Adelaide Tools acquisition sees Bunnings set to sell Milwaukee brand tools

Family business with bricks-and-mortar and online stores

The acquisition of Adelaide Tools by Bunnings could signal an increased interest in developing a trade brand similar to the UK-based, Kingfisher-owned Screwfix

The Wesfarmers-owned Bunnings has announced the acquisition of South Australian-based Adelaide Tools. The managing director of Bunnings, Michael Schneider, stated in the company's media release that:

The acquisition ... will allow us to improve the way we connect, serve and engage with trade customers and is aligned with our strategy to accelerate the growth of the trade business.

Some of the key points about the acquisition are:

  • Bunnings will not change the name of Adelaide Tools
  • Adelaide Tools has five tool stores in Adelaide, plus a mower store
  • Its online store lists over 8000 products
  • The company has an established reputation, built up over 70 years
  • The acquisition, as with all acquisitions by Wesfarmers, will be subject to regulatory approval. However, as HNN has remarked in the past, the amalgamation of the Home Timber & Hardware group with Mitre 10 has lessened many of the competitive checks that might previously have applied to Wesfarmers.

    Analysis

    In an immediate sense, the acquisition of Adelaide Tools is unlikely to have a direct impact on revenue or earnings before interest and taxation (EBIT) for Bunnings. The impact on the company's future strategies, however, is likely to be outsize in proportion to the acquisition's financial weight.

    It's worth noting that press releases from Wesfarmers in general usually bear some analysis. They are never directly misleading, but they do tend to direct the attention of the media away from the core issues.

    In this case while HNN is sure that the comments of one of the directors of Adelaide Tools are heartfelt when he says that "this [acquisition] shows a vote of confidence in the South Australian retail market", it seems unlikely that this is factually the case. Bill Peach and his co-directors have built a great company with an established reputation, and should be proud of that achievement, but it is doubtful Bunnings expects the Adelaide market to experience a building boom in the near future.

    There are, however, two aspects to the strategic leverage we are likely to see result from this acquisition. The first is Bunnings' stated intention not to rebrand these operations in line with its Bunnings retail warehouses. An additional part of this puzzle is that Adelaide Tools has established such a strongly competitive position online, with its prices often matching leading discounter Sydney Tools (which has long been the subject of "grey market", parallel importing rumours).

    Added together, it's tempting to suggest that Bunnings might be planning on launching something like UK home improvement company Kingfisher's Screwfix operation, which continues to drive growth, even as its traditional DIY sales decline in profitability. Screwfix began as a catalogue company for tradies, then expanded to a same-day delivery operation online, and has begun expanding its physical store presence over the past three years.

    The potential for Bunnings would be a separate brand with a very strong online presence and limited physical store presence, but offering click-and-collect as well as servicing drop-off through Bunnings warehouses.

    The second, major aspect to this acquisition is that Bunnings will, for the first time, be selling Techtronic Industries (TTI) Milwaukee brand in Australia, through Adelaide Tools. (HNN confirmed this with Bunnings.)

    With Metcash's IHG now selling Milwaukee tools in some regional stores, it may be possible that Bunnings was able to wrest a concession to sell Milwaukee through stores it owned that were not branded Bunnings - subject to similar constraints to those placed on independent retailers.

    Extending from that, it would seem possible that a new Bunnings tool brand might be permitted to sell other TTI brands, such as AEG and possibly Ryobi. While Ryobi is not warrantied for professional, trade use, it has become a popular brand with companies in the repair, maintain and improve (RMI) industries, as its fleet costs are around half of those of brands such as Milwaukee and Makita.

    Even if these two possibilities do not develop beyond Adelaide Tools, it's likely this acquisition will have something of a chilling effect on some sectors of the professional tool market. Total Tools would be one company that could suffer from this kind of direct competition, along with a number of smaller, non-franchise retailers.

    Finally, HNN has to say that we have, once again, been surprised by the astuteness of Bunnings. Adelaide Tools is very close to being a perfect acquisition. While larger operations might be tempting, Adelaide Tools has long been recognised as one of the canniest operators in the tools business, with a particularly strong presence online, and a good record of ethical business practices.

    It marks, in HNN's opinion, a strong return to the kind of strategic practice Bunnings pursued pre-BUKI, with innovation rather than scale as a strong focus for growth.

    bigbox

    Smarthome market to surge from 2019 to 2023

    Smart speakers go from a $1 billion to a $4 billion market

    Surveys indicate that Smarthome in Australia grew strongly during 2018, and forecasts expect strong growth through to 2023. While Bunnings has attempted to enter the market, its overall business model may not be as well suited to it as that of competitors such as IKEA.

    After years of hopeful forecasts, it seems that the Smarthome market sector is now truly poised to take off over the next three years. Australian emerging technology consultancy Telsyte runs an annual survey, the Telsyte Australian IoT@Home Market Study. The results for its 2019 survey indicate that in the the Internet of Things (IoT) market in Australian homes grew by 57% during 2018, and is now a $1.1 billion market.

    The Telsyte IoT survey is based on a sample of 1025 respondents over the age of 16 years, who were surveyed in November and December 2018. Analysis included industry interviews, financial reports of industry companies, and product reviews.

    The $1.1 billion figure represents a sharp increase of over 30% on 2017 results. According to Telsyte, much of that growth has been driven by the widespread adoption of "smart speakers", such as the Amazon Echo and Google Home series. The survey results shows that Google Home has a large market share of 72%, followed by Amazon at 15% and the Apple HomePod at 5%. Telsyte sees that growth continuing, with five million Australian homes using smart speakers by the end of 2019.

    A survey conducted by Voicebot.ai, reported similar results, with Google Home representing 68.2% of the market, Amazon's Echo 14.2%, and the Apple Homepod 5.5%. Voicebot suggests that Google's entry into the market six months prior to Amazon accounts for much of its market dominance.

    The Telsyte survey showed a broadening spectrum of use of smart speakers. Where in previous years the main use was for playing music, the main use in 2018 was said to be "getting everyday info".

    Beyond simple adoption, the Telsyte survey indicates that over 1.2 million are regarded by the company as being "invested" Smarthome users, with five or more IoT devices in the home. The company forecasts this will increase sharply by 2023, with most households owning more than 15 connected IoT home devices. That growth should result in a Smarthome market worth around $3.9 billion by 2023.

    An important growth driver up to the present has been increasing energy costs, which has driven homes to adopt "smart battery" technology in the home, complemented by solar panels. Those products represent around one-third of the current Smarthome market, the company says.

    The other key driver for the Smarthome is a desire to make homes safer, which often leads to the installation of an integrated network of video monitors and alarms. In the medium term, Telsyte sees security and energy savings as driving around 40% of all Smarthome purchases.

    Future growth

    Moving into the future, Telsyte expects that the Smarthome market will eventually become dominated by connected appliances. By 2023 this category will represent 40% of the Smarthome market, by revenue.

    The company also sees opportunities for installers as increasing. Currently, much of the growth is in simple DIY applications, but as systems become more complex and more integrated, homeowners will increasingly rely on professionals.

    Another growing area will be subscription services, with homeowners willing to pay for security and energy use monitoring. Telsyte also sees the development of "smart shopping", using voice-actuated devices, creating a more convenient interface than mobile phone based shopping.

    Home value

    Smarthome concerns are already influencing the home buying and renting decisions of Australians as well. The survey indicates that the major concern, for 58%, is that homes will have an adequate National Broadband Network (NBN) connection. That is closely followed by concerns over the number of powerpoints in each room. Interestingly, around 30% also see "hard wired" network connections (CAT 5e/6 cabling) in homes as being an important factor in choice.

    Current market

    Outside of the Telsyte survey, there are clear signs that some hardware retailers are gearing up to take advantage of a surge in the Smarthome market. For example, we've seen Bunnings launch its Smarthome shopping "pod" - though this is currently active at only one store in the northern outer suburbs of Melbourne.

    Yet Bunnings - and potentially many other home improvement stores as well - are likely to encounter some difficulties in this category. One major reason for this is that Smarthome at the moment is very much about consumer electronics, which is one of the fastest moving, most price-aggressive categories in retail.

    Security cameras

    With its "10%" price guarantee, Bunnings would appear to have played it cautiously in Smarthome. For example, when it comes to security cameras - a popular category - it has stayed away from the more marginal brands, choosing instead the familiar Swann systems, Amazon's Ring, and Arlo. This means the retailer has avoided the low-end layer of security cameras, offered by online suppliers such as Kogan, which provide wireless, cordless cameras for under $100.

    Even with all this caution, Bunnings has not been able to keep up. As the illustration shows, on 13 October 2019 Bunnings was selling the single-unit first generation Arlo with its hub for $399. Amazon Australia was selling the identical unit for $395.31, delivered. (In either case, it's not that great a deal. The unit being sold is the Arlo Pro 1. The other units on sale are the Arlo Pro 2, and Arlo announced the release of its Pro 3 system in August 2019.)

    There are two other aspects that emerge from this comparison. The first is that one reason why the cost is so low for the delivered Amazon product, versus the in-store Bunnings product, is that this is the sale price based on a Prime membership - which provides free delivery.

    Secondly it is notable that Amazon, of course, knows that the purchaser owns three different smarthome devices, with which this product interacts. Furthermore, Amazon would always know if this customer has an Arlo product connected, even if that product had been purchased from Bunnings - while the reverse is certainly not true. It is a case of a superior access to network effects, and outlines an area Bunnings is only beginning to understand.

    Lighting

    The move by Bunnings into lighting fixtures was one of the successful inspirations that came out of competing with Masters Home Improvement. Masters was the pioneer of comprehensive lighting displays in home improvement stores. Bunnings has done well in this category, taking marketshare from pure category players such as Beacon Lighting. But how will it compete in Smarthome lighting?

    As with security cameras, Bunnings has chosen to focus on established brands, mainly the Philips Hue system, with some additional accessories from Arlec. This is a very limited approach, and it seems unlikely it will enjoy long-term success.

    To see why, we need only look at the Smarthome lighting systems offered by IKEA, under the Tradfri internal branding. These were released in the UK marketplace (also 240V) in 2017, and have only been released in Australia during 2019, and not all devices are available.

    To begin with, the smart lightbulbs in the Tradfri range are less capable than some of the Philips Hue range, but they are also significantly less expensive. The least expensive Philips Hue bulb at Bunnings is the White Smart LED Dimmable Bulb with the B22 bayonet fitting at $22.00 (same price, but delivered, from Amazon). The least expensive bulb for IKEA Family members in October 2019 is $11.99 (non-Family: $14.99). The bulbs are nearly identical, except that the IKEA bulb has an output of 1000 lumens (72W), and the Philips output is 880 lumens (60W).

    That price difference continues on through most of the range. For example, a Philips Hue motion detector costs $45 at Bunnings, while the IKEA Tradfri alternative is $20.99 for IKEA Family members. A Tradfri wireless dimmer is $16.99 for Family members, and the Hue equivalent costs $35 - though the Hue device is more capable.

    For automation, bulbs in both the IKEA and the Philips ranges operate on the Zigbee low-power wireless protocol. This means that they require a bridge to interact with wireless networks, so as to indirectly access the internet. The gateway for Tradfre costs $39.99 for Family members, and the Hue gateway costs $69.00.

    The price difference goes deeper than this, however. Philips does not make light fittings, while IKEA does. It's pretty obvious for anyone setting up a smart lighting system that having to buy smart bulbs - even with LEDs, which have a life span of over 10 years - is not as cost effective as buying smart light fittings. IKEA has taken advantage of this by offering a set of light controllers that integrate with special light fittings, which use standard lightbulbs. Those fittings include LED lightbars and shelf lighting.

    Beyond that, IKEA is currently selling in the UK and North American markets smart blinds, which are both cordlessly powered and controllable through the Tradfri system. These start at just USD129 ($190), and are DIY installable. That contrasts with an average price of well over $400 for most other remote systems - which often don't include the blinds themselves.

    In short, the IKEA model of own brand and self-supply is well suited to the Smarthome market in its current stages. The Bunnings approach of, at best, captive brands such as Ozito, Matador and Tactix, is less suited to it.

    The future

    Exactly how the Smarthome market is going to play out over the next three years is difficult to predict. We could say that both FY2017/18 and FY2018/19 were a time of early adopters. What we've started to see in FY2019/20 is the beginning of the early mainstream adopters.

    Generally speaking, where Bunnings has done best in developing, innovative markets, is by entering about a year after the market reaches the early mainstream phase. The company comes in at that time with strong disaggregation resulting in lower production costs, tied to strong logistics.

    The problem for Bunnings with the Smarthome market is that it will continue to undergo rapid development. By 2023, it is possible the Smarthome as such will disappear, and we will just be talking about "homes" - Smarthome features will simply be expected, and installing them on older homes will become a focus for renovators. In home improvement terms, it will move from being a consumer/DIY focus, to a consumer-driven trade focus.

    One choice Bunnings could make over the next three to four years, is to forego much of the revenue and profits it could make from the Smarthome category, and move its focus to more familiar and reliably profitable areas elsewhere. The other main choice would be to develop and extend its current capabilities into a kind of "burst marketing", where it could take on new product lines, develop and bring them to market over 12 to 18 months, then move rapidly on to the next thing.

    For the rest of the home improvement retailer market, one approach would be to start working out how to capture more of the trade-based Smarthome market in 2021. That would mean developing supplier relations with companies offering Zigbee switches that integrate with standards such as the Amazon Echo and Apple's HomeKit. There is going to be a high demand for information about Smarthome by 2021, and retailers that can offer renovators and new home builders some guidance would likely find this to be a profitable market.

    reports

    Mitre 10 returns to Warrnambool

    Petrie's completes its renos

    The Bell family of Kangaroo Island sold its Linden Lea Mitre 10 store in Kingscote to new owners

    The exterior of the Ponting Bros Home Timber and Hardware store in the regional Victorian town of Warrnambool has recently undergone the process of being painted in Mitre 10's signature blue colour. It marks more than a decade since the hardware retailer last traded in the town.

    Independent Hardware Group now owns both brand names. Ponting Bros operations manager Brendan Raven believes the change will entice more shoppers into the store, which has also increased its stock range. He told The Standard:

    I think Mitre 10 is the stronger brand out of two with the public perception. Customers are pleased to see the Mitre 10 brand back in town.

    Warrnambool's former Calco Mitre 10 closed in the early 2000s. The Ponting Bros hardware store, which is now owned by third generation family members, has traded at its current site for nearly a century.

    Mr Raven explains that while the approximately 4000sqm store would remain the same, the layout would change to allow it to hold more stock. He said:

    It had been many years since Pontings had made changes to their retail part of the business and it was time for an upgrade. The paint department has grown three times the size in the new layout.

    Mr Raven said despite reports of a building downturn across the state, the Warrnambool business had seen "year-on-year growth" and expected to grow its 47 staff. He added:

    We are defying a lot of the averages you hear in the city.

    Petrie's upgrade

    Renovations have been under way at the Petrie's Mitre 10 store in Orange (NSW) for the last six months. The investment has seen the addition of a 2000sqm covered drive-through trade yard, reports the Central Western Daily.

    It recently officially opened the centre with a trade breakfast and a range of activities. Customers bought in their Paslode nail guns to be cleaned and serviced and their tools to be tested and tagged.

    Several suppliers offered specials to mark the official opening of the drive-through.

    Ownership change

    A new owner is also taking over the Linden Lea Mitre 10 in Kingscote on Kangaroo Island (SA). Proprietors, the Bell family were a looking to transition and sold the store.

    Philip Bell told The Islander the family had spent more than 40 years building the business up but was now ready to move on. The new owner would keep running the retail outlet under the Mitre 10 banner and there were no major staff changes expected, he said.

    retailers

    Bisley Workwear signs on for UFC

    Three year agreement

    The UFC is building on its partnership with Bisley as its official workwear partner

    Australian workwear brand, Bisley Workwear, has announced a new multi-year agreement with the UFC (Ultimate Fighting Championship), becoming the official workwear partner in Australia and New Zealand.

    The new three-year partnership will include in-octagon branding, stadium activation, social content and consumer promotions. UFC vice president of global partnerships, Nick Smith, said:

    Partnering with iconic Australian brands such as Bisley demonstrates the growth and value of UFC, as we continue to develop our business locally. Bisley and UFC share the same vision and values and this collaboration will work to grow both the sport and brand throughout Australia, as we build a meaningful long-term partnership.

    Bisley Workwear is the Australian market leader in specialist branded Workwear apparel with their sights set on leading the category worldwide. Managing director, David Gazal, said:

    We are proud to announce Bisley Workwear as the official workwear brand of the UFC, one of the fastest-growing sports in the world. Our alignment with the UFC was built on shared attitudes toward innovation in our industries, dedication to our teams, and the rewards of hard work.
    We are looking forward to participation in the octagon and at Marvel Stadium...and our ongoing commitment to the UFC and its athletes, who work hard every day to get the job done.

    Bisley first partnered with UFC as a one-event deal on UFC 234: Adesanya vs. Silva earlier this year in Melbourne, and will now return to the Victorian capital for their first event under the new agreement.

    From Ministry of Sport

    companies

    Dyson-level nail guns developed in NZ

    Sold through Placemakers stores

    A New Zealand based company believes it has made nail guns cool through its advanced technology

    In an inner-city suburb of Auckland, New Zealand, a business with 17 employees is making nail guns with a difference. Hammerforce is the productive result of a midlife crisis and some potentially revolutionary technology, according to its profile in Newsroom. The company has also attracted three serious Kiwi corporate high flyers, former New Zealand Exchange and Financial Markets Authority chair Simon Allen, former Air NZ chief executive Rob Fyfe, and former Meridian and Fletcher CEO Mark Binns to its board.

    The story of this nail gun called the Airbow began about decade ago, when a few builders in their backyards were frustrated with the performance of their framing guns, and liked the idea of trying to devise a better nail gun. So they took the problem to some mechanical engineers, who came up with a system that uses compressed air, not electricity or butane, to power nails into wood.

    This allowed them to get rid of any sort of combustion system, that came with batteries, power leads, fans, and chargers. There were no electronic parts, so no problems with water, and no spark to create a fire risk. There was no carbon dioxide or carbon monoxide released when the gun was fired, and no battery to dispose of.

    It was a new way of making a nail gun. Similar to the vacuum cleaner invented by James Dyson, the product took several years, numerous prototypes, and three million nails fired using automated rigs, to get there.

    Origin story

    Prior to becoming CEO of Hammerforce, Andy Coster worked for global management consultancy company AT Kearney in London and Sydney, then for Chris Liddell (now a Donald Trump senior staffer) at forestry company Carter Holt Harvey (CHH).

    A bright and talented executive, Mr Coster has always been seriously dyslexic. But by the time he was 29, Mr Coster was running CHH's commercialising unit Oxygen Business Systems. In his early 30s he started his own research company, Conversa Global. When he turned 40, his company had been bought "for a life-changing sum" by advertising agency group WPP.

    Mr Coster basically retired, happy to be spending lots of time with his family. But in the end, he says, he needed a business challenge too. He told Newsroom:

    I needed something to do and I had put money [into Hammerforce] in 2009, as one of its first investors. I could see the potential and I started getting more engaged in the physics. I realised if we could come up with a way to create a force just using air, there could be lots of applications.

    By the time Mr Coster joined the company in November 2016, Hammerforce already had a patent over its compressed air technology. But it didn't have a product it could use to demonstrate the technology worked. He said:

    We had to create a nail gun people were going to like and it was going to have to have branding and be mass produced. I knew no one would believe us unless we brought something to market.

    Resellers

    In October last year, Hammerforce sold its first Airbow nail guns to NZ hardware chain Placemakers under a three-year exclusive deal. Its second product, a gun which can shoot nails into concrete and steel, will be launched soon.

    Earlier this year, the Airbow nail gun won a gold medal in the industrial product design category of the London Designweek awards. It beat designs from Philips and IBM. Then it won a silver award in the commercial and industrial products category of the Industrial Society of America's International Design Excellence Awards. Previous winners include the Apple iPhone, Tesla Model S and Oculus Rift.

    New Zealand innovation

    The nail gun parts are manufactured in China and assembled in the Auckland suburb of Ponsonby. And unlike many competitors, Airbow guns doesn't need proprietary nails, explains Mr Coster. That keeps costs down for builders. He said:

    This is a game changer. Our framer can use any nails - we've unbundled the nails from the gun. There's no gunpowder, no earmuffs, and all our stuff is waterproof. You can put it under water.

    Getting the compressed air technology to work and then commercialising the nail gun hasn't been easy - or cheap. Over the last three years Mr Coster has raised NZD15 million from private New Zealand investors in three NZD5 million capital rounds. Now he's working on another round - this time for NZD10 million.

    Hammerforce is still aiming at local high net worth individuals, and Mr Coster is confident he'll get the new money.

    Mr Coster also describes his board as "frustrated entrepreneurs". He said:

    They love the risk taking - and they don't. There's a decision to be made and I say 'Let's do it" and they say "Oh my God, shit'. And that's a healthy tension that's going to help us succeed.

    On the other side, having hard-hitting board members challenges Mr Coster's thinking ("they grill the hell out of me"), and they bring a wealth of contacts in different areas, including investment, he said. They also bring credibility. He said:

    If I want to go overseas, to take the company global, I want experience around me to give confidence to investors, customers and channel partners.
    These [board members] have seen a lot of shit in their day and have done due diligence themselves to put their name on the line. This is a tangible demonstration to others that the product and the company have potential and credibility.

    International licensing

    Power tools aren't where Mr Coster sees the future of his company. Instead it's about the air compression technology behind the nail gun, not the gun itself. And it's not in New Zealand.

    In fact New Zealand is simply a test market, Mr Coster said. The aim from now on isn't to commercialise more products - an expensive business - but to license the Hammerforce compressed air mechanism technology to third parties, probably overseas, who can incorporate it into their products.

    Where many companies go wrong is they build a product and then they think 'Now what?' You have to build a company with processes and systems.

    Mr Coster said Hammerforce is in "advanced talks" with several companies across a range of industries.

    Aviation, construction, marine - any industrial application which requires a force.

    The company believes it has truly disruptive technology, and may find itself partnering with global players across various industries that can use its to create a transformative advantage.

    companies

    Linkware's ongoing innovation

    Patent designs

    In its 20th year, Linkware Australia continues to receive recognition for its products

    Plumbing and hardware manufacturer, Linkware has unveiled a number of enhancements to some of its products and released new ones.

    The round tapware style of its Loui Wall Tops has been heavily featured in popular renovation TV shows such as The Block. National marketing manager, Greg von Einem, explains:

    Whilst many suppliers produce similar items, our unique advantage - apart from being well priced - is that is can be used where the breeching piece is up to 18mm behind the wall. This is very handy for renovation work!

    The Loui Tapware range has a soft operating quarter turn spindle. It is suitable for up to 18mm recess application (wall top assemblies) with the use of the spindle adaptor provided. The elegant circular design comes in high quality chrome and matte black finishes.

    The company also has patent designed 360 degree mini cocks in three models: cistern, washing machine and three way. They are made with solid brass construction and includes blue and red buttons. Mr von Einem said:

    Unique and patent design saves time and money on installation as other items in the market require some adjustment to ensure the outlet is facing in the desired position. With this design, the end-user simply applies a threadseal tap to a wall outlet, and screws on the 360 mini. Once it is tightened, the mini can be rotated 360 degrees into the desired position.

    In addition, Linkware has upgraded the push button mechanism from a "spring loaded" design into a magnetic push design on its timed pillar and bib taps. This means the tap is easier to "turn on" with much less force than other items. The advantage is easier use especially in child care and aged care environments.

    products

    ABS Stats: Hardware retail sales to July 2019

    Victoria surges ahead

    While there was overall growth in the hardware retail sector, Victoria is the only state to post good overall growth numbers

    The Australian Bureau of Statistics (ABS) has released statistics for retail sales during July 2019. Overall retail turnover was down by 0.1% for the month of July in seasonally adjusted terms, following a rise of 0.4% in the previous month.

    The ABS director of quarterly economy-wide surveys, Ben James, summarised seasonally adjusted retail sales in a media statement:

    There were falls in four of the six industries and six of the eight states and territories in July. Cafes, restaurants and takeaway services (-0.6%) led the falls. There were also falls in clothing, footwear and personal accessory retailing (-1.0%), other retailing (-0.4%), and department stores (-0.2%). Food retailing (0.3%), and household goods retailing (0.1%) rose this month.

    For the hardware and garden supplies sector, results were slightly more promising. In unadjusted terms, for the trailing 12 months to July 2019, sales increased by 2.20%, up from 0.97% for results one year prior.

    The Australia-wide month-on-month comparison in unadjusted terms, however, was less positive. Hardware sales rose by 1.74% for the current July, while rises for July 2018 and July 2017 were 2.69% and 4.62%, respectively.

    In terms of the states, Victoria (VIC) has emerged as the highest retail growth state by a considerable margin. In a trailing 12-month comparison, VIC showed growth of 8.56%. Removing VIC from the Australia-wide trailing 12-month comparison shows the rest of Australia with a growth rate of only 0.97%. On the same comparative basis, the Australian Capital Territory showed growth of 5.58%, but all other states and territories failed to exceed 1.2% growth, with Western Australia (WA) down by 7.01%.

    On a month-to-month comparison, VIC grew by 3.58%, which was down on that number for the previous two years, both of which exceeded 7.5%. WA recorded the highest growth for the month, at 4.95%, but this came after a steep decline in July 2018, when retail sales fell by 12.45%.

    Chart 2, which shows the percentage change in trailing 12-month retail sales, shows a clustering of growth numbers, similar to that from 2016, which could indicate the widespread effect of federal elections on retail sales. However, Chart 3, which shows the percentage change in sales for the month of July, shows a tight clustering of growth results for the month that is unprecedented over the previous nine years. This would indicate that there are forces at work that go beyond elections.

    The Victoria story

    Over the past 12 to 24 months, it's evident that VIC has followed a different path to the rest of Australia. While other states and territories have fluctuated in their growth patterns, VIC has - for the most part - shown steady growth.

    Chart 4 shows this growth contrasts with the growth for New South Wales (NSW). The green shaded portion of the chart shows the area where VIC has outperformed NSW.

    Analysis

    The overall economic picture for Australia remains confusing, or, at best, "mixed". Consumer confidence, a little surprisingly, is relatively positive. This is despite growth in household income bumping along at under 1%, and the household savings ratio continuing the decline that began in 2015. The unemployment rate for NSW and VIC is below 5%, Tasmania is over 6.5%, and the other states and territories are all close to 6%. Growth in the wage price index has flatlined well below 2.5%, the lowest it has been in over 25 years.

    Meanwhile business confidence is lower than consumer confidence, pegging at about the average level for the past 20 years. One sign of this doubt is that business investment continues to find new lows, driving its level back toward that of over 25 years ago, in the early 1990s.

    When consumer confidence exceeds business confidence, that means consumers predict a positive future change to be more likely than businesses do. It's notable that Australia's federal government has insisted both that the current poor numbers are not significant, and that the economy is, in fact, doing well.

    This doesn't explain statistical results such as low wage growth and very low business investment. In particular, it doesn't explain why by the end of 2019 it is highly likely Australia's market interest rate will be at a historical low of under 1.0%.

    The danger that is looming is that consumer confidence, based on government statements, could find itself disappointed before the upcoming Christmas period. That could accelerate a downward trend in retail sales, and lead to a defined slump at a time when many retailers expect bumper sales.

    Global trade

    One possible explanation for the confidence the government expresses could be that it expects the mining industry to pull out of a "cyclical" slump. However, that slump has been amplified by the growing trade difficulties between the US and China. The most likely scenario, given that November 2020 presidential election date in the US, is that the US will continue its tough stance through to May 2020, then enter into some kind of compromise trade agreement. Should that happen, any uptick in mining exports will be delayed until near the end of 2020.

    Domestic trade

    It has become apparent that, in terms of spending on home improvement, VIC has become different from the rest of Australia. The state continues to follow the pattern that has been in place over the past six or seven years, where when house prices increase, spending on renovations increase.

    That is not the case in the rest of Australia. That pattern has changed outside of VIC, as money is actually leaving both home improvement and the real estate market.

    An additional trend, as reported by the Australian Financial Review, is that there is less spending at the moment on pre-sale renovations. The reality has always been that the strict dollar-to-dollar return on this kind of investment has seldom been that great. Its real influence has been increasing the chance of sale, rather than the return on sale. With fewer properties offered for sale in most price brackets, it has made increasing strategic sense to not invest in attracting more potential buyers in this way.

    Conclusions

    Looking at the current, slightly contradictory aspects of the Australia economy, HNN would suggest one source of its difficulties is that there are not enough incentives fuelling "inorganic" growth. Organic growth originates from further investments by existing companies in strategies to improve their efficiencies and launch new products. However, globally, most growth value being created today comes from inorganic sources such as the launch of whole new categories of business, or sharp changes in existing categories.

    In an economy rapidly coming to rely more on services than mining, agriculture and manufacturing, there's a need to provide overt support for inorganic growth, even if that does disrupt familiar and convenient incumbents.

    statistics

    Bunnings re-signs NBL sponsorship

    Targeting new-gen apprentices and tradies?

    The multi-year agreement comes immediately after its partnership throughout the 2019 NBL finals

    Bunnings has inked a two-year deal with the National Basketball League (NBL). This follows its initial involvement during the 2018/19 season when it had naming rights of the "Player of the Game" award from Round 13 and branding on the semi-finals courts.

    The big box retailer also sponsored a national "Bunnings Ultimate Team Training Session'" competition, giving one fan and their friends an exclusive training session with an NBL coach in their home state.

    Bunnings has also signed on as a founding partner of NBL1, Australia's premier winter league which aims to strengthen the pathway for the country's best basketball talent. Bunnings general manager - marketing, Keith Murray, has said in a statement:

    Basketball is one of the most exciting and fastest-growing sports in Australia & New Zealand. We are happy to extend our partnership and support the growth of a sport that encourages teamwork, integrity, family-fun and community on and off the court.

    The new season will start in early October when Melbourne United plays new crosstown rival South East Melbourne Phoenix in the first-ever "Throwdown" at Melbourne Arena. NBL chief commercial officer, Brad Joyner, said:

    We are delighted Bunnings has re-signed with the Hungry Jack's NBL after a successful partnership during the 2019 NBL finals. This is an exciting time for basketball in Australia and New Zealand and the 2019-20 season promises to be our biggest and best ever.
    We are also thrilled that it will also become the founding partner of NBL1 which enjoyed a highly successful inaugural season and has strengthened the connection with grassroots basketball and will return in April 2020.

    Related: HNN covered Bunnings signing up for sponsorship with the NBL earlier this year.

    Bunnings teams up with the NBL - HI News, page 21
    bigbox

    Ace Hardware expands with DIFM market

    It buys a home repair services franchise

    The hardware retail co-operative now boasts more locations than the combined store count of its main competitors Home Depot and Lowe's

    US retailer, Ace Hardware is getting straight into the "do it for me" (DIFM) market with its acquisition of home improvement service franchise Handyman Matters. CEO and president, John Venhuizen told Business Insider the timing seemed right for the move, given the group's growth trajectory.

    Its total store network is currently 5,300 globally. Most of those locations - 4,600 - are in the United States. He said:

    We feel like we have an incredible amount of momentum. There are not many retailers in the United States that are opening stores. Many are shutting them. We opened more than 900 in the last five years and we'll open more than 800 in the next five. We feel like we're aligned with what the consumer wants.

    Handyman Matters will be rebranded as Ace Handyman Services and operate as a standalone subsidiary. The Colorado-based company has 57 franchisees across 23 states in the US, employing a workforce of 250 people who help customers with carpentry, flooring, painting, and other home improvement services. On-site services for consumers and small businesses also include plumbing, electrical and flooring.

    Ace expects to complete the integration and re-branding initiatives by the first quarter of 2020. Andy Bell, founder and CEO, will continue to lead the day-to-day business operations for Ace Handyman Services.

    At its recent buying show in Atlanta, Ace Hardware said retailers will not be expected to be franchisees, but they will benefit from the acquisition because local franchisees will be required to purchase their materials at Ace stores.

    According to Mr Venhuizen, customers have been "basically begging" Ace Hardware to launch in-house home improvement services offerings, and Handyman Matters aligned with its goal of being "the helpful place". He explains:

    It's this natural fit of bringing 'helpful' to the home, so that we have a service provider that can actually do it for the consumer. It fits naturally with what we're known for and the trust that our brand has engendered in these communities.

    It also ties in with the rise of the DIFM market where home improvement customers hire professionals to do the heavy lifting on projects through trusted retailers.

    Mr Venhuizen said there's not much of a difference between the DIFM customers and the DIY shopper. Ultimately, it comes down to the customer's appetite for a home improvement project or maintenance task, level of expertise, and the nature of the project.

    DIFM offerings

    The Ace Hardware deal appears similar to Ikea's 2017 acquisition of TaskRabbit, the on-demand platform, which links freelance workers with jobs, from handymen to movers to assistants. TaskRabbit was expected to boost Ikea's delivery and assembly capabilities.

    Home Depot and Lowe's both offer installation services through independent contractors. In 2015, Amazon launched Amazon Home Services, which also works with external service providers.

    In its 2018 annual report, Home Depot wrote that demand for installation services is expanding "particularly for our 'baby boomer' customers who may have historically been DIY customers but who are now looking for someone to complete a project for them."

    The retailer has said it is focusing more on its professional service providers because they perform services for its DIFM customers that will help the it drive higher product sales.

    retailers

    Pro Tool Reviews Innovation Awards

    Cordless tools demonstrate advances

    Pro Tool Reviews covers a range of categories with its annual Innovation awards, but the cordless category typically has the most advanced innovations

    The US website Pro Tool Reviews - which has a lot of credibility, with experienced trade "pros" testing tools and writing about them - has released its most recent tool innovation awards, for 2019.

    Pro Tool Reviews Innovation Awards 2019 - Cordless Tools

    The cordless category tends to be the most interesting of the award categories, as most of the innovation potential of tool companies is focused on this type of power tool. HNN is not going to list all the award winners, just the seven that we think are truly innovative and identify some emerging cordless tool categories.

    EGO POWER+ BAX1501 POWER+ Commercial Backpack Battery

    At a cost of USD1300, this is the kind of really heavy-duty commercial gear the cordless electric outdoor power equipment (OPE) market has been looking for. We are talking a 56-volt, 28 Amp-hour battery (yes, 28, you read that right), with an IP56 weatherproof rating (you can use it in the rain), and a super-comfortable harness. It can go from low charge to fully charged in just 3.5 hours.

    This complements Ego's Pro range of OPE, which manage on average around 80% of the power delivered by petrol-powered equipment. It's the first really great looking power backpack we've seen from any supplier.

    Craftsman CMCF604 Gyroscopic Powered Screwdriver

    What makes this power screwdriver so special is that it looks like - well, a screwdriver. Slimmer than the similar DeWalt model, this screwdriver is powered by a four-volt rechargeable battery, and produces 5.5 Nm of force. Stanley Black & Decker claim it can drive over 300 25mm #6 screws into pine on a single charge.

    The screwdriver works in a very intuitive manner. Just insert it into the screw, then turn your hand clockwise to faster or anti-clockwise to extract. In the US it is priced at USD39.

    Milwaukee 2502-22 M12 Installation Drill/Driver

    Techtronic Industries' leading brand, Milwaukee, has spent the last three to four years carefully adjusting its range of power tools to appeal to fleet purchasers. That's often meant making specialty tools for areas such as power cable line workers and others. Now, the company is turning its attention to areas such as installation, and it has released a multi-headed driver that is ideal for tasks such as installing kitchen cabinetry.

    The 12-volt cordless M12 Installation Drill/Driver comes with a 10mm chuck, an offset chuck, a 6mm hex fitting, and a right-angle chuck. These can be attached in 16 different positions.

    The drill/driver itself is designed to work in tight spaces, with a flat top, and twin handle system that creates a slim profile.

    Milwaukee 2950-20 M18 PACKOUT Radio + Charger

    Most jobsite radios tend to compromise on sound quality and integration with cordless systems. The Milwaukee Packout radio and charger does neither.

    It starts with a 10-speaker system that can provide 360 degree sound with a high level of bass, and good volume. The system integrates into Milwaukee's existing Packout toolbox system, clipping right onto compatible toolboxes. And it also charges Milwaukee's 18-volt tools, providing a secondary source for battery top-outs on worksites.

    Ryobi Cordless Rotary Tool and Ryobi Hybrid Soldering Tool

    We've put these two tools together because, while very different in function, strategically they are quite similar.

    Both use the Ryobi One+ Li-ion battery system, but this provides a base station for a corded attachment. In the case of the rotary tool, this is a 90cm drive shaft that can spin a tool at speeds up to 34,000 rpm. The Soldering Tool also provides a 90cm lead, and features the convenience of operating with the Ryobi One+ battery, or by plugging into mains power.

    Just as Milwaukee's installation drill/driver helps extend that range into new specialised work areas, so these tools from Ryobi extend that battery system further into craft and electronics.

    DeWalt TOOL CONNECT Connector

    How exactly the world of connected cordless power tools is going to play out in the long run is hard to know, but this device from DeWalt help bridge the gap between connected and the unconnected tools. It fits onto a power tools, acting as an adapter between the tool and its battery. Powered by its own, individual coin-sized battery, it provides location tracking, along with the ability to lock a tool down so that it cannot be used. The battery recharges when the tool is connected to a battery.

    It's a simple way to upgrade unconnected tools, providing tracking and anti-theft services when coupled with DeWalt's smartphone app.

    products

    PPG paint endorsed by Australian asthma council

    Taubmans Endure interior paint

    The National Asthma Council has featured Taubmans Endure brand during its Asthma Week education campaign

    The National Asthma Council Australia's Sensitive Choice program named Taubmans Endure interior paint a preferred choice for interior painting projects, according to an announcement from paint maker PPG.

    The recognition was part of a new Healthy Homes video series launched for National Asthma Week (September 1-7, 2019).

    An estimated 2.5 million Australians have asthma, many of whom are also among the one in five people with allergies. The educational videos aim to help people understand and alleviate common triggers when undertaking home improvement projects.

    The video focusing on interior painting projects showcases Taubmans Endure paint by PPG as an approved choice for health-conscious consumers and includes commentary from renovation expert Cherie Barber. Adele Taylor, Sensitive Choice program manager, said:

    People with asthma and allergies are more susceptible to triggers found in many common household products, including paint, but all Australians should be cognisant of the products they choose to use in their homes.
    Taubmans paint has been a Sensitive Choice partner for more than 10 years. The Taubmans Endure products that display the blue butterfly logo have been rigorously reviewed by our independent product advisory panel and proven to offer a potential benefit for people with asthma or allergies. This is through reduced contact with triggers, including the smell of paint, mould and some volatile organic compounds.

    Taubmans Endure has low VOC emissions of less than 16 grams per litre. It is also low in odour and provides superior protection against mould. Ms Barber said:

    Taubmans Endure paint provides eight-in-one multi-benefit protection that helps to keep our homes clean and healthy year after year. It has anti-microbial properties, and once dry, the paint inhibits the future growth of mould and mildew.

    Manufactured in Australia, Taubmans Endure by PPG is also engineered with NANOGUARD(r) advanced technology to provide a strong protective shield against everyday dirt and stains. The paint is wash, stain and scrub resistant, enabling surfaces to be cleaned repeatedly without compromising the quality of the paint finish.

    companies

    Sutton Tools warehouse management

    Microlistics WMS partnership

    As a third party logistics provider, Microlistics has the flexibility to tailor a solution for its clients

    Cutting and power tools accessories maker Sutton Tools has chosen to work with Microlistics WMS as its warehouse management system solution provider.

    The decision to partner with Microlistics followed an extensive market review, according to Transport and Logistics News. Key factors included a requirement for robust and scalable technology, ease of use, and timely implementation at a competitive price point.

    Sutton Tools managing director Peter Sutton said the decision to partner with Microlistics reflects the company's commitment to driving innovation and agility throughout the supply chain. He told Transport and Logistics News:

    We export approximately 50% of our product to overseas markets, so it's essential we not only have industry leading distribution capability within Australia, but also the ability to maintain stock availability of more than 20,000 SKUs across four global regions.

    James Clark, chief supply and distribution executive, said another important consideration was the ability to deploy the new system with minimal interruption to operations.

    Microlistics have a proven capability to deploy their product quickly and seamlessly enabling us to roll out the new system with minimal impact on customers. The software itself supports existing technologies we use in our warehouse today such as RF scanning and automated stock replenishment and positions us well to deploy further optimisation in the future as we continue to grow.

    Mark Dawson, managing director at Microlistics, said:

    Sutton Tools appreciates our consultative approach and we're excited to have them on board. We look forward to providing a path for growth within their warehouses. We're working on exciting new technologies not only in wall-to-wall Voice but in vision and robotics.

    Sutton Tools Melbourne based manufacturing and distribution operations will be the first site to benefit from the new warehouse management system commencing this year, with deployments to international distribution centres in Auckland, New Zealand and the Netherlands to follow soon after.

    About Microlistics

    Microlistics WMS is an enterprise-grade suite of warehouse management solutions that supports RF-based technology to improve the accuracy and speed of inventory management.

    In late 2017, it was acquired by WiseTech Global and became part of the group. At the time, Microlistics listed Mitre 10 and Linfox as part of its roster of customers. When the announcement of the acquisition was made, WiseTech Global CEO, Richard White, said:

    With the impact of ecommerce and advances in automation, warehouse management is an increasingly complex and specialised part of the international supply chain. The combined strength of WiseTech's global innovation capabilities and our CargoWise One supply chain execution platform integrated with Microlistics' powerful warehouse solutions for enterprise, express, third party logistics and cold storage will provide significant benefit to logistics providers.
    products

    Leatherman markets towards Millennials

    Opportunity for rent to be paid

    The company is offering young Australian renters the chance to win one year of free rent - in the name of brand promotion

    Leatherman is best known for creating Swiss army knife-like pocket tools. Based in Oregon (USA) it decided to launch its latest product by offering to pay rent bills of up to $25,000 to one Australian Millennial.

    According to its website, the company wants to help a young Aussie take a load off one of their biggest expenses. It said:

    Millennials actually have it harder than most other age groups, experiencing higher living expenses than ever before.

    It wants to help people prepare for real-life experiences and turn obstacles into opportunities, according to Leatherman Australia managing director David Yates. He said:

    We know many young Australians would love to escape their housemates from hell, or finally move out of their family home, so we want to help free someone from their situation and put that money towards further pursuing their passion projects.

    And the competition has a personal backstory. Founder Tim Leatherman spent eight years developing the tool as a recent engineering graduate, but had to rely on his wife's income during that time to do it. He said:

    We want to support other young individuals to follow their dreams by ridding one Australian millennial from their biggest expense, their rent.

    All this to launch its new range of six tools, the Leatherman FREE which flips the tool open at the push of your thumb.

    Only one Australian Millennial will get to side-step their rent bills for a year. To compete, they will have to head to the leathermanfreerent.com.au website and in no more than 25 words, express why they deserve free rent for a year.

    The competition closes on the last day of October at 11:59pm AEST, with the winner to be announced on November 4th.

    Leatherman is also giving away a Leatherman FREE T2 (which includes eight tools such as a bottle opener, package opener and a Phillips head) to two people for every week of the competition period.

    companies

    Window safety and performance

    Protection against high winds and hazards

    The latest evolution in the world's only self-latching multi-point window system from Doric

    In response to Australia's increasingly extreme weather and the growth of high-rise commercial buildings and vertical living spaces, door and window hardware specialist, Doric has launched the DN9000.

    Like its award-winning predecessor, the DN8000, the DN9000 system holds the window open, only releasing it under high wind loads. The window then falls under its own weight and is caught by the self-latching device, which holds it shut avoiding wind damage. The handle is then operated to release the window when the weather improves. Mike Alchin from the Alchin Long Group explains:

    The DN9000 provides an innovative solution to window safety in high wind areas, which is especially important to high rise properties and homes. The updated system improves upon the reliability and performance of the DN8000.

    The smart window system is made to last as it is manufactured from high yield 304 and 316 stainless steel, which is corrosion free. Available in white, silver and black to suit modern home styles, the DN9000 is also designed with one-way and two-way opening options with top and front mounted handles as required.

    Established in 1972, Doric is Australia's largest privately-owned hardware manufacturer supplying innovative door and window hardware for residential, commercial and architectural applications. With its network of branches located in capital cities and regional locations, Doric is able to provide the service and delivery standards required by its clients across the country. It also has a global footprint with locations in the Asia-Pacific and Auckland, New Zealand.

    Alchin Long Group is a privately held, family-owned Australian group of companies, that started in 1969. It is the parent company of leading hardware brands Doric, Cowdroy, Colonial Castings, Azuma and Lock & Roll.

    products

    Will Millennials boost DIY spray painting?

    Great products, poor information

    No one drills a hole with a brace anymore, but brushes and rollers are still the most common tools for painting. What has held back spray painting, and how can the category develop a better future?

    Here's a puzzle: Ask any average DIYer to drill a hole through a plank of wood with an old-fashioned brace, and they would likely look at you like you were crazy. Similarly, while many DIYers might, from time-to-time, take a handsaw to a piece of wood, few would make a dozen cuts through 2x4s manually.

    We know why. Today, just $500 can buy a basic but complete set of cordless tools. For the DIYer it's not just that power tools make jobs easier, it's that they make them possible. Making a couple of very straight cuts through a 300mm plank with a handsaw is hard if you do that only once every three years. It takes far less skill with a circular saw.

    That combination of affordability, ease of use and indirect upskilling for DIYers has boosted the sales of cordless power tools over the past seven to eight years. That, in turn, has boosted other areas of DIY, as more jobs become possible in less time with greater chances of success.

    While that is the general picture, there are some specific (very interesting) areas where this dynamic has not taken hold. In those areas, even though there have been advances in the affordability and functioning of power tools, DIYers continue to use "traditional" means of performing tasks - though many traditional tools have also been improved.

    One of the most puzzling of these areas is painting. Companies like Wagner SprayTech (part of the Swiss-based Wagner International AG) and Graco have done a good job of getting their products onto the shelves of Australian hardware retailers. Yet even as their products have improved, and delivered better value for money, the DIY painting category has continued to be dominated by paint brushes and rollers.

    That has resulted in what, in the power tool market, would be regarded as somewhat sub-standard growth forecasts. One market researcher, QYR Research, for example, forecasts compounded annual growth (CAGR) for sales of paint spray systems at just 2.8% between 2019 and 2025 (a figure which includes industrial and contractor as well as DIY). QYR sees the market reaching a global figure of USD1560 million by 2025, up from an estimated USD1250 million in 2017.

    A broader problem

    While painting is interesting purely from the perspective of a category that is relatively retrograde in terms of technological adoption, there are additional reasons why it is interesting.

    Most hardware retailers would agree that the DIY sector is undergoing something of a change, or, more accurately, an evolution. We've seen several evolutions over the past 25 years, most recently when Li-ion battery cordless tools became readily affordable, bringing a broader interest in DIY across many categories.

    While that evolution was about existing customers evolving and becoming more committed, the current evolution is more about the interaction between two existing markets. We can broadly describe these as the "old guard" Baby-Boomers, and the "neophyte", younger Millennials. Though, of course, it is a little more complex than this, with both Generation X and Generation Z playing roles, so it is best to simplify it into DIY G1 and the younger DIY G2.

    While it is evident that G2 will eventually take over the market, at the moment most hardware retailers market mainly to G1. Long-standing familiarity with this market is the main reason, but there are some valid structural reasons.

    Retailers see the older market as having the greatest potential for sales, as G2 is a group frequently weighed down with tuition debt and/or high dwelling mortgage repayments, coupled with lower earning power.

    Another difficulty is that there is often an almost binary choice between G1 and G2. The current G1-based merchandising of a product might not suit G2, but shifting to a more G2 approach will not suit G1, which liked the former approach.

    Let's take, for example, an app (mobile or web-based) designed to help customers buy cordless drills. It's pretty easy to imagine how to do that: provide a wide range of specifications, features, prices and customer reviews. There would be a checklist for different uses, design features and price range, which would generate two or three suggestions.

    That app might sound like it's suited for G2 (as it is online), but really this is G1 merchandising. For G2, such an app would be confusing and not useful. What G2 wants is an app that enables them to select one of two drills (a high-end 12-volt, or a mid-range 18-volt) which they can rent over a weekend. Preferably, the tool comes in a box in the mail, and is returned the same way.

    What is going on there?

    G1 and G2 have different attitudes towards tools. For G1, tools are mostly about capability. Buying a drill for a G1 consumer means that they can enter into a wide range of activities, from hanging pictures on a wall, to fixing up a bit of dodgy guttering, or even building a bookcase.

    For G2, tools are useful only in achieving specific projects. Hanging pictures on the wall, for example, is likely a sub-project to the larger project of redecorating the livingroom. The livingroom is important to them, but not the drill. Tools and their use have a limited, narrower focus for them.

    A second factor is that while G1 enjoys buying new things such as tools, G2 does not. That's understandable. For the older generation, there has been a steady development in the development of everyday equipment, and a constant sense of surprise at how much things have improved.

    But over the past 20 years, that development pace has plateaued - with the exception of software-based technology. This is part of what is behind one really important characteristic of G2 that it is very important for retailers to grasp: The ultimate luxury, for G2, is not having to buy and own something.

    G2, for the most part, simply does not want to own a lot of tools - and some don't even want to own any at all. We could say that part of the trend is just good common sense. The majority of DIY tools, after all, get less than 60 hours of use in the first three years post purchase.

    Yet this goes beyond practicality. For G2 almost every purchase is something of an act of self-definition, and self-communication to both close and more distant social groups as well. In those regards, power tools do not rank highly - but making a comfortable, quirky, lovely livingroom would.

    Backing this up, US home security company Alarm.com had consultant OnePoll conduct a survey of 2000 "DIY Dads", regarding their attitude towards DIY. The survey found that the rate of tool ownership had dramatically declined for Millennial families:

    Younger Dads are less likely to own tools that older Dads would consider essential. 46% of Millennial Dads reported not owning a cordless drill. 48% don't own a stepladder, 38% don't own a set of screwdrivers, and 32% don't own a hammer (a tool owned by 93% of Baby Boomer Dads).

    Painting

    How do these attitudes affect painting, and particularly spray painting?

    For G1, paint sprayers meet few of their requirements to inspire a power tool purchase. A spray gun has a very narrow range of use, as it is specialised to one specific job. Also, it doesn't so much add a new capability, as change an existing one. And those changes, for G1, aren't all that comfortable.

    If you think about the tasks where G1 has really excelled, such as building bookcases, brick barbecues, decking, or even brush-and-roller painting, they all have a similar pace. They need to be worked at steadily and constantly, with a sense of care and commitment, and what we could call a medium degree of stress. Attention and endurance are both important.

    Spray painting does not follow that pattern. In brush-and-roller painting even DIYers will spend over 30% up of their painting time on preparation, while professionals will commonly go over 60%. (Some of them joke it shouldn't be called "painting", but rather "sanding", as the key to a great finish is a perfectly smooth and flat surface.)

    With spray painting, its normal to spend 80% to 90% of project time on preparation, depending on the room. That preparation is a lengthy period of low stress, but also low involvement work in masking off areas where you do not want paint. That's followed by a brief period of relatively high stress, when operating the spray gun. (And we mean brief: you can paint a 3m by 3.5m room with 2.5m ceilings in under 18 minutes.)

    That pattern - low involvement, lengthy prep, followed by brief, intense performance - is a common and preferred pattern for G2. It's the pattern in much of tertiary education (study/exams, thesis/oral defence), video games and even social media.

    The other factor to bear in mind is the quality of the results. It takes a lot of brush-and-roller painting to get really proficient, and be able to produce a good room. For G1, that slow gain in proficiency is actually one of the attractions, and one reason why these DIYers are reluctant to switch techniques.

    G2 is less interested in gaining that kind of proficiency. It takes very little time to gain an average competency at spray painting, as difficult tasks such as cutting-in are eliminated. Even if a mistake is made, it's also very easy to cover that up with a subsequent coat of paint - which can take just another 15 minutes to complete.

    Marketing spray painting to G2

    It's not possible to really reduce the success of marketing spray painting to G1, because it simply has not been that successful. G2 offers both a genuine growth opportunity for the category, and a chance to develop the marketing and merchandising skills necessary to capture the G2 market in other categories.

    Manufacturers

    Both Graco and Wagner SprayTech have a strong presence in Australia. However, Wagner has achieved better penetration in the DIY market with its Flexio brand, so we will concentrate on that brand, though most of these comments would apply to Graco as well.

    Marketing at the manufacturer level immediately brings up some problems. One of the marketing boasts of Wagner is that its Flexio products is that they can spray undiluted wall paint.

    That's true, they can. It's also simply not a good idea. When using a premium wall paint such as Taubman's Endure, or Dulux's Wash & Wear, it's a really good idea to dilute these slightly. The results will be much better.

    The marketing problem that Wagner and other companies face is this: what their systems are good at isn't just spraying thick paint, it's that they can adapt to a wide range of paint viscosities. The problem with lesser spray guns is that the viscosity of the paint has to be exact to within a 2% variance to get good results.

    With Flexio, it just doesn't matter that much, partly because you can adjust, with three simple dials, the amount of airflow, the volume of paint delivered, and the width of the spray. This means that paint dilution comes down to dumping 50ml to 90ml of water into the 1.3l tank of the Flexio 590, and mixing it for a couple of minutes. It's really not a big deal.

    However, it does present a difficult marketing situation, because "works with a wide range of viscosities" just isn't as catchy as "no need to dilute paint". One way around this though, that would work with G2 but less so with G1, would be to provide a comprehensive, detailed video that illustrated how paint viscosity and the controls relate to each other.

    Where manufacturers including Wagner really do fall down, however, is with the induction learning for novice users of spray painting. Most of the advice they provide makes sense - if you already know a little about spray painting.

    The critical moment you have to get new users past, both pre-purchase and immediate post-purchase, is how are they going to learn the basics? There is a very simple and highly effective solution to this. In fact, every novice spray painter should do this. After washing the walls, filling and sanding cracks, they should go ahead and mask up the painting area. Then they should fill the spray painter with water, and simply "paint" the water over the walls.

    Doing this eliminates most of the fear new users have about operating the spray gun. It enables them to get used to the motions they need to make, and they can play with the different settings to see how they affect the spray pattern.

    At the end of the water spray, the DIY painter can check the masked areas to see if there is any overspray - a flashlight held at an angle helps. It's also necessary, of course, to wipe down the walls with a towel, and give the walls more time to dry, depending on the air temperature, before painting can start.

    Finally, a word needs to be said about the quality of the manuals that Wagner and other manufacturers provide. These are the fairly standard manuals that come with power drills and other tools, monochrome printed on very thin paper. If there is one big difference between G1 and G2, it's that G1 will, at most, glance through a manual, while G2 will almost always read at least one part of the manual.

    At the very least, Wagner and other manufacturers could include a four-colour printed information card on 300gsm coated stock that shows the basics of the spray adjustments and how to clean the spray gun. The real pity here is that Wagner has done a very good job of making the Flexio spray heads easy to clean, but if you read the manual it seems really complicated and difficult.

    It's such a great product, it's a real shame to see its capabilities not communicated in an interesting way.

    In-store merchandising.

    Unfortunately, just as teachers often pick on their brighter students in class for criticism, so in talking about merchandising spray painting we need to pick on the one retailer that has done the most consistent job in merchandising Wagner SprayTech - Bunnings.

    To be clear, the current Wagner merchandising by Bunnings would rate a definite 7.5 on a scale to 10, while merchandising at most other hardware retailers would struggle to reach a 6.

    The simple, good things that Bunnings have done in marketing Wagner products are: 1) allocated an entire bay to the product line; 2) located the bay actually in the paint department; 3) displayed a good range of products in a clear and informative manner; and 4) added a few useful accessories to that display.

    The current display is a good one for marketing to G1 - but it falls short in marketing to G2. That's because, as is outlined above, G2 doesn't think in terms of tools and materials, they think in terms of projects. To meet that need, merchandisers need to think (at least partly) in terms of "project pods". The idea should be to gather together the key elements needed to complete a project, or to a least indicate what those are and where they are located in the store.

    There are a number of advantages to this approach. It is certainly key to introducing new technologies, such as spray painting, as the pod approach makes starting out more approachable. Customers can see what they need to buy to get going, and they are saved from hiking around the store, to unfamiliar departments, finding products which they are unsure are really the exact right thing they need.

    From the retailer perspective, what we are looking at here are two of the most magic words in the profession: "up-sell" and "profit-centre".

    DIYers trying something new have a disproportionate tendency to purchase more expensive materials, in the hope these will be easier to work with, and help them through the initial phase of learning how do something. All that is needed to up-sell them is the hint that these products will ease the task a little.

    Similarly, if we look at a task such as spray painting, what is its predominate feature? That would be the time spent in preparation, especially masking a room. Wouldn't it be great if there was a product specifically for that, which would make for a repeat sale instigated by the sale of a spray gun?

    Wagner's own Mask-it is just such a product. It provides 21m of 55cm wide masking plastic film, with a strip of adhesive masking tape along the top edge. Bunnings does stock it, at $9.50. However, it is located in a different aisle than the Wagner display, in some Bunnings Warehouses, at the very back on the topmost shelf, making it a little difficult to find.

    The same holds true for other masking products. Unipro makes several masking products, though these are mainly for covering larger areas, and relate to painting in general. It does, however, make a product that is similar to Mask-it. It's designed in a more environmentally friendly manner, with the masking product plus dispenser retails for over $11, but with refills at around $7.

    Again, though, the novice DIY spray painter is not going to know this product exists, unless they do considerable research. It's important to note how much is gained when such a product is properly located. It is not only that the product is now easy to find. Locating it near the Wagner bay will introduce them to the product, and also - very important for G2 - make them aware that an ecosystem has developed around spray painting.

    Where this notion of pods and projects gets more serious is when safety is involved - and this is as much about manufacturers as it is store merchandisers. The instructions for many spray gun products recommend only using the tool in a well-ventilated area. That's great, but how do you spray paint the walls of a 3m by 3m room and keep it ventilated? It may have a window, but that's likely masked up. The door will be closed, as otherwise the hallway will end up being spray painted as well.

    After 15 minutes of spray painting, you will end up with air misted with latex paint particulate, plus 25 square metres of freshly painted wall, all of which will be off-gassing volatile organic compounds (VOCs). You don't want to be breathing that, even for a short time.

    The painting masks that Bunnings and other retailers offer for sale alongside Wagner products are adequate for tasks such as outdoor painting, painting in larger rooms with some ventilation, or smaller jobs. They do not work for small rooms.

    To be fair, Bunnings in its brief introductory video to spray painting does suggest using a full respirator - though the model used, sold at most Bunnings, is a really poorly designed, outdated model.

    The issue of respirators takes us back to the difference between G1 and G2. It is true that for G1 raising concerns about safety and the need to take precautions can be off-putting - after all, how long did it take to introduce mandatory seatbelts, and limit smoking? Not exactly a safety conscious generation.

    For G2, however, raising legitimate safety concerns and providing a solution is actually a positive for sales. Given the choice between a $14 dusk mask with an exhalation valve, and a $60 twin filter respirator that protects against VOCs, it's an easy decision for them.

    This raises an interesting issue, however. Bunnings does sell a very good spray painting respirator from 3M for $59. However, a "virtually identical" respirator, also from 3M, is available from Amazon Australia for $39, delivered.

    Amazon 3M respirator

    Conclusion

    If we really focus in on what has been said above, it all comes down to one thing: information. The product is great, it's made by some really interesting companies with good engineers. The store merchandising is actually quite good. There is a demonstrated need for what it achieves.

    But all of that is really not enough, if the product and its merchandising cannot connect with consumers on the level of information. As power tools evolve, all of them gain an increasingly helpful - but more complex - ecosystem. Consider, for example, all the accessories now available for impact drivers, or the range of attachments available for some Makita routers.

    Anywhere there is an ecosystem, there is a need to make this more available through a better use of information.

    editorial

    MYOB invoice integration with Bunnings

    Streamlining paperwork for tradies

    Bunnings is helping tradies with their businesses and MYOB said the partnership is an industry first for the retail chain

    Chronicling expenses, and receipt and invoice tracking will be easier for tradies with the announcement of a partnership with Bunnings from accounting software company MYOB.

    The company confirmed that it will allow Bunnings customers to have their invoice directly appear in their MYOB in-trays. Speaking at its Partner Connect conference recently, MYOB general manager of product David Weickhardt said:

    Bunnings is now going to integrate directly into our software, and all of the data from Bunnings invoices will come directly into MYOB.

    According to Mr Weickhardt, the integration will do away with manual entries, with customers not needing to take any additional action to have their bill appear directly in their MYOB in-tray.

    Mr Weickhardt said Bunnings is the single biggest invoicer for MYOB clients. He said:

    The number one request from all of our customers was to put Bunnings into the software. The main focus has been on the plumber segment and the trade segment.

    Despite the official announcement, it is understood that the functionality has yet to go live, with MYOB saying that the feature will be available soon.

    The latest integration follows on from other supplier partners including Reece and Tradelink.

    Mr Mr Weickhardt said the pain points of the trade and plumbing service sectors has been a focus for the company as it continues their efforts to provide simple solutions to small business problems.

    Sources: Accounts Daily and Kochie's Business Builders

    companies

    Amazon Australia launches online garden store

    A challenge to Bunnings?

    The online retail giant wants to capture a share of the gardening and outdoor market

    The gardening and outdoor retail category has a new entrant with Amazon Australia now selling pool supplies, outdoor furniture, barbecues and gardening tools.

    Since its arrival in late 2017, the online retailer has rolled out a number of different categories into the Australian market including baby goods, pets, and pantry food and drinks. Rocco Braeuniger, the out-going country manager of Amazon Australia said:

    Our garden store adds to the over 125 million products already available on Amazon Australia, underscored by great value and fast delivery.

    Amazon will inevitably compete with Bunnings and other hardware and garden retailers in the outdoor and garden market. According to a report in the Sydney Morning Herald (SMH), Bunnings claims it has over 20% of this category. The gardening segment has been valued at about $2.7 billion.

    Bunnings is using click-and-collect as its primary logistics method, while Amazon will deliver products directly to its customers. Amazon Prime members will receive free shipping and a guaranteed two-business day delivery on eligible garden items. Customers who do not have Prime can access free delivery on orders above $39 when shipped by Amazon Australia. A one-day delivery service is available in select areas across the country.

    Amazon also said it has new drones that will deliver packages to customers in 30 minutes or less in the coming months. However, items not fulfilled by Amazon and sold through third-party sellers will not be able to get free shipping and likely incur additional delivery charges and longer transport times.

    In a statement to the SMH, Bunnings managing director Mike Schneider said he welcomed Amazon's competition but believed Bunnings in-store experience and expertise would win out.

    Having our team of experts in-store means we are also able to offer great service to run alongside our online transaction capability. We typically find that many of our online customers like to head into store to pick their items up.

    Trent Rigby, senior strategist at Retail Oasis, believes Amazon's garden store launch is well-timed and could potentially pose a challenge for Bunnings and other garden and outdoor retailers. He told the SMH:

    With the scale and speed that Amazon operates at, they're a big threat in whatever category they choose to go into. Not only will they compete on price, but the direct delivery option is more appealing and convenient than click and collect.

    To prepare for the launch, Amazon commissioned research to study the outdoors habits of Australians. It found younger people are the most enthusiastic gardeners, with 75% of millennials indicating they grow their own organic fruit, vegetables or herbs.

    Veggie gardens (22%) are the number one most wanted item, followed by the outdoor barbie (21%), and various outdoor furniture (18%). Somewhat surprisingly, 15% of respondents said they would be keen to give beekeeping a try.

    As part of the launch, Amazon Australia is attempting to bring back the garden gnome and giving the chance for five people to win a personalised, handmade gnome. Landscape designer and Selling Houses Australia co-host Charlie Albone is one of the judges. He said:

    Working in the landscaping industry, I've seen many outdoor trends come and go over the years, but one thing is a certainty and that is that Australians love the great outdoors. The humble garden gnome is a classic feature of the Australian garden, and I'm thrilled that Amazon Australia is giving it a 21st century makeover.

    New country manager

    Amazon Australia will also have a new country manager when Matt Furlong replaces Mr Braeuniger who is leaving after two years in the job. Mr Furlong will officially take over the reigns on October 1.

    A former Procter & Gamble executive, Mr Furlong has been at Amazon for seven years in a variety of roles including US category leader for home improvement, tools, major appliances and smart home. For the past 18 months, he has been technical advisor to Doug Herrington, who leads the North America consumer business.

    Mr Braeuniger was appointed country manager for Australia in August 2017, four months before Amazon launched its new e-commerce business. He is moving on to take a senior international role in Europe.

    The Financial Review reports that Amazon Australia's online retail sales reached $106 million in calendar 2018 and sales from related parties (including sales from the US website) rose to $158 million, taking total revenues to $292 million, based on accounts lodged with the corporate regulator.

    Retail experts say Amazon's Australian launch has been underwhelming and sales and the number of sellers have fallen short of expectations. However, Mr Braeuniger dismissed suggestions the world's largest online retailer was struggling to gain traction in Australia, pointing to the rapid growth in its product range and services, including delivery service Prime, Fulfilment By Amazon, Global Store and, most recently, Launchpad, an incubator program for start-ups and entrepreneurs. He told The Financial Review:

    The Prime launch has been successful, we are outperforming all the other countries on a relative scale ... and Prime Day was the most successful shopping event we have ever had in Australia.

    Sources: Amazon Australia, Sydney Morning Herald and Australian Financial Review

    Related: HNN covered Amazon's entry into the Australian market extensively.

    Amazon is coming to town - HI News, page 50

    Sources: Amazon Australia, Sydney Morning Herald and Australian Financial Review

    retailers

    Klingspor makes abrasive belts

    Manufacturing plant in Sydney

    The company is well-known for its range of abrasive products such as cutting, grinding, flap and fibre discs, flap wheels, diamond blades and more

    Klingspor's long history of making superior abrasives goes back to its origins 126 years ago in Germany when the business was established. Since its early beginnings, customers have always been assured they can only expect exceptional products from the Klingspor brand.

    In addition to supplying an extensive range of abrasive products and innovative merchandising displays, Klingspor Australia also offer high quality, locally manufactured abrasive belts.

    Klingspor makes custom abrasive belts in a wide variety of materials and sizes, in its factory located in Silverwater, NSW.

    The company can make belts as narrow as 6mm and up to 1.6 metres wide, and in most lengths. The longest belt it has made was over 10 metres long.

    Klingspor has belt materials for all applications from knife making to timber finishing, and from glass grinding to floor sanding. In fact, it has well over 20 different types of materials and some of these materials are available in up to 14 different grit sizes. The permutations are endless if all the sizes it can manufacture are taken into account.

    The complex process of making belts involves several parts. Firstly, the material comes in huge "jumbo" rolls which are up to 1,650mm wide and typically 50 metres long. It has to be cut to length and then "scuffed" or "skived" to ensure that it is perfectly flat when it is joined.

    Then a two-part glue is used to make sure that the join is strong enough to cope with the toughest applications. The belt is exposed to very high speeds and pressures when used.

    Once the join is pressed at high pressure and cured overnight, it can be "slashed" to the correct width, packed, labelled and despatched to the customer.

    Klingspor differentiates itself from many other belt manufacturers in a very important way. The company always test the joins before the belts are sent out.

    Klingspor's in-house engineers in Germany have developed belt join testing machinery, and every batch of belts produced around the world on its sites is tested to make sure that the join is capable of meeting or exceeding its high level standards.

    The production time for the custom made belts made at Klingspor's facility in Silverwater is usually 3-4 working days from the date of order.

    To find out more about the range of products available, go to Kingspor's Australian website here:

    Klingspor Australia
    companies

    Boral's plasterboard JV with Knauf

    The company exits its brick business

    Boral warned of a sharply lower annual profit outlook with delays in Australian infrastructure projects compounding a slowdown in the domestic residential construction market

    On the same day it announced its full year results, Boral also said it has entered into an agreement with the German-based Gebr Knauf to form a new, expanded 50:50 Asian plasterboard joint venture that includes sales in China and South East Asia.

    The deal will also see Boral return to 100% ownership of the USG Boral Australia and New Zealand plasterboard unit, a business that has higher margins.

    Mr Kane said moving to full ownership of the USG Boral plasterboard business in Australia and New Zealand brought increased exposure to a business generating solid cash flow. But Boral has left the door open for further changes, granting Knauf a call option to purchase a 50% share again within five years.

    The company will fund the deal through debt and the proceeds of asset sales, one of which was announced recently with the exit from brick-making in Western Australia through the sale of Midland Brick.

    Bricks exit

    Boral sold its only brickmaking business - Midland Brick - along with 800 hectares of associated land for $86 million to a group of investors, as a way to reduce its exposure to the global bricks market.

    The buyers are a consortium made up of Linc Property, Birchmead (part of the CFC Group) and Fini Group.

    Mr Kane said that the sale is consistent with the Boral's strategy of focusing on construction materials in Australia which include quarry materials, asphalt, concrete, plasterboard, timber, blocks and roof tiles. The company sold its stake in CSR Boral Bricks in 2016. He said:

    Our focus in Australia has been to continue to invest in our leading integrated construction materials business, where we supply materials to residential, commercial and infrastructure building and construction markets across all states and territories.
    Having divested our 40% stake in the CSR Boral Bricks joint venture in 2016, the sale of Midland Brick completes our exit from bricks in Australia, for combined proceeds of around $215 million over the past three years.

    The new owners will trim the size of the operation to make way for a mixed-use industrial and residential offering, reports The Australian. They hope to fully capitalise on the site by confining the operations of Midland Brick to the northern corner of the site. This will allow for a large scale redevelopment of other areas.

    The deal with Boral is expected to be settled by the end of the year. Once finalised, construction is slated to begin soon after, with the first residential lots anticipated to be released in 12 to 18 months.

    Weaker outlook

    A key reason behind Boral's forecast of a 5-15% fall in net profit this financial year is a slowdown in residential construction activity in Australia. While the company will benefit from the boom in Australian infrastructure projects, it said this would not be enough to offset lower residential construction activity.

    Boral reported a full-year statutory net profit of AUD272 million, down 38%, including significant items of AUD168 million. Net profit after tax and before amortisation and significant items was AUD486 million, down 6%. The company's Australian earnings before interest and tax slipped by 11% to $384 million in 2018-19.

    Mr Kane believes Boral is well-placed to benefit from the infrastructure "mountain" over the next decade or so. He said:

    We've got the best footprint, we've got $600 million worth of quarries. We made the investments well ahead of this infrastructure boom, and so we're in the lead position to take advantage of the infrastructure work throughout Australia for the next 10 years.

    However Mr Kane also said everyone involved as a supplier to large infrastructure projects had learnt that it was sensible to build in extra time for delays in what were large one-off projects. That meant infrastructure demand wouldn't be able to offset a likely 15% drop-off in the housing market in Australia, and lower demand.

    Related: Knauf's deal to buy USG was covered in a previous edition

    Knauf's deal to buy USG for USD7b - HI News, page 27

    Sources: Australian Financial Review, Australian Manufacturing, Inside Construction and The Australian

    companies

    Hedge fund buys into Wagners

    FY2019 profit cut by almost 50%

    An ongoing pricing dispute with Boral was a major contributor to a drop in annual profit

    Investment company, LHC Capital, has taken a 7% stake in family owned building materials supplier, Wagners. It comes soon after the company reported a 48.5% slump in annual net profit - down to $12.8 million - due to a sluggish southeast Queensland construction market and the effect of an ongoing dispute with Boral.

    In April, Wagners said it would take a $10 million hit to its earnings after calling in the lawyers on its biggest cement customer, Boral and launching action in the Queensland Supreme Court over a pricing dispute. It said Boral was trying to force down its contract prices because it had been offered cheaper prices by an unnamed competitor.

    The company suspended deliveries to Boral, which buys about 40% of Wagners cement, while it contested the bona fides of the rival offer through dispute resolution procedures in its contract. The company said in March that the decision to suspend supply to Boral, for up to six months, would cost it $20 million in lost revenue.

    Industry observers believe the Boral court case could also signal a tipping point in the relationship between Boral and Wagners, with Wagners potentially competing more aggressively with its cement-producing rival in other states such as NSW.

    LHC Capital remains optimistic about Wagners' long-term prospects amid expectations that spending on infrastructure and construction work in Queensland will eventually rebound despite the company's ongoing dispute with Boral. LHC Capital director Marcus Hughes told The Australian Financial Review (AFR):

    Wagners owns a suite of quality assets and we see a large margin of safety in owning the company at current prices.

    Wagners' non-executive chairman, Denis Wagner, told the AFR that the company had a positive view on its future, particularly its so-called "new generation" building materials business, which makes products that reduce carbon emissions.

    We expect healthy growth in our composite fibre technologies division following the establishment of our USA manufacturing facility.

    In its FY2019 results announcement, the company reported its composite fibre technologies manufacturing facility at Wellcamp experienced record production in powerline crossarms and business from the company's bulk haulage section doubled.

    Wagners CEO Cameron Coleman told the Toowoomba Chronicle that timing issues of large international infrastructure projects hurt the company's financial performance. He said:

    There are some challenges in the construction business related to our issues with Boral...There are a couple of large international projects that haven't developed as quickly as we thought they would.

    Queensland infrastructure projects such as Adani's controversial Carmichael coal mine and Brisbane's Cross River Rail have also been progressing slower than expected.

    The company shut down its precast business due to a depressed market, but Mr Coleman said he expected it to pick up once construction on the Inland Rail and Cross River Rail went ahead.

    Wagners reported a 32% slide in earnings from its core construction, materials and services business to $30.1 million due to a drop in cement volumes following its decision to stop supplying cement to Boral.

    But the company said it remained committed to its new generation building materials business, which delivered EBIT of $1.76 million, down 10% on a year earlier.

    Wagners court case against Boral is being heard in the Queensland Supreme Court this week (16 September, 2019).

    Sources: Australian Financial Review, The Australian and Toowoomba Chronicle

    Related: HNN covered Wagners legal dispute with Boral in an earlier edition.

    Court next stop for cement supply dispute - HI News, page 28
    companies

    Storage for drill and driver bits

    Developed by KwicTec

    The DrillKaddy Drawer is a product designed to save time, money, and frustration for all cordless power drill users

    The DrillKaddy Drawer (patent pending) is a drill and driver bit storage solution that easily attaches (and detaches) to the base of the batteries used in cordless power drill and driver tools. It securely holds the bits. This lightweight, compact, drawer provides users with easy and convenient access while they are on the job or working on a project - without having to return to the tool box to find the right bit or drill.

    All DrillKaddy products include high quality M2 HSS-TiN drill bits or chrome vanadium driver bits with quick attach hook and loop tape kits for multiple devices.

    DrillKaddy's designer, Donald Curchod, is a skilled mechanical engineer with numerous patents and more than 60 years experience building successful businesses from innovative ideas. Some previous "world first" inventions include:

  • Computerised wheel balancing and alignment machine
  • Computer golf simulator
  • Equiplite range of fibre loop yacht fittings used by racing teams and super yachts around the world, becoming an industry standard
  • The packs are available from Amazon inclusive with drill bits and impact driver bits.

    KwicTec is the registered Australian business that owns all manufacturing, marketing, distribution, patents and copyright to the DrillKaddy brand and products globally.

    products

    Bunnings real estate sell off

    Sites sold in NSW and QLD

    Additional sites with Bunnings stores that have hit the market are located in NSW, QLD and SA

    For sale: a Bunnings-anchored homemaker centre in Griffith (NSW); Bunnings stores in Norman Gardens (QLD); and Victor Harbor in South Australia. Sold: Bunnings Kempsey in NSW; Bunnings Kingaroy, and Lawnton in Queensland.

    Griffith

    A large-format retail centre with a 8688 square metre Bunnings store in the NSW Riverina town of Griffith is expected to be sold for around $30 million. Other tenants operating at the site include Spotlight, Fantastic Furniture, and Repco. Bunnings had commenced the current lease, which has an initial 10-year term with eight options at six years each, in September 2018.

    The sale includes a vacant land parcel adjacent to the Bunnings Warehouse building which agents say could be used to expand the current store operations. James Wilson, national director, retail investment services at Colliers International told Commercial Real Estate:

    Due to the size, shape and proximity to the Bunnings Warehouse tenancy, the vacant land parcel provides an excellent opportunity, subject to council approval, for Bunnings to expand its operations in the future.

    Given the $30 million price point, the listing is being pitched as a likely fund or syndicate acquisition.

    Source: Commercial Real Estate

    Kempsey

    A private investor has purchased a Bunnings Warehouse in the northern NSW town of Kempsey for $5.17 million. The property is leased to the big box hardware chain until 2024 with options to 2049.

    Director of Burgess Rawson Darren Beehag said the Bunnings property had been popular because of the 3% annual rent increases built into the rental contract. It is currently generating rent of $344,364 a year plus GST, was sold on a yield of 6.66%.

    The property, which started life as a Mitre 10, was converted to a Bunnings store in about 2010 and was sold by the big box retailer to the current vendor for $3.25 million in 2012.

    Source: Commercial Real Estate

    Kingaroy

    A Victorian-based syndicate has purchased the recently-opened 7600 square metre Bunnings Kingaroy store in Queensland for $14.55 million. The Kingaroy Bunnings is on a 2.4ha site and included a 3190 square metre parcel of land that will allow the store to expand.

    The big box retailer has a 10-year lease on the site plus eight six-year options. The sale realised a 5.5% yield.

    Source: NewsMail

    Lawnton

    Queensland developer Nic De Luca has sold a Bunnings-leased warehouse in Lawnton for $18.68 million. The store replaced a former outlet occupied by Howard Smith/BBC Hardware.

    The new complex is 41% bigger than the last and offers 56 more car spaces. The 6784 square metre building on a 1.3 hectare block was offered with a 10-year lease to Bunnings which has renewal options.

    Lawnton, about 21 kilometres north of the Brisbane CBD, is considered a gateway suburb of the Moreton Bay region, where the population has increased 39% over the past 13 years.

    Source: Real Estate Source

    Norman Gardens

    A modern Bunnings anchored retail complex in Norman Gardens, near Rockhampton (QLD), has hit the market through Savills. Bunnings only moved into the property in 2017. It is better known as being the old Masters Home Improvements site.

    The 2013 developed complex has a long lease to Bunnings until 2030 with options to 2078. Bunnings occupy over 76% of gross lettable area. It is the only Bunnings in the area supported by a freestanding retail building which is currently tenanted to Autobarn, Freddy's Fishing World & Outdoors and Petstock.

    The complex is located seven kilometres from the Rockhampton CBD and sees 25,900 vehicles pass daily, around 9.4 million annually.

    Source: Property Observer

    Victor Harbor

    A newly built Bunnings warehouse in Victor Harbor, south of Adelaide, has been sold to a Melbourne-based syndicate for $21.3 million. The 10,000 square metre DIY warehouse, which opened last year, sold on a yield of 5.13%.

    Property records show the buyer is VH Property Holdings, a company owned by Melbourne's Durlacher family, according to the Australian Financial Review. The Durlachers were also investors in another vehicle, Bairnsdale Property Holdings, which bought a Bunnings in East Gippsland (VIC) for $12.42 million in December 2017 on a yield of 5.66%.

    In another recent deal, prestige car dealer Nick Theodossi paid more than $25 million last year for a another recently-opened Bunnings in Mernda in Melbourne's northern suburbs.

    Source: Australian Financial Review
    bigbox

    Kitchen renos spend grows: Houzz

    Data based on over 8,800 Australian respondents

    Renovation activity driven by older generations and homeowners integrate smart technology

    Spend on kitchen renovations grew by 16% in the past year to a median spend of $20,000, according to the annual Houzz & Home Australia survey of more than 8,800 respondents.

    Kitchens are the most popular rooms to renovate, followed by living rooms (26 and 23%, respectively). Bedrooms, bathrooms and laundries were all equally popular at 17%.

    Overall, renovation activity remained strong through 2018 with half of homeowners on Houzz renovating (50%) an average of three rooms per project, at an overall median spend of $20,000.

    At the higher end of the market, renovation spend in the 90th percentile reached $180,000. Baby Boomers (ages 55-74) and Gen Xers (ages 40-54) combined represent over three quarters of the renovation activity (79%), at a median spend of $21,000 and $23,000, respectively.

    Nearly half of renovating homeowners planned to continue or begin renovations this year (47%), with 41 and 35% of Gen Xers and Baby Boomers, respectively, anticipating new projects. Nino Sitchinava, Ph.D., Houzz principal economist, said:

    Pent up demand continues to drive renovation activity, while spend on discretionary projects such as kitchens continues to grow, signalling strength in consumer confidence.

    As homeowners consider whether to renovate their current home or to purchase a new home, the top two considerations for renovating are to stay in their current home or area, outranking return on investment. Wanting to stay in the current home is the biggest decision driver for Baby Boomers and Gen Xers, whereas Millennials (ages 25-39) chose to stay in their current home and renovate because it was more affordable than moving.

    Funding renovation projects

    The majority of renovating homeowners pay for renovations using cash from savings (76%), followed at a distance by credit cards that can be used anywhere (19%) and cash from home mortgage refinance (13%). Reliance on credit cards is higher in Millennials than in older generations.

    Finding the right professionals

    Nine in ten renovating homeowners hired a professional in 2018 (90%), with electricians, plumbers and carpenters in greatest demand (62, 51 and 40%, respectively). Baby Boomers are more likely to hire professional help than Millennials by 10% (93% versus 83%).

    Making "smart" decisions

    Over one in ten homeowners prioritise smart technology during home renovations (12%), purchasing products like home assistants, streaming media players and security cameras. Baby Boomers are more likely than Gen Xers and Millennials to rank smart technology as high priority (15% versus 10 and 9%, respectively), however Millennials are still incorporating the most home assistants (22%), compared with one in ten Baby Boomers (11%).

    Improving energy efficiency

    While improving the design and functionality of a home are the top priorities during renovations, over two in five homeowners prioritise energy efficiency (43%), replacing windows and insulation, for example. This is particularly important for Baby Boomers when compared to Gen Xers and Millennials (50% versus 39 and 36%, respectively).

    The final touch

    Nearly two-thirds of renovating homeowners in 2018 also decorated or furnished their home the same year (65%). Millennials were significantly more likely to decorate following home renovations than Baby Boomers (73 versus 60%), purchasing products such as pillows, throws and interior furniture.

    About the Houzz & Home Survey

    The annual Houzz & Home survey covers interior renovations and additions to home systems, exterior upgrades and outdoor projects. Data gathered includes historical and planned spends, professional involvement, motivations and challenges behind building, renovation and decorating projects, as well as planned activities for 2019. The 2019 study includes over 8,800 respondents in Australia, providing insights into the home improvement activity of the more than 40 million monthly unique users of the Houzz site and mobile apps. The Houzz & Home Survey was sent to registered users of Houzz Australia and fielded in April 2019.

    The full report is available here:

    2019 Australia Houzz and Home Renovation Trends Study

    Related:

    Home builders on Houzz forecast growth in 2019 - HNN Kitchens 2018-19 - HNN
    reports

    Wesfarmers-backed business expands

    ONTHEGO acquires ZEMS Apparel

    The competition regulator has also given Wesfarmers the go-ahead of its purchase of the Catch Group

    Since Workwear Group (WWG), a subsidiary of Wesfarmers Industrial & Safety, acquired a significant stake in online retailer and custom workwear and apparel platform ONTHEGO (OTG), it has launched a number of whitelabel programs for Officeworks and WWG.

    Following the acquisition of ZEMS Apparel, OTG plans to enhance its customised workwear, uniform and apparel offerings in record delivery times.

    OTG has also rebranded the business to "OTG Labs" and ZEMS founder Mark Harris will be leading the Web2Print facility. His experience and skills is expected to help bring the technology to life in the company's customisation, made to order supply chain model.

    Enabled by its Web2Print technology, OTG chief executive, Mick Spencer said this capability also completed the loop on the complex rapid supply chain required to execute some "...retail partnerships soon to be announced in later 2019". He added:

    ZEMS will provide us a 'bolt on' capability that will enable us to leverage our significant investments to date in our technology for mass customisation scale.

    Related:

    Wesfarmers workwear seeks to disrupt category - HI News, page 25

    Catch Group

    The $230 million Catch Group deal, unveiled earlier this year, will enable Wesfarmers to build Kmart and Target's online sales while tapping into its expertise in e-commerce, online fulfilment and digital marketing.

    The Australian Competition and Consumer Commission (ACCC) launched an informal review into the proposed acquisition and brought forward its ruling, saying it was not likely to substantially lessen competition in any relevant markets because Wesfarmers and Catch were not close competitors.

    As part of the review, the ACCC examined both physical and online retail competition. In particular, it looked at whether the acquisition of Catch would remove a potentially significant competitive threat at the retail level, and how the acquisition would affect commission rates for third-party sellers using Catch's marketplace to sell products.

    ACCC Commissioner Stephen Ridgeway said the growth in online marketplaces, such as Amazon, eBay and Kogan Marketplace, was fostering competition between providers and Wesfarmers' acquisition of Catch would be unlikely to change that level of competition.

    The acquisition would not reduce online marketplace options for third-party sellers as Wesfarmers would be a new entrant and the combined group was likely to be constrained in its dealings, and therefore unlikely to be able to raise commission rates. Mr Ridgeway said:

    Stakeholders also consistently told us that Catch and Wesfarmers are not close competitors, primarily due to the differences in their business models.

    Catch offers out-of-season, clearance or overrun branded products and operates an online marketplace, while Kmart and Target are predominantly bricks and mortar stores.

    Online retail expert Jonathan Reeve, from digital marketing and technology company Eagle Eye told the Australian Financial Review that Wesfarmers would be able to use Catch as an online channel for Kmart and Target to clear stock without diluting the brands.

    Wesfarmers expects the deal to be completed once other conditions, including the consent of landlords, have been achieved.

    Related:

    Wesfarmers takes on e-commerce know-how - HI News, page 21

    Sources:

    Australasian Leisure Management Australian Financial Review
    companies

    Eye protection on worksites

    DeWalt safety glasses and goggles

    The choice of appropriate safety eyewear is dependent on the workplace hazards at hand

    The DeWalt range of safety glasses and goggles is certified to meet Australian and New Zealand safety standards, and boasts a number of technologies.

    Lens

  • Advanced lens coatings for hard coat scratch resistant and anti-fog properties
  • High-end material for polycarbonate lenses, rubber nose pieces and frames
  • De-centred cut lenses to match the focal point with actual line of sight, ensuring optical eye clarity and reducing eye fatigue
  • 99.9% UVA and UVB protection
  • Polarised lens option for enhanced optical clarity
  • Frame

  • Hypoallergenic thermo plastic rubber technology increases the grip to keep the glasses on a face
  • Polycarbonate and nylon materials on frames provide added durability and protection
  • This range includes three key products; Rotex safety glasses, Excavator safety glasses and Concealer safety goggles.

    Rotex

    Available in Clear and Smoke colours, these glasses are suitable for indoor and outdoor use. With an ultra-lightweight frame, the Rotex safety glasses have a moulded nosepiece, flexible temples with rubber grips, and impact resistant polycarbonate lenses with 99.9% UV protection.

    Excavator

    The Excavator safety glasses have a self-adjusting rubber nosepiece and dual mould rubber temple grips to provide a comfortable, secure fit. The lens is made from a tough, polycarbonate material, providing impact resistance.

    Concealer

    Worn instead of safety glasses when there is a high dust element, risk of splash or over prescription glasses, the Concealer line has a ToughCoat[tm] lens or XtraClear[tm] anti-fog lens coating. Made of a soft, dual injected rubber that conforms to the face, the goggles are fitted with an adjustable, elastic cloth head strap that provides a comfortable fit. There are ventilation channels that allow breathability and added protection against fogging. The low-profile design provides a full field of vision.

    products

    HI News V.5 No.3: Bunnings moves into trade, online

    POS choice and potential dangers

    Paintorama is a regular look at the major global paint companies: PPG, Sherwin Williams, AkzoNobel and Nippon Paint

    For a number of years now, HNN has been writing about the progression of Bunnings' move into the trade market, and more recently forays into online commerce. This edition explores in-depth the type of strategies that may be underlying these moves beyond DIY. We also present Bunnings' results for FY2018/19.

    Simply click on the following link to download this edition:

    HI News Vol.5 No 3: Bunnings moves into trade, online

    Point of sale (POS) systems are vital to all hardware retailers. As this market develops, there is a choice to be made between local servers, and cloud servers providing POS in a Software as a Service (SaaS) model. To make a choice you need to consider the reliability of the NBN, and preventing malware such as ransomware.

    Nippon Paint's acquisition of Australia's DuluxGroup is just one change in global paint markets. In our Paint-o-rama feature we look at the global top four – Sherwin-Williams, PPG, AkzoNobel and Nippon Paint, plus DuluxGroup.

    Plus, Metcash's Independent Hardware Group results, Bretts leaves IHG for Natbuild, and homewares comes out as a strong growth category for hardware retailers.

    Other companies featured in this edition include Sydney Tools, Nippon Paint, Beacon Lighting, ITW, Ace Hardware and The Home Depot. There are also new product releases from Klingspor and Boral.

    news

    Bunnings grows its strategies

    Strategy Day and Investor Day

    Bunnings provided an insight into its strategic future over two events in 2019

    Recently, across two investor presentation events, we've been given a clear look inside the Bunnings' strategy, its analysis of the market, and its plans for the future. The first event was a tour of the Bunnings' warehouse at Craigieburn, Victoria in March 2019 (Tour Day). The second was a more formal presentation at the annual Wesfarmers Strategy Day in June 2019.

    Looking at those strategies, HNN would argue that Bunnings has become a star not only within its parent company, Wesfarmers, but also across Australian retail in general.

    Five years ago the idea of Bunnings as a significant leader in overall retail didn't seem a pressing issue. But the retail landscape has changed so much over that time, that even the definition of "significant" has shifted.

    It's certainly not just about size, and particularly not size in relationship to revenue. Both major supermarket chains, for example, dwarf entire retail categories in revenue terms. But the competition between them has become a form of trench warfare, dominated by great defence (supply chain/price).

    Other great retailers of the past, such as department stores David Jones and Myer, have also fallen by the wayside, as they misinterpreted the market need for scale. The companies that really understood scale, in the 21st Century sense, were the shopping mall operators. Arguably, it is retail infrastructure such as Westfield's Chadstone (at 215,056 square metres) that have been pioneering in developing new structures of retail.

    Yet as different as they are, there is one thing that all these contenders share: a near complete lack of any kind of meaningful innovation in retail. They are very innovative - many of them - in terms of supplychain, productivity measures, efficiencies, and the merchandising presentation of product. But in terms of the actual retail function, the interface between customer and retailer, there has been very little progress over the past 10 to 15 years.

    Which, given massive technical innovation in business and society, allied with cultural change, seems a little astonishing. How can we possibly have smartphones, electric cars, viable smarthome technology, and a growing online retail sector, but an in-store retail experience that would be entirely familiar to anyone back in 1995?

    Which brings us to Bunnings. Bunnings at the moment stands at a crucial point in its evolution. It has strong dual pressures on it, to both demonstrate moderately high double-digit growth, and, as part of that, to continue to retain its overall marketshare.

    What makes it especially qualified for the role of leading retailer is the paradoxical, Catch-22 fact that it, more than any other retailer, simply could not care less for the title. That's an approach that Bunnings managing director Michael Schneider demonstrated during his introductory remarks at the Tour Day:

    One of the things we talk about inside of the business is sort of the vision that we want the business to have, which is all about building the best. So we don't we don't sort of claim to want to be the biggest business or the smartest or the fastest. We want to be the best business we can be.

    More directly,Mr Schneider, at the end of a long Q&A session at Wesfarmers' Strategy Day presentations, answered an analyst's question about whether the company's next 10 years would be as great as the past 10 years, by saying:

    I think, you know, the thing we've always said is we want to outperform the market. And the way we do that is to go really hard at our strategic pillars around price, range and service. If we do those things right, stay relevant to the customer, through the way we go to market ... but also the products and services we're offering them, we'll be chosen more, and we will continue to outperform the market.
    So, that's the thing we stay particularly focused on. You know, it is nice to sort of look at the growth over time and say that's a fantastic achievement - but we don't. That is the past. We are very focused on the future, and it's a long term future with sustainable growth driven by the sort of ingredients we've touched on.

    The paradox of success

    It's an interesting statement, because it weaves together the two prime forces acting on Bunnings at the moment. The first is Bunnings' belief in its core values: achieving the winning customer offer brought about through staying true to the pillars of price, range and service. The second is outperforming the market, and delivering long term sustainable growth - or, in other words, returning shareholder value to its parent, Wesfarmers.

    It's a combination of absolute values - the "pillars" - and relative values - outperforming competitors, both directly in retail and on the Australian Stock Exchange (ASX). The uncomfortable fact - and a situation common to retail worldwide as well as in Australia - is that these absolute values and relative values have come into conflict. And what many retailers are having to grasp in a rapidly evolving market environment, is that if they are to succeed, those absolute values can no longer be seen as absolute and isolated from change.

    The leadership team at Bunnings is certainly aware of this tension. At the beginning of his prepared remarks on the Tour Day, Mr Schneider pointed to the outcome the team wants:

    Our focus on growth isn't at the expense of who we are and [what] we've built up over the last 25 years of the Bunnings Warehouse format. It's about preserving the core, the culture, the operating model of the business, the strategic pillars that I touched on before, but stimulating progress. Stimulating progress in the market, stimulating progress with our suppliers in product innovation, and stimulating experiences for our customers going forward.

    That dual development - staying true to a core while embracing progress - is a nice thought, but how realistic will it prove to be? It seems Bunnings and other retailers are confronting a classic case of what Austrian economist and Harvard professor Joseph Schumpeter called "creative destruction", part of his theory of economic cycles (which he regarded as being driven by technological development).

    To read the rest of this story, please download the HI News PDF:

    Download hinews-5-03

    bigbox

    Did independents outperform the big guys?

    Results from IHG and Bunnings subdued

    While both Bunnings and IHG claimed that the hardware retail market declined in the FY2019 H2, the stats show the decline was not dramatic

    Looking back over the Australian Bureau of Statistics (ABS) report for retail sales in the hardware sector for FY2018/19, the slightly surprising conclusion is that non-corporate independents - those outside of Metcash's Independent Hardware Group (IHG) - have won back some marketshare.

    Before we get to that, though, let's look at how the hardware retail market performed for FY2018/19. As shown in Chart 1, for Australia overall, hardware retail sales were $19480.8 million, an increase of 2.28% over the previous corresponding period (pcp), which was FY2017/18. This was also an improvement over the growth number for FY2017/18, which was just 1.11%.

    By far the best performing state was Victoria (VIC), with revenues of $5564.3 million, an increase of 8.90% on the pcp. The Australian Capital Territory increased revenues by 5.36% on the pcp, to record revenues of $367.8 million. The worst result for the financial year was Western Australia (WA), which dropped by 8.25% on the pcp, with sales of $1958 million - its first drop below $2 billion in sales since FY2013/14. The rest of the states and territories recorded mildly positive results of around 1% growth over the pcp.

    We've heard a number of companies in the industry claim that the last quarter of FY2018/19 saw some decline in their markets. Looking at Chart 3, which contrasts revenues in the Q4 of financial years, it would seem this is not entirely statistically supported. What is perhaps disheartening to corporate executives is that so many of the states and territories are contracting, but that contraction is, overall, around the 2% range, while VIC has growth figures of over 8%.

    Charts 4,5 and 6 look contrast FY2017/18 with FY2018/19 for New South Wales (NSW), VIC and Queensland (QLD), which together make up over 76% of hardware retail revenues. The biggest surprise is probably how optimistic these sales numbers are, with big increases for VIC, and both NSW and QLD closely shadowing sales for the previous year.

    Chart 7 shows the overall numbers for Australia over FY2016/17, FY2017/18 and FY2018/19. Growth from FY2016/17 to FY2017/18 is negative during the first half, becoming positive in the second half. Growth from FY2017/18 to FY2018/19 is positive throughout the year, though only mildly so.

    What we would really have to conclude, looking at the results for both IHG and Bunnings is that they have not done a good job of capturing the potential of this market. (The Metcash/IHG financial year does close out in April, but the company remarked that trading through May and June had been in decline.)

    It's likely, given this, that the real winner for FY2018/19 has been the non-corporate independents, many of whom are in buying groups such as National Builders (Natbuild) and Hardware & Building Traders (HBT). Partly that may be because Bunnings and IHG are overweight in NSW and underweight in VIC (in terms of growth prospects).

    Metcash/IHG

    Metcash's Hardware segment, which consists primarily of the Independent Hardware Group (IHG), recorded equally lacklustre results. Excluding charge-through sales, overall revenue for the reporting period was $1165.1, up 1.9% on the pcp. Including charge-through sales, sales were $2.10 billion, down by 0.9% on the pcp.

    Hardware did show a steep rise in EBIT, reporting $81.2 million, up by $11.9 million on the pcp, a gain of 17.2%. However, the company states that around $10 million of that is the result of one-off "synergies" from the acquisition of the Home Timber & Hardware Group (HTH).

    It appears much of those synergies originate from the closure of non-performing HTH stores, and subsequent asset sales. As a result estimated EBIT from continuing operations would be $71.2 million, a gain of 2.7% on the pcp (presuming that the pcp EBIT number relates to continuing operations as well).

    Other EBIT gains resulted from efforts by the company to improve the efficiency of its operations.

    Bunnings

    Bunnings reported topline revenue of $13,166 million, up by 5.0% on the pcp. EBIT rose by 8.1% on the pcp, to hit $1626 million. In terms of total stores growth, this was 5.2%, down from 8.0% in the pcp. For store-on-store (comp) sales growth, this was 3.9%, down from 7.8% in the pcp. Return on capital improved slightly, coming in at 50.5%, up from 49.4% in the pcp.

    In his prepared remarks, Bunnings managing director Michael Schneider reaffirmed the retailer's commitment to the DIY market, while also highlighting its growth in retail to trade customers.

    While making DIY even stronger remains core. We continue to build solutions that connect our customers with local experts, making it easier and more affordable for them to have products in-store, particularly when it comes to a licensed tradesperson.
    We have expanded our assembly and installation offer to help our customers who don't always have the time or skills to undertake some jobs and projects. 18 new services were introduced throughout the year with a total of 30 services now available. Uptake from customers continues to grow, with Dux hot water installation, toilet installation and barbecue assemblies being some of the most popular services we offer.

    Mr Schneider also pointed to the retailer's growing focus on lifestyle based retailing.

    We have also expanded our in-store events and activities, making it even easier for our customers to learn new skills and bring their home and lifestyle aspirations to life. Every store now has a mobile DIY unit, which is used to engage our customers in aisle with product demonstrations, displays and craft.

    To read more, please download HI News:

    Download hinews-5-03

    retailers

    The POS choice

    Local server, or SaaS?

    POS can run on local servers, or newer systems that are cloud-based as Software as a Service (SaaS)

    Hardware retailers rely on their point of sale (POS) systems more than any other technology. With over 5000 hardware retail companies in Australia, and around 5900 actual stores, it is both a lucrative market and a sensitive one.

    The potential in that market has recently attracted two acquisitions of Australian companies by businesses based in the US. In October 2016 veteran POS software company SYM-PAC was acquired by Vela International. More recently, in July 2019, POS company Pacsoft was acquired by ECi, a company that specialises in hardware and lumber enterprise resource management (ERP) software, and has been operating in the UK for over past 20 years as well.

    These were both friendly acquisitions, and really acknowledgement of just how well Australian software developers have been doing in the local market, and how the local market is set to expand. ECi remarked, for example, that the development of mobile systems by Pacsoft were excellent, and the company is looking forward to further developing that software.

    A changing market

    The potential of the Australian market has to do in part with the overall success of hardware retail, but it is being driven by one major technological change, and two competing market forces.

    The technological change is the same one that is sweeping through many software sectors: the growing importance of software as a service (SaaS) . This is software which has migrated to remote servers in the cloud, and offers an interface that can be accessed via web browsers, and/or thin client software, with little or no longer term data stored locally.

    Accounting, for example, has progressively moved to cloud-based systems, such as those from Xero, Intuit and MYOB. The world's foremost customer relationship management (CRM) software, Salesforce, was built entirely around SaaS. Even common, everyday software, including word-processors and spreadsheets, is now accessed by many through their web browsers.

    The first of the major changes in the Australian market itself is a shift in the way internet connectivity is delivered, as the National Broadband Network (NBN) nears completion (after considerable delays). The second is the rise of more malicious and damaging software viruses, particularly what are known as "ransomware".

    Ransomware invades local networks of PCs (primarily those running Microsoft Windows, though MacOS and Linux variants have also appeared), encrypts files on those networks, and deletes the original files. The malicious software then informs businesses, and even government agencies, that unless they pay a ransom by a specified time, all their files will be deleted. Those ransoms, even for small businesses, can be anything from $1000 to $200,000.

    These two forces - the failures of the NBN and the rise of ransomware - to some extent play off against each other, and inform the attitude that retailers have towards implementing or not implementing SaaS. It is undeniable that, while it is far from invulnerable, SaaS POS is far less likely to succumb to a ransomware attack. On the other hand, internet connections provided by the NBN - which has focused more on consumer than business-level service provision - have proven unreliable for many businesses.

    Australian hardware retailers, then, are faced by a difficult decision. They can risk moving to SaaS, where an hour-long disruption of NBN internet service can cripple a retailer for an entire day. Or they can continue to use standard POS running on their own servers, and risk succumbing to a ransomware attack.

    To make that kind of decision, what is really needed is more information. In terms of SaaS, we need to assess just how reliable NBN service is, and also look at its prospects for future development. As far as server-based POS is concerned, we need to assess the extent of the ransomware threat, and also look at what hardware retailers can do to mitigate that threat.

    One thing, though, that is fairly certain: most Australian hardware retailers reading this will find that they really do need to take some kind of action, and they need to do so very soon. The environment has changed rapidly over the past year, and many retailers really do need to adjust.

    To help us through the comparison of on-premise and cloud POS services, we've drawn on the advice and commentary of two experts in the field.

    Mark Schmutter, CEO of SYM-PAC, which is one of the best-known POS in the hardware industry. SYM-PAC was acquired by Vela International, a US software company, in October 2016.

    John Maiuri is president, LBM & Hardlines Group, Building & Construction Division of ECi, a software company based in upstate New York. He is also a veteran of both hardware and POS, coming from a lumber background. ECi is now the owner of well-known Australian POS company PacSoft, which it acquired in July 2019.

    SYM-PAC is a server-based POS system first developed in 1991. ECi specialises in cloud-based SaaS POS solutions.

    To read more of this article on POS choices, please download the HI News PDF:

    Download hinews-5-03

    companies

    PAINT-O-RAMA

    Overview of the global paint industry

    Sherwin-Williams, PPG, AkzoNobel, Nippon Paint and Australia's DuluxGroup are highlighted

    As HNN highlighted in 2018, since 2015 consolidation forces in the paint and coatings industry have increased.

    One of the main drivers of consolidation is the need for further technological development. Nanotechnology, in a number of forms, is likely to transform the coatings industry as much as autonomous vehicles is transforming both the automobile and the infrastructure industries. The key risk, for most of nanotechnology, is environmental, which is a difficult challenge. However, as with autonomous vehicles, the development costs may be high, but the rewards are transformative.

    Additionally, despite bad press over the past decade, globalisation continues to be a significant part of the world economy. Paint as a commodity is surprisingly consistent across cultures and nations, which makes it responsive to these market forces. There is a fantastic, high-growth market in the Asia-Pacific region waiting to be tapped, as those regions - lifted from poverty by globalisation itself - become viable as significant consumers of a range of home improvement goods.

    Up until recently, the forces of consolidation have been mostly global/big market directed, with large companies seeking to become even larger. That became evident in 2016, when Sherwin Williams moved to acquire Valspar for USD9.3 billion. That acquisition was really not so much a market sector "land grab", but resulted more from the fact that Valspar had effectively hit the limits of how much it could grow in the markets where it competed. Its value as an acquisition was greater than its value as a stand-alone company.

    While that was true for that one acquisition, it triggered a series of quite different acquisition moves, as other paint companies changed strategies to protect themselves from the economies of scale and eventual market power of the greatly enlarged Sherwin Williams. A good illustration of those fears is provided by Chart 1, which shows a comparison of stock prices between Sherwin Williams and PPG.

    Beginning from a similar basis back in 2012, by mid-2019 Sherwin Williams shares are worth close to three times the value of PPG shares. Chart 2, from a Sherwin-Williams presentation, shows the sizes of the companies competing in the market, and indicates that this remains a highly fragmented market.

    Given this, it's hardly surprising that the US-based PPG moved to acquire Dutch-based AkzoNobel in 2017. Arguably, this was largely driven by mismatches between AkzoNobel's strategies and the evolving markets where it operated. This had inhibited its performance and therefore diminished it acquisition value. After fending off PPG's generous acquisition offers, AkzoNobel has moved to change its relationship to markets. While the company's most recent results, for FY2019 Q2, show improvement, analysts remain sceptical that the company will match the projected numbers it promised investors when refusing PPG's merger offer over a sustained period.

    It's an interesting situation, because it points to the underlying reality of "globalisation" for the coatings industry: it's not about making cross-border deals for their own sake, but rather is about achieving the kind of scale needed for future developments. The question that really ends up getting asked is not if AkzoNobel can reach the performance goals it has set itself, but whether, if the rest of the coatings industry consolidates and it does not, the company can survive another 10 years. Given its refusal to accept PPG's offer, it has limited its ability to attract future international investment. Absent consolidation, it could easily move from being the third largest global paint company to the tenth.

    Local consolidation

    The acquisition of Australia's DuluxGroup by Nippon Paint is nowhere near the scale of these other takeovers, but it is significant, both to the Australian market, and to the global paint industry. Nippon has been very clear that it places a high value on the in-place assets of DuluxGroup, including its modern, environmentally-friendly manufacturing plants, and its highly-skilled management and operations teams.

    Strategically, DuluxGroup provides Nippon with the opportunity for modest growth in the Asia-Pacific, with very moderate risk.

    While this is a moderately-sized investment for the large Japanese company, it could be a far more significant move for the Australian market.

    To underline one example of how Nippon operates in different regions, the company offers a complete online service in Singapore. It's possible to select room colours and order paint online, and to even arrange to have Nippon company branded painters do the painting. Singapore is, of course, a very unique market, but it's possible these capabilities will eventually come to play a part in the Australian market.

    DuluxGroup has been a little capital constrained through the eight years since it was demerged from Orica, and it will be interesting to see what the company can do with additional financing for its marketing efforts. But it's not only what Nippon might do directly in the Australian market, of course, it's also the effect the company's acquisition will have on other paint companies.

    To read the rest of this article, please download HI News:

    Download hinews-5-03

    companies

    Bunnings continues to go beyond DIY

    Deal with Clubs NSW

    Bunnings now accounts for more than half of Wesfarmers earnings before interest and tax

    Schools, community groups and hotel chains are being targeted by Bunnings as it looks for growth outside the DIY market. Sales from its trade business to these groups are growing faster than to builders during a slowdown in the housing market. As a result, the big box retailer is focusing more on its trade and commercial business.

    Bunnings' general manager of commercial, Rod Caust, told the Sydney Morning Herald that businesses and organisations were the best prospect for growth over the next 12 months. He said:

    We've always had those customers but for us it's about taking a higher level of interest in the customer.

    They make up about 20% of Bunnings' commercial sales, and Mr Caust said are growing as fast as trade customers (which account for 40% of turnover) and faster than builders.

    In the past 12 months, the retailer has developed a dedicated team to servicing customers such as schools, childcare groups, aged care organisations, insurance companies, and facilities management providers. They are signing them up as trade customers through its Powerpass program. It lets tradies scan each item they need with the Bunnings PowerPass app and then finalise the purchase in the Bunnings app.

    PowerPass gives users access to trade prices and a dedicated in-store staff, which means Bunnings can target these customers with offers and services to encourage repeat buying.

    The hardware retailer said it has about 700,000 members signed up to its Powerpass trade program which continues to grow about 10 to 15% a year.

    Bunnings' relationship with Clubs NSW has seen trade sales to that organisation's membership base of RSLs and sports clubs.

    Mr Caust said the housing market was still generally strong despite the slowing from recent peaks, but that Bunnings had to help trade customers find better value and differentiation through the downward cycle.

    For us it's not just about selling building products to builders, it's about providing them other category and product solutions as well and... the ability to skill our team up to sell a wider offer.

    To read more about Bunnings and its most results, please download the latest issue here:

    Download hinews-5-03

    bigbox

    Bretts moves to Natbuild

    Yenckens also leaves Mitre 10

    Old alliances and wholesale relationships continue to change in the trade end of hardware retail

    Queensland-based Bretts has switched its wholesale business from Independent Hardware Group (IHG) to Natbuild.

    In Victoria, Yenckens has also decided to move on from its Mitre 10 banner. The retailer has moved most of its business to Hardware & Building Traders (HBT), and the rest over to Natbuild.

    Both businesses will continue to do some purchases from IHG, however they will now conduct their buying of large bulky hardware goods, such as timber, from Natbuild,

    Natbuild chief executive Peter Way told The Australian he was receiving a pick-up in interest and inquiries from independent hardware chains wishing to sign up to the buying group. He said:

    There has been strong inquiries and interest, and I think our service or our value proposition is appealing because we are transparent. There's no 'you get this if you jump through this hoop'. It's probably the varying difference between us and other groups like Metcash.

    The trade category is increasingly becoming a heated area of competition for both corporate retailers and buying groups as they attempt to outbid each other in appealing to the needs of tradesmen.

    Source: The Australian

    Related:

    Bretts Timber sees steel in its future - HI News, page 22

    To read more about the Independent Hardware Group results and stories in Indie Update, please download the latest issue here:

    Download hinews-5-03

    retailers

    Product integration on The Block

    Sponsors for 2019

    There are more product placements as contestants plug various brands with logos and verbal shout outs

    The latest sponsors for The Block include AGL, Lite N' Easy and online tradie directory Hipages. They have come onboard to join Mitre 10, McCafe, Suncorp, Domain, A2 Milk, BlueScope Steel and Canstar. The show has entered its 15th season.

    Nine's director of Powered, Liana Dubois, said brands are keen to work with a franchise that's as well established as The Block. She told Mumbrella:

    The Block is the epitome of the 'Great Australian Dream' and remains one of the most prized pieces of Australian television real estate by brands. The show delivers year after year for both brands and audiences because it is a brilliant combination of seamless integration of advertisers, and inspiration for audiences.

    HIpages allows contestants to use its app to book tradies during the challenges, while AGL has an in-show challenge. Lite N' Easy is providing food and last year's contestant Jess features in Block-themed TV commercials. Lite N' Easy also sponsors a weekly content series that highlights the biggest Block moments of the week.

    Eight partners have returned to the show, with Mitre 10, The Block's longest-serving partner, providing advice to contestants along the way, and Suncorp has retuned with a viewer competition and budget help for the contestants.

    This year contestants are transforming former backpacker hostel, Oslo Hotel in the Melbourne suburb of St Kilda. The property, which was built in 1861 was purchased by the show's producers for $10,815,000.

    To read more stories in Supplier Update, please download the latest issue here:

    Download hinews-5-03

    companies

    Homewares, the next retail battleground?

    Bunnings, Kmart, Coles and Aldi compete in the category

    Ecommerce homewares retailer, Temple & Webster said it generated a record $1 million in checkout revenue in one day in June

    In a relentlessly competitive retail environment, the homewares category is increasingly popular among shoppers. Bunnings, Kmart, Coles and Aldi have all launched their latest homewares ranges. So has online retailer, Temple & Webster, a specialist in this sector. It recently posted its first profit result.

    Bunnings' Smart Homes Products line features throws, rugs, cushions and chairs. There are also children's homewares as well as storage items.

    Recent research from Roy Morgan showed Kmart is considered a major a homewares shopping location, with one in five Australians shopping there for home products. Its collection continues to take inspiration from Scandi minimalism and boho luxury. Young children and toddlers have also been included in the new range that features a night light.

    Coles released a limited edition homewares range over a four-week period. Its Your Home Collection had 101 items including cushions, throw rugs, lamps, shelves and storage boxes.

    Aldi has had significant success selling homewares as part of its popular weekly special buys range. Its homewares collections have included Scandinavian-style floor lamps and furniture, knit throws and French linen sheet sets.

    Temple & Webster results

    Online homewares retailer, Temple & Webster said the number of active customers on its site increased by 37% to 271,000 in 2018-19.

    CEO Mark Coulter said much of the group's initiatives are about gaining marketshare of the number of millenials wanting to buy furniture and homewares online. He told the Sydney Morning Herald:

    Our core demographic is 35 plus, and as more millennials become 35 to 38-year-olds they begin to enter our market.
    They've grown up buying everything online, and furniture is something you start to spend more money on when you're in your late 30s and 40s. That trend is happening irrespective of what's happening with house prices and broader retail.

    Customers are buying furniture and homewares online, but online sales in Australia was still low at around four per cent, according to Euromonitor, compared with 13.7% in the United States and 14.2% in Britain. The Australian furniture and homewares market is worth about $13.6 billion.

    He said Temple & Webster's growth in July showed its customers hadn't been restrained by the broader softness in retail, and he intended to bolster spending on technology including a new mobile app and expanding the range of products available beyond the current 150,000 including its own private label range.

    Mr Coulter said Temple & Webster's ''drop-shipping'' delivery model, where products purchased online are then sent to customers directly from suppliers, was enabling quicker delivery times.

    Mr Coulter also said the group's major focus was on accelerating its Australian operations and capturing as much of the rebound in the housing market as possible, rather than any offshore expansion. He believes that ''now was the time to invest''.

    Temple & Webster produced earnings before interest, tax, depreciation and amortisation of $1.1 million for 2018-19 to be in the black for a full year for the first time. It made a loss of $700,000 a year ago.

    Sources: Australian Financial Review, Sydney Morning Herald and Daily Mail Australia

    Related:

    Big business in pet care - HNN

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    Bathstore bought out by Homebase

    The privately owned chain had 135 stores in the UK

    Chief executive Damian McGloughlin said the group is delighted to welcome Bathstore into the Homebase family

    UK home improvement retailer, Homebase has secured a deal to acquire the UK's largest specialist bathroom retailer, Bathstore. This will rescue the brand from administration.

    The company will take over 44 branches and the Bathstore website, and plans to open a "significant" number of concessions within its own stores over the next 18 months. The DIY chain hopes to boost its own bathroom operations with the purchase.

    The remaining 90 stores not being transferred to Homebase will continue to trade until remaining display stock is sold off.

    Bathstore launched a fully adapted bathing suite in 2017, revealing plans to dominate the specialist space. Its Easy Bathing collection was part of a plan to claim a large stake of the specialist bathing market after deciding that it was an under-served sector.

    Founded in 1990 by Patrick Riley and Nico de Beer, Bathstore has been hit by worsening trading conditions in recent times with a slowdown in housing transactions and ongoing consumer uncertainty in the UK.

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