ABS hardware retail stats: March 2022

The end of the surge?

The March 2022 retail figures show strong indications that this month is the first statistical move from the "new normal" of the pandemic times to the "next normal" that is the start of the post-pandemic times. While pandemic concerns remain - COVID-19 is still with us - other economic forces will determine growth.

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    The Australian Bureau of Statistics (ABS) has released hardware retail revenue statistics through to March 2022. Given that these statistics have become difficult to interpret through the usual means, HNN has moved to charting these in comparative 12-month periods.

    The current charts are based on the time segments for the 12 months ending in March, which we refer to as "periods", and designate with the abbreviation "p" followed by the year of the end month. So the time segment from April 2020 to March 2021 would be p2021.

    So as to get a better grasp on the growth levels as well as overall revenue, we've included a second chart to accompany the primary revenue chart. This second chart shows the month-on-corresponding-month (MoM) growth rates as a percentage.

    Australia

    It is always somewhat difficult to determine whether it is better to build the statistical picture by starting with individual components of a statistical view, and then build these into a statistical overview, or to begin with that statistical overview.

    In this case, the nature of the statistics indicates that the overview might be the best place to start, so we will start by looking at the ABS figures for hardware retail revenues across Australia. Hopefully the reasons for this will become evident.

    Looking at the most recent results, for March 2022, the strong uptick for this month that has become a feature of the pandemic period is repeated in original revenue terms. However, in terms of the growth rate (shown in the bottom chart) a difference is apparent.

    The March 2020 growth rate (green line) shows the initial sharp uptick that surprised the industry, up 18.0% in MoM terms. For p2021 that fell to 4.3%, then in the current p2022 rose to 8.8%. That is a significant increase, but it is slightly less than the increase for February 2022, which was 9.0%.

    Taken in a broad view, the percentage change chart shows that what has happened is a historically large surge in growth from March 2020 through to February 2021. This includes the very high rates for April, May, June and July 2020, which were respectively 26.39%, 37.62%, 31.88% and 27.85%. This contrasts with the best growth rates post the global financial crisis (GFC) and pre-pandemic of 10.61%, 7.61%, 2.26% and 1.69% for those four months in 2016.

    That growth surge moderated to around 4.3% in March 2021, then went under -5.0% for April to July 2021 - an almost mirror-like inversion of the growth surge in the previous year.

    That mirror-like inversion could benefit from further investigation. Chart 2 has broken out the revenue growth for p2021 and p2022. The dark grey line that has been added is simply the average of these two growth rates.

    Looking at the time segment from April through to February, while the growth rates for the two periods fluctuate strongly, the average of the two fluctuates between 14.1% in December, to a low of 9.7% in August - a range of 4.4%. The average growth rate for that period is 11.8%.

    March 2022 presents itself as a (temporarily) unique datapoint. That is because it is the first month of the third year of the pandemic. That means that, unlike February 2022 (for example) its revenue is the culmination of three years of higher, pandemic-era growth rates.

    Given that, it's perhaps not that surprising that the growth rate for March 2022 breaks out of the "mirrored" range that has held for the previous 12 months. This is really the first somewhat significant statistical indication that there may be a reset downwards in terms of expected growth rates for the future.

    If this analysis is correct, and the March 2022 figure is statistically significant in this way, we can start to add some structure to the interpretation of historical hardware retail revenue figures, and set some firmer forecast expectations.

    We will delve into that modelling in the Analysis section of this article.

    New South Wales

    Original hardware retail revenue for New South Wales (NSW), shown at the top of Chart 3, indicates the familiar pattern from the Australia-wide chart, with p2021 and p2022 seemingly disconnected from the four prior, pre-pandemic periods.

    Looking at the MoM growth rate chart on the bottom of Chart 3 shows, again, how much of this change took place in p2021. In this case the growth surge extended from April 2020 through to February 2021, albeit with a dip below 20% growth in November 2020.

    The mirroring between p2021 and p2022 that can be observed in the national figures is only intermittent for NSW, evident in April through to July, and then in a diminished form from December through to March.

    In fact, what is most interesting about the MoM growth chart is that growth rates through p2022 are not for the most part historically high, with growth rates for p2017 and p2018 close or higher - only December 2022 shows unusual growth.

    The conclusion from this is that while growth in p2021 was largely driven by pandemic factors, for p2022 those diminished, and were overshadowed by the more familiar factors associated with the tight housing market in NSW.

    Victoria

    As the state that arguably suffered the most during the pandemic years, there is often an impression that Victoria (VIC) also saw the sharpest rises in hardware retail revenue. However, as the chart shows, the state's experience is mid-way between that of NSW and South Australia (SA). There are periods of a surge, but for the most part revenues are boosted, but have some relation to pre-pandemic revenues.

    For example, the annual high spending period from October through to December was certainly boosted considerably during the pandemic, with November 2020 revenue hitting an all-time monthly high of $677 million. In fact, as shown by the top revenue chart, if there is a single anomalous number to point to, it would be for revenue in February 2022, which did not decline on January revenue as much as would be expected.

    The bottom chart shows the familiar surge starting in March 2020, but it truncates quite sharply in August 2020, with growth dropping below the level of August 2019. There is a brief resurgence in November and December 2020, but from January 2021 through to March 2022 growth levels are below those of p2019 - with the exception of those numbers for February 2022.

    In terms of a mirroring between p2021 and p2022, there's a muted form of that from April through to October but then it begins to break down. As with NSW, the housing market has a strong influence on hardware retail revenues in VIC.

    Queensland

    In some ways, it is Queensland (QLD) that displays the most clearcut increase in hardware retail revenues through the initial year of the pandemic. As the top original revenue chart in Chart 5 shows, the two pandemic years show a wide gap back to the pre-pandemic years.

    Looking at the MoM growth chart on the bottom, it can be seen that from March 2020 through to February 2021, the growth rate remains above 20% - except for a blip down to 19.0% in August 2020.

    We can also make the case for a degree of mirroring between p2021 and p2022, as shown in Chart 6.

    It's a relationship that holds up fairly well from April to November, as illustrated by the relatively flat average line, with the average growth rate at 12.4%.

    South Australia

    The hardware retail revenue trend for SA is somewhat like that for NSW in that the p2022 revenue has mostly exceeded the p2021 revenue, but it is also like VIC in that the boost to revenue still follows the pattern from pre-pandemic years.

    If there is something unique about the SA figures, it is the ongoing high level of performance through the first quarter of 2022, with all three months significantly above the 2021 levels.

    Looking at the MoM growth chart, there is the familiar surge starting in April 2020 and continuing to September 2020, with a resurgence in November and December 2020. For most of p2022 the growth rate is less than that of p2018, with the exception of the final three months, January to March, with the growth rate going above 20% in February.

    Western Australia

    At first glance, the two charts in Chart 8 for Western Australia (WA) seem a little contradictory. While the red line marking p2022 is clearly above the others in the top chart for original revenue, in the bottom chart for MoM growth it is the blue line for p2021 that dominates.

    The reason for this is that the comparison that needs to be made for the growth chart is between the green line, for p2020, with the blue line for p2021. What makes that hard to see is that two periods, p2017 and p2018, both outperformed p2020.

    This really goes to indicating that the fluctuations in hardware retail revenue for WA have been considerable in the past as well. One of the important facts about WA is that there was a sustained period of declining revenues, producing negative growth, from January 2017 through to May 2019, with the only exception being August of 2017, which showed growth of 1.0%.

    For example, the May 2020 spike in growth to 40.4% is based on revenue of $212 million in May 2020 compared to revenue of $151 million in May 2019. However, compared to the local high for revenue in May 2016 of $174 million, the increase for May 2020 was "only" 22.0%.

    That said, WA did see the same surge, running from April 2020 through to January 2021, with only September 2020 and November 2020 dropping below a 20% growth rate.

    It's probably best, given its revenue history, to remember that while WA is influenced by events such as the pandemic, they are not as determinative as they are for the other states and territories. Particularly with its reliance on natural resources it seems likely hardware revenues will follow a more positive pattern than that of the rest of Australia.

    Australian Capital Territory

    The Australian Capital Territory (ACT) obviously has a number of unique characteristics: it's small, dominated by the Canberra economy, and relies for its prosperity largely on government funding.

    As a result, its revenue statistics are unique in their pattern. While the other states detailed above all do have at least some form of mirror symmetry to their stats, the ACT does not. It does have a p2021 growth surge, which begins actually in p2020 for its March 2020 figure, and continues on to February 2021.

    Yet its growth then does go negative during p2022, from April to September 2021, before climbing to over 10% in December 2021, and continuing at that level.

    Analysis

    When we speak about "mirroring" and symmetry around an axis of averages, we're really referencing a system where there is a burst of activity, followed by countervailing activity which "balances out" the burst, and provides an ongoing average.

    That average is really key to understanding what is going on, as it represents the forecastable growth rate going into the future. When that forecastable rate changes sharply, however, this can signal the end of that "give some, take some" regime, and the resumption of a less-balanced process.

    When we look at the numbers for Australia as a whole, the symmetry becomes most obvious, because across that wide of a range the major "signal" in the economy becomes clear, and the minor signals - which differ from region to region - tend to counter each other out, diminishing into background noise.

    That "noise" for the most part is going to consist of forces related to the property market, the differing effects of lockdowns and COVID-19 itself, as well as cultural assumptions. That is likely why QLD represents a better symmetrical model than other states. It was less affected than other states, and its housing market operates under very different constraints to NSW, VIC and SA.

    Future influences

    One way to look at the surge in demand that hardware retail has experienced is to see the pandemic as a catastrophic event that caused people who had one kind of living situation to change this as swiftly as they could to a different living situation.

    There are some real questions about how we forecast future demand that arises from this set of changes. Will that transition be completed, and spending fall off, or is the transition more constant, resulting in a continued elevated level of spending? Will the spending be displaced in the future by other spending, on activities such as overseas travel?

    Then, of course, there are the linked economic concerns of inflation and interest rates. There is going to be a steady lift in interest rates over the coming financial year, to a level likely above 2.0%. That is in response to increases in inflation, and consequently the cost of living. It should be noted that the purpose of a rise in interest rates is to reduce demand, resulting in a surplus, which will then decrease prices.

    That is made more complex by ongoing supply-chain concerns, which create periodic scarcities, and add inflationary pressure through increased logistics costs.

    It's also important to note at this point that the COVID-19 pandemic is very far from being over. There are still building sites that get shut down because some key operator has contracted COVID-19 and needs to isolate/recover for a week or more. There is always the potential for a more contagious/severe form of COVID-19 to take hold, and bring back restrictions.

    Outcomes

    The best that HNN can say at the moment is that the next several months of statistics, through to June 2022, are going to be vital in developing a longer-term forecast. We can say that the March 2022 stats do seem to mark some kind of a turning point, and that the initial analysis looks like there will be a net decrease in growth from the historically high averages of the past two years through the June quarter of 2022.

    We would also signal that in terms of a longer-term forecast, given the current status of the housing market, we believe that the need to change policy to reduce house price growth will result in change. For example, we could see a change in taxation policy that would phase in a maximum limit to the amount of interest that can be tax-deducted, with a higher limit for first home buyers.

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    statistics

    Big box update

    Demo works continue for Bunnings Frenchs Forest

    The future of two flood ravaged Bunnings stores near Brisbane can be revealed with one to remain closed indefinitely and potentially be redeveloped

    An Australia Post distribution centre is being demolished to make way for a five-storey $48 million Bunnings store in the northern beaches suburb of Frenchs Forest.

    The Bunnings development application was approved by the NSW Government's Sydney North Planning Panel in February 2021. It would have been settled in 2020, but for a disagreement between the hardware retailer and Northern Beaches Council about safe vehicle access to the site from Allambie Road. (The store is being constructed at the intersection of Warringah and Allambie Roads.)

    There were concerns that due to the building's proximity to the busy intersection, there were "potential road safety issues with merging vehicles and conflicts with pedestrians". An agreement has been reached to move the main driveway to Rodborough Road, once traffic lights are installed at its intersection with Allambie Roadd.

    The project is still generating some community concerns about traffic in the area, especially with the new The Forest High School set to be built about 400m away on Allambie Road.

    The outlet will be first time Bunnings to offer three levels of retail, according to the Manly Daily News. There will be two levels of parking for close to 400 vehicles.

    Bunnings already has northern beaches outlets at Warringah Mall (Brookvale) as well as Balgowlah, Belrose and Narrabeen.

    Related

    Construction begins on Bunnings Frenchs Forest store - HNN Flash #75, December 2021

    Flood affected stores

    Queensland-based Bunnings stores in Oxley and Rocklea were left devastated from the catastrophic flooding in February this year. The stores sustained significant damage from the floors and had to undergo a full sanitisation clean and major repairs.

    Bunnings regional operations manager Jason Doyle confirmed to The Courier-Mail the Rocklea store was on track to reopen in June. Mr Doyle said specialist teams had been busy making sure this store was hygienically safe and structurally sound. The teams also rectified any store-related damage, rejuvenated floors and rebuilt amenities. He said:

    Our store team is now back on site and we're currently in the re-fit phase, where our teams are re-racking and re-merchandising, getting ready for reopening.

    It is also understood Bunnings is working on redevelopment options on its Oxley store, including floodproof design concepts, over the next six to 12 months. Mr Doyle said the Oxley staff would continue to work at and support nearby stores.

    We are really pleased to confirm that we are on track to reopen our Rocklea store in mid-June. We continue to provide care and support to all our Rocklea and Oxley team, and we thank them for their amazing work helping the community with recovery efforts.
    The safety and wellbeing of our team and customers is our number one priority, and we remain focused on getting Rocklea opened safely as soon as possible to provide the local community access to the products they need.

    Both Rocklea and Oxley stores were victims of the flooding back in 2011 and had to be closed for about two months.

    Mt Isa Bunnings sold

    The Bunnings store in Mt Isa (QLD) which opened in February has been sold for just over $16.2 million on a yield of 4.29%, according to The Australian.

    Set on a 15,430sqm landholding with a net income of $695,000 per annum and brand new 10-year lease, the Bunnings store is five times the size of the previous store that was in Mt Isa.

    Campbell Bowers, Burgess Rawson Queensland partner and joint head of agency, said the Bunnings Mt Isa was another example of the trend of regional Queensland investments performing strongly.

    PropTrack economist Anne Flahertysaid assets like Bunnings had consistently performed extremely well but since the onset of the pandemic there had been growing interest in the assets, which were viewed as a cultural icon. She told The Australian:

    It is seen as a safe, reliable tenant, they are very popular with consumers, and they have a good growth outlook. So from an investor perspective, getting an asset with a Bunnings on it, it's not just appealing from the sense of owning an asset that's housing one of Australia's iconic brands.

    Related

    Bunnings Mount Isa store gets ready for opening - HNN Flash #78, January 2022
  • Sources: Manly Daily News, The Courier-Mail and The Australian
  • bigbox

    Indie store update

    Jeays Hardware marks 100 years

    Rural business Tom Grady is expected to expand its footprint further in Gympie (QLD)

    In its 100th year, Jeays Hardware continues to thrive in the coastal suburb of Sandgate, north of Brisbane.

    For the grandsons of the store's founder, Peter, Charlie and Richard, keeping the fourth-generation business in the family name is a matter of pride and testament to good old-fashioned service. Peter Jeays told The Courier-Mail:

    I remember working in the business as a teenager handing out flyers at the front of the shop and being paid 50 cents. I have been in retail more than 40 years and have the busted knees to prove it.

    History

    Charles Joshua Jeays started Jeays Hardware in 1922 when he made the decision to start his own firm after working at Perry Brothers Hardware. He rented a small building and yard with his brothers Joe, Albert and Arthur.

    In 1932, they moved into a larger building with Charlie's son Charles Albert (father of Peter, Charles and Richard) joining a few years later.

    During World War II, the business was relocated to Sandgate, where the Jeays family had lived since the 1870s. In the days before forklifts, they worked hard loading heavy bags of cement, timber and iron onto their delivery truck by hand.

    Charlie Jeays says his great uncles Albert and Arthur had been seriously injured in World War I but still managed to complete a full day of physical labour. He told The Courier-Mail:

    Arthur had a bad limp after being shot in the leg, while Albert lost his leg in Gallipoli. Arthur always wore a suit, tie and hat even when he was driving the delivery truck.

    The younger generation Jeays remember their father's love of Moreton Bay where he enjoyed sailing and fishing when not busy in the hardware business. Peter Jeays said:

    Dad, who served in the Army's small-boat unit in Borneo, came back from the war and built a boat which helped in his recovery.

    Charles Albert Jeays retired in 1985 after 50 years of service, with Charlie Junior taking over the reins as managing director. Peter joined the business in 1987 and became manager of the Jeays Aussie Auto business. Charlie said the biggest change in the hardware business during his time has been the move from bulk product to pre-packaged items.

    In the old days, you would sell nails by weight. Things like kerosene and turps also were in big drums and you would buy a small tin. Now it is all pre-packaged.

    Charlie said his father, who died aged 98 in 2018, was one of the first to join the Mitre 10 cooperative in the 1960s, with Jeays being the last of the original nine Mitre 10 hardware stores in Queensland to survive.

    We would not be here today without being part of Mitre 10 because it helped with buying power and marketing.

    Peter Jeays said the arrival of big box retailers have been a challenge but a loyal customer base and the fact Sandgate has few large development sites have helped to protect the family business.

    We have had customers coming to us for over three generations. People like the fact they can pop into our shop for a can of paint or brush and get away quickly without having to walk 300m across a big car park.

    The family have celebrated the centenary of the business with a number of long-standing staff including Harry Jones, who drove the firm's delivery truck for 60 years, and Carole Green, who was the office manager for 40 years. Charles Junior said:

    We have always believed our staff are the most important people because they make the business. The staff's current total length of service to the business is in excess of 250 years.

    Tom Grady Rural

    Gympie-based Tom Grady has unveiled plans to add to his eponymous rural merchandise store, according to the Gympie Times.

    A new development application includes construction of a new building with an office and drive through service on the 1.5ha block. More parking spaces in a covered area will also be included as part of the expansion.

    If approved it will the latest addition to the rural services offered at the property, which served as a butter factory from 1925 to 1978 until that part of the factory was shut down.

    Mr Grady recently sponsored this year's Gympie and District Show fireworks despite his real estate office not yet reopening after the devastating floods in late February,

    Related:

    Plans to expand Tom Grady Rural Merchandise Store - HNN Flash #79, January 2022

    Tom Grady Rural also expanded its store in 2020.

    Gympie rural store supports local economy through its expansion - HNN Flash #13, June 2020
  • Sources: The Courier-Mail and The Gympie Times
  • retailers

    Supplier update: Building materials

    Weathertex hits the market: report

    Brickworks could be exploring BGC buy and New Zealand timber and panelling group Herman Pacific may be up for a future sale

    It has been reported by the Australian Financial Review (AFR) that weatherboard manufacturer Weathertex is looking at a potential sale.

    The company is expected to appoint Miles Advisory to run a strategic review of the business, according to the Street Talk column in the AFR. The review is set to consider sale options, including talks with private equity (PE) and potential buyers from the industry.

    Weathertex is understood to make about $50 million a year in revenue and about $10 million in earnings, which is consistent with accounts filed for its holding company CABP Group.

    Weathertex was established in Raymond Terrace, in the NSW Hunter region, in 1939 and has employed more than 100 people for the past 50 years. Its products include cladding weatherboards and architectural panels, sold in Bunnings and other hardware stores. They are marketed as eco-friendly and made of real wood.

    The business is expected to attract interest from Australia's PE firms, including those that have had success in building materials companies in the past, and other hardware suppliers.

    Brickworks and BGC

    Australia's largest brick maker Brickworks is believed to be exploring a BGC acquisition as a way of having a larger and stronger presence in the West Australian market, according to DataRoom in The Australian.

    BGC holds around 5% of the country's overall brick market, based on data from IBISWorld. But it is a major competitor in WA to Brickworks, which has a market share of about 44% of the Australian brick market.

    The Australian Competition & Consumer Commission would most likely oppose an acquisition by Brickworks of BGC. However, the thinking is that Brickworks could get around that opposition by offloading some of its own assets in the WA market.

    BGC is up for sale through investment bank Macquarie Capital and PwC. Analysts have told DataRoom that BGC's brick business accounts for less than half of its value, with about half of its value in its WA cement grinding terminal, quarries, concrete and transport businesses. Also included in the sales is BGC's building construction arm.

    Few buyers exist for the brick business, although given its scale it is seen as a rare and valuable opportunity for a major player like Brickworks which operates under the Austral brand.

    Perth-based BGC operates its brick unit under the Midland Brick and Brikmakers brands and caters exclusively to the WA market. It operates four manufacturing sites and three retail sales centres in Perth.

    Midland Brick accounts for about one-third of the WA's clay brick production, with an annual production capacity of about 110 million bricks. An acquisition would capitalise on the buoyant construction conditions in Perth.

    Related:

    In 2021, Brickworks restarted a mothballed brick kiln in New South Wales.

    Brickworks' Australian business gains significant earnings - HNN Flash #39, April 2021

    Earlier this year, Brickworks was seeing potential early signs of softening construction activity in Australia.

    Brickworks believes construction may be starting to weaken - HNN Flash #87, March 2022

    Hermpac

    New Zealand-based Herman Pacific (Hermpac) could be an acquisition target for Australian building materials companies and private equity groups, according to Street Talk in the AFR.

    It is understood Hermpac's family owners are considering their strategic options, and Ascentro Capital Partners has been introducing the business to potential buyers.

    Sources told Street Talk that Hermpac had been pitched with about NZD30 million (AUD27 million) a year in earnings, fuelling expectations of a potential AUD250 million valuation.

    Hermpac is a NZ made timber company, sourcing and selling timber for flooring, decking, weatherboard, cladding, panelling and more. It was founded in 1974 and is majority owned by members of the Carter family, and management.

    It is understood to be attracting interest from PE firms and building products companies with operations on either side of the Tasman.

    PE sources have told Street Talk that the potential sticking point with NZ-based investments is the exit strategy. While companies can make good money buying and running businesses, selling assets has become harder given the "tricky IPO market and a clampdown in foreign investment".

  • Sources: Australian Financial Review and The Australian
  • companies

    Big box update: IKEA

    Planning Studios in Australia

    The first of these smaller format sites will be up to 500sqm and open in north-west Melbourne, followed by Newcastle (NSW) by the end of 2022

    IKEA Australia and New Zealand country chief Mirja Viinanen told The Australian Financial Review it will launch its small-format Planning Studio concept in Australia this year.

    The focus of the Planning Studio is to help customers to create "dream" kitchens and wardrobes, and there will not be any food served on site.

    According to the big box home improvement retailer, the Planning Studios are part of its growth strategy for Australia.

    Each studio will have a collection point nearby where customers can collect their products upon ordering. The goal of the format is to provide customers with more flexibility when accessing the retailer's products. Ms Viinanen said consumers wanted IKEA's products to be more conveniently accessible. She said:

    Convenience is at the heart of our strategy. We will continue to transform and test new formats like the new Planning Studios to be able to meet our customers where it is convenient for them, and we are constantly researching where this need is the greatest to inform our expansion strategy.

    The company expects the Planning Studios will help gather important customer insights and feedback during the first few months of opening. Based on this data, IKEA will consider if and where to open additional Planning Studios in the future.

    Ms Viinanen is also keen to further penetrate online. Pre-pandemic, IKEA generated about 12% of its sales online, but it now accounts for about one-third of group sales. The AFR reports sales reached AUD1.62 billion in the full year to August 31, 2021, based on accounts lodged with the regulator.

    Ingka Group, the largest franchisee of IKEA stores around the world, recently said that it would invest EUR3 billion by the end of 2023, building new outlets and remodelling existing ones to cope with "increasing demand for home deliveries".

    The money will primarily be used to modify its trademark out-of-town (suburban) outlets so they can double up as e-commerce distribution centres. Ingka Group retail manager Tolga Oncu said told Reuters:

    Most of it will be in our existing stores, since we talk about transforming, redesigning the purpose of the square metres.

    In the past few years, Ingka has adapted to the rise in online shopping by developing smaller stores, revamping its website and rolling out a new app as well as digital services such as remote planning tools. Mr Oncu said:

    We feel we have a catch-up to do on the back-end of our operation (and) we have realised that by including stores in our last mile and fulfilment design network we can create a win-win situation.
    Shipping online purchases from the warehouse sections of nearby out-of-town stores will mean faster and cheaper deliveries, with lower emissions, than by shipping from a few logistics centres..
    Instead of building central warehouse capacities for online buys, why don't we send it from our IKEA stores?

    Sustainability

    It is not just all about store expansion for Ms Viinanen who is also the company's chief sustainability officer.

    IKEA has introduced more than 30 big-impact, sustainable-focused initiatives globally, with some in Australia. A clean energy storage initiative was launched to support the South Australian power grid as IKEA aims to achieve 100% renewable energy by 2030.

    The retailer is also using high-end technology to meet some of its sustainability goals, such as robotic automated box cutters and shredders in the distribution centres.

    According to IKEA research, nine out of 10 Australians believe businesses can do more to reduce emissions, and Ms Viinanen is firmly committed to delivering on those expectations. Other initiatives include its circular hubs in stores where shoppers can buy floor stock or get furniture others have returned through the buyback scheme. She told the AFR:

    All of this should be everyday business decisions, as part of business helping to create better everyday life.
    Wesfarmers' retail clean energy deal for retailers in Queensland - HNN Flash #88, April 2022

    Other recent stories about IKEA on HNN

    IKEA is changing up its business model in Australia.

    IKEA small format strategy - HNN Flash #50, June 2021

    IKEA continues to change the way home improvement gets done, reconfiguring what is meant by "DIY".

    IKEA and its place in home improvement - HNN Flash #77, January 2022

    IKEA's mobile checkout technology is being trialled through its Queensland stores.

    IKEA app in QLD stores - HNN Flash #74, December 2021
  • Sources: Australian Financial Review, Reuters and SmartCompany/Inside Retail
  • bigbox

    Supplier update

    James Hardie annual profit jumps 75%

    CSR has reported an 85% rise in annual net profit, and offered an upbeat outlook as it supports a strong pipeline of detached housing projects

    James Hardie chief financial officer Jason Miele said about 65% of the company's business is centred on the repair and remodel category, which was showing robust growth, according to The Australian Financial Review (AFR).

    Mr Miele said its Asia-Pacific operations, including a substantial business in Australia, were reporting large backlogs for renovators using the company's products, which include cladding and plasterboard. And the prospect of higher interest rates in Australia was not curbing demand in the June quarter. He said of the Australian subsidiary:

    The business is operating very strongly.

    The AFR also reports the company will push through a fresh round of price rises in its big North American business in June to tackle soaring inflation. James Hardie's North America president, Sean Gadd, said prices had risen 5% in January in the standard annual price increase round, but a special out-of-cycle increase was needed on June 20. There would be another increase next January in the standard annual review. He said rising rates were not a handbrake and renovators were going hard in the US. Tradespeople were at the frontline. He said:

    They will tell you they're not getting cancellations.

    Mr Miele said there had been "hyperinflation" in energy costs in its European business, with sharp rises in gas prices resulting from the Ukraine war a big drag because gas is a crucial input in the manufacturing process of plasterboard.

    Margins would soften slightly in the June quarter because of climbing freight and pulp costs, but will expand again for the rest of the financial year as the June price increase of 4% flows through.

    James Hardie reported a 24% increase in net sales to USD3.6 billion (AUD5.1 billion) for the full year ended March 31, which helped deliver a 75% lift in profit to USD459.1 million following "above market growth and returns" in the fourth quarter.

    The building materials group now expects fiscal year 2023 adjusted net income to be in the range of USD740 million and USD 820 million, a 19-32% increase.

    The company remains without a permanent chief executive since the announcement in early 2022 that Jack Truong had been forced to step down following an investigation into claims of "intimidating behaviour" over allegations he created a "hostile" work environment. Mr Truong has denied these claims, saying he was "blindsided" by the move by the board.

    James Hardie shifted to a strategy of heavily investing in marketing direct to the homeowner under Mr Truong's stewardship, saying female decision-makers were a major driver of demand for stylish building products.

    In February, it signed US television renovation show duo Chip and Joanna Gaines to help in marketing its products. They host the Fixer Upper TV show, have their own network of renovation shows, the Magnolia Network and share 24 million Instagram followers.

    Related

    James Hardie chief executive Jack Truong has been abruptly sacked - HNN Flash #77, January 2022

    CSR

    CSR said its Building Products division is well positioned to grow in the next 12 months as tradie shortages and supply chain disruptions mean an already strong pipeline of work in the detached housing market is stretching out to be "stronger for longer".

    Chief executive Julie Coates said demand in the apartment building market was also starting to gain momentum after an extended slowdown, while non-residential construction was improving. But labour shortages and supply chain congestion are causing house building and renovations projects to take up to 50% longer than usual, according to the AFR.

    CSR's building products include Gyprock plasterboard, PGH bricks, Monier roofing, Hebel lightweight building blocks and Bradford insulation. Ms Coates said Bradford and PGH bricks were strong performers in a market where housing construction timelines have extended to beyond 12 months in many cases.

    She foreshadowed further price rises of products to offset rising input costs after putting through out-of-cycle price rises in late 2021 to offset rising input costs and inflation. However Ms Coates did not specify the quantity. She said:

    Where we need to, we will continue to pass on price increases into the market.

    The company announced its core building products division had produced a 24% rise in earnings before interest and tax for the year to AUD228 million. Net profit after tax was up 85% to $271 million after some one-offs from carried forward tax losses of AUD86 million bolstered the bottom line.

    Ms Coates said margins in the building products division had lifted to 14.1% from 12%. The federal government's Homebuilder program had been an important catalyst in lifting demand. Applicants who sign a contract under that scheme have to commence building work within 18 months.

    The company is expanding capacity at its PGH bricks operations at Oxley in Queensland, adding an extra 10 million bricks a year. Ms Coates said her strategy of centralising logistics functions was paying off, particularly at a time when there were shortages of truck drivers in the industry. Deliveries were more efficient and better able to adapt to supply chain congestion.

  • Sources: Australian Financial Review, The Australian and Wall Street Journal
  • companies

    2022 HBT Conference: the next normal

    Is path-to-purchase the next retail strategy for independents?

    With the pandemic less of a concern, but macro-economic changes looming on the horizon, members at the HBT Conference were looking at the "next normal" - where retail is set to move during FY2022/23.

  • This article can be read as a HNN Briefing PDF. To read the PDF, please download by clicking the image/link below.
  • Download hnn-brief-007

    Annual events held by hardware retail buying groups often feel something like a mix between an exercise bootcamp and several hard days at the information dojo. That is to say, they are a combination of delight, and what feels somewhat like a mild but persistent percussive experience.

    At least, that's when they "work". And the 2022 Conference for the Hardware & Building Traders (HBT), held in early May 2022 at the Gold Coast Conference & Exhibition Centre certainly did work.

    HBT events can end up being like workshops that deal with many issues related to managing effectively as an independent retailer. As a result, what gets workshopped at them can, ultimately, effect the entire industry, spreading beyond HBT to other buying groups.

    It is certainly the case that while other industry groups might have more revenue, more stores, more members (and, certainly, equivalent passion), there is nowhere else in the industry that generates quite as many ideas.

    One consequence of this is that while the organisers of an HBT conference might have a particular direction for a conference in mind, in the end it is the community that attends the conference which really decides what happens, and what the conference is going to actually be about.

    Inside the workshop

    HNN will provide more comprehensive Conference coverage in our next edition of HI News. We wanted, however, to start by taking a closer look at that "about" - which at the 2022 Conference has proved to be complex.

    Some of that complexity is due to purely external reasons. After going through a difficult two years of COVID-19, Australia has, for the moment, put aside much of its pandemic caution - though the infection rates remain high enough to still be of extreme concern.

    Added to that is a high inflation environment, which is bringing on, as a direct result, higher interest rates - set to break through 2.0% in FY2022/23. The big question that looms over hardware retail is whether the next two years - as property markets contract - will see a retreat back to, say, 2018 levels of revenue, or if the 2021 levels of revenue will continue.

    The reality is, at least for the rest of 2022, and likely much of 2023 as well, that the industry faces a period of real uncertainty. It's just impossible to forecast with any real accuracy what happens next.

    The next normal

    One way that retail analysts have of defining this current era is to refer to it as the "next normal" - a play on the earlier concept from 2020 that dealing with COVID-19 as a part of business processes was the "new normal".

    Faced with that uncertainty, it's good to remember that one of the basic principles of retail is that when there is a lack of clear forecasts, the best thing to do is to go back to operational basics.

    For hardware retailers that means reinvesting some of the gains over the past two years in better efficiencies. In management terms, it's all about deploying capital now to increase earnings potential later.

    The beauty of using efficiency as a strategy is that the correct kind of capital investment will continue to increase earnings in both a down market and an up market. That's in sharp contrast to the alternatives, business expansion or business contraction, which depend on accurate forecasts for positive results.

    Which brings up the next question: what does efficiency and best practices really mean in 2022? Because the answer today is likely to be quite different to the answer from 2018.

    The next path

    Outside of factors largely external to the hardware retail industry, there are also factors internal to it as well at work. The past decade for all hardware buying groups has largely been about catching up to the industry behemoth, Bunnings, in terms of both pricing and range.

    Bunnings still does hold a distinct advantage, but that decade of hard work has brought independent hardware retailers close enough that they can bridge the gap through other means. The task has now shifted - partially, at least - to working out how to better utilise the unique features of independent retailers to not just resist the ongoing expansion of Bunnings, but to at least equal it. The prospect of real growth for independents is clearly within reach.

    For HBT - and independents in general - FY2022/23 will see their retailers really coming to grips with what the next part of this struggle is going to look like.

    The difficulty that buying groups now face is one of strategy. The problem in developing that strategy is familiar to many industries. It's often said that military generals tend to fight the current war with the strategies and tactics that won them the previous war - not always to good effect. Businesses often do the same thing, and use prior successful strategies for new tasks to which they are not suited.

    Driven by HBT CEO Greg Benstead and buying group general manager Jody Vella, there were two core strategies that HBT employed to hold its own in the pricing struggle. The first was to regard the whole supply side of hardware retail as a holistic entity, one where it was possible for both retailers and suppliers to win, through new efficiencies, and concentrating on growing the available market.

    The second was to understand that most "wins" were going to be small and incremental. It wasn't necessary to make broad, sweeping deals. If you could piece together just a dozen or 20 smaller "wins", the result would be almost as good.

    As beneficial and smart as that strategy has been, it's possible that other techniques will work better in the next phase of development. In very broad terms, this is because the price breakthrough phase of development was about achieving strategy cohesion in a widely disparate group.

    The coming phase is really about helping individual retailers achieve success by drawing on their unique talents, unique store locations, and unique market positions.

    A different future

    Reviewing everything we were told by both HBT members and the many suppliers at the 2022 Conference, HNN really did find there was a core to what people were discussing, a central issue that was getting workshopped. That central concern, HNN would suggest, is something that has come to be called in recent years the "path-to-purchase".

    Not that path-to-purchase was directly mentioned by anyone, but putting together all the comments and opinions voiced at the conference, this was what emerged.

    For hardware retailers, path-to-purchase has two components. The first is the connection that customers feel to a particular store. The second is the "journey" customers undertake in arriving at the decision to buy a product from a retailer through the utilisation of different information and transactional channels.

    The advantage of thinking about path-to-purchase is that it delineates a really clear objective for independent retailers. That objective is, very simply, to be considered as a reasonable option for any hardware purchase being made - paint, a new deck, kitchen or bathroom renovation, or simply buying batteries for a flashlight.

    Win or lose the sale, independents need to own a part of the path-to-purchase to just remain in contention.

    Path-to-purchase background

    Path-to-purchase has something of a harried history to it. Largely, there has been considerable confusion between what we might regard as over-arching conceptual models, and more specific models, which relate either to product categories or narrow cohorts of customers.

    Conceptual path-to-purchase

    Virtually every management consultancy, from McKinsey to PwC, has its own path-to-purchase diagram - and most of these are, at best, inadequate.

    For example, one of the most common conceptual models is represented by this diagram:

    While this is convenient, and somewhat comforting, it's more of a "hoped-for" model than anything that relates to how consumers buy things today. At its basis, it relies on what marketers refer to as "AIDA", which refers to attention, interest, desire, action, a well-known framework for modelling customer behaviour. The primary problem with AIDA, as many commentators have pointed out, is that it is exceptionally linear - as is the diagrammed model.

    A better conceptual model is provided by UK-based marketing strategist James Hankins, known as the "Hankins Hexagon".

    Commenting on this model, Mr Hankins has this to say:

    So, what does that mean? Well, simply put, a person can make their own way from A to Z any way they choose. In reality there are very few 'fixed' pathways and most are two-way (feedback loops and changes of mind). This model posits that an individual can start wherever and eventually make their own way to purchase, that is if they do buy in the end because not everyone always gets there.

    The core mechanism that's identified is the formation of "long lists" of possibilities, followed by the formation of "short lists" through a process of comparisons. What has largely changed in the modern, information-rich environment is that where in the past short lists were focused on rankings by sets of requirements (price, longevity, suitability to particular purposes), today short lists are often based on sources of recommendations (friends, influencers, Amazon reviews, YouTube reviews, etc.).

    Developing these initial short lists typically leads to the creation of a "meta short list", which doesn't list products, but rather the requirements the consumer has developed for the products. This is then reapplied to the "long list" of potential purchases, resulting in a final short list, and a final decision is made.

    Specific path-to-purchase

    Abstract models are good, but they only fulfil their function when they are combined with less-abstract, research-based insights into consumer behaviour.

    Some of the most outstanding work on path-to-purchase in the hardware-home improvement area was undertaken by Kingfisher in the UK and European Union during the 2010s. One of the areas studied by the retail conglomerate was bathroom renovation, resulting in the following diagram:

    Of the 28 steps, the first eight would seem of primary importance to hardware retailers. However the other 20 steps are also important. That's not only because they contribute to customer satisfaction, and hence ongoing loyalty, but because in making a purchase, the DIY customer needs to be able to conceive of the next 20 steps. The imagined completion of the project is, in other words, a key part of any purchase made.

    Why path-to-purchase is important now

    The surge in hardware retail revenue for independent stores during the two pandemic years has triggered hopes that at least some of this will continue. What actually happened during the pandemic years was less - as many seem to hope - a relocation by consumers, as a "delocation". That is to say that consumers were dislodged from some of the major retailers - such as Bunnings and the supermarket chains - but this doesn't mean they were automatically "re-homed" to smaller, local retailers.

    That is particularly the case as the majority of consumers today start their path-to-purchase by doing research online. The proportions of online-first research various studies have determined range from 53% (Google) up to 81% (MineWhat.com). Conservatively, though, for hardware, it's likely to be around 60% to 65%.

    One really difficult fact to bear about this is that probably 80% of initial or secondary searches made by DIY customers will go through the Bunnings website. That's largely a matter of setting price expectations, as well as checking availability.

    However - fortunately for independent retailers - the Bunnings website is somewhat lacking when it comes to the level of product information presented. This opens up opportunities for independent retailers.

    Not only might independents attract consumer attention with their own information provision, but consumers will be motivated to continue their research in-store. It is possible for independents to participate in post-research path-to-purchase more effectively than in primary research. That does mean making an adjustment for dealing with more informed consumers, further along in making their choices.

    Post pandemic path-to-purchase

    In outlining how that might work, it's best to start with some of the efforts that suppliers are taking. In overview, what each of the suppliers we spoke to managed to do with their products was to really understand how customers approached their products, and how they put them to use in their trade work or DIY tasks.

    These examples illustrate three different techniques: providing depth; convenience and informational diversion; and overcoming the assumed problems.

    Klingspor wire brushes

    When HNN spoke to him at the HBT Conference, managing director of Klingspor Australia, Paul Hoye, reported that the new line of wire brushes the company had released had been doing very well. In fact, Mr Hoye had played a part in encouraging Klingspor to develop the product line, and, as he expected, the Australian market had responded well to the new product.

    This is an example of one of the really important parts of path-to-purchase, because it relates to having a deeper understanding of what customers need. Wire brushes might not seem that exciting as a category, but for metal workers in general, and especially welders, they are really essential. For example, this extract from The Welder magazine illustrates just how complex this product line really is:

    When choosing a power brush, you have several knot styles, wire gauges, and trim length options. By changing one or more of these characteristics, you can fine-tune brush performance for a specific application. For example, stringer bead brushes have narrower knots twisted from base to tip, making them better suited to penetrate tighter spaces like corners, fillets, and root pass welds. Cable-twist brushes are also twisted to the tips but have a wider profile that can quickly cover more surface area for fill passes. Standard twist brushes flare at the end, providing an even wider footprint as well as additional conformability.
    The Welder magazine

    It's not only about answering a direct need of a customer, it's also about providing real differentiation. It looks like such a simple category, but for the target customers it's deep.

    Cowdroy insect screens

    If there is one product on the market that deserves a lot of attention, it is the innovative insect screens released by Cowdroy. It's not only a great product, but it really illustrates the role of path-to-purchase.

    That begins with Cowdroy realising that the "traditional" insect screens of the past were a disregarded, utility category that had a lot of potential to develop into a real feature for houses. As part of that, they also are a classic "upsell", a way to offer something pleasing and unexpected to customers.

    The screens include products that are designed to have as little visual impact as possible, to resist the wear and tear that pets produce, and even to help block out pollen and dust.

    Importantly, though, Cowdroy knew that it needed to "demonstrate" the screens effectively, and so developed a special mobile app to go along with the product line. That app enables customers to preview how the various screens on offer will alter the view through a window.

    In path-to-purchase terms, that's a technique known as "information diversion". It invites a consumer to go down a quite shallow "rabbit hole" of information. After downloading the app, and playing around with the different options that are available, how can they possibly go back to just plain, old ordinary flyscreens?

    The latest innovation that Cowdroy has brought to the line is to introduce packs of flyscreen in pre-cut lengths. HNN would guess that this development is based on customer research. Getting flyscreen cut from a roll can be one of those "difficult" moments in a hardware store - especially with staff shortages. Pre-cut lengths increase the likelihood a customer will complete the purchase immediately at the point of selection.

    That helps the customer make a fast and convenient choice - but it also reduces the real cost of selling the product for retailers, as less staff time is needed. It's perfect.

    Cement Australia Trade Mortar

    In talking with Cement Australia, HNN sometimes imagines the theme from Mission Impossible playing in the background: "Your mission, should you choose to accept it, is to sell a commodified product as something unique, highly valued and reliable."

    Yet the company does keep delivering on that tough task, and its Trade Mortar product is testament to this. Log onto any decent trade site, and you will find a lot of arguments about pre-mix versus self-mix when it comes to mortar. Surprisingly, though, most of those arguments aren't about cost, they are instead about the quality of the pre-mix. The complaints range from pre-mix being poor quality with too much sand, to just the "trowel feel" being wrong - not sticking well.

    Cement Australia targeted those precise complaints, and produced a product that is designed to help really busy tradies "smash out" their walls quickly and conveniently. It's easy to mix, which means apprentices can manage the process, and it provides the kind of consistency needed with colour contrasts.

    What is most significant about the hints of path-to-purchase thinking we see in the product innovations mentioned above is that the suppliers have considered the entire context of the purchase. Klingspor knows how important wire brushes are to welders. Cement Australia knows the problems tradies have experienced with pre-mix because they understand how their products are used to achieve an end result. Similarly, Cowdroy understands the frustrations of homeowners working on a project to refit flyscreens in spring. They've changed a utility purchase into genuine home improvement.

    Path-to-purchase for retailers

    Suppliers can, however, only solve a part of the path-to-purchase puzzle. In general, when it comes to path-to-purchase, suppliers concentrate on removing certain frustrations from the purchasing experience - a lack of different types of wire brushes, a pre-mix you can really rely on, flyscreen you don't have to find a sales associate to cut for you.

    Retailers can go further. That means having a good understanding of where customers are in their journey towards completing a project. And that, of course, means being able to conceive of what that project might be.

    This brings up one of the most long-running tensions in retail, which is how much stores should focus on project-orientation (bathroom/kitchen renovation for example) as opposed to displaying goods purely as categories (flooring and plumbing, etc.).

    For the majority of independent retailers, of course, there really is no option, as their stores are not large enough to support any kind of project display. One way around that, of course, is by providing a "virtual" project space on a website. In the US, this is what The Home Depot does. For example, it presents a range of different room designs, with a "Shop this room" button, which pulls up a list of products needed to achieve the "look" of the interior design photograph.

    While that gets around the problem of space limitations, it introduces other difficulties in terms of online capabilities.

    The virtual path-to-purchase

    When it comes to path-to-purchase for independent hardware retailers, the ultimate goal is to get included in the initial lists that are derived from online research. The best way to do that is to provide an information resource that will deliver a high score in terms of its search ranking through Google and other services.

    It's here that the nature of the next challenge really does come into focus. The difficulty is that no individual store has the resources (let alone the finances) to develop an online presence that could attract the attention needed - plus, of course, as they service a confined geographic area, achieving success across the broader internet is not really efficient.

    What is needed is a central source of information that is detailed and well-designed, and does provide a high level of exposure. That site could then offload site visitors to local independent hardware stores for the transactional part of the interaction.

    At the moment, however, there does not seem to be much possibility of that being achieved in the industry. Yet there are some suppliers who are working hard to step into that gap. Matt Haymes of Haymes Paints was kind enough to take some time during the busy tradeshow at the Conference to chat with HNN. He described how Haymes is working hard to develop an online presence to help consumers choose paints.

    It's clearly directed, he said, at boosting the sales of the independent retailers who stock Haymes. That's what independents have come to expect from Haymes, but it is also exceptionally generous.

    The task ahead

    Twelve years ago the task of catching up to Bunnings on price seemed almost unachievable. That led to some pretty desperate measures in the industry - most notably by Mitre 10, and its launch of the Mega stores in Australia.

    Despite the difficulties, that job did get done. Today we're facing the next very difficult tasks. They also look virtually impossible to achieve. But there is something of a track record there, that can serve to give one a sense of hope.

    What is most required, however, is an additional point of focus, and an understanding that it is time to develop and adopt a new winning approach to the Australian hardware retail market. We know that, as a resource, independent retailers can get to the point where they equal the growth rate of Bunnings. It really is a question of how best to access this pool of talent and potential.

  • This article can be read as a HNN Briefing PDF. To read the PDF, please download by clicking the image/link below.
  • Download hnn-brief-007

    retailers

    Big box update

    Bunnings Pymble store opens to the public

    Speculation about a Bunnings Healesville store, bodycams for staff, Bunnings Epsom on the market and Swan Hill outlet sold

    The new $80 million Pymble store - located in Sydney's upper north shore - looks different from the outside compared to more traditional Bunnings stores because of its uniquely shaped roof.

    It has a number of other distinctive architectural features such as coloured exterior glass and extensive landscaping with a boardwalk around part of the site. Brendan O'Hehir, Pymble complex manager told news.com.au:

    With its unique exterior design, it's unlike any other Bunnings in NSW.

    The Pymble store's unique architectural design was developed to suit the local area. It is the first store in NSW to have a newly laid-out paint department. There is also a kitchen design centre, bathroom displays and new look trade service area, a wider range of site safety and workwear products, as well as an aisle for transport and moving needs.

    In addition, it has familiar features including the main retail area, timber and building materials yard, and outdoor nursery. There are sustainability initiatives that will reduce the store's environmental impact, such as LED lighting throughout, energy efficient heating and cooling, on site water reuse and solar panels.

    The multi-level warehouse store spans more than 15,000sqm and has over 300 carparks. It replaces the smaller format store in Gordon, which has been serving the local community for more than 30 years and is the smallest Bunnings store in Australia. Mr O'Hehir said the team has received positive feedback from customers.

    Customers have been telling us they love the design and how nice and bright the store is, and they've really loving that they can get everything they need for their weekend projects so close to home.

    Bunnings Healesville?

    There have been hints on social media that Bunnings may be interested in opening a store in Healesville which is part of Melbourne's scenic Yarra Valley, approximately 52km north-east from the CBD.

    Although there are no current plans yet, it could be a possibility down the track. Bunnings area manager Craig Bleksley told Leader Newspapers (Lilydale and Yarra Valley):

    Healesville is an area of interest for Bunnings but we have no confirmed plans in place. We'll be sure to update the community should this change.

    It would be the first Bunnings to open in the Yarra Valley, with the closest stores in Lilydale and Croydon.

    Bodycam trial

    Three Bunnings stores are trialling body-worn cameras as a way to curb a rise in abuse directed at retail staff, according to The Courier-Mail.

    The move comes after a survey conducted by the retail workers union - Shop, Distributive and Allied Employees Association (SDA) - revealed 76% of participants reported customer behaviour worsened since the pandemic, and more than one in five participants personally experienced violent behaviour from customers including spitting or deliberate coughing.

    Bunnings chief operating officer Simon McDowell said it is crucial to do everything possible to discourage poor customer behaviour, and as a result had rolled out cameras to three stores across Australia.

    SDA Queensland secretary Chris Gazenbeek said he supported the use of the cameras, provided staff were properly trained and comfortable in wearing one. He told The Courier-Mail:

    [The cameras] support the reduction of violence experienced by retail and fast food staff as well as providing safety, reassurance and support during working hours.

    Australian Retailers Association chef executive Paul Zahra said that it was clear protocols surrounding coronavirus had led to a rise in worker abuse.

    We saw elevated levels of customer aggression when the most stringent COVID protocols were in place around check-in requirements, mask-wearing and showing proof of vaccination. Unfortunately, managing customer aggression has become a new skill for frontline workers.

    Bunnings Epsom

    The Bunnings Epsom store located in of Bendigo in central Victoria, has been placed on the market, according to The Bendigo Advertiser. Located on Midland Highway, the site is zoned for Commercial 2 and measures 27,010sqm including a 11,606sqm store.

    The site is expected to attract a high purchase price with other Bunnings sites selling for $65,300,000 (Nowra, NSW), $58,600,000 (Hervey Bay, QLD), $48,800,000 (Para West, SA) and $28,550,000 (Kempsey, NSW).

    The hardware store was built in 2015 and has a 12-year net lease (plus options) as well as fixed 3% annual rental increases and a net income of $1,606,000.

    The property is for sale through Stonebridge Property Group's Justin Dowers and Kevin Tong who are marketing the property in conjunction with Killen Thomas David Marks. Mr Dowers told The Bendigo Advertiser:

    We are continuing to see yields for these types of investments sharpen disproportionately to other asset sectors because of the exclusivity of the tenant and the quality of the lease.
    The market for Bunnings Warehouse investments has further improved over the last 12 months given how well they have performed in and out of lockdown restrictions.

    Adding to the potential for the site is the expected population growth in the Greater Bendigo region. Mr Tong said Greater Bendigo's population is forecast to grow at 1.54% each year from 2021 to 2036 which is more than the state forecast population growth rate of 0.91% each year.

    The growth in Bendigo is as strong, if not stronger than most metropolitan cities. Dwelling approvals, infrastructure investment and tourism help drive the City of Greater Bendigo to being the third largest city in Victoria.

    Mr Tong also said prospective purchasers would also benefit the 50% reduction in stamp duty for commercial properties bought across regional Victoria.

    That is going to be worth quite a significant amount of money especially given the total quantum at Bunnings Epsom.

    Bunnings Swan Hill

    A Bunnings store located in Swan Hill, near the New South Wales border, has sold for just over $18 million reflecting a 3.99% net passing yield.

    The property covers a 1.67 hectare Commercial 1 zoned site at 74 Nyah Road, with a 6666sqm warehouse attached to a nursery and 140 bay car park.

    Bunnings Swan Hill was sold by retired Adelaide doctor Prabhash Goel, who via an entity, Hawkers Property Group, paid $10.95 million at auction for the then new store in August 2015.

    The property is subject to the current lease expiring in seven years, with fixed annual 2.5% rises. With options, Bunnings as the tenant can stay until 2059.

    Rick Silberman, director of retail investments at Savills, negotiated the sale on behalf of Dr Goel. Mr Silberman said the location of the property in a growing regional hub further strengthened the investment case. He told the Australian Financial Review:

    The Swan Hill region has experienced significant growth over the past decade, led by the expansion of agricultural practices and supported by an innovative manufacturing sector.
    Swan Hill is the regional service centre to 38,000 people, supporting 9462 jobs and has an economic output of $2.964 billion.

    The nearest Bunnings is at Echuca, 155 kilometres away.

  • Sources: News.com.au, Leader Newspapers (Lilydale and Yarra Valley), The Courier-Mail, The Bendigo Advertiser, realestatesource.com and Australian Financial Review
  • bigbox

    Retail update: Temple & Webster

    Temple & Webster launches The Build website

    It wants to be a major digital presence for home renovators to buy products for DIY, renovation, and home improvement

    Online homewares and furniture retailer, Temple & Webster plans to bring its "expertise in e-commerce and the home" and broaden its reach to make The Build the "first-stop shop" for home renovation and home improvement in Australia. This will bring it into direct competition with Bunnings and Mitre 10.

    Chief executive Mark Coulter told the Australian Financial Review (AFR) that after building the largest e-commerce home furnishing player in the country, moving to DIY and home improvement was a logical step.

    Mr Coulter believes there is an opportunity for the online retailer to maximise share of spend in the home and realise synergies with its core furniture and homewares business. The home renovation market will also be counter cyclical to the housing market, namely moving versus renovating. He said:

    I think the home improvement category or renovation category is a natural extension for Temple & Webster, we are already famous for the home and we've built the largest e-commerce business in furnishings and homewares.
    I think moving from the loose furnishings to what is attached to the wall and floor feels like a very natural extension, and we are already seen as a place to come to make your house beautiful so why not do the whole room.
    Bunnings and Mitre 10 are great retailers. Bunnings has done an amazing job to educate Australians about the benefits of DIY, renovating your place or doing design jobs - big or small. The market is very big.
    It's still growing. There's definitely room for an online-only player which has the breadth of what we're planning across multiple categories to really be that first-stop shop, and really provide customers with the convenience and value that the online channel has over stores.

    The Build's initial range will have more than 20,000 products across 39 categories. These include bathroom fixtures such as vanities, toilets, sinks and tapware; kitchen fixtures such as cupboards, sinks and taps; indoor and outdoor lighting fixtures; ceiling fans, blinds and curtains; and wallpaper.

    New categories such as flooring and tiling, outdoor living and landscaping, tools and building-renovation equipment will be added in the coming months.

    Mr Coulter also believes Australian shoppers would begin to gravitate to shopping more online for home renovation and project products, with millennials especially more open to shopping for home improvement on their laptops and smartphones.

    We have already seen that overseas. If you look at the US and UK it is already following a similar adoption curve to furnishings and homewares where people, millennials are growing up and buying homes or renovating homes, they're turning to these channels and as we have always said online offers convenience and value - and that is a compelling proposition.
    I think it is very similar dynamics, in some respects one could argue that dynamics for home improvement may actually be better than furnishings and homewares with the touch and feel for many categories is less important than for example a sofa.
    With more Australians shopping online than ever before, The Build by Temple & Webster meets the needs of today's digital-first shopper who prefers the convenience and ease of renovating online rather than the traditional renovation process of driving from showroom to showroom to source projects.

    The Build has been in the works for about eight months and the company has spent about $2 million getting ready to launch. The company plans to spend $10 million over this financial year and the next establishing The Build. Mr Coulter has not disclosed further ongoing investment costs but said it would be split out in future results. He was not concerned about launching the website despite an apparent shift back to bricks and mortar after two years of higher online spending with the lockdowns. He said:

    That underlying trend of the shift from offline to online is really driven by consumer preferences, which are independent of those macro factors. There may be a period of potential inflation or slowing year-on-year growth. However, that underlying trend of people wanting to shop online, that's not going anywhere.

    Supply chain

    The business runs a drop-shipping model, whereby products are sent directly to customers by suppliers. These ranges are complemented by a private labels sourced directly by Temple & Webster from overseas suppliers.

    Mr Coulter acknowledged it was "hard to know what happens with China" suppliers given the lockdowns and delays in the port of Shanghai, one of the world's busiest. However, he said Temple & Webster and The Build sites sourced from 100 factories in China and shipped from 10 different ports besides Shanghai's congested harbour.

    We're also increasingly diversifying our supplier base outside of China. So places like Malaysia, Vietnam and Philippines. We have such a big range and so many suppliers that if a particular supplier goes out of stock, there is substitution between suppliers and between products.

    Valuation

    Mr Coulter also said he has "stopped trying to understand the market many, many years ago" regarding the group's falling share price, which, along with other online players such as Kogan.com, had suffered steep declines on the sharemarket in recent months.

    Temple & Websters shares have declined in value more than 9% after the group reported a disappointing trading update that implied a large miss of market consensus earnings targets and slowdown in sales, according to The Australian.

    It suggests that shoppers are slowly but surely retreating from online shopping and that boomtime conditions enjoyed through the first two years of COVID-19 are coming to an end.

    The market for online improvement in Australia could be worth around $16 billion and the category was yet to make its mark online, with just 4% of DIY shopping happening online compared to around 25% in the UK, the company said.

    However investors were sceptical, and RBC Capital Markets analyst Wei-Weng Chen said the company's sales were tracking well below estimates. He said while the total addressable home improvement and renovation market is around $26 billion, and margin opportunity and online-penetration for the home improvement category looked attractive in the medium to longer term, the market could approach the launch of The Build with "an element of caution" given the current macro headwinds facing the Australian property market.

    The company will also face a tough job when competing directly against Bunnings which holds around 50% market share for home improvement in Australia.

    Perhaps in recognition of this, Temple & Webster said it doesn't expect The Build to make a material contribution to its overall sales and earnings for the first four years. However, it expects the long-term margins for the business will be better than its furniture and homewares category.

    The expansion into home improvement is a notable deviation for the online furniture retailer, which has established itself as a significant player in Australia's home goods market during the pandemic, thanks to a boom in demand for home office equipment such as desks and office chairs.

    However Mr Coulter sees the move has having enormous potential for the ASX-listed business as Australians are drawn to home improvement projects.

    Australia is a country of home renovators ... and we love making [our homes] more beautiful. We believe our expertise in ecommerce and the home will help make The Build become Australia's first-stop shop when it comes to renovating and redecorating.

    Related: Temple & Webster has been talking about its plan to challenge Bunnings in the home improvement sector for some time

    Online retailer Temple & Webster eyes home improvement - HI News November 2018, page 21
  • Sources: Motley Fool, The Australian, The Age and Australian Financial Review
  • retailers

    Supplier update: Adbri

    BGC still of interest as an acquisition for Adbri

    Perth-based BGC is up for sale through investment bank Macquarie Capital and PwC

    A number of market analysts believe ASX-listed building materials supplier Adbri may be keen to buy BGC's concrete plants and quarries, according to a report by DataRoom in The Australian. However it would be unable to acquire its cement facilities due to objections from the Australian Competition and Consumer Commission.

    Adbri chief executive Nick Miller recently told investors at the Macquarie Australia Conference that parts of BGC remained of interest to the company.

    Adbri is Australia's largest lime producer and concrete masonry products supplier and holds the number two position in the cement and clinker market to the construction sector. It is the fourth largest concrete and aggregates producer in Australia, according to The Australian.

    BGC's No. 1 market positions in Western Australian cement, bricks and building homes are the focus of an eight-point sales pitch by its bankers at Macquarie Capital (MacCap), according to the Australian Financial Review (AFR).

    In a detailed document sent to potential buyers, MacCap's bankers said BGC had 47% of WA's cement market and was the only player with a vertically integrated quarry, cement and concrete value chain.

    In bricks, the bankers said BGC's Midland Brick had 80% of the market and 83% of WA pavers, and it built 16% of new homes, which made it No. 1 in WA and one of the largest home builders in Australia.

    MacCap said BGC was making about $1 billion revenue and $100 million in earnings before interest, tax, depreciation and amortisation, with group earnings skewed towards BGC's cementitious (quarries, cement, concrete, asphalt) and bricks and masonry arms.

    BGC is seen as a complex, eclectic business where operations are interrelated. While some suitors would shy away from those operations, others say that such businesses of scale in the west are rarely on the market and would be seen as a valuable opportunity for certain buyers.

    Sources have told DataRoom that Knauf would be the obvious buyer of the plasterboard operations after buying Boral's plasterboard business on Australia's east coast.

    In addition to global buyout firms, other parties exploring a BGC acquisition are believed to be Boral, while some believe that Holcim, Cement Australia and HeidelbergCement will likely form a consortium to bid for the assets. (Holcim and Heidelberg are Cement Australia's shareholders.)

    Interested parties said they were told there would be an indicative bid round in June, with shortlisted groups to get further diligence materials soon after, according to the AFR.

    BGC's shareholders are understood to be keen to sell in full, which may mean buyers interested in different parts of the group form consortiums to get a transaction over the line.

    There is speculation that BGC could fetch more than $1 billion based on early expectations.

    Related

    BGC back on the market - HNN Flash #89, April 2022
  • Sources: The Australian and Australian Financial Review
  • companies

    Retail update

    Bowens buys site in outer Melbourne

    Not-for-profit organisation Habitat for Humanity has set up a retail outlet in Adelaide to help cut the cost of building materials

    Bowens has purchased a 4.9 hectare block at Cobblebank, a developing suburb in the City of Melton, located around 31km west of Melbourne's CBD, according to realestatesource.com.au.

    There are plans for an outlet and distribution centre to be built on the site to service the north west region, as part of Bowens' expansion in Victoria.

    The hardware and building supplies group is paying $12.32 million for the former Melton City Council controlled parcel at 27-39 Abey Road, near the Ferris Road exit of the Western Freeway. In realestatesource.com.au, Bowens chief investment officer, Andy Bowen said:

    As a market leader in the building supplies industry, Bowens is committed to supplying the best quality products and advice to builders and trades alike especially in areas where it is most need.

    The Cobblebank property is close to the 13ha Melton South site which the state government acquired from the Catholic Church last year with plans to develop the 24-hour Melton Hospital. It is also about 500 metres from the Cobblebank train station, which opened in 2019.

    Related

    Expansion plans for Bowens - HNN Flash #92, April 2022

    ReStore

    Habitat for Humanity has opened a ReStore outlet in Adelaide offering builders and home owners an opportunity to buy materials at lower prices, all donated by building companies, home improvement businesses and individuals.

    The goods, including paving and landscaping materials, tiles, flooring, bathroom fittings, lighting, and door hardware will generally be offered at around half the usual retail price. Slightly used home furniture items will also be available.

    The first of its kind in the state and 15 years in planning, ReStore will be owned and operated by Habitat for Humanity, a not-for-profit organisation that builds homes and apartments for low-income families, disadvantaged communities and homeless youth.

    Habitat for Humanity executive officer Louise Hay said the retail venture would meet a key need for people building, or setting up, a house while being benefitting the environment.

    ReStore will sell building materials that may be left over after a major construction job. These surplus materials, which are brand new, often end up in landfill because builders don't have the time to find another home for them.

    Funds raised through the store will be used to support Habitat for Humanity's projects in South Australia that includes a small-scale home building program, a home maintenance program and disaster recovery work. Volunteers also worked for 18 months cleaning up properties in the Adelaide Hills after the devastating bushfires in 2019-20.

    Habitat for Humanity has already built more than 40 homes and apartments in South Australia for people struggling with shelter or experiencing homelessness.

  • Sources: Realestatesource.com.au, Australian Associated Press and Glam Adelaide
  • retailers

    Supplier update: Alpine Truss

    Celebrating 20th anniversary

    The company was established in 2002 and now employs 130 people and is one of the biggest employers in Wangaratta (VIC)

    When Alpine Truss launched in March 2002, it did so with only a handful of staff. The company, which is celebrating its 20th year in business, now employs 130 people and is one of the biggest employers in Wangaratta.

    Prior to establishing Alpine Truss, director Chris Vafiadis and managing director George Prothero were employees at one of the largest frame and truss manufacturers in Australia. The pair were with the company for approximately 25 years. At the time, with Mr Vafiadis worked from Melbourne and Mr Prothero was in Benalla as the Victorian state manager. Mr Prothero told the Wangaratta Chronicle:

    We were extremely lucky that when we decided to start Alpine Truss we were able to source the site we have now in Tone Road. Originally on five acres, we have since purchased the two acre adjoining property to enable the business to grow and a further 18 acres, which we have built a warehouse on for storage of raw materials.

    The Wangaratta office, located at the manufacturing facility, services regional clients while supporting major project builders in Melbourne and southern New South Wales. It also has a sales and technical office based in Epping to provide assistance to their metropolitan-based clients. Mr Prothero said:

    When we decided to ... start our own business, which my wife Belinda was an integral part of its growth and success, we were also lucky enough that some of my key design and production staff from the Benalla operation took a major gamble and joined Alpine Truss.

    He said he is extremely grateful for all the support that customers had placed in the company over the years, especially in the beginning.

    We're very grateful for the local businesses, including North East Fasteners, Wang Bearings, STY and Merriwa Industries, that backed us 20 years ago.

    The timber shortage has put a planned expansion on the backburner temporarily but Mr Prothero said that it will continue to enhance its facilities and upgrade equipment.

    Our biggest issue is timber supply, but more so lack of staff and the rental crisis is not helping us in being able to employ people who need to relocate.

    The company is a licensed Mitek manufacturer of pre-fabricated timber roof trusses, wall frames and Posi-strut flooring systems. Being manufactured to size eliminates wastage and the need to trim on site, as well as save labour on site. Alpine Truss also supplies particle board flooring, which can be delivered at the same time as the floor systems.

    Mr Prothero said its products are designed in accordance with the relevant Australian Standards and manufactured from renewable sources of structural graded pine. All products can incorporate H2F termite resistant pine that comes with a 25 year guarantee.

  • Source: Wangaratta Chronicle
  • companies

    ABS Building Approval Renovation stats

    What happens next?

    Viewing the building approval stats shows how in states such as NSW, VIC, QLD and SA the pandemic boosted the value of building approvals

    What happens next in Australia's housing market - and hence in the construction market - is the key question every forecaster wants to answer.

    That is particularly a key question when it comes to renovations - referred to by the Australian Bureau of Statistics (ABS) as "alterations & additions" (alt-adds). Many hardware retailers rely on expenditure in the alt-adds category more than in the new buildings category for revenue.

    It's a difficult question to tackle, mainly because the two-year period between March 2020 (when the COVID-19 pandemic began) and February 2022 (the most recent statistical period) saw the housing market follow highly unusual patterns. This is especially the case with the ABS stats for building approvals, which we are examining in this article.

    At the moment, forecasters are trying to work out to what extent the market will be exceptional during calendar 2022, and how fast underlying, long-established market patterns (such as seasonality) will begin to reassert themselves.

    For example, in most of Australia's states and territories, the long-established patterns for January and February (which consist of a sharp decline in January followed by a moderately sharp increase in February) do appear to have continued to exert a strong influence. However, what happens in December does not, for many states and territories, follow any kind of pre-existing pattern.

    As that analysis indicates, one thing HNN has changed for this period is the kind of charts we're using to better understand the stats. Without set patterns, we've found the best charts are typically those that layout 12-month periods on a monthly basis so that it is easier to compare year-on-year results.

    It's also the case that the pandemic has affected each state and territory in a unique way, which means that overall Australia-wide stats have less relevance to retailers. So in the analysis that follows we adopt a state-by-state approach.

    With the most recent stats available ending in February 2022, we're using 12-month periods that end in February. So the period from March 2020 to February 2021, for example, we will refer to as p2021, using the ending year in the reference.

    New South Wales

    Arguably the first break from the standard pattern for approvals began in November 2020 for New South Wales (NSW), though the value of building approvals in both September and October 2020 equalled or exceeded previous highs.

    Then in January 2021 the value of approvals went below that for January 2020. However, February 2021 saw the first really sharp spike upwards, followed by abnormally high values through to November 2021, followed by an incredibly high value of $410 million in December 2021.

    To put that in perspective, the nearest high to that was the figure of $329 million in February 2021, and prior to the pandemic, the highest monthly number was $324 million in March 2017. For p2022 total building approvals were worth over $4 billion, up from less than $3 billion in p2021.

    The real question is what to make of the values for February 2022, with building approvals totalling $312 million lodged. That's below the February 2021 value of $329 million, but far above the next highest February number of $259 million in 2016.

    Victoria

    For Victoria (VIC) p2022 was close in total value to that of NSW, coming in at just under $4 billion, while p2021 for VIC was about $50 million less than for NSW, at $2.92 billion.

    Values of building approvals during p2021 were actually relatively subdued in VIC. If the high values at either end of the period, for March 2020 and February 2021, are excluded, the total value of approvals over the remaining 10 months was just 2.2% up on those for the same 10 months in p2019.

    The way in which VIC got to the high number for p2022 was very different from NSW. The peak for VIC was in August 2021, with a secondary peak in March 2021. December 2021 was still up considerably on both December 2020 and December 2019, but nowhere near the peak achieved in NSW. The drop in January 2022 was shallower than in NSW, and the sharp gain in February 2022 was a little higher.

    Queensland

    The trajectory of the value of alt-adds building approvals in Queensland (QLD) is also unique. Unlike NSW and VIC, the lift in value starts very early, in June 2020, reaches its peak in February and March 2021, peaks again in August 2021, then remains elevated but declines through to December 2021. In January and February 2022 the levels return to be in line with those for p2020 and p2019.

    Value of building approvals reached $2.6 billion in p2022, up from $2.3 billion in p2021, and $1.8 billion in p2020.

    One way of reading these trends is that the state received a strong stimulus through to August 2021, and since then has been converging back to the historical trends.

    South Australia

    In South Australia (SA) the pandemic stimulus to alt-adds approvals seems to start in November 2020. One of its first effects, which continued from p2021 to p2022 was that values for December, which typically sees a fall from a moderate peak in November, were elevated, followed by a steep fall in January, and steep recovery for February.

    The three major peaks in values took place in May 2021, September 2021, and February 2022. Total value for p2022 was $605 million, $477 million for p2021, and $424 million for p2020.

    Western Australia

    As the one Australia state that was relatively unaffected by the COVID-19 pandemic, alt-adds values were relatively contained during both p2022 and p2021.

    There was a significant increase in February 2021, and elevated levels continued through until September 2021, with, arguably, elevated levels also for December in both 2020 and 2021. However, the values have returned to follow long-term trend patterns since October 2021.

    Total value in approvals was $737 million for p2022, $616 million in p2021 and $542 million in p2020. It's worth noting that p2016 recorded total value of approvals at $715 million.

    Tasmania

    As with other smaller regions in Australia, the value of building approvals tends to be more volatile in Tasmania (TAS). Nonetheless, there is some evident stimulus based on the pandemic.

    Identifiable stimulus probably started in September 2020, and continued through to February 2022, though December 2021 saw a low in line with past trends.

    Total value of approvals for p2022 was $186 million, for p2021 it was $159 million and p2020 was $133 million. The two major peaks were reached in March and May 2021, at $19.9 million and $19.4 million respectively.

    Northern Territory

    The Northern Territory (NT) shows next to no stimulus due to the pandemic. The only two months that might show stimulus are June and November 2021, but these are within the range to be the result of other causes.

    Total building approval value for p2022 was $111 million, for p2021 it was $99 million, and for p2020 it was $131 million.

    Australian Capital Territory

    The Australian Capital Territory (ACT) is highly unusual in that there is a moderately strong stimulus during p2021, but only a very mild stimulus evident in March and January for p2022.

    The p2021 stimulus ran from July through to February, but with drops to a close to historical range for both October 2020 and January 2021. Total value of building approvals for p2022 was $106 million, for p2021 it was $149 million, and for p2020 it was $144 million.

    Analysis

    The housing market has long been thought to see new construction boost hardware sales during housing market booms, and renovations boost hardware sales during times of housing market busts. The markets which the COVID-19 pandemic gave rise to have led to extreme activity in the housing market, and this seems to have boosted demand in the alt-adds market as well.

    Partly that is simply because the nature of the pandemic - and the reality or threat of lock-downs where families were confined to their homes - increased demand for more interior space, and better exterior spaces. Also, with house prices increasing, more families found it made sense to renovate where they lived - which added to their dwelling's amenity, but also increased the value of the residence.

    Looking to the future, there are multiple questions as to the future of the housing and construction markets. One major factor is how much impact an increase in interest rates will have. With inflation hitting a high in March 2022, rates are now forecast to being increasing in May 2022 - a big revision from the Reserve Bank of Australia's previous position that they would increase near the end of 2023. It seems likely now that rates of 3.0% are likely during calendar 2023.

    Equally important is the actual role of inflation, which will impose its own restrictions on spending. The three-way combination of inflation, rising interest rates and sub-par increases in wages could see the Australian economy under stress by the end of 2022.

    This combination will not only likely see market prices for dwellings decrease, but also homeowners will find budgets stretched to the extent that they are likely to cut back on renovations as well. Thus we could see a market move from a boom in both dwelling construction and renovations, to bust in both areas.

    From a longer term perspective, the question that lingers is whether the pandemic has permanently altered how Australians regard their homes, or whether the concentration of wealth and investment in houses will diminish by the end of 2023.

    In terms of the short term, the most likely outcome will be in FY2022/23 for renovations to revert in NSW, VIC, QLD and SA back to the level they held back in FY2018/19, which is to say somewhat below the average levels of between FY2014/15 and FY2019/20.

    In WA, there may well be a belated increase in alt-adds approval values, as the resources market continues to increase in value over the coming financial year.

    For TAS, NT and ACT it's likely that highly local factors will continue to influence their building approval values.

    In a broader, macro sense, however, it is likely that FY2022/23 will see the beginning of a push to re-imagine how the capital cities manage building zoning and restrictions. The high levels of the property markets, the ongoing lift in the price of even entry-level housing are clear signals that cities need to evolve and change to meet the needs of a changing society.

    statistics

    Big box update

    Bunnings targets market for small to medium builders

    A NSW planning panel defers its decision on the proposed Bunnings store development in Tempe

    Bunnings plans to expand its footprint of frame and truss plants that fabricate and supply timber materials for framing houses. The hardware retailer said it will roll out its new plants over the next 12 to 18 months.

    In an exclusive report in The Australian, Ben McIntosh, Bunnings chief operating officer - commercial, said the additional frame and truss plants would help it service more builders as they planned and executed home building projects.

    We are excited to be expanding our participation in this market, improving our offer and working with even more customers to provide solutions for their projects, end to end.
    The expansion plans form part of our wider commercial strategy as we continue to be a trusted partner to builders, from the moment they are planning a build, right through to the fitout.

    Bunnings may be setting itself up as a major supplier of frames and trusses to home builders, according to The Australian. The thinking is that while builders pick up their home frames and trusses from a Bunnings site, and use their Bunnings trade account, they will be more amenable to buying other building materials that go to constructing their homes, such as fibre cement, doors, plaster, tiles and other building materials.

    Builders and other trades typically have a long shopping list of items they need to buy when constructing a home, and this could help lift sales across the Bunnings group of businesses including Beaumont Tiles. Bunnings' popular "Powerpass" program offers verified trade customers exclusive prices and deals.

    The customer for Bunnings' frames and trusses business will predominantly be a residential builder that has steady volumes of work in the medium-density residential market, typically less than three storeys. It could also be attractive to owner-builders.

    Manufacturing plants

    Bunnings has operated frame and truss plants in Australia for over 20 years. The operations have been a "quiet achiever" for the group, which now views the building materials category as one with growth opportunities.

    The hardware retailer currently operates three frame and truss sites in Australia - at Warnervale and Unanderra in NSW and Hallam in Victoria. This network of frame and truss plants supplies materials in the pre-fabrication of roof trusses, floor trusses and wall frames. The frame and truss team also provide service and advice, including quoting, estimating and detailing for both small and large scale projects.

    It is understood that the hardware retailer is scoping out land and exploring plans to establish as many as three more manufacturing sites. Building industry insiders told The Australian that Bunnings is searching for a site for a new frame and truss facility in Melbourne, another in Brisbane and potentially more in NSW.

    The use of pre-fabricated frames and trusses, to be pumped out by the growing network of Bunnings plants, should dramatically speed up the process on site, as the wall panels and trusses are simply erected as opposed to being constructed cut and nailed on site.

    Frames and trusses can be constructed with timber or steel, with timber the predominant material used across Australia.

    The expansion plans come at a time when many within the building industry are growing increasingly concerned about a new wave of building material shortages, especially timber used for building frames.

    The frame and truss plants give Bunnings a more secure access to core building materials when global supply chains are facing bottlenecks and major delays caused by the COVID-19 pandemic and the war in the Ukraine. The war between Russia and the Ukraine could disrupt supplies and increase prices substantially.

    The Australian construction industry was also left highly exposed to key building material shortages during the COVID-19 pandemic - namely wooden frames and trusses.

    Although supply bottlenecks have improved somewhat in the last few months, many parts of Australia are still in desperate need of timely frames and trusses with some parts of regional Australia waiting as long as four months for frames and nine months for trusses, according to The Australian

    Related

    Building materials cost and supply concerns continue around the country.

    Bunnings tells MBAV supply issues critical - HNN Flash #66, October 2021

    A ban on Russian timber.

    Bunnings bans Russian timber - HNN Flash #88, April 2022

    Tempe store

    Sydney's Inner West councillors have unanimously supported a motion to conduct an independent risk assessment and feasibility review of proposed traffic lights near the site of the proposed Bunnings store in Tempe.

    In passing a motion moved by councillor Mat Howard at a meeting, council resolved to "determine if safety and network impacts previously raised by Transport for NSW could be effectively mitigated", according to the Inner West Independent.

    The Sydney Eastern Planning Panel announced a deferral of their determination on the traffic plan modifications that would give way to construction of the store. In a statement, the panel said:

    The panel considers the matter should be deferred to allow the necessary processes to occur and for a supplementary assessment report to be completed and referred back to the panel for determination in a timely manner.

    It comes after a sustained community campaign by local residents as well as parents and students at the nearby Tempe Public School, who convened the "Safe Traffic Plan for Tempe Bunnings" group.

    The group has previously called for NSW Metropolitan Roads Minister Natalie Ward to visit the proposed site, which residents say is dangerous because of the increased traffic that the new Bunnings store would bring to its narrow streets.

    The group received the support of several councillors, including Cr Howard, Cr Justine Langford and mayor Darcy Byrne. Cr Howard said prior to the panel's decision:

    We're now calling on the Planning Panel to give us the chance to do this important work and then make a decision based on all the facts.

    The background to the motion affirms council's support for the residents' campaign and states that, at the start of March, Transport for NSW acknowledged the pressing safety concerns in a letter to residents.

    Transport for NSW acknowledged significant concerns of residents, Tempe Public School and the community, stating they would support further risk assessment to be undertaken by Bunnings or Council of the Princes Highway access and a feasibility review of traffic lights to determine if the safety and network impacts could be effectively mitigated.
  • Sources: The Australian, 9 News and Inner West Independent
  • bigbox

    Retail update

    Bowens in expansion mode

    The site where the Taits Mitre 10 store is situated in the Melbourne suburb of Glen Iris has quietly changed hands

    Hardware and building materials group Bowens said it will spend $50 million on growing its store network in Victoria, according to an exclusive report in The Age and The Sydney Morning Herald.

    Bowens already operates 16 stores in Victoria, and will open three new sites in the state as well as revamp another four in a move that is a direct response to the current post-COVID construction upturn. The company's director and chief investment officer Andy Bowen told The Age and The Sydney Morning Herald:

    If we had three, four, five more stores open right now they would be just as busy as our other 16. We need more stores to meet the demand that's in the market now.
    Now it's not always going to be this busy, it's a perfect storm in terms of government grants and post-COVID recovery that's led us down this path, but we think the demand in housing and construction is going to be pretty consistent for the next 30 to 40 years...
    This word's been used to death, but it really is unprecedented volume. There's massive demand for building materials, and coupled with supply constraints on top of that, it just means our industry is being challenged. It's just so busy, we've never seen it like this before.

    Mr Bowen said the construction industry has been far from exempt from rising prices such as inflation which has risen 5.1% in the past year based on recent data from the Australian Bureau of Statistics.

    He said building supplies have risen consistently by "high single digits" in recent months. This has caused an increase in the cost of new builds - both residential and commercial. Mr Bowen said the cost of building its new store in Hastings (VIC) had increased by around 15% after a delay in construction caused material costs to rise.

    Bowens is targeting Warragul, Cheltenham and Melton for its new sites, with the hardware executive saying the company sometimes takes cues from Bunnings on where the best locations are for new expansion opportunities.

    Bunnings has been making a number of acquisitions and strategic moves in an effort to grow its trade-focused offerings, which is Bowens' bread and butter. However, Mr Bowen said the business has not been approached by the hardware giant with a potential buyout offer, and probably wouldn't be interested anyway.

    We love being a family-owned business and an independent business, and we want Bowens to stay that way.

    In a profile in The Australian, CEO John Bowen said that private ownership is important to the staff.

    There are plenty that have been there for 20 years-plus. I'm fiercely independent. It is a shame how many businesses are being swallowed up by big box players.

    The fourth-generation family-owned Bowens is considered a market leader in supplying quality timber and building supplies throughout Melbourne and regional Victoria. For the past 11 years Bowens has also owned Timbertruss, one of the largest prefabrication timber manufacturers in the country, which employs staff in Victoria and Queensland.

    During the pandemic Bowens continued to invest in its operations, including a new prefabrication plant, showroom and a new timber yard in Geelong. John Bowen told The Australian:

    You've got to keep investing. Independent businesses can't just stand up and say 'We are family-owned and independent so therefore people should walk in and buy from us'.
    We need to keep rebuilding our stores, investing in them and making sure the product that they stock is relevant, rather than just resting on the laurels of 127 years." He said the firm will stick to its knitting, increasing its site footprint with new facilities and innovative products.

    He believes the Timbertruss plant at Geelong - which specialises in producing roof trusses and wall frames - is the most technically advanced in Australia.

    We are doing a few really exciting projects, not just walls, roof trusses or floor systems. We are doing some pre-finished panels for customers. Our version of next stage prefabrication, we're calling it.

    John Bowen also wants more women in what continues to be a male-dominated business. Last year, the company held its first women in trade event at its Port Melbourne showroom.

    Related

    Bowens invests in large scale solar rooftops - HNN Flash #79, January 2022

    Andy Bowen's focus has been establishing an e-commerce function for the business, mainly for the trade, but also increasingly for retail customers.

    Bowens has an ecommerce plan - HNN Flash #60, August 2021

    Mitre 10 real estate

    The site of the Tait Mitre 10 store in Glen Iris (VIC) is understood to have sold for over $30 million, according to a report in The Age. The deal reflects a land price of around $3453 a square metre.

    Buyer and vendor are not keen on any publicity, and agents declined to comment.

    Daylesford Mitre 10 has also been listed as a business for sale recently with advertisements appearing in Melbourne metropolitan and regional newspapers.

    Related

    The site at 15 Weir Street, Glen Iris (VIC) where Mitre 10's Tait store sits is for sale - HNN Flash #81, February 2022
  • Sources: The Age, The Sydney Morning Herald, The Australian and Bendigo Advertiser
  • retailers

    Supplier update: Allegion

    Allegion to buy SBD's Access Technologies unit

    With this acquisition, Allegion expects to significantly expand its range of access, egress and access control solutions

    For USD900 million, Stanley Black & Decker (SBD) is selling its automatic door division to Allegion with plans to stay focused on its tools, outdoor and industrial segments that have experienced sales surges since the onset of the COVID-19 pandemic.

    In a statement, SBD CEO Jim Loree said the company will use the proceeds to pay off debt and repurchase shares of its stock from investors.

    The Access Technologies business was the original platform for Stanley to enter the commercial security industry in the late 1990s. Sales and profits from that move were so strong after the 9/11 tragedy that Stanley was able to buy its longtime rival, Black & Decker, which had tried to take over Stanley several times.

    The sale means SBD will now exit security. The company recently sold its Stanley Security segment to Securitas for USD3.2 billion, but held on to Access Technologies. Security products included advanced locks, video surveillance systems and entry systems to screen people for weapons.

    Stanley Black & Decker selling its security unit to Sweden's Securitas AB - HNN Flash #76, December 2021

    Allegion said the acquisition bolsters its "seamless access strategy with a complementary category market leader". Its expertise in mobile applications and software will increase Access Technologies' connected capabilities, and allow Allegion to further capitalise on the industry shift toward smart security solutions.

    The acquisition is expected to close in the third quarter of 2022, subject to regulatory approval and customary closing conditions. Following this, Allegion expects to operate the Access Technologies business as part of the Allegion Americas segment.

    Access Technologies claims credit to the first patent for a "hands-free" door in 1931. Grocery stores were the earliest adopters of the "Magic Door" with commercial builders and high-rise apartments quick to follow as the company added automated revolving doors and other products.

    Today, Stanley Access Technologies remains one of the biggest vendors for automated doors, along with ASSA ABLOY which has a door security division.

    Related

    Allegion buys GWA-owned brands - HI News 4.04 (June 2018), page 22
  • Sources: Stamford Advocate and PR Newswire
  • companies

    USA update

    Home Depot technology renews focus on customers

    The home improvement retailer's chief information officer (CIO) is shifting into a newly created role dedicated to customer experience technology

    The Home Depot is doubling its efforts on online shopping, curbside pickup apps and other digital efforts, and moving its veteran CIO to a new full-time executive role overseeing customer technology.

    The home-improvement retailer was an early winner during the pandemic, when locked-down consumers turned to DIY projects around the home. Amid the lockdowns and social distancing, customers flocked to its physical and online stores, spending savings gleaned from staying at home and government stimulus checks on home-improvement projects.

    The new customer-facing technology leadership role is aimed at helping the company maintain that momentum.

    The company has named CIO Matt Carey as executive vice president of customer experience. Fahim Siddiqui is stepping in as CIO, overseeing technology strategy, infrastructure and software development.

    Mr. Carey joined Home Depot in 2008 as executive vice president and CIO, and Mr. Siddiqui served as the company's senior vice president of information technology since 2018. A company spokesperson told the Wall Street Journal:

    We created a new role that reaffirms our commitment to make shopping at Home Depot a truly interconnected, easy experience for our customers.

    Home Depot said both positions will report to chief executive Ted Decker, who started in his new role in March, after serving as chief operating officer and president.

    Mr. Carey contributed to the retailer's efforts to accommodate COVID-19 lockdowns and other restrictions by deploying digital tools to manage limited-capacity store operations, curbside pickup and online transactions.

    In his new role, Mr. Carey will be responsible for the vision, design and development of customer-experience technologies. Tim Crawford, CIO strategic adviser at Los Angeles-based enterprise IT advisory firm AVOA, told the Wall Street Journal:

    I have seen several CIOs make the move to a more customer-focused role and away from traditional IT.

    He said it makes sense to have a CIO oversee the underlying technology for customer experience tools, "in terms of understanding the tools, capabilities, integrations and requirements."

    Improved search tool

    Home Depot also said it has enhanced it online search tool for customers. According to the retailer, the number of customer searches has grown - now to more than 400,000 unique searches daily - so the technology team is constantly analysing how to improve the experience for everyone. As a result, it has built a search solution from scratch. Home Depot said:

    Not all search engines are created equal, especially when our customers bring various levels of home improvement knowledge to what they type into the search bar.
    That's why our team focuses on the intent of the person searching, rather than the actual words. This also solves any complications that could arise from geographic terminology differences (for example, "weed whacker" vs. "string trimmer"). Plus, our learning algorithm uses ongoing search data to more accurately show customers exactly what they're looking for the first time.
    In addition to building accurate, lightning-fast search results, we're also creating a personalised search experience for customers. Our technology team has built our online channels to consider location, past searches, personalised deal and guide recommendations when populating search results.
    This is especially helpful for customers in specific trade professions, such as an electrician searching for 'pliers' which the app will properly search for as 'electrician's pliers'.
  • Sources: Wall Street Journal and The Home Depot
  • bigbox

    UK update

    Homebase and Hearst UK extend partnership

    Since joining forces in 2020, they have collaborated on ranges across kitchens, furniture, home accessories, lighting, outdoor structures, gardening, tiling, wallpaper and now paint

    The new Country Living and House Beautiful exclusive paint ranges from Homebase are part of the home improvement retailer's three-year partnership with content business, Hearst UK and its magazine brands.

    Country Living is inspired by nature and brings the countryside indoors with soft, delicate neutrals. The paint is made in the UK, and is durable for walls, ceilings, wood and metal with a luxury matte finish. It is air purifying too, created with a special additive to make the paint non-toxic.

    The House Beautiful range embodies a contemporary style, ideal for customers looking for more bold, vibrant pops of colour. The paint is also made in the UK and its washable finish is suitable for walls, wood and metal. Its stain repellent technology means that any liquid touching the painted surface turns to droplets, making it far easier to keep clean.

    Each range has 30 curated shades. Jason Hines, trading director for decorative & home at Homebase, said:

    We're excited to launch two exclusive paint ranges with our partner, Hearst UK. Filled with plenty of beautiful colour and quality finishes, our customers can pair these new ranges with our stylish furniture and home accessories...

    Sharon Douglas, chief brand officer, lifestyle, homes and weeklies at Hearst UK, said:

    We're delighted to build on our Homebase licensing partnership with these brand new paint ranges. Our editors' and stylists' rich expertise in homes and interiors means that the Country Living and House Beautiful audiences regularly come to us for inspiration when in the market for a home upgrade. Collaborating closely with Homebase, our trusted specialists have created a colour palette that is on-trend, versatile and fit for the modern consumer.

    Background

    Homebase and Hearst UK announced they had entered into a brand partnership in late 2020.

    As part of the deal, Homebase is working with three of Hearst UK's magazine brands House Beautiful, Country Living and Good Housekeeping to create household and lifestyle licensed products.

    Together, this partnership would enable customers to be inspired by what they see and read in House Beautiful or Country Living and translate that inspiration into real-life purchases either in one of the 155 Homebase stores or online at Homebase.co.uk.

    A kitchen range under the Country Living and House Beautiful brands was the first to launch in December 2020.

    The partnership sees Hearst UK promoting the new ranges, which are exclusive to Homebase, to its readership, of which the majority are united by their desire to constantly upgrade their homes with the latest trends. At the time, Dave Elliott, commercial director for Homebase, said:

    We're excited to be working with Hearst UK and creating a range of new products for our homes and gardens that help customers recreate the latest style trends in their homes. This partnership will give customers even more options to purchase quality products from Homebase knowing they've been created with the innovation and inspiration from the stylist teams at House Beautiful, Country Living and Good Housekeeping.

    Ms Douglas commented:

    We're thrilled to be working with Homebase on this licensing partnership. We know that our highly engaged audiences across Country Living, House Beautiful and Good Housekeeping turn to us when they want to create or get inspiration for their dream home. They trust our experts when it comes to what to buy, so a partnership with an iconic retailer like Homebase makes complete sense.
  • Source: Retail Times
  • retailers

    HBT's "Back to the Future" conference promises new strategies

    Evolution after three years

    Some conferences are more important than others, and HBT's 2022 Conference is set to break new ground with its strategic focus

    The past two years have seen many hardware retail groups and businesses forced to cancel events such as expos and conferences. As Australia emerges (hopefully) from under the cloud of COVID-19 pandemic, it is becoming evident that during this time of limited contact, both the business environment and hardware businesses themselves have continued to evolve.

    One clear sign of that evolution can be seen in the upcoming 2022 National Conference being held by Hardware & Building Traders (HBT) on the Gold Coast from 3 May 2022. Tagged as the "Back to the Future" conference, it's set to be an intriguing event.

    Part of that intrigue is because HBT will be setting in place some strategies that were first conceived more than two years ago - but put on hold, partly due to the pandemic, and partly just because two National Conferences had to be cancelled, depriving the strategies of a suitable launch platform.

    Also intriguing is that HBT is re-opening its Conferences with a unique approach: it is going to start off with a social event - an epic "business lunch" - prior to the standard meetings and presentations. That's going to give the HBT members an opportunity, after three long years of isolation and very hard work, to re-bond with their fellow members, and celebrate the one, really critical fact about the pandemic: we've managed to come through it, and survive (mostly) intact.

    The strategies

    The evolution of the HBT strategies has been interesting to follow over the past five years. Back in 2017, the basic HBT position could be seen as more-or-less accepting that the group would always trail slightly in terms of having a competitive edge in the market. This was made up by providing its members with more freedom than other buying groups, such as Metcash's Independent Hardware Group (IHG).

    The new strategies set to be released at the upcoming Conference, however, follow a very different path. Rather than seeing HBT's more social, camaraderie-based principles as being somehow a disadvantage in the market, these differences are now being pursued as one of its chief advantages. Where other buying groups have sought to centralise control to upper-management levels, the HBT strategies reach out to value all of the available "human/intellectual capital", in its retailer members, in its preferred supplier membership, and inside HBT itself.

    To understand what these strategies are, it's important to first take a broad overview of how the hardware retail industry has developed over the past 20 years or so.

    Group characteristics

    While there are around a dozen key hardware buying groups of varying sizes and with different areas of interest, the two largest in Australia are Metcash's IHG and HBT. Going back to the origins of HBT in 1997, the two groups were very similar.

    One of the key points that led to the formation of the "rebel" group of HBT was dissatisfaction with group-wide mandates, such as participation in Australia-wide catalogues. HBT positioned itself as more of a "pure" buying group. It concentrated on getting the best wholesale deals from suppliers, and especially the best "rebates" (a form of post-sale discount, often conditional on certain requirements being met).

    Mitre 10 has had four key inflection points in its history since 2000. The first was the emergence of the Wesfarmers-owned Bunnings big-box hardware retailer as a key competitor in the early 2000s. This led to Mitre 10 adopting a format strategy to win back business.

    Mitre 10 management thought that Bunnings' success was down to its large-format "warehouse" stores, and sought to emulate these. In fact, though, the warehouse stores were simply functional endpoints to a unique and developing logistics chain. The result was that the large-format Mitre 10 stores failed, largely due to stocking problems.

    This led to the eventual full acquisition of Mitre 10 by Metcash, which was completed in 2012. Meanwhile, in the background, Australian supermarket company Woolworths announced in 2009 that it was going to enter the hardware business in competition with Bunnings, through a joint venture with US big-box home improvement retailer Lowe's Companies. As part of this expansion move, Woolworths also acquired the Danks hardware group, which traded under the banners Home Timber & Hardware (HTH) and Thrifty Link.

    The brand name - "Masters Home Improvement" - was announced in May 2011, and the first store opened in August 2011 - complete with its own McDonald's outlet. In January 2016 Woolworths declared it was winding down Masters. Stores continued to trade through to December 2016.

    During 2016, Metcash acquired the Danks business from Woolworths, and added it to its existing Mitre 10 operations, under the IHG name.

    HBT also had its own transitions to get through. In late 2016 the top executive of HBT, Tim Starkey, passed away unexpectedly. Mr Starkey had been one of the main driving forces at HBT - some would describe him as having been its heart and soul.

    As happens with many well-liked, capable and charismatic leaders, there were no natural successors inside HBT, and so a search began for someone external to be the buying group's CEO. In the end it came down to two candidates, with one rumoured to be very much an Australian hardware industry insider, and the other lacking in hardware experience, but with a resume that included executive training at Woolworths, as well as an interesting, varied retail experience outside that.

    HBT decided to go with the latter rather than the former, and Greg Benstead accepted the role of CEO in early 2018. This has turned out to be a highly fortuitous choice. Mr Benstead has been able to not only develop the strategy HBT needs in the modern hardware retail environment, but also to take the members of HBT along with him on that journey.

    Business models

    The primary change that Mr Benstead has brought to HBT is an evolution of its core business model. To understand that, however, it's necessary to first look at the dominant business model in Australia's home improvement/hardware industry, as followed by both Bunnings and IHG.

    Bunnings

    The primary concern of the general business model is price. Bunnings largely pioneered using price as the central driver of sales and expansion. This was one of the many insights of the person most responsible for building the modern Bunnings, John Gillam. Like Mr Benstead, Mr Gillam's own background was outside of hardware retail - in fact, it was mostly outside of retail itself. However, that outsider position enabled him to grasp that the fundamentals of the hardware retail industry had changed, and that Bunnings was in an ideal position to take advantage of those changes.

    There were three forces at work in the early 2000s. The first was that Australia had been through a period of sharp reduction in tariffs, initiated by the Hawke government in 1988, following on from reductions made by the Whitlam government in 1973. While the 1988 reductions were meant to be fully effected by 1992, legislation saw them "smoothed" out to 2000 instead.

    The second impact came from the ongoing development of China (specifically the Pearl River Delta region, adjacent to Hong Kong) as a source of manufactured goods. The third impact was the increase - globally, but especially in Australia - in the value consumers accorded to their homes. That was driven by a complex combination of factors, including increasing urbanisation, reduced concerns over inflation, deregulation of financial institutions and the "migration" of "middle-class" values to groups of people who had not previously considered home ownership.

    One of the effects of a generally high tariff regime had been "price smoothing" between retailers. Tariffs had made strong price differentiation difficult, which meant that stores typically attracted customers through a combination of customer service and reputation.

    Mr Gillam realised that by 2002 this was less the case, and that it would be possible for Bunnings to attract customers by reducing customer service to a basic but adequate level while offering goods at reliably lower prices than the competition. What is often not appreciated about this approach is how radical the logistics backing this were. Not only did Bunnings adopt the store as warehouse model pioneered by The Home Depot in the US, but Bunnings also managed to nearly eliminate the need for any of its own warehouses, by having suppliers take responsibility for direct-to-store deliveries.

    Metcash

    Metcash at the time it acquired Mitre 10 had implemented a smaller scale revision of logistics itself. Its Independent Grocers of Australia (IGA) group relied on Metcash's central warehouses for distribution. In the food business, dealing with perishables, warehouses have always played a major role in what is essentially risk allocation between suppliers and distributors, and can lead to greatly reduced prices. And, as it is largely a commodity business with some quality price variations, grocery has always responded strongly to price incentives.

    Unfortunately for Metcash and IHG, the model that worked for groceries did not translate directly to hardware. The Bunnings model relied on both price incentives, and large stores with wide ranges on sale. IHG combined some price incentives combined with the higher level of individual customer service which independent retailers could offer. But the customer service/price incentive model provided something of conflicted signals, and didn't - especially for the DIY customers - make up for more limited ranges.

    While the merger of HTH with Mitre 10 into IHG is very far from being a failure, it also was not quite the success that Metcash had hoped for. Contrasting the store numbers released by Metcash during its strategy day in June 2019, with its FY2020/21 numbers featured in Metcash's annual report, there is an overall decline from 690 to 622 stores.

    Of course, that is a very nuanced number as it combines the two major banners, Mitre 10 and HTH, with the sub-brands of True Value and Thrifty Link, which are typically smaller and less profitable. Certainly IHG's store retention/expansion would seem to have done OK in New South Wales (NSW). Mitre 10 stores increased to 95 from 81 (up 17.3%) and HTH stores declined from 85 to 79 (down 7.1%). What's not recorded is how much those results are driven by stores moving out of HTH and into Mitre 10, a move which IHG encourages.

    Offset against that is the situation in Victoria (VIC), where there has been an overall decline from 170 stores to 145 stores (down 14.8%). Mitre 10 stores did increase, by one, form 74 to 75, but HTH stores fell from 96 to 70 (down 27.1%).

    IHG seemed to have expected its model to dominate the independent market, which would have resulted in more stores migrating out of HBT and other buying groups into one of its brands. What it didn't count on were some of the changes in the market, and also that HBT - among others - would prove quite so adept at countering the challenges it presented.

    HBT

    One reason why IHG did not do as well as expected was that Mr Benstead made some evolutionary changes to the way HBT was managed. That began when, late in 2018, he hired Jody Vella to take over HBT's buying team - the group of people who secured deals with suppliers on behalf of the group's member retailers.

    Mr Vella was himself a very experienced buyer, with a long career at Coles. But what has made Mr Vella unique in his position - supported also by the strategic views of Mr Benstead - is that he was critically aware that the buyer/supplier relationship had developed in many areas to become ineffective and a waste of resources.

    The core business model of both Bunnings and IHG relies primarily on scale to achieve price advantages. As everyone involved in retail and supply knows, increased scale typically reduces the variable per-unit costs of producing goods, in part by amortising fixed costs over a larger base. Lower supply costs mean more room for either margins, or price reductions - which, in turn, may increase sales further, completing the virtuous loop of scaling.

    Bunnings has been increasingly able to provide scale purely through the number of square metres of selling space it provides - it's big, it sells large quantities. For IHG, increasing size through acquisitions such as HTH is one factor, but it's not enough. It also has to limit the types of items sold in a particular range. Its goal is to forcibly encourage members of its retail group to buy from ranges that Metcash stocks in its warehouses. If a range goes from four items in a category to just one, that one item can achieve scale.

    The effect of a scale strategy on business operations is to reduce much of management to a numbers game. The narrower the range of items, and consequently the number of items sold in each range determine success.

    A by-product of this is that buyers and suppliers have an essentially adversarial relationship. The buyer's task, under a scale strategy, is to play each supplier off against other suppliers, and to do pretty much whatever it takes to secure the best deal.

    While HBT remains committed to low prices for its members, the core insight offered by Mr Benstead and Mr Vella is that, ultimately, the goal of the suppliers, HBT and HBT members is very much the same: to sell as much as possible of a product at a price the market finds acceptable.

    To achieve that goal, rather than reducing everything to numbers in a spreadsheet, it's necessary for all three groups to pool their resources, especially their knowledge, and to develop solutions that will work with the current state of the market.

    Of course, it's not enough just to state that as a goal - you need mechanisms in-place that will help to achieve this pooling of resources. HBT has developed a series of such mechanisms, which enable both suppliers to assist retailers in working out what to stock, and also encourage feedback from members to suppliers - via HBT.

    These strategies deserve closer examination. However, we will need to wait for the Conference itself to be fully briefed.

    Analysis

    One of the major questions that has puzzled HNN over the past two years, has been regarding what Metcash's "endgame" will be concerning its hardware division.

    The acquisition of Mitre 10 might have been quite opportune, but there would be little doubt that this division is probably reaching its maximum value, and might be ripe for a demerger of some kind. In the past, the potential sale of IHG has seemed a difficult task to pull off, as IHG consisted largely of independent retailers under contract, a situation that would rapidly destabilise in the event of a sale.

    However, if we look at some of Metcash's most recent actions - the increase in "corporate" stores purchased from retailers, and most recently the move into Total Tools - it seems possible the company is potentially preparing to sell off hardware in two to three years' time.

    It's hard to make sense of these recent moves without that as a possible outcome. While buying retailers, and thus benefitting from "full-stack" margin (everything from the wholesales cost through to the end sale price) is great when the market is going up, it also exposes the company to considerable downside risk.

    Equally, there is just no way to make sense of what IHG members will do if the company decides to build a Total Tools store a kilometre or so away from an existing independently owned Mitre 10 store (for example). There is also what created the opportunity to buy Total Tools in the first place, which is the looming ramp-up of the Bunnings-owned and managed Took Kit Depot, which is likely to see outlets co-located with existing Bunnings stores.

    Given the parlous state of much of retail in Australia, it is quite possible to imagine a number of retailers being willing to expand into hardware retail. Whether that would work out well for any potential buyer is, of course, quite another thing to consider.

    retailers

    ABS Building Activity stats

    Number of houses approved but not yet commenced shows uptick in 2021

    An increase in 2021 for houses with building approval but no construction activity could be a sign of a lack of construction capacity, or foreshadow concerns over a slowdown in the housing market.

    The Australian Bureau of Statistics (ABS) has released its stats for Building Activity. One of the more interesting categories of these stats is that for "Number of Dwellings Approved but Not Yet Commenced".

    This is interesting because it could provide some information relating to whether there has been a material change in the willingness for builders to go ahead with construction, as the COVID-19 pandemic nears its end, and the markets grow more certain that interest rates are set to rise, likely slowing the housing market as a result.

    Chart 1 shows these stats on a trailing 12 month basis for new houses, which, as they end with the December quarter, is the same as the calendar year.

    The reddish-brown line for all Australia uses the right hand axis for values. This indicates that there has been a sharp change, Australia-wide, with the value going from around 39,000 for 2020, to around 53,500 for 2021.

    In terms of the states and territories, New South Wales (NSW) is something of an outlier, as it indicates the peak number occurred in 2017, reaching over 15,000. The 2021 number is 13,100.

    For Victoria (VIC), South Australia (SA), Western Australia (WA) and Queensland (QLD), 2021 represents a peak over the past 12 years, though this is fairly muted for QLD at around 5900.

    Chart 2 shows the percentage change between each years and the previous corresponding period.

    Aside from the Australian Capital Territory (ACT) - which tends to be highly volatile - WA and VIC show the steepest increase, while most of the other states are close to the Australian average of 38.0%.

    Analysis

    While it is evident from these charts that something is certainly happening in 2021, it's not entirely clear what that is. This could be due, for example, to a lack of capacity in the construction industry, which, coupled with an uptick in building approvals, has resulted in higher levels of static projects.

    However it is also possible that we are seeing a harbinger of the first shadows cast by the upcoming increase in interest rates.

    statistics

    Retail update: Industrial

    Stealth Group completes United Tools acquisition

    With a market capitalisation of $12 million, Perth-based distribution group Stealth Global Holdings has executed a number of acquisitions in recent years, delivered organic growth and is refocusing on the Australia market

    Stealth announced it has now acquired 100% of the shares in United Tools Limited with its network of stores around Australia. Group managing director Mike Arnold said in a statement:

    ...The completion of this acquisition is an exciting milestone for Stealth and United Tools, doubling the size of our store network to 66 stores Australia-wide, and creating one of Australia's largest one-stop distribution groups combining company owned and independent retailer assets.
    We see opportunities to strengthen the competitive position of the Stealth Group and its independent retail partners, by investing in expanding product ranges, strengthening the supply chain, deeper supplier engagement and enhancing the customer experience through an interconnected distribution portfolio.

    On completion, United Tools held $1.4 million of net cash which Stealth will use for working capital, reduce its debt and invest for the future.

    In a story that first appeared on investor website ShareCafe, Stealth Global is described as both a business-to-business (B2B) distributor - 87% of its sales are to businesses - as well as business-to-customer (B2C), through its portfolio of core brands:

  • Heatley's Safety & Industrial (acquired October 2018)
  • Industrial Supply Group (acquired May 2019)
  • C&L Tool Centre (acquired December 2020)
  • Skipper Transport Parts (acquired August 2021)
  • United Tools (acquired March 2022)
  • Trade Counter Direct (expected in the second half of 2022)
  • Mr Arnold told ShareCafe that the United Tools and Skipper Transport Parts acquisitions are "major steps in building a larger, more relevant, and more diversified business."

    Between them, the two businesses brought more than 600,000 new products, over 2,500 customers and over 1,400 suppliers into the portfolio. He said:

    Our whole M&A blueprint has been all about building more muscle with deals that add big value by having a larger consolidated group. It's all about scale and leverage, and expansion into newer markets and geographies.
    For example, United Tools doubled our store network, from 33 to 66. C&L has given us an east coast point of distribution, and has been a burster on many fronts - its net profit is up by about 35% since we bought it...

    BSA Brands (UK)

    In February, Stealth Global sold its 50% stake in in BSA Brands UK - a 50/50 joint venture established in March 2019 between Stealth and Bisley Workwear in the UK. This follows the sale of Bisley Workwear in December 2021 to US-based Protective Industrial Products (PIP), a global personal protective equipment (PPE) supplier.

    Mr Arnold said Stealth realised "significant value" from the transaction, strengthening its capital position while retaining its partnership with Bisley and the PIP group as a major supplier partner to Stealth in Australia". (The sale of the BSA Brands stake brings the closure of Stealth's operations international operations in the United Kingdom and Africa.)

    Stealth said it received AUD1.65million in cash after the FX (foreign exchange) conversion from GBP to AUD. The balance of AUD300,000 will be received over the next 12 months.

    Protective Industrial Products buys Bisley Workwear - HNN Flash #76, December 2021

    Strategic plans

    On its website, the company refers to itself as a "pure-play distributor" for industrial MRO - maintenance, repair, operations - and safety supplies and solutions. Mr Arnold told ShareCafe:

    We want to be the biggest and best supplier of everyday products, for every workplace, at the best prices. We're the only company, as a single source, that can provide the depth and breadth of products that we can.

    Mr Arnold said Stealth Global extends across the end-to-end supply chain, covering business, trade, retail, service and the specialist wholesale sector, serving customers of all sizes from a broad collection of industries including commercial, mining, resources, industrial, government, transport, automotive, agriculture, building, construction, manufacturing, engineering, trade and retail.

    We have the most comprehensive product range, from tools to hardware to workwear to truck parts, in our markets. It's safety, industrial, truck & automotive, and workplace consumable products, selling into highly diversified end-markets - that's why we say, 'every workplace'.
    We want to transform the delivery of industrial MRO products and solutions in Australia as the market leader, and the company of choice for customers and suppliers. Our mission is to connect thousands of our products to customers of all types and sizes in every industry - to get our products and solutions into every workplace, every industry and every home.

    There are more than one million of these products, supplied by 2,500 suppliers, and at present, Stealth Global distributes these to 5,500 business customers and 34,000 retail customers. It uses a wide variety of sales channels, including its own sales team serving key accounts, in-store, on-site, online, delivery options and click-and-collect.

    Mr Arnold believes this is an "omnichannel" approach, in which the multiple channels are integrated to create a seamless experience for the customer, who can pick-up on one channel where they left-off on another. Within that, Mr Arnold said Stealth is "investing heavily" in expanding its online channel.

    With the current group structure, Mr Arnold said the business model is positioned to capitalise on the economies of scale and reach.

    The business model is similar to the Metcash principle of how it works with IGA and Mitre 10: you don't just supply to them, you invest with them and evolve your business to work directly with them, whether they're company-owned or independent.
    We've now got the depth and breadth in terms of ability to support the independents, but also grow with our company operations, that allows us to be able to provide a genuine alternative to the market. We're finding that a lot of organisations like dealing with us because we're agile, we're nimble in our decision-making, we're also very keen to invest with our customers, and in doing that we're seeing the benefits of upside...
    Our market is very large - we estimate that MRO is a $40 billion addressable market - but it's very fragmented. We are the largest player with about 4%. But we've positioned ourselves between the majors - Wesfarmers and Metcash - and the minors. We think there will be more consolidation, and that's good for companies like us who are on fast-growth pathways.

    Trading performance from continuing operations in the December 2021 half-year saw record half-year revenue of $44.3 million, up 55%, with online sales increasing ten-fold to $2.2 million, representing 5% of group sales (and 9% of retail sales). Underlying EBITDA (earnings before interest, tax, depreciation and amortisation) more than tripled, to $1.73 million. Mr Arnold said:

    We're doing $100 million run-rate in sales now, up from $24 million in September 2018. It's interesting, we expect to see a bit of inflation, there have been a lot of supply chain bottlenecks, but that's been good for us because the products that we sell are absolutely aligned to the types of industries where that's being felt.
    As supply chains become slower, we need to make sure that we have the right stock in the right locations at the right time. So, our inventory cost may go up, however, based on that demand, we also see that our sales activity will go up if we have the product that's available. We've made a lot of investments recently, they've hugely boosted our scale, but the benefits of that are yet to materialise. We're pretty excited about the opportunity in front of us.

    Related

    Stealth Global buys United Tools Limited - HNN Flash #77, January 2022
  • Sources: Stealth Group and ShareCafe
  • retailers

    Supplier update: Timber

    Government grant to develop hybrid wood

    The South Australian state government is giving SA Pine $1.36 million to process timber

    The federal government's Trade, Tourism and Investment Minister and Wannon MP Dan Tehan announced a $1.3 million trade and market access grant to help the forest and wood products industry develop hybrid engineering wood products.

    The grant should help the industry add more value to lower quality forestry resources onshore in Australia, creating more jobs in regional communities and helping to diversify timber exports.

    It should also provide an opportunity for the industry to increase export incomes. The hybrid wood products would be sold to three alternative markets including Vietnam, Indonesia and Malaysia. In the Warrnambool Standard, Mr Tehan said the project would provide a significant boost for the timber industry across the Green Triangle region in Victoria and continue to secure jobs in Wannon and benefit the Port of Portland.

    In addition, Mr Tehan said the hybrid timber could be used to meet the growing demand of construction timber in the south-west.

    The manufacturing process would be the first of its kind in the region, he said. The project was an example of the federal government supporting trade diversification. Mr Tehan said:

    This project offers great promise to establish new export markets thanks to the adoption of innovative technology.

    Forestry and Fisheries assistant minister Jonno Duniam said the project would benefit the industry supply chain, from timber growers to wood processors and exporters.

    SA Pine

    Minister for Primary Industries and Regional Development, David Basham said the $1.36 million state government grant will help SA Pine expand its capacity to process an extra 25,000 tonnes of pine logs, which is enough to build approximately 950 houses.

    The $1.36 million grant to the business comes from "the government's $2 million Additional Structural Timber program". Some timber has already been shipped off Kangaroo Island on the SeaLink ferry to a mill in Jamestown. Mr Bassham told The Islander:

    SA Pine is a successful South Australian sawmill operating out of Kuitpo and Monarto and the largest customer of ForestrySA timber sourced locally from the Mount Lofty Ranges.
    The SA Pine Kuitpo mill is well positioned to benefit from the joint Commonwealth-State funded transport assistance scheme to move bushfire salvage timber off Kangaroo Island to processing.

    The minister's office told The Islander that state treasury confirmed prior to the election caretaker period that this initiative could be funded from within existing departmental resources.

    Meanwhile, logistics company T-Ports on behalf of forestry owners is proposing to transship pine logs, as well as blue gum woodchips, off Kangaroo Island using its transhipment vessel near the Kingscote jetty.

    The extra timber has been made possible by SA Pine successfully negotiating a long-term timber supply agreement with ForestrySA, as well as a plan to source logs from Kangaroo Island.

    Pine was about 20% of the forestry trees on King Island, 90% of which was burned in the bush fires. Harvesting company Harvestco said there is still some undamaged pine standing, while some burned pine logs were stockpiled under water in McGills dam.

  • Sources: The Warrnambool Standard and The Islander
  • companies

    Retail update: Rural

    Nutrien Ag Solutions increases stockpile

    Global interim president, Ken Seitz said Nutrien Ag Solutions in Australia was "punching above its weight"

    Supply chain and production constraints has seen a major Australian rural retailer more than double the size of its stockpile as the industry heads into the winter cropping season.

    Nutrien Ag Solutions managing director Rob Clayton told The Weekly Times the rush for inputs, including key fertilisers, has pushed prices to decade highs and forced a rethink in the way the business sourced product. He said:

    We've had to stage product much earlier than we have in the past. Right now [we] have about a billion dollars' worth of stock sitting [in warehouses], where we would normally have about half of that.

    The CRT group of stores became part of Nutrien Ag Solutions through its acquisition of Ruralco (Landmark) in 2019.

    Mr Clayton said there was a need for Australian agriculture to get in front of supply chain issues, with calls from some sectors in the industry for more domestic production of inputs to counter rising costs and a huge blowout in transit times.

    It is a lot longer supply chain channel now than it was before. For instance, product out of China from the first phone call to when that product arrives was usually around 30 to 40 days but now it is 120 to 150 days.

    Thomas Elder Markets' analyst Andrew Whitelaw said an increasing number of nations around the world were looking to shore up supplies of key inputs through domestic production. He told The Weekly Times a combination of factors was leading to the reduced global supply, including the crisis in Ukraine, which had resulted in sanctions imposed on Russia.

    He said while Australia was not a huge importer of fertiliser from Russia, other nations were, which meant they had been forced to look to other markets to secure supply.

    Mr Whitelaw said fertiliser production facilities being planned for South Australia and Western Australia could end up "producing more fertiliser than we need in Australia by a country mile".

    I think the one thing to remember, though, is that any of these plants, if they get built, which is probably still a big if, it's not going to be until 2026, so it is not going to fix any of our immediate problems.

    :Australia visit

    Nutrien Ag Solutions in Australia is "punching above its weight" as a somewhat "unique and important stakeholder" in the company's network, according to global interim president, Ken Seitz on a recent visit. In Farm Online, Mr Seitz said:

    I'd say it's surpassing expectations at the moment ... We've invested heavily in this part of the world, more than $2 billion, so it's very pleasing to see how Australia has performed, particularly during the past two years of good commodity prices and moisture conditions and big yields.

    Despite the restructure and merger challenges and costs, Nutrien's Australian earnings have increased 108% since the acquisition. Its business footprint in rural Australia is now about 42% bigger than under the Landmark banner, with a portfolio spanning livestock and property marketing, water broking, water equipment sales and infrastructure planning, insurance, financial services, soil testing, yield mapping and wool marketing.

    As post-drought seasonal conditions blossomed in 2020 and 2021 and demand for Nutrien's services increased, the company added an extra 800 staff to its ranks last year, with almost half of those roles filled by women. Its total payroll today exceeds 4000 staff in 700 locations Australia-wide. Mr Seitz said:

    We're quite excited about how the merger has turned out. It's going very well. We know there are ups and downs in agriculture, particularly in Australia, but nature is a long term business and we take a long term view of what's needed in this industry.

    He said while the Australian business offered a more diverse service than its crop inputs focused divisions in North and South America, the local subsidiary had helped it weather the tough seasons, providing "a lot of learnings to share" to operations in the US, Canada, Brazil, Argentina, Chile and Uruguay.

    Nutrien had many reasons to be optimistic about this marketplace and was "betting big on Australian agriculture". Mr Seitz said:

    Australian agriculture has the same aspirations for growth and shares the same values as our business globally. We are very proud of the role we play in the Australian economy and are committed to helping this industry grow and prosper.

    Globally Nutrien's wholesale fertiliser and crop protection business and retail activities, including its Australian portfolio, generated about $3.4 billion in net earnings, from cash flow of $4.1 billion during 2021.

    Related

    Ruralco, including its CRT stores, has been sold to a Canadian agribusiness, HI News 5.01, page 22
  • Sources: The Weekly Times and Farm Online
  • retailers

    ABS hardware retail stats

    Will growth continue?

    Taking a comprehensive look back over the past twelve years of revenues, HNN explores the possible future of revenues as Australia exits the pandemic and enters a period of moderately higher interest rates.

  • This article can be read as a HNN Briefing PDF. To read the PDF, please download by clicking the image/link below.
  • Download hnn-brief-006

    The release by the Australian Bureau of Statistics (ABS) of hardware retail sales through to February 2022 is a good opportunity to look in clear detail at the effects of the COVID-19 pandemic. Those effects began in March 2020, so we can see, by looking at these sales for the 12 months ending in February, exactly how the two main pandemic years have shaped the market.

    HNN refers to these 12 month timespans as "periods" (p), and they are designated by the year in which they end, so p2022 goes from March 2021 to February 2022.

    It's perhaps best to begin by setting some context to these stats. One thing that we find in the stats for most states is that both p2021 and p2022 show significantly higher retail sales than those for the period prior to 2021. But how much higher, in general?

    To provide guidance on that question, Chart 1 takes the average of p2021 and p2022 (the recent grouping) then compares that to the average for the five periods p2016 through to p2020 (the past grouping), and represents the difference as the percentage growth of the recent over the past grouping.

    As that chart indicates, on an Australia-wide basis the recent group shows consistent growth of between 25% and 30% as compared to the past group as an average. That would be a big change in any market, but it's particularly outstanding in hardware retail, as there has not been such a big shift over the previous 30 years.

    The big question, of course, remains as to whether those elevated sales will persist through FY2022/23. It's evident that p2021 was heavily influenced by consecutive pandemic lockdowns across Australia, while p2022 was partially affected by those, but also by extraordinary housing price rises.

    In particular, if interest rates rise above 2.0% (as seems likely by the end of calendar 2023), will there be a slide in housing prices and a consequent decline in hardware retail sales?

    These questions really come back to the key question: over the past two year have we seen ephemeral events that have boosted sales, or have we seen some structural changes to the hardware market?

    HNN's own view, as we will detail in our Analysis section at the end of this article, is that it's not just we do see evidence of both these, but that structural change may be based on these boosts in sales. In brief, as hardware stores have become more a part of the monthly shopping routine, the breadth of products they can sell has also increased.

    New South Wales

    Chart 2, for New South Wales (NSW), shows (as do those for several, but not all, states and territories) how sharply demarcated the two pandemic years have been.

    It's possible to see these stats as consisting of three different "bundles"; bundle one for the periods between 2011 and 2014, bundle two is for the periods 2016 through to 2020, and bundle three is (so far) the two pandemic periods. In addition, there is a transitional period, p2015, between bundles one and two.

    Chart 3 shows the total retail sales for each of these periods over 30 years.

    While there has been a historical period of ongoing increases, such as from 1999 to 2006, and from 2014 to 2017, there is nothing that comes close to steep increase from 2020 through to 2021 and 2022.

    Victoria

    The effect of the pandemic on hardware revenues in Victoria (VIC) was quite different to NSW. One key difference is that while both states saw revenues increase at historically high levels, VIC was more subdued than NSW - in part because where in NSW revenues for p2017 partially exceeded revenues for p2018 through p2020, in VIC revenues for both p2019 and p2020 were significantly higher than the preceding four periods. This is shown in Chart 4.

    For example, in both 2020 and 2021, revenues for the month of October were around $590 million, while in 2019 they were $563 million - on average an increase of 16.5%. Similarly, in February 2021, revenues were $478 million, quite close to the pre-pandemic revenues of $459 million in February 2020.

    That said, the 12-month numbers do show how significant the revenue gains still were for VIC. This is shown in Chart 5.

    It's also notable that, in contrast to NSW, revenues for p2022 were lower than those for p2021. That's largely because VIC did suffer significantly more from long and very tough lockdowns than any other state or territory. With a reduction in federal emergency support funding (such as JobKeeper), and the interruptions to the construction industry, the economy itself began to suffer.

    VIC has also seen less of a boost in house prices. The ABS Residential Property Price Index (which has ceased as of 2022) indicates that in comparing the December 2020 quarter with the December 2021 quarter, Sydney saw a price rise of 26.7% while Melbourne rose by 20.0%. CoreLogic's index through to 28 February 2022 shows an annual increase in Sydney house prices of 22.4% versus Melbourne's 12.5%.

    Given that, probably the single most significant figure in all the VIC stats is the revenue for February 2022, which at $536 million is the highest it has ever been for that month, and 12.2% up on February 2021. Given a fading house market, and the fading of pandemic influences, this could be a pointer towards a sustained higher level of revenues for VIC.

    Queensland

    While Queensland (QLD) was less directly affected by the pandemic (though heavily indirectly affected due to a decline in the tourism industry), it did see a very strong growth in interstate migration. For FY2020/21 QLD recorded a net increase through interstate migration of 30,939 people, while both NSW and VIC saw net losses.

    The result of this and a range of other factors saw QLD benefit as much on a percentage basis as NSW and VIC. Chart 6 indicates this.

    Chart 7 indicates the level of overall gains on a 12-month basis.

    This is very much a fundamental, structural change to the QLD market. While its effects may fade in the future, as its intrastate migration numbers decline, it's unlikely that these will reverse quickly. One major factor is that QLD is less centralised that both VIC and NSW. While the medium house price in Brisbane is close to that of Melbourne, in the regional areas, housing remains more affordable - for example, the median house price in Bundaberg is under $350,000, according to CoreLogic

    South Australia

    While in South Australia (SA) the revenue pattern for p2021 followed a similar pattern to other states, the pattern for p2022 is unique. In that period revenues declined sharply from April to July 2021, before increasing sharply in August 2021. The July 2021 revenue number was $92 million, only slightly above the July 2019 number of $90 million. Yet by August 2021 revenues had climbed to $121 million, well above the August 2019 number of $93 million. Chart 8 shows this pattern

    That seems to have been triggered by a renewed lockdown that began in July 2021, in response to the Delta variant getting out of control in NSW.

    Whatever these variations are, the 12 monthly numbers show how sharply revenues increased for both pandemic years, as seen in Chart 9.

    Given the steeper than usual fall in revenue through to February 2022, it's likely that March 2022 will be a vital statistical month in forecasting future revenues for SA.

    Western Australia

    It's slightly difficult to comprehend just exactly how much Western Australia (WA) escaped the direct influences of the COVID-19 pandemic. Perhaps the simplest number is just how few deaths were COVID-19 related in the state, totalling only 88 by the end of March 2022, compared to 2830 in VIC, 2190 in NSW and 796 in QLD.

    WA does show some signs of revenue stimulus from April through to August 2020, but these can be difficult to judge, as seen in Chart 10.

    The initial impression is that revenues have seen only a moderate increase, but that's really only in comparison with p2017 (the dark blue line). The pre-pandemic period, p2020 (the black line), shows that the increase in revenues was really more inline - in percentage terms - with that of VIC. Comparing the average revenue across the two pandemic periods with that of the average of the five preceding periods, there was an increase of over 20% for May, July and January.

    Chart 11, tracing the 12 monthly figures shows this more clearly.

    Still, while that increase equals the other states in relative terms, it is evident that across a broader, historical context, the increase is less unusual.

    Given the ongoing increases in commodity prices expected through FY2022/23 it is likely that WA will be the state most insulated from the looming negative effects of an interest rate increase.

    Australian Capital Territory

    The Australian Capital Territory (ACT) is always difficult to compare with other Australian regions as it has such a unique composition. Not only is it a relatively small region, it's also highly urbanised, and has an economy largely reliant on government employment.

    Given those factors, it's not that surprising that it showed a very strong boost in revenues across the two pandemic periods, as shown in Chart 12.

    This shows a very high level of stimulus, along with some very high volatility. Chart 13, for the 12 monthly periods, shows how unusual this pattern is for the territory.

    It's possible to draw a nearly straight trend curve from p1998 through to p2020, with the only major bump in 2010, showing a steady, constant increase in revenues. That makes the sharp increase for p2021 and p2022 stand out.

    Comparing the average revenue across the two pandemic periods with that of the average of the five preceding periods, there are seven months registering increases of over 48%, with a peak in April of over 54%.

    Northern Territory and Tasmania

    Obviously, combining stats for the Northern Territory (NT) with those from Tasmania (TAS) makes little or no sense. However, the ABS was not able to source revenue numbers for much of the pandemic period, so we can only derive these numbers by subtracting the sum of the other states and territories from the total, Australia-wide revenues. As such, they are slightly inaccurate, as a number of other, very small areas are included in the Australian total.

    However, some reference may be preferable to no references at all. Chart 14 shows the monthly comparison:

    Chart 15 shows the 12 monthly periods:

    Australia

    The effect of the Australia-wide statistics is to average out the results from all the states and territories. This can be seen clearly in the Chart 16, for the monthly numbers.

    Perhaps the most interesting characteristic of this chart is how the numbers for p2022 overtake those of p2021 from September 2021 onwards. That is likely a strong indication of the effect of the prices rises in the housing market.

    Chart 17, for the 12 monthly periods, carries its own surprise as well:

    While this chart does indicate elevated levels for revenues in p2021 and p2022, these seem somewhat less out of sequence from the historical record. Comparing the average revenue across the two pandemic periods with that of the average of the five preceding periods, the only outstanding period is May, with an average increase of 36%. Seven of the monthly periods show an average increase of below 28%.

    Finally, it's worthwhile looking at a broader historical chart for Australia. Chart 18 shows the monthly numbers going back to 1984.

    Perhaps the most interesting characteristic of this chart is the gradual evolution of both October and November as higher revenue periods, which seems to have started back in 2002.

    It also demonstrates just how unusual the last two periods have been for revenue growth. There is simply no other similar rapid increase.

    Analysis

    As we mentioned in the introduction to this article, the hardware retail industry has to grapple with considering how much of the recent increases in revenues are going to be ephemeral, and how much indicates a structural shift.

    Added to that is what exactly the effect of an interest rate rise will be. It's possible that some structural changes have been made, and that these could to some extent be undone by interest rate increases.

    That is going to depend to a large extent on just how rapidly interest rates do increase. While some economists predict rates as high as 3.0% by the end of 2023, a more modest prediction would be that rates could hit 2.0% by the end of FY2022/23.

    Even at that rate of increase, however, which would likely take place over six separate stages, homeowners are likely to find themselves facing new financial stresses. As HNN has suggested in the past, it's not as though homeowners haven't known this was coming. They have decided that, given the upward trend in the housing market, it was better to take the chance on somehow "muddling through" a time of financial stress.

    It's likely that much of that stress will be concentrated on VIC and NSW, which is to say Melbourne and Sydney, with some stress also in Brisbane. What is just as concerning as the direct effect on homeowners, is the spillover effects into the economy. The ongoing low wage growth has been a strong indicator, in HNN's opinion, that the economy contains fragilities. A sudden decline in consumer demand could see a partial collapse in some industries.

    That could be of particular concern to hardware retailing. One of the secondary effects of the pandemic increase in revenues has been an increase in local foot-traffic into independent stores. This has enabled stores to expand their ranges to include more "common purchase" items, such as light bulbs and pet supplies.

    This can have a dual effect. Not only do retailers pick up an extra sale - a customer comes in for a can of paint, and buys a dog collar as well - but reverse sales also happen - a customer stops by for a lightbulb and picks up a small screwdriver.

    Once foot-traffic drops down below a certain level, maintaining those lines becomes less possible, and the sales revert to highly trafficked stores such as supermarkets.

    That said, it is most likely that the increase in interest rates will be more of a short- to medium-term event, with an eventual "normalisation" by the end of 2024. So the question for the hardware industry really comes down to how best to handle a moderately high level of uncertainty over the coming 30 months.

  • This article can be read as a HNN Briefing PDF. To read the PDF, please download by clicking the image/link below.
  • Download hnn-brief-006

    statistics

    Big box update

    Brunswick locals score a win over a Bunnings development

    A proposed Bunnings development in a residential suburb has officially been rejected

    The Victorian Civil and Administrative Tribunal (VCAT) has blocked Bunnings' proposal to build a $21 million store located in Brunswick East, an inner-city suburb north of Melbourne's CBD.

    The proposed two-storey store was to be 15.4metres in height with a floor space of around 8,600sqm. An underground park was planned with 236 parking spaces. In Daily Mail Australia, VCAT said in its ruling:

    This proposal has failed to achieve this outcome in an acceptable manner when all relevant policies are balanced in favour of sustainable development and net community benefit.

    The development site is surrounded by more than 120 homes, mainly in apartment blocks, and on a congested council road, which includes bike lanes and is a popular pedestrian route.

    Brunswick resident Andrea Bunting, president of the Glenlyon Bunnings Action Group who spearheaded the campaign against the development, said the site - on the corner of Pitt Street and Glenlyon Road - would have made the environment "unsafe" for cyclists and pedestrians.

    With operating hours of 6am to 10pm, Ms Bunting argued that the project would have had an adverse impact on residents because of traffic congestion due to delivery trucks and trade vehicles. She also said the building would be situated on an already busy street.

    The design failed to incorporate a safe way to safely enter and leave the site on a congested road.

    The VCAT panel recognised the local action group's issue with traffic congestion in the area and stated the project did not align with state government and council policies trying to reduce traffic in the inner-city. The panel said that the planned store would also create traffic "saturation" at a nearby intersection.

    However Bunnings has not ruled out submitting new plans in Brunswick East. Bunnings' director of property and store development, Andrew Marks, told Daily Mail Australia:

    Naturally we're disappointed with the Victorian Civil and Administrative Tribunal's decision not to grant a planning permit for a new Bunnings Warehouse in Brunswick, and will now review our options with the developer of the site.
    We're mindful of the positives a new store would bring over and above providing customers an improved offer. In addition to the $46 million investment in the economy, the proposal would create more than 50 new local jobs on top of our existing Bunnings Brunswick team.
    Bunnings has been part of the Brunswick community since 2015 when we opened our Sydney Road smaller format store. We remain committed to providing local customers in Brunswick with a wider range of home and lifestyle products.

    Background

    There was a community outcry at the initial Bunnings proposal, in August 2020, with 538 residents submitting objections to Moreland City Council in the middle of lockdown. According to Green Left, Nic Maclellan of Brunswick Residents Network said:

    For many months in 2020-21, Moreland Council staff had engaged with the Bunnings developer, without addressing the fundamental flaws of their application - especially around impacts on neighbouring apartments and on traffic congestion.
    It was only after a massive community campaign and hundreds of objections that Council fully came on board, with councillors rejecting the permit application and Moreland hiring a barrister to contribute to the case before VCAT.

    More than 200 residents donated $44,000 to the residents' VCAT case, with more than 50 residents becoming parties at VCAT.

    While the developers engaged a QC for the 12-day long case, residents engaged two experts, and a planning advocate to argue on their behalf. It was money well spent, with the residents' advocate winning most of the arguments.

    The case is significant for several reasons, according to Green Left. Many apartment blocks are now being built in commercial zones and, typically, residents have fewer rights than those in residential zones. The Bunnings developer argued that residents in commercially-zoned properties just had to put up with terrible impacts. VCAT disagreed.

    Neil Moreton, who represented many of the residents in an adjoining apartment block noted:

    Bunnings wanted to locate the exit lane for its delivery trucks right next to our balconies. The noise would have been horrendous. VCAT agreed with us that this was completely unacceptable.

    Moreland City Council aims to reduce car use and increase walking, cycling and public transport. The Bunnings Warehouse would be a huge backward step in achieving its aims. Pedestrian and cycling advocates also participated in the VCAT process. Faith Hunter from Moreland Bicycle Users Group said:

    We are very happy to see VCAT's decision affirming that the proposed Bunnings development at Glenlyon Road doesn't strike the right balance with sustainable development and net community benefit.
    In particular VCAT has recognised the substantial negative impacts on the local transport networks, particularly pedestrian and cyclist networks. These impacts directly affect the ways in which families and others will choose to travel on a daily basis.

    Ms Hunter also noted how the Bunnings development undermined residents' desires to become more sustainable:

    Residents in Moreland engaged in lengthy consultation processes over several years to help Moreland Council develop the Moreland Integrated Transport Strategy. This reflects their interest in and aspirations for increasing opportunities for active transport and mode shift.
    The VCAT decision affirms that developers cannot seek to make profits at the expense of local communities and their transport networks, either as they are now or as they plan for them to be in the future.

    Ms Bunting said the decision was a "great relief" for locals:

    Residents generally do want a say in shaping their community, but they get frustrated with the planning process. Too often, they are stacked in the favour of developers, especially those with deep pockets. This victory shows that, with a well-organised campaign, it is possible to win.

    Related: Brunswick residents battling to stop a Bunnings Warehouse being built

    Brunswick store battle is ongoing - HNN Flash #28, January 2021

    Related: Bunnings plans $21 million store in the Melbourne suburb of Brunswick East

    Some locals say "no" to Bunnings in Brunswick - HNN Flash #17, October 2020
  • Sources: Daily Mail Australia, Green Left and Herald Sun
  • bigbox

    Supplier update

    WD-40 raises prices in Australia

    Dremel tells Gen Zers and millennials, "When It Comes to DIY, 'You Got This'" in its latest campaign

    In an earnings update to US investors, hardware supplier WD-40 revealed that significant inflationary pressures are impacting its global operations, including Australia. Profit margins are down to 50%, from a traditional level of about 55%, as costs increase.

    As a result, there are price rises across its range of products in the Australian market.

    The largest cost increases for WD-40 are coming from the price of specialty chemicals and the aerosol cans its products are stored in. This had forced the US company to lift prices for its range of WD-40 products in Australia by as much as 8%. WD-40 chief operating officer Steve Brass said:

    In Australia, sales were USD5 million (AUD6.7 million) in the second quarter, down 5% compared to last year due primarily to decreased sales of home-care and cleaning products, which were down 10% compared to last year.

    The Asia-Pacific region makes up 16% of the WD-40 global business. WD-40's sharp sales retreat in the second quarter is in contrast to the rush by consumers to tackle home improvement projects in 2020 during the early months of the pandemic.

    At the time, sales momentum in Australia eclipsed that of WD-40 in its US home market. The boom in sales then generated double-digit sales growth for WD-40 in the Australian market, with its Solvol soaps and No Vac carpet sanitiser also generating strong sales.

    The company believes its local subsidiary is holding up well despite the recent decline in second-quarter sales.

    Related

    WD-40 generates increasing profits from its Australian business - HNN Flash #55, July 2021

    Dremel

    Nearly 40% of millennials and Gen Zers say they lack the confidence to take on solo DIY projects, according to a US-based consumer trends study by Gartner. So Dremel is telling these generations, "You Got This", in new brand campaign that aims to inspire and help them find the courage to take on creative projects big or small. Dremel global president, Sonesh Shah said:

    Through the "You Got This" campaign, we are giving this new class of DIYers the inspiration to unlock their creativity. Gen Z specifically is one of the most artistic generations yet, as the value of creativity among this group ranks 40 points higher (according to MRI-Simmons Custom Audience Data) than the general population.
    With our high-quality versatile products, expertise and after sale support, we are here to coach them as they work through creative and DIY projects around the home.

    In other aspects of their lives, these "new DIYers" don't require much hand holding. Millennials and Gen Zers have been self-educating for years - mastering skills such as the art of the smoky eye (make-up) or coding their own websites. According to research conducted by MRI-Simmons who surveyed millennials and Gen Zers that describe themselves as altruistic/purpose-driven and creative minded, said they're also willing to extend that passion to their home. Research findings include:

  • 75% are always looking for new ways to improve their home
  • 72% enjoy DIY projects
  • 69% like to make things themselves
  • 56% of Gen Z or millennials say everything in their home should be beautiful, so it looks good in pictures for social media
  • With Dremel's latest campaign, the brand brings three ad spots titled, Tub, Mirror and New Place. They showcase a range of creative and functional DIY and home improvement tasks, from polishing an op shop find to removing a nail in order to hang a vintage mirror, encouraging people to pick up a Dremel tool and let their inner DIYer shine.

  • Sources: News Corp Australia and Dremel
  • companies

    Retail update

    Edwards Landscaping & Supplies expansion

    The Tasmanian-based nursery will have another location as well a private storage facility in partnership with Westwood Storage

    Claire Edwards of family-owned Edwards Landscaping & Supplies in Wynyard (TAS) is set to open another nursery, bulk sales, firewood yard supplies yard at South Burnie, according to The Advocate.

    Ms Edwards has been running a landscape supply business out of Wynyard for the last decade before developing the Burnie site.

    The garden-enthusiast and serial entrepreneur said she had set her sights on Burnie a few years ago, buying up a business at Round Hill and starting a smaller-scale building supplies yard. She told The Advocate:

    I'd been looking for something bigger so we could set up the landscape supplies, have room for the firewood and build another nursery.

    Mrs Edwards said many of the customers at her Wynyard business were actually from Burnie, leading her to believe there was plenty of demand for services there. Add to that the growing demand for more plants and landscaping materials as more homes get built, and an increasing demand for firewood. She said:

    The firewood market is growing rapidly. Through COVID we actually ran out, we didn't have enough dry wood so hopefully this will help.
    It was the same with plants, we couldn't order enough because demand went through the roof, so that's why we began growing a lot of them ourselves.

    Ms Edwards said she grew about 60-70% of her plant stock at Wynyard, particularly natives and more hardy species, and would then order more specialised plants in.

    The new complex at South Burnie will be made of a series of brightly coloured shipping containers connected by an undercover walkway full of plants. Ms Edwards said she hoped it would form a sort of "oasis" within the industrial area, surrounded by green hills and the ocean and blocking out the noise of the freight route.

    I want to try and make it more of an experience. Ok, you probably won't find all of the same stuff here that you might find in larger nurseries, so we try and make it unique, make it a great experience for people.

    Ms Edwards said the business would likely open sometime in May, pending council approvals.

    Source: The Advocate

    retailers

    Supplier update: timber

    OneFortyOne completes Jubilee sawmill upgrade

    The Australian Forest Products Association launches a campaign as part of a plan to get one billion new trees planted across the nation by 2030

    OneFortyOne Jubilee Sawmill's second continuous drying kiln (CDK) is now online and operational, completing a $16 million capital investment at its Mount Gambier (SA) site. Jubilee Sawmill general manager Paul Hartung said the kilns are working well and have increased site capacity while improving the quality of the timber dried. He said:

    The CDKs are powered by our own sawdust and wood waste offcuts, and their efficient design is using less energy to process more timber compared to our old batch kilns.
    With the old batch kiln we put 150m3 of timber in at a time, drying it at up to 160 degrees to achieve a moisture level down to 12%. These high temperatures can stress the timber.
    With the CDK, we load the timber to move through the drying process. With the efficiencies of shared energy and temperature control, the new kilns have a maximum temperature of 130 degrees which is a lot less aggressive on the timber as it dries.

    Two of four older batch kilns will be reconditioned and remain on site to provide added flexibility and backup for when the CDKs are offline for maintenance.

    The upgrade project is part of a greater Jubilee-wide modernisation program, which has included with state-of-the-art sawing equipment upgrades, through to the addition of robotic pack wrap and strapping machine.

    Related

    OneFortyOne commits to invest over $11 million in its Jubilee Highway sawmill - HNN Flash #77, January 2022

    AFPA campaign

    As the main industry body charged with representing the interests of the sustainable timber and forestry sectors, Australian Forest Products Association (AFPA) believes Australia is on the cusp of a serious nationwide shortage of locally grown timber and wood-based products. Its goal is to influence government policy and public support to significantly increase the growth of sustainable plantations before the decade ends. AFPA communications director Joe Prevedello, said:

    At the current rate of timber production versus usage, Australia is on a path to have massive wood shortages in the future if no action is taken. And the fact is, we desperately need locally grown timber and wood - not just for the construction industries or our collective economy, but to build new homes, reduce our reliance on plastic products, and also contribute to fighting climate change given that harvested timber sequesters a massive amount of carbon.

    Tim Kirby, founder at advertising agency Galore explains:

    The AFPA came to us with a great story that needed telling. There is a clear current problem, but it's one that brings a multitude of enormous benefits for Australia if we can help to solve it. So, we set about working out the best way to tell that story.

    Written and directed by Nick Snelling, the emotive spots for the "Australia, we need a tree change" campaign open with a young girl engrossed in colouring in her school homework project. When her curious father interrupts to ask what she's doing, she spells out the case to him in simple language as to why Australia should aim to plant one billion new trees. Mr Snelling said:

    We felt it was vital that we bring the high stakes of an Australian wood shortage home - not just for tradies, who will feel its ramifications first, but for parents. We all know kids possess a simple wisdom and purity of thought that often escapes us as adults. Kids tend to only see the common sense or potential for good in things. So that felt like the perfect way to approach this film.

    You can view it here:

    Australia, we need a tree change campaign - AFPA

    Mr Prevedello said:

    AFPA are delighted with the whole concept of 'Australia, we need a tree change'. We have the kind of ambitious but achievable goal that we believe a lot of Aussies will rally behind, and who better lay out our argument than a super-smart little girl, whose generation will ultimately inherit the vital decisions we all make today.

    In addition to out of home (outdoor) ads, the new AFPA spots will run across commercial television and online platforms throughout April 2022.

  • Sources: OneFortyOne and Campaign Brief
  • companies

    ABS building approvals to Feb 2022

    Trends indicate new forces at work in 2022

    The two pandemic years have driven big changes in approvals, which are likely to fundamentally shift in the months to come

    With the Reserve Bank of Australia (RBA) highly likely to increase interest rates in either June or July 2022, there is considerable attention focused on just what that will mean for housing markets, and the general cost of living.

    While hardware retail typically has managed to be less affected by these changes in the past - when house sales go down, renovations go up - this increase is more likely to have a strong effect. On house prices alone, many economists are predicting a fall in the double digits during the 2022/23 financial year.

    One statistic that is useful in sorting out what might happen in the property market is the Australian Bureau of Statistics' (ABS) counts of building approvals. As New South Wales (NSW) and Victoria (VIC) are the two states that have seen the highest increases in house prices, HNN has focused on these. To provide a good sense of context, we've charted these numbers over the past five consecutive years, looking at 12-month periods ending in February (the most recent stats are for February 2022).

    New South Wales

    There are some interesting trends popping up in NSW - in places you might not usually expect them.

    Houses

    Looking back to the pre-pandemic year of the 12 months ending in February 2020, it's evident that from August 2019 onwards house approvals were at a five-year low.

    They only really began to improve from September 2020 onwards, but stayed below or close to the levels for 2017 and 2018 really from March 2021 through to August 2021. Since then, they've followed a similar path to 2017/18, though January 2022 saw them fall close to January 2020.

    Terrace houses

    The big surprise here is that there was a strong surge in terrace house approvals in NSW for March through to May of 2021.

    While since then they've trended down to be closer to past approval rates, they have continued to, in general, outpace past levels.

    That's a bit startling because the level of approvals for March 2020 through to February 2021 was quite low, with the exception of October 2020.

    That higher level of performance returned somewhat in January and February of 2022.

    Apartments under four storeys

    This has not been a big category for NSW since August 2018.

    There have been some small surges in the pandemic years, notably in October and November of 2020, as well as May 2021. However there has been a strong slump from August 2021 through to February 2022.

    Apartments of four to eight storeys

    This was a category that performed strongly in the past, particularly from July 2017 through to February 2018.

    During the pandemic time, there has really only been one spike, in September 2021, but that followed a steep drop in August 2021. In general, it is a category that has slightly underperformed the numbers of the past five years.

    Apartments nine storeys and above

    This tends to be a somewhat volatile number, in part because each building typically provides a large number of dwellings.

    In the two pandemic years, there has really been only one significant peak, in April 2021, though both November 2020 and September 2021 showed high numbers. In general, however, this category has underperformed in pure numbers, and has seemed to go down since May 2021.

    Victoria

    Where the NSW market seems elevated, but shows past volatility that would have been more significant at the time than the volatility of the pandemic years, the VIC market has evidently been very strongly stressed by the pandemic.

    Houses

    That stress shows up very clearly in the chart for house building approvals.

    It's notable that approval levels were a little elevated from September 2020 through to January 2021, but from February 2021 they really took off, reaching a peak in March 2021, and remaining above past numbers through to August 2021. Since then, they have fallen, but just essentially back to the levels of previous years, though January 2022 did mark a low point.

    Apartments under four storeys

    As with NSW, this has not been a very active category over the past five years.

    The most startling number is the sudden surge upwards in February 2021, followed by relatively high numbers in both March and April 2021.

    It's all the more startling as from February 2020 through to January 2021, the numbers were very low, and more recently have remained subdued since May 2021, excepting a peak in December 2021.

    Apartments from four to eight storeys

    The story in this category is the contrast between the numbers for the 12 months to February 2021 with the 12 months to February 2022.

    While this has also been a somewhat volatile category for VIC, it's clear that during 2020 it underperformed even the lacklustre 2019 period. In five-year terms, it managed the lowest numbers over five months. In fact 2021 started poorly, with the lowest numbers from February through to April.

    However, after May 2021, the numbers began to pick up, and remained relatively robust through to November 2021 before falling to another five-year low in January 2022 - only to recover strongly enough to hit a five-year high in February 2022.

    Apartments nine storeys and above

    This has always been a somewhat subdued category when compared to NSW, with the exception of late in 2017, so while numbers were low during the pandemic years, that was not really exceptional.

    Perhaps the most notable numbers are the higher levels achieved in both December 2021 and February 2022. But record five-year lows were achieved in January and February 2021, April 2021, as well as September and October 2021.

    Analysis

    What does all this data tells us? The primary thing is that February 2022 numbers indicate what we might take as a period that is mostly post-pandemic, and also mostly pre-interest rises. There is a kind of "normality" in the generally steep falls in January 2022, followed by that recovery back to generally higher numbers.

    The March and April 2022 building approvals are likely to be highly influenced by events such as widespread flooding in NSW and Queensland, and the growing uncertainties brought about by the impending federal election.

    In terms of interest rates, this is nothing that is going to surprise anyone - though one expects just how quickly the rates climb back above 1.5% may still surprise some.

    HNN concluded some time ago that Australian homebuyers have largely decided that low interest rates meant that this was their only chance to convince banks they could afford to buy certain houses - especially in VIC. While cognisant of the upcoming increase in their house payments, they've decided to "tough it out" for three or four years of potentially high repayments and even the prospect of their homes going "under water" (in the financial sense, of course).

    How well that works out for them is going to depend largely on how the wider economy performs. There are real economic weaknesses that remain unaddressed. It's particularly distressing that low wage growth, for example, is seen as a causation, and not as a strong symptom of underlying problems. As HNN has repeatedly stressed, the real cause is continuing lack of re-investment in businesses, which is partly driven by a lack of productivity growth - which is, in term driven by a lack of investment.

    statistics

    Retail update: Industrial tools and garden

    Metal Manufactures buys Synergy's group of stores

    Australia's largest retail garden chain, Flower Power is back on the market after a deal with private equity firm Alceon collapsed

    Diversified wholesale distribution company, Metal Manufactures (MM) has purchased 100% of shares in Synergy Business Systems (Synergy). Synergy comprises approximately 20 owned industrial supplies stores and manages a buying group that has an additional 40 independently owned stores around Australia. Members include CDA Construction Products (pictured) and Ballarat Bolts and Fasteners, to name just a few.

    Independent corporate advisory and investment firm M&A Partners were engaged by Synergy in mid 2021 to advise the company on capital raising options for the purpose of funding several acquisitions and a sell down of shares by existing shareholders.

    By November 2021, M&A Partners had launched an "expression of interest" capital raising process which resulted in several parties submitting "indicative offers". Two came from major trade buyers that expressed interest in acquiring 100% of Synergy.

    Due diligence began in late January 2022 and concluded in February 2022 with Metal Manufactures confirming its offer to acquire 100% of ordinary equity of Synergy. Metal Manufactures subsequently commenced a 30-day exclusive due diligence period which concluded in the execution of a formal Share Purchase Agreement (SPA).

    About Synergy Business Systems

    Founded in 2006 as a partnership between four Australian industrial hardware suppliers, Synergy Business Systems is a construction and industrial supply group that offers a wide-ranging inventory to the construction, engineering, and industrial fastener industries. All store members have access to Synergy's data and provides products from its preferred suppliers. Synergy also has a privately owned Konstrukt brand.

    Operating in the highly fragmented industrial hardware supply sector, Synergy sees itself as one of the leading industry aggregators in the segment.

    About Metal Manufactures

    MM was established in 1916 and has evolved into a major diversified industrial and distribution company in Australia. Its operations include MM Electrical Merchandising (MMEM, Heymans, TLE, AWM and other brands), MM Kembla, MM Plastics (Graphic Art Mart, Dotmar, AVS & Fluro Pacific), Rushmore Distributors (Repelec, Gilbert Lodge & Computer Dynamics in NZ), Seadan Security & Electronics, All Round Supplies and Underground Civil Services. MM is privately owned and employs over 3,000 staff in Australia and New Zealand.

    Related

    Stealth Global buys United Tools Limited - HNN Flash #77, January 2022

    Flower Power

    Sydney-based garden centre chain Flower Power has been placed back on the market and it is understood that price aspirations are about $500 million, according to a report in The Australian.

    Private equity firms and trade buyers are carrying out due diligence on Flower Power which has 10 stores located in NSW, and generates $25 million of annual earnings before interest, tax, depreciation and amortisation a year.

    The opportunity is to grow the business beyond its 10 stores and expand into new markets.

    Flower Power was founded by Nick Sammut in 1955. Mr Sammut began building cement pots and wrought iron stands in his backyard before creating the garden centre. Flower Power sells pots, plants, homewares and furniture.

    Similar to other garden centres, it was largely immune to the negative impacts of the pandemic in the past two years as consumers invested in their homes while being unable to venture out into the community or travel overseas.

    The company now is run by Nick Sammut's son John and his brothers Mark and Colin are also involved at executive level. Chief financial officer is Michael Spiteri.

    Related

    Alceon Group is expected to acquire garden centre chain Flower Power - HNN Flash #78, January 2022
  • Sources: M&A Partners, Australian Financial Review and The Australian
  • retailers