The Australian Bureau of Statistics (ABS) has released stats for hardware retail turnover through to March 2023. HNN uses the trailing 12 months to March in analysing these stats, which are referred to as "periods". This means that, for example, p2019 refers to the timespan from April 2018 to March 2019.

As the main image for this article (Chart 1) indicates, overall sales for p2023 continued to trend upwards, marking what would seem to be another step change in overall revenues. For Australia, revenues increased by $1.06 billion to 25.571 billion, an increase of 4.3%.

In percentage terms, South Australia (SA) had the largest increase, of 16.6%, lifting by $241 million to $1730 million, followed by Western Australia (WA), up $198 million to $2741 million, an increase of 7.8%. Ranked in dollar terms, New South Wales (NSW) increased revenue by $332 million to $7787 million, up 4.5%. Queensland (QLD) gained $221 million, increasing by 4.3%. Australian Capital Territory (ACT) was up 6.0% or $30 million.

Only Victoria (VIC) showed negative growth, down by 0.24%, with a loss of $16 million in revenue.

New South Wales

Chart 2 shows a familiar pattern for hardware retail revenues in NSW.

A shorthand way to view the change in revenue structure, at least for NSW, is that the pre-2020 highs have become the post-2020 lows.

The most significant element of this graph is the strong kick up for March 2023. That echoes the kick for the three previous periods - p2020, p2021 and p2022 - but it is far more significant, as it comes after the Reserve Bank of Australia (RBA) has lifted interest rates with the goal of reducing this kind of activity.

The increase for March over the previous February percentages for NSW are:

Victoria

Chart 3 shows the kind of results the RBA would be happier with.

Where for p2023 NSW had only two months that were below p2022, VIC has six months below, with five in the second half of the period. The March 2023 result shows a modest upwards kick, shadowing the result for March 2021, despite the February 2023 revenues being stronger than the February 2021 revenues.

Queensland

Chart 4 for QLD bears more resemblance to NSW than VIC.

In fact, QLD has seen p2023 substantially outperform p2022, with only three months in p2023 underperforming p2022, while setting record highs in seven months. Again, there is the sharp upwards kick in March 2023, though it was not as high as for March 2022.

South Australia

Chart 5 for SA shows the state setting records for 11 months in p2023.

That said, performance in calendar 2023 has become somewhat muted with both February and March 2023 close to 2022 values.

Western Australia

As with SA, WA set new records in 11 months of p2023, as shown by Chart 6.

While these results are good, unlike other states the overall COVID-19 driven increase has not been as extreme as for other states, as WA achieved previous high records in p2017.

Australian Capital Territory

The ACT tends to be a little volatile in stats, due to its smaller size and unusual composition. Even with that, as Chart 7 shows, the territory more or less had a "best hits" p2023.

At the start of p2023, through to October 2022, p2023 follows the trend for p2021, then switches over to following p2022 for the rest of the year. The result is an overall record for revenue in this period.

Analysis

As Chart 8, for Australia overall shows, p2023 outperformed p2022 for 10 months, with the two underperforming months very close to p2022 in February and March.

It is almost a little shocking to see how mammoth the gap is between the post-COVID-19 periods and the pre-COVID-19 periods. Chart 9 shows the percentage gain over the three most recent periods.

As HNN covers elsewhere, it seems likely that one reason the RBA did increase interest rates in May 2023 was that sharp kick upwards for March 2023 figures - which repeats across most areas of housing, such as finance.

One thing to be aware of, in terms of business forecasting, is that the markets are at the moment experiencing more of the upside of changes brought about by COVID-19, with the downsides likely to begin showing up more midway through next financial year.

For example, houses have been valued upwards through trends such as work from home and the four-day workweek. Yet those trends will eventually have a profound negative effect on office spaces and urban areas.

The current attitude in most major capital cities is that it is better to retain relatively high office rental rates and accept higher vacancy levels. It's likely that by the end of FY2023/24 there will be a decline in office rents, which will flow through to a devaluation of those properties. It is, of course, possible to repurpose offices to residential uses, but this entails large investments. For example, modern office buildings typically do not offer the requisite access to external windows, which means constructing substantial light wells.

That said, arrangements such as work from home are, basically, far more efficient than transporting masses of workers to and from centrally located offices five days a week. Those efficiencies, however, will only appear over a much longer timescale, and potentially only begin to affect state economic planning at the end of the current decade.

For the majority of independent hardware retailers, renovations form a major channel of revenue. That could be from builders buying materials for major work such as outdoor decks, or home DIYers spending the odd $500 to $1000 to make cosmetic changes to their homes, or do some substantial renovations.

Renovations always require a degree of estimation. While we have very accurate statistics from the ABS for building approvals for renovations, these don't capture all the work that is done, as only a proportion of renovations require such approval.

Two wider ranging sources of information are also provided by the ABS. In the stats for National Accounts, there is an estimate of household expenditure, derived from household interviews. This includes statistics for "alterations and additions", as the ABS styles the category. Additionally, there are stats for new loans obtained by owner-occupiers of dwellings, which also includes a category for alterations and additions.

It's an interesting exercise to compare all three sources of information. Household expenditure is a quarterly category, which means we only have data reaching to December 2022. Lending, however, is data gathered monthly, which means we have data to March 2023, and building approvals - which is the most extensive data set - is also monthly. For building approvals we've also chosen to use the "normal" stats, which exclude renovations which result in the creation of dwellings.

We've arranged the data for lending and building approvals in trailing 12 months to March format. We refer to these ranges as periods, so the data for the period April 2020 through to March 2021 is referenced as p2021.

We've elected to deal only with the five major states, and have excluded Tasmania, Northern Territory and the Australian Capital Territory. The reason for this is that data from those smaller regions tends to be quite volatile, and can be influenced by a single project, making longer-term patterns difficult to find.

New South Wales

New South Wales (NSW) was one of the states most affected by COVID-19, and this shows clearly in its stats for renovations. Chart 1 shows the household expenditure estimates.

The upper graph, for actual values, indicates that the pandemic boost to renovations only began in the December quarter of 2020, but continued on then quite strongly through to December quarter 2022, reaching a record high in December quarter 2021. The lower graph which shows the percentage growth reflects this, with the highest growth levels in the March, June and September quarters of 2021.

Chart 2, which shows the value of loans by owner-occupiers for renovations tells a similar, though more nuanced story, with a bit of a surprise ending.

While the upper graph of actual values shows that p2022 is the breakaway dataset, p2023 comes close to equalling this. That said, there is a clear decline in loan values after the first interest rate rises by the Reserve Bank of Australia (RBA) in May 2022, though overall these values remain significantly higher than in the two pre-pandemic periods.

The big surprise is that at the end of p2023, where the loan values for February and March 2023 shift abruptly higher after the low in January 2023 - despite this being a period of high interest rates. The lower graph reflects these trends, showing the exceptional levels of growth in p2022. P2023 does go negative in November 2023, but it also recovers to close to zero growth in December, January and February, before dipping again in March.

Building approvals for alterations and additions (the ABS reference for renovations) confirm the loan data, as seen in Chart 3.

Building approvals for renovations not only climbed steeply after January 2023, they hit record highs for February and March 2023.

Conclusions

Probably what we're really seeing here is the collision between two patterns - the leftover influences of the pandemic and the newer influences of the increase in interest rates. The cultural and other influences of the pandemic have reset the overall investment in renovations to a higher level. The advent of higher interest rates has an influence as well, with families that might have considered moving to a new house, instead investing in renovations.

Victoria

While Victoria (VIC) was in many ways harder hit by COVID-19, with more and longer quarantine shutdowns, the effect of the pandemic on renovations was largely more muted.

Chart 4 shows the household expenditure estimates.

As the top graph for values shows, while the pandemic did generate a boost, the biggest effect was limited to the March and June quarters of 2022, breaking the usual season slump. Outside of that, the value assigned to the two immediately pre-pandemic periods were relatively close to those of the pandemic periods.

That's reflected in the lower graph, with a very strong dive in growth after the lift in interest rates in May 2022.

Chart 5 shows the value of loans by owner-occupiers for renovations.

At the top graph indicates, while the household spending estimates are nothing that remarkable, the loan values do show a clear difference between pandemic and pre-pandemic periods. Again, there is a noticeable downward trend post May 2022, but a surge that occurs in February and March 2023.

That is reflected in the lower graph, which shows just how outstanding p2022 was in terms of increased spending on renovations.

Chart 6 shows the building approvals for renovations in the state:

The most interesting feature of this graph is the result for March 2023. This is, in contrast to the data on the other charts, broadly flat from the February 2023 values. Historically, that's not unusual, as there is roughly the same result for both p2018 and p2019. Granted, this is also a high level historically - it is still above the March 2020 number, which marked the whole start of the pandemic change - but its contrast with both p2021 and p2022 is significant.

Conclusions

The strong increase in loan amounts despite only a modest boost in household expenditure on renovations indicates many families in VIC were taking advantage of low interest rates. That makes the resurgence of loans in calendar 2023 even more remarkable, and could indicate that there are very strong forces at work in VIC driving renovations.

While that is partially confirmed by the building approval numbers, that flat result for March 2023 could be the first harbinger of families rethinking their investments.

Queensland

Queensland (QLD) is somewhat closer to the NSW model than the VIC model when it comes to household spending on renovations. Chart 7 shows the familiar pattern of strong spending for p2022, but the drop-off in spending to p2023 is stronger than for NSW and VIC.

It is also interesting to note that while both NSW and VIC saw a degree of unseasonality in the spending patterns, those patterns remain strong for QLD, with spending gradually increasing through the year.

As the lower graph indicates, while 2021 was a strong year, 2022 saw spending levels drop back close to pre-pandemic averages.

In terms of lending for renovations, QLD is quite individual, as shown in Chart 8. Loan levels were elevated above those of p2022 in p2023 until December 2022.

While the lower graph clearly shows that p2022 was responsible for most of the growth, p2023 remained in strong positive growth until November 2022. And, again, there is the kick upwards in spending on loans, though for QLD this is confined to March 2023.

When it comes to building approvals, there is something of an echo of the VIC result, with the growth in value of renovation approvals flattening out between February and March 2023 as shown in Chart 9.

There's historical support for this as a pattern, shown for p2018, p2019 and p2020. Even so, given the exuberance of both p2021 and p2022, this could mark a change.

Conclusions

The big question is, why weren't loans for renovations more affected by increased interest rates earlier in p2023? This could be because cultural changes, such as work from home (WFH) have had a stronger impact on QLD. It's also possible that there are hidden boosts to the QLD economy, resulting from the return of both domestic and international tourism that buoyed the spending.

South Australia

In terms of household spending on renovations, much of the effect of the pandemic seems to have been on altering seasonality in South Australia (SA) , as shown in Chart 10.

There is a curious meeting point shown in the top graph in the December quarter, where not only do the pandemic years intersect, but also 2018 as well. Both 2021 and 2022 show high levels of spending through the other three quarters. As the lower graph illustrates, that growth was, once again, largely the result of a bumper 2021 setting high levels for 2022 as well.

As Chart 11 shows, lending followed a slightly different path.

Noticeably, loan values remain high for December, as shown in the upper graph. There is a steep decline in January in p2022 and p2023, followed by an immediate rebound. Loan values do decline post May 2022, but they recover early, in October 2022.

The lower growth graph for lending is atypical for this series, with sharp peaks and low valleys throughout p2022.

Looking at building approvals, four months in p2023 set all-time highs, including for the "down" month of January, as seen in Chart 12.

While approvals did not reach the hyper level they did for March 2022, March 2023 came in a very decent second on the historical scale.

;Conclusions

As with QLD, SA is likely experiencing a range of very individual patterns that are affecting its renovation market. One factor that may be at work is that, as house prices in SA did not rise as significantly as those in NSW, VIC and QLD, there remains much more room for growth in this market, encouraging further investment in dwellings.

Western Australia

As the state least affected by the COVID-19 pandemic, Western Australia (WA) shows some traits similar to the other states, but also atypical behaviour, as seen in Chart 13.

Household spending shown in the upper graph is, surprisingly, somewhat below that for pre-pandemic years for much of the time. As elsewhere, 2021 manages to show strong growth, but only manages to hit 20% in the June quarter of 2021, remaining below 10% for the rest of that year. Even more unusual, spending for 2022 falls strikingly low, equalled only by spending during the first three quarters of 2020.

Yet, despite that, spending on loans does manage to soar, as seen in Chart 14.

It's perhaps best to start with the lower graph, which shows an over 200% boost in loan values for June 2021. That's partly a reflection of a smaller market, but it remains astounding. As the top graph shows, for both p2022 and p2021 there have been very high loan values relative to the past. And, again, there is the kick upwards in March 2023, despite high interest rates.

Building approvals for renovations in WA, it turns out, deliver something of a wild ride, as seen in Chart 15.

It's interesting that there are two points of convergence, in both October and January. Outside of those two months, both p2022 and p2023 trended very high, though p2023 was somewhat more muted in both February and March.

Conclusion

Here again we're seeing something of a disconnect between loans taken out for renovations, and the numbers indicated by both the national accounts and building approvals.

Analysis

One thing we could suggest is that there is somewhat less mystery around why the RBA chose to increase interest rates in May 2023. If the RBA Board were looking at similar figures to these, and seeing the boost in loans, despite high interest, that would have caused some grave concerns. One difficulty with entrenched inflation is that, as it discounts the value of the currency, it also discounts the value of interest on loans. It's likely this kind of sharp kick up in March 2023 was interpreted by the central bankers as being a possible sign of that trend. Also, of course, building approvals for renovations continue at a high rate in most states.

What can be expected from renovation activity for the rest of the year? It does seem very likely that at some point in the near future, there is going to be a downturn. At the very least that could happen post-January 2024, with level hitting their seasonal low, and not quite making it back up to current levels for the rest of the year.

Outside of that, the fate of the renovation market could mostly relate to the ongoing struggle for supply of goods. It supply constraints remain, there will be an ongoing increase in interest rates, and at some point this will hit lending for renovations.

One thing to bear in mind about this is that, while various construction bodies complained about the RBA lifting rates, the revue of the RBA did not only not correct that, it set the RBA up to pay even less attention to the housing market. Where in the past RBA decisions did take into account conditions in the housing market, for example, the bank now has a mandate to almost entirely ignore them, and to concentrate on the core economy instead.

Australia's largest hardware retailer will trial different models to achieve either a four-day week or nine-day fortnight and test what the benefits are to its workers, after reaching a landmark agreement with the Shop, Distributive and Allied Employees Association (SDA). Bunnings will also bring in more holidays to its full-time team members. It will be the first Australian retailer to trial a four-day working week.

SDA delegates supported the retailer's proposal to deliver pay rises of 10.5% - 4.5% this year, 3% in 2024 and 3% in 2025 - to 40,000 staff over three years and lift annual leave to five weeks a year, reports the Australian Financial Review (AFR).

SDA national secretary Gerard Dwyer said the union had been seeking a four-day week in the industry for years and the Bunnings deal could set a precedent. He told the AFR:

This is a significant breakthrough for work-life balance...This package is good for workers and for this major retailer alike, setting Bunnings up as a preferred employer in a tight retail market.

Full-time employees will be able to request the option and, on agreement, spread their rostered hours over four days or over 18 or 16 days per four-week roster cycle, provided they agree to work some weekend shifts.

The deal will be submitted to the Fair Work Commission for approval, after workers vote on it.

Bunnings chief people officer Damian Zahra said the retailer had a track record of industry-leading pay and benefits.

In addition to pay increases, higher penalty rates and greater choice for teams on how they structure their work week, the new EA [Enterprise Agreement] provides a number of changes to the treatment of days in lieu relating to public holidays, which in turn changes our approach to annual leave provisions.

He said that Bunnings had withdrawn its previous 2019 agreement to "provide certainty for our team" after a delay with approval by the Fair Work Commission and "uncertainties facing us at the time with the pandemic".

It was always our intent to implement a new agreement as we came out the other side of COVID.

We've worked hard to simplify the agreement as much as possible, and have been consulting with our team for a number of months to ensure we've captured what's important to them, and as a result we are optimistic the agreement will be endorsed by team and Fair Work.

Bunnings managing director Mike Schneider previously criticised the bargaining system as "a waste of time" after becoming frustrated with the delays in approval and the "never ending cycle of review".

Frenchs Forest store

Northern Beaches Council recently approved a modification to the development application of the Bunnings store being built at the corner of Warringah, Allambie and Rodborough Roads in Frenchs Forest (NSW), allowing all floor levels to move upwards by 50cms - but with a corresponding decrease to the internal height of the Level 2 warehouse. In the Manly Daily News, the council said in its assessment report:

The modification does not change the overall height of the building, and the change is not perceptible from the exterior of the building.

Bunnings was aiming to complete construction in early 2025.

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). There was also another conflict over the size of the Bunnings Warehouse logos and signs, as well as the building's predominantly green colour scheme.

Bunnings agreed to reduce the size of the logo by 33% on Rodborough Road, remove a number of hammer logos from the rest of the building and restrict the amount of green paint it used on the facades.

The Frenchs Forest outlet will be first time Bunnings will offer three levels of retail that includes hardware and building supplies, an outdoor garden centre, a large cafe and a kids' playground. There will be two levels of parking for close to 400 vehicles.

The hardware retailer said this store will generate more than 800 jobs, including 700 during construction and about 135 vacancies for retail workers.

Related

WA jarrah timber source

Bunnings is monitoring how timber harvested by the West Australian government to allow Alcoa to mine has been labelled sustainable despite no rehabilitation of the jarrah forests being completed in 60 years of bauxite mining.

In 2020, UK company British Standards Institution (BSI) audited the Forest Product Commission's (FPC) timber harvesting before mining, and Alcoa's rehabilitation afterwards, and decided it met the requirements for sustainable forest management under the global Programme for the Endorsement of Forest Certification (PEFC). However the Wilderness Society called that conclusion "greenwashing".

Bunnings, which sells jarrah products described as "sustainably harvested", confirmed some of its products made from WA hardwood come from PEFC-certified forest areas cleared for Alcoa.

In March, The Age revealed that none of the almost 280 square kilometres of jarrah forest cleared by Alcoa over 60 years has been rehabilitated to the point where it meets the completion criteria agreed between Alcoa and the WA government.

Bunnings is aware of concerns about the rehabilitation of areas cleared for Alcoa. It plans to review the findings of an upcoming audit that it understands will consider the adequacy of Alcoa's rehabilitation.

Timber harvested from a native forest can only be classified as sustainable under the PEFC standards if it is not "converted" to another use. In practice, this means the return of the natural ecosystem.

Border Builders Mitre 10 in Goondiwindi, QLD started out in the early 1950s as a partnership between Bede Byrne, a plumber with more than 20 years' experience and a builder, Ross Noud.

The descendants of Bede Byrne continue to run the business and recently celebrated its 70th anniversary. At the helm today are Alwyn and Patrea Bauman and their son Matthew.

Alwyn Bauman spoke to the Goondiwindi Argus about the key milestones the hardware retail business has achieved. It remains a household name with the local community.

1953: On 12 May, Border Builders and Plumbing Supplies begins trading from rented accommodation at 107 Marshall Street, Goondiwindi, providing a retail hardware service to the town.

1960: The business moved to a freehold location, (its permanent address) at 119 Marshall Street.

1968: Two apprentices, John Byrne (plumber) and Gary Noud (builder) completed their training and joined their fathers in the business. By this time, Border Builders and Plumbing Supplies had emerged as a significant professional supply outlet for the district. Its main customers were tradespeople and farmers.

1971: The company changed from its tradition of independent purchasing and joined the Mitre 10 buying group.

1985: Bede Byrne passed away after a long battle with cancer and John Byrne assumed control of the Byrne share of the business. John and Gary maintained their successful partnership into the second generation.

Late 1980s: Began making aluminium windows and security products.

1991: In April, Gary passed away as the result of a severe asthma attack. For the next 12 months, Ross Noud returned to fill the gap. By the end of the year, the Noud family share was offered to John Byrne, with options to continue, or to reform a new partnership.

1992: On the first of March, the Noud share was sold to Alwyn and Patrea Baumann, who was John Byrne's sister.

By this time, the business was operating from three freehold properties, with the main display floor of 800sqm located opposite the council chambers and close by the post office.

The two other buildings were located at the back of the site, fronting Callandoon Street. One housed bulk trade products on over 1325sqm and the other, steel and rural property supplies, on 1010sqm.

1997: On 1 July, the Bauman family (Alwyn, Patrea and Matthew) assumed total ownership of Border Builders Mitre 10. With Matthew joining the business, the company had begun its transition to the third generation of the Byrne family.

2000: The Bauman family purchased the Millmerran Hardware and began trading as Millmerran Hardware True Value.

2002: On 20 June, Enid Byrne (the sole surviving member of the original partnership) opened the new Border Builders Mitre 10 Home and Trade Store at 119 Marshall Street.

2006: A new building in Campbell Street, Millmerran, was constructed.

Petbarn

Pet supplies company Petbarn will open its second store in Toowoomba, QLD after it signed an eight-year lease with a five-year option at Wilsonton Shopping Centre.

Co-owned by Consolidated Properties Group (CPG) and CVS Lane, the centre has been in its second stage of the $25 million redevelopment since August last year, according to the Toowoomba Chronicle.

Petbarn will be the largest space to date, encompassing 850sqm of the 2163 qm site on the corner of Bridge Street and Richmond Drive.

CPG national manager of retail leasing Rob Clifton said the addition of Petbarn was a "very big deal" not only for the centre, but the Toowoomba region too. Mr Clifton told the Toowoomba Chronicle:

The pet industry has obviously had a huge growth spurt with the amount of people adopting pets during COVID-19 and this retailer has seen that growth creating a real need for a second store in the region.

Petbarn is expected to open in August, as the centre's second stage of construction nears completion.

TPG Capital owns Petbarn as well as vet clinic Greencross, and has an asset value exceeding $100 billion.

It recently announced it is acquiring a smaller Melbourne-based rival Habitat Pet Supplies which has five stores. Subject to approval from the competition regulator, Greencross plans to merge the newly purchased business with its Petbarn division.

Packaging and recycling company Visy has acquired moving and storage boxes supplier and hardware retail products distributor Zenexus.

Privately-owned Zenexus owns home improvement brands such as FlexiStorage, RackIt and Wrap&Move amongst its product offerings. It distributes these products exclusively through Bunnings in Australia and New Zealand, as well as through Homebase in the UK. There are no plans to change or discontinue any of Zenexus' products and they will continue to be sold through Bunnings and HomeBase.

Financial terms of the transaction have not been disclosed. Executive chairman of Visy Industries and Pratt Industries Anthony Pratt said in a statement:

The purchase will allow Visy to join our sister company Pratt Industries in the US with a dedicated, retail-facing business unit called Visy Retail Services.

Zenexus' managing director Rodney Sutton will serve as the general manager of Visy Retail Services. Mr Sutton's initial focus will be on integrating Zenexus into Visy.

In addition, Zenexus' 160 employees of the company will transfer over to Visy Retail Services.

Visy has a workforce of more than 7,000 people and operates in more than 140 sites across Australia, with additional trading offices across Asia, Europe and the US.

Related

Home Depot has reported revenues of USD37.3 billion for its first quarter, down 4.2% from the same three months a year ago. Its comparable-store sales also declined 4.5% from a year earlier during the quarter ended April 30.

Billy Bastek, executive vice president, merchandising, said business during the period was strong for products related to "smaller-ticket outdoor projects." Homeowners are opting for smaller projects and shifting away from large renovations.

Mr. Bastek said consumers reduced spending on large, discretionary items such as outdoor furniture, BBQs and appliances, as well as kitchens and flooring. Big-ticket transactions of USD1,000 or more were down 6.5% in the first quarter.

Four of the retailer's 14 merchandise categories - building materials, hardware, plumbing, and millwork - posted positive comparable sales which helped to drive the average ticket up 0.2 percent despite timber deflation. Mr. Bastek said:

During the first quarter, we saw a significant decline in lumber prices relative to a year ago. As an example, on average, framing lumber was approximately USD420 per 1,000 board feet, compared to approximately USD1,170 in the first quarter of 2022, which is a decrease of 64%.

Net earnings were USD3.9 billion, down about 7%, from the same period last year. Ted Decker, company chief executive, said during a conference call with industry analysts and reporters:

We expected that fiscal 2023 would be a year of moderation for the home improvement market. We also observed more broad-based pressure across the business, compared to a few months ago.

Home Depot will finish the year with sales between 2% and 5% lower than last year, and expects earnings to fall between 7% and 13% this year on lower margins.

This result comes after three years of sometimes spectacular growth. Since the novel coronavirus pandemic began in 2020, sales have grown 43% to USD47 billion.

But in the past three months, it has been plagued by bad weather including extreme weather events in California, erratic timber prices and suddenly cautious consumers.

In 2023, consumer spending on home improvement projects has slowed down, and reduced the scale of some remodelling projects. They have become less confident in their economic prospects and pulled back spending as they navigate continued high inflation and elevated interest rates. Many homeowners have completed most of the projects they wanted to accomplish during the pandemic.

Overall, Home Depot's core shoppers, often homeowners, are in good financial health, said Richard McPhail, Home Depot's chief financial officer said, but "there has been this shift in the consumer psyche."

Professionals such as contractors and electricians, who have historically driven about half of its revenue, are still reporting healthy backlogs, Mr. McPhail said in the Wall Street Journal.

The retailer's expectation for "2023 to be a year of moderation in the home improvement market" might apply to industry peers as well.

Pay increases for workers

Home Depot sees this year as a "transitional period" but remains bullish on the medium-to-long-term outlook. It is especially excited about the investments it has made to recruit and retain the best workers to serve its customers. Earlier this year, it announced the decision to invest USD1 billion in employee wages even as sales are slowing in a weakening consumer economy.

Giving pay raises at the same time sales are slumping seems like an incongruous strategy, but Home Depot executives believe it will actually boost the big-box retailer's industry-leading position. At the time of the announcement, Mr Decker said the investment "positions us more favourably in every market where we operate." He said higher wages will improve the customer experience as the company attracts more high-quality workers and keep experienced staff.

This investment will help us attract and retain the best talent into our pipeline.

Home Depot also added more training opportunities, including the promotion of more than 65,000 employees in 2022 alone. Ann-Marie Campbell, executive vice president of US stores and international operations at Home Depot, said:

Our ability to attract qualified pools of candidates and hire from the top tier of these pools has improved even in our high volume - higher-volume stores. And in March (this year), we saw the greatest year-over-year improvement in our attrition rates across all associate tenure cohorts that we have seen in some time. As a result, we are seeing improvements in key customer service metrics, as well as benefits to our operations in the form of consistent staffing and less safety incidents across all our regions.

What is happening in the residential construction industry?

The big question at the moment is, what is normal? The following are all factors that affect the industry:

Is there something like a "normal" that the industry has returned to, or have circumstances changed so much - and continue to change - such that any "normal" we might outline is so far from the previous, pre-2020 "normal" that the term loses all significance?

At the core of those questions is, of course, concerns about what FY2023/24 is going to look like. Will all these influences start to flatten out, with interest rates holding steady, albeit at a higher rate, inflation making it down to a more manageable 3.5% or so, supply increasing and stabilising in price?

In other words, while the issue of "normal" (inherited itself from the pandemic) remains pertinent, the real question is more whether we should look forward to things getting a little better, or a little worse.

To develop some kind of an answer, HNN has chosen to look at a range of statistics closely linked to the building work done statistics provided by the Australian Bureau of Statistics (ABS). At the core of this are the figures for actual building work done. Additionally, there are the numbers for building work not yet commenced, commenced and completed.

Overall, what HNN sees is a pattern that is more about return to median values than it is either collapse or rapid growth. It's true that the growth figures during the COVID period were exceptionally high, and there are some brief indications of a negative compensation for that. But overall the activity levels during calendar 2022 moved to be more broadly inline with past levels.

Business failures

That is not to say that there is not some degree of "chaos" in the construction market itself. There are a number of construction companies, big and small, that are failing or under considerable stress. Without commenting on any specific companies, it seems that in general - at least for the larger companies - what's really happened is that the circumstances of the market have moved beyond the management competencies of the companies involved.

While these failures have been largely blamed on price blowouts on existing construction contracts, that is only one factor in what has happened. Increased demand lured many construction companies to take pricing risks in order to secure a larger market share, which would have carried with it a number of benefits. Those risks did grow larger than expected, it is true, but ultimately it was less the size of the risk and more the future of the risk that ended those companies.

In short, the companies that might have secured those risks through additional financing chose not to. That decision was likely partly because the risks were too high to justify the available return, and partly because other and better investment opportunities were emerging in the post-COVID environment.

Looking at the data

So, on to the data. The figures for actual building work done (BWD) use chain volume measures. The ABS also has a great paper on what chain volume measures are:

Essentially, chain volume is a means of describing the volume of goods produced in dollar terms, while taking account for variations in pricing over time. Practically, this means we can compare a chain volume dollar value from 2022 with one from 2015, and have that comparison make sense.

What we wanted to do was to look at pre-COVID data, data during the three COVID years (2020, 2021 and 2022), and also have a "normal" (not in the statistical sense) value to compare these with. For that normal value, we chose the average for the five immediate pre-COVID years, 2015 through 2019.

Australia

Normally we would present the stats for Australia last as a summing up of those for the states and territories, but as the data is a bit diffuse, it's perhaps better to present the Australian stats first to provide a kind of framing. While it is true that the effects of COVID-19 were broadly different between the different areas in Australia (not only state-based, but also city and regional differences), nonetheless it was the entire country that went through the pandemic, and it affected everyone everywhere to some extent.

Just to provide a sense of what this kind of overview can provide, we can start with this chart, which shows houses and other residential (mostly multi-unit dwellings) not yet commenced. Chart 1 shows the raw numbers of dwelling units.

What makes this chart so intriguing is that you can see some relationship between houses and other-res. There is a series decline in other-res from June quarter 2020 through to December quarter 2021. At the same time, starting in March quarter 2021 through to December Quarter 2021, there is steady increase in houses. This pattern then to some extent reverses from March quarter 2022 through to December quarter 2022.

Another view is offered in Chart 2 in this case showing the same data in stacked bar charts:

The top graph is the same data as in Chart 1, but the stacked bars show a remarkable consistency from March quarter 2019 through to September quarter 2022. Only the bar for December 2022 breaks out above that level, and even then it is only a reversion to pre-2019 numbers.

Yet what does shift is the relationship between houses and other-res, with houses reaching their highest level for this data series between June quarter 2021 and December quarter 2022.

In the middle graph on Chart 2, for building commenced, shows both why concerns have been raised about the construction industry, and why these are probably note really warranted. There are two quarters of exceptional growth, for the June and September quarters of 2021, and the December quarter of 2021 is also high. The numbers for calendar 2022 are lower than that, but not exceptionally so on a historical scale. House builds are above the historical average, and other-res builds are below that.

In building completed, the bottom graph, we begin to see some of the dynamics in the industry emerge. One would expect after the surge in commencements for June and September 2021 to see a similar bump between four and six quarters later. In general, completions are slightly below the average for the pre-pandemic years post March quarter 2020.

Building work done

Houses

That brings us to the stats that indicate the actual work in process on construction sites, the building work done. Chart 3 shows BWD for houses. The three blue lines are for the pandemic years, and the black line is the average for the five years from 2015 to 2019.

The pale blue line shows the expected low level of work during calendar 2020. The medium blue line shows the sharp uplift in calendar 2021, and the darkest blue line shows a decline in activity back to 2020 levels for calendar 2022.

The mystery, of course, is the decline between December quarter 2021 to March quarter 2022. It's not in line with what one would expect from the commencements in the second half of calendar 2021.

Yet, for all that, the calendar year totals shown in the lower graph show that taken on a yearly basis the fluctuations are less than expected. For all the decline shown in 2022, the unusually high activity in March quarter 2022 is enough to boost the annual result to being just under the average for the pre-pandemic years.

Other residential

The BWD for other-res could not be more different from that for houses, as shown in Chart 4:

The upper graph shows that, as expected, the numbers for other-res during the pandemic years are simply dismal. It's notable that these had already begun to decline at the end of calendar 2019, though their best performance for the pandemic was in 2020, but by the September and December quarters of 2021, BWD had reached record low levels.

The lower graph bears this out, with the annual totals remaining below the pre-pandemic average from 2019 onwards.

Alterations and additions

On a happier note, the figures for alterations and additions (basically renovations) shows strong positive growth, as seen in Chart 5:

The top graph shows why hardware retailers had a good couple of years. It's interesting that the strong growth in these projects only really started in December 2020, then hit a peak in the September and December quarters of 2021, but showed something of a drop for the September and December quarters of 2022.

The bottom graph shows that clearly the pandemic years remained well above the pre-pandemic average.

Waterfall

HNN has prepared the waterfall graphs slightly differently from standard practice as we've represented the full amount of the average in the leftmost bar for Houses, in order to provide a real perspective for Chart 6.

There is a very clear and simple conclusion that comes from this particular chart: any real shortfall in BWD has its origins in a reduction in work done on other-res construction.

That's easy to see, but what actually does it mean? Is there a market for multi-unit dwellings that is not being serviced by the industry, meaning that funds available for construction are not fungible between the two categories? Or is there simply too much demand being funnelled through house construction, beyond the ability of the industry to support, where multi-unit is a more efficient way to deliver dwelling spaces?

Probably if one is looking for the source of the real distortions to the construction market it lies in this area. What might be happening, for example, is that the construction industry is reluctant to reformulate what it does to better accommodate the surge in demand for houses because - as the psychological effects of the pandemic diminish - the market will swing back towards multi-unit construction.

The degree to which that tension will determine the future of the industry is unknown, but that might be a good framework to use for analysing it in the future.

If, as was suggested in the introductory article to this series, the tension in the Australian construction industry have something to do with the balance between house and multi-unit construction, then New South Wales (NSW) represents a key area. It is the one major city that has most integrated multi-unit with houses in its real estate markets, due both to some natural city characteristics, and its long history of higher density living.

Construction progress status

Chart 1 shows the view of progress as represented by Australian Bureau of Statistics (ABS) building work done stats:

In the top graph for this chart what is most noticeable is that, for the most part, the non-commenced number for houses is relatively stable, while that for other-res varies considerably. It shows the same general pattern seen for Australia overall, with numbers of other-res reducing when house numbers increase, especially during the June and September quarters of 2021. As overall non-commenced numbers increase, this is largely due to growth in other-res.

In the middle graph, there is a familiar peak for commencements in the June and September quarters of 2021, followed by a relatively steep decline to March quarter 2022, and a partial recovery thereafter.

In the bottom graph, there is the same general mystery as to how the high rate of commencements seems not to be reflected in completions. Overall, there is a general drift downwards from a high rate of completions in the September and December quarters of 2018.

Houses

Chart 2 shows BWD for new houses.

One of the most interesting things to note about the top graph, which shows the BWD by quarter, is that 2018 was an exceptionally good year, outpacing even 2021. Equally, 2020 was an exceptionally poor year.

Of most note is that 2022 started out by providing the highest ever result for the first quarter, with the second and third quarters dropping down, but the year picking up in the final quarter to match the average.

The bottom graph shows that for the year overall, BWD was below the pre-COVID average, but not by much.

Other residential

By contrast, other residential building work done shown in Chart 3 indicates a very poor result for recent years.

In contrast to many other results, other residential is not only below previous year for the COVID-19 years, it doesn't really recover: results for 2022 are only marginally better than for 2021, and 2022 is well below the pre-COVID average.

Alterations & additions

Perhaps the most surprising thing about the top graph of Chart 3 for alterations and additions, is that it took under the December quarter of 2020 for this category to take off.

Though it's equally interesting that something significant happened in 2016. The COVID-19 years did end up breaking all the previous records. As the bottom graph indicates there was a slight decline in 2022, but the year easily went far beyond the pre-COVID-19 average.

Changes: waterfall

As Chart 5 indicates, there was a slight fall in BWD on houses, but a really steep fall in other residential, with alterations winning back a small but significant slice.

The pre-COVID-19 average for all categories was $26,466 million, and 2022 came in at $22,683 million, for a difference of $3,782 million, a loss of 14.3% on the average.

As was suggested in the introductory article, this relationship between the overall fall in value of work done and the split between houses and other-res is complex.

The construction industry in Victoria (VIC) represents a strong contrast to that for New South Wales (NSW). As Chart 1 indicates, on a proportional comparison, the number of not-commenced builds in VIC is significantly lower.

Also, with the exception of the surge during the June, September and December quarters of 2021, the number of non-commenced houses is relatively low. However there is the December quarter of 2022 a strong surge in non-commenced other-res.

In the middle graph, there is the familiar surge in commencements for the June and September quarters of 2021. What is most noticeable is the increase in the proportion of house commencements.

That different proportion is reflected to some extent in the bottom graph for completions, with the March quarter of 2022 showing a similar adjustment. The trend does adjust in the final three quarters of 2022, but the proportion of houses remains high on historical averages.

Houses

Chart 2 shows BWD for new houses.

The upper graph shows that in terms of beating previous historical highs, that is really only achieved in the September and December quarters of 2021, as well as the March quarter of 2022. However, the rest of 2022 is significantly lower than the previous year. Despite that, as the lower graph indicates, 2022 did beat the pre-pandemic average for work done.

Other residential

Other residential building work done shown in Chart 3 shows that while 2021 was a very poor year for this category, both 2020 and 2022, while below average, were not dismal.

As the lower graph shows, both 2020 and 2022 did manage to do better than 2015.

Alterations & additions

As the top graph of Chart 4 indicates, the renovation market was somewhat delayed in VIC, only really taking off in September 2021, but maintaining a high level through to the end of 2022.

That's backed up by the lower graph, which that 2020 met the pre-pandemic average while both 2021 and 2022 exceeded it by an increasing margin.

Changes: waterfall

As Chart 5 indicates, VIC was one state that was, overall, less affected by a drop-off in building activity for 2022. While there was a decline for other-res, this was most compensated by the strong rise in renovations.

Queensland (QLD) occupies a space somewhere between New South Wales (NSW) and Victoria (VIC) when it comes to integrating multi-unit dwellings into its overall housing market. That's reflected in Chart 1, which reflects progress in building work done.

The top graph shows that in non-commenced other-res has a dominant role through to June quarter 2018, after which it declines. In particular, from December quarter 2021, houses play a much strong role.

The middle graph for commencements shows a similar pattern, with houses particularly dominating for the June and September quarters of 2021, and to a lesser extent in December quarter 2021 as well. While there is a drop off in commencements in December quarter 2022, this is at a similar level as for March and June quarter 2019, pre-pandemic.

In the bottom graph, for completions, there is a surprising drop from March quarter 2019 through to June quarter 2021 for house completions, but then an elevated level for those completions from September quarter 2021 through to December quarter 2022.

Houses

Chart 2 shows BWD for new houses.

This chart shows how QLD has gone through a series of extremes during the pandemic years. The upper graph for 2020 shows a very low level of work down, contrasted with historically high peaks for the June and September quarters of 2021, and then a gradual collapse back to 2020 levels during 2022.

That's reflected in the lower graph, which shows QLD missing the pre-pandemic average in 2019, 2020 and 2022.

Other residential

Other residential building work done shown in Chart 3 indicates a steep decline in other-res, but one which began pre-pandemic in 2018.

As the upper graph indicates, both 2020 and 2021 show low levels of BWD for this category, though 2022 shows something of a recover in the September and December quarters.

The lower graph clearly shows that other-res has been below the pre-pandemic average for five years.

Alterations & additions

As the top graph of Chart 4 indicates, QLD has not had as good a renovation result as either NSW or VIC.

There were seven quarter of over-performance, from the September 2020 quarter, through to the March 2022 quarter, but the remainder of 2022 was somewhat muted.

That said, as the lower graph indicates, work done on renovations has exceeded the pre-pandemic average over the past five years.

Changes: waterfall

As Chart 5 indicates, QLD has suffered a decline from the average in 2022 for both houses and other-res, with renovations able to gain back only a slice of that.

Community-owned co-operative Hastings Co-op has appointed Nick De Groot as its new CEO, following the passing of CEO Allan Gordon in March this year. Mr De Groot will start in the role in early May.

Retail World reports that Mr De Groot brings more than three decades of diverse management experience to the Co-op. This includes senior leadership roles with KPMG, Essential Energy, the Roads and Traffic Authority of NSW, Mid North Coast Local Health District and most recently I-Med Radiology MNC.

He holds a Bachelor of Financial Administration and Graduate Diploma of Applied Finance and Investment. Mr De Groot was previously a non-executive director with Bundaleer Care Services, Port Macquarie Chamber of Commerce and Hastings Co-op (since November 2022). Commenting his appointment, Mr De Groot said:

I'm very excited about the appointment and appreciate the significance of leading Hastings Co-op into the future. Having been on the Hastings Co-op Board, I have a deep understanding of the challenges and opportunities we face and the Co-op's importance to the local community.

Hastings Co-op has a long history in Hastings and Camden Haven, in the mid-north coast region of New South Wales, since 1916. According to its website, the co-op employs 400 people across eight business units including: supermarkets, hardware and rural supplies, liquor stores, fuel, department stores, condiment manufacturing and car hire.

There are three hardware and farm supplies outlets in Wauchope, Comboyne and Kew, operating under the Mitre 10 and CRT banners.

Ibis Siding Garden Centre

Kym Gilbert, owner and manager of Ibis Siding located in Goolwa, part of the Fleurieu Peninsula in South Australia, said his business's biggest financial drains were wages, electricity and insurance. This had been the straw on the camel's back following COVID-19 and the floods. He told The Victor Harbor Times:

At the end of the day, there's simply no profit.

Mr Gilbert also claims large players like Bunnings, which opened in Victor Harbor in July 2018, have drained much of the prospective clientele from smaller businesses. He said:

Bunnings setting up in Victor takes clientele away and that stings. I don't know how many more businesses are gonna close down on the Fleurieu, but it's happening.

If you lose your small businesses, you lose tourism. The Fleurieu region's country towns depend on local business, no one wants to come all the way to Victor Harbor to shop at Bunnings.

Mr Gilbert said he had a real estate agent from Adelaide approach him to sell the back four acres of scrubland of his property for $1.4 million, but even this sum could not tempt Mr Gilbert back into opening again.

At the end of the day, with overhead costs the way they are, we'll just continue to go backwards.

Ibis Siding opened in July 199 and was a joint venture between the four Gilbert brothers - Kym, Chris, Lee and Jim and their mother Christine, who passed away in 2012.

At its height, the centre stocked over 2000 plants - potted and seedlings, most of which were grown as tubestock at Currency Creek on the Gilbert family farm. Mr Gilbert said:

We started the business together, we specialised in natives, such as Geraldton waxes and wattles, with a real focus on natives specific to the region.

Mr Gilbert was a beekeeper in the 1980s, which has given him a well-rounded knowledge of the region and how to work the land best.

Local knowledge is being lost, it's really sad.

Another concern he has is the loss of sponsorship opportunities for local sports teams, which small business supports in regional areas. Mr Gilbert said:

We always sponsored the footy club, Goolwa footy club and the netball club and we've always done the raffles, pub events and supported the CWA. I served the community for a long time, it's a bittersweet departure.

Mr Gilbert wishes to thank his loyal customers for supporting Ibis Siding over many years and his staff.

Business Victor Harbor chief executive officer, Colin Shearing said small businesses local to the Fleurieu have been somehow holding off their rising operational costs in the current economic climate, but believes this will not last long.

Businesses have weathered increased costs [such as] dramatic insurance increases (particularly those businesses now deemed by insurance companies to be in 'flood-prone' areas up to 150% increase in premiums), energy cost hikes, supply shortages, wages increases, increased fuel costs and 'fixed term' interests rates are being turned over to variable rates.

As regional towns like Victor Harbor and Goolwa with expanding populations become targets of national and international retail enterprises, fewer profits are funnelled back into the community. Mr Shearing said:

Small to medium sized businesses contribute $617 million to the local economy... the big national and internationally owned retailers do not re-invest their profits back into SA in the same way.

However Bunnings area manager Justine Burrage said the connection it has developed with the locals in the region is important to the business. She told The Victor Harbor Times:

Supporting the community is at the core of what we do. Our teams do a tremendous job of providing ongoing, hands-on and grassroots support, whether that's through our weekly sausage sizzle, heading out to help with a community garden or painting project, product donations to local organisations or hosting DIY workshops in store.

Bunnings does sponsor local sporting teams or purchase direct sponsorship packages. Ms Burrage said:

...we support them through our sausage sizzles, hands-on support with projects like upgrading facilities, as well as general product donations.

Referring to the concern raised by local small business owners, Ms Burrage also said Bunnings usually employs staff from within the region.

Our teams live and work in the communities we operate and we always strive to provide both ongoing employment opportunities in regional areas and quality, localised advice to customers.

Manufacturer and distributor Dyna Group has lodged a proposal with Gympie Regional Council, to overhaul its timber yard and sawmill which has been a fixture at Pie Creek for over 50 years. Pie Creek is located on the outskirts of Gympie, QLD.

Under the plan, the existing buildings will be torn down and replaced with a new 43m x 39m structure, reports The Gympie Times.

The structure will cover the remaining buildings as well as provide storage for timber at the mill. The timber retaining wall running alongside the road will be replaced with a blockwork retaining wall.

According to the proposal, the existing buildings have stood at the sawmill for half a century. The development application says:

These buildings have deteriorated over time, and are causing many issues such as leaking roofs, which is causing WHS (work health and safety) issues for the workers. It is more economical to replace, rather than to repair, the buildings.

The Dyna Group was founded in 2010, but CoreLogic RP data records show the Baker family has owned the sawmill since 2004. LinkedIn also lists Nathan Baker as the company's managing director. Its website says:

DynaGroup is a 100% Australian-owned specialty manufacture of treated pine fencing and landscaping products...We partner with the best and most prestigious family-owned timber resellers across QLD and NSW to deliver the highest quality products to contractors and end users.

We like to think of ourselves as a supply chain partner to our customers. For resellers to offer the highest quality products for their regular trade customers, or to DIYers doing a home improvement, they need suppliers that go above and beyond a transactional trading relationship. DynaGroup has a team that has a passion for helping resellers, and constantly strive to do better...

Timber grants

The Albanese Government recently announced the recipients of the Accelerate Adoption of Wood Processing Innovation grant program.

These grant recipients will undertake a wide range of projects which will see the implementation of upgraded and innovative work practices across various industries, including production of activated carbon, housing and construction, packaging, and culturally significant timbers to higher end markets.

Minister for Agriculture, Fisheries and Forestry, Murray Watt, made the announcement with local MP Brian Mitchell at Western Junction Sawmill near Launceston, Tasmania. He said the program delivered on the Albanese Government's strong support for Australia's sustainable forestry industry.

Our government understands how important the forestry industry is for communities around the country, but particularly here in Tasmania.

The Western Junction Sawmill in north Tasmania is one of five mills in the state which will receive grants totalling $15 million from the Federal Government.

Mr Watt also said:

A total of 34 grants will be made, selected by an independent panel, including funding for four projects involving First Nations organisations, enabling the use of sustainably sourced timber from traditional lands. These grants are about creating more long-term jobs in the forestry sector.

In the October budget, we committed more than $300 million to support Australia's forest industries to innovate and improve the capacity and capability of the sector. In addition to this, the government is establishing the National Institute for Forest Products Innovation and has committed support for specific training for the forestry and wood products industries.

Mr Mitchell said the grant program will support wood processors by stimulating investment in upgrades to existing manufacturing lines and innovation to diversify domestic products.

Enabling wood processing facilities to use innovative technologies in their production will enhance the forestry industry's ability to supply more of Australia's wood demands into the future.

Here in Tasmania that includes projects that improve production processes, and value add to existing operations. More than $15 million in government funding will be spent across five projects, with the total value of new investment set to reach over $45 million.

Funding of between $1 million to $5 million will be provided under the Wood Processing Innovation grant program to 34 successful applications from 2022-23 to 2025-26.

Under the program, recipients are required to provide at least 60% of the total project costs. This brings the total new investment, including public and private sector funding, to $361 million.

Grant recipients

A preliminary investigation by the Department of Mines, Industry Regulation and Safety (DMIRS) found that "faulty piping" - made by Iplex - has been installed in around 1200 West Australian homes.

Within two years of the home builds being completed, hundreds of homeowners reported flooding issues, with some requiring all their plumbing to be ripped out and replaced. In a statement to the Australian Stock Exchange, Iplex said:

DMIRS has advised Iplex Australia that, while its tests are not yet complete, Iplex Australia should expect its results to lead to DMIRS finding that the leaks are due to a manufacturing defect.

A Western Australia group home builder has also advised it expects to deliver to Iplex Australia the results of its own tests once they are completed.

Iplex said its own investigation into the high number of leaks, while ongoing, had not identified any manufacturing defect.

While not admitting responsibility for the issue, Iplex has offered to assist the two major builders caught up in the pipe leaks - BGC and Delstrat - which account for 90% of the 15,000 homes built with Iplex piping during the five-year period being investigated.

The polybutylene plumbing piping at the centre of the investigation - branded Pro-fit - is no longer being sold, with Iplex noting the product did not experience similar issues in other states, despite being sold across Australia. In statement, Fletcher Building chief executive Ross Taylor said:

We acknowledge the frustration and inconvenience impacted homeowners and their families are facing. We are working hard with builders to arrive at an acceptable outcome for affected homeowners.

The company made an initial provision of AUD2 million for the affected homes, but that has now been expanded to AUD15 million.

Background

New Zealand-headquartered Fletcher Building revealed problems after receiving many complaints about the hot and cold water polybutylene pipe product. The company told the NZX (New Zealand Exchange):

The complaints relate to leaks in homes, primarily built by group home builders in Western Australia, which have required repair or replacement of the pipes and, in some cases, damage to the affected homes.

Reports to Iplex Australia show about 1200 of the 15,000 Western Australia homes with Pro-fit installed between 2017 and 2022 had leaks.

The date range is relevant because builders have told Iplex Australia they have not experienced unusual levels of leaks in homes built previously. Fletcher said:

The Pro-fit product was also sold in other states of Australia in that period. Reports to Iplex Australia are that the leak rate in those states is not materially unusual for a product of this type.

The Pro-fit product was sold only in Australia and the resin used in it during the period in question was not used by Iplex New Zealand or any other Fletcher Building company for any other product, the company said.

Grant Swanepoel, Jarden's equity research director in New Zealand, noted the pipes in Perth homes were installed in ceilings - unlike here (New Zealand) where they are in floors - so had the potential to cause far more damage to homes there than here.

The extent to which Iplex Australia will ultimately have accountability for this matter, the cost and timing of any payments can't be established right now, the company statement said.

Final costs incurred by the leaks will be affected by how much third parties are responsible, insurance payouts and the remediation required. The Iplex provision and costs relating to the Pro-fit pipe problem have been excluded from Fletcher's fiscal 2023 group earnings guidance.

Fletcher is listed on the New Zealand and Australian stock exchanges. The company runs a $3 billion-plus building products business in Australia under brands including Tradelink plumbing and bathroom supplies, Stramit roofing and structural steel, Iplex pipes, Oliveri sinkware and Fletcher insulation.

Makita has added a cordless microwave to its XGT system of cordless power tools. The Makita MW001G can deliver 500W of power for up to eight minutes, after which it automatically switches to a lower power 350W mode to conserve battery life. It has an 8-litre capacity.

With (2) XGT 40V Max 8Ah batteries installed, the cordless microwave can reheat about 11 refrigerated lunches or 20 drinks (each 200 mL/~6.8oz). These batteries are the same ones that power most Makita tools and connect on the back of the appliance.

Makita said the cordless microwave allows food to be heated in many different environments where there might not be an AC power source. The microwave will immediately deactivate if the door is opened during use, and there is an additional safety feature that deactivates the microwave if it's tilted.

The cordless microwave also has a USB port for charging electronic devices. Its USB-A port can deliver a maximum output of 2.4A at 5V.

Internally, the MW001G measures about 10 inches wide, 4.7 inches (around 12cm) high, and 9.4 (almost 24cm) inches deep. There's a simple panel on top that lets users adjust the settings via buttons and dials.

This microwave weighs 8.8 kg without batteries. It also has a folding top handle, and an optional carrying strap loops through slots in the handle for an additional carrying option.

It is being promoted by Makita as being suited for building and construction sites, "in-car dining" and "disaster preparedness".

Makita priced its portable microwave at 71,500 yen or approximately USD540 and has initially released it in Japan. The price only includes the microwave, not the batteries or charger.

If it finds success in its home country, it could potentially release it in other markets.

Related

Los Angeles-based private equity group Platinum Equity has paid AUD688 million for Jeld-Wen's Australasian business that includes brands such as Corinthian, Stegbar and Breezway.

Jeld-Wen chief executive William Christensen said the company intended to use most of the proceeds of the sale to pay down debt. The transaction is expected to settle in the September quarter.

In 2022, net income in Jeld-Wen's Australasian business fell USD6.8 million to USD25.4 million and adjusted earnings before interest, tax, depreciation and amortisation fell USD5.9 million to USD65.6 million due to the building downturn, according to The Australian.

During the same period, its net revenue fell USD4.7 million to USD585.4 million, reports The Australian Financial Review (AFR).

At the start of this year Jeld-Wen said the Australasian operations had suffered a mid-single-digit volume decline but had a solid backlog.

Platinum Equity managing director Adam Cooper said Jeld-Wen had strong brands and enjoyed a long history of manufacturing high-quality products. He told the AFR:

The business is resilient, has performed well through numerous cycles, and is well-positioned for long-term success.

Jeld-Wen's parent company is listed on the New York Stock Exchange and the business in Australia and New Zealand accounts for about 11% of Jeld-Wen's global revenue.

On an international scale, it operates more than 120 manufacturing facilities in 19 countries, producing and distributing interior and exterior doors, wood, vinyl and aluminium windows.

As a listed company with a market value of USD1.2 billion, Jeld-Wen counts hedge funds among its top investors, and they are likely to be putting pressure on the group to release capital or boost performance.

Related

At first glance, the headline chart for this series (Chart 1, shown above) would seem to suggest some very good news. It's evident - as all the charts will show - that the best news was the uplift in retail sales that started in March 2020, and has now been underway for three whole years. In this review, it at least looks like the most recent period - from March 2022 through to February 2023 - shows evidence of another burst of growth, though a smaller one. (Note that the statistics in this report are based on the trailing 12 months to February, which we designate as "periods". So p2020 represents the 12 months from March 2019 to February 2020.)

However, it's more likely that that most recent increase is rather down to inflation than an actual increase in market size - though it is also unlikely that, despite inflation, the market has seen decline. One fact that supports at least an underlying level of growth is that the distribution of growth is unevenly distributed, with New South Wales (NSW) growth at a rate higher than Victoria (VIC) - though VIC did recover from negative growth of close to -5% in p2022 to slightly positive growth in p2023.

Looking at Chart 2, which shows the period-on-period percentage growth rate, it's clear that both VIC and NSW are at the bottom of growth rates, and Queensland (QLD) is not doing much better.

South Australia (SA) had the highest growth rate, at 17.3%, a boost of $254 million over p2022. Western Australia (WA) had a growth rate of 8.6%, gaining an extra $216 million. NSW was up 5.0%, a gain of $371 million, while Queensland saw hardware retail grow by $289 million, up by 5.7%. VIC showed a marginal gain of only 0.7%, amounting to an extra $45 million. Australian Capital Territory (ACT) grew 7.0%, adding $35 million. Overall, Australian hardware retail revenue grew by $1273 million, an increase of 5.2%.

(As Northern Territory (NT) and Tasmania (TAS) stopped reporting revenue until last year, HNN has calculated a combined number for the two areas, for guidance purposes. The combined value grew by 7.8%, adding $64 million.)

Chart 3 shows the monthly performance for Australia, in both revenue dollars and percentage growth terms:

In the to graph for dollar value, tracing the red line marking p2023, it's clear this is well above the dark red like for p2022 from March to September, and after that it closely shadows the p2022 performance. The percentage change graph below shows a steady near 10% gain from March to August in p2023, followed by near zero growth, culminating in slight negative growth for February 2023.

New South Wales

Chart 4 compares the monthly performance for NSW, in terms of both revenue and percentage growth in revenue on a month-on-corresponding-month basis.

In the upper graph, revenue for p2023 is clearly higher than that for either p2022 or p2021, except for October 2023, where October 2022 delivered a sharp spike in value. In the percentage change graph below that, growth is relatively subdued for March and April 2022, then goes above 10% from May to August 2022, before going negative for September and October 2022, then sharply recovering to above 10% for November. The last three months of p2023 show diminishing growth.

Victoria

Chart 5 compares the monthly performance for VIC, in terms of both revenue and percentage growth in revenue on a month-on-corresponding-month basis.

VIC shows revenue levels for p2023 at or below the revenue for p2021 for eight of the twelve months. As the lower graph indicates, the upper range of growth was at 5% for p2023, with growth going significantly negative for the last four months of p2023.

Queensland

Chart 6 compares the monthly performance for QLD, in terms of both revenue and percentage growth in revenue on a month-on-corresponding-month basis.

The revenue graph for QLD shows revenue for p2023 exceeds revenue for p2022 for the initial nine months, fall under p2022 for December, then matches p2022 for January and February. The lower percentage growth graph shows that in p2023 the rate of increase actually declines steadily through p2023, then falls sharply for December 2022, before recovering.

South Australia

Chart 7 compares the monthly performance for SA, in terms of both revenue and percentage growth in revenue on a month-on-corresponding-month basis.

In contrast to the three larger states above, SA shows a degree of exuberant growth. The revenue growth shows the highest levels of revenue ever for the state during p2023, with the exception of May 2022. Historically peak revenue of $173 million was reached in December 2022.

The lower chart for percentage increase shows level of growth p2023 that come close to matching those for the first pandemic period, p2021. Maximum growth of 45% was achieved in July 2022 - though that was due to a steep fall in revenue for July 2021. It is also followed by a steep decline in growth August 2022, again a matter of August 2021 recovering sharply. Like the other states, growth for February 2023 shows an unusually low number.

Western Australia

Chart 8 compares the monthly performance for QA, in terms of both revenue and percentage growth in revenue on a month-on-corresponding-month basis.

WA follows a pattern closer to that of SA than the other states. Like SA, the top revenue chart shows the state breaking revenue records in p2023 - though not by much in some cases - with the exception of one month, May 2023. WA is, of course, also notable in that the pandemic boost was not as unique as it was for other states, with the results for p2021 not far off those for the boom period of p2017.

That's less true for percentage growth terms, as the first pandemic period of p2021 came after an underperforming p2020, so, as the lower growth graph shows, p2021 did generate historically high growth numbers. P2023 does show second-best growth behind that for March to August, before being overshadowed by other periods for the remaining six months. Unlike the other states, WA actually ends the period on February 2023 with an uptick in growth above 5%.

Australian Capital Territory

Chart 9 compares the monthly performance for QA, in terms of both revenue and percentage growth in revenue on a month-on-corresponding-month basis.

In general terms, the graph for revenue in p2023 shadows the maximum value for p2021 and p2022. The exception is March 2022, which sets a new maximum for around $45 million.

The lower growth chart shows a slightly different story, however. In growth terms there are three sections: the first bumping along close to 10% from April 2022 to July 2022, a second of exorbitant growth for August and September 2022, followed by a reset into mildly negative growth for the rest of the period.

Tasmania and Northern Territory

For completeness, HNN is including the charts for the combined TAS and NT regions in Chart 10.

Analysis

It's helpful to look at Chart 11, which combines the growth numbers for all the states and territories.

The overall impression of this graph is that there is a gradual slowdown in growth as the period progresses. The lows get significantly lower, and the highs are diminished.

That would be pretty much what the interest rate changes made by the Reserve Bank of Australia (RBA) would be aimed at achieving. Forecasting in the current market is very difficult, but HNN would suggest that this downward trend in growth is something that will persist and grow strong through to the end of FY2022/23.

A timber and hardware outlet that is part of Ison & Co's group of four stores, located in Sanctuary Point (within the City of Shoalhaven, NSW) is set to shut its doors permanently by the end of May 2023. It plans to sell the Sanctuary Point site after the store closes.

Staff members will be relocated to the company's other stores in Huskisson, Nowra and South Nowra. The products available at the Huskisson store would be expanded to include items usually available at Sanctuary Point.

Company director Phillipa Loadsman told the South Coast Register the decision to close was not taken lightly, and came after more than a year of deliberations. She described the closure as a consolidation, driven in part by the residential zoning at the Sanctuary Point store making it difficult to develop the outlet in a way that could properly meet the community's needs.

Ms Loadsman said Ison & Co was a family business that had been servicing the Shoalhaven since 1917 "and will continue doing so". She said customers could still expect quality products, professional advice and friendly customer service at the other three stores.

The Sanctuary Point store was opened in the early 1990s, and Ms Loadsman thanked the local community for their business and the personal relationships it has have fostered over the past three decades.

Bunnings "anti-competitive": Metcash

In a submission to the federal parliament's select committee on the cost of living, outgoing Metcash food pillar chief executive Scott Marshall - now chief executive of Reece Group's Australasian operations - has accused Wesfarmers-backed Bunnings of being "anti-competitive".

Letters from Bunnings managing director Mike Schneider have been sent to at least seven Mitre 10 owners this year asking about acquiring these stores, Mr Marshall told the Senate committee.

In a addition to the cost of living, Metcash was asked to participate in the Senate inquiry to provide insights into competition and its impacts on pricing.

The Australian Financial Review (AFR) reports that Mr Marshall noted issues with creeping acquisitions by larger players including Coles, Woolworths, Endeavour and Bunnings, which often buy out smaller independent stores in areas where they wanted to expand.

Mr Marshall told the inquiry in March that stronger competition laws helped consumers facing rising costs of living, because more competition helped to keep pricing power in check. He outlined 22 large-format high-turnover grocery and hardware stores that had been pruchased by large corporates over the past nine years, which made "their loss a greater impact on the wholesale supply network operated by Metcash and, by implication, the independent network". He also told the inquiry:

In addition to the acquisitions noted above, there have been instances where Metcash has sought to preclude what it considers to be anti-competitive acquisitions by acquiring an interest in the relevant retailer (in the grocery sector or otherwise), in circumstances where the retailer has been approached by a major retailer.

Mr Schneider told the AFR the retailer regularly sought out opportunities to expand its network, through greenfield development and occasionally business acquisition.

We know from experience that there's ample room for larger retailers, smaller retailers and specialty providers alike in the regions and categories we operate in, and think that choice and competition is great for consumers.

There have also been instances over the years where local independent hardware store operators have approached us regarding a potential sale of their store. We've been pleased that on occasion we've been able to provide these independent business owners with a viable succession option.

Despite the alleged approaches, the last time Bunnings successfully acquired an independent Mitre 10 store was in 2019, in Hamilton (VIC).

Bunnings' expanded pet range has over 700 new items including toys, bedding, grooming tools, carriers, training accessories, smart technology and flea and worm treatments. Brands exclusive to Bunnings include Happy Tails, Baxter & Bone and PetZone, while Pedigree, Whiskas and Schmackos are among pet food partners, according to the Herald Sun.

According to RSPCA Knowledgebase, more than 60% of Australian households have a pet. Australia's pet population outnumbers people by more than two million.

Research conducted by Bunnings reveals two in three pet owners consider their fur baby the most pampered family member. Sixty per cent of respondents said they are giving their animal free rein of the house and almost half (48%) have made or planning to make changes to the home to accommodate a pet.

These pet owners are designing their homes to cater to their pets. Top changes include installing a pet door (23%), adding a doghouse (16%) and changing or removing existing furniture (13 %).

Australians' willingness to put the welfare of their pets ahead of other priorities will obviously be tested as the slowdown intensifies and mortgage stress increases, writes Robert Gottliebsen in The Australian.

:Related

Fertiliser product development

Victoria-based agtech startup Bardee has launched a new category of fertiliser at Bunnings.

Bardee breeds Black Soldier Fly larvae to break down industrial quantities of food waste. The company harvests the larvae for use in protein-rich livestock and pet feeds. The larvae also leave a nutrient-rich by product, known as frass or castings, which Bardee collects and processes into fertiliser. Its certified organic fertiliser is branded Superfly.

The business was founded by Phoebe Gardner and Alex Arnold in 2019 while they took part in an accelerator program at University of Melbourne. In the same year, it booked a $5 million funding round backed by Blackbird Ventures, and investors including Culture Amp founder Didier Elzinga, and Who Gives A Crap co-founder and CEO Simon Griffiths.

Prior to its launch in Bunnings, Bardee supplied its fertiliser directly to farmers and offers some garden products online. Ms Gardner says Superfly's debut at Bunnings will mark a number of industry firsts. She told Smartcompany:

It's not just a new company on Bunnings shelves. Bardee is only three years old, and for any other fertiliser company to make it on shelf at Bunnings, I think the next youngest company was 18 years old before they got a product on shelves. So it's a huge acceleration.

It will also represent the first time a Black Soldier Fly fertiliser product is stocked at any national retailer globally, Ms Gardner said.

The product will be priced comparably to existing fertilisers in terms of cost per application, she added.

Being stocked in a national retailer is a major goal for many startups, and Ms Gardner said Bardee spent nine months working with Bunnings' garden care team to perfect its retail offering.

That included efforts to homogenise its smell, texture and nutritional makeup. While Bardee's existing farmer and nursery customers are comfortable with minor variations between batches, Bardee said retail customers can expect a refined and consistent product.

Bardee also worked with Bunnings' in-house team to ensure its branding stands out from the plethora of garden additives already available in-store. It had to prove its product could withstand the rigours of nationwide distribution. Ms Gardner said:

We really wanted to show that we could supply them nationally with consistency and a high quality product that was always the same for every store and for every household across Australia.

To do so, Bardee, based in Melbourne, shipped a pallet of its product to an outdoor warehouse in northern Queensland, where it sat outside in tropical conditions for a number of months. Ms Gardner said:

That was for us, in order to prove that no matter where we ship this product to, it will be the same everywhere in every store, and that it can withstand the rough and tumble of a national supply chain, and still deliver a high quality product and that it's stable.

Bunnings in Timaru, NZ

Progress on a Bunnings store is continuing at the site of a new retail development in Timaru, a port city in the southern Canterbury Region of New Zealand. Bunnings area manager Dean Gick said construction of its new Timaru store was "progressing well". He told the Timaru Herald:

We're on track to open by mid-year. We're really looking forward to opening our doors in a few months' time and bringing a wide range of home, lifestyle and DIY products to the area.

The store will have around 65 team members spanning a range of different roles. Recruitment of team members is in full swing.

While the developer experienced some minor construction delays because of inclement weather and challenges posed by COVID-19, Mr Gick said Bunnings is "really pleased to be on track to open mid-year".

The online design and style reference site, Houzz Australia has released its 2023 industry outlook for residential dwelling specialists. This is based on a survey of subscribers to the professional services offered by the website, and it covers three categories: building designers, home builders and interior designers/decorators. The participants are asked questions regarding their forecasts for 2023.

The results relate to the percentage of surveyed businesses on Houzz Australia reporting their outlook for 2023, with growth comparisons to 2022.

Forecasts for 2023

Business outlook

Overall, the industry has a generally strong outlook for 2023, which is led by interior designers. Some 54% see the 2023 as being good or very good, but more than a third cautiously see it as being basically a neutral year.

There was a considerable difference in outlooks between the three categories, with interior designers the most optimistic as 81% expected a very good year, while only 56% of building designers did.

Expected revenues & profits

The biggest change from the previous year in terms of gross revenue gross is that 26% expect revenues to decline in 2023, versus only 9% in 2022. Not surprisingly, fewer expect a revenue increase, but the percentage expecting no change is virtually the same.

Profits follow much the same pattern, though the percentage expecting an increase is lower, balanced by a higher percentage expecting a decrease.

Interior designers were again the most positive, with 76% expecting an increase in revenues, and 71% expecting an increase in profits.

Growth strategies

There has been a marked increase in adopting a strategy of looking for larger projects for 2023 (63% v. 50%). Surprisingly, there is a decrease in those planning on increasing prices and margins, and slide in those seeking to improve customer experience. However, productivity issues have increased in importance, with employee efficiency up from 28% in 2022 to 33% in 2023, and a slight tick up in those planning to use software and digital tools to save time.

All three categories noted that bringing in larger projects was their top priority. Both building designers and interior designers had a high ranking for increasing marketing/sales efforts, while home builders were more focused on increasing prices and margins.

Improvements & problems

Survey participants see some dark clouds looming over 2023. The top three concerns are: increase in overheads, a worsening national economy, and a worsening local economy. However, a relatively high proportion (36%) see demand for their services increasing in 2023.

Review of 2022 - business challenges

In the section of the survey that looks back over the previous year , using data from Houzz's previous survey, it's interesting to note which categories changed between 2021 and 2021.

It's evident that consumers have grew far more cost-conscious in 2022 as compared to 2021. There was also a significant increase in the difficulty of finding new customers.

Analysis

It's interesting to note that changes to the industry are affecting different groups in different ways. Building designers are most affected by the slow-down in housing, while interior designers remain optimistic about the future. Strategy is moving towards larger clients, higher prices and better margins, but finding clients is becoming increasingly more difficult.

The impact of both local and the national economies is increasing, as are overall business costs. Added to this is that supplychains have still not fully recovered, resulting in both a scarcity of needed products and demand-driven increases in costs.

What is heartening for hardware retailers is that there is still evidently a strong focus on interior design and renovation, which can help to drive sales in categories such as paint, even if the construction market enters a phase of decline in response to high interest rates.

To access the report, download it here:

A Reece plumbing and bathroom supplies store is set to open after Orange City Council voted in favour of its development application. The $3.4 million project will fill the currently vacant lot at 52 Leewood Drive.

Councillor Kevin Duffy said he hoped a new business would bring costs down for residents. He told Central Western Daily:

I'm going to support this 100 per cent. We have another developer in town who is going to provide a service for hardware and building supplies.

We've seen costs go through the roof in the industry so the more competition to bring costs down the better.

Earlier this year, Reece Group chief executive Peter Wilson said volumes declined 2% in the December quarter compared with a year ago in the Australasian business which as 650 showrooms.

At the time, he said he expects volumes to keep being subdued. He told The Australian Financial Review (AFR):

We are preparing for this to continue over the remainder of the year.

Reece has embarked on a cost-cutting drive to compensate. Price rises on products of 11% in the December half helped underpin an 11% rise in sales revenue in the Australasian region. Net profit after tax for the whole group was up 18% to $186 million.

Reece also appointed Scott Marshall as the chief executive of its Australasian operations. Mr Marshall is a former chief executive of supermarkets and convenience at grocery wholesaler Metcash.

The Melbourne-based company made a big bet on the US market in 2018 with the $1.9 billion acquisition of MORSCO, which operates in 16 states.

More recently, the group announced it acquired Barsco Inc., a Dallas-based distributor of refrigeration and HVAC equipment, parts and supplies throughout Texas. Barsco has 12 locations across Texas. (Financial details were not disclosed.)

Reece has been rebranding its 212 US outlets to the Reece banner, with all the Californian stores now trading under the Reece name. The slowdown in the United States in the December quarter was even more pronounced, with volumes down 6% compared with a year earlier. The rate of product inflation in the US was 22%, double that of Australia.

Murray Valley Rural Services has won CRT Business of the Year from 290 stores around the country.

It has been a finalist for the past eight years and won the south region state award in 2019. Owners Graeme and Meegan McInness were thrilled to be recognised by their industry peers at CRT and Nutrien. Mr McInness told The Border Mail:

I feel that our ability to provide the full range and service offering to match the corporate stores, combined with the flexibility to act quickly and decisively on opportunities as they arise has been the key to the success of the business.

Mr and Mrs McInness established the Yarrawonga store in March 2000, and opened their Berrigan store in 2013. It services clients from as far as Corowa-Rutherglen, Urana, Finley, Tocumwal, Cobram and Wangaratta.

CRT is part of the Nutrien Ag Solutions(r) Group.

Related

Tom Grady store

A drive-through service and improved parking are two of the main improvements in the proposal to expand the Tom Grady Rural Merchandise store in Gympie (QLD).

There will also be a detached building for storage and new display and office space. The expansion would be built on land which Mr Grady had built up when the store last expanded in 2022.

Overall, the latest upgrades would boost available parking at the shop from six spaces to 27, including one bay for people with disabilities. The car park would be covered by an awning.

Mr Grady said the additions would make for "quicker service", according to The Gympie Times.

Related

AIRR awards

Yolla Co-Op in Wynyard (TAS) took out four awards at the 2023 Australia Independent Rural Retailer Awards earlier this year.

The company won the Victoria and Tasmania member of the year award for 2023 and 2022 - both of which were handed out at the same ceremony. In addition, Yolla Co-Op employee Kurt Hill won the young guns award, and the company also took home the national supplier choice prize. Yolla Co-Op general manager Ben Davis told The Burnie Advocate:

We are thrilled to have won these awards, which highlight our team's dedication to providing our customers with exceptional service, top-quality products, and value for money.

Winning the national supplier choice award is a particular honour, as it recognises the trust and support our suppliers have in us to deliver excellence in everything we do.

Related

Dulux has just launched its first range of concrete and paving products, a three-stage, heavy duty coating system for consumers to upgrade the exterior of their home.

Available to coat both bare concrete and sealed surfaces, Dulux Concrete and Paving has been developed with an advanced product formulation suitable for applications on concrete and paving areas such as driveways, garage floors, paths and patios. Dulux brand manager, Sorren Henderson said:

Replacing concrete or other paved surfaces can be quite costly, not only requiring you to fork out funds for building materials, but also setting aside a hefty fee for a trade specialist to complete the work, and in some instances, additional fees for council permits.

With this new product range in market, we hope to be able to educate consumers, so they have the knowledge and tools to be able to execute a more affordable, yet effective upgrade to these areas of the home without needing to rip up the existing surfaces.

Suitable for application over worn and stained surfaces, the Dulux Concrete & Paving range is slip resistant, able to be tinted to Dulux's full colour library and has durability for a premium finish that is ideal for high traffic areas.

Launching in Bunnings and select independents nationwide from April 2023, Dulux Concrete and Paving will be available in a range of sizes: 1L, 2L, 4L and 10L (depending on the product).

Nippon Paint

Co-president of Nippon Paint Holdings Yuichiro Wakatsuki recently said in an interview with Bloomberg, the company will seek acquisitions overseas and finance the deals by borrowing in Japan where interest rates are low.

Mr Wakatsuki, a former banker, advised Singapore mogul Goh Cheng Liang's Wuthelam Holdings in 2021 when the company took a majority stake in Nippon Paint, the world's fourth-largest paint manufacturer, in a USD12 billion deal. Mr Wakatsuki became Nippon's co-president in 2021.

At 95 years old Mr Goh is Singapore's second-richest person, with a net worth of USD14.3 billion, according to Forbes' latest billionaire list. Through his company, Wuthelam is the largest shareholder of Nippon Paint, holding 58.7% of its stock.

Nippon Paint has been on a four-year 700 billion-plus yen push to buy assets (outside of Japan) and seek growth abroad. Interest rates on Japanese yen loans are expected to remain relatively low compared to overseas markets, and the company believes it is in an advantageous position to build strong relationships with Japanese banks. Mr Wakatsuki told Bloomberg:

Even if long-term interest rates go up in Japan in the future, it will probably be in the range of 2% to 3%. That is still much cheaper than borrowing in United States dollars.

The company had been debt-free for many years, but at the proposal of Wuthelam, it changed its focus towards maximising shareholder value.

In China, the company's largest market and income earner, the economy is expected to recover from the coronavirus pandemic in earnest this year. If the Chinese market slows down, there is a concern the ability to generate cash for repayment will decline.

Nippon Paint's balance sheet showed 1.29 trillion yen in total liabilities at the end of December. Mr Wakatsuki declined to comment on whether he has any acquisitions currently in the works.

Related

Clothing, boots and protective equipment supplier RSEA Safety has reported record annual sales of about $350 million. Chief operating officer Terry Spyrides said tradies were still in short supply as households undertake renovations, and were buying up more fashionable boots and clothing to convey they were financially successful, and proud of it. He told The Australian Financial Review (AFR):

They want the world to know they're doing well...

The company makes about 60% of its sales from boots and clothing, with the rest from protective equipment, including safety glasses, gloves, earmuffs and knee pads. It sells direct to consumers, and also has a strong business-to-business channel.

Work boot brands such as Steel Blue, Wolverine, Blundstone, Oliver, Magnum, Mongrel and Redback have been in high demand.

Mr Spyrides said the group, which has 80 stores, had experienced double-digit sales growth in each of the past few years. As the economy opened up in early 2022 after the worst of the COVID-19 pandemic, sales spiked even faster, and calendar 2022 was a record year, he said.

Online sales have dropped back from a spike during the pandemic, and were 10% to 15% of total sales. Most of its customers want to feel the merchandise and try it on in-store.

The company recently opened a 2000sqm outlet in the Melbourne suburb of Coburg, which is the largest store in the workwear category in Australia. Mr Spyrides said the group aimed to open a further 12 stores in the next 12 months.

Mr Spyrides said while there had been no slowing of sales in early 2023, the group did expect to see some tempering in its rate of growth some time this year.

Mr Spyrides also said the group had been putting through price rises as inflation occurred in the supply chain.

We've tried to hedge against inflation by having higher inventory levels.

RSEA Safety opened in 2000 and is now the largest independent safety business in Australia. Founder and chief executive, Brandon Chizik, is the largest shareholder in the group, which underwent a management buyout in 2018 when private equity backer CHAMP Ventures sold a 70% stake. London-based debt funder Intermediate Capital Group also has a stake of just above 40%.

Wesfarmers is one of its competitors in industrial workwear, and owns brands including Hard Yakka, King Gee, Stubbies and Wolverine. It is also the master franchisor for the Totally Workwear stores.

However industrial workwear is a small part of Wesfarmers' broader industrial and safety division, which lifted earnings before interest and tax by 14 per cent to $49 million in the December half.

TRADIE and VB workwear

Victoria Bitter in partnership with TRADIE has launched a new workwear line. The collaboration between two brands has delivered a 13-piece tradie range including t-shirts, hoodies, jocks and the unmissable Ripstop pants and shorts.

The range has been available since January 2023 in Big W and Mitre 10 stores, marking the first-time the hardware store has teamed up with a national beer brand. VB marketing manager, Marc Lord said:

VB's foray into workwear is a natural fit for the brand which, for generations, has been intrinsically linked to rewarding hard-working tradies in Australia.

TRADIE chief executive officer, Ben Goodfellow said:

It's been exciting working on one of the 'Aussiest' collabs ever to bring TRADIE tough workwear to VB's famed consumer base. Lightweight and made with Ripstop technology, the workwear pants can handle anything you throw at it making it certain to be a favourite onsite for years to come.

The pandemic has changed hardware retail in Australian permanently. This issue traces some of those changes, in the HBT National Buying Group, the pattern of dwelling approvals around Australia, and the effect on the Metcash-owned Independent Buying Group.

HBT Conference

The following is an extract from the main story:

At the conclusion of the HBT National Buying Group Conference in May 2022, HNN faced a real problem. We knew what we needed to write about that conference. But we also knew we couldn't do it. Not then.

So we decided to do some light immediate coverage, and to provide some space before returning to the subject, hoping that conditions would have changed somewhat, making it more possible to write the story the way it needed to be written.

Things did shift in the direction we had predicted, with a general slowdown, but also a relief from some of the immediate pressures of the pandemic.

So now we have the chance to write that story.

The New Geography of Approvals

Extract:

COVID-19 was hard enough to deal with, but it's turning out that the aftermath of the virus presents strong challenges, as well.

For hardware retailers - and the construction industry as well - the problem this presents aren't just about where we are now, today, but also where we have been. The changes to the housing industry, on both the demand and supply side, have been so big and constantly shifting that it's hard to even track backwards, let alone go forward.

One way to start getting a clear picture is to take a good statistical look at the past, and a glimpse at the near present. To provide some of the materials for this, HNN has undertaken a thorough statistical review of building approvals, using data from the hard-working statisticians at the Australian Bureau of Statistics (ABS).

Metcash Investor Day

Extract:

The reason why independent store owners are concerned about corporate control comes down to what gets optimised in a buying group. What corporates seek to do is to optimise for the entire network. They tend to make decisions that result in the network improving sales and revenue.

The difficulty with this is that those network decisions can disadvantage individual stores, even as they boost overall network results. If those stores have corporate ownership, that doesn't matter, as it is the total net revenue or profit that matters. If the disadvantaged stores are independently owned, however, it does matter, as they lose out with no real compensation.

In the independent buying group situation, stores make their own choices. The buying group might ask them to purchase from specific suppliers, as concentrating orders leads to better prices, but they have no final control over the stores.

While this continues to be of some concern in IHG, HNN would suggest that it is, in the current market, outweighed by other considerations. Specifically, there was an unplanned consequence of the HTH acquisition, which is that currently, outside of Bunnings, IHG now has a near-complete monopoly on strongly branded hardware retailers in Australia.

Hardware retail sales stats from Australian Bureau of Statistics (ABS) show that the pattern established post-March 2020 of elevated sales has been maintained through 2022. As shown in Chart 1, the gains have been substantial.

In percentage increase terms for the year, South Australia (SA) leads with 19.2%, followed by the Australian Capital Territory (ACT) at 9.4% and Western Australia (WA) at 9.2%. In dollar gain terms, New South Wales (NSW) leads with a gain of $406 million, representing a 5.5% increase, followed by Queensland (QLD) with a gain of $323 million, a 6.4% increase. Victoria (VIC) managed an increase of 2.7% worth an extra $172 million. For Australia overall, the increase was 6.4%, and a gain of $1529 million.

Chart 2 shows the percentage increase for the calendar years across the states and territories. Perhaps the most surprising trend, reflected in the individual state graphs as well, is that the increase in interest rates does not seem to have much of an effect on hardware retail spending.

New South Wales

Victoria

Queensland

South Australia

Western Australia

Australian Capital Territory

Australia overall

Lithgow, in the Central Tablelands of NSW, will have a larger Bunnings store after the approval of a Development Application (DA) by Lithgow City Council.

The current Bunnings is located on the Bathurst end of Lithgow's Main Street, and the new store is proposed for Pottery Plaza in Lithgow's south. Councillor Almudena Bryce told the Lithgow Mercury:

This is a great DA proposal for Lithgow and Bunnings. It's taking it away from the Main Street, where it's dangerous. It's absolute mayhem.

I'm looking forward to a bigger Bunnings, one that we don't have to leave town to go and buy parts. This is going to be a great asset to our area.

The topic was the subject of heated debate as both residents and councillors expressed their concerns about the significant impact the new site would have on traffic flow.

Councillor Stephen Lesslie asked questions relating to his concerns about the impact of road access to residents in Silcock and Hill Street. They were addressed by Lithgow City Council general manager Craig Butler, who advised he couldn't provide specifics as the director of planning was absent due to illness.

Councillor Lesslie proposed a motion to defer the development application vote, but it was lost.

The development application motion was eventually passed, and mayor Maree Statham thanked the councillors.

Related

Caboolture store opens

The new Bunnings store, behind Big Fish Junction at 459 Pumicestone Road, Caboolture (QLD) has a main warehouse retail space, outdoor nursery, timber trade sales area, special orders desk, hire shop, cafe and more. The 13,000sqm centre, which cost $32 million, has over 400 car parks.

The new warehouse is part of the huge $80 million Big Fish Business Park which has already seen a Coles, Chemist Warehouse and KFC open.

Complex manager, Emily Sweet, said she was very excited to see an investment of this scale come to the growing Caboolture and Elimbah area. She told the Caboolture Shire Herald:

...The layout of the warehouse is slightly different to others to make it more convenient for the customers. The size of the landscape and nursery area is quite considerable as well as the timber yard - we really have invested considerably in those areas.

We have a great positioning from the highway. For any trade customer driving from the Sunshine Coast through to Brisbane or anywhere else in between, this location is handy for them to pop in.

The store has a range of sustainability initiatives to reduce its environmental impact including LED lighting, on-site water reuse and solar energy.

The developers of the Big Fish Business Park hoped the new store would service the planned Caboolture West satellite city, expected to be home to 70,000 people.

Related

North Wollongong

Following the closure of the North Wollongong Bunnings store in NSW earlier this year, complex manager Kirstin Beveridge said staff will be redeployed to surrounding stores and thanked customers for their support over the past 25 years. She told the Illawarra Mercury:

We also thank our store team members, past and present, for their commitment to the community and for always providing friendly and helpful service.

Bunnings opened the North Wollongong site in 1997 and closed the store ahead of the lease expiring in March. It is one of its oldest stores in the state. The site is owned by Perth-based BWP Trust, which owns a number of Bunnings sites around Australia and is itself part owned by Bunnings' parent company Wesfarmers.

Related

Cowra

The Cowra Guardian recently asked Bunnings about its plans for its Cowra store in the Central West region of NSW, nearly 12 months after Cowra Shire Council approved a $10 million expansion.

Bunnings regional operations manager Debbie Perano told the Cowra Guardian the retailer is "going through the usual steps ahead of any potential construction".

But at this stage no timelines have been confirmed. We were really pleased with Cowra Shire Council's decision to grant a development approval for a new Bunnings store last year.

Ms Perano said Bunnings will "continue to keep the community updated with any developments".

The approved DA sought the consent for the redevelopment of the existing Bunnings warehouse site in the following manner:

The demolition of existing buildings; construction of a hardware and building supplies centre including a warehouse, covered outdoor nursery, bagged goods store, timber trade sales area, office, amenities and loading areas; seven wall signs and one pylon sign; a main carpark accessed from Redfern Street containing 91 car parking spaces; a secondary carpark accessed from Mulyan Street containing 15 car parking spaces; tree removal and new landscaping works; ancillary civil engineering works including earthworks, stormwater works and road and access works including directional signage and line marking to facilitate vehicular access; and consolidation of allotments.

Related

HNN has already reported on the financial results for Metcash's first half of FY2023, covering the six months from May to October 2022.

As Metcash did not post the recording of its results presentation in its usual place, there has been no general transcript available for the announcement. HNN is making its own transcript available under Creative Commons 4.0 copyright, which means the only restriction is that HNN must be attributed as the source. A straight text file is available at:

The presentation

Metcash CEO Doug Jones introduced the hardware division results:

Turning our attention to hardware, sales were up 16.8% with growth in both DIY and trade demand. The performance was across both IHG and Total Tools. And we've seen excellent contribution from acquisitions, as well as continued strong performance in the online channel. IHG sales were up 7.9%. As we flagged towards the end of the half, we did experience adverse building conditions, the flooding, and inclement weather undoubtedly impacted the ability to get onto site. In DIY we really haven't had a Spring. This has impacted outdoor, garden and paint categories. We're confident that the pipeline in trade remains strong. The recovery of the DIY Spring sales is less likely and dependent on the quality and length of the Australian Summer.

After revisiting the results numbers, Mr Jones further commented on hardware:

Key drivers are the continued strong underlying demand supporting the strong trading results in both businesses, the pleasing performance of the acquisitions, and this is offsetting some of the costs we're experiencing like in the other pillars in labour, freight and fuel. Also offsetting the marginally higher trade contribution in IHG. The return on sales of 6.7% is pleasing given the diluting effects of high margins from franchise and exclusive brands income in Total Tools of the added retail network sales and increase in trade and commercial customer mix across the pillar.

Mr Jones stated that there are now 171 stores that are in the Sapphire program, and that the Ravenhall distribution centre has opened.

Under the heading of build trade, we've now completed 40 Sapphires of standalone trade stores, and we're targeting all 50 of those standalone stores. We've completed the acquisition of the Petries Mitre 10 in Dubbo, and the Five Star business in Queensland. And we continue to bed these down. And I remind you that we now have 11 frame and truss facilities in the network. We've maintained the focus on trading technology to reduce cost and effort for all the customers and this has seen strong acceptance from those customers.

In Total Tools as I mentioned, as of this morning, the network is now 104 or 102 at reporting date, with a further four to be opened before the end of this calendar year, and we remain well on track towards the goal of 130 by 2025. Our JV joint venture and company owned stores is now at 39, as I said. We have a further seven planned this year. It's really pleasing that we've seen strong appetite from our JV partners to remain in the network We're better for them and their support and leadership is an important strategic advantage for Total Tools. We have continued strong performance from exclusive and own brands in Total Tools. And this will be supported by the future move into the IHG Ravenhall facility. Loyalty customers still contribute around 90% of sales and we're making great progress on our personalisation journey.

IHG questions

Questions from analysts began with Michael Simotas from Jeffries asking a probing question about the basis for performance in hardware:

My first question is on hardware and specifically the weather impact that you've called out across the DIY and trade. So in DIY the categories that are impacted by weather are also the categories that seem to be slowing down globally due to a COVID pull forward. How confident are you that this is all weather related impact and not an underlying slowdown? And then similarly in construction, obviously weather has been pretty challenging in the last couple of months, but it's been pretty onerous for the last couple of years. Again, how confident are you that there's no underlying slowdown in demand?

The CEO of Metcash's hardware division, Annette Welsh, replied.

Thank you for the question. And it's certainly one we look at very closely ourselves. I might just answer the trade one first. As we spoke about at the Investor Day, the confidence in the pipeline of the market is still as strong as we talked about back then. And I would say, you know, having been in New South Wales and Victoria during the that heavy weather period, there was no ability for our vehicles to leave our stores and land on sites anywhere. So as the weather is, and I can only talk for New South Wales and Victoria. But as the weather seems to be improving, we're certainly seeing that return to the levels that we anticipated. So no current concern there.

Your point is a really good one in relation to the perhaps just I would call it the coincidence between garden paint and outdoor being affected. And they were the biggest ones for COVID uplift, I would say we'd already seen some paint rebalancing, coming through post COVID into sort of the last half of last year and the first half of this year. But I would say there's absolutely no question there has not been a Spring in most of the states. And the reason we have confidence is we can see that the results in Queensland and [Western Australia] are giving us an indication that this is a weather impact, and currently nothing more than that.

Other questions about IHG more or less followed up on the same subject. Shawn Cousins of UBS asked, about the loss of revenue due to weather:

Can some of this be recouped, particularly in trade, by trades working through Christmas?

Ms Welsh responded (in part):

In relation to can we recoup the sales from the weather or the adverse building conditions, we see that to be unlikely, essentially, the length of build times will just become longer. So we don't anticipate that likely in this financial year, and we'll see it more likely into next financial year.

Lisa Deng of Goldman Sachs echoed some of that question as well:

As we're starting to see weather patterns improve, do we expect that to basically go back into positive territory into the second half?

Ms Welsh responded:

We've given you the outlook in terms of the last four weeks, I don't think we're going to do it much more than that. But as we've as I've already spoken to, and all of us would have experienced, Spring has not sprung. And Summer, we are hoping for a better position from a DIY perspective and trade, the outlook still looks positive.

Perhaps the most interesting question though, was the follow-up asked by Mr Cousins:

And then more generally, you've called out the underlying strength in the business. From whom do you believe you're gaining market share from please?

To which Ms Welsh replied:

The question on market share is an interesting one, we don't have any analysis or information that gives us any insights into share. But as you know, that they're building numbers that are sizeable in terms of what they've been over previous years. So I think there is a degree of rising tide here.

TTH questions

Brian Raymond from JP Morgan asked:

Just on Total Tools, obviously, great result in terms of the earnings delivery, but just trying to look through the uplift from JV conversions and look at the underlying network growth. It looks like on my numbers EBIT, ex-acquisitions up 4%, sales ex-acquisitions up 9.5%. I just want to understand how, how that's trending. From an underlying perspective, I'm sure there's a lot more, certainly a lot of moving parts that would drive that. Are you seeing any kind of cannibalisation from your stores being rolled out to your competitor stores on the existing network? It'd be great to get some colour around the underlying performance excluding acquisitions.

Annette Welsh responded:

No, I think probably the underlying performance, it's best to shape it in the mix between our NSO wholesale and our joint venture retail stores, I think that will probably give the better colour. And I'm probably not going to define that as much as you'd like around the mix. We have no concerns in the underlying performance, although the costs of challenges around supply chain out of China did have an impact in the first half on our EBIT performance from a margin perspective, but no concerns around cannibalisation or competitive pressure in the half.

Tom Kierath of Barrenjoey asked for more detail in TTH growth:

Good morning, guys, just one on Total Tools I think you referenced there, like-for-likes in retail 4.7% [up] in the half? Could you maybe just give us a bit of colour on how that kind of trended through the half. And then what that number is for November. So you've quoted there 100% sales growth for November, but it is really not that relevant, given the changes in the store ownership base.

Annette Welsh provided some details:

Certainly can thank you. It's been a bit similar to, I would say, the trade business. Strong first quarter, a second, a slightly slower second quarter. And similar, as I said, to what we're seeing everywhere else in relation to the slowdown in the second quarter, but some of that's also varying number of days around the strong promotional activity that we do with suppliers, and aggressive trading days. And we've got a different mix of those this year, versus last year in the first half versus the second half. And don't read anything into that, that's just how they fallen, in a competitive market. So, to summarise, similar to what you've heard from us in trade, slowing into the second half, to that 4.7%. Slowing into the second quarter to hit that 4.7%

Analysis

As mentioned in HNN's initial report on these results, the background growth in hardware retail for Metcash's reporting period was 6.9%. With DIY/Consumer comp sales up by only 1.5%, and even trade comp sales up 5.2%, Metcash would seem to be steadily losing share in the hardware market. Given that the Bunnings result more-or-less tracked the background growth numbers, one would have to conclude that non-Metcash independent hardware retailers were the likely growth leaders.

One could imagine that there are three strategic paths which the independent members of IHG - especially Mitre 10 members - may be going down. The very best informed members are likely fully aware of the ongoing corporatisation of IHG - and Metcash hardware in general - but see the strong branding the company provides as more than compensating for any losses incurred due to IHG optimising for the network rather than individual stores.

A second strategic group would be somewhat bothered by the corporatisation, but sees it as having minimal effect on their individual stores, either because they have a speciality (e.g., specialised timber sourcing), or because their location (e.g., a long-established store in a sparsely populated region) offers a buffer.

The third group would be retailers who are somewhat invested in the history and community of Mitre 10, and take at face value Metcash's asseverations that its primary goal is to enable independents (rather than to provide adequate RoI to investors).

The question is, as TTH continues to roll out more stores, and inevitable conflicts with existing Mitre 10 and HTH stores develop, which of these groups will be most affected, and what will their reactions be? What do they do when they review results for a quarter and find that revenue from power tool accessories has fallen by 30% (for example)?

Such events could be a catalyst for considerable out-network store migration, or it could have only a modest effect. The modest effect might be result of TTH as being seen as an industry-trend, rather than just an IHG strategy - it's not going to make much difference to a retailer if sales are lost to Bunnings' Took Kit Depot or TTH.

On the other hand, if independent buying groups, such as HBT National Buying Group, are able to offer more effective branding opportunities, backed up by online branding and advertising, the prospect of leaving the network could be attractive. This could then drive a negative feedback loop for IHG: as more independents leave the network, the network becomes more corporate.

Metcash's best strategy at this point could be to ramp-up advertising for its Mitre 10 brand. That would be, however, expensive, and for the moment the company seems to prefer to prioritise expensive investment-based boosts, such as off-market share buybacks.

The Wesfarmers-owned big box hardware retailer Bunnings announced its results for the first half of FY2023 (July to December 2022) on 15 February 2023.

Wesfarmers itself reported revenue for the half of $22,558 million. This represents an increase of 27.0% over the previous corresponding period (pcp), which was the first half of FY2022. Earnings before interest and taxation (EBIT) increased by 13.4% on the pcp to $2160 million, while net profit after tax (NPAT) came in at $1384 million, up by 14.1%.

For Bunnings, revenue increased by 6.3% over the pcp to reach $9792 million, while EBIT came in at $1334 million, an increase of 1.4%. Total store sales growth was 5.1%, up from 1.0% in the pcp.

Store-on-store (comp) sales growth was 2.8% - though a footnote indicates "Store-on-store sales growth excludes stores in months that were impacted by extended periods of temporary closure in New South Wales, Australian Capital Territory, Victoria and New Zealand".

On Tool Kit Depot, the results had this to say:

Tool Kit Depot expanded into the east coast of Australia with the launch of its first Queensland store, complementing its existing network in Western Australia and South Australia and its growing national online presence.

As regards Beaumont Tiles, the company states:

Beaumont Tiles traded positively during the half, supporting Bunnings' 'Whole of Build' offer.

The company also outlined some experimentation in its stores:

To improve ease of shop, new store-in-store concepts in power tools and power garden were trialled during the half, with these initiatives well received by customers and Bunnings' supplier partners.

However, online penetration fell, retreating to 1.8%, where the pcp was at 4.3%. According to a statement in the results:

Online penetration declined during the half as retail customers increasingly returned to physical stores. This was partially offset by continued strong online growth from commercial customers.

In his introduction to overall Wesfarmers' performance, the company's managing director Rob Scott commented:

Bunnings delivered another strong performance, highlighting the strength and resilience of its operating model. Bunnings further strengthened its consumer offer during the half through refresh and expansion of product ranges and the trial of new store-in-store formats in some categories.

Analyst questions

The one slightly surprising element in the results was the slight decline in EBIT margin, which prompted a question from Shawn Cousins of Citi about whether margin growth was suppressed to secure market share gains. Bunnings' managing director, Mike Schneider replied in part:

The change in margin from last year is really price investment as you know from what I've said in the past, it does vary significantly category to category. We've got inflation in some categories, deflation in others and movement in COGS that sort of goes up and down. So we are very, very focused on that value proposition. So I think when you sort of think about going forward, where we're positioned, we want to continue to invest for long-term growth. That's very much at the heart of what we do.

Grant Saligari from Credit Suisse asked all the retail divisional MDs to provide an insight into shopping behaviour - "shopping frequency, value trends, basket size trends", and Mr Schneider responded by stating:

I think from a Bunnings point of view, if you look at the commercial side, that's really helpful for us because we can see more into the pipeline, the nature of the contracts and things like that suggests to us that there is a good pipeline.

If you look at the numbers that have been called out on housing starts, they drop a little bit, but it's not material and you then see a reversion to what we've seen over a number of different housing cycles, which is moving to alteration and addition, you then sort of look at the sort of demand for trades and the shortage of trade and the shortage of apprentices.

That pushes people to DIY things themselves. And I think they will - my guess is you'll hear a bit about movement to value from my colleagues. But for us, when we sort of see this sort of market and you're not going out and doing things, you're not travelling as much because things are a bit tighter. You're spending more time at home and I think for a business like Bunnings, with the assortment and the price/mix and the value proposition that positions us well to participate strongly in the consumer market and the commercial market.

Analysis

With a comp sales number of 2.8%, and - according to Australian Bureau of Statistics (ABS) figures - a background sales rate of 4.46%, it's possible that Bunnings lost market share, or more likely held steady, given the total store sales growth number of 5.1%.

As Metcash's Independent Hardware Group also showed a decline against its background number, it's likely that in the current market independent hardware retailers outside of Metcash are gaining some ground in the market.

A large majority of Bunnings' stores is expected to have its new and expanded pets offer by the end of March. The specialty petcare department will have items ranging from (dry) food to toys and bowls for commonly owned pets such as cats, dogs and birds, and take up a larger space within a traditionally-sized Bunnings store.

The hardware retailer is set to offer close to 1000 pet-related products within a dedicated selling space of 40sqm in its stores. Some of the space in Bunnings stores handed over to pet products with be partially taken from categories like children's playground equipment. Bunnings managing director Mike Schneider told The Australian:

What we are going to be bringing to life in our stores ... is quite a comprehensive step change in our pet range, probably the biggest category expansion in Bunnings for 20 years.

While Bunnings has sold pet enclosures and cages for some time, its accelerated offer will take the retailer into more daily product offerings for pet owners. It will focus on general merchandise rather than services such as grooming or vet-care in store.

One factor to consider regarding Bunnings' move in the pets' category is how the moderately high inflationary environment affects competition. Competing purely on the basis of low prices is tough when prices keep rising.

Introducing a new category or new products in a category, for which there is no price history, means the only competitive requirement is undercutting overall market prices.

The other factor to consider is that there are two types of discretionary categories. Where some discretionary categories will suffer during economically tough times, others will flourish as they provide a replacement purchase. This famously applies to the purchase of women's lipstick, and Bunnings may be banking on pet accessories working in the same way.

The market

Animal Medicines Australia estimates the pet care market at $30.3 billion, with the average household spending $3237 a year on a dog and $2074 on a cat. It is a market that has increased, on average, 7.4% per year since 2018. Thanks to the coronavirus pandemic, pet ownership in the country grew to 69% - roughly 28.7 million pets - within two years from 2020, a jump from 61% in 2019. (Source: Yahoo Finance) Marketing professor Jana Bowden of Macquarie Business School told Yahoo Finance:

As a category-busting lifestyle brand, Bunnings' expansion into the pet category is formulaic. The potential in the pet and pet supplies retail category is obvious. The market size is expected to grow at 5% in 2023 alone. This is underpinned by extraordinary levels of pet ownership.

Hybrid and remote working have been cited as driving the rise in pet ownership as more people move to the regions while keeping their big city jobs and finding they now have the lifestyle where they can have a dog, cat or even a horse.

Pet-related goods are also seen as recession-proof, given households rarely cut spending on furry friends even during times of financial stress.

Competition

The Bunnings expansion into pet supplies means it will compete directly with supermarkets, which are the largest distribution channel for pet food. In December 2022, Woolworths announced it spent $586 million to buy a 55% stake in Petspiration which owns the PETstock retail banner, 276 stores, 65 vet clinics and 162 grooming salons. It also has e-commerce platforms and a loyalty program with 2.4 million members. Woolworths is investing alongside founders Shane and David Young.

Related

Bunnings' product range will be pitted against discount retailers like Kmart, also owned by Wesfarmers, and have an impact on competition with smaller specialty pet retailers such as Petbarn and Pet Circle, as well as independents. Professor Bowden said:

Small pet retailers typically take pride in their more local, personal, relationship-oriented connection with their consumers and, for many, this along with their niche product and service offerings have been their point of differentiation to date.

However, what they lack is breadth of product assortment and range, as well as the ability to deliver on convenience and value - and that's exactly the opportunity that Bunnings - as a big-box retailer - is capitalising on.

Professor Bowden acknowledged this would be a very challenging period for independent pet stores. However, she said these smaller specialty retailers would have to focus on niche products and value-add pet services - which Bunnings wouldn't offer - in order to survive. She said:

It will also mean thinking more carefully about store location, to fill the geographic gaps that Bunnings can't reach easily with its location pull.

While Bunnings' focus might be more limited than that of specialist pet shops, competition could intensify around everyday pet essentials, with Bunnings' promise to offer the lowest price on stocked items putting pressure on other retailers. Mr Schneider told The Age

Our ability to buy bulk volume products, to merchandise that in an appealing way is the group's main strength when it comes to the animal products market.

Bunnings has already established itself as a pet-friendly store with its open-arm policy on pet visitors. The hardware retailer allows shoppers to bring their pets in store provided they are carried, on a lead and wearing a muzzle, or sitting and secured in a shopping trolley. He also said:

[Pet ownership] has become a very important part of many, many families across Australia and we think that that connection that people have with the Bunnings brand, bringing those pets into the store, creates a great advantage.

We believe Australians have a really deep passion for everything around their home and everything that's in their home. And we do think we can bring a very, very competitive offer into this market and we think that given the sort of comfort that the customers have bringing their pets into the business it's going to be a very good complementary category for us.

As Mr Schneider points out to The Australian:

I'm not sure you can bring your pets into a supermarket.

Opportunity

Mr Schneider said the company saw huge potential in the product range as pets increasingly become part of Australian families. He told The Australian:

When you do look at the fact that we as a retailer really participate strongly in everything around the home and we talk about our ranging lens being everything from the front gate to the back fence and wanting to cater to all members of the family, whether it's the younger members of the family or those wanting to stay in their homes longer. I think there's a very natural extension to the four-legged members of the family and when we look at the sort of growth of the existing pet range, it's really clear customers, where we have a good pet range, have been looking for more from Bunnings in this space.

And when you line it up with the fact that you've got such high participation rates now in terms of pet ownership across the country, it's a natural extension for us. While we do think that there's a couple of other channels to market, (but) the uniqueness of what we can do, and the natural draw that people have to go to Bunnings on a weekend to do things with the whole family, really sort of extends through into pets.

He said the retailer would start off in cat, dog and bird products but could eventually move to offer products for other animals (such as horses or alpacas) depending on the store location. Mr Schneider told The Australian Financial Review (AFR) that ranges would be relevant for coastal or rural communities, for example.

It is also about convenience and having these products under one roof. He said:

The hallmark of Bunnings' success over the years has to do with being very focused on the things where it believes it can add value, and I think convenience, price and range on an assortment are things that are very much at the core of Bunnings. The challenge of services is the ability to execute them at scale.

Bunnings also has plans to move into other growth categories. Mr Schneider said:

We want to grow the market and grow our share, but we want to grow categories in which we operate and where it makes sense to take logical next steps in categories where we may have a small representation but we think we can expand that in a very meaningful way.

Identifying opportunities to grow and grow profitably fits very neatly in our strategic agenda.

Hume & Iser's Stephen Iser has been inducted into Independent Hardware Group's hall of fame. Mr Iser was celebrated by other members at the group's national conference in February. He recently told the Bendigo Advertiser:

My entire family kept it a secret. I had no idea, and I was up there with my wife and our CEO, and my hardware manager and my timber manager.

I was told to go up there because we won the Victorian large format Mitre 10 store so we could be (in the running for) the national large format store of the year too.

It just hit me like a ton of bricks so I was walking up the stairs and my wife (Gail) was behind me and I didn't hear any of what they were announcing. Then Gail said look who is here and it was my son, daughter, daughter-in-law and our five grandchildren.

Mr Iser said the moment was one of the highlights of his long career after working in the family business for 50 years. The store is in its 140th year of operation. He is now enjoying retirement although he remains a part-owner and director.

You just get time back, you've got time to do things without being under the pump. When you're a business owner you're always here seven days a week and on the phone on weekends, you're never away from it.

Looking back, Mr Iser believes change was necessary for business to flourish and if the company did not change over the years, the family would not have had a business. He told the Bendigo Advertiser:

We've changed every year with new initiatives, just different ways to do business and stuff like that. Shows like The Block and Better Homes and Gardens where they show people how you can do a room up for $200, that's just been a boon for us.

Everyone's into DIY and doing their own stuff and, in particular, with the pandemic, that was just unbelievable for us. Everyone was locked up in home and they were doing stuff at home.

He said despite current difficulties with interest rates and the cost of living, he was confident the team would make it through.

Look, I've been here that long that I've seen it come and go, I've been here when interest rates were 20%, that nearly killed us but we got through it.

Mr Iser recalled the 1990 recession that caused sales to drop by 50% overnight. He said:

If we (had not had) some good assets to sell we probably wouldn't be here, it's simple as that. It was very, very tough.

Related: Stephen Iser and his store was featured in a past edition of HI News where he went into detail about its history and challenges over the years.

Mount Gambier

A site located on the corner of Jubilee Highway West and O'Leary Road in Mount Gambier (SA) previously home to a Bunnings store is set to be the new location for Mitre 10 Mount Gambier and a Total Tools store. Both are owned by K&B Timber and Hardware. K&B Mitre 10 general manager Jarrod Spearman spoke to The Border Watch and said:

I think it gives us the opportunity to launch a pretty special store and remind the community there's another hardware store out there. The addition of Total Tools provides us that complementary option for the trade customer as well.

We're well and truly in the planning stages now, but we envision both stores trading by mid-year.

The current Mitre 10 store along Sturt Street will remain open as normal until the new location is ready.

Mr Spearman said the development would provide an additional 15 staff to the current team. He told The Mount Gambier News:

I think anytime you get to reuse a fantastic site like this can only be good for the community, You can see that Mount Gambier is expanding out - and this will absolutely support the new residents and the new businesses that are fuelling that growth

Herbert Commercial sales manager Matt Kain said large-scale developments signalled to investors Mount Gambier was stepping towards the next layer of growth. He said:

It has certainly become evident through a number of our commercial transactions, that here locally, Mount Gambier is being seen. Some of the bigger retail national brands that probably - skip over smaller regional areas - Mount Gambier is stepping into that next calibre of size.

Byron Bay

The Mitre 10 store on Johnston Street in Byron Bay (NSW) has now closed. The announcement was made via a Facebook post.

The store has been owned by James and Lisa Mitchell since 2001, having first opened its doors in 1991. There is a Bunnings Warehouse less than a 10-minute drive away, in Byron Bay's industrial estate.

Reacting to the news of Mitre 10's closure in Byron Bay, store manager Richard Gibson described its closure as "the price of progress", according to Daily Mail Australia.

Over the years the store has played an active role in the local community, reports Byron Shire News. In 2016, the hardware retailer joined forces with Byron Bay's premier annual aquatic event, The Byron Bay Ocean Swim Classic and Mini Swim, by becoming the sponsors of the Mini Swim.

Warrnambool

Ponting's Mitre 10 in regional Victoria was crowned Australia's top store of its size at the IHG awards in Queensland.

Now in its milestone 100th year in business, co-owner Pam Madner (with John Ponting) told The Moyne Gazette:

It's a fabulous award to be getting in our 100th year of trading ... We feel lucky that we've inherited a business that is still surviving today.

We've got fabulous staff. The staff are amazing, and we have a lot of loyal customers, which is really about our relationships.

Started by Walter Ponting and brother Len, it is now a third-generation family-run business. Ms Madner said its switch to Mitre 10 in 2019 was a turning point for the business and helped it achieve the win.

I think it made it a better shopping environment for customers to want to come in. I'm excited to be part of the Mitre 10 team. Since we joined. we've had three of our best trading years.

Award judges said the store's focus on stock management, its dedicated team, a mindset of innovation and challenging the status quo had driven growth across its trade and DIY departments.

The transformation of the next-door site on Raglan Parade into a purpose-built timber storage shed and truck unloading bay in the trade yard had "significantly improved the safety and accessibility" for customers and staff.

The judges said in the DIY department, the team was continually challenging itself on how it could do better and working to improve its offering for customers.

They said the business' growth was underpinned by a strong and well-executed marketing campaign which included eye-catching displays and a sales driving value statement, as well as gaining new online followers on Tik Tok and Meta "making them relevant to a new generation".

It's the second time the business has won the national award, but the 2021 event was held virtually during the COVID-19 pandemic.

Margaret River

Margaret River's Mitre 10 outlet has won the Western Australian State Store of Year 2023 award which was announced in late 2022. It was deemed the winner based on sales, customer service, store standards, stock availability and community involvement.

The store only took on the Mitre 10 banner in October 2019, after transitioning from the Home Hardware brand. Store manager Paul Brown said it was extra special to receive the award after only being part of the Mitre 10 group for just over three years. He told the Augusta Margaret River Mail:

We're all thrilled to have taken out this prestigious award. Our fantastic team provide our customers with professional and dedicated customer service, always striving towards 100 per cent satisfaction.