Hardware retail sales remain robust

October 2022 numbers confirm growth

The October 2022 sales figures for hardware retail indicate ongoing growth, despite continuing wet weather during the month. From November 2021 to October 2022 Australia-wide revenue grew by a monthly average of 7.2%.

The Australian Bureau of Statistics (ABS) has released retail stats for October 2022. This comes against the backdrop of a series of unusual weather events throughout the spring. The map below, from the Bureau of Meteorology, shows how much above average the rainfall for October and November 2022 has been.

In particular, there is news that Bunnings is seeing reduced sales for the spring season, resulting in its incurring high charges for warehousing excess stock.

While Bunnings might have seen some adverse effects from the weather, the story for Australia overall is more positive. In Chart 1 and the subsequent charts, HNN is using periods consisting of the trailing 12 months to October, which are designated with a "p" prefix. So p2021 refers to the period from November 2020 to October 2021.

As the top graph in Chart 1 illustrates, p2022 has been very much a record-setting period. With the exception of May, every month has seen hardware retail sales reach a monthly record for Australia. As the lower graph indicates, there has been steady growth throughout the period, the dark red line tracking just below 10% growth for seven months of the period. While growth for October 2022 is close to zero, sales for that month are nonetheless the second-highest ever achieved for Australia (the highest being in December 2021).

New South Wales

New South Wales (NSW) does show a significantly lower sales figure for October 2022 than October 2021. However, the sales figure for October 2021 was the record for the state, at $767.2 million. The October 2022 number was $705.2 million, which represents the third highest monthly sales for the state, indicated by the top graph in Chart 2.

It's likely that the retail figures for November and December 2022 will tell more about the state of hardware retail in NSW than the October numbers, given the exuberance of the October 2021 sales.

As the lower graph indicates, for p2022, there were two main periods of growth, from January to April 2022, when growth was around 5%, and from May to August, when growth was above 10%. The average growth for p2022 was 6.49%.


Perhaps the most interesting feature that is developing in the sales chart for Victoria (VIC) is how contained sales for October have remained. In fact this applies to some extent for the entire early spring sales, from August through to October.

The upper chart shows a similar upward slope for those three months, and the lower chart shows that, in fact, the highest growth rate did not occur during the p2020, p2021 and p2022 pandemic years, but in p2019.

What this brings up is that much of the expansion in the VIC hardware retail market has been contra-seasonal, in that expenditure has increased from March to July. Looking at that period in the lower chart, there is the broad upward arc for p2020 (the green line), which is countered by the inverse arc for p2021 (the blue line), and then "evened out" by the flatter line for p2022 (the dark red line).

It is Interesting to compare pandemic sales growth between NSW and VIC. In the pre-pandemic period p2019, NSW had total sales of $5.78 billion and VIC had sales of $5.64 billion. For p2022, NSW had sales of $7.67 billion, an increase of $1.89 billion, or 32.7%. VIC had sales for p2022 of $6.64 billion, an increase of $1.00 billion, or 17.9%. However, on a population basis, VIC had sales of $1.01 million per 1000, and NSW had sales of $0.94 per 1000.


Perhaps the best summary for Queensland (QLD) is that sales in p2022 have followed fairly closely to the pattern set in p2021, with additional growth.

As the lower graph indicates, growth for p2022 averaged 7.49%, peaking in June 2022 at 15% and exceeding 10% in March and April 2022. Total sales for p2022 were $5.40 billion, up by $1.36 billion from p2019, or 33.61%.

South Australia

In contrast with the NSW, VIC and QLD, we would have to conclude that p2022 has been an exceptionally good period for hardware retail in South Australia (SA). Prior to p2022, the highest level of monthly sales was $145.7 million in October 2021. Not only was that surpassed in October 2022 with $163.3 million in sales, it was also exceeded in December 2021 ($156.2 million) and September 2022 ($148.6 million) - and very nearly equalled in November 2021 ($144.6 million). Viewed in another way, p2022 set a record for monthly sales for every month, except May, where sales for May 2020 were slightly higher.

The average increase for p2022 over p2021 was 20.86%. Total sales for p2022 were $1.68 billion, an increase of $502 million over p2019, up by 42.69%.

Western Australia

In Western Australia (WA) sales for October 2022 represented an all-time high for the state, at $262.1 million. In fact, p2022 delivered the four highest ever sales results, for November and December 2021, and September and October 2022.

Total sales for p2022 were $2.69 billion, up by $697 million on p2019, or 35.03%. Average monthly growth for p2022 was 10.34%. As the lower graph indicates, in contrast to p2020 and p2021, growth was comparatively steady around that 10% mark, with only April 2022 and June 2020 showing a high and a low respectively further outside the range.

Australian Capital Territory

Ever unique, the sales results for Australian Capital Territory (ACT) show the territory closely following sales from p2020 from April 2022 onwards, as indicated by the upper graph.

The lower graph shows what we've come to expect from the ACT - a period of normality, followed by a period of, well, "crazy". Though in this case the "crazy" really has little to do with p2022 and lots to do with p2021, specifically the sudden drop in hardware retail sales for August and September 2021, followed by the sudden spike upwards in October 2021. That's reflected in the growth numbers, with 34% growth in August 2022 and 44% growth in September 2022, followed by -0.2% growth in October 2022.

Average growth for p2022 came in at 13.40%. Total sales for p2022 were $534 million, up by $162 million on p2019, an increase of 43.89%. The ACT does have one of the highest per-capita expenditures on hardware in Australia at $1.17 million per 1000.


As HNN commented about the September 2022 retail sales figures, it seems quite clear that the increase in the target interest rate since May 2022 has had little discernible effect on the hardware retail industry. Obviously, inflation is playing some part in these sales figures, but it is clear that for most states and territories, sales are continuing to grow beyond that.

While it's understandable that this is good news for the industry, it also does bring with it certain troubling concerns. The governor of the Reserve Bank of Australia (RBA), Philip Lowe, has made clear that the RBA is engaged in a quite particular fight against inflation. What has made inflation different this time around is that its cause is split between the "demand" side (what people buy) and the "supply" side (what is available for them to buy). That is very different from inflation in the recent past, which was largely driven by surges in demand.

In practical terms, to beat inflation caused on the supply side, it is necessary to drive down consumer demand, not back to, say, the average level of the four or five years before inflation, but down to a level beneath that, one which matches the actual level of supply. The difficulty, as a number of economics commentators have pointed out, is that after two or more years of largely curtailed spending, many Australians have a "buffer" amount of savings. As higher interest rates reduce their spending capacity, they are utilising savings to retain their "normal" spending patterns.

With a bit of luck, some of those supply restrictions might lift a little during 2023. Petrol prices have already fallen, though not back to the levels of the time before Russian invaded Ukraine. Building material costs are continuing to come down, but not universally. It seems unlikely, however, that the supply issues will be resolved before the end of 2023.

It is quite clear from other comments by Dr Lowe that the RBA is settling in for a longer fight. The point that has to be reached is one where there is some reduction in external supply issues generating prices increases, interest rates are beginning to become of more concern, and - rather dauntingly - Australians are sufficiently concerned about the national economy that they voluntarily curtail their spending.

The question remains as to what exactly will be curtailed. Will it be only "high discretionary" items, such as eating out at restaurants and cafes, or will it extent to less discretionary items such as basic household goods, including hardware? The concern is that this slowdown in consumption could coincide with the end of the backlog of construction work that has built up, and thus produce a slump in hardware sales.


Hardware retail remains strong in September - HNN Flash #118, November 2022

Big box update: Store development

Bunnings store in Dubbo is set to expand

A plan for a new $9.5 million Bunnings store in Portland has been approved by Glenelg Shire Council

In Dubbo (NSW) Bunnings' development application for an expansion of its current site has progressed with Dubbo Regional Council.

The expansion with an estimated value of $11.5 million will include a main warehouse, outdoor nursery, bagged goods canopy, trade sales area, building materials landscape yard, bulk trade yard, new internally relocated cafe and playground, an additional trolley bay and 33 standard and one accessible carpark spaces.

Bunnings property development manager, Tim Wilkinson, told the Daily Liberal and Macquarie Advocate:

If approved it will create one of the top 10 Bunnings in terms of size, and certainly bigger than any of the regional Bunnings in this vicinity.

Mr Wilkinson said the expanded store will give them more opportunities to recruit even more people from the local community. That's in addition to the construction jobs that will take place during the building phase, which is expected to take around a year to complete. He said:

Furthermore, there's a safety impact that's worth mentioning; being able to have the trucks ingress and egress through the proposed design along the rear boundary of the site and ensuring there is no trucks mixing with consumer cars will be really beneficial.
In addition to a second goods area where the smaller trucks that are both dropping off and picking up bulk loads can do the same through the rear boundary, we think that's a real beneficial point.

The extension will mean council has to relocate the sewer line and access easements. Councillor Richard Ivey said it was a "win-win" situation for the business to add to their existing infrastructure with further infrastructure that will complement what it already has. He said:

It's so much better than moving to another site and therefore having to do something with the old site. Being able to expand what's there and end up with something that's much, much better than what's there now is win-win, it's great.


A majority of councillors on Glenelg Shire Council has granted a proposed planning application for a new Bunnings store at the end of 68 Richardson Street in Portland (VIC) to go ahead.

The store will have a total retail floor area of 5382.62 sqm and include an enclosed covered main warehouse building measuring approximately 2113.45sqm, a fully enclosed timber trade sales areas of 1685.29sqm, and 127 car parking spaces.

According to the planning application, the Portland community will be able to generate jobs, develop its economy, and reinforce its role as a shopping and employment destination. Mayor Scott Martin The Warrnambool News:

It's fantastic having Bunnings invest into the Glenelg Shire, so it's showing faith that we are very much a high growing area.
We do have Bunnings stores out in the country but we've obviously got a lot of industry, and I guess like most places around Victoria at the moment it can be very hard to get a builder, so that's a bit of Bunnings' niche there, they supply a lot of timber and tools, so they see an area where they can do business.

Roadworks will be required to be undertaken once the development of the site commences when the development process commencement is yet to be announced.

Mr Martin said the parties hoped the development to begin in 2023.

  • Sources: Daily Liberal and Macquarie Advocate and The Warrnambool News
  • bigbox

    UK hardware revenues track downwards

    Pandemic boom not sustained

    While the results from UK hardware retailers Kingfisher and Wickes were not disastrous, they do track a downwards trend in the market. With an economy set to endure yet another bout of austerity, including high energy prices, it is difficult for the retailers to capitalise on the few market advantages.

    With the UK undergoing somewhat linked political and financial crises, it's hardly a surprise that forward-looking statements from hardware retailers are couched in cautious terms. Where hardware retail markets in the US and Australia show a degree of robustness and stability even as interest rates rise, the UK (and French) markets seem to have become flat, possibly trending backwards if inflation is taken into account.

    In particular, with winter coming on, there is grave concern about the impact of increased energy prices, both for customers but also for retail businesses themselves. The flip side of this is that there is some increase in retail sales of products that will help consumers conserve energy in their homes.


    Kingfisher's major home improvement chain in the UK, B&Q, reported sales of GBP935 million for its third quarter FY2022/23. In constant currency terms, this was down 2.7% on the previous corresponding period (pcp), which was third quarter FY2021/22. In like-for-like (comp) terms the decline was 3.5%.

    The company reports strong demand for products such as insulation, while the bathroom and storage categories retained sales. Unseasonably warm weather meant that outdoor category sales fell. Online sales continue to grow, and B&Q's Tradepoint product, for tradespeople saw sales increase.

    Screwfix, Kingfisher's trade-oriented rapid service brand, fared better, with revenue of GBP610 million, up by 4.9% in nominal terms. However in comp terms, sales fell by 0.5%. The company reported that demand from trade customers remained strong, especially in building, joinery, bathroom and storage. Sales in tools, hardware and the electricals, plumbing and heating categories remain constant. Screwfix continues to expand, opening 17 new stores in the UK and Republic of Ireland, as well as its first two stores in France.

    In Kingfisher's French businesses, Castorama reported sales of GBP564 million which represented an increase of 0.8% in constant currency terms. Sales were steady from DIY and do it for me (DIFM) customers, with heating products and energy efficiency solutions helping to drive sales.

    Brico Depot recorded sales of GBP533 million, an increase of 0.2% in constant currency terms. Building and joinery as well as insulation helped to drive sales.

    Other international sales, including France, Spain, Portugal and Romania reported overall sales of GBP621 million, an increase of 8.4% in constant currency, and comp growth of 6.7%.

    Overall, Kingfisher Group had sales of GBP3263 million for the quarter. In constant currency, this represented growth of 1.7% and comp growth of 0.2%. From a year-to-date (YTD) perspective, in constant currency, the group has negative growth of 1.4%, and negative comp growth of 2.7%.

    On a three-year comp basis, the revenues have grown by 15.3% for the quarter, and 16.2% in YTD terms.

    Kingfisher has dropped its guidance for pre-tax profit from GBP770 million to a range of GBP730 million to GBP760 million.

    Wickes Group

    While Wickes does not release much detail, the company says that trading stabilised during third quarter 2022/23. Where its core business had negative growth on an annual comparison basis for the first two quarters, in the third quarter it reported 0% growth.

    However in its DIFM (Do-It-For-Me) business, Wickes reported growth of 12.2%, resulting in total growth for the quarter of 2.6%.

    According to the company:

    Local Trade sales performed strongly, with our TradePro customer base continuing to increase by 10K per month to [circa 720,000], as we continue to grow the awareness and appeal of the scheme through its compelling value proposition. DIY sales remain below last year although with no signs of further softening since our July trading update.


    Chart 1 shows the sales for the UK hardware market, as provided by the UK Office of National Statistics (ONS). This is based on a 100-index.

    As this indicates, while the UK market did experience some of the same lift to the hardware retail market, in their case in May 2020, that market has also seen wide fluctuations, and has been gradually moving back to convergence with the pre-pandemic market.

    This is shown more clearly in Chart 2, which tracks the percentage change in the index.

    It can be clearly seen that in the most recent p2022 (the green line) this consistently tracks in negative territory, as the market drifts back towards its pre-pandemic levels.


    Indie store update

    Tamworth Building Supplies' trade event

    The event allowed some participants to discuss what they perceived to be the industry's current challenges

    For the first time since the pandemic, 30 suppliers put up a stall at Tamworth Building Supplies for tradies, DIY enthusiasts and renovators, and offered information about the industry.

    Manager Steven Brazel told The Northern Daily Leader he was pleased to put on the event, and celebrate moving past the issues caused by the pandemic. He said:

    The supply issues aren't actually a big problem at the moment for our industry. It's actually fairly stable now, so there's actually a bit of a glut of timber and things like that.

    However recent floods affecting New South Wales and extreme weather has held up the process of getting materials out west, and to Narrabri. Mr Brazel said:

    You just can't get there. Wherever it's flood affected, it is hard for us to get gear to them.

    Usually tradespeople spend the lead up to Christmas "running around", according to Mr Brazel. He said:

    It usually is a madhouse leading up to Christmas. Because everyone wants to get into their new house, or finish a renovation.

    But this year is slightly different, with homeowners feeling the sting of interest rate rises, he said.

    One of the stall holders, Hyne Timber, participated in the trade event to raise awareness for its new product range. NSW sales manager Richard Dawson said COVID-19 put a strain on the sawn timber producer's staff numbers.

    But the biggest issue for the company remains the black summer bushfires of 2020 in northern Australia. It will take a decade or more for the forestation to bounce back, he said.

    We're still working through those numbers, and pulling timber from other areas of NSW for service as normal.
  • Source: The Northern Daily Leader
  • retailers

    Bunnings' slowing sales flagged by UBS

    Outdoor furniture, gardening and BBQ sales affected by wet weather conditions

    The hardware retailer is also facing higher warehouse costs for pre-ordered stock for the busy Christmas season now negatively impacted by bad weather events in parts of Australia

    UBS has become the first investment firm to raise concerns over a slowing sales momentum at Bunnings as wet weather conditions constrict some seasonal sales for some categories throughout spring and summer.

    In The Australian, analyst Shaun Cousins increased his earnings guidance for Bunnings owner Wesfarmers in 2023 and 2024 driven by its Kmart and its chemicals arm. However, it will be somewhat offset by moderating growth at Bunnings and Officeworks.

    Mr Cousins revised his sales and earnings outlook for Bunnings, and has reduced his 2023 sales target by 2.1% and his pre-tax earnings target for the hardware chain in 2023 by 0.9% to around $2.17 billion

    Mr Cousins has highlighted a growing concern that poor weather conditions on the east coast of Australia is having a detrimental effect on Bunnings' key outdoor categories. He said in his report:

    Reduced Bunnings sales and earnings before tax due to lower revenue per Bunnings store ... due to lower DIY revenue - wet weather delaying, and overall reducing, spring sales, plus a more conservative outlook - albeit still above pre-COVID due to a better network.

    While some categories are growing at a double-digit pace, key categories sensitive to weather conditions - such as outdoor furniture, gardening, barbeques and air-conditioning - have slowed. However, this has not been a material impact on Bunnings' profitability at this stage, and recent improvements in weather conditions have seen customers return to these categories.

    He also noted that Bunnings was gaining share in a larger addressable market, and greater category participation by consumers.

    Mr Cousins said Bunnings should benefit from strong housing demand and more sales to trade and professional customers. In his report, he said:

    Looking forward, the Australian consumer is facing significant headwinds from the rising cost of living across energy, food, fuel and housing costs, with house prices falling.
    These headwinds have yet to weigh on spending with the strong labour market (low unemployment and rising wages despite falling purchasing power) and elevated recent household savings key supports as the consumer returns to traditional spending patterns and engages in catch-up spend after difficult years with COVID.
    For Wesfarmers, the company is comparatively well positioned for a slower consumer environment, especially in its larger retail businesses Bunnings and Kmart. Each holds a strong value proposition for consumers with a track record of lowering prices/holding back prices in the face of cost inflation.


    Bunnings is facing higher warehousing costs for stock it pre-ordered to support expected strong sales over spring and Christmas, only to see a downturn in demand because of poor weather across much of the country.

    According to The Australian, Bunnings has been forced to pay higher than usual rates for third-party warehouse spaces. In some instances, the hardware retailer has had to book warehouse locations that are less than ideal as it faces heavy competition from other retailers that need similar space.

    As a result, Bunnings has had to actively explore options to secure more of its own warehouse space rather than relying too heavily on third party providers, including the possible construction of a warehouse in South Australia. Bunnings Group managing director Mike Schneider told The Australian

    As we do every year, we use warehouse space to support seasonal stock, and over time we have grown warehouse capacity in line with business growth. Given the cooler and wetter conditions in some markets, sales in outdoor-related categories have been softer, which means some of our additional warehouse capacity may be maintained. Like all retailers, we will continue to manage our stock position to ensure our customers can access the products they need.

    To manage uncertainties relating to the continued supply chain disruptions from China, closed ports and other dislocations along its global supply chain links, Bunnings ordered more stock to fill shelves for spring and summer, which are normally bumper months. Bunnings managers have also been building inventory over the past year back to pre-COVID levels.

    But now conditions are changing. Weakening consumer demand leaving many retail chains such as Bunnings with bloated inventory levels with more stock on hand than expected. It is now alleviating the problem by taking on more warehouse space from third-party landlords.

    Bunnings has always operated a hybrid supply chain model, with its own warehouses and third-party facilities. To support peak trading and seasonal stock, Bunnings has typically used outside storage facilities for its short-term needs.

    However, its need for warehouse space - and therefore warehouse costs - has increased in line with its business and sales growth trajectory.

    In the current environment, where industrial land is scarce, third-party warehouse costs are hundreds of thousands of dollars a month higher than usual.

  • Source: The Australian
  • bigbox

    Supplier update

    Ta Ann Tasmania teams up with Australian Sustainable Hardwoods (ASH)

    Together, they will produce pre-finished engineered timber flooring and the collaboration will allow Ta Ann Tasmania to grow its workforce

    Ta Ann Tasmania (TAT) general manager Robert Yong said the partnership with Australian Sustainable Hardwoods (ASH) is an example of the growing demand for products for the building industry. He told The Burnie Advocate:

    TAT and ASH have been working together to develop engineered flooring with our Smithton plant supplying a high-quality substrate and ASH adding a Tasmanian Plantation oak laminate facing.
    We have been working with ASH since August last year doing trials of our base substrate panel for their engineering flooring. ASH will laminate 4mm thick sliced hardwood veneer and cut into 200mm-wide tongue and groove flooring strips and then pre-coat into a range of architectural finishes.

    ASH director Daniel Wright said that it would be the only pre-finished engineering flooring product on the Australian market that was not imported.

    Previously, we produced part of it overseas, sending our feedstock to have it pressed to their plywood and then bringing it back to Australia for coating. But quality and coordination have become more difficult in recent years.
    We have a third-party reviewed chain of custody certification under the Australian Forestry Standard and the Program for the Endorsement of Forest Certification schemes (PEFC) for all our products, as does TAT, so this gives us much better control to ensure wood used in production comes from certified sustainable sources.

    Mr Wright said it aimed to have the flooring available on the Australian market by 2023.

    Circular Head mayor Gerard Blizzard welcomed the announcement. He said:

    An increase in locally-manufactured building materials is greatly needed to meet the Australian-wide demand to build more homes, as has been acknowledged in recent federal and state budget announcements. Here in Circular Head, we are keen to grow the population and look forward to increased local employment...
  • Source: The Burnie Advocate
  • Photo credit: Australian Sustainable Hardwoods Facebook
  • companies

    Big box update: Property

    Bunnings building in Brunswick (VIC) for sale

    The Bunnings building and property in Hawkes Bay (New Zealand) is on the market

    The owner of the site that houses Bunnings and Australia Post in the Melbourne inner suburb of Brunswick is flipping the property.

    The 3700sqm site at 409-419 Sydney Road sold quickly in 2020, according to The Age. At the time, Bunnings was planning a larger store on nearby Glenlyon Road, but locals objected, and the proposed new outlet was quashed at VCAT (Victorian Civil and Administrative Tribunal).

    Records seen by The Age show the purchase settled in March 2022, with Sydney property developer Sam Ballas paying $13.82 million to a syndicate of northern suburbs investors. It was a well-timed sale for the vendors because the latest quote looks similar to the old price, $13 million-plus.

    Melbourne Acquisitions agent James Latos and Dom Gibson, who are selling it again, said it is one of only three sites on the strip larger than 3500sqm not in planning or under construction.

    The frontage to Sydney Road includes five double-storey Victorian terrace facades. The rear includes a modern warehouse. Tenants pay about $415,000 a year in rent for the site, which has 58 car parks at the rear.

    Bunnings' 10-year lease runs until 2025, plus it has two five-year options.


    Bunnings proposed development in Brunswick (VIC) has officially been rejected - HNN Flash #90, April 2022

    New Zealand

    Bunnings still has a lease on the property in central Hastings (Hawkes Bay, NZ) that is for sale, for another four years. It has an option to continue leasing the site for a further five years after that.

    The site is known as 207 and 301 Market Street North and includes an area of about 9000sqm.

    The owner of the property has decided to sell, and the site is being marketed by Colliers. Colliers Hawke's Bay director Danny Blair said it was a great investment opportunity. He told Hawkes Bay Today:

    Bunnings is one of the most recognisable brands across the New Zealand retail landscape and are long-term occupants at the site.
    With future rental growth locked in through the current lease, this represents an outstanding offering for buyers who have the opportunity to secure a top-quality asset with an established occupant.

    In addition to the Bunnings building, there are about 100 car parks on the site.

    Colliers says the annual rental income from the current lease agreement with Bunnings is NZD521,551 plus GST.

  • Sources: The Age and Hawkes Bay Today
  • bigbox

    ACIF forecasts decline in residential construction

    Non-residential construction set to grow

    With the RBA clamping down with higher interest rates, it's almost a given that residential construction will experience contraction in 2024. Builders may also find their businesses at risk.

    The Australian Construction Industry Forum (ACIF) has released its forecast for the construction industry going into 2023 and 2024. The ACIF states that the report forecasts a decrease in expenditure on both new housing and alterations and additions (renovations).

    However, on a more positive note, the forecast sees commercial building continuing to grow. The forecast concludes that the net result will be an increase in building work done by 1% to $251 billion.

    The ACIF says it sees residential demand being affected by three main factors:

  • Increased costs of key building materials
  • Higher labour costs, as demand outstrips supply in many trades
  • Increased interest rates have diminished demand
  • Additionally, the ACIF also sees increased risk for builders themselves. They cite banks as being less willing to make interim loans to help builders meet costs and clients being more reluctant to finance construction projects that have been considerably delayed. They warn that there could be an ongoing increase in builder insolvencies as a result.

    In terms of the overall shape of the market, the ACIF states:

    While there is work in hand in an enlarged construction pipeline, the drop off in new projects will result in reduction in the volume of work done this year and a deeper dive in 2024-25.

    Balancing out the diminished market in residential construction, the ACIF forecasts an increase in non-residential construction. They see offices, other commercial and industrial experiencing a small surge, with a slight increase in retail and wholesale trade construction. ACIF also projects good prospects for government funded construction in both the health care and education areas, with infrastructure construction set to growth 3.8% in FY2022/23.

    For more details, and the chance to purchase the complete forecast from the ACIF, please use the link below.

    ACIF forecasts

    The view from the RBA

    Some commentators remain puzzled as to exactly why the Reserve Bank of Australia (RBA), in its continued aggressive stance on increased interest rates, has sought to diminish these markets. The governor of the RBA, Philip Lowe, explained some of what is going on in speech given to the Committee for Economic Development of Australia (CEDA) on 22 November 2022.

    The core point that Dr Lowe had to make was that the type of inflation currently being experienced by Australia - and many of its trading partners - is quite different from other bouts of inflation experienced since the 1970s. Past inflation has been largely driven by the "supply side" - a steep rise in aggregate demand, which led to localised shortages, driving up prices. Current inflation is driven by robust demand in the context of an actual shortage of supply.

    While Dr Lowe acknowledges that many of these shortages do seem temporary in nature - including interruption of production and supply due to COVID-19 concerns, and the energy shortage brought about by Russia's invasion of Ukraine - he also suggests there are longer term issues at work as well. These include:

  • The partial reversal of globalisation, making supply more fragile
  • Demographics, with the numbers in the working-age population declining
  • Climate change, which can severely impact supply (as was evidenced by the $9 lettuce early in 2022)
  • The energy transition in the global economy to renewables
  • Dr Lowe explains this last:

    There is very significant investment in renewable energy around the world as we transition to green energy. But, at the same time, the existing capital stock that is used to produce energy is depreciating quickly, through decommissioning or lower levels of sustaining investment. It is difficult to make predictions here, but it's probable that the global capital stock that is used to produce energy will come under recurring pressure in the years ahead. If so, we could expect higher and more volatile energy prices during the transition to a more renewables-based energy supply.

    The solution to most of these problems is, of course, increases in productivity.

    In the meantime, Dr Lowe left the audience with no doubt as to how determined the RBA is to bring inflation under control, even though this does mean there will be short-term economic distress. In terms of wages, he had this to say when responding to questions after his speech:

    So I know it's very difficult for people to accept the idea that wages don't rise with inflation ... and people are experiencing a decline in real wages, that's tough. The alternative though is more difficult. And, if we can ride through this period with wages growth staying broadly in the current range, maybe a bit higher but broadly in that range, and the supply side problems resolve, then inflation will come down and it can be painless, relatively. But, if we all buy into the idea that wages have to go up to compensate people for inflation, it will be painful. So best avoid that.

    Dr Lowe also addressed the issue that is raised by many in hardware retail and construction, the delay between the introduction of higher interest rates and their real impact:

    All of our models say that, when we tap the interest-rate brake, the maximum effect on output is 18 months to two years, so we operate with a lag. I think at the moment it's quite likely the lag is going to be a bit longer than it normally would be, and that complicates our task as well, and I say that for a few reasons.
    The first is that, over the past couple of years, Australians saved an extra $250 billion over what they would normally save ... that's a lot of money. So that's sitting there and that's supporting consumption.
    A second thing we saw during the pandemic was people take out fixed-rate loans. In Australia, in the past, maybe 10% of the population would take out a fixed-rate loan. Well, during the pandemic, it got to 50%. So a lot of people took out fixed-rate loans. So they're not yet paying the higher interest rates, but they will start paying them next year.


    What the ACIF forecast really acknowledges is a stark truth that is still being absorbed by both the business community and the general community in Australia. As Dr Lowe has outlined, even though current inflation is not being driven by excess aggregate demand, but rather by supply shortfall, the only means the RBA possesses to solve inflation is by cutting demand.

    What this means is that monetary policy will be tightened until it reaches the point where demand is diminished. This could mean reducing demand below the level that would normally be "affordable" by the economy. While the RBA is not going to say this, that could mean some businesses fail, and the unemployment rate increases.

    In plain terms, the economy will likely be steered as close as possible to having a negative quarter as it can get, and we are likely to experience at least two quarters of real austerity, as prices increase, wages do not, and many Australian households find themselves going backwards economically.

    That kind of change could have a major impact, and it is likely to strike around first quarter calendar 2024, just as the construction backlog is finally dealt with.


    Big box update

    Bunnings planning staff cuts: report

    It has also been recognised in a number of brand-related listings including YouGov and the Neilsen Brand Sustainability Ranking

    Bunnings is expecting to make several office-based roles redundant as it looks to manage a different economic environment, post-COVID. Economists have indicated that consumers cut back their shopping from January as higher interest rates, bills and everyday item costs continue to drain household budgets.

    Sources have told The Australian that the hardware retailer will be restructuring its head office and support centre teams. Bunnings hopes to minimise any impact on current team members through redeployment and it expects the proportion of its team leaving the business to be low.

    A management review of the company's back-office workforce is to be carried out and expected to find that "some support office roles" around Australia "will no longer be required" now that the COVID-19 period of disruption and lockdowns seem to be over. In the Daily Mail Australia, the review reportedly said:

    Now that we're on the other side of the most disruptive part of the pandemic we're reviewing our support centre resourcing to ensure we're set up for the future. We periodically review our team resourcing to make sure we have the right skills and capabilities to support our growth strategy.

    Bunnings has not confirmed exactly how many positions will be made redundant but the overall loss is estimated to be around 300. Sources said there will be some job losses through attrition. But the job cuts will also take into account jobs currently unfilled, so not every lost position means a lost job.

    Bunnings overhauled its development teams during the COVID lockdowns and added to its staff numbers, but this timely review will focus on it support centre resourcing to ensure it is set up for the challenges facing the Australian economy.

    It has already been shifting its training, human resources and skill development programs to an online format.

    Brand recognition

    Bunnings has topped YouGov's Best Brand Rankings, retaining a dominant position among Australian consumers with a score of 48.4.

    Consumers were asked about their views on brands across various markets, which allows YouGov to build a picture of how these brands are perceived by the general public.

    The rankings are based on YouGov BrandIndex's Index score that is a measure of overall brand health calculated by taking the average of Impression, Quality, Value, Satisfaction, Recommend and Reputation.

    The rankings show the brands with the highest average Index score between 28 September 2021 - 27 September 2022 compared to 28 September 2020 to 27 September 2021. The scores are representative of the general population of adults aged over 18 (and some are online representatives).


    As part of its inaugural Brand Sustainability Report, data and market measurement firm Nielsen has revealed its 2022 Brand Sustainability Rankings, with Bunnings rating highly in consumer sustainability perceptions.

    Neilsen surveyed 8,430 Australians consumers to determine the perceived sustainability credentials of 247 core brands across 18 categories.

    Each of the 18 categories was assigned a "social ranking", "environmental ranking" and an "overall ranking", with the latter being a combination of the social and environmental rankings. As opposed to focusing on how brands are positioning their sustainability practices in the marketplace, the findings reveal how consumer perceive companies across key sustainability metrics.

    Amongst home goods retailers, Bunnings had the top performance across all three metrics.

    In Mumbrella, Andrew Palmer, Nielsen head of media analytics in Australia, said:

    Consumer expectations of the sustainability efforts of brands are changing rapidly. Increasingly, they want to know that their environmental and social claims can be substantiated and aren't just 'greenwashing'.

    Each of the categories used in the rankings were selected based on their relevance to the Australian consumer market, in terms of market share, prominence, and additional data from Neilsen. No company was involved in the selection process, and none had the option of being excluded.

  • Sources: The Australian, Daily Mail Australia and Mumbrella
  • bigbox

    Lowe's Q3 2022 results

    Canadian sale hits profits

    While Lowe's has chosen to bow out from its Canadian operations, the company's CEO, Marvin Ellison, sees strong prospects for ongoing growth in the future.

    US-based big-box home improvement retailer Lowe's Companies has announced its results for Q3 of its FY2022. One highlight was Lowe's sale of its Canada-based operations, including the Rona store chain. This follows years of not being able to make the more northern operations match the US-based stores in terms of profit and performance. The sale was made to US-based private equity firm Sycamore Partners for USD400 million, plus unspecified performance benefits. Previously Lowe's had acquired the Rona store chain for USD2.4 billion in May 2016.

    The result of this sale was that selling, general and administrative (SG&A) costs took a heavy hit. Sales for the reporting quarter were USD23.48 billion, down by 2.45% on the previous corresponding period (pcp), which was the third quarter of FY2021. SG&A came in at USD6.44 billion, up by 47.34% on the pcp. Consequently, operation income was USD924 million, down 66.87%, while net earnings were USD154 million, compared to USD1896 million in the pcp.

    For the nine months year-to-date, sales were USD74.61 billion, down slightly on the number for the pcp, which was USD74.91 billion.

    In the press release from Lowe's, the company's CEO, Marvin Ellison is quoted as saying that the company's store-on-store (comp) sales rose by 3.0% in the US, driven by a 19% uplift in Pro/trade sales, and continued strength in DIY sales.

    Analysts' presentation

    Mr Ellison opened the presentation with some comments about how Lowe's sees the market in the US developing. While he acknowledges the impact of high interest rates, and the US Federal Reserve Bank's commitment to slowing the economy to ward off continued inflation, he remains optimistic that the fundamentals of the home improvement market will continue to support strong sales through 2023.

    You've heard me talk about this before, but demand drivers for home improvement are distinctly different from those that drive home building, so it's important not to confuse the two. And as a reminder, at Lowe's, the three highest correlating factors of home improvement demand are home price appreciation, age of housing stock, and disposable personal income.
    So, let's start with home price appreciation. Even if there is a broad-based decline in home prices, homeowners currently have a record amount of equity in their homes, nearly $330,000 on average, which remains supportive of home improvement investment.
    Second, the average age of homes in the US is over 40 years old and roughly three million more homes built during the housing boom in the mid-2000s, will be entering prime remodelling years by 2025, which is a key inflection point for big-ticket repairs. This is one of the key reasons why two-thirds of home improvement spend is non-discretionary on repair or maintenance projects that cannot be delayed.
    Third, consumer savings are near record highs, while disposable personal income remains strong. And more than 90% of homeowners either own or home or are locked into a low fixed mortgage insulating them from rising rates. On top of these three factors, there is a persistent $1.5 million to $2 million undersupply of homes, and 250,000 first-time millennial homebuyers are expected per year through 2025.
    This unique combination of factors is causing homeowners to trade up in place, preferring to invest in repairs and renovations, to make their current homes meet their families evolving needs rather than buying a new home.
    And this is why we're so confident about the outlook for the home improvement industry even in a period of high inflation and rising interest rates because the key drivers of our business remain supportive.

    What Mr Ellison terms "trading-up in-place" is, in fact, a central part of Lowe's strategic overview, as the CEO made clear in his response to one analyst's question.

    We talked about trading up in place, and that is a phenomenon that we're seeing because the 1.5 million to 2 million shortages of homes and the high-interest rate environment is just incentivising homeowners to keep their low fixed rate and modify their existing home. And so, because of that, you're seeing a combination of older homes getting the maintenance and repair that falls in that two-thirds. But then you see the other one-third that simply upgrading and improving the environment, a new kitchen, finishing the basement, a new bathroom, etc. And so, we're seeing a combination of all of those things.

    One of the areas that Lowe's highlighted as being a growth area was its paint business. This was described by Bill Boltz, the executive vice president for merchandising.

    Paint delivered strong positive comps this quarter across both Pro and DIY. Many of our Pros, especially those who focus on repair and remodel work, paint as part of their larger jobs. In other words, these are Pros who paint rather than professional painters.
    And these Pros are starting to see the value of our new MVPs Pro Paint Rewards program paired with our expanded job site delivery for paint. These enhanced benefits and capabilities are making it more convenient and cost-effective for Pros to purchase their paint directly from Lowe's, earning us more of their business.
    In our continued partnership with Sherwin-Williams, we are also upgrading our paint departments across the US, including a new colour wall that converts all HGTV colours to Sherwin-Williams colours, which resonates with both DIY and Pro customers ... We are also resetting some categories to pull relevant, higher-margin, and more frequently purchased products closer to the front of the department, making it easier for customers to get everything they need for their paint project in one trip.


    With a major investor conference planned for early December 2022, the analysis offered by Lowe's at these results was somewhat muted. However it is interesting to explore this particular strategic view. It is fairly common for commentators on the US home improvement market to see underlying growth primarily driven by increases in household formation. The view suggested here is that a relatively static number of households, with reduced building and sales of new homes, will continue to produce growth through maintenance and in-place upgrading of residences.

    While this certainly has some relevance, there is a contrary theory that sees the possibility of home improvement spending reaching a saturation point. That could be driven by the past two years representing something of a "pull forward" in overall demand for home improvement, and also the possibility that the current fad for living better through better homes will fade to be replaced by more externally oriented expenditure.

    Two factors that need to be taken into account are the lingering effects of COVID-19 and the influence of climate change. If infection rates from COVID-19 continue to be contained through the northern hemisphere winter, it's likely that economies will shift into a new phase, with more expansionary spending.

    Climate change has been incidentally mentioned in the results for both Lowe's and Home Depot. It is simply a fact of the industry that no matter how appalled we may all be at floods, hurricanes, tornadoes and fires, these end up contributing to the home improvement sales. However, at some point, if these continue to increase, we could see this motivate a lessening investment in homes, due to perceived risks.


    Lowe's divests Canadian business - HNN Flash #119, November 2022

    Retail update

    IKEA Australia launches Sustainable Living Shops

    The home improvement chain is offering a store-within-a-store setup that is about helping customers make eco-friendly choices

    IKEA's Sustainable Living Shops have started to open around Australia, including at its Rhodes, Marsden Park, Canberra, Springvale and Perth locations. The retail concept will also be rolled out at its Adelaide, Tempe and Logan stores in December, to be followed by Richmond and North Lakes in early 2023.

    In-store, shoppers can find products designed to assist with reducing their climate footprint at home by using less energy and creating less waste. IKEA is also positioning the shops to manage higher cost-of-living expenses.

    Many products in the Sustainable Living Shops are designed to bring about savings, such as not having to buy lightbulbs as often, or batteries, or run heating and cooling systems.

    For example, LED lightbulbs that last 25,000 hours, energy-saving light control systems, rechargeable batteries, blinds that trap heat, cooling pads, and mattress protectors that help control the temperature while sleeping. There are also energy-efficient induction cooktops, home solar systems and water-saving showerheads.

    Despite some of the cost saving benefits associated with habits such as energy saving lightbulbs, or reducing food waste, a recent survey conducted by IKEA Australia revealed over half of Aussies (52%) believe living sustainably would increase their cost of living.

    The research also revealed that 60% of Aussies think they should adopt more sustainable practices in their home, however over a third are holding back from making their home more sustainable due to cost.

    In the survey, Aussies said they would have to see an average return on investment of $55 per week to consider being more sustainable.

    The survey was conducted as part of IKEA Australia's annual Sustainability Report that outlines IKEA Australia's sustainability initiatives and achievements from the past 12 months, as well as goals for the future. Mellisa Hamilton, country sustainability manager - IKEA Australia said:

    Right now, the cost of living, energy and food are all rapidly increasing and we understand the challenges consumers face when it comes to living sustainably at home. There's still a perception that introducing sustainable products or habits in the home will cost too much, but it's quite the opposite. There's never been a better time to help Aussies to reduce their climate footprint at home with affordable products and low-cost solutions from IKEA which can also save them money longer term.
  • About the research: This study was commissioned by IKEA Australia conducted online between the 22nd - 29th September 2022 by Decibel. The sample comprised of a nationally representative sample of 1,000 Australians aged 18 years and older. Decibel designed the questionnaire. Following the completion of interviewing, the data was weighted by age, gender and region to reflect the latest Australian Bureau of Statistics population estimates.
  • Related

    IKEA Australia using electric tuk-tuk vehicles for delivery - HNN Flash #119, November 2022
  • Sources: Concrete Playground and IKEA
  • bigbox

    Supplier update

    Knauf Insulation plans glass recycling facility

    BM Webb Industrial Property has applied to Townsville City Council for the planning approvals to develop the facility at the BM Webb industrial estate

    Global building materials supplier Knauf Insulation is planning to operate a glass recycling facility in Townsville, QLD to produce crushed glass for use in insulation.

    A purpose-built facility is planned for 1.16ha of vacant land at 164 Webb Drive, Mount St John, QLD. The project involves a warehouse comprising 1950sqm of gross floor area and an ancillary office of 200sqm, fronting Webb Drive.

    The development requires a Material Change of Use from medium to heavy impact industry zoning, and the application is currently on public notification.

    According to the application, glass bottles will be sourced from the Containers for Change Scheme with the bottles crushed into a glass cullet product. The bottles will be trucked to the facility and stored in a bunker in the warehouse.

    Glass will be processed via crusher/breaker units to produce the cullet. Any ferrous or aluminium material will be removed via an overhead magnet and eddy current process. Paper labelling is to be separated by barrel dryer and dust will be collected via two cyclone units at the barrel dryer and a trommel. The glass cullet will be bagged into one-tonne bags and loaded into shipping containers for export.

    The proposed facility is designed to process of 10 tonnes of glass per hour.

  • Source: Townsville Bulletin
  • companies

    USA update

    Ace Hardware reports strong quarter in Q3 2022

    The hardware retailer continues to grow its revenue and income partly through private label products

    For the third quarter of 2022, Ace Hardware posted revenues of USD2.2 billion, an increase of 10.0% from the same period last year. Third quarter net income was USD100.6 million, an increase of 1.3% from 2021.

    In the quarter ended October 1, total retail revenues for the quarter were USD193.4 million, an increase of USD4.3 million since last year. Wholesale gross profit was USD272.5 million, an increase of USD34.4 million since Q3 2021.

    The approximately 3,600 Ace Hardware retailers who share daily sales data reported a 5.8% increase in US retail same-store-sales during the third quarter of 2022. Estimated retail inflation of 11.2% helped drive the 9.5% increase in the average ticket price. Same-store transactions were down 3.4%.

    Ace also added 35 new domestic stores in the third quarter of 2022, and closed 10 stores. It announced earlier that it has already opened 130 new stores in 2022, and is planning to open at least an additional 40 stores in Q4 for more than 170 by the end of the year. John Venhuizen, president and CEO of Ace Hardware said:

    My sincere thanks to the entire Ace team for their determined and relentless pursuit of our three strategic imperatives - service, convenience, and quality - which delivered yet another quarter of record sales and profit. Revenue and income ... now stand 44% and 66% higher than just three years ago. Despite, and in some cases because of rampant inflation, the Ace team continues to deliver superior financial results and exceptional customer service to and for our neighbours.


    Ace Hardware continues its brick-and-mortar expansion - HNN Flash #108, August 2022
  • Sources: Store Brands and Ace Hardware
  • retailers

    "The Block" got it wrong with Victoria

    ABS stats do not show a regional shift

    TV show "The Block" banked on the trend to regional dwelling in VIC. As the stats show, that was only a pandemic moment, and not a permanent restructuring of the markets.

    Channel Nine's long-running "reality" television series "The Block", ended on what many have felt is a kind of failure. Five properties that had been built and renovated in the regional area of Gisborne, Victoria, were put up for auction at the end of the series, with the highest sale price determining the winner. While one property did sell in a range above the $4.0 million to $4.4 million suggested by the show's producers, three of the properties were passed in. The one that did sell did so just $20,000 over the reserve price, disappointing the contestants.

    Had the show's producers taken a closer look at the available statistics, the surprise might not have occurred. While there was a surge in property purchases and developments in regional Victoria at the height of the pandemic, these have since fallen off sharply.

    HNN has teased out those stats for the five states most affected by the move to regional areas. We've taken the number of building approvals, and divided them by the total number of approvals for each state, to provide the percentage of all approvals that were regionally based.

    These are presented in 12-month periods, ending in September (the month for which the most recent stats are available). We refer to these with the prefix "p", so p2020 would be the period from October 2019 to September 2021.

    New South Wales

    New South Wales (NSW) has always had more complex patterns than the other states when it comes to regional building stats. That's because the state has a number of regional centres. By contrast, the next most populous state, Victoria (VIC) really only has one (Geelong), and it is quite secondary by size.

    Chart 1 shows the contrast between building approvals issued for Sydney, and for the rest of the state.

    The top graph shows the percentage of overall building approvals made up by approvals issued outside of Sydney. Perhaps what's most surprising is the degree to which the pandemic years altered seasonality more than numbers. Previously September had ben a high point in terms of proportion, but in both p2021 and p2022 September came to represent a low point.

    Looking at the middle graph, of building approvals in Sydney, it can be seem why, as city approvals spiked during those two periods. Correspondingly, as the bottom graph shows, regional approvals were not at their lowest level, but far off the high as well.

    As the bottom graph shows, the period from February 2021 through to August 2021 showed the highest number of approvals. Over the same period in the subsequent year, levels were elevated over pre-pandemic periods, but far off the highs of the previous year.


    These are the graphs that the Nine Network should have consulted before commissioning the recent "Block".

    As the top graph shows, the proportion of regional approvals climbed steeply from October 2020 through to May 2021. There was an additional spike for March 2022, but for most of the rest of the time the pandemic regional approvals have been in line with pre-pandemic seasonal trends.

    Contrasting the middle graph for Melbourne approvals with the bottom chart for regional approvals, its clear that regional approvals did make a considerable impression through p2021, trending well above the usual seasonal activity. Yet this seemed to come to an abrupt end at the start of p2022, in October 2021, outside of some additional activity in February and March 2022. Approvals basically reverted to the pre-pandemic norm from April 2022 onwards.


    Queensland (QLD) is, of course, its very own unique case as well. In fact, as the top graph of Chart 3 indicates, the proportion of regional building approvals reached its highest levels during p2022, peaking in March 2022, and from June to September 2022.

    What is most striking about the middle graph, for approvals in the Greater Brisbane area, is that after a high level of activity from February to September 2021, the number of approvals has moved much closer to the historical average.

    Meanwhile the bottom graph clearly shows that regional approvals have tended to trend well above the historical average for both p2021 and p2022.

    South Australia

    While QLD indicates ongoing activity in regional areas, South Australia (SA) shows a very strong upshift in regional approvals. As the top graph in Chart 4 indicates, in terms of proportions, SA reached its highest for regional approvals in September 2022.

    The middle graph shows that while approvals in Adelaide reached peaks during p2021, approvals were still above average, but had retreated considerably. In contrast, the bottom graph shows that regional approvals in SA were well above average for both p2021 and p2022.

    Western Australia

    As with QLD, it's interesting to note that for Western Australia (WA) the proportion of regional approvals reaches a seasonal high for July to September 2022 as shown in Chart 5.

    The middle chart illustrates just how astounding p2021 was for WA, with 11 of the 12 months setting new record highs for approvals in Perth. That's echoed in the bottom graph for regional approvals as well, with regional approvals tending to trend just above averages.


    What the executives at the Nine Network missed was that it is evident the transition to regional housing was very much a response to the pandemic, and not part of a longer term restructuring of the real estate market. That restructuring is more evident in many of the other states, where there has been more persistence in regional building approvals during p2022.

    To a large extent, for VIC, this reflects a surprisingly centralised structure - given it is one of the smaller states geographically. NSW has its separate regional areas, and QLD has vast ex-urban areas that have long formed their own sub-regions.


    Home Depot and business cycles

    Q3 2022 results show ongoing growth

    While Home Depot continues to show growth, the company sees trading conditions as hardening. Areas of ongoing growth include innovative products and the medium to large Pro/trade customers.

    US big-box home improvement retailer The Home Depot has released its results for the third quarter of its FY2022. Sales came in at USD38,872 million, up by 5.6% on the previous corresponding period (pcp), which was the third quarter of FY2021. Operating income was USD6148 million, up by 6.1% on the pcp. Net earnings for the quarter were USD4339 million, up 5.1%.

    Home Depot had 409.8 million transactions during the quarter, down 4.3% on the pcp. However, average transaction (ticket) spend did increase, from USD82.38 in the pcp to USD89.67 in the reported quarter, a rise of 8.8%. Sales per square foot also increased, by 5.3% to USD618.50. (This equates to USD6711 per square metre, roughly $10066.) The company reports that inflation accounted for roughly 200 basis points (2%) in ticket growth. Sales over USD1000 increased by 10% compared to the pcp.

    Business cycles

    Home Depot has not altered its forecast for net sales growth of only 3.0% for its FY2022 - which means that as year-to-date growth is around 5.1%, that the company expects to have lower sales for Q4 2022 than in Q4 2021. The CEO of Home Depot, Ted Decker, confirmed this in response to an analyst:

    Our transactions have been stronger than initially thought with this inflation. I mean, that's why we have raised guidance throughout the year, is that the price sensitivity wasn't as strong as we thought it would be. However, our guidance implies that fourth quarter comps will be the lowest for the year, albeit positive and we have tougher comps from Q4 last year.

    As Mr Decker, pointed out in his remarks and responses to analysts' questions, you can take two views on that. One is to see this as a lacklustre result, with lower growth prospects ahead. The other is to see this as a real "victory", as not only have past gains been retained, but growth - however slow - continues.

    Here's how Mr Decker summed up the situation in response to an analyst's question:

    When you go back now, what are we, we're 11 quarters into this pandemic. And the first five, six, we had tremendous transaction growth, right? We all know the story of what happened. Not necessarily a lot of cost inflation at that point.
    And then the last six quarters, we start to lap that tremendous activity. But also saw for all the reasons we know, supply chain, commodities, global cost pressures, we saw significant cost in our business, and comps were driven as they were this past quarter with ticket over transactions.
    What we see now as we step back approaching three years is our transaction run rate, our sort of three-year CAGR [compounded annual growth rate] at this point, is more or less pre-pandemic rates. And you could look at that at one hand and say, wow, here's the slowdown.
    On the other hand, Richard [McPhail, chief financial officer] used the term "holding serve". You can look and say, oh my gosh, this industry erupted with demand for a year and a half. Then it cycled significant cost increases. The customer hung in there and was resilient. And your net over this three-year period up in transactions and units despite, what we believe, you'll hold on to these price levels.
    I think that all goes back to my opening comments of what is the dynamic of this overall industry and the health and the engagement level of this customer. And if we normalise from here, gosh, more than great.

    Mr McPhail summed up the current trading conditions very succinctly in his prepared remarks:

    We find ourselves in a unique environment with many cross currents. We are operating in a broad-based inflationary environment not seen in four decades while managing through constrained global supply chain conditions, all against a backdrop of monetary policy shifts intended to moderate demand.

    To put those together, these are the four sets of conditions that the hardware retail industry, both in the US and Australia, has had to work through:

    March 2020

    High demand, both trade/Pro and DIY, under COVID-19 retail constraints. House prices at first decline, then begin to accelerate.

    March 2021

    With high demand and constrained supply, prices of core construction materials such as timber begin to spike higher. Demand in DIY begins to moderate, but trade/Pro demand continues to grow. House prices continue to rise.

    May 2022

    Central banks in the US and Australia sharply raise interest rates as inflation beings to surge out of control. Prices of some construction materials decline, but the construction industry faces a backlog of residential construction work that will take until the end of calendar 2023 to resolve. House prices reach a peak in mid-2021.

    November 2022

    Increasing interest rates begin to have some effect on markets, including a decline in building approvals. Building supplies continue price declines, but remain above historical price levels. Complicating factors, such as extreme weather events and an increase in fuel prices due to Russia's invasion of Ukraine, support ongoing inflation. House prices decline, but not steeply.

    How should hardware retailers respond in circumstances such as these? It's evident from Mr Decker's response to analysts that his strategy is to find out where the areas of ongoing growth are, then to concentrate resources there. To do that requires a kind of constant questioning, as illustrated by this partial response to an analyst asking about forecasting:

    We did see some deceleration in certain products and categories. And again, that's difficult to get at the root cause. Is it a consumer pulling back in general? Is there a reaction to price inflation? Do we have some pull forward in certain categories that people bought so much of certain categories during the pandemic? Or are they moving on to other projects?

    Remaining aware of the price sensitivities of different product categories is vital, as Mr Decker explains:

    On certain commodities, lumber, copper wire, where we're pricing to market weekly, you see a much more classic reaction to price and unit productivity. With other categories, and I hate to bring up grills again, but there's some classic price points on some plastic grills. And when we saw those grills get up over USD600, we saw a more dramatic drop off in engagement. And when Jeff [Kinnaird, executive vice president of merchandising] and the team work those prices down even to the low USD400s and - or high USD400s, low USD500s, you saw a response with unit productivity.

    The real positive, however, at least in the consumer market, is that product innovation continues to be a driving factor.

    Across the board, though, there has been - and Jeff mentioned this, there has been so much innovation across our categories. If you think of the dramatic shift of outdoor power equipment in power tools, in appliances and what the features and benefits of these products are, the technology embedded in these products.
    I'm not sure it's quite an iPhone, but we're getting close to power tools being in that genre. And people love the newness and the innovation and they're, albeit higher prices, but people are responding in buying. So I think it's a mix, Brian, across the categories, and that's what Jeff and our merchant teams do such a great job managing every day.

    That innovation is also something of a protection against customers choosing to "trade down" to less expensive products, Mr Decker explains:

    We are not seeing a trade down. If you take my grill or appliance example, it's not that people ultimately bought and they traded down. I think it's that people have already purchased in the past few years. And when people do purchase, again, they're buying innovation. Our Traeger business, for example, is incredibly strong, and as they bring out innovation, customers respond.

    The trade business

    While the consumer business is important to Home Depot, they are also experiencing growth through the trade/Pro business. As Mr Kinnaird explained:

    We are also encouraged by the momentum we continue to see with our larger Pro customers. These medium to large repair and remodeller pros continue to post strong double-digit comps.

    Mr Decker pointed to some of the services that Home Depot has started, to ease the major "pain points" the Pro market experiences.

    Our Pros tell us that finding qualified, skilled labor is a pain point in their business. To that end, we recently announced our 'Path to Pro' platform, connecting skilled tradespeople with hiring trades professionals. This unique and proprietary platform is available at no cost to all Pro Xtra members. It already contains thousands of candidates, and pros have begun posting their open jobs.

    Aside from this, of course, there is a constant push to increase the productivity of in-store, customer-facing staff. One recent development by Home Depot is the Sidekick app, which helps direct staff to the most productive tasks.

    We are currently launching a new application on our in-store mobile devices called Sidekick, which is an in-aisle tasking tool designed to direct associates to the highest value tasks in real-time. The tool will direct associates to key bays where on-shelf availability is low or outs exist. By simplifying our operations, we can generate productivity and enhance both the customer and associate experience.


    In terms of the general economic picture in the US and Australia, there are two main complicating factors going on behind the scenes. The first is that "capitalism" - or, more simply, globalised markets - does not, at first, seem to be working the way it should. High demand and limited supply resulting in increased prices is supposed to trigger more supply. That's not happening, because it's easy to forecast that demand is going to fall steeply once the supply-lag is solved. For example, there is only limited building of new container ships despite a current shortage, because the current supply of container ships will likely be adequate to service trade in 2025.

    The other side of that problem is what we've seen recently with major tech companies in the US. Encouraged by the surge in demand during the COVID-19 pandemic, they staffed-up to build adequate infrastructure. However, while demand did not diminish, it did stop growing at a high rate. This led to large layoffs of staff during October and November 2022. (Though it is more complex than that, with Apple effectively ending growth in Meta's [Facebook] advertising business by making privacy controls the default on its mobile devices.)

    The second fact is that the economy - and many commentators on economics - do not fully understand what the Reserve Bank of Australia (RBA) is doing with interest rates. The RBA's goal is clearly to cut consumption back to the low levels of early FY2020, if not below that. In fact, it's likely planning to manage one quarter of negative, or near negative growth, during the current financial year.

    What the accumulation of these factors have led to is a slightly odd economy. There is certainly demand and growth present still in 2022, but it's regarded as ephemeral. The resulting contradictions are considerable. Business investment, as a percent of gross domestic product, is at the lowest level it has been in 30 years - all the way back to 1992. Business conditions are rated as being 20 points above average, the second highest level in 30 years. Business confidence is positive, but close to average. And capacity utilisation is around 87%, the highest it has been for 30 years.

    Typically, when utilisation goes up, so does business investment (as well as confidence). In this case, however, instead of investing in more plant and machinery (and software), businesses are hiring more people, driving the unemployment rate sharply down. It's also likely we're going to see poor productivity figures emerging for FY2023 as well.

    While all this matters in terms of the next two to three years, the real question that continues to linger, and will become increasingly important, is: after the COVID-19 nightmare is finally over, what kind of economy will Australia be left with? Looking at key numbers such as business investment, which has been in historical decline for the past decade, it's difficult to form an optimistic answer.


    Makita results for H1 FY2023

    While there are declines, they come off a high COVID base

    Makita has proven its innovation credentials with the release of its 40V XGT line of tools. Facing the same declining post-COVID markets as most tool makers, its task is now to fit the company to the emerging future.

    Japan-based power tool manufacturer Makita Corporation held a presentation of results for the first half of its FY2023 (six months to 30 September 2022) on 8 November 2022. The company has recently released those materials.

    Makita reported revenue for the half of JPY391.32 billion ($4.17 billion) up from JPY364.23 billion in the previous corresponding period (pcp), which was the first half of FY2022. This was an increase of 7.4%. Of this, JPY61.82 billion was domestic revenue, constituting 15.8%, with the rest derived from overseas sources. Operating profit for the half was JPY21.92 billion, down by -58.0% on the pcp. Profit before income tax was JPY18.24 billion, representing a drop of -65.3%.

    The decline in operating profit was due to a range of factors. A decline in sales volume accounted for only 3.8% of this, according to Makita. Others were a 12.9% increase in costs, sales, general and administration (SG&A) costs up by 7.6% and a 7.3% hit on exchange rates, as the Japanese Yen remained highly valued.

    Revenue growth in Japan showed a mild boost during the half of 2.0% growth. Eastern Europe declined by -1.1%, while Western Europe fell heavily, with revenue down by 14.1%. North America was down by 1.3%. Oceania (including Australia) showed good growth of 11.2%.

    During the results presentation, Makita reported that its outdoor power equipment which had switched to cordless battery electric power had achieved a compounded annual growth rate (CAGR) of over 50% from FY2017 to FY2022. As part of that, the share of Lithium-ion battery products had grown from around 30% in FY2015 to over 70% in FY2022, displacing petroleum-fuelled and corded electric products.

    Makita was also very clear that it planned to "aggressively expand" its current line of 40V cordless tools. This has been a great success for the company, and it sees these products as a means to expand in existing markets, and to enter new markets as well.


    The Makita results, in context, reveal that the company is facing the same circumstances as most power tool manufacturers: a burst in sales during the COVID-19 pandemic years, followed by declining markets and higher costs.

    Strategically, Makita has always been interesting. The company's launch of its 40V XGT power tool range was masterful. While there has been plenty debate about whether this will become the core range for the company, displacing its 18V/20V range, what isn't debatable is that these tools have proved very popular with both existing customers and new customers. It's a line of tools that fits snugly in the middle between Stanley Black & Decker's FlexVolt 54V line, and Milwaukee Tool's split between powerful 20V tools and extra-heavy duty MX 72V line.

    That said, as HNN has pointed out in the past, Makita is the only major power tool company to not fully develop some version of the "connected tool". Techtronic Industries (TTI, owner of Milwaukee Tool), Stanley and Bosch have all developed some kind of extra Bluetooth linked capability in their tools - with TTI clearly leading the way. The most that has emerged from Makita is a Bluetooth linked dust extractor that turns on when the tools does.

    That may be about to change. In a typically quiet manner, Makita recently announced the opening of its imaginatively titled "Electronic Control Development Center" in Tokyo. Reading between the lines, this is Makita's effort to tap into the electronic engineering resources located in that major city, and it seems likely one of its tasks will be the development of some kind of connected tool.

    Not setting aside the considerable capacity of Japanese technology when it comes to electronics, there is a lingering question as to whether Makita may be almost too late to this game. We've already seen tools emerge from TTI which based their design in part on feedback received through connected tool links. Has Makita timed its entry to take advantage of a better-developed aspect of the industry, or is it too late to develop the needed skills to stay competitive in 2025?


    Supplier update: Big River Industries

    Epping Timber Joinery & Hardware and Prefab acquisition

    The company expects the acquisition to be earnings-per-share-accretive from year one, and it will be funded from Big River's existing debt facilities

    Manufacturer and distributor of timber and building products, Big River Industries (BRI) has entered an agreement to acquire the trading business and assets of Epping Timber Joinery & Hardware and its Prefab subsidiary.

    The acquisition price is up to $6 million, which includes a cash component and additional earn-out payments over a two-year period if certain profit growth targets are achieved.

    With locations in Epping and Beaufort, BRI said acquiring Epping Timber will enhance its presence in Victoria, and give it access to some of Melbourne's growing suburbs and regional Victoria, specifically Ballarat.

    Founded in 1965, Epping Timber started out as family business in a humble garage and became known as a manufacturer of cabinetry and joinery items for the building industry. In the late 1990s, owners Antonio and Caterina Chincarini purchased a truss plant which expanded the market for Epping Timber into prefabricated building products. It also became a retailer of building materials.

    With annual revenue exceeding $16 million, Epping Timber is also expected to complement BRI's existing Victorian sites at Geelong, Dandenong, Dandenong South and Campbellfield. The addition of Epping Timber's frame and truss capability will increase BRI's total manufacturing capacity.

    Big River CEO Jim Bindon said the acquisition "ensures the longevity of the Chincarini family legacy built over their 57 years in business".

    Big River looks forward to bringing our national product range, supplier relationships and capabilities to further enhance the customer offering, and we look forward to continuing the long-term partnership that customers, suppliers and the staff have enjoyed with Epping Timber.

    The acquisition will improve BRI's overall suite of product offerings into the residential construction markets. It will place BRI in a strong position to satisfy the growing timber demand for housing.

    At its full year presentation in August this year, Mr Bindon said acquisitions remain a major part of the company's strategy.

    ...[With] 23 [sites] in Australia and New Zealand compared to ... maybe 2,000 timberyard hardware shops, building materials outlets. So it's a very, very big market...Any excess funds we've got along with our additional bank facility is really earmarked for acquisitions as we continue to expand the network.


    Big River Group acquires United Building Products - HNN Flash #73, November 2021
  • Sources: The Market Herald, The Sentiment and Fair Disclosure Wire
  • companies

    Supplier update: VicForests

    Supreme Court of Victoria orders VicForests to halt logging

    The court order brings to a standstill most of Victoria's timber harvesting, given harvesting is being brought to a halt in coupes across the state's two largest harvesting zones: the Central Highlands and East Gippsland

    VicForests recently ordered its harvest and haulage contractors, who supply Maryvale and Gippsland's nine sawmills, to halt work in the wake of a Supreme Court ruling that forces it to resurvey most of its coupes and slashes the viability of harvesting others to protect greater glider possums.

    Until now contractors were able to cut down 60% of the trees across an entire coupe, but Justice Melinda Richards has ordered VicForests to cut just 40% of the available timber, after buffer and protection zones had been excluded.

    Justice Richards ruled the state-owned enterprise's pre-harvest surveys were inadequate and it was not doing enough to protect two possum species - greater and yellow-bellied gliders.

    The ruling forces VicForests to resurvey hundreds of coupes, which it confirmed would take months to complete and would leave harvest and haulage contractors without work and exacerbate a sawlog shortage that had already led to the closure of one mill.

    Justice Richards also ruled that VicForests had failed to meet its obligations to retain enough vegetation on coupes to protect gliders, under the precautionary principle of the Code of Practice for Timber Production.


    Corryong sawmill owner Graham Walker said he had ordered 12,740 cubic metres of timber from VicForests for 2022-23 which was now stymied by the court ruling. He has been using Black Summer bushfire salvaged logs since January 2020 and now has only 3300 cubic metres remaining. Mr Walker told The Weekly Times:

    We'll be out of wood by the end of March ... sawmilling has been in our family for 87 years and we've never been faced with this situation. Corryong has had a sawmill since 1965 that's supplied constant work.

    Mr Walker's hopes of continuing rest on a successful court appeal by VicForests or a Coalition win in the Victorian election to open coupes not affected by the ruling. If neither occurs, he said:

    We will be forced to close up shop once all our logs are gone. We would be forced to accept the government's opt-out package which will pay workers a redundancy but nothing substantial for the business that's been in town for 58 years, or to the contractors and businesses that we have supported, our sawmill plant would only be worth scrap steel value.
    There is no opportunity to for us to cut softwood as our sawmill does not have the equipment to do that.

    Mr Walker has a five-year deal to June 30, 2024 to supply pallets to a major Australian company.

    Mr Walker said if his mill was unable to supply the contracted pallets it was likely to argue force majeure, that an extraordinary circumstance has resulted in the goods not being delivered.

    The Latrobe Valley's biggest employer, the Maryvale Paper Mill, has warned of worker stand-downs as its hardwood pulp log supplies dry up in the wake of the Supreme Court judgment.

    Opal, which employs 850 workers at its Maryvale mill, issued a statement that said: !...unfortunately, limited stand-downs may become necessary and we are currently consulting on this issue with our team members.

    No decisions will be made until the consultation is complete. These are temporary measures that we may need to put into place while we work through the potential implications of a court decision that was delivered only 10 days ago.
    Our priority is to continue to keep our team members fully updated on the situation as it develops further.
    As a large Latrobe Valley employer, secure, certified wood supply is crucial to Opal Australian Paper's Maryvale operations.

    Hardwood pulp log is used in manufacturing the plant's reflex paper and some brown paper packaging lines.

    VicForests warned it had been able to deliver only a week's worth of pulp logs to Maryvale and that supplies were set to dry up completely, after it was forced to halt harvesting in response to the Supreme Court ruling.

    Environmental concerns

    Barrister Jonathan Korman, who represented the environmental groups in court, said there was room for logging to continue under the new restrictions. He told ABC News:

    Contrary to what VicForests had claimed at trial ... her Honour found there were many contractors available to conduct these surveys, and that the cost is minor in relation to the income from the logging.

    A VicForests spokesperson said it is analysing the impact of the court decisions.

    In the meantime, VicForests will continue to pay stand-down payments to contractors who are impacted by these court actions. VicForests is also providing access to compensation for all mills who are not receiving contracted levels of supply.


    Mectec timber mill closure - HNN Flash #107, August 2022
  • Sources: The Border Mail, The Weekly Times and ABC News
  • companies

    Big box update

    Bunnings trialling new categories

    Work-from-home and wet weather are driving home repairs. This has led Bunnings to seek out new categories and go deeper into existing product ranges

    In a recent interview with The Australian, Bunnings Group managing director, Michael Schneider said Bunnings is growing more in the pool maintenance area, offering chemicals and pool water applications. The hardware retailer also sees a big opportunity in barbecues, selling cookers and smokers, and large equipment that involves slow cooking, pellet-fired flames or charcoal for enthusiasts and more advanced cooks.

    Many new ideas and categories are being tried out in the larger format Bunnings store in the Melbourne suburb of Mentone.

    Mr Schneider believes Australians are rediscovering their own surroundings through COVID-19 and lockdowns. He told The Austrlaian:

    For me, what I have seen really strongly after the last two or three years is Australians have re-fallen in love with the home. We are spending inordinate amounts of time there, it is a really safe place to be and we want to do things around the home and create really great experiences.
    Anything that helps customers fall in love with DIY, big or small, is what really excites us, which is why we have so much content on our YouTube channel, more than 640 hours of YouTube content just shows how much people are interested in learning those new skills."

    An especially popular category at the moment is indoor plants, given the unseasonably wet and cold spring much of the east coast of Australia is having, and that is keeping many people away from starting gardening and outdoor projects. Mr Schneider said:

    It's easy to be very Melbourne centric because we are here. It's certainly been well documented that Victoria had its wettest October on record, that NSW has already had its rainfall for the year.
    There's clearly a bit of a bias to indoors in the home so a lot of our marketing and advertising will be what can you do with your indoor garden. And when it's wet there is more to do around the home, around mould and moisture in the home, you can do indoor painting projects...
    And for the commercial pipeline there is a lot of demand, there's a bit left over from the HomeBuilder scheme and it is just flowing through, a lot in the alteration and addition activity, and obviously with people working at home two or three days a week now there is a lot more wear and tear on the home.


    Bunnings Strategy Day 2022 - HNN Flash #97, June 2022
  • Source: Weekend Australian
  • bigbox

    Supplier update: Reece Group

    International Quadratics and Dontek acquisition

    Both IQ and Dontek will continue to operate as standalone businesses and will retain existing names and brands

    International Quadratics (IQ) and Dontek are now part of the Reece Group, effective November 1, 2022.

    Geoffrey Bramley, Reece category lead for irrigation, pools, pumps and water treatment, said the acquisition allows Reece to enhance its presence in the Australian pool industry and become the trades' most valued partner in pools. He told Splash magazine:

    By joining the Reece family, both the Dontek and IQ brands will have the opportunity to scale and grow through the Reece network.
    We see great potential in the relationships IQ and Dontek have with their existing suppliers and are excited about the opportunities this new direction will bring for our collective businesses.

    With a combined history of more than 150 years, IQ (established in 1976) and Pierce Pool Supplies (began in 1898 as A H Pierce) have been names synonymous within the aquatics and leisure industries. Both companies merged in 2008 and for the first time, the commercial and domestic aquatic product and service became available under the one roof. The result is a single place to find a solution for most aquatic needs.

    Dontek Electronics started out in October 1989 specialising in solar controllers and in that time has become a very diverse manufacturer in this category for the swimming pool industry. It has grown to be the largest manufacturer of solar pool controllers in Australia and offers customised turn-key solutions.

  • Source: Splash magazine
  • companies

    Stanley Black & Decker seeks innovation

    Poor performance sees strategy shift

    After a disappointing 2022, SBD is focussing its efforts on tools, making innovative products, and expanding "electrification" into new job areas. It's also prepping for a coming recession.

    With construction continuing to perform at high levels, it would be natural to assume that power tool manufacturers such as US-based power tool company Stanley Black & Decker (SBD) would be doing very well.

    That assumption would be half-right. SBD was doing very well during 2021. After a sharp decline at the start of the COVID-19 pandemic in March 2020, its share price soared to close to USD220 in May 2021. Since then, however, a series of events have seen the company's share price collapse back to the earlier low, along with its financial indicators. That's been a result of some poor timing, market restrictions, and, it must be said, not the best management.

    Back in 2021, the company bet on an expanding market that would be held back by shortage of supplies from China. It boosted production and increased inventory substantially. However, the expected sales did not eventuate, leaving it stuck with large inventories going into 2022. SBD reported a 12% decline in sales volume for its Tools & Outdoor segment for Q3 2022.

    Power tools had a revenue decline of 2% for the quarter, while hand tools declined by 7%. Outdoor declined 12% in terms of organic growth. Commenting on these declines in the company's 2022 Q3 results presentation, interim chief financial officer Corbin Walburger said:

    Total revenue was impacted by moderated consumer demand like many other discretionary retail categories and lower orders as our retailers are also working down inventory.

    SBD's position has now deteriorated to the extent that financial analysts are concerned its cashflow is not adequate to fully service its debt burden. That doesn't mean the company is going to collapse, but it is close to hitting a negative cycle where too much debt leads to increased debt servicing costs, further increasing the burden created by that debt.

    Going through the financials of SBD will not be all that rewarding from the perspective of the hardware retail industry. To summarise the bad news, organic (non-acquisition) revenues are down around 2%, profit margin is declining, and inventory levels are very high.

    The real question is what SBD is going to do about these problems, and how those actions will affect the hardware retail industry. One result has been that the company has become more focussed on its tool business than previously. As the company's CEO, Don Allan remarked during the presentation of its Q3 results 27 October 2022:

    The divestitures of Electronic Security, Access Technologies and Oil & Gas businesses were successfully completed in the third quarter, which further focuses Stanley Black & Decker's portfolio on our leading Tools & Outdoor and Industrial businesses.

    Looked at from a structural perspective, the core difficulty that SBD has faced in power tools is that its strategy has relied on brand acquisition and development through the past decade. That strategy works best in markets that are technologically mature. In more dynamic markets, where innovation has an ongoing part to play, that strategy tends not to work as well.

    What SBD tends to do best is innovation that has a strong marketing aspect to it. Take, for example, FlexVolt, the system that switches battery cells from parallel to serial connection, so that one battery can produce either 54V or 18V current.

    While there are certainly some practical edge cases where that interchangeability is useful out in the field, they are hardly comprehensive. The FlexVolt 54V batteries are large, with the smallest around 0.9kg, which means its more than 50% the weight of the drill it matches to, the DeWalt DCD999N-XE 18V FlexVolt Advantage. As one DeWalt owner commented on a forum: "It's massive, it is far too big for a drill. But is fine with larger tools."

    Yet as a marketing/innovation move, it was very well managed. For one thing, most tradies will directly associate more volts with more power, when - of course - power is expressed in watts, which is the product of volts times amps. The practical consideration in tool design is that lower voltages need higher amps to achieve power, and high amps means big thick copper cabling to carry the load.

    In the case of Hilti's Nuron range, for example, the size of the cabling that supports high-power 22V tools is very noticeable. For Hilti, working mainly with larger customers with expansive fleets of tools, using one battery system across all the tools, thus reducing logistics complexities, the added costs and design difficulties are worth it.

    What FlexVolt did was to make adopting a twin-battery system - with all the extra investment needed for batteries and chargers - more acceptable to trade customers. It has been successful enough that it has sparked a response from SBD's main competitors. Techtronic Industries (TTI) has introduced even higher voltages in its Milwaukee Tool MX range, and Makita seems to be re-platforming from the dominant 18V range to 36V - which it uses the North American nomenclature of "40V" to refer to. (The difference between 18V and 20V, as well as 36V and 40V, is that the lower number uses the expected output voltage, and the higher number uses the maximum output of a fully-charged battery.)

    The question that is beginning to loom in the industry is whether the extra expense of making the FlexVolt system will continue to be worth it. DeWalt made twin-voltage platforms acceptable, but it could be that both TTI's and Makita's approaches prove more profitable in the long-term. Nominating its most successful innovations, Mr Allan came up with this list:

    We have a strong track record as the industry leader in breakthrough, world's first innovations in our businesses. From FlexVolt to Atomic and Xtreme to Powerstack, we will build upon this strength to deliver an even higher quality of core and breakthrough innovations with shorter development cycles and new technologies.

    It's possible to question just exactly how innovative both Atomic and Extreme really have been, but Powerstack - the first pouch-based battery for power tools - certainly has been something new. However, other manufacturers have indicated that SBD may have entered that market a little early, as production of the pouch-based batteries is difficult, making range expansion difficult to manage.

    That said, the company is now expanding Powerstack, as Mr Allan informed the analysts at the results presentation:

    We are expanding DeWalt Powerstack with the launch of a new 5-amp hour battery. This is the most powerful, longest-lasting 20-volt MAX battery in its class and is compatible with our 300-tool strong DEWALT 20-volt system. Powerstack is the first pouch cell technology battery of its kind designed to deliver unparalleled power density to best serve our most demanding professional customers, and is expected to deliver over USD100 million of revenue in its first 12 months since launch. Today, the 5-amp hour product is already in the European market and has received great reviews by our customers.

    Mr Allan also indicated areas where FlexVolt is expanding, as well.

    We're also continuing to advance our high-power DeWalt FlexVolt line. By the end of this year, the portfolio will reach 60 products across power tools and outdoor power equipment, generating approximately USD500 million of annual revenue and continuing to grow, approaching nearly 70 products by the end of 2023. The DeWalt FlexVolt 15 Amp-hour battery was introduced last year as a world's first innovation. DeWalt FlexVolt converts users who are using corded, small-gas engine or pneumatic tools due to a high power need, and they convert them over to battery power.

    In fact, SBD seems to be starting to follow the market plan of TTI, which has been to expand electric tools into new areas. As Mr Allan also remarked at the recent results announcement:

    Electrification is a key growth driver across our Tools & Outdoor and Engineered Fastening businesses. We plan to make incremental investments to accelerate our efforts, capitalise on share gain opportunities and fortify our market leadership position as the technology continues to shift and adoption accelerates.
    Market leadership includes more user activation at the front end of our businesses. As we introduce our new products and innovation, we will bring more digital tools and capabilities as well as additional commercial resources to engage directly with our customers, enhance interactions with our end users and drive market share gains.

    To that end, SBD is finding ways to employ its FlexVolt tech in more industrial settings, Mr Allan explained:

    Our FlexVolt technology is also advancing innovation and sustainability across our industrial business, where customers desire to replace existing hydraulic tools with cordless solutions to increase portability and efficiency. To that end, the Stanley infrastructure team recently launched the first cordless automatic rail maintenance tool, the RD60 rail drill, which is powered by DeWalt FlexVolt.

    At the Robert W Baird Global Industrial Conference held on 9 November 2022, Mr Allan detailed market share concerns in response to a question by an analyst:

    I think when you look at the different categories of power tools, hand tools and outdoor, in hand tools and outdoor, I think we've continued to gain share over the last year, 1.5 years or more. Power tools for DEWALT was challenging, and so we went through a period of time where we probably lost a point or so of share, and that's just the reality of being constrained on the supply side.
    The good news is I feel like what we're doing now is we are going to be able to, at a minimum, maintain share going forward, but more importantly, we're going to be able to gain share because of how we've addressed the supply constraint issues, but also because we're going to invest more in the innovation side.

    Mr Allan also pointed to what he sees as a coming recession, at least for the US market:

    For us, we kind of - we've been in a recession. So we've had a consumer recession that we've been dealing with. There's probably some type of professional construction worker recession coming as housing slows due to rising interest rates and maybe unemployment rising. We'll see what happens over the coming months and quarters.

    Mr Allan also clarified where he could see cost savings coming in the future on the productions side:

    The best example I can give folks is we have 11 different DeWalt drills. They can be 20-volt, 60-volt, FlexVolt. They have all kinds of different varieties, too. Then you have Atomic. You have Xtreme. You have all kinds of variations to it. And they've been designed and innovated in a way that made them unique, for some reason that at the time made a lot of sense.
    But what didn't happen was looking at all 11 of them and saying, "What is the common components we can use across all 11 of them?" So the crazy example I can give you is we have some drills that have 7 screws in them that keep them together. We have some drills that have 8 screws that keep them together. We have some drills that keep 4 screws that hold them together, and then the types of screws are all different.
    Those are things that you just need to look at and say, 'Well, okay, there's common things we want to do across this particular product family. Let's leverage the spend. Let's leverage the design.' And then what it does is it helps you not only drive benefit with your external vendor base, because you're leveraging the spend, but what – it allows you to innovate faster because you're not starting from scratch every single time around.
    You're starting with a platform and you say, 'Okay, 60% of the product is standardised. The remaining 40% is going to be tailored for something unique that the end user wants that they think is differentiated.' That's a combination of what we need to do internally and with our external vendor base.


    In some ways the outlook from SBD could be regarded as one of the first truly post-pandemic forecasts we've seen. There is a persistent concern in both North America and Australia that the construction industry could see a decline - if not a slump - once the building contracts won during Australia's Fy2021/22 are completed.

    One background reason for this, beyond COVID-19, is that globalisation has been more of a general economic boon than many realised, and has suffered a number of additional setbacks, including the Russian war in Ukraine, China's apparently similar external ambitions and, of course, Brexit.

    That said, however, there is a genuine note of hopefulness in the immediate reaction of SBD CEO Mr Allan - the push for real innovation as the best possible solution. It's really a major shift for the company. While we tend to think of companies like TTI and SBD as locked in continual competition, the truth is that if both are now staking their future on innovation, that may work to move the entire construction industry further down that path. We might even, just, see the emergence of important community innovations, such as how a connected construction site might actually work.


    Supplier update

    CSR benefits from building supplies demand but warns on prices

    James Hardie Industries cut its annual profit guidance on expectations that macroeconomic conditions and challenging housing markets will impact volumes

    CSR chief executive Julie Coates said demand for housing construction remained strong, with the pipeline for detached housing 50% higher than historic averages and extending well into 2023 - despite rising interest rates negatively affecting the housing market.

    HomeBuilder grants of up to $25,000 per project - offered by the former Morrison government at the start of the pandemic - created a boom in the housing construction and renovation market. This led to a supply chain crunch, sending the price of building materials soaring, with some projects yet to begin.

    CSR is set to benefit for longer because many of its products - including Gyprock plasterboard, PGH bricks, Monier roofing, Hebel lightweight building blocks and Bradford insulation - are generally only needed in the final stages of construction and renovation projects.

    In the Weekend Australian, Ms Coates said the Hebel lightweight blocks and Gyprock plasterboard were in particularly high demand. Builders looking for faster overall construction times amid labour shortages and supply chain pressures are increasingly using Hebel blocks.

    Cost, supply chain and labour pressures are supporting adoption of CSR systems like Hebel lightweight aerated autoclaved concrete as faster build times and reduced labour requirements are becoming increasingly valuable to builders.

    Ms Coates said the upgraded Hebel manufacturing facility at Somersby on the NSW Central Coast had substantial capacity to cater for that growing demand and could double its output. The Bradford insulation business had also been a strong performer as it ditched lower-priced items to concentrate on higher-margin products.

    CSR's revenue rose 14% to $1.29 billion in the six months to September 30. Meanwhile net profit before significant items - including a $6 million software upgrade - rose 27% to $110 million.

    Bottomline net profit after tax was down 34% to $104 million for the first half because of one-offs. CSR was able to lift prices for its products to combat raw materials inflation, and said it has also been disciplined on costs.

    The company's building products arm generated a 15% rise in earnings before interest and tax to $139 million for the six months ended September 30. Revenues in building products were up 11%, with most of it coming from price increases on its products. Gyprock plasterboard had lifted prices again in September and October.

    Ms Coates foreshadowed that price rises at the PGH bricks business would likely be higher than any of the other products because the brick-making plant uses much higher levels of gas as an energy source, where prices are escalating.

    In the Australian Financial Review chief financial officer David Fallu said there would "double-digit" increases in brick prices to "maintain margins in that space".

    James Hardie

    James Hardie said it has begun to see a "significant change" to the Australian housing market outlook in the past two months, with labour shortages and unfavourable weather conditions contributing to a slowdown despite backlogs.

    The company said its customers had asked to lower inventory levels amid a "period of market uncertainty". In The Australian, chief executive Aaron Erter, said:

    We see a weakened housing market for the remainder of our fiscal year, softening volumes in all three regions we participate in. To ensure we deliver on our results, our teams will be laser-focused on expense control through (cost cutting), price real­isation, and efficient resource allocation.

    As a result, he has been forced to downgrade full-year profits by about 10%. James Hardie said it now anticipates adjusted net income for the 12 months through May of between USD650 million and USD710 million, down from a previous forecast of USD730 million to USD780 million.

    It was the second downgrade in the past few months, with James Hardie having cut its full-year forecasts in mid-August.

    The profit downgrade overshadowed the first-half results where net profit after tax was up 22% to USD330.5 million, with sales up 14% to USD1.998 billion, for the six months through September, up 22% on the same period in the previous year.

    Mr Erter also said there had been a shift in the way homes were constructed. James Hardie products were being used earlier in the construction process, as builders awaited deliveries of other materials in short supply, he said.

    This switched order of construction would reduce the backlog of work for James Hardie.


    James Hardie annual profit jumps 75% and CSR reported an 85% rise in annual net profit - HNN Flash #94, May 2022
  • Sources: Australian Financial Review, Weekend Australian and Dow Jones Institutional News
  • companies

    Retail update

    Pet supplies store to change hands

    Furney's Town and Country in Dubbo, NSW will become part of the PETstock network

    Long-established pet store, Furney's Town and Country will be rebranded under the PETstock banner after more than 35 years.

    Current owner Michael Edwards has been a fixture during this time after working at the store - including sister business Pet Xtra for 25 years - and becoming the owner. He has seen the business go from strength to strength with the support of the community. He told the Daily Liberal and Macquarie Advocate:

    We only recently moved the business down here to the old Holden car dealership site and that's been hugely popular and successful. We sold the old premises with apprehension, it always is when you move a large business, but it's worked amazingly well.
    I went to work with the Furney family to run the site when it was a significantly smaller stock feed store. And we expanded on the pet side of things and opened the Pet Xtra on Erskine Street. And it continued to grow and grow.
    We've been very lucky to have that experience and have the support of the Dubbo and regional community.

    Ready for retirement, Mr Edwards said age and finding a "like minded buyer" made now the right time to take a step back from the business he has built. Australian owned and operated pet retailer PETstock has 47 stores across NSW and will take over the store.

    ...The store offers a great service to the community and PETstock is very conscious of community support, and that's always been key to me.

    The new owners planning on expanding the range of services to include DIY dog wash, grooming and personalised pet ID tags. PETstock state Manager, Tom Ginty Wise, said:

    In addition to expanding existing services, the store will support local organisations, such as local rescue groups, by providing them with free in-store space, temporary or permanent, for our PETadopt program where adoptable pets can find forever families in a convenient and friendly environment.

    Mr Edwards said he is optimistic about the direction PETstock would like to take the home-grown business in, and said the handover seemed fitting given the similarities in the history of both stores.

    In so many ways PETstock comes from a similar background in that they started off with a young family and a small stock feed store.

    After decades of helping Dubbo locals care for everything from horses to hermit crabs, Mr Edwards said:

    When you've been involved in something for so long and you've built a lot of relationships through the years with your clients and customers, that's what I will miss. That interaction with people.
    Often those relationships go beyond a business interaction and you take genuine interest in what their activity is ... it's quite a range of people you meet. And they all have such a genuine interest in their pets.
  • Source: Daily Liberal and Macquarie Advocate
  • Main image credit: Furney's Town and Country Facebook
  • retailers

    Big box update: IKEA

    IKEA trials Australia's first electric tuk-tuks for city deliveries

    The tuk-tuk-style vehicles will be used from its Tempe store in high-density urban areas around Sydney

    IKEA will debut the electric tuk-tuks as a "last mile" - the final journey of cargo and parcels from distribution centre to the customer - delivery vehicle in early 2023. It will enable the home improvement retailer to drop off parcels without polluting the air in heavily populated areas. The three-month trial is part of the big box retailer's move to reach its global goal to provide all customers with zero-emission deliveries by 2025.

    The tuk-tuks were unveiled by last-mile delivery specialist ANC, and rental and fleet management group ORIX Australia Corporation. The specially designed electric tuk-tuk is manufactured by BILITI Electric in India and imported exclusively by Brisbane company EMoS.

    The vehicle comes in flatpack form with assembly required. It has a maximum carry limit of 625kg including the delivery driver and is limited to a top speed of 50km/h with an effective range of 100km. While it lacks delivery van safety features such as airbags, the tuk-tuk's seatbelt, windscreen and third-wheel stability offer advantages over conventional scooters. The electric three-wheelers also have swappable 9kWh batteries. Their drivers will need to wear helmets.

    IKEA Australia chief executive Mirja Viinanen said the tuk-tuk was a natural fit for the company, as "customers have increasing expectations for the retail sector to reduce the environmental impact of its delivery services". Ms Viinanen is also the company's chief sustainability officer.

    IKEA led the way as the first Australian home furnishing retailer to implement home deliveries with electric vehicles. We are committed to this (2025) goal and want to bring the retail sector on the journey with us, so we are calling on the government to help us get there by introducing targeted incentives and charging infrastructure for last-mile delivery and logistics.

    According to The Driven website, electric trucks remain expensive and although there is an expected "after-market" in used batteries - for homes and the grid - the monetary benefits of that remain ill defined. The partnership with Orix will help create a "capital light" expansion into EVs, and demonstrate that the running costs are favourable, and better than renting. Orix CEO Reggie Cabal told The Driven:

    It's still early days for EVs as fleet vehicles and there are still many challenges, however, partnering with like-minded organisations helps overcome barriers and creates greener, more sustainable outcomes.

    He said many companies are in a "holding pattern" as they seek to understand the market and the technology.

    We are helping remove the complexity for delivery professionals to adopt EVs by aligning vehicles, infrastructure, energy and optimisation into a single, practical plan for a decarbonised fleet future. It's important we act now.
  • Sources: Australian Financial Review, Daily Telegraph and The Driven
  • Middle image from ANC Facebook
  • bigbox

    USA update

    Lowe's sells Canadian interests to New York private equity firm

    True Value is expanding in the farm category after it acquired the brand trademark rights of Agway Farm & Home Supply

    Lowe's has struck a deal to sell about 450 stores in Canada to Sycamore Partners for USD400 million in cash and "performance-based deferred consideration". Its Canadian business, based in Boucherville, Quebec, operates under various banners including Rona, Lowe's Canada, Reno-Depot and Dick's Lumber.

    Marvin R. Ellison, president and CEO of Lowe's, said in a statement that the sale of its Canadian subsidiaries "is an important step toward simplifying the Lowe's business model."

    While this business represents approximately 7% of our full year 2022 sales outlook, it also represents approximately 60 basis points of dilution on our full year 2022 operating margin outlook.
    By executing this transaction, we will intensify our focus on enhancing our operating margin and [return on invested capital], taking market share in the US and creating greater shareholder value.

    The company said it would register a USD2 billion write-down related to Canadian retail activities in the third quarter of 2022.

    Sycamore Partners managing director Stefan Kaluzny said the private equity firm would "establish Lowe's Canada and Rona as a standalone company headquartered in Boucherville, Quebec."

    The companies say they expect the transaction to close in early 2023, subject to regulatory approval.


    Lowe's entered the Canadian market in 2007 and expanded its footprint in 2016 with the purchase of Rona for USD2.3 billion. The acquisition was controversial at the time, with a major Quebec company being sold to foreign interests, and many Canadian politicians tried to stop the deal.

    The retailer's sale of its Canadian interests is a recognition by the company that it couldn't make the takeover work. The business has struggled and Lowe's has cut jobs and closed dozens of stores in several provinces.

    For Rona, it will likely be the beginning of another period of turbulence. Private equity firms typically hold on to investments for a limited period of time and the chain is almost certainly headed toward new ownership after Sycamore decides the time is right to sell.

    Lowe's began a strategic review of its Canadian operations in the third quarter of fiscal 2019 and later that year announced actions to improve the performance and profitability of that business segment.

    In fiscal 2020, the company had pre-tax operating costs of USD45 million related to inventory write-downs and other closing costs.

    True Value

    The Agway acquisition expands True Value's capabilities in the Farm, Ranch, Auto & Pet (FRAP) category. As part of the purchase, True Value has also obtained the rights to select private-label products and equipment. Currently, close to 600 retail stores operate under the Agway name. True Value CEO Chris Kempa said:

    Purchasing the Agway brand is an excellent fit for True Value as we continue to grow through strategic acquisitions. Farm & Ranch is an important category for True Value and owning the Agway brand deepens our capacity to support our retailers in providing their customers with the products they need.

    Agway Farm & Home Supply was formed as a farmer-owned cooperative in 1964. Today it is a wholesale product distribution company serving a network of independent retailers, primarily in the US Northeast. Agway stores carry a variety of products including lawn and garden, wild bird seed and supplies, pet products and farm supplies.

    The Agway transaction represents True Value's second completed acquisition in 2022. In March, True Value announced the purchase of Majic, the Yenkin-Majestic Paint Corporation's consumer paint division.

  • Sources: Montreal Gazette, Retail Dive, Globe and Mail and True Value Company/PR Newswire
  • Main image credit: Retail Insider Canada
  • retailers

    Hardware retail remains strong

    Will the December quarter be a record?

    Even with economic headwinds, Australian hardware retail hangs onto past gains, and produced growth. September continued the August trend of generally exceeding 2021 hardware retail revenues. Total 12-month revenues continue to grow. Some states and territories have posted growth of over 30% in particular months.

    The Australian Bureau of Statistics (ABS) has released retail sales figures for September 2022. The original numbers for hardware retail shows that the predicted trend has continued: not only has the high level of sales first established at the start of the COVID-19 pandemic in March 2020 continued, but the numbers have continued to grow.

    Some extent of that growth has to be attributed to inflation. However, the counterpoint to this is that inflation could have created a decline in sales, or at least a levelling off. Instead, while the rate of growth might have gone down for September 2022, it remains surprising that given all the negatives - higher interest rates, declining prices for houses, more inflation, the promise of slow growth through to the end of 2024 (according to the Reserve Bank), sustained slower growth in wages, and future energy prices that will go up, but no one knows by how much - hardware retail continues to thrive.

    To date, most of the projected barriers to continued hardware retail revenue growth have not eventuated, or were milder than expected. One such concern was over an increase in expenditure on travel reducing the pool of funds available for non-necessity expenditure. As the Chart below indicates, while expenditure on travel has increased through 2022, it still remains well below the level of 2019. The lower graph indicates that gap.

    That said, it is also likely that this gap will continue to close during 2023, and this could still result in a reduction in hardware retail revenues, especially as the backlog of construction activity is reduced.

    As usual, the charts below cover 12-month periods ending in the month for the most recent stats, which is September. We refer to these periods with the prefix "p", so p2019 would be the 12 months from October 2018 through to September 2019.


    It remains surprising to HNN to look at these charts, and to see the big gap between retail sales prior to March 2020, and both the pandemic and post-pandemic sales. Looking at the top graph in Chart 1, the other point is just how consistently strong sales for p2022, with only the highest peak of p2020, in May, posting higher numbers.

    The lower graph retraces a familiar pattern of growth post-pandemic. There is the high arc of sales growth in p2020 and p2021, from March 2020 through to January 2021, balanced by the decline in growth through the remainder of p2021. Growth for p2022 is evenly balanced between those two, which is a good indicator of stability.

    New South Wales

    New South Wales (NSW) continues to show the most robust growth of any state or territory, with half of p2022 producing over 10% growth, as the lower graph in Chart 2 indicates. Most notably, four of those six months were after the start of interest rate rises, running from May through to August 2022. While growth appears to have declined for September 2022, that is actually a consequence of very strong sales in September 2021.

    It will be interesting to see if NSW can match the record sales for the December quarter that were produced in 2021, with those three months producing $2.16 billion. That contrasts with $1.60 billion for both 2018 and 2019, and $1.94 billion in 2020. This includes the highest ever monthly sales number in Australia, at $767 million for the month of October 2021.


    Total sales for Victoria (VIC) in p2022 were $6.64 billion, a modest 2.6% increase over sales of $6.47 billion in p2021, with p2020 producing $6.46 billion, and p2019 $5.61 billion in sales. So, the hardware retail economy has been boosted by an extra $1 billion in expenditure.

    As with NSW, VIC has shown resilience in the face of interest rate increases, with sales from July to September 2022 showing steady growth of 5%, illustrated in Chart 3.

    As with NSW, there is a challenge to see how sales go for the final quarter of 2022. Sales for that quarter in 2021 were $1.86 billion, and in 2020 were $1.90 billion. November has been the peak month for VIC, with the highest figure for 2020 at $677 million.


    Queensland (QLD) has continued to perform well during p2022. Total sales for the period were $5.38 billion up by 7.3% over p2021 with sales of $5.01 billion. Sales grew by 14.7% in p2020 and by 8.2% in p2021, providing a three-year average growth of 10.1%. That contrasts with average growth of 5.2% from p2013 to p2019 - though that includes two periods, p2013 and p2015, when growth was over 12%.

    QLD has demonstrated steady growth through p2022, as the lower graph in Chart 4 indicates: for all but two months growth has been at or above 5%.

    South Australia

    South Australia (SA) is the only state to show a sustained high rate of growth in hardware retail revenue during p2022, hitting a peak of 44.9% in July 2022, as shown in the lower graph of Chart 5.

    In part this is due to lower sales during p2021, but the increased sales were generally well above sales during the initial pandemic period of p2020. Sales during p2020 grew by 17.4%, by 1.1% in p2021, and by 19.1% in p2022.

    As with the other states, sales in August and September 2022 indicate that economic conditions have yet to negatively affect the SA market.

    Western Australia

    Western Australia (WA) had a somewhat unique experience for the pandemic period, bringing in effective measures to remain nearly COVID-19 free until late 2021. While the state saw some significant growth, it remained modest, with the state's boom year of 2016 outperforming the pandemic gains in some ways, as shown in Chart 6.

    WA saw retail revenues grow by 15.0% during p2020, by just 6.2% for p2021, and by 9.9% for p2022. Its peak sales month was December 2021, when it hit $241 million, but September 2022 was also very good at $224 million.

    Australian Capital Territory

    Like WA, Australian Capital Territory (ACT) had a somewhat unique pandemic experience. As Chart 7 shows, there has been a strong upswing in revenues for August and September 2022.

    Like SA, the territory has seen some very high percentage increases in growth, topping out at over 40% for September 2022 - though that is driven in part by a sharp decline in sales for August and September 2021.


    One of the big questions that will be faced in calendar 2023 is how each state will fare individually as economic conditions continue to tighten. It seems likely that NSW will continue to be something of an economic powerhouse for Australia. However, HNN believes it is possible the VIC economy will struggle. The effects of its severe experience during COVID-19 are not generally understood all that well outside of the state, and these have left both scars on the community and the state's economy.

    What does seem clear, however, is that the other states have made up some ground, at least in hardware retail, over the two major states, and there is some hope this will continue. The final quarter of 2022 will reveal much about each state's prospective future.


    Sausage sizzle stars at Wesfarmers AGM

    Questions asked about environment, cybersecurity

    The Bunnings sausage sizzle received praise, and Wesfarmers faced questions about its environmental credentials at its annual general meeting. Managing director Rob Scott reported Bunnings continued to trade well in the September quarter, though wet weather affected sales.

    The parent company of Bunnings, Wesfarmers, held its Annual General Meeting on 3 November 2022. Both the Wesfarmers chairman of the board, Michael Chaney, and the managing director, Rob Scott, offered prepared comments, and Mr Chaney subsequently answered questions from shareholders.

    Jumping ahead to the shareholder questions, there is little doubt which part would be the favourite of Bunnings managing director Mike Schneider. It wasn't really a question, but more a comment and a "thank you".

    Mine is not a question, Mr Chairman, but a thank you to you and your board and all the people that came up with the idea Australia wide of the good old Sausage Sizzle. You don't realise how all the sporting clubs, all the sporting clubs and social groups that I'm involved with, this is such a great way of raising money. And I thank you very, very much for coming up with the idea.

    Yep, the old sizzle rated a mention at the AGM.

    Rob Scott

    Mr Scott began by offering some comments on general trading conditions during the first quarter of FY2022/23:

    Consistent with our update at our full-year results in August, retail trading conditions have remained robust, and we have been pleased with sales through the 2023 financial year-to-date.
    Australian consumer demand continues to be supported by low unemployment and high levels of accumulated household savings, but rising interest rates and the impact of inflation are starting to affect consumer behaviour.
    Over recent months, shopping patterns and customer feedback indicate some customers are becoming more price sensitive, as they try to manage household budgets. We see these conditions as an opportunity for our businesses, which are well known for their everyday low prices, to outperform relative to others in their markets.

    Mr Scott went on to more specifically detail how Bunnings is performing:

    In Bunnings, sales in recent months have been impacted by an unusually prolonged period of wet weather over the start of Spring, but overall sales growth for the year-to-date remains resilient and continues to be supported by strong demand from commercial customers. While sales growth from DIY customers remains positive, it has moderated from the high levels experienced through COVID.

    He went on to stress the importance of the OneDigital program at Wesfarmers, which includes its substantial investment in data analytics.

    2023 is a foundational year for OneDigital, as we invest in the systems, processes, and capabilities to support our data and digital ambitions. As customers become more digitally savvy and value conscious, the enhanced multi-channel experience and value provided through OnePass will be even more important. Our investment in OneDigital is in line with prior guidance, being an operating loss of $100 million for the 2023 financial year, excluding Catch. We will provide a further update on progress at the half-year results in February next year.

    Michael Chaney

    Many of the questions from shareholders addressed to Mr Chaney dealt with environmental and climate-change associated reductions in energy use. There were also several questions on the move by Wesfarmers into Lithium mining, and questions about how Wesfarmers planned to manage its new health business in the future.

    One of the questions particularly pertinent to Bunnings was whether Wesfarmers as a whole was too dependent on China as a source of supply for its products. Mr Chaney responded:

    That's a very live issue, Mr. Stan, and if I heard you correctly, [you suggested] 60 to 80% of Bunnings products come from China? That's not correct. It's a lot lower than that. But certainly amongst our companies, right across the group, we have significant imports from China.
    There are ways of diversifying and some of the businesses have. Put it this way. We've got 26,000 suppliers over - is it 34 countries, Rob? And we [get] supply a lot from places like Bangladesh. One of the issues about diversifying out of China is that a lot of the people who would produce a product elsewhere source the raw materials and components from China. And so you end up with a dependency anyway.
    But it's an issue I think that all companies and countries like the US are considering and thinking about, and making efforts to make sure that their sources of supply are very diverse, and we're certainly amongst them.

    Mr Chaney was also asked about what steps Wesfarmers was taking to protect itself against "cyberattacks" - hacking of data systems. Mr Chaney replied:

    Sure, well, this is a huge issue that all companies and boards are addressing all the time. And it's something we've been addressing for years. And there's a huge amount of activity, a lot of people employed in the company in the group, handling cyber matters and security matters. The recent attacks have focused everyone's attention, I think, and, you know, as a result, we're renewing our efforts where we're looking further at the question of what sort of information we hold and need to hold. But it's an ongoing issue.
    And it's going to be with us for a long time. And, you know, as soon as you think you're well protected, the villains out there devise some other way of getting into your systems. And it's a matter of being constantly vigilant and making sure you apply the right resources to it.

    Mr Chaney was also asked about how the company was prepared for the potential of a recession in the coming years.

    I mean, it's an interesting question, because over the last 30 years, the world has gone through a few recessions which have not occurred in Australia. The one that has occurred since 1991 was the COVID-related recession, which was very brief and minor.
    So it's possible that the rest of the world would go through a recession and we would not. People talk about the US and Europe going through a recession. And yet the government in its budget ... predicted a growth rate here at 1.5%, which, you know, recession is defined as two quarters of negative GDP growth. So it's possible, we won't, but there's no doubt that, as Rob said earlier, when you have rising interest rates, falling house prices, inflation, and so on, it'd be surprising if you didn't have a fall in consumption, or a reaction in consumption at least.
    So what you've got to do is make sure you've got a strong balance sheet and that you're well prepared. You're looking at your costs, and so on, you're well prepared, whatever happens and hopefully we won't have a recession - albeit, we'll probably have some sort of a slowing down of economic activity next year, as the government predicts.


    The hidden question in all of this from the AGM is: how well prepared is Wesfarmers for the future? While that ended up being spelled out piecemeal through questions about cybersecurity, recession, supply and response to adverse economic events, that central question remains open.

    There is no doubt that Mr Scott is making good and necessary preparations for that future. It's worth noting that he has shown a good deal of restraint when it comes to acquisitions, and both the move into Lithium production and health care through a pharmacy acquisition are strongly predictive for future strong markets.

    The lingering questions that remain are really over the legacy retail operations. In the short to medium term, both Kmart and Bunnings will likely get through a declining economy, as both are value retailers. There are larger questions about Target and OfficeWorks. Target has been failing because it is largely a fashion business, and it did not adopt the quick reactivity that fast fashion groups such as Zara, H&M and Uniqlo have deployed. OfficeWorks remains as an apparent relic from 2004, with a product line largely devoted to paper products, and technology buying that only appeals to the least sophisticated customers.

    The real question that Wesfarmers faces is whether to treat these businesses as essentially EOL (end-of-life), and to extract what remaining value there is from them, or to invest in essentially new businesses, using their legacy value to leverage new opportunities.

    In terms of Bunnings itself, questions remain over its potential for real innovation. The acquisitions of Beaumont Tiles and its ongoing development of Tool Kit Depot are worthy, but they are not especially innovative in a broader sense.


    Indie store update

    West Rocky Hardware, "best in the west"

    Stanthorpe Mitre 10 has won Independent Hardware Group's Garden Centre of the Year in Queensland

    Rockhampton local Peter Hunt is the owner of West Rocky Hardware, part of a portfolio of businesses that also include Think Water and Wandal Need and Feed.

    Located in West Rockhampton (QLD), Mr Hunt operates his three businesses under one central hub for an easy shopping experience. He told CQ (Central Queensland) Today:

    We saw a need for a hardware store on the southside of Rockhampton. After the closure of Gunna Do Hardware, someone had to pick it up. This warehouse became available, and based on the community interest, we decided to give it a go...

    West Rocky Hardware has been operating for 12 months, and Mr Hunt said he is excited about the future of the business.

    We are learning what to keep and are finding it's quite seasonal. Coming into Spring, we are selling many gardening products like mulchers, potting mixes and weed killers.
    People are also buying a lot of seeds to make their own veggie gardens.

    Describing themselves as "not your average hardware store", Mr Hunt is proud to offer residents an alternative option compared to larger companies. He said:

    Overall, our store prides itself on our service with a smile and knowledge of what we sell. West Rocky Hardware is the type of store for the DIY person. We have a good range of products that balance quality and price.

    Mr Hunt said that being in business has taught him a couple of things, but the biggest has been confidence and believing in yourself.

    Your first instinct is normally right, so have the confidence to know you can do any task you put your mind to.
    Owning the other two businesses, Think Water and Wandal Need and Feed, for 12 years has given me the confidence to go into hardware. We are trying to make it the hub for people's daily needs.
    As we evolve, we will be looking at expanding to other areas as well.

    Located on 234 Lion Creek Road, West Rockhampton, West Rocky Hardware is next to Think Water and Wandal Need and Feed.


    Rockhampton hardware store is up for sale - HNN Flash #15, July 2020

    Stanthorpe Mitre 10

    Stanthorpe Mitre 10 owners Bill and Melissa Kerr said it was an amazing feat to win Garden Centre of the Year for Queensland. Melissa Kerr told Warwick Today & Stanthorpe Today:

    We are actually at the bottom end of the category because we are a medium end store. We came up against bigger stores throughout the state and they have bigger store areas then us.
    It was exciting and a big surprise to have won the award. We are all very proud of our achievement.

    Stanthorpe Mitre 10 competed against Mitre 10, Home Hardware and Timber and Thrifty Link and True Value Hardware stores across Queensland to take home the award. Mrs Kerr said:

    The competition was tough and to come up winners, being a small country town is excellent. It was a team effort with Kay-Lee Antonello and all our staff and suppliers; we'd like to thank them. We'd also like to thank our loyal customers.

    After the initial expansion of the old garden centre, it was completed with metal display shelving, an automatic watering system and shadecloth for protection from the elements.

    Mrs Kerr said she remembered standing back with her very keen gardening team member Kay-Lee thinking how they were going to fill this area. Then the task of filling the garden centre with plants, pots, decorative ornament and features began.

    Now, we have started to overflow past the garden gates and feel we need to expand again...
    The locals are our greatest supporters, and the new garden centre is the talk of the town. We have visitors from as far as New South Wales and the coast dropping in to see what is new in store.

    Big box update

    Pre-Christmas opening for Bunnings Hervey Bay store

    The hardware retailer turns its catalogue digital and managing director Michael Schneider emphasises training for young tradies

    The new Bunnings store being built in Pialba, a suburb of Hervey Bay on the Fraser Coast in QLD is close to completion. It is being built on Main and McLiver Streets, next door to the existing store on Boat Harbour Drive.

    Bunnings area manager Annabelle Fawkes-Jones recently confirmed the new Hervey Bay store will open prior to Christmas. She told the Fraser Coast Chronicle:

    The existing store in Boat Harbour Drive will close the evening before the new store opens.
    The new store represents an investment of around $59 million, and we expect to create approximately 80 new team members jobs to add to the existing 200 team members currently employed...

    The retail development will feature a warehouse, outdoor nursery, landscape and material yard, trade yard, cafe and over 460 car park spaces.

    The highly recognisable Bunnings signage has been put up, and finishing touches are being added to a retail area about 5000sqm larger than the current store, reaching more than 17,000sqm in floor space.


    Bunnings' Hervey Bay development sold - HNN Flash #72, November 2021

    Catalogue turns digital

    Bunnings is replacing its old-school print catalogue with an online offering that includes mobile apps, emails, social media and YouTube videos, according to The Australian in an exclusive report.

    The retailer continues to embrace a digital future as its customers increasingly shift to online shopping.

    The decision to go digital with its catalogue comes after Bunnings informed suppliers at a forum in July that it would review its print catalogue. At the same time, it would look at its digital capabilities to create better experiences for shoppers and how to best showcase its latest products and project ideas.

    In a recent letter to suppliers, Bunnings merchandise director Jen Tucker confirmed the fate of the paper catalogue. According to SmartCompany, it reportedly said:

    Following this review, we've decided to move to a fully digital version of the catalogue in both Australia and New Zealand, which will kick off with a Christmas gift guide special ahead of the festive season.
    We are excited to be moving to this digital-only format which gives us the ability to reach more customers, provides an easier platform for customers to transact and can be evolved to meet the changing needs of our customers.
    The new format will also allow us to amplify and promote our catalogue in mediums where our customers increasingly spend time, including on social media and online as part of our digital advertising.

    Bunnings director of marketing Phil Wade said the retailer was being led by the behaviours and preferences of its shoppers. In 9News.com.au, he said in a statement that it hoped the digital push will make "transacting even easier".

    We know more of our customers are choosing to seek project inspiration and product information online. As such, we recently reviewed our printed catalogue and, like many retailers, have now made the decision to move to a digital-only version...

    Mr Wade added that products will be promoted through Bunnings' website, email, and social media channels and through the popular Bunnings custom magazine. He said:

    This will still be printed and offered for free in store,

    During the pandemic in 2020, Coles, unveiled plans to scrap its weekly printed specials catalogue in favour of digital catalogues. A t the time, Coles announced it was revamping the coles.com website to include a new section, dubbed coles&co, which will publish a digital catalogue with shoppable specials and exclusive content, including daily recipes, which incorporate the week's best deals, new products and shopping tips.


    Bunnings' merchandising team has been restructured - HNN Flash #104, July 2022

    Future tradies

    At Wesfarmers' annual general meeting in Perth (WA), Bunnings managing director Mike Schneider told The West Australian that the shortage in construction (tradie) skills should be taken more seriously. He said:

    ...The biggest challenge we find on the commercial side is just access to trades. I think that requires structural change over time around getting young people into trades.
    There's a lot of talk about getting people into STEM (science, technology, engineering and mathematics) subjects at school and into data science and technology at university.
    That's critically important for the country but it's just as important to get carpenters, electricians, plumbers and boilermakers.

    Bunnings is also feeling the shortage, finding the trades expertise it needs for its near 300 stores has become more difficult. Mr Schneider said:

    We've seen quite a significant reduction in the number of people wanting roles in our stores, not because the employment environment is not attractive but because you have almost full employment and there's not a lot of labour out there looking for work.
  • Sources: Fraser Coast Chronicle, The Australian, The Australian Financial Review, 9News and SmartCompany
  • Image credit: Real Estate Source
  • bigbox

    Supplier update: Timber

    Competition concerns over FCNSW's proposed acquisition

    The ACCC announced in August that it was making inquiries about its proposal to buy Hume Forests

    The Forestry Corporation of NSW (FCNSW) is looking to buy Hume Forests Limited which is owned by major US forestry fund managers Global Forest Partners (GFP). However the Australian Competition and Consumer Commission (ACCC) has put a hold on the move, saying it has "preliminary competition concerns".

    Hume Forests comprises a maturing softwood plantation estate located between the Tumut-Tumbarumba and Bathurst-Oberon regions of NSW. The plantations include about 19,000ha of freehold land with a total productive area of 14,000ha and are planted with the radiata pine which has strong demand in the building industry.

    GFP, which has about USD3.3 billion in assets, acquired Hume Forests in 2004 for one of its timber funds.

    The ACCC said the proposed buy would be likely lessen competition in the supply of softwood logs in each of the Tumut/Tumbarumba and Bathurst/Oberon regions, and said the softwood log market was already highly concentrated and the sale could lead to higher prices for the timber. (Its invitation for public comments on its concerns recently closed on November 3.)

    FCNSW, a state-owned statutory corporation, owns and operates more than 230,000ha of softwood timber plantations and just under 35,000ha of hardwood timber plantations in NSW. It is the largest producer of softwood logs in NSW with plantations across Bathurst, Bombala, Grafton, Moss Vale, Tallaganda, Tumut and Walcha. It owns more than 70% of all softwood plantations in the state, according to the Oberon Review.

    Analysts told The Australian the state government's motivation for buying the plantations is likely to be that it lost its own plantations across 50,000ha during the bush fires almost two years ago.

    The Australian Financial Review has also reported that investors are re-thinking forestry as an asset class following recent changes to Australia's carbon legislation, which has created additional potential revenue streams.

    The demand for timber from a booming housing construction sector, and supply chain issues in offshore markets, has investors looking for hedges against rising inflation.

  • Sources: Oberon Review, The Australian and Australian Financial Review
  • companies