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

HBT Conference

The following is an extract from the main story:

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

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

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

So now we have the chance to write that story.

The New Geography of Approvals

Extract:

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

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

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

Metcash Investor Day

Extract:

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

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

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

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

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

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

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

New South Wales

Victoria

Queensland

South Australia

Western Australia

Australian Capital Territory

Australia overall

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

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

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

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

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

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

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

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

Related

Caboolture store opens

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

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

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

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

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

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

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

Related

North Wollongong

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

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

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

Related

Cowra

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

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

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

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

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

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

Related

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

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

The presentation

Metcash CEO Doug Jones introduced the hardware division results:

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

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

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

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

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

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

IHG questions

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

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

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

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

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

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

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

Ms Welsh responded (in part):

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

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

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

Ms Welsh responded:

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

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

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

To which Ms Welsh replied:

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

TTH questions

Brian Raymond from JP Morgan asked:

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

Annette Welsh responded:

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

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

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

Annette Welsh provided some details:

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

Analysis

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

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

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

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

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

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

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

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

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

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

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

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

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

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

As regards Beaumont Tiles, the company states:

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

The company also outlined some experimentation in its stores:

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

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

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

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

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

Analyst questions

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

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

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

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

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

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

Analysis

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

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

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

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

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

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

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

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

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

The market

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

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

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

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

Competition

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

Related

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

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

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

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

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

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

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

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

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

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

As Mr Schneider points out to The Australian:

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

Opportunity

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Mount Gambier

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

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

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

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

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

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

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

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

Byron Bay

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

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

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

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

Warrnambool

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

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

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

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

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

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

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

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

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

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

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

Margaret River

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

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

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

HPP Lunds has released the latest 56-page catalogue for its JB Weld branded products. Each section of the JB Weld catalogue is headed with a large photo of the product in use, and they are broken up into product groups such as exhaust repair, thread lockers or putty sticks. There is also a group of speciality products such as windscreen, radiator, leather and vinyl repair, tank repair, valve grinding paste and metal strapping products.

To assist customers, there are easy to read charts explaining the many uses for the products such as the 2-part epoxies. These charts clearly show which applications are suited to each of the tailored products. As an example, ClearWeld is suitable for repairs to garden equipment, fibreglass, rigid and semi flexible plastics, ABS, PVC and CPVC pipes, auto trim and bumpers, crafts toys, wood, concrete, ceramic, tiles glass, gap filling and vinyl siding.

The easy to read charts quickly show the product attributes, the materials to which they are best suited and a rating system that with a quick view allows you to see which product best suits a material. These are rated in terms of Good, Better, Best.

In addition to the charts, complete product descriptions are detailed including part numbers and product sizes available.

Specialty packs are also listed such as the Essential Travel Pack of products and product display units both counter and wire rack types.

More than 60 products are listed.

The JB Weld Australian catalogue is available to download from the following links:

For a hardcopy version, contact Ben Leonard on (07) 3722 1111.

A QR code is also available to receive the catalogue.

A development application (DA) has been lodged by the Bunnings store in North Launceston (TAS) to use part of its land to create a commercial building for bulky goods sales.

The proposal for the site at 80 Lindsay Street, Invermay, is being advertised by the City of Launceston, according to The Mercury.

Under the proposal, the new building would be at the front of the site. The main retail space in the new building - the future tenant of which is yet to be chosen - would be about 1520sqm, with space for back of house, an office and workshop.

The maximum building height would be 7.5 metres. There will be 25 new parking spaces. In a report, building surveyors and engineers Pitt & Sherry said:

One loading bay will be provided on the western side of the site and will be accessed by a new vehicular crossing from Lindsay Street. This area will be surrounded by a 2.7-metre high transparent mesh fence. Landscaping is proposed along the Lindsay Street frontage.

As the future operator of the new building is unknown, the applicants estimate there will be approximately six members of staff onsite.

Hervey Bay

The new store in Pialba, a suburb of Hervey Bay, will provide the community with access to a six-lane drive-through timber yard, a bigger paint department, tool shop, nursery, landscaping and bagged goods and more than 430 carparks.

The precinct will also include a new kitchen design centre, which is a first for the Fraser Coast.

Bunnings Hervey Bay complex manager Jackie Roberts said all hands were now on deck. She told the Fraser Coast Chronicle:

The team has been working tirelessly to ensure the store is ready for customers when we open the doors to the new Hervey Bay warehouse for the first time.

As part of the store opening celebrations, the team has provided some hands-on support to local community groups. Ms Roberts said:

The team really enjoyed working alongside the Hervey Bay Spinners, Weavers and Fibre Artists to refurbish the historic Old Schoolhouse and meet some passionate local residents. We helped landscape the surrounding garden and freshen up the deck, entrance stairs and ramp, making the entrance safer...

The new store will also have a range of sustainability initiatives that will reduce its environmental impact including LED lighting, on-site water reuse and solar energy.

Related

After helping to launch the first Tool Kit Depot store on the eastern seaboard, Tool Kit Depot Gympie store manager, Braden Bunker, said his team was looking forward to meeting local tradies and helping them with their next job. He said:

There has been strong demand for online orders to Queensland, so we are glad to now be able to provide Queenslanders with the opportunity to shop in store and become a trusted trade partner with locals....

Our team worked hard ... getting products on the shelf in preparation for the store opening. It's been a huge effort by all involved and we're really proud of what we've achieved.

With sites already operating in South Australia and Western Australia, Tool Kit Depot said the new Gympie store provides tradies and serious DIYers with a one-stop-shop for tools, outdoor power equipment, storage, welding and construction equipment, safety and workwear, as well as a workshop for repair and services.

Its in-store tool repair centre sets the brand apart from its competitors. Customers can have their tools serviced on site, with genuine expert advice across all product ranges including specialist carpentry equipment. Stores will also provide a battery bar service.

In addition to a premium range of products from suppliers such as Festool, Husqvarna, Hard Yakka, Milwaukee and Makita, the Tool Kit Depot range extends to products from AEG, Irwin, Empire, Kango and Full Boar.

In addition, there will be trade nights and invitational events such as beer and pizza nights, where tradies will get a chance to see demonstrations by product company representatives and sample the latest product lines and services.

Spanning 1,200 square metres, the new store represents a $3 million investment in the Gympie community and has created 14 new jobs for locals with trade experience. It is located at Tenancy 2, Hall Road, Glanmire, across from Bunnings.

Related

David O Jones Mitre 10

Store owner Simon Jones said he and fellow owners David and Margaret Jones are currently negotiating a new lease agreement with landlords, because their current agreement expires in January 2023. While negotiations previously resulted in a stalemate, Mr Jones said both parties had finally reached an agreement. He told the Ararat Advertiser and Stawell Times:

We haven't wanted to leave the premises, and we won't be leaving the premises as well, I'll make that clear right now...We met with them again and have come to an agreement, pending us seeing the new leasing agreement, which is amended...

Mr Jones clarified jobs were staying in Ararat, and that he'd even explored other property options in case current negotiations fell through. He said:

It would have been extremely difficult, but we still would have been trading at another site in Ararat had we vacated the Campbell Street site. There was never any question about a Mitre 10 presence in Ararat, and never a question about the Jones' being in Ararat either. We were always committed to that.

Mr Jones said Ararat residents had been very supportive of the store, particularly during recent difficult years, with business expected to grow even further for the "silly season".

Our Christmas period has already been very, very good, both from a retail point of view and our trade customers as well.

David and Margaret Jones purchased the business from previous owners Max and Bernie Perovich in 2013.

Supermarket group Woolworths has spent $586 million for a 55% stake in Petspiration, the company behind the PETstock brand.

Woolworths chief executive Brad Banducci said the retail giant's market research revealed an opportunity to cater to all kinds of pet owners, including those in regional Australia who have bigger animals with different needs. In a statement, he said:

Specialty pet is a large and growing retail segment in which we have limited presence...Specialty pet is a logical adjacency given the high penetration of pet ownership across Australia and New Zealand.

Australians spend tens of billions of dollars on their pets each year - close to 70% of Australian households now have a pet, with Animal Medicines Australia forecasting that households spend about $3200 on their dogs and $2100 on their cats each year.

This pet ownership trend was magnified over the COVID period while people were working from home during lockdowns, leading some analysts to question whether the growth rates are sustainable. Between 2019 and 2022, dog ownership grew by 25% and cats by 42%.

The rate of revenue growth in the pet goods sector more than doubled between 2020 and 2021, according to industry research firm IBISWorld.

Mr Banducci believes there is still room for growth across the pet-care sector, which now goes well beyond food and toys to services such as virtual vet care, doggy daycare, training and grooming services.

Petspiration has been identified by Woolworths as the number two player in a fragmented industry, but Mr Banducci has big plans. Its major competitor is Greencross/Petbarn/Animates now owned by US private equity giant TPG.

PETstock has a network of 276 stores and established online platforms such as Pet.co.nz, a 2.4-million-member Petspiration loyalty program, and an own brand range such as Caribu and Glow. Its products and services include food, boarding, grooming and veterinary services. Mr Banducci said in a statement:

The partnership will allow us to meet more of our customers' pet family needs with a complementary range of specialty pet products and services, strengthen the Everyday Rewards loyalty program and unlock opportunities for material value creation across both businesses.

We will work together to support Petspiration's growth through access to our retail capabilities in areas such as Digital and eCommerce, Supply Chain, Retail Media, Format and Network Development, and Advanced Analytics.

Woolworths said the new business had turnover of $979 million in the year to September, with estimated net financial debt of around $290 million and lease liabilities of about $380 million as at September 2022. The investment deal puts the enterprise valuation of the business at $1.7 billion. In a statement, Woolworths said:

Petspiration is well positioned to continue to grow strongly, as the business builds out and consolidates its national footprint and brand. The transaction is expected to achieve a mid-teens internal rate of return, with identified value creation opportunities to support strong earnings growth.

In The Age, Mr Banducci said Petstock had experienced a strong earnings growth trajectory over the past 10 years as the beneficiary of what he describes as megatrends.

One in particular that he noted is pet longevity, which has greatly increased as owners spend more on nutrition and exercise, and presumably vet bills. Another will be owners' reluctance to leave the family pooch at home alone. This has led to the increasingly popular doggy daycare, which can rival the cost of childcare, depending on the provider. There is also doggy grooming which can involve booking a week in advance.

The founders of Petspiration, brothers Shane and David Young will continue to run the business, which will operate as a standalone unit. They will hold 45% of the business in conjunction with existing shareholders.

The majority stake was funded by a sell-down of Woolworths' stake in Endeavour Group, the owner of a string of alcohol retail chains including Dan Murphy's and pubs across the country. The sell-off leaves Woolworths with a 9.1% stake in the bottle shop owner. Endeavour was spun out of Woolworths and floated as a separate listed company in 2021.

Related: Woolworths already has a pet insurance offer and has entered a joint venture with Hollard Group's PetSure for an online specialty pet goods business called PetCulture.

Pets Domain

Pets Domain, which previously operated six Tasmanian stores before its local assets were purchased by competitor Petbarn in late-2011, recently opened its 63rd location Australia-wide at Cambridge (TAS). Two more mainland stores were launched in December, taking the total to 65.

Chief executive Jason van Peelen opened his first retail store on Brisbane Street in Launceston after starting out breeding and selling fish from his parents' garage over 35 years ago. He had six stores when Petbarn came knocking. He told The Mercury:

The offer at the time was significant. We decided we would accept, it was not necessarily easy to do, selling the original stores.

However, the injection of capital enabled Pets Domain to undertake a "massive growth campaign". Mr van Peelen said Pets Domain will be opening 25 new stores a year "for the foreseeable future".

Outside the capital cities has been a focus for Pets Domain. He said:

Because of our roots in Tasmania, we identify with regional Australia better than metro. Our network of stores is predominantly in regional Australia, it seems to be a good fit for us.

Pets Domain is also investing into more than just bricks-and-mortar stores. Last year, the company established "Australia's largest fish wholesaler", Aquarium Industries, which breeds from a farm in Queensland.

There is also a manufacturing and importing division, Nature's Best, which produces lines such as Peckish, Tidbits, and Dan & Sam animal fashion accessories. Many of these products are stocked in Pets Domain.

PET Circle

E-commerce pet supplies company PET Circle has a new fulfilment centre near Brisbane to deliver faster to its Queensland customers, reports The Courier-Mail.

It measures 26,000sqm, or close to four football fields, and currently has 13,000 unique pet products and has the capacity for up to 30,000 unique products.

Related

One of Australia's largest agribusinesses, Elders said the investment in PGG Wrightson (PGGW) is part of its geographic diversification strategy. The company said in a statement:

Elders does not currently intend to initiate a proposal to acquire control of PGG Wrightson.

Similar to Elders, PGGW is an agricultural supplies and services business, dealing in livestock, wool, horticulture, water and irrigation, agribusiness, real estate and insurance.

The company is New Zealand's largest rural services firm and is listed on the New Zealand Stock Exchange with a market value of about NZD312 million, according to The Australian.

It employs more than 1800 people in 170 locations throughout New Zealand. In October, it said it expected full-year earnings to fall because of rising costs caused by inflation. PGGW's shareholder is Chinese controlled Agria with a 44% stake.

Elders has been a player in the primary sector in New Zealand throughout much of the 20th century, but sold its finance arm in 1999 to Hanover Finance, and then its remaining 50% stake in a rural services in 2014.

Elders AGM

The company announced underlying earnings before interest and tax of $232 million - a 39% increase on 2021 - at its annual general meeting in Adelaide (SA). Rural products sales and real estate were the main contributors to its latest results. Retail products sales rose 44% to $2.4 billion, while wholesale products sales rose 22%.

Elders reported a profit of AUD162.9 million for the year ended September, a rise of 8.7%.

Chairman Ian Wilton said reinvestment played an important role in Elders growth strategy. The company announced a $25 million investment in a world-first automated wool handling business this year, while it acquired 13 businesses in ten locations with 115 new employees during the course of the 2021/22 financial year. Mr Wilton said:

The business development pipeline for the coming year is also encouraging, with numerous successful businesses expected to join Elders in the next 12 months and furthering our growth.

Related

The departure of the hardware retail group's chief operating officer Simon McDowell has created an opportunity for Bunnings to restructure its senior management, according to an exclusive report in The Australian.

It has promoted Ryan Baker to chief customer officer and Ben Camire to head of store operations across Australia and New Zealand. Mr Baker and Mr Camire have essentially split the former role of chief operating officer between them. Bunnings managing director Michael Schneider said in response to questions from The Australian:

We're pleased to confirm Ryan Baker was appointed to the role of chief customer officer a few months ago. Ryan has been with the Bunnings business for over 20 years and brings an enormous amount of experience and success as a retail leader into this role.

Mr McDowell joined Bunnings in 2021 as COO, and no official reasons have been given for his exit. The COO role was the second most important position in the organisation, with Mr McDowell often running Bunnings when Mr Schneider was overseas.

Related: It has recently been reported that Bunnings may have begun a round of redundancies at its head office and support centres that will eliminate about 140 roles, revised down from an estimated 300 roles.

"DIY summer": Bunnings MD

Mr Schneider provided The Age with some comments relating to the Christmas holiday spending period that continues into early 2023.

Despite customers facing intense cost-of-living pressures, rising interest rates and speculation about a slowdown in the nation's housing market, he believes Australians will still be spending up big on DIY projects during long summer days, and into 2023.

With our DIY customers, if housing churn slows - and there's no clear evidence it has at this point, customers go from spending money on their homes to get ready for sale or spending money on their homes because they've just bought it and are personalising their space.

He is confident customers will be out in force for gardening projects into next year, with the group's shopper surveys suggesting families have been sprucing up their spaces in the lead-up to Christmas.

One in four customers was working on a project for outdoor entertainment in November - which means the maintenance of those things will carry through into the summer period.

When we start to see those long hot summer days, in late January and early February, when the tennis is getting going, I think you'll find a lot of people are out in their gardens, out around their decks, and doing things to stay active to make the most of the sunshine.

Mr Schneider said as households absorb higher interest rates, the company's pledge to have the lowest prices on items in the market remains Bunnings' edge over its competitors.

Customers are very much focused on value for money ... Bunnings positions itself very well in that space.

He also highlighted the power of Bunnings' broad ranges.

Whether it's paint rollers or potting mix, you have an array of products at different price points - so that customers have choice. Also, if the first product they were looking for isn't available or isn't available at the quantity they want to buy, we're able to offer them an alternative.

Australians have kept the spending momentum up going into the festive season, but the market is anticipating households will moderate their interest in home goods and furnishings in 2023 as the pandemic-fuelled spending splurge of the past two years ends. Mastercard Spending Pulse data for November 2022 showed a 5% increase in overall spending for the month compared with same period in 2021 but home furnishings saw the biggest drop, down 4.1%.

Mr Schneider said the more cautious spending environment is a reminder of the importance of getting the basics of retail right, including staffing.

That is, a well-presented store, a team that is really friendly ... we've got people with years and years of experience on the tools, whether as builders or electricians, and we've got people who have built really fantastic careers over decades.

Related

New Zealand's Commerce Commission alleges a company operating a Mitre 10 Mega store bought land in Tauranga and tried to prevent a Bunnings Warehouse from being built on it.

The commission has filed proceedings in the High Court in Wellington in an anti-competitive land covenant case against NGB Properties Ltd for allegedly contravening section 28 of the Commerce Act.

NGB is a sister company of Juted Holdings Ltd and operates the Mitre 10 Mega in Tauranga, the commission said in a statement.

Section 28 prohibits land covenants that have the purpose, effect, or likely effect of substantially lessening competition.

The regulator has alleged that NGB bought a property in Tauranga and placed a covenant on the land to prevent Bunnings from building close to a Mitre 10 Mega store owned by an NGB-associated company Juted Holdings.

That amounted to a purpose of substantially lessening competition for the retailing of hardware and home improvement goods in central Tauranga, according to the commission.

The commission and NGB had agreed on a settlement to resolve the proceedings, and a penalty hearing in the High Court at Wellington will be scheduled shortly.

Because the matter was before the court, the commission was unable to comment further for now, it said.

Bunnings director of store operations and New Zealand, Ben Camire confirmed the commission's case against NGB Properties Ltd was related to a land covenant allegedly lodged to prevent a Bunnings Warehouse from being built in Tauranga. He said:

As the matter is before the courts, we are unable to provide further comment.

A Mitre 10 New Zealand Ltd spokesperson acknowledged the negotiated settlement in the case.

NGB Properties is an independently owned business which shares directors and shareholders with another business that is part of the Mitre 10 co-operative. Mitre 10 New Zealand was not involved in the matter...

Background

The Commerce Commission action is the first step in a crackdown it plans against the anti competitive use of land covenants and lease exclusivity agreements, that it said are used by big, established retail chains to protect their dominant market positions.

There have previously been ugly turf wars in hardware retail, between incumbents such as the Mitre 10 Co-ops, and more recent arrivals including Bunnings. In Queenstown, the Environment Court found the Mitre 10 Mega owner had abused court process in its attempts to stop a new 8100sqm Bunnings store opening 500 metres away. Mitre 10 owner H&J Smith was ordered to pay the maximum NZD60,000 in legal costs.

And in 2011, the Commerce Commission issued warnings to Mitre 10 and Bunnings over misleading advertising in which both claimed to have the lowest prices.

Attempts by challengers to open new stores have been subject to continuing delays. Four years ago, the owners of Bunnings in Whanganui announced plans to open a new 8400sqm store, spending NZD19 million in the town and creating 50 new jobs. Locals welcomed the news, saying it would "give Mitre 10 a run for their money". But today, the land beside the BP on London Street remains vacant. The project has been tied up, first in resource consents and now in other unspecified delays.

According to Commerce Commission analysis, the three largest merchants hold more than 80% of sales of key building supplies, though this is slightly diminished from five years ago. In some regions, there are only a couple of building retailers, limiting competition in prices.

There are several key factors in finding suitable sites. These include location - retailers need sites with plenty of customer traffic, and easy access to facilitate delivery of materials to building sites. The site needs to be large enough for a building supplier, which can be particularly challenging in urban areas, given that merchants need a large amount of land. And the land must be appropriately zoned for development.

The commission has found that some suitable blocks of land come with exclusive lease agreements or covenants attached. This is registered by a previous owner or tenant, and restricts how that land can be developed or used.

Fuel retail chains, supermarkets and building supply merchants all use this tactic to stop competitors coming onto their turf. It's such a problem in supermarkets that the New Zealand Parliament in 2022 passed a law nullifying such covenants, and the two big supermarket chains agreed to get rid of them.

But large, established building supplies incumbents like Mitre 10, Carters and Placemakers have been slower to change. The problem is such that the Commerce Commission is now warning it will use its new powers under section 36 of the Commerce Act, to stop them engaging in behaviour that will "have the effect of substantially lessening competition".

The commission has identified 60 restrictive covenants set in place for building merchants, and another 80 exclusive leases that potentially limit competition.

Most of the covenants block competition for years to come - and the remaining ones don't have a fixed expiry date. Sometimes new merchants are precluded from operating on a site, long after the merchant who benefits from the covenant has left the area.

The covenants are over land adjoining, or near, land leased by a merchant, where the landlord has agreed to lodge a covenant for the merchant's benefit.

Metcash has released its results for the first half of its FY2022/23, which includes the six months from May to October 2022. Overall the company reported that revenue came in at $8.9 billion, up by 7.8% on the previous corresponding period (pcp), which was the first half of FY2021/22. Earnings before interest and taxation (EBIT) were $255 million, up 10.3% on the pcp. That results in net profit after tax (NPAT) of $126 million.

The company notes that on a three-year basis - referring to results prior to the pandemic, from May to October 2019 - revenue increased by 32% and EBIT by 64%.

Unfortunately, Metcash has not posted a recording of the results presentation, so this report is derived from the company's press release, its slide presentation and ASX filing.

Hardware results

In terms of overall hardware sales, including both the Independent Hardware Group (IHG) and Total Tool Holdings (TTH), revenue including charge-through sales, was $1732.6 million for the half, an increase of 16.8% on the pcp. However, some $134 million of this was from new joint-venture and company-owned stores, which means organic growth was 7.7%.

EBIT for hardware came in at $116.6 million, up by $17.7 million on the pcp, an increase of 17.9%.

In comments provided in a press release, the new Metcash CEO, Doug Jones, had this to say about Metcash's hardware operations:

Our independent retail networks performed well. Overall network health continued to strengthen, and retailers are operating with a high level of confidence and reinvesting to further improve the quality of their stores and offer.

The success of our investments in Total Tools and IHG, and significant growth in the underlying performance of the Hardware pillar, has led to a rebalancing of the Group's earnings profile with Hardware now the largest contributor.

We now have ~160 company-owned or joint venture stores in our hardware network that together are delivering significant sales growth.

IHG

Sales at IHG came in at $1.4 billion, an increase of 7.9% on the pcp. Metcash also claims the wholesale EBIT margin was 2.8%, while the overall EBIT margin was 4.9%.

However, like-for-like (comp) sales were up only 4.1%, with trade rising by 5.2% and DIY/consumer sales by 1.5%. The company states that trade sales continued to represent 64% of overall sales, despite the growth disparity.

The company states that some 30 Thrifty-Link and True Value stores have been converted to Home Timber & Hardware (HTH) stores, as part of IHG's move to a two-brand strategy of Mitre 10 and HTH. The overall goal is to reach 400 Mitre 10 stores and 200 HTH stores in the network.

TTH

TTH saw sales of $566.7 million an increase of $296.9 million on the pcp, up 93.4%. In organic growth terms, sales grew by 9.5%. The company reports that comp sales were 4.7%. TTH EBIT increased by $13.7 million to $46.8 million, an increase of 41.4%. Two new stores were added to the network during the half.

Analysis

As mentioned above, without the benefit of the presentation recording, it's difficult to fill out the necessary background. However it is worth noting that overall hardware retail sales as provided by the Australian Bureau of Statistics (ABS) increased by 6.9% when comparing the period from May to October 2021 with May to October 2022.

Taking the comp sales recorded by both IHG and TTH, that means that in terms of organic growth from existing stores, both of these actually lost market share during the half.

HNN will be releasing our analysis of Metcash's Investor Day held in October during this week. We had decided to hold off on doing our analysis until the half-year results were released, as in the past we've noted discrepancies in the figures used in those two presentations. Hopefully Metcash will release the recording of the presentation of these results, and we will be able to update this article as well.

Tool Kit Depot area manager Wayne Sheehan and store manager Braden Bunker recently gave a sneak peek tour of the new store in Gympie to the Gympie Times. It is located at Tenancy 2, Hall Road, Glanmire, opposite Bunnings Gympie. Mr Bunker said:

It's exciting to be a part of this milestone, opening Tool Kit Depot's first store on the eastern seaboard, and we look forward to paving the way for more to come. Gympie is a key base for tradespeople who need professional tools and equipment, so it's great to be able to provide them with the best brands, service and value.

The store offers up to 10,000 products across tools, storage, workwear and power, welding and safety equipment as well as a tool repair centre and expert advice. The 1200sqm store is a $3 million investment and has created 14 new jobs.

Mr Bunker said Gympie is a prime location and a "big opportunity" considering the commercial market in tools.

The closest tool shop is 45 minutes away for a decent tool specialist. We think this will be pretty good for the locals.

Before becoming Tool Kit Depot's store manager, Mr Bunker worked as co-ordinator at Bunnings Gympie. He has been part of the Bunnings family for the past 11 years.

The business has sourced all of its staff locally. Half of the team moved from Bunnings while the remainder are tradespeople.

It is expected to open by December 12, to be followed by an official opening soon after.

Related

B&Q is expanding its presence on the high street in the UK with new B&Q Local convenience stores.

The DIY and home improvement retailer has plans to launch two stores in London's Palmers Green and Camden districts with the new name in the first quarter of 2023. They will be the first to bear the B&Q Local brand, which B&Q recently applied to register as a trademark. In a statement, Graham Bell, chief executive of B&Q, said:

Depending on the test and trial we could probably see quite a few, there are 50 odd catchments where we're not represented. But it's finding the physical location and getting planning permission.

Retail veteran Mr Bell, who previously worked for Asda, said B&Q had looked to the success of the big grocers' convenience stores for inspiration. He said:

Grocers have led the way with [ventures like] Sainsbury's Local and Tesco Express.

B&Q's smaller stores themselves offered a "takeaway range that's probably most of the DIY generic bits and pieces" but also allowed shoppers access to "the full proposition you would get in one of our large stores", he said.

You'll still be able to plan and buy a complete kitchen and order lots of goods in larger stores and get them delivered the next day for click and collect.

However, Mr Bell stressed B&Q planned to continue opening larger stores as well as the convenience outlets. B&Q had cycled through "a lot of different names" before deciding on B&Q Local. He added:

Customers have this expectation and they want a bit of clarity. We've tried to do something with the fact that they're local communities, local stores and local access for convenience.

There were "huge populations" that struggled to reach B&Q's larger stores, he said, particularly in urban areas.

London is a huge catchment and we obviously can't get the representation of the large stores that we'd like. It's areas we're not so represented in and allowing those communities ease of access.

Related

Screwfix France

The first Screwfix France store officially opened in Wattrelos in Lille, with three to four more stores set to open by the end of January 2023, all in the Hauts-de-France region.

The store openings follow the successful launch of the Screwfix banner as an online retailer in France in April 2021. The website, www.screwfix.fr, has seen a positive response from customers to date, with strong traffic and conversion rates and growing brand awareness across the country.

Screwfix France aims to gain a share of the significant trade professional market in France, which has an estimated total market size of over GBP20 billion. The business will be based on the proven Screwfix model in the UK and Ireland, with product ranges adapted to the French market.

Each Screwfix France store will offer around 10,000 products aimed at trade professionals with an additional 5,000 products available online - ranging from plumbing and electrical products to power tools and workwear. Customers will be able to click & collect from store in as little as 10 minutes.

In preparation for serving the growing business, Screwfix France opened its first distribution centre, in Nanteuil-le-Haudouin, Oise, earlier this year, enabling next day delivery to home or site. Thierry Garnier, Kingfisher CEO, said:

Kingfisher's strong relationships with French suppliers, combined with our deep knowledge of French customers and ranges, mean we are perfectly placed to bring the proven Screwfix model to France.

After a positive response to Screwfix France as an online retailer, we are now building the business for meaningful growth, from opening a new distribution centre to investing in scalable new IT. The expansion is being led by experienced teams made up of talent from across Screwfix UK, Kingfisher in France and beyond.

We are very happy to be opening the first Screwfix stores in France and believe they offer tradespeople a proposition unlike anything else in the market.

The official opening of the Bowens Warragul store in regional Victoria was attended by hundreds of invited guests, according to the Warragul & Drouin Gazette.

Since opening its doors in September, Bowens said the Warragul store has worked largely with small to medium-sized builders and trades, and attracted over 500 new customers.

It predicts that over the next 12 months, the store will make approximately 12,000 plus deliveries to local builders and homes throughout the region. The store has already created over 30 jobs in the community. Bowens director and chief investment officer, Andy Bowen, said:

We are excited to officially celebrate the opening of the Warragul store with the local community. A part of our continued store operations strategy is listening to our customers, their feedback and experiences are part of the secret to our success, and we are looking forward to connecting with them directly and further supporting the Warragul community.

Related

Melton store

As part of acquiring Melton Timber & Hardware (MTH), Bowens has kept on its previous owners Brad and Scott Morton to lead the team for the store's next evolution.

MTH has been a mainstay of the local community for decades after their father, Ken Morton first started trading in 1969. Ken originally worked for Bowens at its North Melbourne store prior to starting MTH so the acquisition represents a full circle moment.

The store currently has 16 staff, with Bowens planning to grow the team and servicing capabilities. Long term, Bowens will relocate the store to the recently purchased 5ha industrial site at Cobblebank in Melton. Mr Bowen said:

As a market leader in the industry, Bowens is committed to supplying the best quality products and advice to builders and trades alike, especially in areas experiencing significant growth. We recognise Melton as a key growth corridor and are thrilled to be ensuring the long-term serviceability of building supplies to the Melton area.

We will continue to lean on Brad and Scott's community knowledge and experience to tailor our service to local builders and ensure the seamless integration of Bowens and Morton family business values.

We intend to maintain the best elements of MTH while adding further value, where possible. It is our job to ensure the local community feel comfortable with the changes and, most importantly, receive the building products they require on time and in full...

Store manager, Scott Morton, said:

Since our father founded the store, we have witnessed first-hand the growth of Melton and the surrounding community. As the area grows, so does the demand for high quality building materials and increased support. Bowens ensures both in the long term and will enable us to continue to deliver for the Melton community...

Since October, the Bowens Melton store has been a service centre until the new, larger store in Cobblebank has been built. It is expected to be finalised in 2024 and will be the 18th Bowens store in Victoria.

Related:

Lowe's has announced its goal to reach net-zero emissions across the company's scope 1, 2 and 3 greenhouse gas emissions by 2050, in accordance with guidelines from the Science Based Targets initiative (SBTi), the global body enabling businesses to set emissions reduction targets in line with climate science.

To meet interim SBTi targets, Lowe's has also committed to decreasing its scope 1 and scope 2 emissions by 40% and reducing scope 3 emissions by 22.5% below 2021 levels by 2030.

To reach net-zero emissions by 2050, Lowe's reduction strategy includes:

Chris Cassell, Lowe's vice president of corporate sustainability, said:

This new target marks a significant expansion of our previous climate commitments. Through strong collaboration, this challenging but critical work will drive meaningful improvements across our full value chain, from our suppliers to Pros' worksites, to our customers' homes and our communities.

Related

The Home Depot solar

The Home Depot has pledged to produce or procure 100% renewable electricity equivalent to the electricity needs for all of its facilities by 2030. It has also joined the SBTi to reduce global emissions, committing to set goals for Scope 1, 2 and 3 emissions by 2023.

The big box retailer is purchasing 100 megawatts (MW) of solar energy from National Grid Renewables at its Noble solar and storage project in Denton County, Texas (known as Noble). This purchase will generate the approximate equivalent of nearly 8% of The Home Depot's total electricity usage.

Since 2010, The Home Depot has reduced electricity consumption in its US stores by 50% and currently operates rooftop solar farms on more than 80 stores and electricity-generating fuel cells in more than 200 stores.

The Home Depot currently purchases solar power from a 75 MW facility and is under contract for another 50 MW of solar capacity. The company also purchases energy from a 50 MW wind facility.

The retailer expects the combined annual renewable energy generation from these agreements would be enough to power more than 500 stores. Ron Jarvis, chief sustainability officer for The Home Depot, said:

Solar energy is the most abundant energy resource on earth. With this purchase, we are getting a step closer to our goal to produce or procure 100% renewable electricity equivalent to the needs of our facilities. We anticipate about three-quarters of our alternative and renewable energy capacity will come from solar energy by the end of 2023.

Noble is a 275 MW solar and 125-megawatt hour (MWh) energy storage project located in the Electric Reliability Council of Texas (ERCOT). It is projected to avoid 450,000 metric tons of carbon dioxide emissions annually during operation.

Husqvarna's Xcite[tm] zero-turn mowers, the Z350 and Z380, has the latest in grass-cutting technology with a best-in-class suspension system, industry-first on-stick controls, and blades designed to last up to five years. (See Note 1)

Both models utilise Husqvarna's SmoothRide[tm] customisable comfort technology and suspension featuring adjustable springs with 10 comfort settings and a 4-bar link system, creating a smooth ride with no rocking or wobbling. (See Note 2)

Both models also have a seat that measures 15" on the Z350 and 18" on the Z380, with the main difference between the two models being in size and subsequently, cutting power.

Husqvarna's SmartControl[tm] heads up driving introduces on-stick controls which provides users with the ability to start and stop the engine at their fingertips. The controls also allow for an easy way to engage the blades and display mower status alerts, so mowers can keep their eyes focused on the lawn ahead.

Both models also feature an LCD digital dashboard with a fuel gauge to easily track mower statistics, receive service reminders and check fuel levels to ensure there are no surprises when it's time to mow.

The Xcite[tm] Zero-Turn mowers employ DuraSharp[tm] blades with Husqvarna's patented blade technology to help keep blades sharp for up to five years, reducing the need for blade sharpening and replacement while setting users up for easy maintenance. (See Note 2)

On the turf, all-terrain tires keep the Xcite planted while the 54" fabricated cutting deck with foot-operated lift system and 12-position cutting height selector maintain precision cutting.

The Xcite Z350 and Z380 models will be available for purchase in the US through select Husqvarna dealers and Lowe's stores beginning in February 2023.

Native Grace at Robertson, launched by Luke and Catheryn Maitland in November 2020, has been awarded the Best Small Retail Nursery at the Nursery and Garden Industry NSW & ACT (NGINA) awards.

Hosted by ABC Presenter, Costa Georgiadis, the awards recognise wholesale/production nurseries, retail garden centres, allied suppliers, apprentices and the next generation of industry leaders from across NSW and the ACT for being at the top of their fields.

Luke and Catheryn, reinvigorated the 60 year old centre, one of the oldest in the Southern Highlands which had been closed for ten years prior.

Luke Maitland is a horticulturist who specialises in native plants and the centre has hundreds of plants, a cafe and a retail store. He told Southern Highland News:

It is an honour to be recognised by the industry for all the hard work the team have put into the nursery over the last 12 months.

Having launched in November 2020 we've had major challenges including COVID and floods so it's a great way to end the year on a high winning this award. It was an exciting moment to be presented the award by legendary gardener, ABC talent Costa Georgiadis.

We'd like to thank the Nursery Garden Industry NSW ACT for this Award and for their support and efforts, it's really terrific to have such a strong industry body who supports businesses.

According to the judges, Luke and Catheryn Maitland created a "little gem of a place" at Robertson. They said:

It is a clean, neat, tidy and impeccably presented garden centre. It has a design studio creating sustainable Australian Native gardens for clients, a gift shop focusing on Australian products and bush foods and there is an onsite cafe van. The stock is top quality, and it is a winner in so many ways.

Petries Mitre 10 Dubbo

The team at Petries Mitre 10 Dubbo is preparing for the national title announcements in early 2023 after winning 2022 NSW Garden Centre of the Year for Independent Hardware Group.

Judging criteria included the best use of space, range of stock and stock presentation, sales, signage, customer service and more.

B&Q's ecommerce range is expected to grow from 300,000 to more than four million in coming years, as its online marketplace grows. At the same time, the Screwfix website is expected to become a hundred times faster through re-platforming.

Both results are predicted as parent company Kingfisher capitalises on Google Cloud's infrastructure, platform services, and artificial intelligence (AI) solutions. It should provide customers with faster and more intuitive searches, as well as improve the efficiency of deliveries such as its less-than-one-hour Screwfix 'Sprint' service.

Adopting Google Cloud technologies will also allow Kingfisher to experiment with advanced testing environments at much lower cost.

In addition, Kingfisher plans to create a new, real-time order system that will vastly improve stock accuracy, and deploy visual search using Google Cloud AI tools to help customers discover the product replacements that most closely match their needs.

A long-time user of SAP software, Kingfisher, has begun moving its legacy data to Google Cloud. JJ Van Oosten, chief digital and technology officer at Kingfisher, said:

At Kingfisher, we have an ambitious technology strategy in place. Google Cloud is an engineering organisation at its heart, while simultaneously understanding the complex retail landscape. As we look to the next phase of growth and the kind of talent we want to attract, this meeting of minds was a real draw for us.

To reach our goal of creating a world-class engineering centre, we need a technology stack that will support us to experiment and move quickly. Google Cloud is helping to position us as a true digital leader, and our global teams and customers will benefit as a result.

Related

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%.

Victoria

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.

Queensland

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.

Analysis

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.

Related

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.

Portland

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.

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

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.

Analysis

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.

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.

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.

Stockholdings

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.

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...

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.

Related

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.

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:

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.

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:

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.

Analysis

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.