The Wesfarmers annual report 2021

The future of retail at Wesfarmers

While there is a certain corporate gloss to any annual report, look closely enough, and you will see the outlines of strategy. In this case, Wesfarmers' 2021 publication hints at a stronger alignment with digital technology.

Part of the story of perhaps the best-known investment "guru" in the world, Warren Buffet, is that his first act on becoming a serious investor was to sit down and read through the annual reports of a range of companies. That's a good reminder that, while it is easy to dismiss annual reports as being positive spin delivered through platitudes, there is much more to them than that.

The art of the annual report is to say things that are significant, without causing stress or concern on the part of the investors. After all, we all like a bit of excitement, but if Wesfarmers makes up a good chunk of your superannuation investment, you might not want to read its chairman of the board, Michael Chaney, writing "You know, I had this crazy idea the other day, and we've all decided to go with it. I have just one word to say to all you investors out there: Goldfish."

Nope, that's not going to work. So, just as there is something of an art to producing an annual report, there is also an art to reading them. Generally speaking, that means picking up on what might be one of the central themes the company is going after, and then following that thread as it runs through the rest of the report.

Michael Chaney

The place you need to start with this is, nearly always, the chairman's report. That is especially the case with Mr Chaney (who, after all, was largely responsible for starting Bunnings in the first place).

In this case after reading his opening remarks to the Wesfarmers 2021 Annual Report, there were two passages that caught our attention. The first was an indirect comment on some of the stimulus provided by the government:

Pleasingly, the company's strong financial results this year have been achieved without resort to any Australian Government funding available as a result of the COVID-19 pandemic; and where prolonged lockdowns have occurred we continued to pay all permanent and many casual team members, even when there was no meaningful work for them.

That's one of those "good to know" statements. It's this second passage, however, that really seemed significant:

The transition from a physical world to a digital one provides an even clearer illustration of how muddied the waters have become with regard to what constitutes investment. Here, what would traditionally have been classified as capital expenditures are now often classified as operating costs, and are expensed in the income account accordingly. These include some software-as-a-service arrangements as well as components of investments in the development and operation of data analytics and e-commerce platforms across our businesses. In the 2022 financial year we will continue our investment in developing a data and digital ecosystem, with around $100 million to be accounted for as an operating expense rather than the investment that it really is.

That is quite a mild statement, but appearing as something the chairman says in an annual report, it is virtually a manifesto. On the surface it seems to be a complaint about accounting practices. In general, most expenditure can be put in one of two categories: operating expenses (OPEX) which is the funds needed to keep a business running, and capital expenditure (CAPEX) which is investment in, usually, material goods that will be employed in the future to produce saleable goods and services.

One of the difficulties with technology is that, increasingly, the most valuable part of it is not the tangible elements - such as computers, physical networks, etc. - it is the less tangible elements, such as software. But it is almost impossible, in accounting terms, to move intangible services from OPEX into CAPEX.

This is important for two allied yet different reasons. One has to do with the way a business is managed, and the other has to do with the way investors (and investment analysts) view company performance.

In terms of management, a key problem in many Australian companies today is that software technology (which includes, for example, artificial intelligence, machine learning and data analytics) is routinely seen as OPEX, which means it is an expense, which means the goal is to decrease its cost as much as possible. (OPEX most of the time - though not always - purchases highly commodified goods and services.) CAPEX, however, includes both a time and a quality factor. You might want value, but value depends on what the deliverables are from the CAPEX - how much it contributes to the business.

In terms of investors, one of the struggles that Australian companies face is that the investors and investment analysts make a similar mistake. For example, with Bunnings the situation the company faced - for a number of years - is that if ecommerce capability is regarded as an OPEX expenditure, then it makes little sense. Essentially, the thinking would go, you are going to spend a lot of time and money to develop a system which in the end, because of the conditions in that highly competitive market, will mean you earn less margin on your goods, due to the complexities (largely but not only) of managing delivery.

That would be crazy, of course. But the reality behind investment in ecommerce capability is that it can, long-term open up new markets, and opportunities for expansion. Like a CAPEX purchase, it shows up as a negative in the short term, but in the longer term, early investment in technology not only can turn out to be less expensive, it can be essential.

And of course, there was probably just something a bit more behind this statement, because Mr Chaney may also have been signalling that he fully supports the Wesfarmers' managing director, Rob Scott, who has continued to make substantial investments in technology - and must continue to do so, even though Wesfarmers' earnings will come under pressure in the FY2021/22 year. Not that anyone is questioning Mr Scott, but, hey, just so everyone knows.

Rob Scott

This trend towards valuing the digital differently was also picked up, in a less direct way, by Mr Scott as well.

In describing the performance of Bunnings, he wrote:

Bunnings achieved strong sales and earnings growth, as people spent more time undertaking projects at home. The business evolved its instore and digital offer, which provided alternative ways for customers to shop through lockdowns and this also attracted new customers. Good progress was made executing Bunnings' strategic agenda, including through the expansion of capabilities in the commercial area and a deeper engagement with trades.

Mr Scott doesn't have to emphasise the digital part of the business, but in this very brief mention of Bunnings he does. Later, in describing how he sees retail continuing to evolve at Wesfarmers, he revisits this theme:

The Group's retail businesses will maintain their focus on meeting changing customer needs and delivering even greater value, quality and convenience. Investments in digital capabilities will accelerate and are expected to improve our customer proposition, expand our addressable markets and deliver operating efficiencies.

The word "investments", again, picking up on Mr Chaney's theme.

General comments

Later in the annual report there is a section on future planning for the company. This is a list of the points it makes, in order:

Our focus for the coming years

  • Continue to reinforce entrepreneurial initiative
  • Leverage assets and digital expertise across the Wesfarmers Group to broaden multi-channel offerings across the retail businesses
  • Develop a market-leading data and digital ecosystem that leverages a shared data asset spanning across the retail businesses
  • Accelerate investment in the Advanced Analytics Centre
  • Invest in a multi-year digitally enabled store operating model and supply chain at Kmart to transform the instore customer experience and deliver operational efficiencies
  • Align future growth opportunities with our target of net zero for Scope 1 and 2 emissions for our retail businesses by 2030
  • Explore climate-related technologies and opportunities across the Group
  • Continue to investigate opportunities to leverage existing infrastructure and expand production capacity in Chemicals and Energy businesses, including assessment of new technologies
  • So, in an eight-point list, points two through five are all about digital capabilities.

    Mike Schneider

    In the comments by the managing director of Bunnings, Mike Schneider, he brings up a number of general points, including this one:

    While the operating environment remains uncertain, Bunnings' trading performance in the 2022 financial year is expected to moderate following the extraordinary growth recorded in the 2021 financial year, which saw Australians and New Zealanders required to spend more time at home due to COVID-related restrictions.

    But he also devotes a paragraph to the technology at Bunnings:

    Bunnings will continue to accelerate the development of its digital offer, building on its new e-commerce platform in Australia and New Zealand, by providing retail customers a more personalised digital experience. This step up in digital investment will also enable us to better understand and serve our customers and includes a new e-commerce platform for trade customers that will make it easier for customers to transact.

    Analysis

    HNN would like to note here that there is nowhere we know of where Wesfarmers, and certainly not Bunnings, have ever made disparaging comments about competitors, or even other retailers (not even Grant O'Brien, ex-CEO of Woolworths). But we ourselves would point that this kind of strategy, applied to retail is not something we are seeing at David Jones, Myer, or any of the other contenders for top retail operators in Australia - including the operators of shopping malls.

    The point for hardware and home improvement retailers in Australia is that if Wesfarmers is developing along these lines, it could be really important for even quite small retailers to begin to think in terms of CAPEX rather than OPEX in investing in their own technology. At the moment what every hardware retailer dreads is a Bunnings store moving into their area. In five years time, what they may dread instead is every time one of their customers goes online instead.

    bigbox

    ABS building work done: NSW, VIC & QLD

    Activity level constant, but split between house and non-house altered

    The boost given to the construction industry during the pandemic did, up until the last financial year, kept activity at close to pre-pandemic levels. It also changed the composition of work done, altering the balance between house and non-house construction.

    Tracking the value of building work done gives a simple overview of the actual health of the building industry at a given moment. Building approvals map out - to some extent - what can be expected in the future, but building work done really provides a sense of current output. That relates to both the extent of work that is being attempted, and the rate of work that is possible in the industry during a given period of time.

    We've grouped together the states of New South Wales (NSW), Victoria (VIC) and Queensland (QLD) because they are contiguous along Australia's eastern coast, have relatively large populations and population density, and because they are the three states most affected by the COVID-19 pandemic.

    Value of work done residential

    For the ABS series 8752.0 value of work done - residential, chain volume measures are used, which means that the value is adjusted to better reflect the actual volume of work that is done. These stats relate to the trailing four quarters to the June quarter, which are, of course, also the standard financial years.

    Looking at those stats for NSW, VIC and QLD, two things are immediately clear. The first is that, while the housing market has received something of a sharp boost for FY2020/21, overall residential work done has fallen in both NSW and VIC, and risen only slightly for QLD. The second is that the big winner remains alterations and additions - which is good news for hardware retailers.

    For NSW (Chart 1) there is a peak in alterations and additions (alts & adds) in FY2016/17, and a peak in non-house in FY2017/18, followed by a peak for houses in 2019. All three decline steeply in FY2019/20. For FY 2020/21, houses rebound slightly, non-house continues to decline, and alts & adds hits its highest value for the past 10 years.

    In VIC (Chart 2), there is a sharp peak for alts & adds in FY2016/17, followed by a steep decline in the next financial year. Houses saw a low in FY2013/14, and have continued to record increases through to FY2018/19, followed by a mild decline in FY2019/20, and a recovery to just above the previous peak in FY2020/21. Non-house has followed a similar pattern, except that FY2020/21 saw a steep decline, back to FY2015/16 values.

    Meanwhile, QLD (Chart 3) has very much gone its own way. Except for a setback in FY2016/17, alts & adds have been increasing, which particularly sharp gains for both the FY2018/19 and FY2020/21 results. In contrast, non-house reached a high level in FY2015/16 after a sharp series of rises since FY2012/13, then hit its 10-year peak in FY2016/17. Since then, it has been in decline, reaching FY2013/14 levels in FY2020/21. The stats for houses rose from FY2013/14 to FY2017/18, then fell through to FY2019/20, before climbing slightly again in the most recent period.

    Financial year percentage change

    This is a comparison of each financial year with the preceding year in percentage growth terms. While these stats track the changes in the above stats, they do help to show some trends that develop.

    One thing we can do is to track the total amount of growth in each of the areas covered. Basically, the more area there is under the graph lines about the zero axis, the more overall growth there will be in that particular part of building work done. From this is it easy to see, glancing at these three graphs, that non-house (other residential) building work done has outgrown the other two construction types.

    It is also notable how much more growth there has been in the house part for NSW as compared to VIC and QLD, while it is QLD that has the most growth in alts & adds.

    Also evident is that, as all three graphs use the same scale, that VIC is far less volatile in growth terms than NSW and QLD.

    Quarter on corresponding quarter change

    These stats track the percentage change between a quarter and its corresponding quarter in the previous year.

    NSW (Chart 7) shows how, on this basis, both alts & adds and non-house building work done entered into negative territory back in the March 2019 quarter, and while alts & adds managed to break out of that in the September 2020 quarter, non-house actually still remains in negative territory. Similarly, for house building work done, this went below zero growth for the June 2019 quarter, and only went positive - though quite strongly - for the March and June quarters of 2021.

    VIC (Chart 8) shows a very different pattern, illustrating how deep the toll from the COVID-19 pandemic has been, even with fiscal stimulus. Building work done on house entered negative territory for the June 2019 quarter, and remained in negative or only slightly positive territory until the December 2020 quarter, exhibiting only mild growth as compared to NSW. Similarly, alts & adds did manage quite strong growth begin in the March 2020 quarter, and then has managed to not go negative from the December 2020 quarter through to the June 2021 quarter. Non-house, however, hit negative growth for the March 2020 quarter, and has not recovered through to the June 2021 quarter.

    QLD (Chart 9) represents a more optimistic response. In particular, the state shows real strength in alts & adds, which have remained in positive growth from the December 2017 quarter, except for a flat result in the December 2019 quarter. Building work done for houses has fared less well, going negative in the September 2018 quarter, and only going positive for the December 2020 quarter. That is also the quarter where, a little surprisingly, non-house went positive, after going negative in the March 2017 quarter.

    Analysis

    Perhaps the biggest surprise in reviewing these stats is that NSW and QLD have much in common, while VIC has become more of an outlier. While it's easy to see this might be the case based on VIC's harsher series of lockdowns during the COVID-19 pandemic, the trend is far more historical than that.

    Some of this is structural, in terms of the composition of the building work. In NSW, even with the effects of the pandemic, the non-house sector remains conjoined with the house sector. In VIC, the house sector continues to dominate, and the non-house sector is not very responsive to activity in the house sector. QLD is somewhere between those two, with its non-house sector more specialised to defined needs.

    The best news for hardware and home improvement retailers is the ongoing trend upwards for building work done in alterations and additions, at least in NSW and QLD. The picture for VIC remains less clear. While there are expectations that as the economy for that state opens up again in early 2022 there will be a reinvigoration of many aspects of business, there are also some obstacles in the way of this.

    statistics

    ABS building work done stats: SA, TAS and ACT

    Non-house construction plays a unique role

    These states and territories are dominated by one form of construction. That is house construction for SA and TAS, while non-house dominates in the ACT. The role of alts & adds varies between each, with significant growth for SA and ACT, but a general decline in TAS.

    A little surprisingly, outside of the three major east coast states, the next grouping that makes some sense statistically is South Australia (SA), Tasmania (TAS) and Australian Capital Territory (ACT).

    Value of work done residential

    For the ABS series 8752.0 value of work done - residential, chain volume measures are used, which means that the value is adjusted to better reflect the actual volume of work that is done. These stats relate to the trailing four quarters to the June quarter, which are, of course, also the standard financial years.

    For SA (Chart 1) there are a number of differences from the eastern seaboard states. Building work done on houses shows relatively consistent growth, with only a slight peak in FY2017/18, and a fairly strong uplift in FY2020/21. Similarly, non-house construction shows the same peak, followed by a slight consistent decline over two years, then the now-familiar dip for the COVID-19 pandemic in FY2020/21.

    Alterations and additions (alts & adds) are somewhat more like Queensland (QLD) than the other states, with a series of progressive gains in building activity since FY2016/17, and a sharp increase for FY2020/21. The outstanding characteristic that indicates SA belongs in this group is the wide gap between house and non-house building activity, with the SA construction activity far more oriented towards houses.

    In TAS (Chart 2) that division between house and non-house building activity is even greater. House activity has been increasing strongly since FY2016/17, so that the continued increase for FY2020/21 seems part of the underlying pattern. Meanwhile, non-house activity shows a general trend of decline, despite a slight peak for FY2017/18. There is also the expected downturn for FY2020/21. What does make TAS quite unique is that alts & adds show much slower growth than for the other states and territories. This has been in place since a peak in FY2011/12, though there was something of a mild improvement in FY2018/19. Even the stimulus of FY2020/21 resulted in only a small increase in building activity for alts & adds.

    The ACT (Chart 3) is both very like the other states and territories, and yet quite different as well. The primary difference is that the role of non-house and house building work done is swapped, with non-house dominating increasingly from FY2014/15 onwards - though it is interesting that after a long pattern of growth, there is that same dip in activity for FY2020/21. That's perhaps to be expected, given the more urban nature of the ACT. House building activity was quite depressed from FY2015/16 through to FY2017/18, and then resumed the level for FY2014/15. Alts & adds entered a steep decline through to FY2013/14, and remained at a low level until it grew sharply in FY2019/20, and then retained that level through to FY2020/21.

    Financial year percentage change

    This is a comparison of each financial year with the preceding year in percentage growth terms. As with the three eastern seaboard states, one characteristic of these charts is that there are surprising spurts of growth in non-house building work done.

    For SA (Chart 4) what is most noticeable is that all three categories have tended towards positive or at the least neutral growth over the 10 years shown, with the exception of FY2012/13.

    By contrast, TAS (Chart 5) shows a more volatile pattern, especially for non-house building work done, though house building work is volatile on the upside as well. (Note that the scale on this chart is expanded over that of the other two.) Alts & adds, however, are significantly stable, moving from mild negative growth the mild positive growth after FY2018/19.

    The ACT (Chart 6) shows more volatility in growth for alts & adds, as well as significantly more negative growth for building work done on house construction.

    Quarter on corresponding quarter change

    These stats track the percentage change between a quarter and its corresponding quarter in the previous year.

    Looking at the stats for SA (Chart 7), what is immediately clear is that, at least over the past six years, both building work done on houses and for alts & adds has fluctuated through a comparatively narrow range of 10% positive and negative, while building work done on non-house residential construction has fluctuated both much higher and over a longer periodicity.

    There is a somewhat similar pattern for TAS (Chart 8), where building work done for house construction and alts & adds roughly follow each other's fluctuations, while non-house construction follows a separate path, often with extreme fluctuations. It's notable that the most extreme of those fluctuations is for the June 2021 quarter, where growth in non-house building work done value falls by over 70%, even as both non-house and alts & adds construction growth rises.

    For the ACT (Chart 9), the relationship for building work done growth between the three construction types is more complex, with occasional concordance - for example, in the June September and December quarters of 2017 - followed by wide variance, as in the December 2019 quarter. What does seem noticeable is that as the pandemic hits, affecting the June 2020 quarter, the overall volatility in growth declines.

    Analysis

    These three states and territories are, obviously, not geographically contiguous, and have very different regional economies. However they are similar in that all three have been affected by the pandemic, but to the same extent as the three eastern seaboard states. You might expect that, given that, their construction economies might have picked up considerably during FY2020/21, as they received effectively the same stimulus as the larger states. The reason this has not happened is likely due to their interdependence on the economies of those states.

    This is an important trend to pay attention to in modelling the future of construction in Australia. In a more resource-driven economy there tends to be a more even distribution of the resulting wealth, resulting from both "organic" spillovers, such as supplying support functions for mining and agriculture, as well as "artificial" spillovers, such as government subsidised local manufacturing.

    In transitioning to a more services-oriented economy, the benefits will concentrate in key urban centres, and this establishes a different network of dependencies. There is a sense of "primary" and "secondary" regions being established. All three of these states and territories are more secondary than primary regions in Australia's emerging economy, and increasingly their economies will be dependent on external factors.

    statistics

    ABS building work done: WA and NT

    Construction markets show decline

    While forecasts indicate construction may improve through the second calendar half of 2021, there are signs of long-term decline for both these regions.

    HNN has grouped together the state of Western Australia (WA) with the Northern Territory (NT) largely because these are the two regions that have had the least direct impact from the COVID-19 pandemic - so far, that is, as both face considerable future challenges. That said, there are also considerable differences. The NT is smaller both economically and in terms of population, while WA is largely driven by its resources industries.

    Value of work done residential

    For the ABS series 8752.0 value of work done - residential, chain volume measures are used, which means that the value is adjusted to better reflect the actual volume of work that is done. These stats relate to the trailing four quarters to the June quarter, which are, of course, also the standard financial years.

    These charts illustrate why these regions have been grouped together. Both WA (Chart 1) and NT (Chart 2) show a similar slide in building work done for house construction. Also their performance in terms of non-house construction post FY2016/17 is similar. The NT does have a slightly better path for its alterations and additions (alts & adds), however. The pattern that we see here is very similar to that for other states and territories: while the pandemic boost to construction has had some effect, the level of activity remains determined more by past momentum.

    Financial year percentage change

    This is a comparison of each financial year with the preceding year in percentage growth terms. While these stats track the changes in the above stats, they do help to show some trends that develop.

    The charts reveal very clearly how poor growth has been post FY2016/17. In both regions, only alts & adds have managed to retain some level of growth, though the pandemic boost has managed to push growth in building work done on house construction into positive territory as well.

    Quarter on corresponding quarter change

    These stats track the percentage change between a quarter and its corresponding quarter in the previous year.

    For WA (Chart 5) there is a clear pattern of quarter after quarter of negative growth, up until the December 2019 quarter, when there is a shift towards positive growth for building work done on house construction and alts & adds. Non-house building work done only shifts into positive territory in the June 2021 quarter.

    The NT (Chart 6) shows a more volatile situation, with building work done on non-house construction in particular spiking into positive growth territory. For building work done in house construction, this shifts into positive growth a quarter earlier than NT, in the September 2019 quarter.

    Analysis

    One possibility is that these stats indicate both WA and NT may be more at risk during the post-pandemic recovery period than many of the other states and territories. According to the WA Housing Industry Forecast Group, writing in May 2021:

    The COVID-19 pandemic severely impacted Western Australia's economy in early to mid- 2020, cutting domestic economic activity to levels last recorded in 2010. Since then, the WA economy has shown strong signs, with the December 2020 National Accounts indicating the size of WA's domestic economy now exceeded the level it was before the pandemic. This outcome was largely driven by a booming mining sector and Government stimulus.
    WA Housing Industry Forecast Group

    The difficulty will be what happens when that government stimulus is withdrawn, especially as the future of the mining industry, which is reliant to some extent on exports to China, is not entirely certain.

    The NT faces a similar circumstance, with the price of manganese (for example) expected to be relatively stable over the next two year, down from the highs it reached during 2020.

    statistics

    HNN Flash #68 podcast

    A summary of this week's stories

    Want a quick overview of what's new this week? Just listen to the latest HNN Flash podcast.

    In this week's podcast, we mention a battery collection deal with Bunnings; a shopping development that involves a Mitre 10 store; new products from Briggs & Stratton and Black+Decker, and a partnership between True Value and GE Lighting in the US.

    Plus we explore what is happening on construction sites around Australia as shown by the ABS Building Work Done stats. We also take a look into Wesfarmers Annual Report for FY2021, and what it has to say about how Bunnings may develop over the next year.

    You can listen to the podcast on the embedded player:

    %

    Or go to the Buzzsprout website at:

    HNN Flash #68 Podcast

    HNN's Flash podcast provides a quick overview of the stories we'll be covering each week on the HNN website.

    news

    Big box update

    Envirostream in battery collection deal with Bunnings

    Australia's largest bird conservation group is calling on Bunnings to remove a popular range of pesticides from its shelves

    Lithium Australia announced that its 90% owned subsidiary, Envirostream has signed a collection and supply contract regarding used batteries with Bunnings.

    Envirostream will now work with Bunnings to collect spent batteries from all its stores, after trialling its spent-battery collection services in several Victoria-based Bunnings stores.

    The companies have executed a Supply of Services Agreement - Battery Stewardship Scheme for the collection of spent batteries from its stores in Australia and selected stores in New Zealand. It is expected to continue until June 30 2024, with Bunnings given the option to extend the agreement for a further 12 months.

    The services include, but are not limited to:

  • Provision and maintenance of suitable collection units for spent batteries;
  • Collection and transportation of spent batteries from all Bunnings sites;
  • Recycling of the spent batteries collected from Bunnings sites;
  • Education and participation in marketing campaigns, in conjunction with Bunnings; and reportin
  • The agreement comes ahead of the launch of the Battery Stewardship Scheme (BSS) to be rolled out by Australia's Battery Stewardship Council (BSC) in early 2022. Lithium Australia managing director Adrian Griffin said:

    The company is pleased to announce that Envirostream will commence a service contract with Bunnings, which is leading the way in the provision of convenient collection points for spent batteries ahead of the BSS.
    The creation of such a collection infrastructure is vital to improving Australia's battery recycling rate and preventing spent batteries from being consigned to landfill.

    It has been made possible via the Australian Federal Department of Agriculture, Water and the Environment which issued Envirostream with a Basel Import Permit that allows for the import of 100 tonnes of mixed-waste batteries into Australia from New Zealand.

    This permit, which allows Envirostream to service Bunnings' New Zealand stores, is valid until October 14, 2022. Once imported into Australia, the waste will be recycled at Envirostream's EPA-licensed Campbellfield (VIC) facility and its Laverton North (VIC) facility, which is in development.

    Envirostream has been issued an important planning permit for its battery recycling facility in Campbellfield. The permit issued by Hume City Council, allows a change in land use to that of a materials recycling facility. Mr Griffin said:

    Envirostream - now the first mixed-battery recycler in Victoria to be fully permitted - seeks to reduce the volume of waste batteries relegated to landfill as it gears up to meet the introduction of the Battery Stewardship Scheme early next year.

    Envirostream now has the formal approvals necessary to expand its operating throughput for the recycling of spent batteries at its Campbellfield facility. It is the first company to achieve these approvals, specifically for the recycling of spent batteries.

    The BSS is an industry-led initiative to provide free battery recycling to Australian consumers and counts Duracell, Energizer, Coles and Woolworths as industry partners working together to fund recycling and provide collection services for end-of-life batteries.

    Poisons displays

    BirdLife Australia is asking Bunnings to stop selling some rat and mice poison products, claiming that they are killing off native birds and wildlife, according to 7NEWS.com.au.

    Rodenticide sales at Bunnings soared in the first six months of 2021 after eastern Australia experienced an extreme mouse plague, resulting in empty shelves in many stores.

    But now the BirdLife Australia says local birds of prey are dying after eating rodents that have been poisoned by some of these products.

    It has launched a petition calling on Bunnings to stop the sale of second generation anticoagulant rodenticides (SGAR), which have been restricted for sale in many parts of the world including the US, Canada and parts of Europe. The BirdLife Australia petition states:

    Owls, eagles, and other birds of prey are unnecessarily dying by ingesting rats and mice that have been poisoned.
    Rodenticides are poisons designed to kill pest mice and rats but they have other impacts too. Second generation anticoagulant rodenticides (SGAR) poisons are the worst.
    It is these products that we are asking Bunnings to remove from their shelves.
    SGARs work by causing internal bleeding, but when rats and mice eat baits poisoned with SGARs, they become poisonous themselves, harming and even killing other animals and birds that eat them...

    While the petition notes that mice and rat poisons are available at various retailers across Australia - including Coles and Woolworths - it has targeted Bunnings with its petition due to the amount of rodenticide products it sells.

    Bunnings has about half of Australia's DIY hardware market share and sells a larger variety of second-generation rodenticide products than any other major outlet.
    Bunnings can remove a huge source of poison by choosing to take these products off their shelves and instead providing consumers with alternatives that are just as effective.

    A Bunnings spokesperson has told 7NEWS.com.au that it offers many rodent control products that are natural and safe for wildlife. The hardware retailer also said that it was working with suppliers to help shoppers make informed purchases within the range. Bunnings general manager - merchandise, Adrian Pearce said:

    We always respect community feedback and we recently met with BirdLife Australia to understand their views and to explain the steps we are taking to educate customers about rodent control products.
    Like many retailers, we offer a range of rodent control products, including anticoagulant rodenticides as well as a number of non-poisonous alternatives, such as rodent repellers, live catch traps, regular rat traps and natural bait pellets such as the Natural range from Ratsak. This provides choice for the customer and a natural solution to any rodent problem.
    We understand there are risks associated with the use of second generation anticoagulant rodenticides (SGARs) for birds and some wildlife, and we proactively promote the safe use of these products and support customers in making informed purchasing decisions.
    Over recent months we have been working with our suppliers to include additional information on packaging, as well as making updates to our website to help customers identify which products are first generation or second generation rodenticides.
    In addition, we are creating further training for our team members to help improve their knowledge about this topic. We are also in the process of implementing the separation of first generation and second-generation rat poison varieties, along with naturally-derived rodenticides on our shelves to further assist with easier customer product selection.
    We will continue to closely follow the advice of the Australian Pesticides and Veterinary Medicines Authority (APVMA), and work with our suppliers to innovate in this area.
    Big box update: Pesticide displays - HNN, August 2021
  • Sources: Proactive Investors and 7NEWS.com.au
  • bigbox

    Retail update

    A Mitre 10 store in shopping centre revamp in Queensland

    Pink's Mitre 10 has reached its 160-year milestone. It is South Australia's oldest Mitre 10 store.

    Kenmore Village Shopping Centre in the Brisbane suburb of Kenmore (QLD) is about to get a major upgrade that includes the relocation of the existing Mitre 10 hardware store.

    The proposal seeks the demolition of the two-storey north mall of the shopping centre. The building will be replaced with a revamped ground floor retail, shopping centre entrance and additional car parking spaces.

    A new stand-alone building will be constructed to the south west of the site, accommodating the relocation of Lewis Bros. Mitre 10.

    The Lewis Bros. store was established almost 60 years ago in 1963 when Harry Lewis opened the store as Kenmore Handyman and Paint Supplies. Brothers Wesley and Warwick eventually took over the business and purchased their second store in South Brisbane. However, the South Brisbane store was closed in September 2020 after losing much of the trade business in the area. At the time, management also said that the rents were "unrealistically high" so they decided not to renew the lease.

    HI News 6.3: South Brisbane loses hardware store, HI News - September 2020

    The Kenmore Village development will result in a net reduction in gross floor area of about 1500sqm to about 14,000sqm, and will likely cut overall car movements by up to 105 per day.

    Shopping centre owner, Jen Retail Properties, said it is the biggest upgrade to the centre in years. A company spokesperson told Westside News:

    The centre has now served proudly as a local landmark for over 50 years. The planned redevelopment will provide a vibrant new look and modern feel for the oldest section of the centre, the northern mall.
    To revitalise this section, the northern mall and level 1 office will be replaced with a fresh ground-level build, new entry statements and a contemporary new centre profile when viewed from the western carpark.
    After careful consideration, it is intended for the aesthetic elements of the new design to complement the look and feel of the remaining parts of the centre. We consider it important that the familiarity and character of the centre that our customers love and value is preserved.

    Pink's Mitre 10

    The long-standing hardware store in South Australia's Clarence Valley store is celebrating its 160-year anniversary.

    It first opened in 1861 by Thomas Pink Senior and is now managed by husband and wife, Greg and Melanie Pink, reports The Adelaide Advertiser. Greg Pink told the newspaper:

    This business is fortunate to have seen and survived it all, we've weathered many storms over the years. Our family-owned business has overcome fires, flooding, and now, a global pandemic.

    Greg's father, Wayne Pink "officially" retired in 2005 but still frequents the store most weeks for "Family Friday", restocking shelves and helping where he can. Greg said:

    While other South Australian businesses have surpassed 160 years of operations, very few have operated under the same family name. We think that's pretty special.
  • Sources: Westside News, Your Neighbourhood and The Adelaide Advertiser
  • retailers

    Supplier update

    Briggs & Stratton releases battery technology

    Stanley Black & Decker's first sustainability-led product line, reviva, uses Eastman's Tritan Renew copolyester

    Briggs & Stratton's new Vanguard(r) Lithium-Ion 1.5kWh Swappable Battery Pack will join the lineup of the current Vanguard Commercial Lithium-Ion Battery Pack models at two events: The American Rental Association's annual trade show and convention in Las Vegas, Nevada, and GIE+EXPO in Louisville, Kentucky. Chris Davison, Briggs & Stratton's US-based senior marketing manager - commercial power, said:

    Electrification is quickly revolutionising the power application industry and we're proud to play a significant role in that process ... [Our] current Lithium-Ion battery models, as well as our new swappable battery pack, continue to show the industry that Vanguard is leading the industry forward.

    The Vanguard Lithium-Ion 1.5kWh Swappable Battery Pack is designed to provide users with an efficient, versatile and reliable battery power option. The battery has an exchangeable design, allowing users to easily remove and replace the battery as needed with minimal downtime. They can combine multiple swappable batteries in parallel to make sure larger power needs can be met.

    The swappable battery is set up for optimised network communication with the product and the internet via an IoT (Internet of Things) device. The connectivity also means that users can monitor the battery remotely, control battery-powered products remotely and conduct fleet management. This battery is tested to ensure that it is able to withstand tough environments and is durable against abuse, debris and dirt.

    Black+Decker

    Stanley Black & Decker (SBD) announced that its Black+Decker brand will release a new product line of power tools that will use Eastman's Tritan Renew copolyester. With 50% certified recycled content in the enclosures, the Black+Decker reviva line is set to launch in early 2022.

    Engineered in partnership with Eastman, the reviva power tools will be manufactured using Tritan Renew material produced through circular recycling, also known as molecular recycling. Molecular recycling transforms single-use waste plastic into basic building blocks that are then used to make durable, high-performance materials. This process reduces the use of fossil-based resources and lowers greenhouse gas emissions while reportedly providing the performance of virgin plastic materials and environmental benefits of 50% recycled content.

    In addition to sustainably engineered material in this new product line, reviva packaging will be 100% recyclable. SBD is also creating and implementing programs for battery and end-of-life tool recycling. Steve Crawford, executive vice president, chief technology and sustainability officer for Eastman, said:

    ...Consumers trust their products because they know they will perform, so Eastman is excited to partner and leverage our molecular recycling technologies to provide Stanley Black & Decker more sustainable materials without any compromise on product performance.
    This collaboration is a prime example of how value chain partners who share a vision for a sustainable future and a commitment to addressing both the climate and waste plastic issues can leverage material circularity to provide solutions with technologies we have today.

    SBD aims to design products for circularity across material selection, use and end-of-life considerations, with a near-term goal of 100% reusable, recyclable or compostable packaging by 2025.

    In 2018, Stanley Black & Decker joined with leading businesses and governments to sign the New Plastics Economy Global Commitment, an initiative of The Ellen MacArthur Foundation and United Nations Environment Programme. Eastman is also a signatory to the New Plastics Economy Global Commitment.

  • Sources: PRNewswire, Briggs & Stratton and Plastics Technology Online
  • companies

    USA update

    True Value Company has exclusive partnership with GE Lighting

    Fastener solutions company, Hillman has doubled its distribution centre capacity and is using an artificial intelligence automation system

    The new agreement between hardware retail wholesaler, True Value Company and GE Lighting means True Value will be able to provide its member stores with exclusive warehouse access to the growing CYNC[tm] family of whole-home automation products. CYNC is a premium, GE-branded line of smart home products formerly known as C by GE.

    The partnership between True Value and GE Lighting becomes effective January 1, 2022. Jake Kalnitz, vice president of merchandising at True Value, said in a statement:

    Providing our retailers exclusive access to this best-in-class line of smart home automation products, from one of the best-known light bulb manufacturers in the world, is a game changer for True Value.
    This is a true differentiator for us that will allow our retailers to provide their customers with a next-level smart home experience.

    GE Lighting is now part of Savant Systems, an established industry leader in the professional smart home space. CYNC products include an Indoor Smart Camera, Indoor and Outdoor Smart Plugs, LED Full Colour Light Strips, and a Wire-Free Smart Motion Detector. The new CYNC app, powered by Savant, provides intuitive and easy-to-use control for the entire CYNC ecosystem from anywhere.

    Hillman

    Hardware supplier, Hillman Solutions, has unveiled the completion of its state-of-the-art distribution centre in Jacksonville, Florida. Ben Wilcox, senior director of distribution at Hillman, said:

    The original Hillman Jacksonville distribution centre is barely recognisable today after a multi-million-dollar investment to expand the footprint of 92,000 square feet to its current 190,000 square feet.

    The expansion allowed Hillman to modernise its operations enabling more growth in the future. To increase productivity, Hillman uses an artificial intelligence automation system that maximises efficiencies. Mr Wilcox said:

    We incorporated several automated vehicles to reduce the amount of manual labour needed to move inventory.

    To ensure a safe working environment for its employees, Hillman incorporated significant design elements that improve ergonomics for associates. These elements included a raised floor in storage locations to minimise bending.

    Founded in 1964 and headquartered in Cincinnati, Ohio, Hillman is a leading North American provider of complete hardware solutions to over 26,000 customers. The company designs product and merchandising solutions for "complex" categories that deliver an "outstanding customer experience" to home improvement centres, mass merchants, hardware stores, pet supply stores, and OEM & industrial customers. Leveraging an international distribution and sales network, Hillman aims to deliver a "small business" experience with "big business" efficiency.

    The Hillman Group going public - HNN Flash #30, January 2021
  • Sources: BusinessWire and Hillman Group
  • companies

    HNN Flash #67 podcast

    A summary of the week's stories

    Want a quick shot of what's new this week? Just listen to the Flash Podcast.

    HNN is launching its new, Flash Podcast. This provides you with a quick overview of the stories we'll be covering each week on the HNN website.

    In this issue: Metcash to get a new CEO, Australian Building Work Done stats show changes in the industry, Bunnings store news and Stanley Black & Decker makes another acquisition.

    You can listen to the podcast on the embedded player:

    %

    Or go to the Buzzsprout website at:

    https://www.buzzsprout.com/1872420/9384322
    news

    ABS stats: Building work done

    The stimulus shows its effects

    The ABS stats for building work done show just how unusual the current government stimulus is, and how it affects the construction industry. While it has ramped things up, is this necessarily a good thing?

    The Australian construction industry today is clearly subject to government stimulus. That stimulus, during the COVID-19 pandemic, has come from two main sources: historically record low interest rates for home loans, and a subsidy package known as HomeBuilder launched in the first half of 2020.

    It's helpful to note that immediately before these measures were put in place, the federal government had gone to extraordinary lengths to create a "balanced budget" for FY 2019/20 - remember the "back in the black" media campaign? This meant that the construction sector - among others - had received little if any stimulus from July 2019 onwards. The pandemic arrived about eight months into this artificial reduction in expenditure - about the worst possible moment.

    With that as a background, it is not hard to understand why both the government and the Reserve Bank of Australia (RBA) - which sets interest rates independently - were concerned the pandemic might crash the economy. They reacted swiftly, but there are serious questions, today, as to whether they over-reacted, and, particularly, whether they reacted in the most effective way possible.

    One way to look at this is to revisit the controversy as to whether the recovery post-pandemic, if you were to chart the measures of its success, would indicate a "V" shape - effectively a snap-back to the pre-pandemic economy - or something more of "U" shape - a slow recovery after a sustained period of low growth. At the time, HNN suggested what seemed most likely was a "K" shape: some parts of the economy would snap-back, and others would recover only moderately, or even go into long-term decline.

    The COVID-19 retail economy - HI News, May 2020

    We could say the goal of recent government stimulus has been to take the K-recovery (which, we would argue, is certainly what we've seen) and transform it into a V-recovery, by stimulating those parts of the economy that have been slow - or even unable - to recover on their own. The difficulty with this, of course, is that it means stimulus does not go to the most successful parts of the economy, with the goal of producing higher rates of growth, but rather to the least effective, and often less productive parts of the economy.

    This is very much the basic predicament that has "wedged" most conservative-leaning governments around the world. Their popularity is based on people working in declining legacy industries, and they find themselves, once in government, having to "square the circle" of over-funding the most underperforming part of the economy while also claiming they can create economic growth.

    To put that in direct terms, the best guarantor of Australia's economy performing better during the pandemic would have been a faster National Broadband Network (NBN). The original plans called for a fibre-optic backbone delivering gigabit speeds. What Australia got instead was a fudge of legacy technologies, slowly and reluctantly delivered - and which, even in this diminished form, likely helped protect the economies of Victoria (VIC) and New South Wales (NSW) (at the very least) during the pandemic.

    In terms of the construction industry itself, it's self-evident this is a highly useful and essential industry that contributes much to both the economy and the community. It's commonly accepted that there are three basic needs for humans: food and water; clothing; and shelter.

    Yet once you move beyond the basics of shelter for survival, housing and construction becomes a complex issue. It certainly produces goods that contribute to the economy, and assist it to increase productivity, yet its economic impact is very different from seemingly associated activities, such as manufacturing.

    The confusion over the economic role of construction really results from the industry playing a dual role in the economy. In terms of providing economic support to a community, it's a very good way to deliver benefits. A report from Australia's National Housing Finance and Investment Corporation, "Building Jobs: How Residential Construction Drives the Economy", published in mid-2020, outlines the following contributions of construction:

    New analysis shows that the residential building construction industry has the second-largest economic multiplier of all 114 industries that make up the economy.
    The analysis shows that $1 million of residential building construction output supports around $2.9 million of industry output and consumption across the broader economy.
    Each $1 million of residential building construction industry output supports nine jobs across the economy.
    Each new home built would support three jobs (on average) across the economy, based on these newly constructed multipliers and current average dwelling costs.
    Building Jobs: How Residential Construction Drives the Economy

    Given those numbers it is understandable that, facing a potential economic crisis, any government - and central bank - would reach for the financial levers to boost expenditure and growth in that sector. However, this usually turns out to be a very short-term solution. In a 2019 paper entitled "The Economy and the Construction Industry", authors Low Sui Pheng and Lau Shing Hou provide a solid literature review on the issue. They state:

    The pressures generated by the expansion of the construction industry may push up the costs of inputs (such as labour and materials), affect the availability of financial capital for other uses, and intensify environmental stress. As a result, the over-expansion of construction activities may affect macroeconomic stability by generating inflationary pressures, and misallocating as well as wasting resources. The negative impacts of over-expansion of construction activities may considerably offset the real growth of the economy.
    The Economy and the Construction Industry

    The point here is that any government stimulus is essentially a downpayment that enables future growth. To the extent that stimulus is spent on endeavours that do not contribute as much as they should to the economic future, that expenditure is largely negative. It's the equivalent of building a fabulous highway that goes absolutely nowhere. There may appear to be a recovery, but it's really a facade over an economy that has not invested the stimulus in the best way.

    The statistics

    A feature of both the pandemic and the construction industry itself is that it does vary considerably across the states and territories. In this part of HNN's analysis, we are going to look strictly at the broad overview in Australia-wide statistics, but then we'll look at the states and territories in three groups: the highly COVID-19 affected stats of NSW, VIC and Queensland; the less COVID-19 affected states of South Australia, Western Australia and Tasmania; and the Australian Capital Territory and the Northern Territory.

    We can begin by looking at a broad overview of all residential construction building work done in Australia, including public and private, which is shown in Chart 1:

    Chart 1 uses the ABS version of chain volume measures. These essentially adjust each year's prices to balance them with the previous year's prices. The goal is to enable prices to provide a good measure not for the total direct value of goods produced, but for the amount of goods produced. This is particularly useful in situations where the value of what is being counted varies widely.

    This chart, as with the following charts, is based on the trailing four quarters of stats up to the June quarter - which is basically the standard financial year. The values for alterations & additions are shown on the right hand side vertical axis, as these expenditures are much lower overall than those for dwelling construction.

    The big surprise, of course, is that despite the stimulus, overall expenditure on new residential builds declined for both the FY2019/20 an FY2020/21, and these are the first declines after seven years of growth. Less surprising, but much more unusual, is the sharp upwards trend in alterations & additions.

    Chart 2 shows the percentage change in these numbers.

    What begins to become evident from this is that even without the pandemic, FY2020/21 would likely have resulted in some kind of stimulus spending by the federal government in construction.

    Chart 3 focuses in on work being done in private residential construction, also using chain volume measures.

    This shows something of a more nuanced picture of activity. The construction of private sector houses did recover in FY2020/21, though not back to the levels for FY2018/19. Meanwhile, however, multi-unit dwellings (other residential) continued the decline that began in FY2018/19 - for reasons largely related to the pandemic, most analysts would agree. Alterations & additions shows the same strong surge upwards.

    Chart 4 shows the percentage change for the same statistics.

    This clearly illustrates the effect of the stimulus in the most recent financial year, but also shows that the increase in the level of activity for houses remains below that for 2015, while the increase for alterations & additions is the highest it has been for at least 10 years.

    Commenced work

    The ABS stats for the commenced work probably do the best job of capturing the level of activity the stimulus has caused. Chart 5 shows the value of commenced work (using chain volume measures) for private residential construction:

    The value of work commenced on private sector houses is the highest it has been for 10 years, and the same is true for the value of alterations & additions. Even for multi-dwelling construction, there is a slight tilt upwards, ending a two-year decline.

    Chart 6 shows the percentage change for the same stats:

    It is very evident from this chart that this stimulus is historically unique. The net change for private sector house commencements if over 45%.

    Finally, Chart 7 differs from the previous charts in showing the quarter-on-corresponding-quarter change in the value of work commenced.

    This shows the sharp acceleration that took place beginning in the December 2020 quarter.

    Work in pipeline

    These building activity stats relate to work that remains in the pipeline, and gives a sense of the available backlog of work making its way through the construction industry. Chart 8 shows the percentage change for the three measures of this work: work yet to be done, work not yet commenced, and work in the pipeline:

    This shows a slightly unusual lack of synchronicity between the value of work not yet commenced and the other two measures, which indicate some delays in construction going into 2019.

    Analysis

    What these statistics outline more than anything else is just how unusual the current stimulus has been. Building approvals, which we've shown previously, give some idea of what is being planned for the future, but building work done illustrates what is currently happening on the ground. If we factor in a likely continued expansion for the September 2021 quarter as well, it's evident that this activity is on its way to attaining levels that are not sustainable in the economy.

    The difficulty is that it will be very difficult, once this stimulus is underway, to do anything to modify it. While there are some stirrings that the RBA may break its promise to not raise interest rates until inflation has increased to close to 2.5%, it's not just that this is poor policy, it's that it could be ineffective as well.

    It's poor policy because if there is another financial crisis in ten years and the RBA needs to cut rates again, the market will not accept any guaranties about how long the low rates will remain in place. And it would be potentially ineffective because the major effect of an increase in rates by the RBA is to indicate there may be subsequent, further increases, and if one raise seems unlikely, three or four in a row seem pretty impossible - at least until mid-2023.

    On a more long-term, "macro" level, the real concern for the economy is that while Australia's current goal seems to be to get back to 2019, other nations are already moving into a different future. The US, for example, has seen a boost in productivity, and the impact of the pandemic has been a clear boost to digital industries. We could see, as international connections are resumed, that Australia has slipped further back.

    statistics

    Big box update

    Bunnings South Lismore expansion plans

    Traffic plan for Tempe, vaccination hubs at Queensland store and Kyneton development goes to tribunal

    Plans to expand the Bunnings South Lismore store have been revealed; Sydney's Inner West Council will push to improve traffic arrangements at Bunnings' new Tempe store; Queensland Premier Annastacia Palaszczuk has revealed the Bunnings sites that will become pop-up vaccination clinics; and a proposal for a Kyneton store in regional Victoria has been rejected.

    South Lismore

    A development application has been lodged to expand the Bunnings store in South Lismore (NSW) on the Bruxner Highway. The application indicates that the works will bring a "greater efficiency" to store's operations, reports the Northern Star.

    According to development details, it would include an expansion of the timber trade sales section and more warehouse space. The South Lismore site is expected to grow by 2800sqm.

    Bunnings area manager Deb Thompson said the application was a modification to the existing approved development. She told the Northern Star:

    ...The works would include an additional retail area to the warehouse and a new drive-through trade area, adding over 2800sq m to the current store.
    While a start date is yet to be confirmed, we look forward to providing updates to the community as the project progresses.

    Other features include bicycle parking, additional trolley storage bays and a pedestrian access ramp to promote foot traffic between the Bunnings and HomeCo sites safely without needing to drive. An extra 120 parking spaces would also be included to take the total for the site to more than 330.

    The South Lismore store was last upgraded in a $5 million improvement in 2014 when there was a Masters Home Improvement outlet next door to it, now replaced by a Home Co centre.

    Tempe

    The Tempe Bunnings superstore will be the biggest in Sydney and is expected to see thousands of extra cars every week funnelled into narrow inner west streets, according to Inner West Council.

    The traffic study from the council showed negative impacts on 15 local streets and 1,400 cars a day down Union Street, right past Tempe Primary School. Inner West Mayor Rochelle Porteous said:

    Local residents have been campaigning strongly against this since the plans were first unveiled. And I don't blame them. The current plan will see delivery trucks and thousands of cars using already choked local streets and endangering the lives of residents. Tempe children deserve to be able to walk to school safely.

    A narrow residential street will act as the main entrance for the 20,000sqm store next to Ikea on the Princes Highway. Both entering and exiting cars will be funnelled down residential streets.

    At a recent council meeting, council voted unanimously to help fund a community campaign including advertisements in newspapers, social media and installing banners in high visibility locations.

    Council will also write to Minister for Transport and Roads Rob Stokes seeking approval for traffic signals on Princes Highway to provide controlled access to Bunnings.

    The council said all residents of Sydenham, Tempe and St Peters will be advised of its advocacy and will be asked to lobby the NSW Government for a better outcome. Mayor Porteous said:

    The Inner West is home to some of the most successful and tenacious community activists anywhere. I know that with their determination, and Council's support, we will get the right result.
    Transport for New South Wales and Bunnings need to work together and fix this problem for the Tempe community.

    Kyneton

    Macedon Ranges council has knocked back two proposed commercial developments near a gateway to the Kyneton (VIC) township, according to Star Weekly.

    The two separate proposals for land at the intersection of Edgecombe Road and Pipers Creek Road detailed plans for a Bunnings Warehouse and a service station with an attached McDonald's restaurant.

    Both of these developments drew strong community interest, with a combined total of 618 letters of objections and 35 letters of support during the consultation process.

    At a recent meeting, residents voiced their concerns, with repeated mention of the development's impact on the natural environment and increased traffic congestion.

    Speaking at a council meeting, Macedon Ranges mayor Jennifer Anderson said the developers for both applications had not met the standards necessary for approval.

    This is the Macedon Ranges, we are a very special place and have a very sensitive environment.
    We are now declared an area of distinction and landscape, and we have a standard of planning policy and we must look at when we look at any application. It is mandated upon every authority to do so, and the officers have assessed this application against that and feel that it doesn't meet all those criteria.

    Councillor Janet Pearce said she was not opposed to having a commercial development at the site, but couldn't accept the conditions of these two submissions.

    This is a commercial zone and we are very interested in commercial businesses coming to this area. [But] I feel that there are too many points where, if more discussion could have occurred, then perhaps we could have come to an agreement.

    As the only councillor speaking against the officer's recommendation to reject the proposals, Cr Geoff Neil said despite traffic management being a "big concern" he supported the developments.

    At the submitters meeting in August, a spokesperson for site applicant said the commercial enterprises would bring 160 jobs across the McDonald's and service station, with a further 40 employment opportunities at Bunnings.

    The matter is subject to an appeal to the Victorian Civil and Administrative Tribunal (VCAT).

    Related: A planning tribunal will hear arguments for and against a mixed-use development featuring a Bunnings store.

    Big box update: Kyneton - HNN Flash #57, August 2021

    Queensland

    Around 33 Bunnings stores in Queensland will offer vaccinations, joining stores in NSW and Victoria which have been offering vaccinations since August. Health Minister Yvette D'Ath said:

    This partnership with Bunnings is terrific news for Queenslanders who want to get vaccinated and keep themselves safe.

    Clinics will be established at; Browns Plains, Morayfield, Brendale, Bethania, Mt Gravatt, Stafford, North Lakes, Maryborough, Bundaberg, Hervey Bay, Dalby, Smithfield in Cairns, Fairfield Waters in Townsville, Townsville, Townsville North, Mackay North, Paget in Mackay, Airlie Beach, Kingaroy, Gladstone, Rockhampton, Yeppoon and Gympie.

    Mike Schneider, Bunnings managing director, told news.com.au the retailer is pleased to be helping QLD Health with the rollout of community vaccinations across South East Queensland. He said they were hosting pop-up vaccination clinics in about 30 store carparks.

    We hope it makes accessing vaccinations as easy and convenient as picking up an item for a weekend DIY project. We've always tried to play an active role supporting the local communities where we operate, so providing space to QLD Health to accelerate the vaccination rollout just makes sense.

    Clinics will be established at Browns Plains, Morayfield, Brendale, Bethania, Mt Gravatt, Stafford, North Lakes, Maryborough, Bundaberg, Hervey Bay, Dalby, Smithfield in Cairns, Fairfield Waters in Townsville, Townsville, Townsville North, Mackay North, Paget in Mackay, Airlie Beach, Kingaroy, Gladstone, Rockhampton, Yeppoon and Gympie.

  • Sources: The Northern Star, Inner West Council, The Courier-Mail, news.com.au, The Chronicle and Star Weekly
  • bigbox

    Retail update

    Metcash will have a new CEO in 2022

    It follows the announcement that Jeff Adams will be retiring from his role as Group CEO

    Back in early September 2021, things were looking pretty good for Metcash, the owner of the Independent Hardware Group (IHG), and its CEO Jeff Adams. He'd steered the company through the worst of the COVID-19 pandemic, and come out a winner. As he described the situation to senior Australian Financial Review journalist Sue Mitchell in an in-depth interview:

    After the initial chaos of panic-hoarding and toilet paper shortages, it quickly emerged that the pandemic would deliver Metcash and its independent retailer customers their biggest leg-up in two decades.

    And, according to Ms Mitchell, he saw the future as being almost as rosy, with Metcash set to retain these gains through to the end of 2022, at least.

    Mr Adams was also full of plans for the future: the expansion of tradie-tool franchise Total Tools, as well as Metcash's private liquor brand Kollaros & Co. He mentioned to Ms Mitchell plans for possible expansion into the pharmacy and healthcare businesses.

    With that in mind it was something of a shock to hear on 8 October 2021 that Mr Adams has resigned. According the Metcash board chairman, Rob Murray, the outgoing CEO wanted to spend more time with his family:

    The demands on Jeff through COVID have been considerable and were a factor in his decision to retire as Group CEO. His endurance and resilience during this period, which included not being able to see his US-based family, have been amazing.

    While Metcash can be expected to laud the achievements of Mr Adams, there do remain some question marks over decisions he made. The acquisition of Total Tools, for example, while seen as a brilliant low-ball bid for a potentially profitable venture, will find itself facing off against the Wesfarmers-owned, and Bunnings-managed Took Kit Depot in 2022. Some analysts also raised questions about the company seeking financing of $330 million at the start of the pandemic in 2020, then funding a circa $200 million share buyback in mid-2021.

    While Mr Adams has been critical of what he considers the over-capitalisation of operations at Coles and Woolworths, there's a strong chance that companies which underinvest today will hit competitive difficulties in 2023.

    The new CEO

    All that is now, of course, less relevant than who the new CEO is, and what changes he may make.

    Mr Adams' retirement makes way for Doug Jones, who is currently CEO and senior vice president of South African-based Massmart Wholesale which includes large format food, liquor and general merchandise stores, cash and carry stores, buying groups, and a number of ecommerce platforms. It services commercial, wholesale and independent retail customers.

    A qualified chartered accountant, Mr Jones has previously held senior finance positions in Makro SA, Amalgamated Beverages Industries Limited and The South African Breweries as well as Coca-Cola Enterprises in Canada, and Deloitte in both Canada and South Africa.

    Mr Jones will join Metcash on 1 February 2022 and the company said he will work closely with Adams on a smooth transition into the role. Mr Murray said:

    Doug's extensive and distinguished international experience across wholesale, retail and e-commerce markets made him the standout candidate to succeed Jeff. He is passionate about the success of independent retailers, and we are looking forward to him joining us and taking the company forward...

    About Massmart

    Johannesburg Stock Exchange-listed Massmart Group is majority-owned by American multinational retail corporation Walmart. It has leading market positions in wholesale food, liquor, home improvement and general merchandise in South Africa.

    Most recently, the company has reached an agreement to acquire a controlling 87.5% stake in South African grocery retail and delivery startup OneCart. Massmart announced its plan to acquire OneCart in August, stating that the deal supports its strategy to invest in and accelerate its e-commerce presence.

    Related: Metcash results for FY2021 shows strong growth, but spark questions from analysts.

    Metcash 2021 full year results - HNN Flash #52, July 2021
  • Sources: Australian Financial Review and SyndiGate Media
  • retailers

    Supplier update

    Stanley Black & Decker to acquire OPE maker

    Vulcan Steel hopes to raise $371.6 million from an IPO with shares sold at $7.10 each, taking its value to $933 million or $1.2 billion including debt

    Stanley Black & Decker Inc. (SBD) said it has agreed to buy Excel Industries, a maker of commercial and residential turf-care equipment, for USD375 million in cash. The acquisition is expected to boost its commercial outdoor equipment business.

    Kansas-based Excel, which has about 600 employees, makes equipment under the brands Hustler Turf Equipment and BigDog Mower Co., and serves about 1,400 independent equipment retail outlets that stock, sell and service these products. It launched the first hydrostatic zero-turn mower in 1964.

    According to analysts, the addition of Excel Industries' expertise in turf-care equipment and professional team will help strengthen the outdoor product offerings and innovation capabilities of SBD. Excel Industries' widespread dealer (retail) network along with its customer base should enable the company to enhance its footprint in the outdoor equipment market. SBD's CEO James M. Loree commented:

    This is a strategically important bolt-on acquisition as we build an outdoor products leader. Excel brings a range of premier, commercial grade and prosumer turf-care equipment, an extensive dealer network, a talented team and a loyal customer base.

    In January 2019, SBD acquired a 20% stake in MTD Holdings, a manufacturer of outdoor power equipment. By August 2021, the company announced its decision to buy the other 80% stake in MTD for USD1.6 billion in cash.

    Stanley Black & Decker to buy remaining stake in MTD - HNN Flash #59, August 2021

    More recently, an analyst at BofA Securities said that SBD could face a potential risk in the medium term due to a legislative development in California.

    The legislation reportedly signed by California Governor Gavin Newsom mandates that all newly sold small-motor equipment, primarily used for landscaping, to be zero-emission by 2024 or as soon as the California Air Resources Board determined is feasible

    Analyst Ross Gilardi said the mower ban faces significant lobbying pushback from professional landscapers and gardeners who would be forced to upgrade and convert their fleets. About USD30 million has been set aside to help these groups make the transition, he noted.

    There could perhaps be a pre-buy of gas-powered equipment into the deadline that incentivises California-based retailers to continue carrying gas-powered equipment, he said. Some of the retailers, however, could de-emphasise gas equipment at an accelerating pace to highlight their environmental consciousness.

    Through its pending Excel Industries acquisition and remaining MTD stake, SBD could be exposed to the risk of the phasing out of gas-powered equipment, Mr Gilardi said.

    However SBD would point to its strong battery technology in its legacy outdoor business and its intention to electrify the MTD lineup over the next few years. The California ban will put pressure on MTD to accelerate its electrification effort at a time of enormous supply chain challenges that are making battery cells harder to come by. The time crunch is also weighing on the legacy gas engine market which is experiencing acute shortages, Mr Gilard added.

    If California is about to ban the product in the next few years, it is less likely that capacity is added in this market to alleviate the situation, he said.

    Vulcan Steel

    The steel distributor is understood to have already locked in $220 million of demand from early investors for its initial public offering, according to DataRoom in The Australian.

    Stockbroker UBS estimates in a research note Vulcan has about 4% of the Australian steel distribution market. It puts a valuation of between $1 billion and $1.4 billion on Vulcan's equity value. Vulcan has $100 million in debt, giving an enterprise value of between $1.1 billion and $1.5 billion.

    The company managed to achieve a price ($7.10 per share), that equates to 8.8 times its earnings before interest, tax, depreciation and amortisation and 13.2 times its net profit. This is more than the five times steel distributors' trade at in Europe and North America, but less than the Australian companies it is comparing itself to like plumbing and bathroom supplier GWA, which trades at about 12 times its EBITDA.

    The float comes as steel prices remain high. However, some believe the share price is expensive and will fall when the steel price is expected to come down after it lists on November 10. Others say the selling point is its unique market position in New Zealand and dominance in the Australian market. New shareholders will own almost 39.8% of the company.

    Chief executive Rhys Jones believes the company is poised to benefit as customers seek to reduce their dependence on China. In the Australian Financial Review (AFR), he said the COVID-19 pandemic was triggering some large structural shifts in sovereign capabilities among manufacturers, governments and policy makers which were likely to underpin extra demand for the group's steel products.

    There is more focus on companies wanting to shift manufacturing to Australia and New Zealand, and be less reliant on China. Mr Jones told the AFR:

    It's been so disruptive to so many businesses.

    Mr Jones said in the 12 months ended June 30, Vulcan had delivered about 270,000 tonnes of steel products to customers. He said because of the nature of its business, where it was not actually making steel, it had a buffer against the volatility of the steel cycle. He said:

    We don't go up and down with international steel prices like others.

    Vulcan buys and distributes some of its steel products from BlueScope as part of its operations. But it is also a competitor to BlueScope in some segments. BlueScope recently announced the highest annual profit in 19 years.

    Mr Jones said the group operated its own fleet of 92 delivery trucks which gave it an extra edge in "just-in-time" deliveries to customers across a broad range of industries including engineering, construction, water infrastructure, agriculture and wine.

    Mr Jones said Vulcan, which has 12,000 customers and a workforce of 840, is on the front foot for expansion which is likely to involve acquisitions and organic growth. He said the group had doubled in size in the past seven years and was in a strong position to keep going.

    The Auckland-based business is owned, founded and chaired by Peter Wells, Vulcan sells steel for manufacturing and construction across 29 sites, 16 of which are in Australia. About 60% of revenues come from the Australian operations, with 40% from its home market of New Zealand.

    Vulcan chief financial officer Kar Yue Yeo said the total steel usage market in Australia was between 6 million to 6.3 million tonnes a year, and with a strong pipeline of infrastructure spending outlined by federal and state governments, experts expect that will grow by at least 2% a year.

  • Sources: MarketWatch, Benzinga Newswires, The Australian and The Australian Financial Review
  • companies

    USA update

    Home Depot co-launches flatbed marketplace

    The home improvement retailer is partnering with freight technology company Loadsmart to roll out an automated, supply-led flatbed platform

    The Home Depot has launched a platform in partnership with Loadsmart that helps facilitate flatbed backhauls by focusing on supply. Flatbed Messenger is an automated supply-led flatbed platform that pairs capacity and price to a shipment instead of the reverse.

    It provides dedicated flatbed capacity to other shippers at lower rates. Jim Nicholson, Loadsmart vice president of operations, told Transport Topics (TT):

    We are really excited to launch this and tackle this problem with our freight partner at Home Depot. The general truckload market is very fragmented, and there has been a lack of technology that really optimises the ability for both carriers and shippers to be able to transact more effectively. Now going directly into flatbed and open deck, it's even further fragmented.

    Loadsmart launched its digital flatbed capability platform early last year. But to overcome challenges in the digital flatbed space, such as empty miles on the return journey, dedicated capacity was needed. The Home Depot partnership provided that capacity alongside demand from its vendor network. Mr Nicholson said:

    What's so unique is we have all of the pieces here that are going to make this marketplace truly effective and able to accelerate really quickly. But the key here that we want to home in on is that this is absolutely focused on being supply-led. It's not where others have ventured, which is aggregating a bunch of demand and then trying to find that capacity.

    Shippers can access flatbed capacity that previously was earmarked for a dedicated shipper and which may be at a lower cost. At the same time, carriers in dedicated fleets can fill their backhauls to reduce empty miles. Felipe Capella, co-founder, co-CEO and president at Loadsmart, told TT:

    One of the differentiators of the way that we're doing things is that we're leveraging Home Depot's network footprint. They're probably one of the largest flatbed shippers in the United States. Therefore, they have really deep relationships with transportation providers.

    Home Depot has invited its transportation providers to share their capacity within the technology framework provided by the platform. The home improvement retailer is hoping to bolster its customer experience, reduce empty miles, lower its carbon footprint and help other shippers and carriers do the same by sharing truck capacity.

    Home Depot also helped develop the concept by designing the framework and rolling out the platform. Mr Capella said:

    Their plan is to become even larger with this project of insourcing procurement. They are starting to be responsible for higher capacities from their vendor network. So there again, they're becoming larger and larger.

    Mr Nicholson said the platform's foundation is based on technology that has been developed over years. Like other services, it tracks the location of the truck, expected destination, load availability and scheduled times to filter through an algorithm that facilitates shipments and backhauls. But the difference is it has been updated to be specific to flatbed, supply-led and include a dedicated shipper. He said:

    Nothing like this currently exists specifically in the flatbed space. This is truly unique and absolutely anchored with Home Depot's demand and supply, but can expand to other flatbed shippers and bring on other carriers outside of that carrier network that would create a critical mass to scale this rapidly.

    In 2020, Home Depot opened its first-ever flatbed distribution centre, an 800,000sq.ft. facility in Dallas. The company plans to eventually build 40 flatbed distribution centres in the 40 largest markets in the US, so it can bring bulk orders of construction and building materials to customers on a same-day, next-day basis. Robin Baggs, director of transportation for The Home Depot, said:

    Flatbeds are an essential transportation mode, yet the flatbed industry remains highly fragmented. This platform presents shippers and carriers a unique opportunity to increase communication and collaboration to move freight in an easy, user-friendly way that's more affordable, efficient, and environmentally friendly than traditional methods.

    Related: Flat bed DC for Home Depot pro customers.

    Home Depot's latest DC is made for trucks - HI News, February 2020
  • Sources: Transport Topics News and Chain Store Age
  • bigbox

    ABS hardware retail stats to August 2021

    Mixed signals, but likely to be mildly positive 2021 Q4

    While NSW continues to accelerate its spending on hardware, VIC is basically flat, and QLD shows a modest boost. So far, however, there has not been a sustained, deep retreat from the higher levels of spending reached during the pandemic.

    The Australian Bureau of Statistics (ABS) has released its figures for retail sales through to August 2021. In terms of sales of hardware and building supplies, the overall view is that while growth is down from that of the first nine months of the COVID-19 pandemic (April 2020 to December 2020), growth has - somewhat surprisingly - continued, albeit at a reduced rate. The degree of that reduction has varied, however, between states and territories.

    (Note that the ABS is currently not supplying up-to-date stats for the Northern Territory and Tasmania, so we cannot include these.)

    Comparing the period for the trailing 12 months to August 2021, to the previous corresponding period (pcp), which is the trailing 12 months to August 2020, the stats reveal some interesting patterns. In pure percentage terms, the Australian Capital Territory (ACT) has grown the strongest, at 10.9% over the pcp. In second place in terms of percentages is New South Wales (NSW), at 10.5%, but NSW has also had the most growth in pure dollar terms, gaining $675.1 million.

    Queensland (QLD) is third in terms of percentage gains, at 9.7%, and second in terms of dollar gains, at $441.9 million. Western Australia is fourth in percentage terms, at 6.64%, and third in dollar gains, at $149.7 million.

    As we've seen in previous retail stats, Victoria (VIC) has continued to show growth that is slowing more than the other states. VIC managed just 0.87% over the pcp, and total growth of $56.1 million. The dollar growth is above only that of South Australia at $28.6 million (2.1% growth) and ACT at $48.3 million.

    As Chart 1 indicates, while the sales growth for the trailing 12 months to August 2020 is very strong, the growth for the trailing 12 months to August 2021 remains well above the growth for the same period between 2016 and 2019. For Australia overall, the most recent period showed growth of 6.5% for a total of $1450.7 million.

    Growth over preceding year, Australia-wide (not adjusted for inflation) in millions:

  • 2013 $741.7
  • 2014 $1083.3
  • 2015 $1495.7
  • 2016 $1112.6
  • 2017 $543.0
  • 2018 $228.9
  • 2019 $420.4
  • 2020 $2632.8
  • 2021 $1450.7
  • Percentage change trailing 12 months to August

    Chart 2 shows the percentage change in retail revenues, going back to 2014.

    For the most recent period, NSW is the only state to show increasing levels of growth, while QLD is essentially flat, and the other states and territories show reduced growth. There is a very sharp contrast between NSW and VIC, with VIC outgrowing NSW for 2018, 2019 and 2020, before being overtaken in 2021. The other noticeable shift is for WA, after two years of negative growth of around -7% in 2018 and 2019, recovering strongly for 2020.

    Month-on-corresponding-month percentage change

    For a look at what is happening in the current market, Chart 3 compares each month to the same month in the previous year.

    For August 2021 as compared to August 2020, the ACT shows a sharp drop of -21.6%, with NSW down by 1.0%, and VIC down 0.5%. The other states and territories show positive growth, with SA up by 9.9% and QLD up 5.4%. That's a substantial change from April to July 2021, when every state and territory showed negative growth.

    Analysis

    An interesting question is, what has caused the surge in retail expenditure for hardware during August 2021? While this is, of course, the beginning of the spring/summer pre-Christmas period of expenditure on home projects, HNN would have forecast that it would have kept growth closer to flat for the period, as extra, COVID-19 driven expenditure would have dropped off.

    One theory, which has been gaining some currency among retailers, is that Australian consumers have "saved up" both in terms of the actual cash for purchases, but also purchase intentions, for the end of 2021. That theory suggests that Christmas 2021 could be a high spending period.

    As is so often the case when it comes to the pandemic, however, the stats seem to be a bit contradictory on this matter. In terms of what is positive, the following chart is taken from the Reserve Bank of Australia's "Chart Pack" for October, and includes data up to 30 September 2021.

    As the arrow (which HNN has added) indicates, there has been a sudden and sharp increase in expenditure for what looks like August and September 2021.

    On the other hand, though we have from the same Chart Pack the graph for average hours worked:

    The element to focus on is the green line denoting the average number of hours worked. This has turned down during August and September 2021, which could indicate less funds available to consumers.

    Then there is the NAB Business Confidence Survey. The most recent available survey, from August 2021, is charted by NAB:

    NAB Business Confidence report

    While confidence is, as NAB puts it, "ticking up", it is also well below the long-run average.

    In the end, what we're going to see over the final quarter of calendar 2021 is a range of different influences, some negative and some positive, coming into play. Some of these are very contradictory. For example, if there is a moderate recovery, and the efforts to contain COVID-19 through mass vaccinations do work, but not exceptionally well, then we might see accelerated Christmas spending.

    On the other hand, if COVID-19 is thoroughly contained, that could open up the possibility of more travel, both in Australia and overseas, which could see considerable funds spent on those activities, with a consequent slump on spending for the home.

    statistics

    Houzz and ABS stats point to changed renovation market

    Post January 2021, the market has changed

    According to a Houzz survey, spending on kitchens increased dramatically in 2020, while ABS stats indicate that during 2021 the renovation market kicked into high gear in NSW, VIC and QLD.

    Houzz has released its survey results for Australia's renovation industry, covering activity during calendar 2020. This survey was conducted from April to June of 2021. The sample consisted of Houzz users who were over 18 years old and homeowners. The total sample size was 2471, with 2303 actual homeowners, of which 982 had renovated their primary residence during 2020.

    Some 74% of respondents are married, and 62% have household incomes in excess of $100,000. Around 27% of the residences that are being renovated are less than 20 years old, 28% between 20 and 40 years old, and 19% between 40 and 60 years old. Detached, single-family homes make up 82% of the sample, and over 40% of homes have a value above $1,000,000.

    The survey is a very useful addition to the overall picture of renovations in Australia. It's not definitive, but it can be seen as providing insight into what are some of the most valuable customers in the renovation area. These are homeowners who believe in thorough research, and who are invested in the ongoing development of their homes, both following current trends, but also with a strong sense of architectural and design structures.

    We might refer to this group as "moderate influencers", who change the conversation about home design through secondary engagement with a community, rather than through developing what some refer to as individual, personal "brands".

    Overview

    The highlights of the survey indicate a strong shift in some behaviours in 2020 as contrasted with 2019 - most likely due to the influence of the pandemic. These include:

  • Increased focus on kitchen renovations, with 33% of homeowners making structural changes, and the median spend increasing from $15,000 in 2019 to $20,000 in 2020.
  • Outdoor area changes are dominant with 59% of homeowners planning projects, especially as regards structural changes to gardens.
  • Electrical is a primary area of upgrades, with 40% of homeowners making these changes, and 66% of renovators hiring electricians.
  • Cash is king, with over 80% of renovators using cash/saving to finance renovations, while 13% rely on credit cards, and 10% making use of home mortgage refinancing.
  • Activity to continue to end of 2021, with 48% of homeowners planning further renovations, and 41% planning interior design changes.
  • ABS renovation stats

    The Australian Bureau of Statistics (ABS) also makes available some useful stats on alterations and additions in Australia. As with the Houzz stats, these do not take a fully comprehensive view of all renovation activity, as they rely on projects that have had to apply for building permits, missing out on smaller projects. Nonetheless, they are very useful in determining the overall level of activity.

    Chart 1 shows the numbers of renovations for each state and territory.

    The initial element of interest is that both Queensland (QLD) and Victoria (VIC) have more renovations recorded than does New South Wales (NSW). Secondly, after May 2020, the number of renovations in QLD accelerates, so that from June 2020 to July 2021, that state has more than VIC, and only in August does VIC surpass QLD.

    Thirdly, there is something of an "extreme event" in January 2021, with all the states and territories to some extent seeing a drop in building approvals for renovations. This is, at least partially, seasonal as well, with similar - though shallower - events occurring in January for 2020 and 2019.

    As we are talking about building approvals rather than actual construction work, it's likely this is a combination of both prospective renovators and government offices taking something of a break in the post-Christmas holidays. But that doesn't quite explain the severity of the dip for January 2021. It's likely to be made up of, in addition, what turned out to be a brief period of relief from the more arduous types of pandemic lockdown, along with a degree of uncertainty about the property market.

    Chart 2 shows the same time series, but for the total amount spent on alterations and additions.

    What is most interesting here is that we can see a level of spending for both NSW and VIC that, up until that January 2021 date, is within the range set from 2018 onwards, though on the high side of that range. After January 2021, however, the spending for both states achieves a new high, with VIC even managing to outspend NSW during July and August.

    For QLD it is a little different, with that state seeing a significant increase in spending from June 2020 onwards, then going into a sharp peak for both February and March 2021, before returning to a still high, but more subdued level through to August 2021.

    Chart 3 shows the combination of these two data sets, with an average cost per building application for alterations and additions - simply the data from Chart 2 divided by that from Chart 1.

    This shows some increase in the average cost of renovations for many states and territories, though this is not sustained overall. Both NSW and VIC only see sustained increases post-January 2021, while Tasmania (TAS) sees elevated levels from October 2020 onwards. The Australian Capital Territory (ACT) shows a high rate of fluctuation from August 2020 through to February 2021, while QLD shows an increase in average price from December 2020 through to August 2021.

    Of course, these average prices tend to be distorted by the presence of more expensive projects, which drive the overall average higher. Chart 4 shows the number of building applications for projects costing between $750,000 and $1,000,000.

    This shows a sharp increase in these projects for NSW, VIC and QLD, and smaller but significant increases for Western Australia and South Australia. NSW begins to exceed previous highs in September 2020, while for VIC this takes off in February 2021. In QLD there is an increased level of activity from August 2020, though, unlike NSW and VIC, this returns to close to normal levels in August 2021.

    Analysis

    The ABS stats bring two questions to mind: what has been happening over the past 18 months or so, and secondly, how does this affect what is likely to happen through to July 2022?

    As this data does cover period of previous highs in house prices, it is evident that, at least for calendar 2021 so far, we are seeing an unusual renovation market develop, at least in NSW, VIC and QLD, which are the three states most affected by the COVID-19 pandemic. Partially, of course, it is likely to be a reaction to higher house prices, as homeowners either find that renovations prove profitable when selling a home, or decide that it is better to renovate their existing home instead of entering into an increasingly over-priced market.

    However, it is also possible that what we're seeing is something of a new "minimum standard" for homes being established. The lockdown has really given many family homes a real workout, as they become the sole focus of just about all family life - as well as work life in many cases.

    The question that remains is if this new standard will continue as Australia moves past the pandemic through 2022, with more people choosing to work at least half the time from home. Alternatively, homeowners may look back at some renovations with a sense that they are less necessary in 2023, and we'll see a return to house standards from 2019.

    statistics

    Bunnings tells MBAV supply issues critical

    Master Builders Association of Victoria summit

    Ongoing supply delays and shortages lead to timber price increases in Queensland, New South Wales and Tasmania

    The Master Builders Association of Victoria recently organised an industry resources summit where Bunnings' head of builders' solutions, Duncan Bryce referred to the unprecedented problems with the supply and demand of building materials. According to the Herald Sun, Mr Bryce said:

    We have got this perfect conundrum of rising prices, rising demand, and a lack of containers. We are still seeing price increases. September 1 saw another raft of price increases across a range of categories.
    There are still continuing price increases, we haven't seen a dramatic stabilisation in that space.

    Mr Bryce said there had been a 26% increase in demand for detached homes, which was good for jobs. However, there are now problems because of the limits on imports of structural timber available - which often makes up about 20% of the market - while the domestic manufacturing capacity was already stretched.

    He said the local industry had stepped up, but this was "using future years' logs", which caused longer term issues.

    Some of the issues driving global supply problems was latent demand for housing in the US which is up to five million buildings, shipping shortages and freight congestion that has led to some empty containers arriving in Australia because of limits on container movements at ports.

    Victoria's Better Regulation commissioner Anna Cronin said she was due to hand a report on building material shortages to the Andrews government in late October. The paper will look at issues such as plantation resources and local timber manufacturing in Victoria.

    Queensland

    Master Builders Queensland deputy CEO Paul Bidwell said the cost of timber, frames and trusses had increased 75% since the start of the year and could increase another 20-25% from November, reports The Courier-Mail.

    The latest Master Builders survey shows trade supply pressures across almost all 15 product categories, with the greatest difficulty accessing timber, windows, steel products and roofing supplies.

    Mr Bidwell said there was "no way out" for builders, who were having to absorb increasing costs out of their own pockets - costs that will eventually flow through to homeowners. He told The Courier-Mail:

    There are a lot of builders experiencing the profitless boom, and a profitless build for some may be the best outcome because the other outcome is they fall over. Some of the big builders are hurting as well because they work on volume and that volume is not going to return a profit...

    Mr Bidwell said while a business with a greater volume of builds might be able to get their materials ahead of a smaller builder due to their larger transactions with the supplier, it did not offer any delivery guarantees.

    Costs are going up, we are seeing price lists all going up, no pattern other than prices heading north. It's not the builders or the building community's fault.

    Brisbane builder Blake Lanham, who manages 22 dwellings across 16 sites under his company LanCon, said he feared the soaring cost of materials would not eventually come down as some in the industry expected. He told The Courier-Mail:

    The pressure has been ridiculous. We've seen 15-20% rises in the cost of frames every month since the beginning of the year, and quote validity periods have gone from 60 days to around seven. Right now, prices are going up 5% every quote.
    There are companies just signing contracts for houses they can't even start to build for months, thinking this is the best thing that's ever happened (the building boom), but they won't know what's hit them until they're halfway to three-quarters through the build...

    In Far North Queensland, Dynamic Timbers manager Nathan Smith said the shortage of supply has been "out of control". Mr Smith said its three stores based at Cairns, Atherton and Innisfail were flat out. He told The Cairns Post:

    We have been at the point where we were 13 weeks from order to delivery, but now we are back to eight.
    From what we are seeing, delays are rife throughout the whole industry and we are also hearing stories about a shortage of roofing iron and roofing screws.

    Mr Smith said the shortage meant higher costs for everyone in the industry.

    It's difficult for builders to quote work at the moment as we don't know what our prices will be mid-2022. We have seen price rises 10 to 15% almost every second month and over the last 18 months our costs have increased 75%.

    Mystyle Homes owner-director Grant Hartwig, who is managing 38 dwellings across the Cairns region, said he feared the increasing cost of materials would force some builders out of business. He told The Cairns Post:

    Apart from price rises, it's affecting everyone's cashflow as you cannot claim the next stage of your build if you cannot move from the base to the trusses. It affects your cash flow, the builder has to wear it, so volume builders on very tight margins could be in trouble.
    We are thanking our lucky stars we stopped signing up new builds in November.

    Mr Hartwig said this had created a situation where, "the builders are not making money but the tradies are". He explains:

    We had a renderer who upped his rates three times on us one afternoon. I'm always talking to suppliers about delivery dates.

    Many Master Builders members fear the federal government's recent $15 million investment to alleviate the timber shortage will not be enough to safeguard the viability of builders and tradies. Tradies in Business co-founder Nicole Cox told The Courier-Mail:

    ...Big project builders might have access to the funds to secure that material, but small to medium builders just can't and are often too late to the party. Many had to sign fixed-price contracts by December 31 last year because of the HomeBuilder grant, which means those quotes don't take into account the increase in material and labour costs.
    A large proportion of the work over the next 12 months are fixed-price contracts, which means builders are stuck. I can't see (the increased costs) coming down, which means increases for homeowners as well, who are understandably disgruntled.

    Housing Industry Association Queensland executive director Michael Roberts also said it was nearly impossible for builders to provide an accurate quote for a house they would not start building for 12 months when they did not know the price of materials beyond October. He told The Courier-Mail:

    How does the builder lock in a contract now when the costs are so unpredictable? At the moment, they can't lock in prices with suppliers for more than a month ahead.

    New South Wales

    A recent NSW Upper House inquiry heard the $80,000 worth of timber currently needed in each new home is facing price rises of 20-30%.

    Although former NSW Deputy Premier John Barilaro ensured an additional 270,000 tonnes of timber will enter the domestic supply chain over the next three years, experts say that won't cover an estimated 1.7 million tonne shortage.

    NSW Labor natural resources spokeswoman Tania Mihailuk said the shortage must become a high priority for the state government. As reported by the Daily Telegraph, she said:

    As NSW finally emerges from its COVID lockdown, the construction and home building industry is set to launch into overdrive and is now facing a shortfall of over 50,000 timber frames, which is only going to exacerbate the already critical shortage of timber in NSW.
    While we understand that the 2019/2020 bushfires heavily impacted timber supply, nearly two years on, the NSW Government still hasn't presented a plan to find a solution to the current shortfall of a massive 1.7 million tonnes of timber.

    The inquiry also heard COVID-19 delays, fires in the US and demand in Europe has constrained imports.

    Last month, the state government directed the Forestry Corporation to divert selected softwood log exports - impacted by the China trade embargo - to domestic markets. However, inquiry chair and Shooters Fishers and Farmers MLC Mark Banasiak said the government's target to build more than 1.5 million additional homes by 2060 looks in trouble.

    The shortage means we are already seeing significant hold-ups on construction on the south coast and in southwest Sydney.

    A spokesman for Mr Barilaro said:

    ...A record 5 million tonnes of fire-affected timber has been supplied to the industry, ensuring NSW timber operations could maximise available timber, processing it into essential products including house frames.
    The extent of this salvage operation has been critical in ensuring the viability of timber processors in NSW, and the important jobs they generate.
    This salvage harvesting effort has been complemented by the NSW Government's $46 million equity injection to Forestry Corporation to support re-establishing plantations, expanding two production nurseries to increase seedling production and repairing infrastructure and roads damaged by fire.
    This season approximately 16 million seedlings were planted to re-establish timber plantations, well up on the normal 10 million.

    Tasmania

    A report from Master Builders Australia and the Australian Forest Products Association estimates Tasmania will be short 5100 house frames by 2035 under current trajectories.

    Master Builders Tasmania chief executive Matthew Pollock said the shortages were already causing delays throughout the supply chain and were projected to become worse. He told The Mercury:

    This analysis is a wake-up call for decision makers to act now to avoid a construction industry crisis in the next decade. We can't build houses if we do not have the timber to build frames.
    Timber shortages are a handbrake on our recovery, limiting our ability to meet community demand for housing.

    Mr Pollock said the current shortages could be a sign of things to come unless long-term planning occurred now.

    International supply chains have been disrupted, that's due to COVID, that's still ongoing in the construction industry. It's coincided with a mini housing boom thanks to government-led stimulus.
    It means we will build more houses over the next 12 months than perhaps any other year on record. But we do need to also address critical issues in the supply chain, and timber is one of those.

    COVID-induced supply chain problems have already caused delays in sourcing timber for frames, but the Tasmanian Forest Products Association (TFPA) fears it could get worse in the coming years, according to The Advocate.

    TFPA chief executive Nick Steel said the government needed to set aside more tree-planting land to bolster local supply. He said ordinarily about 20-25% of ­supply came from imports into Tasmania, but that it had slowed to a trickle ­because of border lockdowns.

    This report shows that state and federal governments need to seriously tackle the policies which will drive forward new plantings of the right types of trees at the right scale and in the right places.
    Australian governments need to work together on a national plan that delivers an immediate increase in our plantation estate to ensure Australia can meet its future housing construction needs. Future generations of Aussie homeowners are counting on it.

    Resources Minister Guy Barnett said the government was in talks with the industry about ways to alleviate the timber shortage. He said much of the problem came down to supply and demand, with the industry experiencing a boom of activity during the lockdown period.

    It's a nice problem to have, but there is a shortage for certain timbers for building and construction purposes and we need to do everything we can to work with industry and our community to make sure we can deliver on that supply.
    We continue to support a viable and sustainable forest industry because if you lock that up you won't have any timber for the building and construction sector. It's a bit of a no-brainer.

    Mr Steel said the state had a plan for social housing and population growth, but not for timber supply. He said the government needed to encourage farmers to use their land for plantations, while avoiding the issues of forestry managed investment schemes of the past. He told The Advocate:

    We need to build that trust back with farmers, so there really needs to be appropriate initiatives and policies put in place. !It's up to industry to work with the state and federal governments to come up with those initiatives to incentivise so we can actually work with farmers to plant trees.

    The TFPA estimated that between 30,000 and 35,000 hectares in Northern Tasmania had been identified as appropriate for private plantations.

    Tasmania sources about 30% of its timber from outside of the state, while some of its own timber is also sent to be processed on the mainland before returning.

    Related: Boom in home renovations is leading to product shortages and higher prices.

    Home reno demand leads to supply shortages - HNN Flash #44, May 2021

    Related: Timber shortage leads to delays and price increases for retailers.

    Timber access challenges continue for retailers - HNN Flash #49, June 2021

    Related: Timber prices up in Australia, down in the US.

    Price of local timber continues to rise - HNN Flash #54, July 2021
  • Sources: Herald Sun, The Courier-Mail, The Cairns Post, Daily Telegraph, The Mercury and The Advocate
  • regions

    Big box update

    Bunnings Mt Isa store on track for 2022 opening

    Some Bunnings staff have indicated they will quit over vaccine mandate and sponsorship for Sydney motor sports event

    Building is taking shape at Bunnings new Mt Isa store; the vaccine mandate has led to a small number of Bunnings employees deciding to leave the company; and Bunnings Trade has taken official naming rights of the Supercars event in Sydney.

    Mount Isa

    Bunnings said its new Mount Isa store in Far North Queensland is on target to open in the new year. Michael Rodwell, Bunnings area manager, said construction was progressing as planned at the site on West Street. He told The North West Star:

    The building structure is now fully enclosed, and the internal floors and fit out have recently commenced. Car park works are expected to get underway soon, with opening still on track for early 2022.
    All team members from the existing Mount Isa store will transfer to the new store once complete, and will be joined by additional team members. We look forward to welcoming local customers to the new store next year.

    In addition to a 172-car park with two entrances from West Street and one from Alma Street, the store would operate from 6am to 9pm seven days a week.

    Related. Bunnings appointed Hutchinson Builders in March 2021 to begin work on the Mount Isa site.

    Big box update: progress on Mount Isa - HNN Flash #48, June 2021

    Vaccine mandate

    Bunnings managing director - Australia and New Zealand, Mike Schneider said a small number of employees have quit over opposition to the Victorian government's vaccination mandate, according to an exclusive report in The Age. He said that while the response from staff towards getting vaccinated had been overwhelmingly positive, the business had started to see some workers quit due to state government requirements that they get the jab. He told The Age:

    We've already had a very small number of team members here in Melbourne who've indicated that they're going to leave Bunnings. And we've heard the same from some of our trade customers with subcontractors and such that aren't prepared to get vaccinated.

    The Victorian state government requires authorised workers to be fully vaccinated by November 26 to come to work. This includes retail staff working at Bunnings. Some staff in certain local government areas in Sydney also must get vaccinated.

    Mr Schneider said the issue of mandatory vaccines was tricky, with Bunnings providing hesitant employees with ample time to get health advice and information about the vaccines before taking any further steps.

    Some are taking annual or long service leave, and we'll work with those team members to go and get that all-important health advice. After that, they can access leave without pay, but in Victoria, it's very clear you need to be vaccinated by November 26, or you can't come to the site.
    What we're not going out there and saying is: 'if you don't have the vaccination by the 26th of November, you're fired'.

    However, Mr Schneider acknowledged unless government mandates change, workers who are not vaccinated will not legally be able to work with the business. He said:

    We value our people, and we'll work with them as best we can. They'll make choices, and we'll need to make choices, and those will be hard ones, I suspect. We hope that people do the research, get the confidence, get the jab - that's our message.

    Bunnings currently has 14 vaccination sites across the country and has vaccinated more than 66,000 people through its sites so far. Mr Schneider said:

    What we've been very clear with all governments across Australia, New Zealand and health departments is if there's a way we can help, we are absolutely there to help.
    Wesfarmers CEO provides update on the vaccination hubs at Bunnings stores in Sydney - HNN Flash #61, September 2021

    There have been a number of protests in Victoria over vaccine mandates, most notably from the construction and trades industry which were told by the state government in mid-September that they must be vaccinated to continue working on site.

    Mr Schneider said while he acknowledged Victorians were fatigued and tired, he said it was "crystal clear" that vaccinations were the path out of lockdowns. He said:

    It doesn't do anyone any favours going out and then protesting in the way that people are protesting.

    Related: CFMEU building industry protests in Melbourne.

    Melbourne CFMEU protests indicate fading power - HNN Flash #64, September 2021

    Supercars

    Bunnings Trade is backing the first Sydney Motorsport Park event on the revised 2021 calendar. The Eastern Creek venue will stage four back-to-back weekends of racing.

    The first event, the Bunnings Trade Sydney Super Night, will play host to a trio of sprint races. Two of the races will be held under lights, marking the first night racing since 2020.

    Bunnings Trade announced an expanded partnership with Supercars for 2021 and 2022 earlier this year. The new deal incorporates the Bunnings Trade PowerPass Power Play, which is seen on Supercars' broadcast and digital platforms.

    It also includes naming rights to the popular Supercars' tipping competition that offers a variety of prizes for fans, headlined by a $1000 Bunnings Gift Card and 2022 Supercars event package for the overall winner. Penny Gray, head of Bunnings Trade solutions said:

    Bunnings Trade is thrilled to support Supercars highly anticipated return to racing with the Bunnings Trade Sydney Super Night. Our team and PowerPass customers are passionate racing fans, and we know the wait will have been worth it with a show-stopping first event back at the Sydney Motorsport Park.

    Supercars CEO Sean Seamer added:

    I'd like to thank Bunnings Trade for coming on board as the naming rights partner of our spectacular return, under lights at Sydney Motorsport Park from 29-31 October. This event is significant for our category and our sponsors. Fans around the world will be tuning in to see our return to racing.
    Bunnings Trade has been an extremely flexible partner of Supercars throughout 2021 and we are thrilled that as an industry leader, they are continuing to support our sport as the naming rights partner of this event.

    Related: Phillip Island in Victoria will host the ninth round of the 2021 Repco Supercars Championship with Bunnings Trade the naming rights partner.

    Big box update: Bunnings Trade Supercars - HNN Flash #60, August 2021
  • Sources: The North West Star, The Age and Supercars
  • bigbox

    USA update

    Home Depot hires Walmart to handle local deliveries

    It is the first retailer to use the new delivery service which uses Walmart's expansive network to provide white-label delivery for businesses of all sizes

    The Home Depot and Walmart are working together to expand same-day and next-day delivery capabilities for home improvement customers in the US. They are teaming up to give Home Depot's customers another way to have their online orders delivered on the same or next day. Stephanie Smith, senior vice president of supply chain for The Home Depot, said:

    The Home Depot is continuously working to give customers the most convenient shopping experience in home improvement, and that includes providing a wide range of fast and reliable delivery options. This partnership brings us even closer to our goal of offering same-day or next-day delivery to 90% of the US population.

    The two companies did not specify details, such as the length of the agreement or their financial arrangement.

    Home Depot will initially offer delivery with Walmart GoLocal in select markets, with plans to expand to multiple markets across the country by the end of the year. Products that qualify for this scheduled delivery, including tools, fasteners, paint and other supplies that easily fit in a car, will have that option enabled at online checkout.

    In response to the announcement by both retailers, Neil Saunders, managing director, GlobalData told RetaiWire:

    Convenience and speed are key in home improvement as people doing tasks often need products in a timely manner. As such, this is a good move that gives consumers another option to quickly get Home Depot orders. It also saves Home Depot the hassle of building out all the capacity to offer fast local delivery. For Walmart, it's a good win that adds a lot of volume to its new service - which it needs if it is to build out fulfillment capacity in a way that competes with Amazon.

    Walmart debuted GoLocal in August and is a white label service, which uses third-party drivers, delivers orders for other businesses across the US. It offers delivery on a range of items, including those with size and complex requirements, as well as the flexibility to meet varying delivery timelines, such as express, same-day and next-day delivery.

    John Furner, president and CEO, Walmart US said Home Depot shares his company's goal of "making fast and reliable local delivery available in every community" it serves.

    Home Depot-Walmart merger?

    A recent opinion piece in Bloomberg suggests that a Walmart and Home Depot merger would make sense since the two companies represent the biggest importers of goods through container ships in the US. (Walmart is the top US importer of goods by container ship, followed by Target Corp. and then Home Depot, according to the Journal of Commerce's annual ranking.) Their combined strength would give them the ability to lay claim to containers at a time when many retailers are struggling to get goods into the country.

    The idea for Walmart and Home Depot to potentially merge comes from Brittain Ladd, an industry analyst with supply chain solutions company Kuecker Pulse Integration and a longtime consultant to the retail industry. Mr Ladd said in a phone interview with Bloomberg:

    Imagine their combined ability to collaborate on procurement.

    Not only could they negotiate better rates, but they could even acquire their own ships and sell excess capacity to other businesses by forming a logistics unit. This is a bit like the vertical integration Amazon has started assembling. Mr Ladd said:

    Supply chains have always had an element of risk to them because supply chains in most cases are truly global. But what we're also seeing today are supply chains that are in many ways too lean and paying for it. This is one of the best reasons for very large retailers and other companies to say, 'We need to start thinking big in our M&A and use it to reimagine our supply chains.'

    The strategic rationale for a Walmart-Home Depot deal extends beyond that, though. Walmart stores could use a refresh, and as groceries increasingly drive Walmart's revenue, Home Depot could become the overarching label or overseer of non-grocery items. Mr Ladd envisions a Home Depot-branded DIY section at Walmart.

    But there are obstacles. For one, their size - Walmart and Home Depot are valued at more than USD340 billion each. And antitrust regulators may take issue with the idea.

    For huge retailers, there could be an added incentive now to assert greater control over their supply chains, and takeovers could be the way to do it. If Walmart wants to think outside the cargo box, Home Depot is an option.

    To read more, go to the Washington Post:

    A Walmart-Home Depot merger makes shiploads of sense

    Mr Saunders from GlobalData has the opposite view of a merger between the two retailers. He told RetaiWire:

    As for a merger between Home Depot and Walmart, predicting this on the basis of the current supply chain crisis makes no sense at all. Supply issues are a difficult temporary problem, not a reason for companies to undertake mega-mergers which should be based on much wider commercial and strategic considerations.
  • Sources: RetailWire, Walmart and Washington Post
  • bigbox

    Indie store update

    Yolla Co-Op opening Latrobe store in Tassie

    The new store is an expansion from its Wynyard base and builds on its tradition of supporting local

    The new Yolla Co-Op in LaTrobe (TAS) is expected to open in December and its philosophy of "buying better" will continue for its customers and members. General manager, Ben Davis told The Advocate:

    It means everything to our business. It is the drive and the reason we exist. We need to make sure as a business we do everything in our power to support our community.
    For our Latrobe store opening, we are running a member giveaway [and] every member has a chance to win.

    Yolla Co-Op is a farmer's co-operative that supplies an extensive range of rural merchandise to Tasmanian farmers. Formed in 1977 by a handful of farmers from Yolla in North West Tasmania, today the Co-Op serves around a thousand members throughout the state.

    The business currently employs 24 staff, and it is recruiting for the new Latrobe store. Mr Davis said:

    In the beginning, there were no salaries, it was just farmers working together to make sure that everyone got the best deal.
    The decision to choose a Co-Op was critical to the philosophy that these farmers were trying to instil. To this day, the Co-Op still holds all those values and beliefs that every member is equally as important as one another.
    But together, by using the purchasing power of the combined membership, we're able to provide our members with the best possible price...

    The store features around 3,500 product lines for the upkeep of the farm, animal health and wellbeing, pet care, pasture and cropping, and home and hardware.

    Feedback from members led the Co-Op to acquire the Latrobe site after another good year with record sales and strong profits. Mr Davis believes what makes the business special is that it is owned by Tasmanians, who are involved in the local community.

    Related: A new Yolla Co-Op store was proposed for a site in Latrobe (TAS) earlier this year.

    Retail update: Yolla Co-op - HNN Flash #45, May 2021
  • Source: The Advocate
  • retailers

    Retail update

    Beacon Lighting wants to grow trade market

    The retailer will also build more bricks and mortar stores and shift focus to its overseas and online businesses

    Chief executive of the lighting specialist retailer, Glen Robinson, spoke to The Australian after the company's annual general meeting (AGM) and said it had six new stores lined up for this financial year - one of which has already opened at Ellenbrook in Western Australia - and would relocate another four.

    Beacon Lighting currently has 116 stores across Australia, and Mr Robinson said at the AGM the company had identified the potential for up to 184 in total. He told The Australian:

    It will be a record year of investment for retail stores within Australia. When you see house price growth and people moving home, so churn rate, and people moving to regional areas, I think that's been quite a significant shift for Australia, and also people working from home has also been a big push.
    NSW and Victoria in particular, as we start to come out of lockdowns, we will continue to see sales growing.

    The trade market has been identified as a "Strategic Pillar of Growth" and improving service to its trade customers remains the number one growth priority for the company. Specifically:

  • Beacon Lighting stores now open at 7:30 am to make it easier for the trade to shop
  • New trade specific products are being developed
  • Dedicated trade service counters have been added in recent store renovations
  • Trade Loyalty Club customers have increased from 35,800 to 44,100 in FY2021
  • Trade Loyalty Club sales increased by 50.1%
  • Commercial Lucci Design consultations have increased 48.7% to volume-driven residential builders
  • Beacon is also aiming to grow its trade sales online by 90% and planning for faster delivery to boost the trade division. It is now delivering within three hours in metro areas for online sales, which the company would be marketing more heavily this year, Mr Robinson said.

    Beacon's company store comparative sales for the first quarter of the 2022 financial year were down 4.7% on the same period of the year prior. However, that quarter was up 26.6% in a bumper year in which the company boosted its net profit by 69.4%. Mr Robinson said:

    We were pretty happy with that. Those numbers would have been hard to cycle anyway and we've done it ... with Victoria in lockdown.

    Mr Robinson said lighting remained a product well-suited to in-store sales, with customers commonly seeking advice for purchases which could be "pretty complex".

    We got to $26 million last year from online sales, which was 10% of retail sales, so still 90% of customers still prefer to go into a store and talk to someone.

    FY2021 results

    In August, Beacon Lighting posted record annual sales and profits with a 15% jump in full-year sales to $289 million. Net profit rose 69.4% to $37.7 million in the 12 months to June 27. With many shoppers pivoting to online shopping, Beacon booked record online sales of $26 million, up 60%.

    The company said it was able to bolster its margins through everyday pricing and improved procurement negotiations that have supported the profit margin, while the strengthening of the dollar has supported the product cost base. A pullback in discounting and promotions during the year helped to sell products at full price, further enhancing margins.

    Not surprisingly, it was Beacon's showrooms in states where there were minimal lockdowns or no lockdowns that performed the strongest during the 2021 financial year with Western Australia, Queensland, South Australia and NSW the standouts. Beacon opened four new stores during the year.

    It announced the launch of a new US website to facilitate direct-to-consumer sales and the expansion of Beacon International sales for Australian-designed products into the China market.

    Related: Beacon Lighting delivered a 133% profit rise in the half year to December 31.

    Retail update: Beacon Lighting - HNN Flash #33, February 2021
  • Sources: The Australian and Australian Financial Review
  • retailers

    Supplier update

    CSR Gyprock celebrates manufacturing milestone in WA

    In 2021, the company marks the 50th anniversary of Western Australian manufacturing with an ongoing commitment to new technology

    Opening its first Western Australian plant at Welshpool in 1971, and its fifth factory in the country, Gyprock has continued its tradition of evolving its product range to meet the needs of the ever-changing construction and building industry.

    Built at a cost of $1.4 million, or over $15 million in today's currency, the factory was officially opened by then-Premier J.T. Tonkin on 10th September 1971, after starting production in July of the same year.

    In the proceeding 50 years, tens of millions of tonnes of plaster and compound has been produced.

    Premier Tonkin said of the factory in his remarks, "It will employ Western Australian labour in processing a high-proportion of Western Australian raw materials" which remains true today as it did half a century ago. Welshpool still produces plasterboard using gypsum mined from Jurien Bay to the north of Perth.

    This commitment to Western Australian building also extended beyond the factory. Gyprock faced strong opposition from established Plasterglass producers in Perth who referred to the relatively new board as "paper board". In response, Gyprock gave builders and installers guided tours of the new facility to bolster confidence in plasterboard. In addition, teams from NSW were brought over to train and educate installers who upon completing the course became known as "30-day wonders". CSR Gyprock soon became the bulk plasterboard supplier for many former Plasterglass customers.

    Gyprock remains proudly (West) Australian Made, having just recently been certified by the Australian Made Campaign as part of an ongoing commitment to Australian manufacturing jobs. Brendon Cave, Gyprock regional general manager, said:

    We are very proud to have manufactured more than 200 million square metres of Gyprock plasterboard at our Welshpool factory over the past 50 years, most of which would still be installed and doing its job in Western Australian homes, offices, hospitals, schools and the like.

    Gyprock's Welshpool site now employs over 80 people and produces more than 5 million m2 of board on average every year, enough to cover the playing field of Perth's Optus Stadium nearly 300 times.

    It actively supports plasterboard recycling both to help the environment by reducing waste going to landfill and because it is often a great way for builders to save on waste tipping fees and site clean-up costs as well as improve site safety with better resource management.

    Related: Gyprock displays Australian Made on its products.

    Gyprock supports Australian Made - HNN Flash #39, April 2021
    companies

    ABS stats: building approvals

    Has the pandemic shifted approval patterns?

    Attention to a looming house price crisis has been growing. Building approval stats from the ABS do support the notion that there has been a surge of growth in 2021. While there are some pandemic effects, most of the growth is due to economic stimulus.

    The steep rise in house prices during calendar 2021 has focused attention on the housing market. One source of commentary on this situation that has been a little neglected is the proceedings of the House of Representatives Standing Committee on Tax and Revenue, which held an inquiry meeting on 14 September 2021. The terms of reference of the inquiry included:

    The House of Representatives Standing Committee on Tax and Revenue will inquire into and report on the contribution of tax and regulation on housing affordability and supply.

    It began with a rather rousing statement by the Chair, the Hon. Jason Falinski MP, the Member for Mackellar in New South Wales:

    The housing market represents, according to CoreLogic, $8.9 trillion in Australian wealth. This compares to $3.3 trillion in our superannuation system and $2.9 trillion in issued shares on the Australian Stock Exchange. There are nearly 10.5 million dwellings in Australia, there are $2 trillion in mortgages and 55 per cent of all household wealth is represented in the housing market. Every year we sell nearly 600,000 homes, representing just over $400 billion in sales.
    We find ourselves in a situation where we live on one of the least densely populated continents in the world, outside the South Pole, with some of the highest wages and the highest minimum wages in the world, and yet we have some of the least affordable housing in the world. It makes no sense.
    Standing Committee on Tax and Revenue, Housing affordability and supply in Australia, 14 September 2021

    [Note: This is taken from a Hansard "Proof" document, and as such is subject to possible future emendation.]

    There is a reason why Mr Falinski was almost somewhat raucous in his opening comments. As the hearing went on, it became evident the position of government departments such as the Treasury, as well as the Reserve Bank of Australia (RBA), was that housing is today as affordable as it has ever been, with the exception of the amount required for the housing deposit.

    It's not worth going into that general discussion, but there was one interesting statement made by Dr Lucy Ellis, who is an assistant governor at the RBA. It was instigated by a question from the Hon. Julie Owens, Member for Parramatta, which in part asked:

    It's as if all of the modelling at the moment looks at people who have already selected to go into the housing market because they can afford it, and therefore the demand is driven up by people who can afford a certain range of property which already exists, and then the supply lags in providing more of that same property. But what we don't know is what the demand is for housing stock that isn't there at the moment: lower priced housing stock, different locations, a different way of building, different designs, smaller - there's a whole other group of people who would want housing that aren't even anywhere near the market. Given the lag in supply, is there any model or way of jumping ahead five years and producing a market which currently doesn't exist at all?

    Dr Ellis responded in part:

    It's a really interesting question, so thank you for that. What you're getting at is that looking at averages and medians is not informative. One of the restrictions that we do see sometimes on supply is requiring detached houses, large blocks - the kinds of restrictions that were imposed in the post-war period here. For a long time in Australia, you could have any kind of home you wanted as long as it was a triple-fronted brick veneer with three bedrooms. This is something we talked about in a 2014 speech I gave to a Citibank housing conference, where we talked about this.
    We also talk about this in our current submission. You can't just look at the averages and say that that means that housing is unaffordable. The question is: is it appropriate for a particular household type?
    ...
    You're absolutely right about smaller, cheaper properties. This is fundamentally a distributional issue. If housing prices are high, someone is paying those prices. But if there is someone who can't pay those prices then they're renting. I think, fundamentally, this is where the apartment market comes into play. As we show in our submission, there's been an enormous increase in the share of apartments in newly built dwellings over recent years. The number of dwellings built over the years leading up to the pandemic was actually higher. We were adding to the housing stock faster than we were adding to population.
    So apartments, smaller buildings, are part of that story. So, yes, absolutely, when we think about restrictions on housing supply, we do need to think about things like, "Are we are we imposing particular types of housing on households who might be better served by other types of housing?" That's absolutely a question that governments may want to consider.

    While this is certainly something of an insight, from both Ms Owens and Dr Ellis, it's possible to take it slightly further. The issue with housing demand is, as they point out, that it is not general. People do not look at their economic situation, then find a rational housing solution based on that. For many Australians, the standard they apply to their own housing is based on the houses they grew up in, and there is an expectation they will live in a dwelling that is at least close to that expectation.

    This has created much of the difficulty with housing, at least for family units with one or two steady incomes. As Australia's cities have grown, housing prices have climbed for desirable areas. At the same time, over the past six or seven years, wages have not increased, and the economy has been driven by factors other than productivity gains, which has meant - in this instance - wealth distribution has been uneven. New home buyers have found themselves in the position of either overspending on housing, or accepting that, in relative, societal terms, they have become downwardly-mobile, and have a reduced status in comparison to their parents.

    What is really happening to the market is what economists refer to as "inelasticity of demand". This means that consumers are unwilling to substitute a less expensive product for a more expensive product - usually for reasons that do not relate to the use-value of the product itself.

    In turn, that inelasticity of demand has translated into a form of inelasticity of supply. There may be opportunities available in the production of less-expensive housing, but the best opportunities, from the perspective of housing developers, rests in the production of more "premium" housing.

    The pandemic effect

    The COVID-19 pandemic could have had the effect of undoing some of that inelastic structure, with people opting for more practical forms of dwelling, or simply realising that perhaps social mobility means less than it once did (in terms of, for example, individual development and life opportunities). However, it seems instead to have had something of the reverse effect.

    Looking at the most recent Australian Bureau of Statistics (ABS) stats for building approvals through to August 2021, we can see some indications of this. The charts we present here deal mainly with the changes in building approvals within the greater metropolitan regions of Sydney, Melbourne and Brisbane, as contrasted with building approvals across the rest of New South Wales (NSW), Victoria (VIC) and Queensland (QLD).

    New South Wales

    Chart 1 shows these stats for NSW.

    Section 1, the top chart, shows the number of building approvals for houses in greater Sydney, and those outside of greater Sydney. The first thing to notice is that overall housing demand has risen above the level of the last peak, in 2018. Secondly, there has been a proportional increase in the number of house approvals for the area outside of greater Sydney. For the five years before 2021, the average ratio was 65.4%, and for the 12 months to August 2021 this grew to 73.3%, up 7.9%.

    Section 2, beneath that, shows quite a different scenario for not-houses (essentially multi-unit dwellings). While there has been a surge upwards in approvals for the 12 months to August 2021, it is relatively modest, taking demand back to the level of 2019. In terms of the ratio between approvals inside greater Sydney to those outside, the situation is a little complex. While the ratio for 2021 at 22.8% is higher than the prior five-year average 17.6%, it is actually down on the ratio for 2020, which was 24.2%. Essentially, approvals for not-houses outside of greater Sydney are almost static from 2019 to 2021.

    Section 3 shows the percentage change in building approval numbers. It is a fairly classic over-correction situation, with approvals going into negative growth territory in 2019 and 2020, then recovering strongly for the 12 months to August 2021. It is interesting to note that in growth terms not-houses outside of greater Sydney have done better than not-houses inside greater Sydney since 2017, but that has reversed for 2021.

    It's worthwhile noting the exact percentage growth for all four categories for 2021, as there is quite some variance. Approvals for houses in greater Sydney grew by 25.76%, not-houses in the same area by 29.55%, outside Sydney houses grew by 36.44%, and not-houses in the same area by 22.15%. So it is all strong growth but there is close to a 14% variance.

    Finally in Section 4, we see the ratio of not-houses to houses. This indicates that as far as building approvals go, the situation has been close to static over the past three years.

    Victoria

    Chart 2 shows the same numbers, but for VIC.

    Section 1 on the top shows the peak in approvals for houses has achieved a very high level. There has also been a considerable increase in the number of approvals for houses outside greater Melbourne. The five-year prior average for the proportion is 41.1%, and the number for the 12 months to August 2021 is 54.5%, up by 13.4%.

    Section 2, underneath that, shows how limited the market for not houses outside of the greater Melbourne region is. Even with that, however, there has been a surge in approvals. The prior five-year average of the proportion of not houses outside greater Melbourne to those inside Melbourne is 3.7%, and for 2021 this rose to 8.1%.

    Section 3 perhaps illustrates the unique situation in VIC best. This shows the percentage change in building approval numbers. Both houses outside greater Melbourne and not houses in Melbourne show strong growth, while houses inside Melbourne show good growth, but not houses in Melbourne show a decline.

    Section 4, on the bottom, shows a very different situation to that of NSW. There has been a sharp decline in the ration of approvals for not houses to houses in Melbourne, while approvals for not houses outside of Melbourne are essentially stable.

    Queensland

    Then there is QLD, which really does seem in some ways to occupy a middle-ground between NSW and VIC.

    Section 1, the top chart, shows the number of building approvals for houses in greater Brisbane, and those outside of greater Brisbane. Once again, there is a strong peak in approvals, above the previous peak in 2018. While the ratio of those outside greater Brisbane to those inside has grown from 2020 to 2021, at 74.9% and 85.8% respectively, the average for the prior five years is actually 87.9%, indicating the 12 months to August 2021 is more of a return to a norm than a pandemic generated shift.

    Section 2, below that, shows that while not house approvals grew for 2021, it is to a level only slightly above that of 2019, and far, far below the peak for 2016. Again the situation for the ratio between inside and outside greater Brisbane is a little complex. The ratio did grow from the 64.3% of 2020 to 67.0% for 2021, and this is above the prior five-year average of 56.5%. However, the ratio for 2018 was 74.5%, so this is well within the pre-pandemic ranges.

    Section 3 shows the percentage change in building approval numbers. It bears some resemblance to the same graph for NSW, only with stronger growth. In particular, the grow for houses outside of greater Brisbane increased by a substantial 63.0%. That is likely due to strong demand generated by people migrating to Brisbane, coupled with the pandemic effects.

    Section 4, on the bottom, is interesting as it reveals something of an unexpected trend. Since 2017 there has been a trend of a declining ratio of not houses to houses. It is most pronounced inside the greater Brisbane area, but outside Brisbane also indicates a slide. There may be some acceleration in this slide for 2021, but it follows on from a well-developed trend.

    Analysis

    It is undoubtably true that there have been some extended effects from the COVID-19 pandemic on the pattern of geographic distribution of building approvals. However, it would seem that economic factors such as very low interest rates and programs such as HomeBuilder from the federal government, have had more influence on the market.

    One factor that may be present is that homeowners are not banking so much on the current boom in house prices continuing, but on the federal government, should the boom cease abruptly, stepping up with further aid and assistance. In that case home buyers are not really assessing the immediate risk in purely market terms.

    The real difficulty facing the RBA and government is that while the housing market has responded to low interest rates, the business economy has not. Investment in business remains very low, and wages growth continues to drift sideways. A strong housing market economically does little other than to shift investment to one of Australia's lowest productivity industries, and to distribute wealth along slightly different lines.

    statistics

    Big box update

    ACCC does not oppose Bunnings' Beaumont Tiles acquisition

    Store developments in Port Augusta and Jimboomba as well as real estate sales

    Bunnings' acquisition of Beaumont Tiles is not opposed by ACCC; plans move ahead for Port Augusta development; Bunnings said it will add approximately $36 million to the local economy with its proposed store in Jimboomba (QLD); Kempsey store site in New South Wales has been sold; and a yet-to-be-built outlet in Hervey Bay (QLD) has been placed on the market.

    Beaumont Tiles

    The Australian Competition & Consumer Commission (ACCC) has found that Bunnings' proposed acquisition of Beaumont Tiles is not likely to substantially lessen competition. In a statement, ACCC chair Rod Sims said:

    At first glance, Bunnings taking over a major tile retailer appears concerning, but our investigation found that Bunnings is not a strong competitor in tile sales. This is not a case of a close competitor buying up its rival.
    However, the ACCC's decision not to oppose this deal is based on the specific circumstances and should not be read as any indication that the ACCC will reach the same conclusion in relation to future possible acquisitions by Bunnings.
    The way in which Bunnings is competitively constrained by specialised retailers, and the potential impact on customers and manufacturers, varies depending on the product and market circumstances. Any future expansion by Bunnings into more specialist retailing categories through acquisition of existing competitors will be very carefully considered by the ACCC.

    In this case, the ACCC found that specialist tile retailers compete much more closely with each other than with Bunnings. Mr Sims said:

    Specialist tile retailers have a far more extensive range, displayed in dedicated tile showrooms with specialist staff who can provide design and product advice to customers and referrals to tilers. Specialists also have stronger relationships with larger builders, and usually deliver tiles direct to work sites.
    By contrast, Bunnings generally sells small volumes of tiles in-store to DIY customers, and tilers and other trades people undertaking small jobs.

    Industry participants who spoke to the ACCC highlighted Bunnings' lack of services offered by specialist retailers such as product or design advice as a particular reason Bunnings is not a strong competitor to specialist tile retailers. Mr Sims said:

    Following the acquisition, several large and small specialist retailers will remain to compete with Bunnings in every state and territory.

    However, the ACCC did hear some concerns, primarily from other tile retailers, that a combined Bunnings-Beaumont Tiles would come to dominate tiling retailing. These concerns include, for example, that the combined firm could prevent or hinder rivals from easily accessing tiles on comparable terms, or from easily serving a significant body of customers.

    The ACCC undertook extensive inquiries with customers, local and overseas tile suppliers and competitors, and examined financial information and company documents to inform its assessment.

    Ultimately, the ACCC found that these concerns were not likely to eventuate because of the availability of many alternative manufacturers and suppliers of tiles globally, and a diverse customer base for tiles in Australia. Mr Sims said:

    There is little doubt that the proposed acquisition will allow Bunnings to compete strongly with specialist tile retailers, particularly in supplying larger builders who Bunnings has struggled to attract to date.
    Stronger competition may pose challenges for some tile retailers, but it is unlikely to lead to a substantial lessening of competition in this market.

    In considering the proposed acquisition, the ACCC has applied the legal test set out in section 50 of the Competition and Consumer Act. In general terms, section 50 prohibits acquisitions that would have the effect, or be likely to have the effect, of substantially lessening competition in any market.

    Background

    The ACCC considered the impact of the proposed acquisition in markets for the retail supply of tiles and tiling ancillaries (such as glues, grouts, sealants and tools), as well as competition at national, regional and local levels.

    The ACCC said it did not reach concluded views on the precise definitions of the markets, as it would not significantly alter the assessment.

    In its analysis, the ACCC found there are significant differences between the offerings of specialist retailers and Bunnings, meaning that specialist tile retailers, like Beaumont Tiles, compete most closely with each other and are more important to competition in tile retailing.

    While Bunnings' aggregated sales of tiles are significant, its sales on a per-store basis tend to be quite small and mainly to DIY and similar customers "off the shelf". In comparison, Beaumont Tiles and other specialist tile retailers offer a much more extensive range exhibited through dedicated tile showrooms, and they offer additional important services, such as design advice and referral to tilers. They generally also deliver tiles to customers. Some specialist retailers also have stronger relationships with larger builders, particularly residential builders, which typically involves delivering tiles directly to work sites.

    Post-acquisition, other significant competitors, as well as smaller competitors, will remain in most urban areas and will continue to compete with a combined Bunnings/Beaumont Tiles. This includes larger chains like National Tiles, regional-level chains in some states, large single-site retailers in some state capitals, online retailers and a large number of small individual retailers.

    The ACCC also considered whether, over the long term, a combined Bunnings/Beaumont Tiles may frustrate or hinder rivals from readily accessing some inputs or a significant group of customers, for example through bundling products, potentially leading to a reduction in competition.

    The ACCC concluded that the proposed acquisition is not likely to substantially lessen competition in relation to inputs, as there is a range of alternative manufacturers and suppliers of tiles globally and most tiles sold in Australia are imported.

    In relation to the potential for competitors to be frustrated or hindered from accessing customers, the ACCC noted that there is a very diverse customer base for tiles in Australia, including customers who do not require any hardware or building products beyond tiles and tiling ancillaries. This means that, even if a bundling strategy was adopted, there will remain a large proportion of customers who are not interested in a bundled offer, limiting any potential anti-competitive effect.

    Related: Earlier this year, HNN reported the move by Bunnings to acquire Beaumont's is surprising, in that this will involve Australia's largest hardware retailer in a business highly unlike its warehouse-based stores. It's possible the real growth opportunity is a move into bathroomware, taking on companies such as Reece Group.

    Bunnings to buy Beaumont Tiles -HNN Flash, April 2021

    Port Augusta

    The Upper Spencer Gulf Regional Assessment Panel (RAP) in Port Augusta (SA) recently met to discuss and approve planning consent of the proposed Bunnings store, and to hear any opposition, according to The Transcontinental.

    There was mixed support for the project, with the RAP report stating it had received 439 representations in support of the development, 11 representations of support with concerns, and six representations opposing the development.

    Of those with concerns about the project, the main points expressed included inappropriate location; high vehicle movements at proposed location; local businesses suffer; problems with design, and impact on land. It will not be a low impact business.

    Despite opposition presented, the RAP approved the planning consent. Port Augusta Mayor Brett Benbow said he was hopeful the project will have a positive impact on the community. He told The Transcontinental:

    There was some really good submissions for and against, but the panel decided it fell in line with what was required. I am happy that it has gone through for the community, and for employment, and for activity around our region.
    I think it is fantastic for the whole region, we will have people coming to our city instead of going to Adelaide. Hopefully the business will help more kids find casual work, and older people to find full-time work.
    It is a good shot in the arm, for the industry and the region itself.

    At the same time, Mayor Benbow did sympathise with local businesses that will be in direct competition with the new Bunnings. He said:

    I do feel for some of the businesses that will be impacted. It was suggested at the meeting they may need to think outside the box now and start to adjust their business to see what is coming.

    Related: Bunnings confirms its plans to enter the Spencer Gulf region.

    Port Augusta Bunnings proposal confirmed - HNN Flash #56, July 2021

    Jimboomba

    Despite the development application for the Bunnings Jimboomba store gaining approval, the retailer is currently working through some amendments to the conditions. This is a typical part of the development approval process.

    Logan City Councillor for Division 9 Scott Bannan said council and Bunnings were still negotiating. Cr Bannan told The Courier-Mail:

    The warehouse has been approved but they haven't actually bought the land yet. There is still some back and forth on the traffic management plan too.
    TMR [Department of Transport and Main Roads] hasn't approved that part yet either.

    Andrew Marks, director of Bunnings property and store development said he could confirm the development application for a new Bunnings Warehouse in Jimboomba had been approved. He told The Courier-Mail:

    However we are continuing to work with the relevant authorities on the conditions of the development approval, including roadworks. The new store would be located on Anders Street, Jimboomba and the site was chosen to service the growing areas of Jimboomba, Yarrabilba and Flagstone.
    The development is expected to create more than 95 team member positions for locals, as well as approximately 105 construction jobs.

    Mr Marks said Bunnings would invest approximately $36 million into the development.

    Cr Bannan said he believed there could be some backlash with the hardware giant moving in next door to the existing Mitre 10 outlet.

    But I ultimately believe this will be positive for the local community. Nothing wrong with a bit of competition. And it's bringing jobs which is always a positive.

    The Jimboomba Mitre 10, next to where the new Jimboomba Bunnings will be, is owned by the Woodman family, who also own the Beenleigh Mega Mitre 10.

    Before this, the Woodman family ran a Mitre 10 in West Mackay, which they have owned since 1976. Their West Mackay Mitre 10 shut down in 2017, with the Woodman family blaming the opening of a new Bunnings near the Mackay store.

    In 2017 Kerry Woodman announced the Mackay store would remain a head office for his other trade supply businesses, while Woodman's Mitre 10 stores in Sarina, Marian, Proserpine and Cannonvale would be rebranded as Porters Mitre 10.

    Related: Porters buys four Woodmans Mitre 10 stores.

    Store consolidation in Mackay, QLD - HI News, page 13

    Related: Jimboomba will be home to Bunnings' fifth store in the region.

    Bunnings store to be built next to Jimboomba Mitre 10 - HNN Flash #64, September 2021

    Kempsey

    Bunnings has sold its unbuilt South Kempsey store on the NSW mid-north coast for $28.55 million to a Victoria-based syndicate led by real estate developer, The Lowe Group.

    Bunnings offered the property with a 10-year leaseback starting in mid 2022, when the outlet is scheduled to open. The vendor has put construction costs at $12.5 million, according to the Real Estate Source website.

    Located on 2.983 hectares at 320 Macleay Valley Highway, around 3kms south of Kempsey's CBD, the 10,999sqm warehouse will replace the Kempsey Rose Motor Inn. The region is about 420 kilometres north of Sydney, between Port Macquarie and Nambucca Heads.

    According to the Australian Financial Review, 11 freestanding Bunnings Warehouse outlets worth more than $412 million have changed hands so far in 2021.

    In June, the Bunnings Young store in NSW was bought for $11 million by a Sydney-based private investor

    A Bunnings store in Horsham (VIC) also changed hands for $9.8 million on a yield of about 5.9% in July. The 7465sqm property with a lease to Bunnings until 2025 was bought by an offshore private investor from a consortium of New Zealand-based investors.

    In June, a newly built Bunnings warehouse west of Brisbane changed hands on a benchmark yield of 4.2% after selling for $22.2 million at a portfolio auction. The 9421sqm Bunnings on a 2.17-hectare site at Plainland (QLD) sold 11% above its reserve following a bidding war between two Melbourne-based families.

    Hervey Bay store

    Bunnings is offering another unbuilt outlet in Hervey Bay (QLD) for sale, reports the Real Estate Source.

    The hardware retailer can expect about $55 million for the Pialba property, sources told Real Estate Source, which would reflect a yield of 4.2%.

    The 17,421sqm retail complex with 451 car parks, will be developed on a 4.72 hectare block at the north east corner of Main and McLiver streets, beside its existing store. Bunnings Hervey Bay is due to be completed in late 2022.

    The vendor will pay starting annual rent of $2.34 million, and with options, it can stay until 2080.

    Related: Bunnings has been given the green light for a $56 million development in Hervey Bay (QLD).

    Hervey Bay to get a new Bunnings - HNN Flash #24, November 2020
  • Sources: Australian Competition & Consumer Commission, The Transcontinental, The Courier-Mail, Australian Financial Review and Real Estate Source
  • bigbox

    Kingfisher results for H1 FY2021/22 soar

    The home improvement group's quick pivot during the pandemic worked

    Kingfisher's move to online and digital capabilities across its UK and EU retail banners worked to boost retail profit during H1. However, Q2 results were substantially down on Q1 results, signalling tougher times ahead.

    EU- and UK-based big box hardware retailer Kingfisher released results for its first half FY2021/22 (six month to 31 July 2021) on 21 September 2021. The results were highly positive, and show that the retailer has, like many essential hardware retailers around the world, managed to prosper through the difficult times of the COVID-19 pandemic.

    In terms of sales, for the entire group these came in at GBP7101 million, up by 19.9% over the previous corresponding period (pcp), which was the first half of FY2020/21. In constant currency terms, sales rose by 22.2%. The star division for sales increases was Screwfix, which produced sales of GBP1192 million, an increase of 30.4% on the pcp. DIY retailer B&Q was close behind with an increase of 29.3% on the pcp, with a total GBP2378 million in revenue.

    Overall, Castorama and Brico Depot also performed well in the half. Castorama produced GBP1237 million, up 17.3%, and Brico came in with an even GBP1200 million, an increase of 23.3% on the pcp.

    The good result for the half was the result of an overall sales increase of 60.0% by Kingfisher in the first quarter. The two French banners did very well during this quarter, with Brico Depot more than doubling its comparable revenue, and Castorama close behind at 94.5% up. In the UK, B&Q was 82.7% up, and Screwfix revenues grew by 42.5%.

    This high level of growth tailed off in the second quarter, with only Screwfix showing strongly positive, at 19.6% growth, while B&Q fell by 0.8%. In fact, Kingfisher has plans to expand Screwfix to a total of 1000 stores in the UK and Ireland, up from a previous target of 900. Launched as an online-only store in France, there are now plans to open the first physical Screwfix store there in 2022.

    In terms of profit, Kingfisher produced GBP767 million, up by 44.1% on the pcp (45.1% in constant currency terms). UK and Ireland were up by 40.8%, while France recorded profit growth of 104.1% (109.3% in constant currency terms) on the pcp.

    At the conclusion of the half there were 305 B&Q stores, 741 of the smaller Screwfix stores, 93 Catorama stores and 123 Brico Depot outlets. Kingfisher has a further 154 stores throughout other regions of the EU.

    In its trading update, Kingfisher stated:

    The third quarter has started positively, with Q3 21/22 LFL sales (to 18 September [seven weeks]) down 0.6% and the corresponding 2-year LFL [like-for-like] up 16.1%. E-commerce sales continue to progress well with 2-year growth of over 130%. The 2-year growth rate reflects resilient levels of demand in all markets, particularly the UK & Ireland.

    E-commerce

    The company highlighted ongoing growth in e-commerce:

    E-commerce continued to be the Group's fastest growing channel in H1 21/22, with e-commerce sales in constant currency up 21%, and up 216% on a 2-year basis (excluding Screwfix: up 36% YoY, and up 258% on a 2-year basis). This resulted in e-commerce sales accounting for 19% of total Group sales in H1 21/22 (H1 20/21: 19%; H1 19/20: 7%). Excluding Screwfix, e-commerce sales penetration grew to 9% in H1 21/22 (H1 20/21: 8%; H1 19/20: 3%).

    One of the most popular parts of e-commerce for Kingfisher retailers has been click-and-collect. Kingfisher stated:

    Click & collect (C&C) sales, the largest online fulfilment channel, grew by 10% in H1 21/22, and by 277% on a 2-year basis. C&C accounted for 87% of Group e-commerce orders (H1 20/21: 90%) and 73% of Group e-commerce sales (H1 20/21: 79%).

    One of the more interesting developments is an accelerated launch of more e-commerce lockers in Poland. In answer to an analyst's question, the CEO of Kingfisher, Thierry Garnier, said:

    On Poland, you're right that it's a great country for online, so what we did already the past few months first is to add more store hubs, so now because of the geography of Poland, every store is a hub and they bring an area around stores, and allows us to operate faster, to make a faster delivery. We are operating in one hour click and collect in Poland.
    Poland is is a country that is very special because it's relies a lot on lockers. It's one of the European countries where the number of lockers is the most developed - it's really a habit. We did already test last year on lockers and we were happy, so we are currently rolling out 4000 lockers in Poland.

    OEB

    Part of the increase in profit is also down to the increasing influence of Kingfisher's own exclusive brands (OEB). The company says that sales of these brands rose by 22.8% for the half, for around GBP3200 million in total sales.

    The company plans to launch an additional 10 OEBs in the second half of FY2021/22.

    Hire and services

    Another area of expansion for Kingfisher has been hire services, and home improvement services. According to the company:

    Following positive results to date from 16 tool hire concessions with Speedy Hire (located adjacent to TradePoint), B&Q is extending the service to 39 stores from September 2021. In partnership with Crystal Direct, B&Q is also testing "Made to Measure" doors and windows concessions, initially in four B&Q stores. Castorama France is piloting an equipment hire service in 40 stores, and Brico Depot France and Castorama Poland are trialling online van rental services with an app-enabled key.
    Speedy brings tool hire into more B&Q stores - HNN Flash #32, February 2021

    There is also Kingfisher's acquisition of NeedHelp, which is a marketplace for home improvement services (like Hipages). Founded in France in 2014, it was acquired for EUR10 million in November 2020. According to Kingfisher:

    The marketplace will benefit from in-store advertising and lead generation at B&Q and Castorama Poland, and the significant volume of website traffic that these banners generate, while leveraging the tradesperson network of Screwfix and TradePoint on the supply side. Early take-up has been encouraging. Brico Depot France is piloting an in-store installation service utilising NeedHelp "jobbers".
    Kingfisher acquires online DIY marketplace - HNN Flash #25, November 2020

    The company is also looking at store-in-store expansion on a concession basis with smaller B&Q outlets located inside ASDA supermarkets. The first two trial stores have opened in Roehampton and Edmonton.

    B&Q mini stores in ASDA supermarkets - HI News 6.3, page 88

    Kitchens

    Many people in Australia's hardware retail industry found themselves schooled somewhat in how kitchens worked in the UK when Bunnings UK & Ireland launched. It turned out that kitchens made up a very complicated business, largely because British homeowners would, after a kitchen was installed, insist on a wide range of modifications - all of which would be carried under the original installation contract.

    Kingfisher's B&Q likewise struggled with kitchens while Veronique Laury was CEO. According to Mr Garnier, Kingfisher now has a profitable business in kitchens.

    B&Q after having relaunched our installation services for kitchen [found] first of all you are able to sell more. You have extended ranges and six standard categories. You could sell when you are talking to a customer on kitchen.
    Another technical thing we discover, for example, is that if a customer wants to [obtain] credit if he's able to have all together the cost of the installation, the cost of your kitchen in the [one] credit proposition, it helps. So all that are critical things to [help] develop the basket, and overall we are very happy with the basket, with the profit with all the programs of B&Q.
    On quality it's very much a question of model and execution. In the past we had our own colleagues doing installation and [this was] managed centrally. So in fact [now] we are doing exactly the opposite. We are using third party [installers] and it's managed locally. Therefore you have a small number of fitters, of trade people, managed by your store team, creating strong relationships. Today we are very, very happy with the result.

    Analysis

    It's interesting to contrast Kingfisher with Australia's Bunnings. In terms of overall revenue, Kingfisher will likely make around AUD23 billion in the current financial year, which means Bunnings is about 70% the size of the UK and EU retailer. Yet the two companies have very different approaches to business strategy, market development and, especially, risk taking.

    That's only to be expected because they operate in very different economies, across different demographics, and in very different competitive environments.

    During Mr Schneider's term as managing director, revenue has increased from $11.5 billion for FY2016/17 (he was appointed managing director of Bunnings Australia in March 2016) to $16.9 billion for FY2020/21. Allowing for inflation, that's a net gain of 40%, or an average 10% per year - a record any CEO at a major Australian retailer would be very happy to have.

    So there is good evidence that the innate conservative nature of Bunnings is not misguided. It is very much a "heads down, stick to your business" type of a company. Its most recent strategy is to take on risk via acquisitions and expansions, as with Beaumont Tiles (recently approved by the Australian Competition and Consumer Commission) and Tool Kit Depot, its trade-tool competitor for Total Tools and Sydney Tools.

    The real surprise is that potential competitors to Bunnings have not seen what companies such as Kingfisher are doing, and developed these strategies as an answer to the dominance of Bunnings.

    The main reason for this is, perhaps, that the primary insight Kingfisher has to offer is that the hardware store as store is no longer the primary area for expansion. The store remains a crucial contributor to overall revenue, but growth resides more in services, or, ideally, in a combination of products and services, such as is represented by B&Q's kitchen sales. Not to mention rentals, and the potential to effectively combine NeedHelp services with store sales. Add in online, and it could be a matter of ticking a few boxes, paying via credit card, and having a tradie show up at your door with the purchases and a brief to install them.

    What prevents this migrating as a competing business model to Australia are two things. First of all, this model just doesn't appeal to the "traditional" hardware store retailer - and most current owners of hardware stores are more in that traditional mould.

    Secondly, even though it has great potential for earnings, and has demonstrated good security of investment, hardware tends not to attract many younger businesspeople, even those with a speciality in retail. The supplier industry is so geared towards the "traditional" store, that it can be hard going for newcomers.

    As US big box chain Lowe's Companies' experiment with Masters Home Improvement in Australia, and Bunnings experiment with Homebase in the UK indicate, trying to expand hardware retail across divergent cultures is a very big risk. That means it's unlikely Australia will see a foreign competitor emerge.

    However, what we could see would be a hardware-adjacent company expanding into the hardware market, using the same service-oriented tools and techniques that Kingfisher is developing. A Screwfix-like company, but oriented towards DIY, for example, might have real potential in this market.

    bigbox

    YouTube power tool review channels

    Seven different channels

    While the internet sometimes seems to taketh away more than it giveth, there are some excellent YouTube channels that review both power tools and the manufacturing strategies behind them.

    As we all know, the internet today can often seem to be a seething pool of abject untruths catering to something other than what Abe Lincoln referred to as the "better Angels" of our characters. A good contrary argument, however, can be made for some types of specific content available, and HNN would make the case that one of those content types would be power tool reviews on YouTube.

    For hardware retailers, these sites can be a good guide to the latest offerings from different power tool makers, as well as providing a valuable longer-term perspective on some tools. Even if you mainly sell one or two brands of tools, it's helpful to know how other brands compare, and when some trusty favourites are on the brink of being discontinued, or altered in an important way.

    This content falls into three wide categories. There are the "semi-pro" entertainers, who have a sometimes enjoyable "boys with toys" attitude, and just have a great time showing off the latest gear, or commenting on upcoming developments. This category is somewhat dominated by North Americans.

    Then there are the amateur tool users, who don't always get every detail right, but offer up a very unbiased, clear-sighted view of how a tool works for them.

    Finally, there is a third category that is usually made up of building professionals, who have had a lot of experience with tools, and provide a daily-use perspective that is very valuable.

    This last category, HNN would have to admit is our favourite, not least because some people from Australia and New Zealand do a great job on their channels.

    Australia/New Zealand

    Tools & Stuff

    By far our favourite reviewer at HNN is Tools & Stuff, which is put together to a surprisingly high standard by a New Zealand builder and carpenter.

    It's hard to explain exactly what makes this YouTube channel so enjoyable and informative. One part of it is that the presenter strikes just the right balance with a casual but highly informative approach. This is backed by good production values. The lighting is bright, the camera is in focus, and whatever detail he is pointing to is clearly evident. He has taken the time to add in information displays, so that when he references a different tool, or an accessory, those details are right there, and easier to understand.

    He's also very adept at ordering the information he provides, so that rather than drowning his audience in detail, he mentions some aspects of the tool as teasers for later, then follows through in thoroughly explaining them.

    One of the best reviews on Tools & Stuff is a recent one for the Makita 40v 125mm Circular Saw HS005G. This is really a "classic" review for this channel. First of all, it is currently a Japan-only saw, so it has been purchased over eBay. It's an unusual saw, because it combines a small blade with the power of the 40-volt motor. And, as it turns out, it has some very interesting, specialist features.

    To outline three points that show how engaging these reviews are. First of all, there is some time spent on the primary safety switch (depressed to release the trigger). This is an interesting evolution of the Makita design, as the presenter points out. He shows the other two designs that are available, the push-in button, and the flip-down lever, on different Makita circ saws. Then he illustrates the new design that combines those two: it's a button set on an angled surface, so that it can be depressed by sliding your thumb over it.

    That might seem like a very small design detail, but as anyone who has used a circ saw finds out, especially if you are repeatedly cutting short lengths, that control can become very annoying. It's a great design solution on this saw.

    The second thing he points out is that while it is great the saw is so lightweight (he weighs it on an electronic scale at 2.2kg) that does make it a little difficult to keep perfectly straight on long cuts. As he points out, that has a lot to do with the size of the blade. Spinning at several thousand times a minute, larger blades do act as a kind of gyroscope, creating torque-induced precession.

    It's the third area of investigation that really shows what this channel is all about. This saw has two unusual features: part of the plate (or main shoe as it is sometimes called) can be removed, and the saw blade can be bevelled in the reverse direction to a normal bevel. When you put those two things together, as the presenter points out, you end up with a saw that can be used for tasks such as cutting a damaged floor out directly along the wall mouldings.

    Of course it is one thing just to say that, but he reviewer goes on to build a small section of demonstration floor, then shows how the saw can be used to cut that out.

    As one commenter on the review put it: "I already have 6 circular saws and now I need 7".


    Tools & Stuff

    Oz Tool Talk

    The one thing you can say about this channel to begin with, is that it has the perfect name to describe what it is. The two presenters, Mike and Dwain, showcase and used tools, then talk about them together as a review. The two are a perfect complement, with Mike the more fast and direct one, and Dwain a little more contemplative and thoughtful.

    The conversations about the tools are lively and intense. While they are not always amazingly technically detailed, and sometimes seem to wander a little from what an electrical engineer would probably say, what they do get right is the emotional side of tools, how they impact on tradies, and what things tradies value in their tools.

    There is a great discussion, for example, over the new Makita 40-volt range, how that impacts on buying decisions, and the difficulties of running several different battery platforms at once.

    The production values are generally good, but there is frequent use of smartphone footage (in vertical orientation), and while focus and lighting are usually pretty good, there are some shots that could have been improved.

    For retailers, this is a great way to find out what the customers are probably talking about and thinking.


    Oz Tool Talk

    Scott Brown Carpentry

    Scott Brown is another New Zealander (who knew that New Zealanders had these video talents?), and his approach is a bit of a mix between Tools & Stuff and Oz Tool Talk. This is another single-person show (except when he ropes in his wife to participate), but Scott is basically having a conversation with the viewer. The show is also very crisp when it comes to its video presentation, and has a slightly more professional soundtrack, with great use of music in transitional segments.

    Where Tools & Stuff is more technical, Scott Brown is slanted towards the experiential and practical. Except when it isn't, which is best illustrated in his video about multi-tools, which rapidly becomes all about multi-tool blades, and you absolutely simply must watch this:


    (Note: this was done during Auckland's pandemic lockdown. If you've been through a lockdown, you know what to expect.)

    A more "normal" Scott Brown video is probably his particular take on the Makita 40-volt system.


    So, basically, this is a somewhat mixed channel, with bits of building, lots of power tools, and doses of slightly offbeat humour.

    Scott Brown Carpentry

    North America

    The Honest Carpenter

    While this is a channel that is as much about carpentry as it is about power tools, it is also a practical resource for hardware retailers, because it can help to fill a particular gap.

    One of the mysteries that we confront in hardware retail is that while Australia has fantastic regulations governing gun ownership, just about anyone can walk into a hardware store and buy a chainsaw or a circular saw. Particularly when it comes to new DIYers, there is really only so much that can be done to help ensure their safety.

    The Honest Carpenter - or, to give him his proper name, Ethan Daniel James - can at least help provide some guidance to what is one of the most dangerous tools in the hands of an amateur. In particular, his video entitled "11 Worst Circular Saw Mistakes" should be compulsory viewing for anyone new to circ saws. He explains not only the main source of injuries with the saws - kickback caused by the blade binding in the kerf - but also covers basic saw care issues - such as never putting the saw down on concrete (that scuffs the plate, which then scratches any wood you cut with it).


    For people interested in the trade economy, Ethan also has a really interesting commentary piece entitled, "Did IKEA Destroy Carpentry and Woodworking?". It is far from being a rant, as he accepts the benefits consumers get from IKEA. What he points to is that IKEA has fundamentally reset people's expectations for the costs of custom woodworking, citing examples where customers want something done for $1000, when the real cost would be over $10,000.


    What retailers can really learn from Ethan is how to best relate to new DIYers. He's able to explain simple, basic things without a hint of condescension. Above all, he manages to suggest that this kind of manual, careful work deserves respect , and that far from being intimidating or off-putting, that requirement actually makes the work worth doing.

    The Honest Carpenter

    Belts and Boxes

    Belts and Boxes is one of the most professional power tool news and reviews productions you can find on YouTube. It's hosted by two professional presenters, and puts out the Power Tool Week in Review every Friday at 5pm (US East Coast time). It's a fun 10 to 15 minute series of actual news announcements, as well as referrals to a range of other review sites (some listed here). It's a good way to stay on top of new developments in the industry.

    Belts and Boxes

    Pro Tool Reviews

    The website for Pro Tool Reviews has been one of the very best power tools sites on the web, though over the past year or so its standards seem to have declined slightly - perhaps due to some pressures from the COVID-19 pandemic.

    The YouTube channel is quite good. It attempts to bridge the gap between sites that are all about personal reviews, and sites that are all about technical specifications. Sometimes this works great, and sometimes it ends up being confusing.

    For example, the feature "Best Cordless Drill" compared 50 different drill models. This consisted of a series of performance tests, all of which are detailed in the video. However, Pro Tool then applied a series of additional tests that were partly performance-based, and partly opinion-based, to derive a final score for the winners.


    That is all very useful, and interesting if you are a "tool geek". However, it doesn't necessarily go to the real questions that actual consumers face, which, for pro customers (tradies) comes down to which overall platform they should adopt.

    To do that, of course, they would need to go just that one level deeper, beneath the veneer of "which tool is the greatest", and into the place where business needs and technology meets. There is just such a great and capable team working at Pro Tool Reviews, HNN would guess they get to that point before the end of 2022.

    That said, anyone selling tools to tradies really should put the Pro Tool Reviews YouTube channel on the rotation of channels you check into from time-to-time. In addition to the actual reviews, they also provide wide-ranging background videos that explain some of the strategic complexities in the industry.

    Pro Tools Reviews

    Jonathan Katz-Moses

    This is one of HNN's favourite industry YouTube channels. Jonathan runs a woodworking shop in Southern California, about 200km north-west from Los Angeles. He's one of those affable, entertaining people who also have a very serious, very smart side to them.

    Perhaps it's a little due to being in that part of the US, but he is way ahead of most woodworkers in terms of adopting technology to his needs, including computer numerically controlled (CNC) routing. One of this most interesting videos is on the potential for a new generation of robot arms, designed to work cooperatively with humans (eg., if the arm meets any kind of resistance it shuts down instantly). These could help transform repetitive processes in the woodworking shop, in areas such as repetitive sanding.


    If you really liked that, check out Jeremy Fielding's YouTube channel as well.

    Jeremy Fielding

    A more typical video from Jonathan is his review of eight different laminate trimmers, on a regular feature he runs, "Tool Review Tuesdays". It is an almost ideal combination of someone who knows what routers should do, and can easily identify any flaws. He's also very open to learning things as he reviews: like many woodworkers he is a self-described "Makita fanboy", but he found out that the adjustment on the Makita router was not as good as that on the Bosch Colt or the DeWalt DWP611 (the DeWalt he found the be the best overall, while the Bosch was the best value).


    The quality of these videos is excellent. Jonathan does have a second camera person, and the inventiveness of some of the scenarios is quite surprising.

    Jonathan Katz-Moses

    Conclusion

    While these seven channels represent far from comprehensive coverage of the YouTube channel tool review and usage segment, they do give an idea of the range that is available. Hopefully, as much as anything else, this might encourage readers to do a bit of their own exploring, and to find some informative sources of information.

    On a side note, watching some of these channels might encourage hardware retailers to consider launching their own channels, as a means of promoting their retail operations. That can be done, and with some success, but everyone needs to be aware of exactly how much time and effort this can take. It's doubly difficult for retailers, as successfully creating a channel that is honest and entertaining, but also helps your business, is going to be a really tough project.

    products

    Two cordless staplers indicate future tools

    Power tool makers constantly explore possibilities

    Cordless tools are often seen as "just" a convenience. Once we disassociated them completely from their corded forebears, however, a new range of possibilities could open up.

    The first cordless power tools were based on pre-existing corded power tools where the functionality could be improved by making them cordless. Drills were the most obvious starting point, but circular saws came along soon after. A second strand of development was turning air-powered tools into cordless electrical tools. The impact driver, for example, started out as an air-powered tool, and was adapted to cordless electric power.

    The one cordless tool that continues to be sold and used in its air-powered version is, of course the nailgun. With smaller - even cordless - compressors, air-power continues to be popular for particular situations.

    In more recent developments, however, power tool makers have begun to see the construction building site as a workplace where productivity needs to be improved. The tools they are starting to design make use of cordless capabilities in quite a different way.

    One illustration of this - though it was released at the end of 2018 - is DeWalt's 18V XR Electricians Stapler, with designation DCN701D2-XE in its kit form with two batteries.

    There is an interesting video that effectively previews this stapler at an event covered by Cop Tool, a review website:


    Here's the sales pitch offered by "Bill" who was manning the stand:

    This particular product, we went out on job sites. And what we tried to do was to view all kinds of different hand driven applications: nails, staples, etc. And one of the things that we saw was a lot of folks that do hang Romex cable, so from the junction box, roped through the house, and then down the stud to the actual receptacle or outlet.
    This particular tool, fastens those staples, instead of doing - they're actually doing it by hand. And they're using a hammer doing it by hand, and with a staple a lot of - well, when you see these guys, they'll have bummed up fingers. Quite honestly.
    And you know, this particular product, it's at least two times faster [than by hand], it saves the users about 30 minutes per day. And over the course of a month, that's going to really add up for a much more efficient [workflow].

    One interesting thing about this, of course, is it has little to do with replacing a previous air-powered, or a corded tool. Bill makes the point explicitly that the tool is ideal also for data and communications cables - Cat5 and Cat6 cable.

    If you've ever had to hang cable in a house or office building, you know it means getting into all kinds of inconvenient places, especially when - as is usually the case - you are dealing with an existing building. An air-powered or corded tool would just never work.

    But the real point of interest is that the entire sales pitch, and the purpose of the tool is all about increasing productivity. That's the driving force behind the tool development.

    It's also not so surprising that the stapler takes a special kind of staple from DeWalt. As Bill explains this:

    The staples themselves, they have a plastic gasket, if you will, that, you know, the fix is set right on top of the Romax and it doesn't pinch the wire. It actually leaves a little bit of breathing room, and it'll do all of the common sizes. So you're 14-2 to your 14-3 12-2, all the way down to 10-3, so your larger cable as well. It'll also do your Cat5, your Cat3, your telephone cables, that kind of stuff. So it really is a handy tool for any electrician.

    Milwaukee fencing stapler

    Over at the website Pro Tool Reviews (PTR), the team has uncovered a new Milwaukee tool set to release in 2022, the Milwaukee M18 Fuel Utility Fencing Stapler.

    Pro Tool Reviews Milwaukee Stapler

    According to PTR, the tool will use a 3.0Ah High Output battery, which will be able to driver 600 staples per charge. Milwaukee also claims that the tool will set staples up to six times faster than using a simple hammer, and is powerful enough to use on telephone poles. The controls on the tool are slightly oversized, making it easier to use when wearing protective gloves.

    And, of course, it will only work with proprietary Milwaukee staples. These staples have a diamond crown, specifically designed to work the driving mechanism of this nailer.

    Analysis

    If tool design for productivity turns into an accelerating trend, as seems likely, what kinds of developments could we expect in the future?

    At the moment, a cordless tool consists of an electric motor, usually brushless, attached at one end to a mechanical mechanism that performs the necessary action, and at the other end attached to a battery. We've seen in the past the development of "wearable" batteries, largely designed to power leaf blowers and string trimmers in the outdoor power equipment world. Typically these are backpacks which carry multiple batteries and plug into existing standard power tools through an adapter.

    Is it possible that we will see these rigs, complete with power tools designed specifically for them, on future worksites? One advantage could be that these units featured a range of connectors that could step-up or step-down the current, so that they could power tools from 12 volts up to 70 volts.

    This would accomplish several objectives: voltage determined platforms would cease to be such a concern; moving the weight of the battery from the wrist and arm to a backpack would reduce stress and tiredness; and recharging would cease to be as much of a concern.

    The objection, of course, is that this would depart from the image of power tools as we've thought of them over the past 40 years. But the point is, really, of these two tools, and of the future of tools, that these traditions now tend to inhibit our capability rather than enhance it.

    products

    USA update

    Lowe's at Goldman Sachs retail conference

    Home Depot has launched a smart home app that is meant to be an all-in-one for smart appliances and accessories the big box store sells

    Lowe's president and chief executive officer, Marvin Ellison along with executive vice president and chief financial officer, David Denton presented a "progress report" of the retailer's transformation program at Goldman Sachs' 28th Annual Global Retailing Conference.

    Among the issues discussed, Goldman Sachs analyst Kate McShane asked about demand in 2022 on a macro level and how it planned to maintain its revenue gains from the pandemic.

    Mr Ellison responded by saying:

    ...We think our results, not only the first half of this year but throughout last year, reflects that this is a new focus, this is a new commitment at Lowe's to being consistent and having a high level of execution, and serving our customers well. We also look at macro indicators that really have little to do with the pandemic that will continue, we believe, to create a little bit of a tailwind not only for the back half of this year but going into next year.
    We look at macro indicators specific to the age of housing stock. We look at the fact that we still have historically low interest rates. We look at the end supply for homes that is currently in an imbalance that is driving customers' desires to move into homes and there's just not a large supply on the market which leans customers to want to invest more in their existing homes.
    We look at home price appreciation. And we said in many years in home improvement, you can always determine the health of the market when a customer installs a granite countertop and they see it as an investment and not an expense...
    And so when we look at the macro indicators, we feel really confident that the home improvement marketplace is going to be rather robust going into next year and ... for years to come. It's our objective to execute our Total Home strategy in a way that we can drive Pro, DIY, online, installation services and continue to elevate our product categories to just take advantage of the demand and we feel confident we can do that.

    Mr Denton added by saying:

    ...I just would also just add a couple of things to Marvin's point, that the home is becoming such a critical asset to almost everyone as people now are, despite people coming back to work, there's still going to be a lot of flexibility to be able to work from home. And so the utilisation of the home is much more intense now.
    And roughly two-third of the products that we sell are some type of repair and maintenance type products. So I think the demand for those kind of products are going to continue to be elevated and so a nice tailwind for the sector.
    And then secondly, I do think through this whole process over the last 24 months, consumer behaviour has changed. I think those companies that are well capitalised, that are invested in the omnichannel capabilities, like Lowe's is doing, are going to have an advantage.
    At the same time, consumers have very specifically consolidated trips into bigger boxes. And I think those two trends from a macro perspective are likely here to stay. I think we're nicely positioned to capitalise on those trends as we lean into the back half of this year and into the next couple of years into our business.

    Ms McShane points out that Lowe's was in the middle of a transformational strategy during the pandemic, and asked about how the events of the last 18 months have impacted it.

    Mr Denton said:

    The good news is, as we looked at our plan prior to pandemic and we look at our plan now, the road map's pretty consistent on the items that we're executing upon. So we feel really strong that our plan is accurate, correct [and] appropriate to drive a lot of value over time.
    We did pivot our plan from a timing perspective. We pulled forward ... investments in the omnichannel space that were on the road map two and three years from now into 2020 and into '21 to make sure that we now have touchless lockers across our entire platform. We have curbside across our entire platform. We've increased our assortment online really dramatically through this period of time.
    And so, we've really pivoted to make sure that we're meeting our customers' where they want to be met ... I think that's one pivot that we've made. Absent that, our road map still maintains largely intact as we think about the back half of this year or into the next couple of years.

    Ms McShane asked about the customer dynamic between the Pro (tradie) and the DIY customer. She said:

    For a long time, you've talked about the Pro being 20% to 25% of your sales. And I think on the Q2 [investor] call, you mentioned you were closer to 25% of sales. I know the overall pie has been growing, given the strength of the business over the last 18 months. But what is the linchpin or maybe multiple linchpins getting Pro to be a bigger piece of the overall pie?

    Mr Ellison responded by referring to the retailer's "foundational elements". He said:

    ...We called it retail fundamentals. And it would simply be what are some of the things that every great retailer does consistently well.
    And so we wanted to start by just creating what I'll just describe as a stable foundation. And when you think about the Pro, as we surveyed our Pro customers three years ago and asked a simple question, 'What do you need from us, from Lowe's, so that you can put us back in your consideration as a place where you can shop?' And from that, we narrowed the focus down to the small and medium-sized Pro because we felt as though we had a greater opportunity to gain share with that specific segment out of Pro.
    And we also felt that the opportunity was available for us to address needs that we felt were not being addressed in that customer segment. And they basically said to us at that time, you need better, more consistent service levels, basic things like loading assistance when we pull up to a store, like having consistent staffing at your Pro desk with someone that actually has basic knowledge that can help us solve some of the problems that we need.
    We need to have job lot quantities. Your inventory levels are too low, they're too inconsistent, too sporadic. It was those kind of baseline things. And so we made investments in getting those things done. And then they said to us, 'We need to have more pro-related national brands.'
    Lowe's had pivoted some years back to put private brands to try to serve the Pro customer and Pro customers are really reluctant to switch from a national brand to a private brand. And so we had to start to remedy some of those bad merchandising decisions that had taken place over the last 5 to 10 years. So, we call those things retail fundamentals.
    And so now the question is, now that we have a good baseline in place, how do we take share? How do we continue to grow? So we now are launching Pro Loyalty. We were operating in a segment for a customer that is really interested to earn points and save based on the volume they spend, and we couldn't even address it because we had no really credible program. So now we're rolling out Pro Loyalty.
    In addition to that, we're rolling out a CRM tool that's best-in-class, designed specifically for the Pro customer for a couple of reasons. Number one, if you go back in the past, our associates working in our Pro business in the store had no idea the value of a customer when they walked in. They couldn't tell you if that customer was a multimillion-dollar annual spend or a new customer. They couldn't tell you if it was an electrician or a plumber. And they couldn't tell you, equally as important, what the customer was buying, what they should be buying and what they were not buying.
    So now we're rolling out a CRM tool that'll give us the ability to know the customer intimately and serve them a lot better. You will continue to see us enhance our credit offering which for a small and medium customer is a really important part of their business. And we're going to just aggressively go after additional national brands for the Pro customer ... as we continue to add these different brands to our assortment.
    We think by doing these things really well, in addition to things like re-platforming our LowesForPros website to the cloud that just happened the first half of this year and continuing to improve our job site delivery, we think we have nothing but increased opportunity to continue to take share with this segment of Pro and to continue just to drive overall top and bottom line performance in our stores.

    Ms McShane also asked about brand initiatives at Lowe's. She said:

    I know that's been something that you've been building on. It goes to something pretty broad like CRAFTSMAN but then you have some very specialised brands for plumbers, electricians, et cetera, that you're building back. So I wondered if you could maybe tell us how that's going, how big of an ask has it been to go back to some of these brands and ask them to come back to Lowe's? And where do you think you are in that journey?

    Mr Ellison responded:

    Well, it's all about credibility and I'll just be very candid. I mean relationships matter and credibility matter, doing what you have stated you will do and making sure that you're committed to helping these various suppliers grow their business.
    Lowe's made decisions in past management teams to transition to private brands to chase a gross margin rate, not understanding that this is a customer segment that is highly dependent and highly committed to a national brand because of familiarity and comfort level. So, we've had a chance to bring brands like Simpson Strong-Tie, SPAX fasteners, Bosch, Spyder, SharkBite, LESCO.
    We just launched FLEX which is a large power tool brand in the UK that we think can have relevance here in the US. And I can go on and on. These brands were in a very small presentation assortment to now we're making large commitments.
    DeWalt is still the largest pro power tool brand. We're working to continue to expand our assortment in that category. And so we've made great progress. We have a couple of coveted brands on our list that we continue to work. And we're not going to stop until we feel confident that we are giving our Pro customers what they need...

    Ms McShane asked for elaboration about Lowe's focus on the small and midsize Pro.

    Is that the long-term strategy? Is there any interest or would you ever look towards a larger-sized Pro?

    Mr Ellison said:

    I think the short answer is we want to start with what we think is the foundational segment in the Pro space and the foundational segment is small and medium-sized. In my estimation of working with this customer for many years, if you can't serve that customer well, you have no chance of serving the larger Pro. And so what we didn't want to do is ... to start to chase a larger customer, trying to go after a larger fish, so to speak and we're not taking care of the fundamental baseline of the customer segment.
    And so we think when we can get to a comfort level and a market share level with the small and medium-sized Pro, we think we earn the right then to pursue a larger, more industrialised customer. But one of our key objectives and one of the key things we've done the last three years, we've been very disciplined around not trying to overreach or trying to add too many elements to our strategic plan.
    We feel like the reason why we performed so well during the pandemic in 2020 and we've outperformed in the first half of 2021 is because we've been very disciplined around the customer segments that we're going to pursue and we've been very disciplined around our initiatives and how we service those customers, and how we execute on a daily basis. So we'll earn our way to a larger customer but for now, the small to medium-sized customer is our target.

    Seeking Alpha provides the full transcript of the Lowe's presentation at Goldman Sachs here:

    Lowe's CEO presents at Goldman Sachs' 28th Annual Global Retailing Conference

    Related: Lowe's "Total Home" strategy is about growing the retailer's market share.

    Lowe's unveils "Total Home" strategy - HNN Flash #27, December 2020

    Home Depot smart home app

    The big box retailer said its new app, Hubspace, is designed to make smart home setup seamless for the average consumer, and easier to control devices from anywhere.

    Home Depot product development/smart home merchant, Nick Millette discussed its main benefits with Yahoo. He said Hubspace promises to simplify the smart home experience, and requires no additional equipment to run. It works with a large number of compatible devices that are built to be easy to install in homes. All users need to do is scan the QR code of the device they wish to connect with and this takes them to a few steps away from smart home integration. Once the products are set up within Hubspace, users can also easily integrate them with an Amazon Alexa or Google Home smart assistant. Mr Millette said:

    While studying the space we found that one of the main issues with smart home was the product setup process. Once you take it out of the box, getting [a product] connected to where you can actually use it was something that for the general population was a little bit too complicated.
    There were too many failures, too many things that could go wrong. So we spent a lot of time making sure that our solution would be as seamless and easy as possible for your average non-techy consumer.

    He explained that more affordable price points, and the desire of Home Depot's consumers for a cheaper smart home alternative, led to the creation of the app.

    One of the true driving values of Home Depot's proprietary brands is we make great products at great prices. So we've made smart home more affordable for the average consumer.
    There's big sustainability benefits to smart home, convenience, and savings benefits that our customers have recognised over the past couple years. We've really seen strong growth and adoption of smart home and we're just trying to follow the customer with where they take us and provide them a great option.

    Home Depot has also built the ability for customers to use third party apps if they want to. Alongside the app launch, the retailer has released a line of compatible products that include smart light bulbs, smart plugs and ceiling fans. Mr Millette sadi:

    We've started out with products in our lighting and electrical department. Lots of lightbulbs, recess lights, ceiling fans, smart plugs, landscape lighting transformers. The way we've built the Hubspace app and platform was really to be able to grow over time to all the product categories in our store, but we've started with lighting and electrical.
  • Sources: Seeking Alpha, Goldman Sachs and Yahoo
  • bigbox

    Amazon's Ring launches jobsite security system

    Provides remote monitoring of small to mid-sized construction sites

    With theft a major cause of concern for builders, the Ring Jobsite Security package provides the basic tools needed to digitally secure a jobsite. This is a combination of a mesh router, cameras and lights, which can be comprehensively extended.

    Amazon's Ring division, best known for its video doorbells, has released a security package named Ring Jobsite Security, currently only in the US. Designed in association with US big box home improvement retailer The Home Depot, the package includes the all-new Ring Alarm Pro. Retailed through Home Depot for USD400, It is designed to provide an affordable, customisable solution that can be used to protect small- and medium-sized job sites from intruders and theft.

    According to Jamie Siminoff, founder and chief inventor at Ring:

    We've seen how effective Ring devices can be in neighbourhoods, and we're excited to team up with The Home Depot to bring affordable, easy-to-use security solutions to job sites. Security of small and mid-sized sites is often overlooked, and Ring Jobsite Security directly addresses security issues contractors face. Now they can leverage the entire suite of Ring devices and services to create a personalised solution that works best for them.

    At the heart of the system is the just-released Ring Alarm Pro. In many ways, this is a device designed to overcome some of the faults many perceived with previous Ring designs. The Alarm Pro links into Amazon's mesh WiFi network system, known as Eero. Unlike conventional WiFi routers, the Eero mesh routers do not all need a direct connection to the internet. Instead its routers talk to each other. That means the range of a wireless network can easily extend, effectively via a "daisy-chain" system.

    In addition to the WiFi capabilities, it also makes use of a second networking protocol known as Z-Wave. Developed out of the popular Zigbee protocol, still used today for many smarthome devices, this means the Alarm Pro can be easily connected to window and door sensors, as well as smoke alarms, thermostats and even carbon monoxide sensors. Effectively, it is a portable security hub.

    One of its most important features of the Alarm Pro is the ability to process and store video from connected security cameras on-site. That means that the system is safe from an interrupted internet connection - though there is also the option to backup video on the internet cloud.

    In fact, connectivity is a key feature of the Alarm Pro. In addition to hooking up to available internet, there is also a built-in connection for cellular-based internet provision. This can be used to back up a standard connection, or, on sites where standard internet is not available, can be used as the primary connection for the system.

    There is also power backup available, which is robust enough to use as a primary power source if connected power is not available.

    The USD400 kit includes the Alarm Pro base station, a battery-powered camera with spotlight, a smaller battery-powered camera, a spotlight, a battery-powered motion sensor, and a powered case, which provides protection to the devices when in transit, as well as a "home" for the base station. It includes a cooling fan, padlock and slots for backup power packs.

    The result is a comprehensive system for jobsite security that will send both alerts and video through to the Ring app on mobile devices.

    Analysis

    While this seems like a relatively minor announcement, it could presage the beginning of a move to the connected jobsite for smaller projects.

    It would be interesting to see what would happen if an innovative tool company such as Techtronic Industry's Milwaukee linked with a security supplier such as Alphabet (Google) to create an integrated security system. Adding security cameras to Milwaukee's extensive range of lighting products would be a good first step, and integrating further with One-Key might produce theft protection benefits as well.

    products

    CFMEU building industry protests Melbourne

    Less about vaccines than declining power

    While the overt subject of the September protests in Melbourne have been mandatory vaccination requirements, the subtext has been about the fading power of the construction industry.

    Recent events in Melbourne, where members of the Construction, Forestry, Maritime, Mining and Energy Union (CFMMEU, aka CFMEU) instigated a series of protests, are likely to shape the future of the construction industry in the state of Victoria (VIC).

    It is easy to take the path of working these protests into the general fabric of the COVID-19 pandemic. One could view it as worker frustration boiling over under the threat of restrictions, fanned by people peddling various forms of ridiculous misinformation, mixed in with trace amounts of pure anarchy.

    Another thing not to overlook, is that this is peak footy season for Melbourne. The annual release provided by the "Grand Final" has, for a second year, been rendered at the very least more remote. It seems highly unlikely there would have been such big mobs if many of those "angry young men" had tickets to the MCG for an upcoming Saturday game.

    All those arguments, exceptions and excuses have a little validity. However, even allowing for these added boosts to a general sense of frustration, this kind of pandemic narrative cannot fully account for what has happened.

    Equally, attempts by the CFMEU and others to portray this as the result of "professional protesters" are also likely misguided. According to reporting in The Age newspaper:

    Senior CFMEU figures say far-right activists and anti-vaxxers exploited the situation, but it was wrong to say, as Mr Setka did on Tuesday, that there was a "small minority of construction workers" at Monday's melee who had quickly walked away because of the violence of "professional protesters".
    Senior figures estimated that about 80 to 90 per cent of the protesters were construction workers. Others said they knew many of the people at Monday's rally as union delegates and members. Not all were opposed to vaccinations or were right-wing. Some were annoyed at the union caving in on safety and workers' rights.
    The Age: Why construction workers took to the street

    It may be true that some of the most violent protestors were not union members, but it was union members who provided the opportunity and the platform to these groups.

    One way of viewing what has happened is to see that the two "sides" of the conflict came from very different viewpoints, and held different values as well. From the side of not only the Victorian government, but - HNN would suggest - the broader Victorian community as well, the deal was that the construction industry had been granted a considerable and generous concession. The industry view is that it is more of a right than an honour.

    In the process of trying to control a pandemic, the government has had to start by finding the likely locus of virus transmission, then calculate how to balance controlling that transmission in the context of broad community concerns, including the mental health and financial concerns of families and individuals, and the prosperity of the overall state economy.

    What the construction industry has not seemed to understand is that the reason Victorians have a curfew, are limited to a few hours outdoors each day, to 5km of travel from home, and no at-home visitors, is to compensate for risky business activities such as construction. In that sense, the whole state, and particularly the greater Melbourne region, has already contributed a great deal to allowing construction activity to go ahead.

    The Victorian construction industry's perspective - or at the least that of a significant majority of CFMEU members - is almost the reverse of this. They seem to believe that, in the midst of a pandemic, they have some inherent right to go about construction as "business as usual" - and that any restriction placed on them is somewhat "optional", and, if enforced, actually unfair and unjust.

    What has happened, from the Victorian government and community perspective, was the construction workers failed to honour the details of the agreement offered. They were given the privilege of working, even though this placed the community at greater risk. They were supposed to do this in the safest way they possibly could. Instead, they blatantly ignored COVID-19 safe practices at work, and when asked - as so many other workplaces have been asked - to get vaccinated, rebelled.

    Deeper causes

    What seems to not always be fully understood outside of Victoria, is how deeply the Victorian community has been affected by these days of demonstrations. That might be because there are no counter-demonstrations - because, you know, it's a pandemic, and the way you counter-demonstrate is to stay home.

    The result of these demonstrations could be something like the construction industry being viewed over the next three years as dubious, if not held in contempt.

    As a result, from a purely rational standpoint, this union behaviour doesn't make much sense. Watching hoards of construction workers swarm the Westgate Bridge, attack police, and riot in the city streets is far beyond anything reasonable. It cannot possibly achieve anything except disruption.

    There have been several attempted "thoughtful" analyses of how all this has happened. Most concentrate on the controversial leader of the CFMEU, John Setka, and the tensions inside the union between its left-wing past, and a present heavily inflected by the views of Mr Setka's more right-leaning lieutenants.

    The reality of this major rift between many of the members of the union and its leadership is likely due to much deeper and - ultimately - more serious forces at work. Members of the union do not completely understand the task the leadership faces, and, in turn, the leadership is somewhat reluctant to communicate the details of that task.

    Mr Setka's willingness to embrace mandatory vaccination is the result of understanding the considerable force behind that move by the state government. It's also an acknowledgement that nothing harms a union more than overstepping its influence and capabilities.

    In simple terms, the CFMEU, while still an important union, has seen its importance decline significantly over the past five to ten years. That decline in influence for the CFMEU has come from a number of sources. To begin with, some would say that simply spelling out the acronym - construction, forestry, mining and energy - indicates how much the union will be affected by coming moves to limit climate change.

    More to the immediate point, it can be seen that the union has been steadily losing influence. That's down to the way in which construction is moving to a different place in the economy. This is relatively easy to discern in the economics graphs supplied by the Reserve Bank of Australia (RBA).

    The three charts presented here do not show an industry that is in decline, but they do show that other industries represent stronger growth. The top chart, labelled as (1), shows an ongoing trend in construction, which is relatively low capital investment. It has been reliably around 5% of total business investment. Meanwhile, industry categories such as other business services (which broad embraces the technology sector) are currently at over 20%.

    Likewise, in terms of industry share of output, the chart labelled as (2), construction peaked around 2014, and then slowly declined over the next six years to be around 8%. Again, other business services are much higher, at over 16%.

    When it comes to employment growth, while the construction industry was on its way to a new peak in 2019, the COVID-19 pandemic saw this decelerate rapidly, and the industry has been slow to regain that growth. Meanwhile, both business services and household services have provided very high growth percentages, both pre- and post-pandemic.

    Beyond these statistics, there is also the growing sense in the global construction industry that fundamental changes need to be made. McKinsey & Company, in their June 2020 report "The next normal in construction: How disruption is reshaping the world's largest ecosystem" see a future in which construction activity is radically reshaped, as the diagram below illustrates.

    Integrating building information modelling (BIM) with as much pre-assembly as possible could change the nature of construction by the end of the decade. It's similar to the changes expected in the energy sector as well, as fossil-fuel power is replaced by solar and wind.

    When it comes to the next several years, future growth is largely linked to the-pandemic recovery in larger construction projects where union membership dominates. According to a forecast document from real estate specialists Knight Frank:

    Beyond 2021, it is anticipated that any previously mooted developments could be reconsidered or have their development commencement dates pushed back due to uncertainty surrounding demand caused by COVID-19.
    Forecast by Knight-Frank

    It seems quite unlikely, given vacancy levels, and the growing dominance of work from home (WFH) practices, that there will be strong demand for new office towers through the current decade. In fact, some of the larger projects may be converting office towers to at least partly feature apartments for city-dwellers.

    The importance of all this is not just the shape that the construction industry will take in the future. It's also about how key it is to the prosperity of Victoria as a state. At one time, shutting down office tower construction sites in the Melbourne CBD could be felt as having a significant impact on the state's economy. Limiting office capacity would, at that time, limit growth, and encourage businesses to locate elsewhere in Australia.

    Increasingly, that relationship does not hold anymore. Office space in the CBD remains important, but it is now likely that more significant growth will be decentralised, and require less ambitious use of space. This means the power of the CFMEU to negotiate has significantly diminished.

    This is the situation that Mr Setka and his leadership team face. The power of construction unions may be at its lowest point since the mid-1990s, when legislation granted the legal right for unions to strike. It is understandable that this is not something the union leadership can clearly communicate to members - partly because they might adopt more extreme measures, and do irreparable harm to the sector.

    At the moment, as things stand, the CFMEU has ended up doing considerable damage not only to their own union, but to trade unions in general in Australia. That is not being helped by more recent moves to blame the Victorian Government for making simple, rational, evidence-based requirements on various industry sectors.

    One way out of this, which would produce a good outcome, and help to salvage what is left of the public reputation of the CFMEU, is for the industry, the union and the government to hash out a plan to actually make construction project sites, including facilities such as tea rooms, much more COVID-19 safe. That should range beyond the provision of well-ventilated service facilities, and also include some form of active, ongoing enforcement of CovidSafe practices.

    The big mistake

    What has been missed, especially by the trade union movement in general, as well as many industry associations, is that Australia in September/October 2021 is not the same as Australia in March/April 2021.

    If the Delta variant of COVID-19 had not come along, we would likely all be treating anti-vaxxers and so-called "libertarians" as annoying and slightly harmful eccentrics. Delta, and the need to abandon COVID-19 suppression, has changed all that. They will become, inevitably, sources of future transmission. There are only two ways to stop that: isolation or vaccination. That's really the choice that is being provided.

    People are going to die of COVID-19 in October, November and December this year. Hospitals will be overwhelmed, health workers find their lives turned into a long, difficult slog through day after day. Families will be devastated by the loss of loved ones.

    In terms of VIC and NSW managing to maintain community stability, and not descend into the pure inhumanity of forcing nurses (and it will be nurses) to decide who lives and who dies because there will not be enough beds, ventilators and staff to help everyone, it's going to be a close call.

    Stopping the spread of SARS-CoV-2 through vaccination and safe work practices is the least each of us can do. And one thing we can guarantee that will not help is disruptive protests, which can only damage the few freedoms we still retain in the midst of a deadly pandemic.

    editorial

    ABS house price stats

    The 2021 market starts to overheat

    Probing the ABS stats on dwelling prices and transactions reveals there has been an acceleration in transactions in regions outside major cities. However, it's not in houses, it's in multi-unit dwellings.

    It will come as no surprise to anyone in the hardware industry - suppliers or retailers - to hear that dwelling prices have continued to increase in Australia.

    While it is no surprise, these increases do come with two, somewhat opposing types of puzzlement. For many in the Australian hardware retail industry, as well as their trade and building clients, the puzzlement is why so many people keep predicting a price collapse that never eventuates, and why economists seem so distressed about an economic event that seems fortunate. Homeowners are making money on their property investments, building more houses, spending more on renovations - what's wrong with that?

    On the opposite side, economists remain increasing bewildered about why dwelling prices keep rising, and why people aren't more concerned about the consequences should the housing market suffer a setback.

    It helps to understand that, in relatively simple terms, what economists expect and look for in a housing market is one that responds to the general, overall economic conditions. When the economy does well, house prices go up, and when economic growth slows, or contracts, house prices should remain stable, or even decrease slightly.

    The thinking goes that this is something of a baseline pattern. Economies can vary from that pattern, but sooner or later the pattern will reassert itself. If there is a big enough gap between what the forecasted economy looks like as compared to the actual economy as represented by its performance, then a "correction" occurs. If the correction is large enough, it becomes an economic event in its own right, creating harm which is far worse than just the difference between the expected economy and the actual economy.

    Dwelling statistics

    We'll go into these economic matters in more detail later. First, we need to take a bit of a dive into the house price numbers from the Australian Bureau of Statistics (ABS) to see what is happening and where.

    To begin with, Chart 1 presents an orienting, overall view, for all categories of residence, of how the ABS price index percentage has changed, comparing quarters with the previous corresponding period (pcp).

    The most important element to understand about these stats is that they highlight the prime area of concern. Going back to the start of the COVID-19 pandemic, in the March quarter of 2020, the index for Sydney, Melbourne and Hobart shows a peak or around 9% growth is reached, after the index growth has gone negative just two quarters previous.

    What happens next, through the June, September and December quarters of 2020 is a decline for both Melbourne and Sydney, while the other states and territories tend to converge, so that they are all in a growth sector of around 2% to 5% in the December 2020 quarter. It is from that point where this convergence subsequently shoots up in terms of percentage gains on the price index, with Sydney reaching over 19% in gains.

    Figures from CoreLogic and elsewhere indicate that end-surge has continued through into the September 2021 quarter. So it is the three quarters of 2021 which have raised a degree of alarm with economists and others.

    Sydney and Melbourne

    While this surge has affected all the states and territories, the most significant effects have occurred in Sydney and Melbourne areas. We can see much of what has taken place elsewhere in these stats, so HNN will confine the in-depth coverage to these capital cities and their states.

    Sydney

    Chart 2 shows the percentage change in the number of transfers for established houses (so not new builds), as well as for attached dwellings (apartments, etc) in Sydney. It also shows the percentage change in the ABS price index for established houses and for attached dwellings.

    The December 2019 quarter shows the percentage change in the number of transfers for both established houses and attached dwellings hitting a peak, while the percentage gain in the price index for those categories is around 5% for the houses and 2% for the attached dwellings. There is then a corresponding slide in these transfers through to the June 2020 quarter.

    Most likely what we are seeing in this period is exit activity, with prices for established houses and attached dwellings going down from the March 2018 quarter through to the September 2019 quarter, then the price index increases modestly (perhaps under the influence of volume available) by less than 5% in the December 2019 quarter, hitting a peak in the March 2020 quarter (just pre-pandemic), rising above 10% growth for established houses, and over 5% for attached dwellings. Attached dwellings see growth decline fractionally for the June 2020 quarter, while established houses see a small decline in price growth. Those declines in growth continue through to the December 2020 quarter, with established house price growth reaching 5%, and attached dwellings only slightly above 0% growth.

    For the last two quarters of the stats, March and June 2021, the established house price index hits 25% growth, with attached dwellings price index growth up 20%, with transfers for both growing at over 10% in the same period.

    Chart 3 shows the percentage change in the number of transfers for NSW outside of greater Sydney.

    Well, if you are looking for the chart that shows pandemic-influenced behaviour in NSW, this is the one. It's notable that activity begins to increase in the September and December quarters of 2020, then really takes off in the March and June quarters of 2021.

    In terms of raw numbers, the following table shows what these were from the June 2020 quarter through to the June 2021 quarter:

    So, essentially the number of attached dwelling transfers went from being proportionally less than a quarter to close to half.

    The behaviour this points to makes sense. For people living in Sydney in areas that were set to be placed under lockdown, while moving from an apartment to a house would improve their living conditions, by far the best move would be to get some kind of dwelling outside of the lockdown zones - even moving from a house in lockdown to an apartment outside lockdown would be a good move.

    Melbourne

    Chart 4 shows the percentage change in the number of transfers for established houses, as well as for attached dwellings (apartments, etc.) in Melbourne. It also shows the percentage change in the ABS price index for established houses and for attached dwellings.

    As with Sydney there is a peak in transfers in the December 2019 quarter, as prices index growth for established houses and attached dwellings becomes positive, peaking in the March 2020 quarter. However, the decline in transfer growth is longer and steeper for Melbourne than Sydney, getting down to 48% in September 2020, and only moving into positive growth in the March 2021 quarter. Similarly, it is only in the June 2021 quarter that growth in the price index really takes off, even as growth in transfers flattens.

    There is also a highly similar pattern when it comes to the number of transfers in the area outside greater Melbourne as shown in Chart 5.

    Just as with NSW outside Sydney these numbers indicate a sudden and rapid acceleration in the number of attached dwellings being transferred beginning in the March 2021 quarter. While the percentage growth looks impressive, however, the actual numbers and degree of shift is less than that for the NSW numbers, as shown in Table 2.

    In this case, the attached dwelling transfers only reach around 36% of total transfers, but still indicate a substantial gain.

    The response

    From these stats we see two different things. The first quarter of 2020 really performed like a market that had received some mild stimulus after a slump - and remember that at that time the federal government had dialled back fiscal stimulus, as it was attempting to "balance the budget" in its unsuccessful "back in the black" campaign.

    The subsequent quarters of that year show the impact of the two main stimuli - the RBA lowering the cash interest rate, and the HomeBuilder subsidy scheme for new builds and renovations - as they played off against the headwinds of the pandemic.

    Then, at least from the start of 2021, the housing market is beginning to behave like any other rapidly expanding housing market from the past.

    The second change is that there has been a significant increase in activity related to areas outside the main urban regions, at least for Sydney and Melbourne - and likely in most of the other states as well. Perhaps the most interesting element of this is that the boost has been mainly for attached dwellings.

    The concern of economists is that the housing market is, essentially, working in its own "fake" economy. The market, instead of referencing the overall Australian economy, is referencing itself, on the basis of "prices went up yesterday, so prices will go up tomorrow".

    Looked at from the perspective of the RBA, there really doesn't seem much that can be done to intervene.

    Philip Lowe, governor of the RBA, in an address to the Anika Foundation on 14 September 2021 entitled "Delta, the Economy and Monetary Policy", had this to say:

    Finally, I would like to address the question of housing prices, as some analysts have suggested we might lift the cash rate to cool the property market. I want to be clear that this is not on our agenda. While it is true that higher interest rates would, all else equal, see lower housing prices, they would also mean fewer jobs and lower wages growth. This is a poor trade-off in the current circumstances.
    That is not to say that there aren't public policy issues to be addressed here. On the financial side, the issue is the sustainability of trends in household borrowing. We are continuing to watch this closely, with the Council of Financial Regulators discussing possible regulatory steps if lending standards deteriorate or credit growth accelerates too much.
    More broadly, society-wide concerns about the level of housing prices are not best addressed through increasing interest rates and curbs on lending. While monetary policy is contributing to higher housing prices at the moment, the way to address these concerns is through the structural factors that influence the value of the land upon which our dwellings are built. The factors include: the design of our taxation and social security systems; planning and zoning restrictions; the type of dwellings that are built; and the nature of our transportation networks. These are all obviously areas outside the domain of monetary policy and the central bank.
    On the economic effects of the Delta variant of COVID-19

    It's less that Mr Lowe isn't concerned about the state of the Australian housing market, and more that - publicly at least - there's little he can do about it, directly. The judgement comes down to seeing the side-effects of increasing interest rates as being worse than the side-effects of keeping interest rates low.

    Analysis

    In the end, there is an intersection point between where the structural concerns of the economy cross over with the aberrations that keep cropping up in the housing market. There are two charts, published monthly in the Chart Pack of the RBA that point to primary structural problems. The first is the wage price index growth:

    The second is for the share of nominal gross domestic product (GDP) that goes to business investment.

    Both of these graphs indicate that the Australian economy is operating way outside of any kind of reasonable norm. Low wage increases would most often create conditions where there would be a boost in business investment. Where that doesn't happen, you could be looking at an economy that is ready to crash in some new and interesting way.

    What HNN suspects is happening is that businesses are actually reluctant to undertake the changes they need to increase productivity at scale. The reason for this is somewhat paradoxical, in that it requires businesses to better train their knowledge worker staff to perform their tasks. That means specialisation, which means both retention and training become major concerns, which would then push up wages.

    Businesses are, in other words, preferring to not improve productivity, thus "saving" on investment, while also ensuring that wages are kept low by keeping job skills at a close to commodified level.

    This creates an economy where "getting ahead" for an individual is now less dependent on pursuing an active career at work, and more dependent on pursuing individual investment strategies. Given that low investment means that Australian businesses are tending to underperform (as compared to global peers), that makes real estate a desirable vehicle for investment.

    All this is not helped by a federal government which is ambivalent about the tech industry, and a culture which has tended to demonise that industry, even as it increasingly relies on its services and products.

    While all this can seem for the moment somewhat dire, it is likely that as Australia emerges from the COVID-19 pandemic in the second calendar quarter of 2022, that there will begin to be a shift towards more innovation in business. One spur for that will be changes such as the wider adoption of work from home, and possibly a re-evaluation of gender roles in families and in the working world.

    statistics

    Big box update

    Bunnings store to be built next to Jimboomba Mitre 10

    Bunnings in NZ found not guilty of misleading customers, according to a ruling by the Auckland District Court

    Jimboomba is set to be home to Logan's fifth Bunnings store, with a development application recently being approved by Logan City Council in Queensland, reports The Courier-Mail.

    The Bunnings outlet will be situated next door to the locally owned Mitre 10 by brothers, Kerry and David Woodman. They also own the Mitre 10 store based at nearby Beenleigh. Jimboomba Mitre 10 has been open since 2018.

    The development application indicates the new 15,776sqm Bunnings store will be moving into 22-26 Anders Street in Jimboomba (QLD). There will 379 carparking spaces, a dedicated service vehicle laneway, and the building will not exceed 15 metres in height.

    There are plans for the store to operate from 6am to 9pm, seven days a week. Included on the site will be a main warehouse area, main entry, bagged goods canopy, outdoor nursery, timber trade sales area and a cafe.

    As part of the development, the intersection between Spring Street and Anders Street will have a variety of changes, including the addition of traffic islands.

    New Zealand pricing

    The Auckland District Court has ruled that Bunnings' "lowest prices" advertising is not misleading for customers in New Zealand, based on a report in the Waikato Times.

    New Zealand's Commerce Commission had brought 45 charges alleging that Bunnings had breached the Fair Trading Act by making false or misleading representations as to the price of its goods, and that it engaged in conduct liable to mislead the public.

    It said its "lowest prices" claims in advertising gave the impression that all of Bunnings' products would be cheaper than its competitors'. But the Commerce Commission said price comparisons showed that was not always the case. Bunnings had denied that its claims were false or misleading.

    Since 2002, the hardware retailer had offered to beat a competitor's lower price on the same stocked item by 15%. In 2011, the commission wrote to both Bunnings and Mitre 10 (separate to Independent Hardware Group's Mitre 10 group), warning that claims of having the lowest price could breach the Fair Trading Act.

    Mitre 10 stopped its advertising with a lowest price tagline but Bunnings did not. In 2014, Mitre 10 complained to the commission.

    The commission carried out two informal price checking surveys in 2015 and then commissioned a survey to conduct a comparison. The results were provided the following year and the commission then wrote to Bunnings. It said there was a risk of its representation being false or misleading because Bunnings' prices were not always lowest. It also pointed to Bunnings' own data that showed it did not have the lowest prices on 18.6 per cent of products surveyed.

    The commission also said the "lowest price guarantee", in which Bunnings would beat a lower price from a competitor by 15%, was misleading because a customer would assume it would be rare for Bunnings to be beaten by price.

    It asked Bunnings to stop advertising with the "lowest price" claims but the company did not. It said its own reviews showed it had the lowest prices on 90% of products and the steps it would take to adjust prices when a competitor offered something cheaper allowed it to be confident its advertising was not false or misleading.

    It reviewed its prices twice a year and checked pack sizes to ensure that matches with competitors were "like for like".

    The judge said in his decision that there was no evidence that there were complaints from members of the public or other competitors.

    The judge said the lowest price guarantee made it clear to consumers that it was possible there could be lower prices elsewhere.

    It is a clear signal to consumers that not everything at Bunnings stores will be at the lowest price. It provides a consumer with a remedy in the event the consumer finds that to be and wishes to take advantage of the [guarantee].

    The judge also said the customers targeted by Bunnings' advertisements would be aware of the type of stores that Bunnings operated and would know that it was not possible for the stores to know on a daily basis exactly what competitors were charging.

    He said there was no evidence that any item identified in Bunnings' advertisements was not available at the cheapest price possible.

    Expert evidence was that none of the price comparison surveys would be considered reliable statistical evidence. The judge said:

    Overall, I am not willing to draw a conclusion that the evidence from the surveys is sufficiently robust and statistically reliable for me to extrapolate a conclusion that Bunnings prices were not the lowest, so as to conclude that the advertising was liable to mislead.
    The flaws in the various surveys are such that I am not prepared to accept that the Commerce Commission has met the evidential burden of proving the advertising, for the purpose of the charges, was liable to mislead the public.

    He said the "lowest price" advertising were taglines, and often accompanied by displays of specific products for sale at prices specified.

    These are not deceptive ... the remedial nature of the [guarantee] means a consumer would accept there may be other retailers selling products sold by Bunnings for a lower price.

    All charges were dismissed.

    The Commerce Commission works in a similar way to the Australian Competition and Consumer Commission. It is a New Zealand government agency with responsibility for enforcing legislation that relates to competition in the country's markets, fair trading and consumer credit contracts.

    Related: Background information on Bunnings' pricing dispute in New Zealand can be read on page 28 here:

    Bunnings' ongoing legal battle over price in NZ - HI News 6.2, March 2019
  • Source: The Courier-Mail and Waikato Times
  • bigbox

    Indie store update

    Brookes Hardware and Timber under new ownership

    The Port Fairy store in regional Victoria is considered iconic with frontage onto a main street

    After 45 years, Brookes Hardware and Timber will have new owners who will take over from November. It has been sold by Robertson Real Estate to a buyer - who prefers to remain anonymous - for an undisclosed price, according to The Warrnambool Standard.

    Ken and June Brookes, who have owned the business since March 1976, are happy the town will continue to have a hardware business. Mrs Brookes told The Standard:

    The sale has proven to be a great result, not only for us but for the town. It'll stay as a hardware business which is wonderful for the town.
    Over the years, our five children and other family members all worked in the business at various stages and we've given more than 130 local people employment which has been very rewarding.
    The 45 years seems like a long journey but the years have gone quickly. Ken and I are aiming to have a good break and enjoy travelling in the future.

    The Brookes' bought Stuart Brown's hardware store in Bank Street before relocating the business to its present site on Sackville Street in 1983. Ken's brother Owen and wife Ros were partners in the business from 1983 until 2000 when they moved to Queensland with their family. Mrs Brookes said:

    We were the first shop to have automatic doors in Port Fairy and believe me the locals thought that was impressive! We've been very lucky to have received incredible support from the Port Fairy community and outlying areas over the years. We're extremely thankful for their support and friendship.

    Plans to hold a community event to mark 45 years in business have been put on hold because of COVID-19. She said:

    We were planning to say thanks to everyone but COVID has stopped that. We're looking at doing some front window displays which will highlight our 45 years in the town ... and we welcome anyone who has some old photos or memorabilia to get in contact with us through the store or via our Facebook page.
  • Source: The Warrnambool Standard
  • retailers

    "Smartwood" singled out for innovation

    Sold at a number of Bunnings stores

    The business that makes the smartwood, 3RT, is a finalist in the South Australian government's Science Excellence and Innovation Awards

    3RT is being recognised for its technology that can turn wood waste into timber that looks and performs like 100-year-old tropical hardwood.

    Based in Adelaide and Melbourne, 3RT has spent over six years developing this technology in collaboration with the Flinders Centre for NanoScale Science & Technology (part of Flinders University in South Australia). It launched its first commercial product, Designer Hardwood in 2019 which is sold through some Bunnings outlets.

    The technology uses a water-based "nano-glue" that is mixed with the waste wood to replicate the properties of mature natural hardwood. 3RT managing director Peter Torreele told The Lead in 2020 that the final product was comparable to the highest quality hardwood but was sustainable as it was made from waste timber residues that would otherwise be woodchipped. (The company name stands for the three Rs of sustainability - Reduce, Reuse and Recycle.)

    This year, it is one of the finalists to win $10,000 as SA Innovative Team of the Year in the state government's Science Excellence and Innovation Awards, to be announced in December.

    3RT manufactures its smartwood products at its innovation centre in Adelaide using robots. They are used for indoor furnishings such as tables, flooring, stairs, doors and panelling. Associate professor Jonathan Campbell from Flinders University said:

    This project has led to internationally patented technology that can turn low value plantation timber into sustainable, high quality and affordable hardwood, with the first products made at 3RT's new Adelaide manufacturing plant now on sale at Bunnings.

    Bosch deal

    In 2020, the company announced it entered an agreement with Bosch that will allow it to boost its own capacity and license the units to companies overseas.

    Mr Torreele said the licensing units would be ideally suited to Laminated Veneer Lumber (LVL) and plywood producers that used plantation resources and generated a lot of wood waste suitable for use in the units. He told The Lead:

    The units are plug and play units that are very compact and agile with a small footprint so we can place them around the world very quickly in locations that we believe are suitable to give access to those local resources.
    We already have one running in Adelaide and Bosch is adding Internet of Things capability, which means that if we have a unit somewhere else it is remotely connected to our innovation centre so we can track all the data, develop new products and undergo maintenance.

    Mr Torreele said the relationship with Flinders University would continue to develop products and create specific recipes as new customers came on board.

    For instance, if we find a resource in Canada, we first develop the specific recipe in Adelaide, Bosch builds the unit and once we put the unit in Canada we can straight away produce the product that we have already developed and tested at the innovation centre in Adelaide.
    It's a very fast way of scaling up thanks to the relationships with Flinders University and Bosch.
    We also have a very aggressive technology roadmap with Flinders University, which is around the product itself. The idea with that is everything you put on top of a piece of wood today we want to put inside the product so you don't have to maintain it anymore and it's done in a non-toxic way.
    Most of the products used to make a product waterproof for instance are harmful ingredients so we want to work with Flinders University to create products with additional benefits of, for instance, termite, water or fire resistance.

    Flinders University owns a share of 3RT as part of the research contract. Flinders University Professor and co-developer David Lewis is also a director of 3RT and said the sustainability of its Designer Hardwood product and a resurgence in the popularity of wooden products were attractive selling points. He told The Lead:

    It really is an exciting development and the commitment from Bosch has been wonderful and is appreciated by the company and the university because it is a pathway to expansion.
    Actually seeing real world results of the research we are doing is very satisfying for us as individuals but also for the university because we are having an impact in the world.

    The Bosch Group's board of management member responsible for Asia Pacific, Peter Tyroller, has visited the Adelaide innovation centre and said 3RT's technology was a great example of Australian innovation.

    3RT is addressing the significant environmental and supply challenges relating to old growth hardwood, applying Bosch technology and knowhow.

    To read more about 3RT and Bosch, go to the following link:

    Bosch deal fast tracks smartwood technology
  • Sources: Adelaide Advertiser, The Lead South Australia and Flinders University
  • companies