot traffic created by existing Bunnings warehouse operations is one part of that risk, but the other is that Bunnings is very good at strategic execution in Australia.

    Related: Metcash released details of its trading for the first 16 weeks of the company's FY2021/22 year.

    Metcash/IHG trading update - HNN Flash #63, September 2021

    Related: Metcash's results for FY2021 showed strong growth in its hardware segment.

    Metcash 2021 full year results - HNN Flash #52, July 2021
    retailers

    ABS alterations and additions to September 2021

    Strong growth continues

    The alts/adds (renovations) market has taken off at the same time as the building market, creating an uncertain situation

    The alterations and additions (alts/adds, aka renovations) market has always been one of the most vital to the Australian hardware retail industry. The "rule of thumb" for the past 15 years or so has been that when housing prices stop rising or go seriously sideways, some of the slack in demand for new construction will be picked up by increases in demand for renovations.

    In the current market situation, ever since the COVID-19 pandemic started in early 2020, the situation has become more complex than that. Not only are house prices rising, and demand for new dwelling construction increasing, but demand for alts/adds has increased to a new level as well.

    When it comes to reporting on this area through statistics, however, several problems are encountered. The Australian Bureau of Statistics (ABS) not only does a good job in this area, it almost does too good a job. You can be researching just about any statistics related to the residential building and construction industry, and the alts/adds category will pop up as one of the options.

    While we should be very thankful for that, it does bring up the problem of almost too much data. Choosing which data to present, and in what format, can be difficult.

    That's further complicated by the fact that there really isn't any "perfect" alts/adds data out there. For example, building approvals stats are very accurate, but only measures activity above a certain value level, as lesser-value work does not require a permit (and there is always a certain amount of permit-less, "off the books" work going on as well).

    Loans for alts/adds has similar problems. Not only does it miss out on work that is financed through saving and/or credit cards, but some loans made for alts/adds end up being used for other purposes.

    Some of the best measures available are survey-based. The Housing Industry Association (HIA) has some good data based on surveying companies in the construction industry. The ABS also has access to surveys conducted to track expenditure for inclusion in Australia's national accounts (which are used to measure important stats such as gross domestic product).

    In this statistical analysis HNN is relying on three of the sources of data listed above: the national accounts figures, building approvals, and lending for alts/adds. We're presenting these in two formats: as trailing 12 months to the data end date (which is October), and as period on corresponding period percentage change.

    Also, as we are primarily interested in the effects of the pandemic on this area of construction, we're limiting the graphs to the three states most affected by the pandemic: New South Wales (NSW), Victoria (VIC) and Queensland (QLD).

    Alterations & additions trailing 12 months

    Looking at the three graphs in Chart 1 shows some expected results, and a little variance from those results.

    It is best to start with the building approvals chart, which shows the type of activity most in the hardware industry would expect. Approvals for NSW and VIC are closely locked together, and QLD, while it follows a similar trajectory, is somewhat lower. Both NSW and VIC show a flattening from 2017 to 2020, while QLD continues to grow during this period. All three states end with a sharp increase for the 12 months to October 2021.

    Comparing this with the graph immediately below, for lending, shows some similarities. There is a peak for the 12 months ending October 2017, followed by a steep decline for NSW and shallower declines for VIC and QLD. It's interesting to note that NSW shows the highest volatility, with very strong growth from 2013 to 2017, and that steep decline through to 2019. As expected, all three states show a steep increase for 2021.

    The data from the national accounts does provide some surprises. While the QLD number track closely to building approvals, NSW shows less of a peak for 2017. Meanwhile VIC is most notably different because, unlike the other two states, it does not show a steep increase for the four quarters to the September quarter of 2021.

    The most likely cause of that last difference is constraint on the market due to COVID-19 restrictions in place.

    Alterations & additions period-on-period % change

    Chart 2 shows data derived by determining the percentage change between corresponding periods - so October 2021 compared to October 2020, or 2020Q1 compared to 2019Q1.

    Starting with the top graph, outlining household spending from the national accounts stats, we can see certain very clear points of inflection. The first is a convergence around zero right before the pandemic, for the December quarter of 2019. That's followed by a second point of convergence for the following quarter, with VIC and QLD hitting over 5% growth, while NSW hits 10%. Then in the next quarter for June 2020, there is a trend back to zero growth again.

    From this point, the growth diverges, with both NSW and QLD seeing strong growth over the next year to June quarter of 2021. VIC has instead zero to negative growth over the subsequent three quarter, followed by growth in the June 2021 quarter. Both NSW and QLD show slower growth for the September 2021 quarter, while VIC continues to grow.

    For building approvals, we've converted the monthly figures into quarterly numbers, as this tends to be a very jagged set of data without some smoothing. For both NSW and QLD, this mostly follows the national accounts graph. However, VIC is once again the exception, with growth in building approvals exceeding household expenditure on alts/adds from the June quarter of 2020 onwards.

    Looking at the chart for lending, it's evident there is a considerable lag. The key convergence point happens in October 2020, at the start of the December quarter. After that point, growth in the amount borrowed for alts/adds takes off for both NSW and QLD. For VIC, however, there is an initial period of growth for November and December, then a fall back to zero for January 2021, with slow growth in February, then very strong growth for both February and March.

    Analysis

    Perhaps the primary message from these charts is just how unusual the times we currently live in are. While the first group of graphs outline exceptionally strong growth over the past year, the second group show that this growth is somewhat nuanced.

    In particular it's noticeable that in that second group there is a decided downwards hook to the trendlines at the end of 2021. But even those drops illustrate amazing growth moderating to simply very good growth.

    At the moment, the best approach is one of some vigilance. There's a great deal of apparent momentum behind these growth numbers, into that they display very little volatility - the upwards forces are overwhelming.

    The difficulty is that the growth stimulus does not have its basis in a good, developing of growth and expansion, but is rather the reaction to a very unfortunate event. Paradoxically, as Australia recovers, one sign of that may be falling rates of alts/adds.

    statistics

    Big box update

    Construction starts on Bunnnings Frenchs Forest store

    Fund manager Newmark Capital's first listed real estate investment trust that includes several Bunnings stores made its debut on the ASX

    Demolition has begun on a vacant two-storey office block on the corner of Warringah and Allambie Roads in Sydney's northern beaches to make way for the new $48 million Bunnings store, according to a report in Manly Daily.

    The Frenchs Forest outlet will span more than 20,000sqm and it will be first time in NSW that Bunnings will offer three levels of retail with two levels of parking for almost 400 vehicles.

    An Australia Post distribution centre will also be taken down to make way for the hardware store.

    The Bunnings development application was approved by the NSW Government's Sydney North Planning Panel in February this year. There were delays to the approval because of issues relating to safe vehicle access to the site due to the building's proximity to the busy intersection of Warringah and Allambie Roads.

    There was also another conflict over the size of the Bunnings Warehouse logos and signs, as well as the building's predominantly green colour scheme. The retailer agreed to reduce the size of the logo by 33% on Rodborough Road, remove a number of hammer logos from the rest of the building and restrict the amount of green paint is used on the facades.

    The opening hours will be finalised closer to the store's opening.

    Related: Bunnings has gained approval from NSW planning authorities for a store earlier this year.

    A five-storey Bunnings Warehouse is planned for Sydney's northern beach suburbs - HNN Flash #34, February 2021

    Newmark's Bunnings REIT listing

    Securities in the Newmark Property REIT (real estate investment trust) - trading under the ticker NPR - closed up 2¢ or 1 per cent at $1.92, after Newmark raised $129 million through its initial public offering at $1.90 per share, according to the Australian Financial Review.

    At a closing price of $1.92, the trust, which owns eight large format retail properties, mostly leased to Bunnings, closed with a market capitalisation of just under $350 million.

    Three-quarters of the trust's income is derived from leases to Bunnings. Prior to floating, Newmark bulked up the trust, acquiring three Bunnings with an end value of more than $200 million. These include Bunnings Eastgardens in Sydney's eastern suburbs, a new Bunnings being constructed in Preston (VIC) and another in Melton in Melbourne's outer west.

    Newmark, which created the REIT after combining two unlisted property trusts, the Newmark Hardware Trust and the Chadstone Trust, remains its largest shareholder with an 18.2% stake held across a number of entities.

  • Sources: Manly Daily and Australian Financial Review
  • bigbox

    HNN Flash #75 podcast: Metcash-IHG-TTH first half results

    ABS hardware retail sales provide context

    Explaining organic and in-organic results, and the potential strategic difficulties with Metcash's Total Tools acquisition

    The main news story this week, of course, is the Metcash presentation of its half year results.

    We discuss what we believe is one of the key aspects from the presentation that was highlighted by a question from Brian Raymond of JP Morgan regarding co-locating Total Tools stores with Mitre 10 stores. Here is a brief excerpt from our discussion:

    It's a slightly different situation that Mr. Raymond is pointing to directly there because he's referring to a picture that was in the presentation for the results of a kind of dual store site in Merimbula where there is a new Mitre 10 store next to a new Total Tools outlet and in that particular situation you can see that working okay if that if that Mitre 10 store has said, 'That's fine, I'm willing to give up some of my power tool business in exchange for the kind of additional foot traffic that I'll get from being co-located with a Total Tools.' There's another one of those dual stores under development in Wonthaggi in Victoria as well.
    But it's very different if your Total Tools store is three or four kilometres from your Mitre 10 store and is dragging traffic away from you and dragging sales away from you as well.

    You can listen to the podcast on the embedded player:

    %

    Or listen to it on Apple:

    HNN Flash #75 podcast on Apple

    Or go to the Buzzsprout website at:

    www.buzzsprout.com/1872420/9695075

    HNN's Flash podcast provides a deeper discussion on one or two of the stories we'll be covering each week on the HNN website.

    news

    Retail update

    Reece purchases long-term trade centre in in Brisbane's south

    Blackwoods in Mount Isa (QLD) has been recognised in the annual Northern Outback Business of the Year awards

    Plumbing and bathroom retailer and supplier, Reece has paid $3.36m for its showroom/warehouse located at 11 Secam Street, Mansfield (QLD) which it has occupied for over 17 years.

    The property covers 3008sqm and features a 799sqm tilt panel prime-grade showroom, warehouse and trade counter. Andy Carmody from real estate company, JLL told the Courier-Mail:

    Reece historically likes to own their sites so they put it in their lease that if the landlord ever did sell they would have the option to buy it and that's what has happened.

    The low site coverage aspect provides further potential development upside, and the location provides access to key infrastructure and amenity. Corbin Crain from commercial real estate agency, Crew Commercial said the sale price reflected a 4% yield.

    Reece wanted to stay on as an owner-occupier and they will leave it as is having done their own fitout and they will stay there for many years to come.

    Blackwoods

    Blackwoods Mount Isa manager Lee Potini believes it was probably their customer-first approach that won them the top prize in the Northern Outback Business Awards. She told the North West Star:

    We listened to the customers and what their needs were. I just brought in a lot more stock to cover myself and cover our customers.

    She said some customers would come in and want an item to find it on a four or six-week back order, so Ms Potini took it upon herself to order masses of essential products so they wouldn't come up short again.

    A lot of the critical PPE items like face-masks and earplugs, we made sure we had a lot of that, and when we were ordering we were just putting more into our inventory and our warehouse to cover the demand.

    She also praised the efforts of her staff across the team. Ms Potini said team members were answering calls even outside work hours, while the account manager was driving stock out to the mine sites when they needed it to keep things moving.

    Ms Potini said the award was terrific recognition for her team's efforts over the past 18 months, and more broadly as they have rebuilt in the past four years since she came on board.

    I took over four years ago and we were in a world of pain then - we weren't listening and stocking the correct stuff - but I have lived in the region for 10 years so I just listened to the customers and we spent tireless hours sorting the warehouse.

    Since then, she has maintained the same strong and diverse team, saying it was something she was proud of.

    Commerce North West president Emma Harman said the awards are a reflection of those businesses that had shown creativity and resilience given the challenges of the COVID-19 pandemic.

  • Sources: The Courier Mail and North West Star
  • retailers