Troubles in tool-land ahead?
The ACCC watches over some big changes
With the proposed Total Tools takeover, the acquisition of Adelaide Tools and Milwaukee tools in IHG stores, the power tool industry is set for some changes. But do those changes go far enough?
16 Jul, 2020
Over the past nine months, there has been quite a bit of interest stirred up in the area of power tools here in Australia. Just back in October 2019, the Wesfarmers' owned Bunnings moved to acquire Adelaide Tools. Around about the same time, Stanley Black & Decker (SBD) Australia approached the Australian Competition & Consumer Commission (ACCC) with a request to make a minimum pricing requirement, but with a twist: retailers could sell DeWalt power tools below the recommended retail price (RRP), but they could not advertise them below that price. And finally, in June 2020, it turned out that Metcash has plans to go ahead and acquire the Australian power tools franchise Total Tools.
All three of those moves had an intersection point with the ACCC. The ACCC in June gave the official "go ahead" to the Bunnings acquisition of Adelaide Tools. In the same month, they also completely nixed the SBD plan. And they have, as expected, launched an investigation into the not-quite-an-acquisition-yet of Total Tools.
So many changes in such a short space of time would generally indicate that there are changes occurring that go beyond just one or two companies. Generally speaking, it means that something has shifted in terms of the underlying technology, markets and/or end-user distribution.
In this case, it's likely that distribution is the primary driver. The real question the power tool industry has to respond to, is how much of the business will continue to be transacted in physical stores, and how much will become purely online. The tool industry is one of those areas of retail where there has been considerable movement in both directions. Sydney Tools, for example, expanded largely through its online business, then decided to expand into physical stores as well. However, it is arguable that many tool businesses will, in the future, see an increased amount of business done online.
In terms of the Bunnings acquisition of Adelaide Tools, that business was one of the smaller, geographically marketed tool businesses that had a very competent and wide-ranging online tool offer. Though we have no direct knowledge of Bunnings' plans, if a company were looking for a company that could be expanded into a more extensive online offering of trade and professional tools (including Milwaukee), then Adelaide Tools would be a good place to start.
It is also probable that SBD's efforts to get minimum price restrictions on advertised prices also relates directly to the internet. Competition online is so strong that companies can easily lose a sale on the basis of a few dollars in pricing. But, as HNN wrote at the time, it is also the internet that renders that kind of effort unworkable. Outside of direct advertising, it is not hard for retailers to get the word out about whatever their prices really are.
With Total Tools, the two questions to ask are why the original founding members are willing to sell, and a why is Metcash/IHG willing to buy? At a guess, HNN would say that, strategically, the core or founding members decided Total Tools was close to its maximum value, and that it was vulnerable to online competitors. Meanwhile, IHG has a strong investment in physical stores, and sees itself as being able to resist online competition.
From HNN's perspective, we would suggest that the power tool industry is somewhat overdue for disruption, but that it is unlikely this will come from anything as expected as online versus physical store retailing. In an age where technology has started moving so fast that consumers have almost become blase about the latest advances, power tools have continued to develop, but at nowhere near the pace of other technologies. There hasn't been a power tool equivalent of the modern smartphone, or the self-driving (almost) electric car.
One reason for this is that the market remains largely driven by the business-oriented, trade and construction sector. We've seen most power tool manufacturers respond to that sector of the market by developing bigger, more powerful tools. These have grown so powerful that now they are replacing not only main-voltage, generator-driven tools, but also tools that have long relied on petrol engines. The trend started by SBD's FLEXVolt line, has been taken still further by Techtronic Industries (TTI) Milwaukee MX FUEL range.
That's been partly driven by the adoption of new battery standards, specifically a move from the old 18650 format to the newer 21700/20700 format. The latter specifies a cylindrical battery that has a 21mm or 20mm radius and a 70mm length. Developed largely by Tesla, those battery dimensions make sense when it comes to battery physics, while the 18650 format was really just a convention, with inbuilt limitations and inefficiencies. The new dimensions, along with tweaks to anode and cathode composition materials, have enabled both smaller, more powerful battery packs, as well as higher capacity top-of-the-line batteries.
We've also seen certain technologies, such as brushless motors, gradually make their way down from the premium level, to the mid-range. Today brushless has reached the premium budget range, where DIYers with an investment in a budget rechargeable battery system can "buy up" to something a little better. We're probably three years away from brushless becoming the "standard" tool.
What is noticeable about these innovations is that they've been driven, indirectly, by pre-existing innovations in other areas of technology. Without the push to radically improve battery performance for smartphones, battery technology would never have reached the point it has today. And at some point, that technology was taken up by the electric car industry, which pushed it still further. Now, the next accelerator in that area is actually the aviation industry. There are already quite a few airplane prototypes that work just fine under battery power. However, few are commercially viable, due to weight versus power yield issues.
The power tool industry has benefited from some advances made at the consumer end of technology, but it has applied these (mostly) to its commercial business. More importantly, power tool companies have tended to devalue developments that do originate in the consumer end of their businesses.
There are likely a number of reasons that combine to create that situation. From the consumer side, it's difficult for people with little or no experience to commit to buying an "unusual" tool - they start out feeling uncertain, and anything perceived as being non-standard just increases that anxiety. There is also (for the most part) an inverse relation between how much DIY experience someone has and how powerful a tool they buy. More experienced DIYers, for example, might buy a cheap, corded hammer drill that will last 10+ years for drilling in masonry, and a lightweight 12-volt drill/driver for everything else. Inexperienced DIYers will tend to buy an 18-volt "do everything" cordless hammer drill - even if they end up using it for only two hours in total a year.
The other factor at work is that consumers are quite happy to buy an inexpensive DIY tool, or sometimes a more expensive, "trade quality" tool. They are less inclined to buy an expensive DIY tool, especially one that is expensive because it has been designed to be easier and safer for them to use.
The one company whose development is an exception to this has been Bosch. Bosch has been steadily producing tools really crafted for the DIY market since 2016. At the top of the list would have to be the EasyCut and AdvancedCut "micro chainsaw" tools. These use a small, flat blade that has the equivalent of a 1.5mm chainsaw to cut through a range of materials.
HNN has been extensively testing these tools over the past year, and we remain impressed with them. While they do certainly have some drawbacks - the nanoblade remains expensive, at around $45 replacement cost, each - that is really made up for by the versatility and ease of use of these tools.
One aspect of the nanoblade that seldom gets mentioned is that, as compared to both circular saws and standard jigsaws, they are relatively quiet. For the homeowner working away in their garage, that might not be terribly significant, but for the growing numbers of Australians living in multi-unit dwellings, keeping the DIY noise down has become a critical concern.
Added to that are a range of Bosch drills, sanders, and grinders that are designed to match power and capability to DIY needs, while also enhancing ease of use. However, as good as these tools are, and as intelligently suited to DIY tasks as they are designed to be, sales have not really rewarded these innovations. For example, while Bunnings continues to supply nanoblades for the AdvancedCut and EasyCut, they no longer stock the actual tools.
While there may be something of a marketing failure here, there is also the question of what kind of person typically sells power tools. Largely, these are not people who are amateur DIYers. Most have either a professional background, or are not overly involved with tools at all. The number of retailers and retail staff who are interested in the technological development of tools for DIY is quite limited - and not just in Australia.
The new workshop
It is very likely that the next real advances in power tools will originate in the consumer area. Probably those advances are not going to be anything the traditional tool companies acknowledge or take seriously (at first). The two most promising areas at the moment are 3D printing and computer numerically controlled (CNC) routing.
One reason why HNN is pretty confident this is going to be an area of major interest is that the hardware needed to perform this kind of "making" has sharply reduced in price over the past two years. For example, in the 3D printing world, we've seen printers such as the Creality Ender 5 Pro emerge. This is a relatively large volume printer that moves good 3D printing just within the reach of the average DIYer, costing around $650.
Moving up from that, to the more serious, high-quality work that a semi-pro could use, there is the Peopoly Phenom. The Phenom is a resin-based printer. Filament printers like the Ender 5 use a spool of filament to apply a thin layer of plastic, point by point, to build up a finished result. Resin-based printers use a vat of epoxy-based polymer resin into which they shine ultraviolet light, either through a laser or LCD array. The light causes the resin to fuse, creating the required shape.
The resin printer offers faster printing speeds and higher resolution (more accurate printing). It's been held back largely by the cost, but the Phenom is one of the first $3000 printers to offer quality and reliability. While $3000 is a lot for DIY, it's likely to come down to around $1500 over the next two years, bringing it within reach of the serious DIYer.
From the point of view of conventional tool companies, and conventional retailers, the questions they have are: What will DIYers be doing with this technology, and why don't they just stick with wood and woodworking tools, or even a bit of welding?
It's important to consider is just how successful some areas of retail outside of hardware have been. One of the traditional woodworking tasks, for example, was to build bookshelves. Leaving aside the fact that serious readers today are likely to have at least half their library in online ebooks, there are also just so many alternatives for inexpensive bookcases. The Billy bookcase from IKEA - all 2m x 0.8m of it - costs less than $80, and takes about 12 minutes to put together. The same relationship holds true for a whole range of other household furniture and fittings. Yes, there are some practical DIY things that remain viable - fitting a new door, fixing the roof gutters, painting, fencing and so forth - but the core range of activities is smaller, and continuing to diminish. What's left, for many, are just the relatively "big jobs": installing a new laminate floor, building a deck, fitting a kitchen.
What can you do with 3D printing? Well, how about printing your own camera accessories - in fact, even entire film cameras?Goodman products are for anyone who has access to a 3D printer
(Yeah, mate, best of luck with the lami trimmer, the jigsaw, and a bit of ply. I don't think so. I mean, good on you, but no, mate. Just no.)
Looking for those special tiles, but not having much luck? Well, you can 3D print them, of course.How to 3D Print Portuguese Azulejo Tiles
On the simpler end, what about a refrigerator storage box.Refrigerator Storage Box Fresh Spacer - Cults 3D
Or a wallet:Sliding 3D printed wallet by b03tz - Thingiverse
And something we could all use, a self-watering planter:3D printer model Self-Watering Planter - Cults 3D
In terms of a CNC router, why go small, when you can build yourself an entire Le Corbusier LC-4 chaise longue out of plywood?CNC plans for LC4 lounge armchair by Le Corbusier - Etsy
But what is really interesting in this field is the potential for more wide-spread use in the future. Consider, for example, spectacle (glasses) frames. Given a developed, standard lens size system, it would be possible print a wide range of frames that fitted the maker's face exactly. They would not be as durable as commercial frames, but they wouldn't need to be.
In today's world, these are often the sorts of things that people want to make for themselves. And just as woodworkers of old relied on what they learned in workshop at school, and through working with their parents, these tools rely on what people know about design, computers, and a bit of trigonometry. It's the DIY of the service industries, not the factories.
As we've said above, there really does not seem much of an alternative to a strong disruption of the DIY hardware industry at some stage over the next 10 years - though HNN would bank on this happening within the next five to six years. The threat to the hardware industry isn't that its markets are going to collapse - people always need a place to live, and the importance of that place has been growing over the past 30 years. The threat is that hardware suppliers and retailers will find themselves displaced in the market. At the moment, it is simply difficult to imagine buying a Ryobi CNC router, or a Stanley Black & Decker 3D printer.
What we will likely find instead happening is that startups will begin to take over significant portions of the market - like Tesla - integrating with others in their area, such as smartphone makers, and eventually shouldering many tool companies out of the home market.
Strategically, due to the complexity of this market, this isn't the case of waiting for the right moment to "catch the wave". That moment was yesterday, or some time ago. But, as always, businesses (especially in hardware) tend to look at their current circumstances as an indicator of the future, when in fact where we are today has more to do with the past.