Metcash results FY2021/22

Sales slow, but remain at high level

With overall growth of 11% and organic growth of over 10%, Metcash's Hardware segment has come through the slower growth of 2022 with a degree of success. However, questions remain over its longer term strategies in hardware: will it continue to foster independent retailers in hardware, and how will it counter Bunnings' growing focus on trade sales?

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    Metcash, the parent company of the Independent Hardware Group (IHG) and Total Tool Holdings (TTH), has released results for its FY2021/22, which ended on 30 April 2022.

    It's worth noting that there are a number of complexities to the report of these results. This includes the need to account for charge-through revenues, which result from Metcash services that are transaction-only, as well as FY2021/22 including 53 trading weeks. Metcash's advice has been to pro-rate the extra week, which means that results are reduced by around 1.9% when comparing to previous, 52-week years. According to a footnote in Metcash's presentation:

    The 53rd week comprised 4 business trading days over the week ended Sunday 1 May 2022 (Anzac Day was on 25 April 2022). One-week of sales has been estimated on an annualised basis by pillar to display an FY22 sales number comparative to prior (52 week) periods.

    Metcash has also, in the process of "normalising" results to 52 weeks for its Food business, removed sales from the comparative FY2020/21 year for 7-Eleven and Drakes. According to another footnote:

    The previous East Coast supply agreement with 7-Eleven concluded on 17 August 2020 and Metcash ceased to supply Drakes in South Australia from September 2019. A normalised sales growth has been calculated by adjusting sales in the relative comparative period to exclude sales to both 7-Eleven and Drakes, in addition to excluding the 53rd week from FY22.

    HNN has not excluded sales from 7-Eleven and Drakes in our analysis.

    It is also worth noting that, as far as we can tell from Metcash's report, while the revenue numbers have been pro-rated to 52 weeks, the earnings before interest and taxation (EBIT) numbers have not. The use of non-normalised numbers was explicitly mentioned in Metcash's FY2016/17 results, so we assume the continuation of that practice. In our numbers we have pro-rated EBIT.

    Metcash overview

    The overview for the three main business areas at Metcash, Food, Hardware and Liquor, is provided in Table 1: Metcash Results FY2021/22 ending 30 April 2022.

    Overall, Metcash's year was not outstanding, particularly when its gains are viewed in the context of 5.1% inflation. Hardware did perform well, but that was in large part due to further investments in TTH and other acquisitions.

    It may be that Metcash might have been better served making similar investments in its other business segments, rather than funding the share buyback scheme initiated by the company's previous CEO, Jeff Adams. At the FY2020/21 results several analysts suggested the market remained fragile, especially as regards the Food segment. It would seem they were more right than wrong.

    Mr Adams, who decided in late 2021 not to continue as CEO at Metcash so as to spend more time with family, has been replaced by Doug Jones. Mr Jones is a chartered accountant, and is a graduate of the tough school of supermarket operations in South Africa, where he spent 14 years at Massmart.

    Metcash overall had revenues of $17,405.7 million with charge throughs, $15,164.8 million without, for a 52-week normalised revenue of $14,878.7 million. (All subsequent mentions of revenue will refer to non-charge through, 52-week normalised numbers; EBIT will also refer to 52-week normalised results.) This was an increase of $563.4 million or 3.9% over the previous corresponding period (pcp), which was FY2020/21.

    Metcash's Food business did not fare especially well, with revenue of $8,221.2 million down by -1.1% on the pcp. Liquor had revenue of $4,662.7 million up by $288.4 million or 6.6% on the pcp.

    Metcash's EBIT of $463.4 million was $62.0 million or 15.4% up on the pcp. However, its statutory profit for the year was $245.4 million, which would be $240.8 million as a 52-week year, an increase of $1.8 million or 0.8% on the pcp.

    EBIT for the Food segment was $196.5 million, up by 2.1% on the pcp, while EBIT for Liquor was $95.6 million, up 7.7% on the pcp.

    Hardware

    Looking at the topline numbers for the Hardware segment, revenue was $1,994.7 million, up $370.0 million or 22.8% on the pcp. EBIT for Hardware was $187.7 million, up $51.7 million or 38% on the pcp.

    To make an attempt to break out the "organic" (non-acquisition) growth from the "non-organic" growth, Metcash states that:

    An additional 20 joint venture and company-owned stores were acquired during the year which added ~$95m of sales.

    That would mean organic revenues were around $1,900 million, which represents organic growth of 16.9% overall.

    Hardware in four parts

    To fully understand how Metcash's Hardware segment has developed, it's necessary to see it as four separate components: There is the charge-through business; TTH; the franchise component with independently-owned stores under the Mitre 10, Home Timber & Hardware Group (HTH), Thrifty-Link and True Value banners; and a separate group of corporate-controlled stores bannered as Mitre 10 and HTH.

    There is a total of 513 Mitre 10 and HTH stores, and Metcash has 102 fully-owned and joint-venture stores, or 19.9%. It makes sense to treat the controlled stores as their own entity. Some analysts have suggested - as a rough estimate - that the full EBIT earned by the company-controlled stores is almost as much as the EBIT Metcash earns from all the fully independent stores - though HNN cannot confirm this. While treating these separately would be a more accurate representation of Metcash's Hardware segment, the corporate-controlled stores are instead treated as a "regular" part of IHG.

    Equally, there is only limited insight into the charge-through business, in terms of how much EBIT it generates, and other details. About all we can do is to take out the revenue from the overall numbers. The one comment that Mr Jones did make about this business in his prepared remarks was:

    There's been strong growth in charge through sales, as retailers recognise the value in accessing a broader range, and suppliers continue to take advantage of Metcash as an effective route-to-market partner. Just remember, these sales are not a shift from one channel to the other, they're sales that we otherwise wouldn't have got.

    So charge-throughs are significant, and part of Metcash's ongoing strategy, but we have little insight into aspects of how they work, including the EBIT derived from them.

    That leaves HNN with the sole option of analysing only the entire IHG business and TTH. That's a pity, because it means we have only limited insight into what seems an interesting strategy.

    Independent Hardware Group

    While tracking down the IHG numbers is a little complex, it should be noted that there is at least greater clarity to these figures as compared to when Metcash combined Hardware with its automotive operations.

    Revenues

    Metcash states that:

    [S]ales in IHG increased 12.5% (+32.6% 2yr basis) to $2.8bn reflecting the impact of inflation and volume growth in Trade.

    Evidently, the $2,800 million number includes charge-throughs and represents a 53-week trading year. Rectifying those elements, the sales revenue would be roughly $1,681 million.

    Metcash does not seem to have provided IHG revenue without charge-throughs for its reporting on the previous year, FY2020/21. We can, however, reverse into those numbers. If the $2,800 million represents a 12.5% increase over FY2020/21 total revenues, then total revenues for FY2020/21 would be around $2,489 million. There is an indication that charge-throughs for hardware in FY2020/21 were $975 million, which would give us IHG revenue of $1,514 million, for that year.

    This means that IHG's growth would be roughly 11.0%. That accords fairly well with the other statements Metcash has made about IHG growth. Metcash states that:

    The IHG banner group continued to perform strongly with retail LfL sales increasing 10.5%, with Trade sales up 12.7% and DIY sales up 6.7% (+21.8% on a 2yr basis, with Trade +11.6% and DIY +39.1%).

    In the slide presentation accompanying the results, slide 14 notes:

    22 new or expanded sites across the network, adding 39,000m2 of floor space (10 IHG stores/23,000m2 and 12 TT stores/16,000m2).

    It's likely the extra 0.5% over the like-for-like (comp) figure is a result of the new sites added to IHG.

    It is worth noting that in terms of the background growth in the hardware retail industry, the comparative figures for the Metcash FY2021/22 were overall growth in Australia of 2.2%, indicating that IHG has outperformed the background market.

    Metcash states that:

    DIY demand continued to be elevated, but volumes declined slightly against the exceptional prior year comparative.

    This led to a shift in the proportion of DIY/Trade sales, from 40/60 in the pcp to 36/64 in the reporting year. In response to an analyst's question as to which DIY categories were seeing a decline, IHG CEO Annette Welsh responded:

    [DIY] is really coming off the very heightened level that we saw through lockdowns and the need for consumers to invest in their homes as they were spending more time there. I would say some of our decline is probably in that area of garden and paint, which were the two heightened and really peak elements [during lockdowns].

    EBIT

    Regarding EBIT for IHG, Metcash states:

    IHG's EBIT increased $15.8 million or 14.1% to $127.8 million reflecting the strong sales performance, and the contribution from company-owned and joint venture stores acquired during the year.

    This would mean EBIT for a 52-week equivalent trading year would be $125.4 million, or a 12.0% increase on the pcp.

    Total Tool Holdings

    Metcash has continued to expand TTH.

    Revenues

    Metcash states that TTH sales were up by 160.4% to reach $367 million, which would be $360 million in a 52-week trading year, and would represent an increase of 155% on the pcp.

    (Just to reconcile these figures, if we have total hardware revenue adjusted for a 52-week trading year of $1,994.7 million and IHG revenue of an estimated $1,681 million, that would, however, indicate TTH revenue of under $314 million. It seems to be the case, then, that Metcash has in its revenue number for the Hardware segment accounted for holding only 85% of TTH.)

    Much of that increase is due to expansion, of course. Metcash acquired an additional 15 TTH joint-venture stores, which contributed an additional $67 million to Hardware sales revenues.

    Metcash stated in a footnote that:

    Total Tools sales include exclusive brand sales, franchisee fees, joint venture and company-owned store sales and other services.

    The entire TTH network had sales of $972 million for the year, or $954 million for a 52-week trading year, an increase of 9.9%. The network was expanded by a further 11 stores, to reach 100 in total. Metcash reports that comp sales were up 5.0%.

    EBIT

    Metcash states that TTH has increased EBIT by $39.5 million to $63.5 million. That would be $62.3 million for a 52-week trading year, an increase of 160%.

    Hardware strategy

    IHG

    The attitude that Metcash expresses towards the hardware market is that it has been constrained by elements other than demand:

    Residential construction and renovations activity was adversely impacted by tight supply conditions, tight labour supply and unseasonal wet weather, leading to a further strengthening of the pipeline of future activity.

    Categories that struggled due to supply shortages included timber, LVL, plaster and insulation.

    While there were certainly constraints that contributed to lower background market growth, it is also a fact that the market did continue to grow, despite record-breaking growth in the previous financial year.

    It is also worth noting that the language used includes the suggestion that work not completed in the reported year is merely delayed for subsequent years. That has become a common assumption across the hardware and construction industry. However, it seems just as likely that, facing higher interest rates, increasing inflation and sustained resistance to wage increases, much of that work, if delayed beyond calendar 2022, could end up being cancelled or put off until subsequent years by clients.

    The company has confirmed it is moving rapidly to a two-brand strategy, sidelining both the Thrifty-Link and True Value brands. It reports that 20 Thrifty-Link stores were converted to HTH in FY2021/22, with a further 30 conversions planned for FY2022/23. The company states that it had 154 HTH stores at the close of the reporting year, down from 157 in the pcp. However, it had 359 Mitre 10 stores at the close of year, up from 340 in the pcp. The combined Thrifty-Link and True Value store fleet is set at 123, down from 145 in the pcp. Overall store numbers went from 642 to 636. Metcash's stated goal is to build a network of 400 Mitre 10 stores and 200 HTH stores.

    The company is also planning to expand in categories such as kitchen, laundry and bathroom. Part of that plan includes a further build-out of its "Design 10" showrooms, developed as a project by Ms Welsh. These help showcase building elements, creating a design space for tradies and builders to better collaborate with their customers. There are currently five of these centres, in Hobart, Geelong, Melbourne, Coffs Harbour and Orange, as well as a website.

    In his prepared remarks at the results conference, Mr Jones stated:

    This [strategy] includes continuing to win new DIY shoppers. And doing this through highly effective recruitment and store reinvestment programs. We've got a clear focus on a relevant range and competitive prices, as well as on emerging categories like bathroom, kitchen and laundry.

    That said, Metcash is also clearly committed to its trade business, as Mr Jones explained:

    As we look to consolidate our leading position in the building trades, we'll focus in on our extensive footprints of trade-focused trade centres, as well as the whole of house strategy, which is underpinned, as I've said, by the now 10 frame and truss plants, as well as continued steady investment in leading trade technologies.

    The company is also continuing its Sapphire program, with 300 stores planned for completion by 2025, and 161 currently up and running. Sapphire for trade centres is targeting 50 completions, with 37 currently in operation.

    No explicit mention was made of Metcash's plans to further expand its joint-venture and wholly-owned IHG stores, but it seems likely that it will maintain at the very least its current 20% share of stores, so if the network expands to 600, Metcash would obtain a further 20.

    Total Tool Holdings

    Metcash probably would not agree with this blunt statement, but it seems fairly clear that the overriding strategy for TTH is to get big as fast as possible, and hope that Bunnings' Tool Kit Depot (TKD) doesn't catch up. It does seem likely that one factor which triggered the partial sale of TTH to Metcash was concerns over competition from TKD.

    Metcash and TTH are certainly executing to this plan, or one that is similar. TTH had 81 stores in its network when acquired in July 2020. It now has 100 stores, and the company says it is on track to complete 120 stores by 2025. As importantly, the stores are being upgraded, with 83 completed to date, and a further 11 planned by 2024.

    Veteran analyst Brian Raymond of JP Morgan poised a question about the pace of acquisition of TTH stores by Metcash at the results announcement:

    My first one is just on the Total Tools conversion, 15 last year, 12 the year before. That is slowing to eight next year. I just wanted to understand the drivers of that slowdown, but also the productivity of the stores you converted this year relative to last. Is the incremental store a bit smaller in terms of sales per store, or have you converted the obvious ones first, and is it now just the tail of the network?

    Ms Welsh responded:

    Yes, you'd be pretty much right in your assessment there. When we first invested in the joint ventures it was with the larger joint ventures and those that were probably the most significant in terms of their size. That will be the 12, 15 in terms of last year. Similarly, and as we run through the network we will pick up the investments of the joint ventures that seem appropriate, but they are on the slightly smaller scale as we continue that investment.

    Metcash's chief financial officer, Alastair Bell, chimed in with an additional, enthusiastic comment:

    And I'll just add one, one thing about the JV stores. We've acquired these a lot quicker than they originally envisaged. You'll recall my comments about the Total Tools put option valuation increasing. And this is an area [which has] held the performance our business in good stead. And the year ahead, well, we'll look to execute eight, and thereafter take the opportunity to continue to own more of those stores.

    Another strategic possibility that Metcash is exploring is combining Total Tool stores with Mitre 10 stores. Trial sites at Merimbula, Wonthaggi, Matraville and Richmond are already up and running. However, it's noticeable that while the slide describing this move states that these have been "successful" and there are opportunities for expansion, in his remarks, Mr Jones was considerably more cautious:

    It's early to draw conclusions on performance, but we like what we see so far, and we think there are more opportunities for the format.

    Another highlight of the strategy is the development of the Marxman private label brand of power tool accessories. The trademark "Marxman The Mark of a Professional" was first applied for in January 2021. It consists of the expected accessories, such as drill bits and circular saw blades.

    Analysis

    It's worthwhile noting that there was one response by Mr Jones which indicated the Metcash board has made a good choice in appointing him as CEO. In replay to an analyst's question about pricing, and price comparisons between IGA and the two major supermarkets, he had this to say:

    I think the first point that we want to make is that the proposition in the independent network is founded on more than just price competitiveness, which, as you point out and we have spoken about, has improved significantly. We also offer in the network the ability for retailers to arrange a wider range of national and local products that give customers a choice as to how they manage their own budgets. And so we don't rely simply on price competitiveness for our overall customer value proposition.

    You only get to that understanding by having a lot of experience with retail, over years, and seeing how growth and development can take place. While it seems a very simple statement, it is also a very revealing one. It is really important, it seems to HNN, for two reasons. One is that it captures a particularly important strategic essence of what networks of independent retailers can do. Price is part of it, service is part of it, but smaller scale operations incur lower costs for specialisation than larger scale operations, on a comparative stocking basis.

    The second reason is that this is precisely the transition that certainly the Food segment, and most likely the Hardware segment as well, need to undertake. Pricing is, in the vernacular, table stakes in retail now. What will differentiate retailers is a form of responsiveness to specific demand.

    That said, though, there remains some questions over what path Metcash's Hardware segment will take to the future. The initial vision that Metcash seems to have had with Mark Laidlaw as CEO of Mitre 10, which was to acquire HTH, then use those scale advantages to gain a network of around 900 stores, simply hasn't worked out.

    Instead it looks like is the industry is undergoing the development of a kind of "spectrum" of stores. On one end there is the fully corporate, wholly-owned and operated Bunnings big-box stores. At the other end are fully independent store buying groups, such as Hardware & Building Traders (HBT), which is entirely consent-based. Metcash's IHG is trying to find a space, it would seem, somewhere in the middle of that.

    The real question is going to be exactly where does IHG end up on that spectrum? It would seem that TTH is headed for something like a 50+% ownership by Metcash, while IHG is currently around 20%. How much independence will really be left in IHG if Metcash moves to 30+% ownership of that network? Will HBT end up being the only way to go the "full surfboard" with independence in the future?

    As importantly, Bunnings has declared its intent to expand its trade business, and HNN has suggested that works out to gaining something like $1 billion a year from the overall market. In particular, TTH is going to compete directly with TKD, which will have advantages such as co-locating with Bunnings Warehouse stores, and the massive reach of Bunnings in the supply market.

    It's not clear from the current strategy being presented that Metcash has planned to counter these difficulties.

  • This article can be read as a HNN Briefing PDF. To read the PDF, please download by clicking the image/link below.
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    companies

    Retail update

    Terang Co-Operative reports bumper results

    TAFCO Rural Supplies is providing $338,000 back to members after a successful trading year

    The Terang and District Co-Operative Society in regional Victoria recently announced at its annual meeting that it recorded a $821,835 profit, according to The Warrnambool Standard.

    The co-op's hardware businesses saw Terang Mitre 10 being a finalist in Hardware Australia's Store of the Year and Camperdown location taking out the award for small format Mitre 10 Store of the Year for Victoria and Tasmania.

    Its annual turnover of $29 million is second only to the 2020-21 results which were influenced by COVID-19 lockdowns.

    The co-op exceeded its pre-COVID 2019-20-year turnover by 18%. The growth was built off strong IGA and liquor sales and consistent sales performance from both Mitre 10 businesses.

    Chairman Geoff Barby said the co-op had worked hard to retain the business and customers gained during COVID-19 travel restrictions and lockdowns. He said the IGA Supermarket continued to thrive on the back of a refurbishment and topped off the year with winning the State IGA Awards of Retail Excellence for the Best Grocery and General Merchandise Department.

    Mr Barby said the before-tax profit result was a great testament to the hard work of staff. He told The Warrnambool Standard:

    Our co-op is only ever as strong as the support we are given from our members and community and we welcomed 189 new members during the year.

    Membership now stands at a record 3239. They accrued $286,513 in rewards during the year while the co-op's total assets grew to almost $12.5 million. Mr Barby said:

    We continue to look towards ensuring a sustainable future for our members and our co-op communities.

    Chief executive Kevin Ford also said the turnover of $29 million was a great result and the co-op captured more gross profit with better controls in place.

    ...Not only do we have a great supermarket, a great trade and retail home improvement store, we have an engaging and exciting community co-op.

    Mr Ford said the co-op continued its sponsorship and donations program.

    In 2021-22, when many organisations were hampered from their normal activities throughout the year, we are pleased and proud to be able to assist the community in such times of need.

    Mr Ford said the co-op was putting considerable focus on improving its business and information systems and planned to develop a total integration of systems.

    The co-op will evolve and change in an ongoing process of continual business improvement into the future.

    Related

    Terang Co-op stores move to Mitre 10 - HNN Flash #13, June 2020

    TAFCO Rural Supplies

    The directors of TAFCO Rural Supplies have issued a 5% dividend on shares and a 5% rebate on members' 12 months trading to March 31, 2022.

    The Myrtleford-based community co-operative will provide just over $338,000 back to members as a credit on their account in June, taking its return to members and the community to more than $4 million since its formation in 1987 to service tobacco and other farmers of the region in Victoria.

    TACFO general manager Rupert Shaw said the co-operative continues to grow with new members joining each year. He told the Myrtleford Times:

    Anyone who trades is eligible to be a member. It's not just the farming community who benefit from membership.
    If you shop at TAFCO for pet food, garden supplies or even just salami making supplies, you should consider joining as a member - it's open to anyone in the community who purchases goods.
    We work on fair competitive pricing and return profits back to members through rebates on trading and dividend on shareholding, with the emphasis on rewarding members on their trade.

    Every purchase made at TAFCO is supporting a locally owned business with 700 shareholder members, employing and training local people and returning profits back to members. TAFCO chairman Lachlan Campbell said:

    TAFCO is about our members and the community, this year we have continued to support Into Our Hands Community Foundation and GROW Myrtleford+ the local philanthropic trust. Members have the opportunity to make a tax deductible donation from their TAFCO rebate/dividend directly to the foundation.

    Related

    Rural supplies co-op diversifies membership base - HNN Flash #37, March 2021
  • Sources: The Warrnambool Standard and Myrtleford Times
  • retailers

    Big box update

    Bunnings store proposal in Perth arts precinct

    The local arts community believes the unique district is at risk of being destroyed by a large development

    An area of Perth known as the Pickle District has become the latest location for a $25 million development application to build a Bunnings store, with a childcare centre, and retail and hospitality tenancies in a five-storey complex.

    The Pickle District is currently a burgeoning arts precinct, home to art galleries, design and photography studios, a boutique theatre and event spaces, all within a 300-metre radius.

    WAtoday reports the development would take up the block between Cleaver, Newcastle and Old Aberdeen streets to the border of gallery Linton and Kay and demolish the buildings that house existing businesses including Cleaver Street Co, STALA Contemporary, Voxlab, Old Habits, Gourmet Trader and 2 Brothers.

    Pickle District's Town Team spokesman and artist Jon Denaro said the development would be devastating. He told WAtoday:

    We are not opposed to a development in the area, however we want to see a development that honours the existing precinct and is geographically, and culturally valuable.
    The proposed development destroys everything we have been building, the community and the whole potential of the precinct.

    Bunnings property and store development director Andrew Marks said the proposed store would be a small warehouse and form part of a wider development which is being led by a developer.

    We're always very mindful of community feedback and as a potential tenant, we would listen to concerns raised and work closely with the developer through their continued community engagement as they progress their application.

    Developer Saracen Properties said it would bring extensive investment to West Perth and act as a catalyst for the redevelopment of the Pickle District. A report to council said:

    This development will be the first major mixed used multi-storey redevelopment within the locality.
    Taking advantage of these corner locations, the proposed development will comprise recognisable and iconic building features which reflect existing structures and operations within the Pickle District, intended to strengthen its relation with the history of the area.

    Saracen Properties said it had incorporated two spaces - a lower level community space and rooftop event space - to allow the Pickle District's Town Team to continue to operate on the site, and ensure the demolition of warehouses did not take away the area's character.

    Janet Holmes à Court is the owner and director of Holmes à Court Gallery located in the Pickle District. She also told WAtoday:

    Over the past eight years I have seen and have been a part of a growing Pickle District. It has become a totally unique, one-of-a-kind arts precinct.
    The proposed Bunnings development is slap-bang in the middle of [it] and its impact will be insurmountable.
    Not only will it erase small businesses and art galleries, but also shatter the heart of the Pickle District and future opportunities for the ongoing development of this area as a unique multi-arts destination.

    City of Vincent mayor Emma Cole said council was on the cusp of developing a precinct plan for the Pickle District.

    Wesfarmers will not land a business-as-usual Bunnings in this unique area unless they do something extremely innovative.
    Wesfarmers is a big investor in the arts and my suggestion was for them to look at adding a dedicated rooftop level for live music, art galleries and a space for existing tenants to continue their operations. This would make huge difference to how Bunnings lands in the area and adapts.

    The City of Vincent will provide a recommendation to the Joint Development Assessment Panel which will make the final decision.

  • Source: WAtoday
  • bigbox

    Construction update

    3D printers set to disrupt the building sector in Australia

    The arrival of commercial 3D house-printing technology is capable of slashing build times and costs

    Melbourne firm Fortex has struck a deal with international 3D house-printing company COBOD to exclusively distribute its products in Australia including its BOD2 3D construction printing technology and equipment.

    Fortex chief executive David Lederer said COBOD 3D construction printers deliver faster, greener, more durable homes and commercial buildings, with greater design freedom than conventional building methods.

    That means improved outcomes for building companies and consumers.

    Its printer's modular design is developed to fit most projects and uses technology to control the extrusion of concrete, in accordance with the programmed build design. The fully automated process happens mostly onsite. Mr Lederer said:

    This world-leading technology is the disrupter conventional building needs. It is not only the future of construction, it is the now.

    Fortex technical director Jake Hartman said the process is like a 3D desktop printer but on a much larger scale and can construct a home in a more efficient time period. He told 9News:

    We are able to produce concrete onsite, pump it onsite and deliver the wall system to a house onsite.

    The concrete-based printer can use locally based resources to build house. Mr Lederer said the system is best suited to a flat surface to build on but can construct up to 12-metre homes. He explains:

    It is a modular-based system from small homes to 12 metres wide and three storeys and 50 metres deep before you have to move the printer, so basically infinite in-depth.

    The company boasts its technology will carve months off traditional time frames, streamline labour and alleviate supply issues at a time when skills and material shortages are plaguing the conventional housing construction industry.

    Fortex said it could build a 210sqm single-storey home in just 40 hours with two days of setting up the printer prior to construction. Mr Lederer told 9News:

    That compared to a conventional building eight to 12 weeks for the wall system, that is excluding the delays that all builders are having in terms of supply, now it could blow out to 14 weeks for the wall system.

    The company said the technology would not put tradies out of business as workers are still required to operate the printing system. Their skills would be re-distributed.

    Glaziers, plumbers, electricians and fitters are also still required, but their jobs will be easier. For example, the computer can calculate exactly where the best place to put an electrical socket is, so the electrician won't have to spend as long assessing the structure.

    While single and multiple storey domestic projects will be the prime application for the technology, concrete and mortar 3D prints outside of home construction are also possible with wind turbine towers already having been printed.

    The first BOD2 3D construction printer will arrive in Australia in Q4 with COBOD equipment available for immediate order.

    Background

    The deal between Fortex and COBOD follows the first ever 3D-printed house in the southern hemisphere built in a Melbourne manufacturing warehouse.

    The house was built by Australian 3D printing building and construction company Luyten in December 2021, using highly robust and eco-friendly 3D printable concrete.

    The structure, called the Heptapod, costs less than 70% of traditional building methods. The structure's elements were printed in two days and assembled on day three. Luyten co-founder and CEO Ahmed Mahil told 9News:

    ...It is a fine example of the type of structure that can be built using our innovative 3D printing technology and will provide people with the ability to see and touch a 3D-printed home in person before they order one.

    Luyten's 3D printer is able to adjust its settings to suit the velocity, quantity and type of material being fed into it. Mr Mahil told Cosmos Weekly in another interview that it is the first and only such machine made in Australia - a mobile robotic transformer that is capable of printing a three-bedroom or two-bathroom house in a week.

    Some of the 3D homes on order will be used for affordable housing options in regional areas of the country, as well as schools and accommodation. Luyten said it has begun taking orders from regional areas seeking affordable housing, school and accommodation solutions.

    Dubbo Council in central western NSW recently announced it is now considering whether the technology is viable enough for houses to be constructed quickly and in a more environmentally friendly manner.

    Dubbo Regional councillor Matt Wright is confident it could revolutionise the Australian property market. He told ABC Western Plains:

    ...I'm planting the seed in readiness for what we hope might be something we can see in our city in the next year or two.

    The councillor put forward a notice of motion proposing council sets aside up to four residential blocks from the newest stage of the local Keswick residential land release for a 3D printing trial. He said the speed of building a 3D-printed house was one of many benefits.

    ...Cost efficiency is another plus, we're talking about machines that can precisely calculate the amount of materials that are required so wastage can be zero in some cases.
    That's massive cost savings. I know some people are concerned that this would put some people out of jobs but you still need plumbers, electricians, plasterers to work on these houses depending on the finish you'd like.

    Dubbo Council CEO Murray Wood will report back on its feasibility in September.

    About COBOD

    Denmark-based COBOD has spearheaded the development of 3D house-printing, having sold about 50 systems featuring multifunctional construction robots around the world since 2019.

    They have been used to 3D print Europe's first building in 2017. COBOD subsequently 3D printed the first 2- and 3-story buildings in Europe, specifically in Belgium and Germany using its technology. Also, the first villa in Dubai and the first 3D-printed house and school in Africa were built with COBOD's 3D construction printers, as well as the first wind turbine bases.

    COBOD counts leading companies such as General Electric, Swiss global building materials company Holcim, and German scaffolding group PERI among its shareholders. Simon Klint Bergh, regional general manager for COBOD Asia Pacific, said:

    ...This arrangement [with Fortex in Australia] together with our new distribution partners Siam Cement in Thailand and KA Bina in Malaysia and our new regional office in Malaysia, will mean that we penetrate the growing market in Asia Pacific even further.

    With a promise to build homes more efficiently and with less harm to the environment, COBOD sees an opportunity to leverage current worker and material shortages in Australia.

    Related

    Creality mass production 3D printer - HNN Flash #25, November 2020
  • Sources: Australian Associated Press, Herald Sun, 9News, MediaNet and ABC Western Plains
  • companies

    USA update

    The Home Depot undertaking a network refresh

    The hardware retailer is also rolling out 125,000 mobile devices to enhance store staff and customer experiences

    The Home Depot is investing in its network infrastructure that will also allow it to streamline its IT management and operations.

    The home improvement retailer is making a large-scale investment in edge technology and network as a service (NaaS) to drive enhanced customer and employee experiences across its North American stores.

    The Home Depot said it has selected Aruba ESP (Edge Services Platform), delivered via HPE (Hewlett Packard Enterprise) GreenLake for Aruba networking, because it provides a solution with agility and flexibility.

    The retailer continues to enhance the interconnected experience that blends the digital and physical worlds; one that allows customers to peruse, research, and purchase with ease, and delivers a familiar experience, regardless of whether they're in-store, online, or using the mobile app.

    Home Depot bricks-and-mortar stores continue to be the centre of the customer experience - in the first quarter of 2022, more than 50% of online orders were fulfilled through a store.

    Delivering a seamless experience to its customers and 500,000 employees is important to The Home Depot. Daniel Grider, vice-president of technology, said:

    Our goal is to enable technology to remove the friction from our customers' and associates' experiences each and every day.
    Our customers trust us to have the right tools and materials to complete their home improvement projects; having an in-store network that further supports interconnected capabilities like in-store navigation or image search allows them to get back to their projects more quickly.

    The Home Depot's technology investments and initiatives are intended to make it easier for customers to design, visualise, and buy materials for their projects. For example, maintaining strong connectivity in stores will help provide Home Depot staff the ability to deliver a great customer experience.

    The Home Depot's refreshed network should streamline IT management and operations. Solutions such as Aruba Central cloud with AIOp capabilities allow the company to proactively monitor network health and address issues before they negatively impact performance.

    The Home Depot's wireless solution includes Aruba location services via WLAN APs, which provide zero-touch determination of AP location, continuously validate and update location, and provide a set of universal coordinates that may be transposed on any building floor map or web mapping platform.

    Related

    Lowe's commitment to edge technologies - HNN Flash #98, June 2022

    Mobile devices

    The Home Depot is also beginning to roll out 125,000 new mobile devices for store staff. The devices, called hdPhones, will be in all US stores by the end of the year, so that every staff member working in-store will have a new device.

    With the latest mobile device technology in collaboration with Zebra Technologies, HPE and Aruba, The Home Depot is making it faster and more convenient for its store associates to serve customers.

    The Home Depot is the first major retailer to combine the new Zebra devices and Aruba Wi-Fi 6 across its more than 2,300 stores, it said. With the combined technologies, the new mobile devices can communicate anywhere across the entire store and into the parking lots.

    The new hdPhones will improve engagement between customers and store staff, while helping customers locate products faster, and quickly connect with experts across the store and beyond. Advanced-range barcode scanning enables staff to locate products, check pricing and inventory availability in hand or from more than 40 feet away, which is particularly helpful when serving customers and locating products in overhead storage.

    Additionally, docking with Zebra's Workstation Connect enables store associates to help customers by viewing and demoing products and specifications on larger screens. Additional capabilities include multi-device integration, more efficient app speeds, in-store texting, direct walkie talkie communication, and more. Executive vice-president and CIO, Fahim Siddiqui, said

    Our customers expect a frictionless experience, in our stores and on their mobile devices. We continue to identify ways to make it more seamless for our customers to shop wherever, whenever and however they want. The enhanced digital in-store environment allows our customers to more quickly get what they need to complete their projects with the help of a more connected associate.

    The home improvement chain first deployed handheld tech for associates in 2010. At the time, the retailer deployed 30,000 transactional/communication devices in 1,970 of its stores, providing store staff with handheld technology that combines inventory management and analytics functions, a phone, a store walkie-talkie, and label printing with POS.

  • Sources: Chain Store Age and RIS News
  • bigbox

    How the housing market is changing

    ABS stats for dwelling transfers reveal local trends

    Reviewing the ABS stats for dwelling transfers reveals unique state-by-state shifts in housing composition. This enables us to track some aspects of the evolving market for hardware retailers.

  • This article can be read as a HNN Briefing PDF. To read the PDF, please download by clicking the image/link below.
  • Download hnn-brief-009

    The housing market changed during the pandemic. This had a material effect on many hardware retailers. While much of the focus has been on the housing market "boom" (and we'll find out if it is really a "bubble" when interest rates hit 3.0%), there were significant shifts in the type of dwellings bought, and where those dwellings were located.

    The Australian Bureau of Statistics (ABS) has released stats for the number of dwellings transferred for the March quarter of 2022. The ABS publishes these in categories that break out location by state capitals and rest of the state, as well as whether the property is "attached" - apartments, flats, townhouses, "granny" flats, etc. - or an unattached house.

    Looking into these stats, and tracking how they changed through the course of the COVID-19 pandemic, can give us an insight into both the extent of any change, and the timing of the changes.

    One reason why HNN has sought to present this particular data is that there is a debate about what the pandemic-driven changes "mean" for the future of the property markets.

    While many changes the COVID-19 pandemic brought were "catastrophic" (in the sense of "a sudden and large-scale alteration in state"), the debate is whether these are incidental, and will fade out over the next couple of years, or if they are more foundational. If the latter is true, the suggestion is, what is really happened is that somewhat inevitable change has been brought forward.

    In simpler terms, if we were absolutely certain there would be no more lockdowns for the next five years, would property buying habits revert to those of 2018, or would they retain much from 2021 instead?

    Australia

    This data varies substantially from state to state, and the meaning of the data also changes with geography and demographics. For example, property transfers outside of Sydney in New South Wales (NSW) incorporate several major urban areas such as Newcastle, the Central Coast and Wollongong. Similarly, for Queensland (QLD), outside of Brisbane there are dense regional areas such as the Sunshine Coast, Townsville and Cairns. In contrast, Victoria (VIC) is a far more centralised state: its second city, Geelong, has only 4% of the population of greater Melbourne.

    That variance also means that aggregated data about Australia-wide trends has less meaning. However, we can look at another statistic, which is the median value for houses and attached dwellings (apartments, flats, townhouses, etc.) across the nation, to see broader, more general trends.

    Chart 1 shows the median values for these two categories in the states most affected by the pandemic on the east coast, for both greater capital city areas, and the rest of the state.

    The narrative of the graph on the left is well-established, especially the steep rise in the median value of houses for the Sydney area, echoed by a similar climb in values for the greater Melbourne area. If there is a surprise, it is in the rise in values for NSW outside of Sydney, with those values climbing steeply enough to overtake values for Brisbane. There is an echo of that increase for median value in VIC outside Melbourne.

    The graph on the right, which shows median values for attached dwellings, contains a few more surprises. While the comparatively lower rises in median values for attached dwellings in both Melbourne and Sydney is well-understood, the sharp rise in those values outside the urban areas has been under-reported. Values for rest of NSW have risen so steeply that they have overtaken those in urban Melbourne. Rest of VIC values have also increased substantially.

    Chart 2 shows the median values for these two categories in the rest of Australia, for both greater capital city areas, and regional areas. Again, the graph on the left, for houses, is not surprising.

    The median value in the most urban area of Canberra has increased steeply, as it has for Hobart, and to a lesser extent for Adelaide. The one unexpected data point is that the median value for houses in Tasmania (TAS) outside of Hobart, which previously had been close to that for Darwin, has increased steeply as well.

    The graph on the right shows the median value for attached dwellings. TAS is again the surprise here, as it shows a steep rise for Hobart, with Darwin also showing growth.

    Finally, we have Chart 3, which charts the percentage growth in these categories. This takes the December 2019 quarter as a baseline, then compares that to the maximum value taken from all the subsequent quarters through to December 2021.

    In houses - the left graph - the top three are rest of VIC, rest of NSW and rest of TAS. In attached dwellings - the right graph - the top three are rest of NSW, rest of VIC, and rest of Western Australia (WA). In fact, the biggest surprise is the extent to which rest of WA has outperformed Perth.

    What these charts of median values indicate is the balance between supply and demand across these areas. The unusually high values for more regional areas are likely driven by both direct and indirect pandemic effects. The direct effect is families seeking to avoid difficult lockdowns in urban areas. The indirect effect is that as the urban median values rose, many households would have found themselves priced out of urban areas, and have elected to live in more regional areas.

    Number of transfers

    Moving from the median values to the numbers of transfers, we shift from supply and demand in the market, to looking at how the supply side of the equation has played out across Australia. For the most part, there is a balancing of forces at work here. Some of these are directly pandemic-related, and others - as mentioned above - are secondary effects stemming from the pandemic.

    One dominant set of forces could be thought of as a revaluation of space. In a paper sponsored by the Australian Council of Social Service and UNSW Sydney, entitled "Housing Market Impacts and Housing Policy Responses - an International Review", authors Hal Pawson, Chris Martin, Fatemeh Aminpour, Kenneth Gibb and Chris Foye borrow from a study by the Bank of England to refer to this as "the race for space". The study identifies three types of changes to dwelling buying patterns caused by the pandemic:

    The first is compositional in nature: the pandemic has changed the type of properties being traded, increasing transactions for detached houses and decreasing transactions for flats. Because, on average, the former are worth more than the latter, this has increased the average value of properties being transacted ...
    The second dimension of the "race for space" also relates to property type, but this time the argument is that the pandemic not only changed the types of properties being transacted but also changed the amount that people were willing to pay for certain aspects of a property ... The Bank of England analysis suggests the pandemic increased the price that buyers were willing to pay for a house compared to a flat with similar characteristics (e.g. similar area, number of bedrooms) and this partial increase in demand explains about 20 percent of the overall house price growth ...
    The final dimension of the race for space was spatial, and relates to the type of location people wanted to live in. For those who want to remain close to the city, but who no longer need to commute regularly, it appears to have led to a "doughnut effect" as demand shifted from the centre to the suburbs. Others, including those can work entirely from home, or who can no longer gain employment in the city, have moved even further away from the city.
    Housing Market Impacts and Housing Policy Responses

    This is an interesting approach, as it moves away from the absolute of families deciding "we must have a house", to their basing their decisions on a revaluation of some aspects. For example, in some regions the transfer of attached dwellings outside capital cities has risen, due both to price and a greater certainty that the space outside the dwelling will remain available, and not taken away by a lockdown.

    As a brief note on HNN's approach to aggregating statistics, HNN has consolidated the quarterly data into 12-month periods, ending with the March quarter. These are designated with a "p" prefix. So the period p2020 would include June 2019 quarter, September 2019 quarter, December 2019 quarter, and the March 2020 quarter.

    New South Wales

    The outstanding characteristic of NSW dwelling transfers is the increase in transfers outside of Sydney. This is most directly indicated in Chart 4, which shows the raw number of dwelling transfers across the periods:

    The number of transfers for houses in Sydney initially increases in p2021, up to the level of p2018, but then declines for p2022. In contrast the transfers outside Sydney in NSW increase sharply for both p2021 and p2022.

    The number of transfers for attached dwellings follows a similar pattern. The Sydney transfers increase marginally, then fall, while the transfers outside Sydney increase so sharply that they are almost the same - the Sydney transfers are ahead by less than 1400.

    This is clearly shown in Chart 5, which charts the growth for these categories between periods:

    Attached dwellings outside Sydney grow strongly, while houses outside Sydney grow by around 35%, then decline back to 25% growth. Meanwhile for p2022 Sydney houses and attached dwellings decline by more than 10%.

    Chart 6 shows the proportion of each category for a period:

    This clearly shows the marked swing to areas outside of Sydney. For example, contrasting p2020 with p2022, transfers for attached dwellings outside Sydney increased by 10%, while those for houses outside Sydney increased by 5%.

    Chart 7 shows the quarter-on-corresponding-quarter growth for the categories:

    As this indicates, the big surge in transfers took place from the September 2020 quarter through to the December 2021 quarter, with a peak in growth for the June 2021 quarter. It's also worth noting that all categories went into negative growth for the March 2021 quarter.

    Victoria

    VIC shows trends that are similar to NSW, but in an environment with generally lower growth. Chart 8 charts the number of transfers by category for periods.

    This shows a pattern of mild decline for both houses and attached dwellings in Melbourne, while houses and attached dwellings outside Melbourne show increased transactions.

    One difference with NSW is that growth in attached dwellings outside Melbourne remains relatively subdued, while the number of house transactions outside Melbourne increases to be only1440 below houses in Melbourne.

    Chart 9 shows the growth in transfers:

    This shows that while the attached dwellings outside Melbourne transfers are numerically low, the growth rate has been high through p2021 and p2022.

    That is indicated in Chart 10, which shows the proportion of overall transfers taken by each category:

    After standing at 4% and under in the past, the attached dwellings outside Melbourne category grew to 13% overall in p2022. Both houses and attached dwellings in Melbourne shrunk by 5%.

    At first glance, the chart for the percentage change quarter-on-corresponding-quarter for VIC looks broadly similar to that for NSW, but there are key differences, as shown in Chart 11:

    While the attached dwellings outside Melbourne and houses outside Melbourne categories indicate growth similar to its NSW counterpart, the rate of growth is substantially higher.

    Queensland

    As was noted above, QLD has a unique composition, with a more distributed population - though it is important to know that the ABS includes the Gold Coast area in the statistical area for greater Brisbane.

    Chart 12 shows the raw numbers for transfers:

    The first thing that attracts attention is the lift in the number of transactions for houses outside Brisbane. But it turns out that this graph is somewhat deceptive - largely because while the curve near the bottom of a chart will be similar to one above it, the bottom curve, due to proportionality, will show a higher level of growth. That is clearly seen in Chart 13, which shows the growth percentages:

    Unexpectedly, the category with the highest level of growth is actually attached dwellings in Brisbane, while that with the lowest level of growth is for houses in Brisbane. That "swap" can be seen in Chart 14, which shows the changing proportions for each category:

    The proportions of house transfers outside of Brisbane and attached dwellings inside Brisbane have both grown, along with attached dwellings outside Brisbane, while houses in Brisbane has shrunk.

    The quarter-on-corresponding-quarter growth shown in Chart 15 reflects this:

    While the timing of the peak in the June quarter of 2021 is the same as for NSW and VIC, this chart differs from those by having detached dwellings through QLD as the main categories.

    South Australia

    The South Australia (SA) market shows as relatively static from p2016 to p2020, but then grows in all categories for p2021 and p2022, as shown in Chart 16:

    Notably the number of house transfers outside Adelaide increases to equal transfers of attached dwellings inside Adelaide. The growth pattern is shown clearly in Chart 17:

    Houses in Adelaide show the slowest growth, while attached dwellings outside Adelaide have the highest growth.

    Chart 18 shows a relatively modest shift in the proportions of the categories:

    Houses in Adelaide slip by 6% between p2020 and p2022, while houses outside Adelaide grow by 5%. Attached dwellings outside Adelaide grow by 2% over the same periods.

    Chart 19 shows the growth in quarter-on-corresponding-quarter terms:

    Once again there is a growth surge in the June quarter of 2021, dominated by the two categories outside of Adelaide, with attached dwellings leading over houses.

    Western Australia

    WA has some of the characteristics of SA, with the period from p2016 to p2020 mostly static in terms of growth of transfers, as shown in Chart 20:

    Houses dominate the market, making up over 75% of all transfers during the static period. However, even though WA was insulated from most effects of the COVID-19 pandemic, transfers grew starting in p2021 and continued to grow in p2022, with the exception of houses in the Perth category. Chart 21 shows the pattern of that growth:

    This shows an unusual pattern, with a level of high growth for p2021, which then declines for p2022, and even goes negative for houses inside Perth. The exception to this is transfers for attached dwellings outside of Perth, which grows at a high rate through to p2022.

    The consequence of that growth can be seen in Chart 22, which shows the proportion of transfers in each category by period:

    While attached dwellings are largely static in p2021, houses outside of Perth grow from 17% to 20%, even as the proportion of houses inside Perth declines by 4%. For p2022, there is a 4% growth in attached dwellings outside Perth, and further growth in houses outside Perth.

    The details of that change can be seen in Chart 23, which shows the quarter-on-corresponding-quarter growth in categories:

    There is a steeper entry into the peak period, which is still the June quarter of 2021, and primarily driven by attached dwellings outside Perth, with houses outside of Perth also peaking.

    Tasmania

    TAS represents some interesting problems in interpretation. As we've seen from the median dwelling values at that start of this article, prices have been steadily rising for the state during the pandemic. However, transfer numbers have been largely flat to negative in the same period. That would indicate there is a problem with supply.

    Chart 24 shows the raw numbers for transfers:

    Since p2018 most categories have been flat or declining, with only attached dwellings outside Hobart showing growth. The pandemic created a further reduction in transfers. Chart 25 shows the extent of the changes in the categories:

    While p2021 saw the two categories for dwellings outside of Hobart leave negative territory to go mildly positive, in p2022 all categories are negative.

    Chart 26 shows the established pattern for the proportion of the categories:

    This indicates how little effect the pandemic had. There is a historical trend towards a reduction in the houses in Hobart category, and a compensating increase in the houses outside Hobart.

    Chart 27 shows that there is once again a strong peak for the June quarter of 2021, but the two subsequent quarters are very different from those of the other states.

    The peak is strongest for houses outside Hobart, followed by attached dwellings outside Hobart. It's also a much milder peak than other states, topping out at less than a 50% increase. It is also followed by a series of declines for all the categories, culminating in negative growth of lower than -40% for every category.

    One possibility is that transfers were drawn back from December quarter 2021 and March quarter 2022 into the June and September quarters of 2021.

    Northern Territory

    Northern Territory (NT) shows a pattern where transfers for houses increased in both p2021 and p2022, while transfers for attached dwellings in Darwin fell for p2021, then rose in p2022. Chart 28 shows the raw data for transfers:

    It's notable that the most volatile category is for attached dwellings in Darwin, which started at parity with houses in Darwin in p2016, then declined through to p2019.

    The trends for the categories are shown in Chart 29:

    This shows the highest level of growth was for attached dwellings in Darwin in p2022, though all four categories showed growth in that period. However p2021 shows that both house categories grew, while both attached dwelling categories declined.

    The effect of this on the proportion of each category is shown in Chart 30:

    There is a clearly established trend where dwellings inside Darwin are increasing in proportion, though houses outside Darwin did surge in p2021. Most notably, in contrast to most states, the proportion of attached dwellings outside the capital city is declining.

    Chart 31 which shows the quarter-on-corresponding-quarter growth for categories does depart from the pattern of the states:

    While the expected peak is yet again present in June quarter 2021, in this case including both houses in Darwin and outside Darwin as well. However, this is followed by a second, higher peak for attached dwellings inside Darwin for September quarter 2021. It is also noticeable that while the other three categories saw growth decline sharply for December quarter 2021 and March quarter 2022, this category maintained growth above 70% for both those quarters.

    Conclusion

    As HNN said in our introduction to this article, our intent in taking this deep dive into state-by-state ABS statistics on dwelling transfers was to provide some sense of how markets reacted to the stresses of the pandemic, in order to give a better picture of what is to come in FY2022/23.

    The core issue, as was mentioned above, is whether the catastrophic change of the pandemic is a "blip" that will see markets gravitate back to conditions prior to the pandemic, or if it has instead resulted in fundamental change through the removal of established barriers - essentially a speeding up of inevitable changes.

    The trigger

    One identifiable trend across all of the states and territories has been a surge in transfers during the June quarter (April, May and June) of 2021. For the majority of regions, this was a peak, with the numbers of transfers in the adjoining quarters, March and September, rising as well.

    The cause of this surge in transfers is likely a combination of factors. Firstly, this was right at the beginning of the advent of the Delta variant of COVID-19 into Australia - the first case was detected around 4 June 2021. This came about as the country moved through a succession of lockdowns as illustrated by this diagram from the ABS:

    Secondly, this was also the time it became evident the Australian federal government had not obtained an adequate supply of COVID-19 vaccines. The early targets by the government, such as five million vaccinated by March 2021, had failed. It was not until October that Australia managed to vaccinate half its population - well after Delta had caused additional lockdowns.

    Thirdly, the June quarter of 2021 was when it became evident that Australia was in the midst of a housing price boom, as illustrated by Chart 32:

    It's interesting to note that price index increases remained in a relatively tight band for both the March and June quarters of 2021, but from the September quarter of that year onwards there was a broader spread to price increases.

    Consequences

    The belief that house buying has accelerated in response to the pandemic has some facts to back it up, especially in VIC. However, in both NSW and QLD, it is evident that attached dwellings continue to attract buyers.

    What is almost universally true, however, is that there has been a substantial increase in transfers for dwellings in areas outside of state capital cities. However, this is likely to be a complex effect. Moving outside of lockdown regions might be part of the stimulus, but it could also be the need to seek less expensive properties to buy. And, of course, part of what contributes to that move to the regions is another effect from the pandemic, the development of increased working from home, cutting down on commute times, and making more remote living possible.

    The changes

    The first quarter of FY2022/23 is likely to be a somewhat rough ride for the economy. It is entering the unlovely state where interest rates are set to rise by at least 0.75% and more likely close to 1.1%, while inflation continues at close to 5.0% and the supply chain, for petrol and groceries - especially vegetables - continues to be constricted. Added to that are expected higher prices for electricity.

    In those conditions, household formation may not only fall, but actually contract. Australia is also in the "hollow" of dwelling purchases through immigration - as the Australian Construction Industry Forum has pointed out, it takes about two years from arrival before immigrants are ready to buy a house, which means a decline from, roughly, March 2022 through to June 2024.

    As house prices continue to drop through the rest of 2022 - as is probable - and families find themselves close to being "underwater" in terms of their mortgage valuation versus current valuation, it is likely there will an increase in forced sales into a market with lower demand, further deflating prices.

    Additionally, in the near future of two years or so, if the pandemic remains contained, it's likely that many families will conclude they have over-invested in their homes. That will depend in part on what happens to wage rises. This has developed into a complex situation, with a number of micro-economic factors at work.

    For example, many employers are operating in an under-staffed environment, because to attract new staff they would have to raise wages. However, wage rises for new staff would trigger wage rises for most existing staff - which have been held down for the past eight years - and employers cannot afford this.

    The general prognosis would be that while growth in hardware retail revenues may slow, it's unlikely that they will fall by much from the highs of the past two years. However, that story may change sharply in FY2024/25, and the market may retreat, or diversify in unexpected ways.

    The biggest problem facing the Australian economy at the moment - and therefore hardware retailers as well - is what we might term "persistency bias". Despite more than two decades of watching businesses and economic sectors persist in past practices until they fail in spectacular fashion, Australia and many other regions continue to not really believe in change until it has already happened. This failure to effectively forecast, listen to forecasts and plan consequentially has forced an enormous cost on the economy.

  • This article can be read as a HNN Briefing PDF. To read the PDF, please download by clicking the image/link below.
  • Download hnn-brief-009

    statistics

    Supplier update: Building materials

    Sharp increase in power and gas bills

    Boral will sell tech company Found Concrete, an online marketplace for builders and DIY renovators

    Two of Australia's biggest building materials manufacturers, Brickworks and Boral, are cutting back operations, hiking prices and considering moving production offshore in an effort to manage a spike in power and gas bills, according to a report in Reuters.

    Power prices have surged in Australia amid a shortage of coal-fired generation due to planned and unplanned outages, which has driven up demand for gas-fired generation at the same time as gas demand for heating jumped during a cold snap. The price jump has been exacerbated by record high global coal and gas prices, as a result of sanctions placed on Russia.

    This led the Australian Energy Market Operator to suspend the country's main wholesale market on 15 June 2022 in an attempt to stabilise the supply of electricity.

    It has left Australia's manufacturing sector, a major power and gas consumer, exposed to soaring costs, especially those whose cheaper, long-term energy contracts are expiring.

    For example, Brickworks has gas contracts with Santos Ltd averaging AUD10 per gigajoule, locked in for two years, compared to the current government-mandated price cap of A$40. Lindsay Partridge, managing director of Brickworks, told Reuters:

    If we had to pay, when our contract rolled over, (the current spot price), we would no doubt be shutting plants down and moving production offshore.

    As Australia's largest brickmaking company, Brickworks operates about 30 brickmaking and masonry plants.

    Brickworks pays just USD3 per gigajoule for gas in the United States, where it owns Pennsylvania-based brickmaker Glen-Gery Corp. Mr Partridge said:

    If we rolled over and you had to pay AUD40, and I could buy gas in the US for USD3, then it's a pretty easy equation to work out.

    The United States generates just one-sixth of Brickworks' earnings from building materials, but the company could save money by shipping product back to Australia, he said.

    Boral told Reuters it has cut back on operations due to "the speed and magnitude of the change in energy prices". Outgoing chief executive officer Zlatko Todorcevski wrote in an email to Reuters:

    We have been forced to temporarily curtail some areas of our operations and unfortunately have been left with no other option than to pass increases onto customers directly.

    The company did not specify the size or products affected by the cuts but Mr Todorcevski added:

    We have also had to accelerate plans to review our overheads as we offset these inflationary challenges.

    Boral welcomed a move by the Australian energy market operator to cap wholesale power prices and take control over power supplies, but Mr Todorcevski said those temporary measures "do not provide long-term confidence for large manufacturers".

    Domestic gas

    The latest crisis has highlighted the need for more gas supply in the domestic market.

    Manufacturers have long clamoured for gas export controls or a reservation of gas for the domestic market. Gas prices have more than tripled in price since 2014, when Australia started exporting liquefied natural gas (LNG) from the east coast. (Australia is the world's biggest exporter of LNG).

    In Western Australia, where 15% of gas is reserved for local consumption, domestic prices are a fraction of the capped east coast price.

    Successive governments have previously opposed a gas reservation on the east coast, under pressure from gas producers which say the structure would deter further investment.

    Government package

    The Australian Financial Review (AFR) reports that a crisis meeting of state and federal energy ministers will consider a financial aid package for business and manufacturers to help ease the cost of soaring energy bills sending some businesses broke.

    Victorian Energy Minister Lily D'Ambrosio call for a support package comes after a local manufacturer, Advance Bricks in the Victorian town of Stawell which employs 23 people, said it was shutting its doors after more than 82 years in business because it could no longer afford to pay its power bill.

    Managing director John Collins said the business went from paying $6 to $8 a gigajoule of gas to more than $37 a gigajoule after the collapse of commercial gas supplier Weston Energy forced it onto a plan with "retailer of last resort" Energy Australia.

    Boral tech business

    Boral is divesting an app-based tech company that enables builders and DIY renovators to order concrete deliveries from seven different suppliers, according to the AFR.

    Found Concrete, established in 2019, operates in Melbourne, Sydney, Geelong, the Hunter region in NSW, and has just started up in south-east Queensland.

    Chief executive Adam McArthur said about 1000 customers had used the service, which matches their orders with supply of smaller batches of concrete made by seven different suppliers, including Boral.

    He said it was mainly used by smaller professional builders and DIY renovators for projects such as concrete slabs for new home construction, driveways or swimming pool surrounds.

    Boral set up the Found Concrete digital marketplace business when it partnered with Fusion Labs to develop the platform technology. Fusion Labs is now part of Deloitte. Boral owns 100% of Found Concrete.

    Mr McArthur said almost 30% of orders were made outside business hours as various parts of a construction process fall into place. Once concrete is in a truck it needs to be delivered and poured within an hour or two. He told the AFR:

    Concrete is a last-minute order.

    Trades people and building company operators traditionally made phone calls to order concrete but now were increasingly using the digital marketplace set up by Found Concrete.

    Smaller operators that were often left behind in the early morning rush to order concrete, were able to lock in a delivery with certainty. Mr McArthur said Found Concrete wanted to go national and have a presence in all major markets around Australia.

    Placing Found Concrete up for sale is not expected to be large in dollar terms for Boral, but it is part of a "back-to-basics approach" by chairman Ryan Stokes.

  • Sources: Reuters, Australian Financial Review and Global Cement
  • companies

    Retail update

    Elders moving into Goldtower Central in Queensland

    Shepparton-based Riverside Gardens Garden Centre has changed hands, locations and products in over 40 years of trading

    Agribusiness Elders has moved into new premises at the Goldtower Central complex in Charters Towers (QLD). The new facility is a 1300sqm building with an all-weather drive-through area.

    Goldtower Central owner Paul McIver said the expansion was a logical next step for the region and the business. He told the Townsville Bulletin:

    Elders is the newest tenant of our commercial development ... Our development has seen six buildings completed with new constructions of Poppet Head Plaza and Treasure Towers now leasing.
    We had a vision of establishing a strong presence in the West. Elders shares our vision and the growth of this national brand into our precinct promotes a strong appeal to do business in regional Queensland.

    Charters Towers mayor Frank Beveridge said the new expansion was a welcome development. He told the Townsville Bulletin:

    We are pleased to see the expansions of the Elders into a larger premise. With the demand for food increasing for the next 25 years, agriculture, especially the beef industry, needs businesses to grow to cater to this pressure. This expansion shows faith in Charters Towers region...

    The new branch will employ three extra staff, bringing the number of the team catering to the Charters Towers community to nine.

    Existing franchises at the location include Hollimans Rural Mitre 10, rural clothing specialist W. Titley & Co and Queensland Rural.

    Related

    Hollimans Group is moving to the Goldtower Central retail precinct in Charters Towers (QLD) - HNN Flash #88, April 2022

    Riverside Gardens Garden Centre

    The Smith family's history with Riverside Gardens Garden Centre in Shepparton (VIC) began in 1982 when Moira and Bob Smith bought the nursery, then located on the banks of the Broken River.

    In the first six months, the nursery was mananged by the Smiths and their son Murray, with another son, Larry, travelling from Melbourne on the weekends to pitch in, according to Shepparton News.

    After Larry left his position at Government House gardens to move his family back to Shepparton, he made the jump into the business - with his brother Rodney not far behind.

    Now, Larry, Murray and Rodney are at the helm, along with the garden centre's popular cocky, Charlie. He told Shepparton News:

    We've quite literally weathered our fair share of storms with the old and new nursery. Both the old and new nursery have been severely damaged in four storms, we've been burnt by a couple of devastating fires, survived more than 10 years of drought and suffered regular minor flooding at the old site.

    He said the 1993 floods affected the business in a devastating way, as they did many others, prompting the move to the Emerald Bank location. Throw in a pandemic, and the nursery has just about seen it all but regardless, the support and generosity from the community has been "heart-warming". Larry said:

    Back then, moving a few kilometres out of town surrounded by cows was a gamble! But it's one that's proved beneficial over the years. We were a lonely tenant for a while but we're grateful to have neighbouring businesses that have made Emerald Bank more of a destination point than we could've thought.

    Across 40 years, Larry said the whole industry had changed. He said:

    Initially it was 'you work for a nursery, you just sell plants' and quite often they were just wrapped up in paper. Now it can't be dirty at all - you can't be dirty coming into a garden centre.

    While it began with simply plants, the store has since become a seller of all sorts. Additions include a coffee shop, gift lines, home and garden decor, and furniture all the way through to clothing and the mini golf course. Larry said:

    To actually grow the nursery from what it was; it was very small and now it's one of the leading nurseries in Victoria.

    The nursery won the Best Medium Garden Centre of Victoria award three years running from 2008. He said:

    ...Yes, a great deal has changed over 40 years, but one thing that will never change is that we are forever appreciative to our customers who have supported us over the years, and we thank them for being a part of our journey.
  • Sources: Townsville Bulletin and Shepparton News
  • retailers

    USA update

    Lowe's enters the metaverse

    The home improvement retailer is making more than 500 digital assets available for free to virtual and augmented reality developers

    Lowe's said it will begin helping builders of the metaverse create new possibilities. Rather than entering the metaverse with a storefront to sell virtual goods, Lowe's aims to equip developers free of charge with items from its real-world shelves to make their creations more useful and more inspiring.

    To start, Lowe's will make more than 500 3D product assets available for download for free via Lowe's Open Builder, a new hub designed to be available to all creators. They assets address key challenges of interoperability and accessibility, and are based on real products the company currently sells online and in its stores.

    As the first major home improvement retailer to enter the metaverse, a key goal would be to watch consumer behaviour to eventually capitalise on the opportunity that might exist.

    Lowe's executive vice president and chief brand and marketing officer Marisa Thalberg told CNBC in an exclusive interview the retailer decided not to choose one metaverse platform or game like Fortnite or Roblox but rather "a kind of an agnostic and kind of democratised approach".

    While other brands have found immediate ways to make money in the metaverse, even on an experimental basis, Ms Thalberg said:

    This isn't about immediately jumping in and trying to make an event or immediately commoditising it.

    Rather, she told CNBC:

    Our goal really is to take this new frontier and help people use their imaginations and help them make their virtual spaces as exciting and inspirational and enjoyable as their real world spaces. And that's the only benefit we seek to obtain at this point.

    Lowe's is also releasing a free, limited NFT* collection of boots, hardhats and other related accessories for builders on the Decentraland platform to the first 1,000 participants.

  • An NFT* (Non-Fungible Token) is a financial security consisting of digital data stored in a blockchain, a form of distributed ledger. The ownership of an NFT is recorded in the blockchain, and can be transferred by the owner, allowing NFTs to be sold and traded.
  • Seemantini Godbole, Lowe's executive vice president and chief information officer, also told CNBC exclusively the retailer is applying many of the principles it currently uses for shoppers for this metaverse project.

    What we have noticed in our current mediums like Lowes.com and in our stores ... people like to experiment and while they're shopping and getting inspired they like to put things together in the virtual world before they start their project.
    It's the same idea for the metaverse. That you want them to experiment, feel and understand how it's going to look before they start the project in the real world.

    Ms Godbole said many of these metaverse assets had already been created as 3D digital versions of physical products available for purchase, to help online shoppers visualise the real-life dimensions and features.

    Lowe's is already using virtual and augmented reality technology to allow shoppers to design an entire kitchen online or map their home's floor plan using their smartphone as examples. Ms Godbole said:

    There is just a huge appetite from our customers to use emerging technology [like the VR and AR tools]. We are applying some of those lessons in the metaverse.

    At the moment, Lowe's isn't offering a physical good with the purchase of a virtual one, or any link back to its website from any metaverse platforms, Ms Godbole said. But that could change.

    In the future, we could absolutely think about, how do all these different things link, and make sure that [metaverse users] are able to shop these items on Lowe's dot com or in our stores.

    Through its experimentation and focus on delivering what customers need, Lowe's believes it is uniquely positioned to leverage emerging technology to help people imagine the possibilities. Ms Godbole said:

    Over the past several years, we have infused new technologies into the planning and shopping experience and know our customers have benefitted greatly from being able to explore and test home improvement projects in the virtual world before taking the leap to implementation in their real-world homes or job sites.
    By entering the metaverse now, we can explore new opportunities to serve, enable and inspire our customers in a way no other home improvement retailer today is doing.

    Ms Thalberg acknowledged that the typical metaverse participant "skews really young" likely younger than the typical Lowe's shopper or homeowner today.

    But if you look at kids who've used platforms like Minecraft and Roblox, a lot of what they do there, is fascinatingly enough, build and design. This idea of being able to build and decorate and design and improve is kind of core to how these spaces are emerging.
    And so if we catch them young, that's great, but we see a real utility too, as we look to a huge wave of millennial new homeowners who aren't afraid of technology.

    Analysts see a big breakthrough coming for the metaverse. By 2026, a quarter of consumers will spend at least one hour per day in the metaverse, said consulting and research firm Gartner estimates. Morgan Stanley estimates the total addressable market for advertising and e-commerce opportunities could be worth USD8.3 trillion in the metaverse, with USD697 billion in home and home related spending. The firm lists walking through "home renovation plans" as an example.

    Related

    While this is the company's first step into the metaverse, Lowe's has been using emerging technology to help customers gain inspiration and more easily visualise and plan their home improvement projects for many years. This includes the beta version of an end-to-end room scanning, measurement and estimate tool called "Measure Your Space" in its iOS app.

    Lowe's launches room measurement tool - HNN Flash #71, November 2021
  • Sources: CNBC, Wikipedia, Chain Store Age and Lowe's Home Improvement
  • bigbox

    Supplier update: Sherwin-Williams

    AI-powered paint tool

    Speaking in Color is a voice-controlled tool from Sherwin-Williams that uses natural language systems to interpret descriptions of the ideal colour

    A newly created AI-powered paint tool from Sherwin-Williams can help create custom colours with a human voice.

    The US-based paint company recently launched Speaking in Color that allows users to tell it about certain places, objects, or shades to make the specific colour they want. For example, users can start with a broad description like "New York City summer sunset" and then fine tune from there once it responds with photos and other options with more in-depth preferences like "darker red", "make it moodier" or "add a sliver of sun" until it's done.

    Developed with agency Wunderman Thompson, it's a React web app that uses natural language to find a preferred colour using both third-party and proprietary code. The tool's custom algorithm allows users to tweak colours in a way that translates statements like "make it dimmer", "add warmth" or "more like the 1980s" into mathematical adjustments.

    See the video of Speaking in Color here:

    Speaking in Color by Sherwin Williams

    The tool is currently exclusive to architects and the company's high-performance coil coating paint business, with the goal of creating one of the largest colour libraries in the world. So it's not quite ready for DIY consumers to paint their kitchen yet.

    Christian Zimprich, marketing manager for Sherwin-Williams Coil Coatings, explains that Speaking in Color is a major evolution of the brand's past work in helping architects play with and develop new colours, like with 2019's Color Mixology and Thinking in Color, which used hands and brain waves, respectively. He told Fast Company magazine:

    Investing in new tools and technology to make something that's never been done before requires time, trust, and the ability to be agile. The final result isn't always easy to see - you have to be in it for the long haul and have faith. For us, the biggest challenge was keeping everyone on board throughout the prototype and testing phases to get to the end product.

    Wunderman Thompson group creative director Brett Knutson said that even though Sherwin-Williams is often thought of as a paint company, it's a leader in coil coatings - a high-performance paint applied in the manufacturing process to primarily steel or aluminium for a range of industries, including high-end architectural and construction use - which goes far beyond the typical association with interior house paint. Mr Knutson said:

    While product innovation is critical, being a leader means that innovation goes beyond the product itself to help customers realise their vision along the entire journey. Speaking In Color lives up to this mission, and can be a guiding tool for both customer initiatives and business planning. It's the perfect combination of Sherwin-Williams Coil Coatings investment in colour, technology and data.
  • Source: Fast Company
  • companies

    New product: Husqvarna

    K 1 PACE power cutter receives Red Dot Award

    The K1 PACE can deliver power and performance equivalent to petrol-powered cutters, according to Husqvarna

    Husqvarna's K 1 PACE high-performance battery power cutter has won the Red Dot Award 2022 for design quality in the product design category.

    The Red Dot Design Award is one of world's largest design competitions and an internationally recognised seal of design excellence. In 2022, manufacturers from around 60 countries participated in the Red Dot Award's product design discipline. The 48 international members of the Red Dot jury assessed each product with the guiding motto: "In search of good design and innovation".

    The design features of the K 1 PACE which the Red Dot jury deemed to be outstanding include its cordless convenience, low vibrations, built in X-Halt TM brake function for operational safety and zero direct emissions.

    With the launch of K1 PACE, Husqvarna has taken a significant step towards supporting professional users in the transition towards battery powered equipment for heavy duty jobs. This is the first product to be launched on the company's new battery system, PACE.

    The PACE battery system can be applied to more machine lines as the battery-powered family expands. In addition to power cutters, diamond blades in 12 in. and 14 in./300 and 350mm have been optimised for battery operation. Mattias Holmdahl, global product manager - power cutters at Husqvarna Construction, said:

    We see an increasing number of construction companies striving for carbon-neutral workplaces and as a leading supplier we feel a responsibility to contribute, together with our partners and customers, towards greater sustainability.

    The machine is also equipped with X-Halt brake function capable of stopping the rotation of a blade in a fraction of a second for enhanced safety. Mr Holmdahl said:

    We do not compromise on quality and safety. With K1 PACE, customers ... can expect lower vibrations and smoother cutting. The machine's low weight and optimal centre of gravity will help reduce the strain on their body.

    The release of the 94 V battery powered K1 PACE power cutter for the construction industry is part of Husqvarna's ambition to electrify 67 % of its motorised products by 2026.

    Related

    GARDENA wins Red Dot Design awards - HNN Flash #43, April 2021
  • Sources: Husqvarna Group and For Construction Pros
  • products

    ABS hardware retail stats

    Encouraging signs in 2022

    While economic clouds loom ahead, with ongoing high inflation and higher interest rates, home improvement spending may continue to generate something near the current high retail revenues.

    The ideal home for 2022 is larger, more likely to be a detached dwelling, and more "multifunctional" than the ideal home of 2018. It has provision for some at-home recreation, a home office and a more extensive outdoor garden.

    That has been a direct response to the potential for further pandemic lockdowns. But will the impending pressure on personal finances, with those higher interest rates and net inflation of above 5.0%, combined with low growth in wages, take consumer spending on home improvement projects back to the levels of three years ago?

    Or, in other terms, will hardware retail remain a special category, which the pandemic has worked to boost, or will it revert to a more "normal" category, and become responsive to increasingly difficult economic times?

    The past record of retail turnover for hardware retailers can provide a baseline to predict elements of future revenues. There will be a nationwide shift in hardware retail growth during May, June and July 2022 as the initial impact of increases in the target interest rate made by the Reserve Bank of Australia (RBA) take effect. The question is whether this will simply forestall future growth, or if there is a possibility that revenues will return to calendar 2019 levels.

    It has become increasingly clear that the interest rate increases will be persistent, and seek to "front load" rates by increasing at a faster pace than the RBA's usual 25 basis points. Those increases, of 25 basis points in May and a further 50 basis points in June, have lifted the target interest rate to 0.85%. A further rise in July 2022 is almost certain, likely sending the target rate above 1.2%. The target rate is set to be over 2.0% by December 2022, and over 2.4% by June 2023. Central banks often seek this kind of front-loading as it is thought to reduce the final peak rate needed to deal with inflation, which makes future adjustments downwards less taxing on the economy.

    The "double whammy" that always comes with efforts to curtail inflation, is that there is a period where both inflation and high interest rates co-exist. The entire purpose of interest rate rises, in fact, is to reduce demand. In current markets that will serve a dual purpose of leading to less aggressive pricing, as well as allowing the currently over-taxed supply chain to catch up with demand.

    April revenues

    The results for hardware retail revenues through to April 2022 need to be seen in that context. While they pre-date interest rate increases, most homeowners would have known interest rates were set to rise.

    This is based on the hardware retail figures for April 2022, released by the Australian Bureau of Statistics (ABS).

    As with data in HNN's previous statistics, we rely on 12-month periods ending with the current data month, which is April. We designate these with a "p" prefix, so p2021 is the period from May 2020 to April 2021.

    It's helpful to refer to Chart 1, similar to those HNN used pre-COVID, which shows the cumulative revenue for the relevant periods. (Note that full data for Tasmania [TAS] and Northern Territory [NT] is not available yet, so the amount designated for those two areas is derived from Australian revenue minus the total for the other states and territories.)

    This shows that the extraordinary growth in retail revenues took place in p2021. The following period, p2022, actually returned to similar growth values for the partially (two month) pandemic period of p2020. That's further detailed in Chart 2, which shows the growth between periods.

    Finally in this series in Chart 3, which shows the distribution of revenues by state and territory over the periods.

    As this indicates, while there have been some small shifts, these are below 1.0% overall. That's quite remarkable, bearing in mind the differences between the states and territories when it comes to rates of infections, deaths per thousand, and the duration and severity of lockdowns.

    We can refer to the period comparative charts HNN has come to rely on during the "next normal" of the current markets. Chart 4 shows the monthly comparison across the periods.

    This shows a continuation for April 2022 of the pattern established since October 2021, tracing the seasonal pattern of p2021, but at a higher level of revenue. That's confirmed in Chart 5, which shows the percentage change between corresponding months.

    If you wanted to concentrate on the most encouraging element out of all of these charts it would be the near-flat red line for 2022 over February, March and April. In these three months across the periods, the green line for 2020 shows the steep rise at the start of the pandemic, and the blue line shows the "correction" for 2021. To see 2022 at least starting out with reduced volatility, but constant growth, is encouraging. Though, of course, that constant growth needs to be somewhat discounted by general inflation of over 5.0%.

    New South Wales

    In New South Wales (NSW) there is a similar pattern of stabilisation during the first four months of calendar 2022. The near-flatline plateau comes at just above 5.0% growth, as shown on the lower graph in Chart 6:

    One difference for p2022 as compared to the Australia-wide figures is evidence of what we might term "hyper-seasonality". Where for Australia overall, revenues followed the general peaks and troughs of pre-pandemic years, for NSW the months of October and December showed unusually high growth rates, of 13.5% and 12.8% respectively.

    One possibility would be displacement spending, where money that might have been put aside for holidays was instead spent on home improvements. Equally, it might be that with house prices peaking, and the looming possibility of interest rate rises, homeowners abandoned efforts to buy a new house and instead spent on improving their existing dwellings.

    Victoria

    The most distinguishing characteristic of Victoria (VIC) is that its total revenues for p2022 are below those for p2021, at $655.8 billion and $671.9 billion respectively, a fall of -2.40%. Only the Australian Capital Territory (ACT) had a similar fall.

    That needs to be balanced against ongoing volatility looking ahead to calendar 2022.

    There are similar signs of hyper-seasonality, but for November and December. However, the pandemic boost effect has been milder for VIC than many other regions - out of the 26 months that have been affected, only six months show growth beyond the range of previous growth numbers; for NSW, the most comparable state, that number is 11 months.

    Queensland

    For Queensland (QLD), the growth surge has been even more consequential, with 13 of the 26 months beyond previous growth patterns. Most of that growth shows up in the first 12 months of the pandemic, from March 2020 through to February 2021 - but it also includes the most recent data period, April 2022.

    There is a sign of hyper-seasonality, despite QLD's more temperate climate, with the month of December showing peaks developing since the start of the pandemic.

    South Australia

    While the pandemic has had a significant effect on hardware retail revenues for South Australia (SA), it has not been quite as significant as that for other states.

    There is some peaking in December, but not as pronounced as in VIC and NSW. The outstanding feature for SA is that its growth during p2022, far from plateauing, shows acceleration (and some volatility) from October 2021 onwards.

    Western Australia

    Western Australia (WA) shows the most consistent growth pattern for p2022. From August 2021 to April 2022 the average revenue growth rate was 9.7%.

    Again, there is evidence of hyper-seasonality in the extreme December peaks, reaching a record $236 million in December 2020, which was surpassed by the $256 million for December 2021. Arguably, while the revenues for p2022 have lifted WA into new territory, those from p2021 were broadly similar to the high revenues during p2017 and p2018.

    Australian Capital Territory

    With smaller regions and lower overall revenues, the numbers tend to be more volatile, and that is certainly the case for the ACT.

    Growth for p2022 has been relatively steady (for the ACT) from November 2021 to April 2022. That said, revenues for p2021 and p2022 were almost equal at $508 million and $502 million, a decline of around 1.0%. There is a strong revenue figure for December 2021, but it seems less of a trend than for other regions.

    Analysis

    Overall, the analysis of these revenue stats provides good news. The market seems to be maturing and becoming more stable at a historically high level.

    That said, there are significant risks. With cost of living increases combining with increased target interest rates, there is a looming question as to whether spending on home improvement may decrease.

    At the same time, however, concerns about the COVID-19 pandemic are far from over. In the short term, what we can say is that COVID-19 does remain as a significant threat in Australia. Australia ranks sixth globally in terms of infections per capita, and new variants are constantly being discovered. Vaccination rates are fairly high, - though the much-needed second booster shot has received little attention - and anti-viral drugs are now available.

    Most people would likely dismiss the possibility that long and difficult lockdowns will recur, but there is a possibility that some pandemic restrictions - notably masks in crowded publish spaces - may come back. During the lockdown period, houses provided a direct physical kind of comfort and security to homeowners. It may well be that this effect has shifted to more of a psychological basis in 2022.

    Globally, of course, COVID-19 remains an ongoing problem as well. There are new permissions for overseas travel, with testing - for example - no longer required for travellers to the US. However, many Australians remain hesitant, and it will likely not be until 2023 that overseas travel becomes widely acceptable, and departures return to 2019 levels.

    Combined, the various factors mean that Australia is unlikely to see radical declines in hardware retail turnover for the remainder of calendar 2022. The peaks that previous years have seen for December sales may decline slightly, and there could be some negative growth in July and August 2022, as homeowners process additional increase in the target interest rates.

    Hopefully, by the second calendar quarter many of the supply chain issues will be resolved, which should help to decrease concerns over inflation, and limit the top interest rate increase to below 2.5%. Significant risks do remain from the ongoing war in Ukraine, the potential of a recession in the US, and ongoing tensions with China. However, in all of those situations, there is good reason to hope for, if not an overwhelmingly positive outcome, at least a resolution that will do only limited damage to Australia's economy.

    statistics

    Big box update: Delivery and store network

    Bunnings Group will use Zoom2u delivery platform

    Bunnings' flood-hit Rocklea store has reopened after major repairs and Bunnings Shepparton turns five

    Zoom2u Technologies (Z2U) recently announced its partnership with Bunnings Group for the use of its delivery platform.

    The Zoom2u platform is an Australian owned delivery platform that connects users with local independent couriers in their area for fast, same-day delivery. It provides customers with a live tracking link showing the real-time location of the delivery as well as an estimated time of arrival.

    The agreement is not exclusive and follows the completion of a trial undertaken with Bunnings across select stores in Australia. Under the agreement, Bunnings is under no obligation to meet a minimum volume of spending or fee commitments.

    The finances are yet to be revealed as it is dependent on delivery volumes. In The Market Herald, Z2U founder and CEO Steve Orenstein, said:

    ...To be chosen as one of Bunnings' last mile delivery providers is a validation of the Zoom2u Platform. It has been a pleasure working closely with Bunnings over the past few months as they trialled the service.

    About Zoom2u Technologies (ASX:Z2U)

    Z2U's core service is the Zoom2u platform, which is a tech-based courier service that allows accredited drivers to make deliveries. It is an algorithm-based platform that can respond with flexibility to demand surges, and provides detailed location data for customers.

    The company does not have warehouses and does not own or lease a fleet of vehicles. Instead it has a team of over 20 tech developers tinkering with software for customers and more than 7000 drivers. Unlike Amazon, which processes deliveries from warehouses and delivery centres, Zoom2U often facilitates deliveries from brick-and-mortar stores to consumers.

    Mr Orenstein said this model gives smaller players an advantage, as businesses can "leverage their retail footprint" instead of working through the Amazon ecosystem. Stores can operate as "micro-warehouses", he said.

    That allows them to be really close to the consumer, and to be able to do an even faster delivery because the delivery system is really short.

    The platform passed 2.7 million completed deliveries in late March, as the market shifts towards customers with larger volume requirements.

    The company also has the Locate2U platform, a SaaS-based tracking delivery service that allows clients to manage their logistics in-house. It is essentially a white label product for businesses to manage their own delivery fleets. Locate2U's customers Amart Furniture, Bing Lee, Super Pharmacy, and waste management firm Cleanaway.

    Z2U has been operating for eight years after it was founded in 2014, with early backing from Perennial Value Management, Gandel's Invest (the investment vehicle for the billionaire Gandel family) and Deals Direct co-founder Mike Rosenbaum.

    Its client base now includes names such as Australia Post, Best & Less, Couriers Please and JayCar.

    By December 2021, Z2U also completed the acquisition of the Local Delivery Shopify App in an $880,000 all-cash deal. Integrating the Local Delivery app gives Zoom2u direct access to another 570 customers across more than 45 countries.

    After its ASX initial public offering (IPO) in September 2021, the business raised $8 million to fund its future growth.

    For more information, visit the Zoom2u home page here:

    Zoom2u delivery platform

    Rocklea store

    Bunnings' Rocklea store has reopened with a revamped cafe and kitchen design centre after being impacted by the floods. It had to seek specialist advice to ensure the warehouse was structurally and hygienically safe to reopen, according to The Courier-Mail.

    However the hardware retailer said it still had not decided what to do with its Oxley store, although redevelopment options in the coming six to 12 months could include a flood-resilient design.

    The revamped Rocklea Bunnings now includes energy efficient LED lighting throughout, a children's playground, new bathroom displays and new format Trade Desk for tradies.

    Bunnings Shepparton

    Bunnings Shepparton celebrated its fifth birthday on the Queen's Birthday long weekend, marking five years of trading. Bunnings Shepparton complex manager Trish Fedley said staff at the store were excited to be celebrating the fifth birthday. She told Shepparton News:

    We love being part of the Shepparton community and it's a great milestone that myself and the team are really proud of.
    Helping customers with their DIY and project needs, and supporting our local community groups through the sausage sizzle and other hands-on activities, has been the highlight for us.
  • Sources: The Market Herald, Stockhead, Inside Retail, Rask Media, The Courier-Mail and Shepparton News
  • bigbox

    Supplier update

    TTI Australia chooses One Network Enterprises

    Global digital company Vtex is helping Stanley Black & Decker transform its e-commerce offering

    Techtronic Industries (TTI) Australia - owner of brands including Milwaukee, AEG, Ryobi and Homelite - has chosen to work with One Network Enterprises (ONE) to improve demand and supply planning.

    One Network Enterprises (ONE) is a global provider of a secure, and scalable multi-party network in the cloud.

    By leveraging ONE's NEO Platform, TTI will integrate its physical network of partners across Asia, Australia, and New Zealand, to supply a single data model across multiple workflows and applications. This should enable real-time collaboration.

    ONE's Digital Supply Chain Network[tm] will help ensure that efficient planning and matching of demand with supply is achieved. Increased visibility and execution in the same platform should drive process improvements. More importantly it should also improve on-time deliveries, customer service levels, and reduce the cost of goods sold throughout the supply chain. Grant Edhouse, CFO and COO of TTI Australia and New Zealand, said:

    We have selected the ONE platform based on the depth of its capabilities and ability to connect us to a multi-enterprise supply chain business network. We are confident that the solution can handle the complexities of our supply chain, starting with end-to-end visibility and collaboration.
    With this foundation in place and the support of ONE's experienced team, we look to achieve seamless end-to-end demand- supply planning and execution, across our entire Asia Pacific network. This will greatly improve our responsiveness to our customers and effectiveness in collaborating with our suppliers.

    Greg Brady, founder and chairman of One Network Enterprises, said:

    TTI's supply chain is characterised by long lead times, making demand-supply match accuracy that much more critical. The network-based approach provided by ONE will enable TTI to remove days and weeks of information lag by digitizing the entire ecosystem of trading partners.
    Collaboration through enhanced visibility and execution is how organisations like TTI will increase competitiveness, particularly during times of significant supply constraint.

    About ONE

    The company has been operating in the Asia Pacific region since 2013 and offers a solution that gives supply chain managers and executives end-to-end visibility and control with one data model and "one truth", from raw material to last-mile delivery. It is powered by NEO, One Network's machine learning and intelligent agent technology.

    For more information, visit the website:

    One Network Enterprises

    Stanley Black & Decker

    As one of the world's largest tool companies, Stanley Black & Decker (SBD) is embracing digital transformation to help provide a better experience to its customers, channel partners and sales representatives. It achieves this by giving them a more efficient ordering and distribution process while delivering functionalities such as order tracking, credit limits and faster reordering.

    SBD is partnering with Vtex for its expertise in e-commerce, flexibility and operations in the time zones where it wants to roll out its online stores, so that any problems could be addressed immediately.

    Vtex is a global enterprise digital commerce platform with 18 operating locations around the world - including its new Southeast Asian base in Singapore. It believes it is ideally suited to build SBD's omnichannel e-commerce platform.

    Founded in 2000 in Brazil, Vtex is named as one of the fastest-growing digital commerce platforms in the world by global market intelligence firm IDC. Listed on the New York Stock Exchange, it has helped build more than 3,200 online stores in 38 countries, enabling brands such as Sony, Motorola, Coca-Cola, Carrefour and Walmart to expand their global footprint by delivering native and advanced B2B, B2C and marketplace commerce solutions.

    In 2018, SBD embarked on a digitalisation journey for its traditional - and complex - business-to-business (B2B) channel, launching an online service for some of its bigger distributors: medium-sized and large hardware stores in Brazil, India and South Korea.

    One of the initial challenges facing the company was mapping the processes and people that would need to manage a successful digital transformation. That meant understanding the needs of the sales representatives and customers who would be using the platform and communicating the roll-out to the key departments that would play a day-to-day role in its operations once it was live - including IT, finance and customer services.

    Vtex assisted SBD with e-commerce solutions that enabled the company to centralise its digital experience globally. Although it was a complex process, Vtex supported the company with the front- and back-end integrations, helping it to identify and implement new features and functionalities that would be both practical and appealing to all users.

    Leveraging the Vtex Commerce Platform - a "headless" solution where the front-end and the back-end functionalities are independent - the company's digital offering is the same worldwide, yet has the flexibility to personalise services and meet the requirements of specific markets. These include payment gateways to suit individual markets, personalised order management systems and the ability to offer services in different languages.

    This is especially essential for a B2B platform, as every client order may be unique. The Vtex Commerce Platform streamlined the entire quoting and ordering process, and also provides sales representatives with their own customised dashboard, enabling them to manage orders and gain customer insights - all within one system.

    Prior to the implementation of the Vtex Commerce Platform, SBD's sales representatives placed, reviewed and changed orders manually, spending valuable time on paperwork. Now they can submit bulk orders and process them on behalf of their customers - in one single step.

    Some 50% of SBD's orders are now placed through the bulk-order feature, which allows sales representatives to dedicate more time to supporting their clients and expanding their roles to become their customers' strategic partners.

    companies

    Big box update: Privacy concerns and new-gen customers

    Bunnings uses facial recognition technology

    During his keynote speech at the 8th Global DIY-Summit Bunnings Group managing director Michael Schneider spoke about strategies to attract Generation Z

    An investigation by consumer group CHOICE has found that Bunnings, Kmart and The Good Guys are analysing images of people's faces from video camera - CCTV - footage to create profiles based on customers' unique biometric information such as facial features (known as a "faceprint"). Facial recognition technology captures and stores this information.

    CHOICE consumer data advocate, Kate Bower said most customers aren't aware how their face is being captured and used which is raising privacy concerns.

    In CHOICE magazine, Ms Bower said the Privacy Act considers biometric information to be sensitive data, and that a higher standard is applied to it than to other types of personal information.

    It requires that your collection of that information has to be suitable for the business purpose that you're collecting it for, and that it can't be disproportionate to the harms involved.
    We also believe that these retail businesses are disproportionate in their over collection of this information, which means that they may be in breach of the Privacy Act. We intend to refer them to the Information Commissioner on that basis.

    Irrespective of whether the retailers are in breach of the Act or not, Ms Bower believes that clearer and stronger regulations are needed around customer consent and how retailers obtain and use facial recognition data.

    According to CHOICE, Kmart and Bunnings have small signs on the stores where facial recognition technology is used. Both the Bunnings and Kmart privacy policies state the technology is for "loss prevention or store safety purposes". Ms Bower said:

    The use of facial recognition by Bunnings, Kmart and The Good Guys is a completely inappropriate and unnecessary use of the technology.
    Discreet signage and online privacy policies are not nearly enough to adequately inform shoppers that this controversial technology is in use. The technology is capturing highly personal data from customers, including infants and children.

    Simon McDowell, Bunnings' chief operating officer, told CHOICE that facial recognition is one of several measures the retailer has in place to prevent theft and anti-social behaviour. He said:

    At selected stores our CCTV systems utilise facial recognition technology, which is used to help identify persons of interest who have previously been involved in incidents of concern in our stores. This technology is an important measure that helps us to maintain a safe and secure environment for our team and customers.
    We let customers know about our use of CCTV and facial recognition technology through signage at our store entrances and also in our privacy policy, which is available on our website.
    It's really important to us that we do everything we can to discourage poor behaviour in our stores, and we believe this technology is an important measure that helps us to maintain a safe and secure environment for our team and customers.

    Businesses are generally allowed to use CCTV to photograph customers on their premises, but CHOICE points out that privacy law has not kept pace with advances in facial recognition technology. According to Dennis B Desmond, lecturer in Cyberintelligence and Cybercrime Investigations at the University of the Sunshine Coast (QLD) wrote in The Conversation:

    Current Australian privacy laws require retailers to disclose what data are being collected, retained and protected, as well as how it might be used outside of a loss prevention model.

    The investigation

    CHOICE said it asked 25 leading Australian retailers whether they were using facial recognition technology and examined their privacy policies. Based on that investigation, it said Bunnings, Kmart and The Good Guys appeared to be the only retailers among that group who were using the technology.

    Between March and April 2022, CHOICE canvassed more than 1000 Australians in a survey to gauge consumer awareness of facial recognition technology.

    CHOICE staff members also visited some of these stores in person as part of the investigation. Ms Bower says the Kmart and Bunnings stores they visited had physical signs at the store entrances informing customers about the use of the technology, but the signs were small, inconspicuous and would have been missed by most shoppers.

    CHOICE said most customers are not aware some retailers are using facial recognition technology. More than three in four respondents (76%) said they didn't know retailers were using facial recognition.

    This lack of awareness doesn't mean people aren't concerned, according to CHOICE. Most survey respondents (83%) say retail stores should be required to inform customers about the use of facial recognition before they enter the store, and 78% expressed concern about the secure storage of faceprint data. Nearly two thirds of respondents (65%) are concerned about stores using the technology to create profiles of customers that could cause them harm.

    As the statement from Bunnings indicates, most privacy policies can be found online. However Ms Bower said:

    Most of these privacy policies you have to search for online, and they're often not easy to find. But because we're talking about in-person retail shops, it's likely that no one is reading a privacy policy before they go into a store.

    Privacy Act

    CHOICE said it has notified the OAIC (Office of the Australian Information Commissioner) of its findings and asked it to determine whether the use of the technology is consistent with the Privacy Act. Ms Bower said:

    CHOICE is concerned that Australian businesses are using facial recognition technology on consumers before Australians have had their say on its use in our community.

    A five-year review of the Privacy Act is currently being conducted by the Attorney General. Ms Bower said it is an opportunity to strengthen measures around the capture and use of consumer data, including biometric data.

    CHOICE is also calling on the federal government to create a guide to protect consumers who don't want their "faceprint" on file.

    New generation customers

    In The Australian, Bunnings MD Michael Schneider said Bunnings is increasingly reaching out to social media influencers and bloggers, building its YouTube presence and developing apps to help younger people better visualise their living spaces.

    Speaking at the Global DIY Summit in Copenhagen, Denmark, Mr Schneider focused much of his keynote address on the challenges and opportunities of Gen Z and what changes to the business were being made to appeal to this key demographic. He said:

    Just as we got our collective minds around millennials, along came Generation Z. In the Asia-Pacific region, they make up around 20% of the population and are reaching adulthood at a moment of reckoning for the environment, not to mention when home ownership is harder than ever to attain - and having just spent some of their most formative years in many and varied forms of lockdown.
    We believe Gen Z have defined attitudes and preferences that will require a reimagining of the DIY shopping experience. Today, they are infrequent purchasers of DIY products, relative to the average DIYer. And whilst that's probably not too surprising given most still live at home, it means there are fantastic opportunities to connect and engage and inspire them around all things DIY.

    Mr Schneider told the conference that he believed younger Australians were still focused on their future homes despite the declining home ownership rates of young Australians.

    I say this because our research shows they are absolutely thinking about their future homes and, despite affordability challenges, they're optimistic they will own a home one day.
    Their affinity with technology means they are smart home enthusiasts - more than two-thirds are interested in installing smart home tech in the future and similarly Gen Z are really interested in learning more about interior design and home styling.

    Mr Schneider said that unsurprisingly, Gen Z turned to online sources for DIY information and inspiration, and this was a space Bunnings would increasingly play in. He said Bunnings would join with social media influencers, create YouTube videos to help Gen Z discover the Bunnings brand and be inspired about home projects.

    They want to source their DIY inspiration and discover products much in the same way as they curate their social media feeds and use other digital services. For Bunnings. that's meant doing things a bit differently, seeking out social influencers and brands on social media, and thinking about apps to help visualise a space online, blogs and YouTube videos.

    This was shaping how Bunnings communicated with Gen Z on digital platforms, he added. He said Bunnings was working more with social influencers too, recognising the important part these people played in Gen Z making their own retail purchasing decisions.

    We're working extensively with social influencers to bring DIY inspiration to life in a relevant and relatable way. We started working with influencers a few years ago and today we have an extensive program.

    Bunnings has been developing an online community called Bunnings Workshop that provided ideas and inspiration customers need to start a new project. This was being embraced by younger consumers, Mr Schneider said.

    Pleasingly, our membership base has more than doubled in the past two years, and 35 per cent of the Workshop audience are Gen Z or Gen Y, and we have big plans to expand Workshop, including exploring community engagement opportunities such as promoting local community projects and connecting groups with volunteers - to help Gen Z fulfil their desire for purpose.

    Related

    Bunnings' Workshop went live in 2016.

    Bunnings goes social with Workshop website - HI News 2.16 - August 2016

    Bunnings is marketing towards Millennials with its "Make It Yours" video series.

    Bunnings reaches out to Gen M with "Make It Yours" - HNN Flash #11, December 2019

    UK DIY retailer Wickes said it launched the home improvement industry's first campaign on TikTok.

    DIY campaign stars TikTok influencers - HNN Flash #30, January 2021

    About the Global DIY-Summit

    Mr Schneider's keynote speech at the Global DIY-Summit in Copenhagen, Denmark, was centred on the theme: "Always Evolving... Markets, Offers and People". It was held from 8 to 10 June 2022.

    According to the event's in-app voting tool, over 31% of visitors were retailers, approximately 55% were manufacturers while the remaining delegates were consultants, industry associations and education providers.

    Attendees were given the opportunity to attend a Store Tour of Copenhagen, visiting a range of home improvement retailers, including one store pioneering sustainability through re-furbished building materials.

    In addition to presentations, three main workshops focused on driving high productivity in business, remaining relevant in times of disruption, and driving incremental sales on Amazon.

    The next Global DIY-Summit will be held in Berlin, Germany, from 14 to 16 June 2023.

  • Sources: CHOICE, The Guardian Australia, ABC News, The Conversation and DIY Week
  • bigbox

    USA update

    Home Depot and Adobe partner on customer personalisation

    Lowe's Companies is bolstering its omnichannel approach using Dell Technologies

    The Home Depot is deploying the Adobe customer data platform to get a deeper view of customer journeys and to enhance the omnichannel experience. The data platform is part of Adobe's Experience platform.

    The technology will allow the home improvement retailer to deliver personalised campaigns within 24 hours, which previously took seven to 10 days to deliver.

    The effort is an expansion of Adobe's continuing partnership with The Home Depot. According to a company press release:

    With so many touchpoints, the Adobe partnership will provide comprehensive insights into the customer journey. This will enable The Home Depot to optimise experiences across channels while refining marketing investments. This marks the next phase of a partnership that began with digital tools including web analytics and A/B testing, as well as creative cloud applications to design and deliver new online services and experiences.

    Melanie Babcock, vice president of integrated media at The Home Depot, said in the release:

    The Home Depot made early investments in providing omnichannel shopping experiences, and these digital and physical assets continue to guide our strategic priorities.
    Our expanded partnership with Adobe will enable us to enhance the customer experience even further, driving personalisation at scale and further optimising The Home Depot experience across online and in-store.

    Anjul Bhambhri, senior vice president, Adobe Experience Cloud, said in a statement:

    With Adobe Experience Platform, The Home Depot can align teams around a single view of the customer, with strict governance and activation capabilities that will make experiences even more connected and relevant.

    Related

    Home Depot tech focuses on customer experience - HNN Flash #92, April 2022

    Lowe's and Dell

    John Dabek senior director of infrastructure at Lowe's and Alison Biers, director of global marketing for edge solutions at Dell Technologies, recently spoke with industry analysts Dave Vellante and Lisa Martin at the recent Dell Technologies World event. They addressed Lowe's commitment to edge technologies as a key to maintaining its market positioning. Mr Dabek said:

    It's the edge, and the edge has become very, very important for us, because that's where we want to put all of our technologies in the store, closer to the store.

    The extension of compute and storage capabilities to the edge has become imperative for companies to stay competitive, according to Ms Biers. This notion is especially important in a field like retail, where the margins are slim and customers can be fickle.

    Companies like Lowe's have to balance the satiation of perceptive buyers looking for quality and convenience with a complex business model in a changing landscape. Dell's VxRail has been that answer for Lowe's. Mr Dabek explains:

    When you talk about modernising at a fast pace, the first 600 stores that we did with VxRail, we did in three months with the help of Dell. The main goal was zero disruptions in the store. Now we're talking about 100,000+ square-foot stores, so big stores, and we have a very short window.

    In addition, the pandemic exponentially increased the value of Lowe's contractor-facing operations. To maintain pace and create convenience there, the company leaned on edge yet again. Mr Dabek said:

    We have 140,000 mobile devices deployed in our stores for our employees that can do everything from finding merchandise, taking and receiving calls. They can take the device and do a checkout instead of you having to come into the store and then go out again.

    Here's the complete video interview, part of SiliconANGLE's and theCUBE's coverage of the Dell Technologies World event:

    As pandemic fuses digital and in store retail channels Lowe's taps Dell to stay ahead
  • Sources: Retail Customer Experience and SiliconANGLE
  • bigbox

    Bunnings Strategy Day 2022

    Bunnings plans trade revenue growth of $5bn

    The Bunnings part of the Wesfarmers Strategy Day saw the retailer launch a new strategy, which includes growth of its trade business, and evolution of its DIY business from supplier of goods to partner in transformation. Tool Kit Depot is to launch additional 60 stores.

    Wesfarmers held its annual Strategy Day on Thursday, 2 June 2022. HNN will be covering the Bunnings aspects of this in more depth in our upcoming edition of HI News. However, we do want to provide a summary of what seem the most important points delivered by Bunnings managing director Mike Schneider. Some of these may have an immediate impact from a strategic and operational viewpoint for hardware retailers and suppliers.

    Strategy Days tend to vary widely in terms of their importance. The most significant ones were those that occurred from 2010 to 2012, when Bunnings outlined its strategy to overcome the challenge from Woolworths' failed Masters Home Improvement big-box retailer, followed by the 2017 and 2018 Strategy Days which dealt with the decline of Bunnings UK & Ireland (BUKI).

    While the 2022 Strategy Day was not as significant as those, it is the most significant since 2018, as it highlights a shift in strategy for Australia's only big-box hardware retailer. That was outlined - to some extent - by Mr Schneider in his introductory remarks to the Strategy Day presentation:

    We've achieved transformative acceleration of our capabilities, not only in our technology, but across our network design and commercial offer. But a bit like our tagline, this is just the beginning for our next stages of evolution and growth.

    Unfortunately, we have to report that many of these changes will have a direct and significant negative impact on smaller independent hardware retailers over the next year to two years - in other words, it's more immediate than medium-term.

    HNN would highlight the following points as being the most significant.

    Commercial/Trade markets

    It's no secret that Bunnings has been expanding its trade business over the past four years. When the Australian Competition & Consumer Commission (ACCC) gave the go-ahead for Mitre 10 to merge with the Danks-derived Home Timber & Hardware Group (HTH) to form Metcash's Independent Hardware Group (IHG), HNN commented that the end result would be more competition in trade from Bunnings - and that is pretty much what has happened.

    However previously it was not possible to quantify the scale of Bunnings' ambition in that area. Now it is, as Mr Schneider outlined this in response to a question from veteran analyst Shaun Cousins of UBS.

    Yeah, well our aspiration in time, Shaun, is to get the two businesses [DIY and Trade/Commercial] roughly 50/50, which it is in New Zealand, and has been for a long time. But that's not at the expense of consumer growth. So commercial is slowly tracking towards 40% at the moment. But that's because consumer continues to grow well for us. So the commercial [team at Bunnings] have got a big job in front of them.

    Bunnings total revenue for FY2021/22 H1 was $9.2 billion, and revenue for FY2020/21 H2 was $7.8 billion, so the total for the 12 months to December 2021 was $17.0 billion. If we consider Bunnings' trade revenue is around 38% for that period, this means the trade/DIY split is $6.5 billion to $11.5 billion, a difference of $5 billion.

    What Mr Schneider is talking about here is not an even redistribution of that $17 billion so that trade increases by $2 billion to $8.5 billion. Instead, he expects trade to reach $11.5 billion as well - an increase of $5 billion. Added to that, as Mr Schneider points out, overall revenue continues to grow, as that number will be closer to an increase of $5.5 billion.

    Obviously, that is not going to be achievable in the short term, but even if it is a five-year goal, that means extracting over $1.1 billion a year from, essentially, the market currently held by independent hardware retailers. To put that in perspective, that's close to half the annual revenue of Metcash's Independent Hardware Group (IHG) prior to the acquisition of Total Tools Holdings.

    In case there is any doubt that Bunnings intends to compete in the same market as independent retailers, the retailer was very explicit about the profile of its intended market. Mr Schneider remarked:

    But [trade] has got to grow hard in a very profitable way. So we're not taking our eye off the types of customers we're serving and chasing high volume, low margin, that's got risk all over it for everyone. So we're sticking with the sort of small to medium builders and trades and really deepening those relationships, which is setting us up really well.

    This was backed up by Bunnings' chief financial officer, Rachael McVitty (she has been in the role since September 2021, coming over from Blackwoods) in response to an analyst's question.

    We've got a pretty diversified portfolio and mainly focused on the small- to mid-tier residential builders. So credit limits are quite small, and there's no single exposure to any one customer or portfolio of customers. So you know, average size is less than $20,000, to give you an idea, and average credit terms are 30 days. So we have a pretty good read pretty quickly when payment is not made but really strong relationships with our customers. So we've also got really deep understanding of their credit profile as well.

    It's interesting to place this in context with the remarks by the CEO of IHG, Annette Welsh, at the Metcash Strategy Day in 2021, when she said her goal was to have IHG surpass Bunnings in trade revenue.

    One key part of this ambition in trade seems to be Bunnings' truss manufacturing. As Mr Schneider said:

    We're optimising our capabilities, brands and assets to partner across more phases of the build from frame to fix through to finishing. There are significant opportunities for us to participate more strongly in the frame to fix element of the build. We're addressing these through stronger project management capabilities, and an expanded frame and truss network. Our frame and truss sites in Australia supply high quality roof trusses, floor trusses and wall frames.

    This also extends to providing specific builder services:

    We're also introducing new supply and install services including joinery, windows and flooring to save our builders time.

    Tool Kit Depot

    Fairly evidently, the Bunnings expansion into power tool specialist retail with Tool Kit Depot (TKD) will be a part of this planned growth. Mr Schneider provided a thumbnail sketch of projected growth in this area as well. In response to a question by analyst Craig Woolford of MST Marquee he said:

    Tool Kit Depot's aspiration is to get to sort of 70 odd stores over the next few years.

    He provided something of a timeline as well:

    We also plan to expand our Tool Kit Depot store network beyond Western and South Australia in the new financial year, moving into regions where we see strong underserved demand for professional tools.

    Mr Schneider also said:

    Tool Kit Depot is now established in Western Australia with four stores and a refresh of all stores in South Australia is almost complete. And our network planning for national coverage is shaping up really well.

    It seems likely from these statements that there will be an expansion in TKD outlets sometime between July and September in 2022.

    Category growth

    Identifying key areas of category growth from Strategy Day remarks is not always easy. These are narratively scattered, so it is best to start by listing them.

    Mr Schneider on opportunities:

    We've identified a range of opportunities to optimise and expand our existing offer to cater to strong customer interest, including smart security, outdoor furniture and cleaning with a renewed focus on healthy homes.

    Mr Schneider on growth:

    We're focused on growth across all of our product categories, with some specific examples including expanding our room furniture solutions to help our customers organise their homes, strengthening our garden and garden decor offer by extending and localising our plant ranges and improving service in our nurseries.

    Mr Schneider on kitchen and bathroom:

    Further, in kitchen and bathroom, we're increasing our range of customisable and modular products and introducing more complementary accessories.

    Further to that, Mr Schneider on in-home services:

    We're seeing strong interest for in-home services, where Bunnings designs, assembles and installs solutions for our customers. For the first time, we're introducing design consultants to help our customers design their dream bathrooms.

    Mr Schneider on pets:

    We're introducing new pet categories from collars, toys, bowls and beds through to smart pet products.

    Mr Schneider on caravan/RV:

    We're lining up a new range of products to help caravan and RV owners maintain their home on wheels.

    He also mentioned the introduction of appliance sales to some "selected stores". So the list would be, roughly:

  • Garden/plants
  • Room furnishings, including kitchen and bathrooms, but expanding beyond that (home offices, etc.)
  • Indoor and outdoor furniture
  • Expanding existing kitchen design services to include bathroom design
  • Pets
  • Caravans and RVs
  • Smart security (CCTV, Bluetooth door locks)
  • Cleaning/home wellness
  • When we see these categories in a list, it becomes evident that what is really going on here is a shift from selling individual items/products, to selling systems. It's less about "do you want to buy a table?", or "how do I build a bookcase?", and more about "how will I furnish this room?"

    It's a move to an experiential economy, where the "lived in" experience of the house has changed. That fits in with several comments Mr Schneider made about the shift in the way families value their homes.

    The last two years have seen a considerable shift in the way that DIY customers see their homes: as a safe sanctuary, a home office and classroom, as well as an asset that underpins their financial security.

    This translates into the way Bunnings presents its "offer" to customers:

    We're focused on creating more ways to inspire and support our customers to build, improve and maintain whether it's catering to our customers love of DIY, property investors or the growing demand for services and installation.

    That cycle of "build, improve and maintain" is mentioned several times throughout the Strategy Day briefing. It might be that Bunnings is transitioning from being a "supplier" for home projects, to more of a home "partner". The goal is to take that total budget for home development, and work out how to get more of that budget spent at Bunnings. If anything, it seems to be leaning towards the approach taken by Kingfisher's brands B&Q and Castorama.

    As part of this change Bunnings is also stepping up its surveillance of supplier brands as well:

    With customers well and truly back exploring our stores, we've increased the frequency of our range reviews to present the very best of the latest products.

    Own/exclusive brands

    Mr Schneider introduced the issue of own and exclusive brands by saying:

    Our own-brand range continues to grow and has never been stronger, with names such as All Set and Garden Basics giving customers incredible prices and names such as Full Boar, Matador and Mimosa providing outstanding value.

    In response to a question by an analyst regarding how much of revenue was down to own brands, he expanded on this:

    It's a hard number to call, it's sort of around the 30% mark. But there's some swings and roundabouts in that because we've got exclusive brands like Ozito and Trojan that are actually provided to us through our supplier network. But the brand is exclusive to us or it's a brand that we own. So in the case of Trojan it is owned by Bunnings, it's licensed out to a different organisation [which does] an incredible job of innovating and doing all those sorts of things. So it's a little bit blurry at the margins, but no significant expansion, you know, purely based on the fact that we don't think we've got the sourcing sort of capabilities that many of our suppliers do.

    One area where Bunnings is quite different from, for example, US-based home improvement big-box retailers is that it participates less in the development of new products. While the Australian company may have input into product development, both Lowe's and The Home Depot at the very least partner up with some big suppliers to specify what they think the market needs.

    It's an interesting selection of own brands to choose to nominate, as well. Mimosa began as simple outdoor furniture brand, but has morphed into providing outdoor fireplaces and gazebos as well. Matador is the Bunnings outdoor barbecue range. It's rumoured to be a response to US barbecue maker Weber declining to supply Bunnings over a dispute regarding what Weber took to be "grey market" sales.

    Full Boar is the most recent Bunnings own brand, with the trademark registered in June 2020. This is mostly a line of construction/demolition equipment. It's an interesting move, because usually equipment in this range is purchased from established brands, due to the high level of stress it undergoes.

    One possibility is that as it features petrol-powered compactors and spray washers, it's aimed at the market that brands such as Milwaukee are abandoning as they move to cordless battery-powered tools. Additionally, of course, it's also a brand being sold in TKD, providing TKD with another unique point of difference from its competitors.

    Store network changes

    This is one of the more difficult areas to fully interpret. For example, Mr Schneider introduced the topic of store growth by saying:

    We've always had a variety of different but complementary store formats and sites across our network, reflecting a disciplined approach to investment and the evolving needs of the communities we serve... If we consider the next five years, we see lots of runway ahead for network growth and upgrading existing sites. We're forecasting 15 to 20 expansions, upgrades or new Bunnings warehouses and small formats per year.

    An important element of this is that Bunnings is also changing how its stores manage space.

    We're also optimising space in our stores, reviewing how we display our products to maximise ease of shop and inventory productivity. This is showing up in new, easier to shop layout through our power tools, new-look paint shop concepts, and the improvements to in-aisle product information for our barbecues, and co-locating accessories.

    When asked by Mr Woolford of MST if he could provide a percentage estimate of growth in retail floor area, he replied:

    It's about 10 to 11% over the next five years. And the way we sort of think about that is using space more efficiently.

    Mr Schneider went on to explain why space utilisation was so important to Mr Woolford.

    As we make more investments into space management and planning, and as our online offer gets stronger, we can actually scale up and down the sort of assortment that we would have in a store. So, think about a small format store. For a while there, we'd have patted ourselves on the back that we had a full Bunnings range, you know, 95 [to] 96% of the full range crammed in a small store.
    With our online offering, we might scale that back to 70% of the range, but actually a wider availability of that product in store so that the customer experience on the things that really matter are being serviced. And then we've got online and our largest stores to sort of fill out the rest of the range.

    Finally, Mr Schneider was very clear about the number of stores this would involve:

    So that that guidance, I think we've probably given over time of that sort of five to seven net new stores here. That's about that's about right. And obviously there's a couple of other things in there with frame and truss sites and fulfilment centres.

    In fact, though, from 2011 to 2020, the median value for new warehouse stores alone has been nine. So it's possible that Bunnings is slowing its development of new stores. That could be an indication that there is more concern about intra-network store competition (cannibalisation), but it also likely reflects the energy and effort that will be put into building and additional 60 TKD stores over the next three years or so.

    Supply chain changes

    In terms of its foundational strategies, perhaps the most interesting announcement at the Strategy Day was for a shift in its logistics supply chain. Mr Schneider introduced this by stating:

    Some of the current opportunities include: continuing to improve our in-store click and collect capabilities, developing stronger transport management capabilities underpinned by data and technology, introducing fulfilment centres to support our growing range and channels to market across consumer and commercial... Adding additional products to our existing cross-stock programs where it makes sense to optimise store replenishment and stock availability, and implementing technology where it makes sense.

    This was enough to alert veteran analyst David Errington of BankAmerica, who asked exactly what this "evolution" in the supply chain might mean. Mr Schneider clarified that he was talking about the "logical next step", not a "big bang" change to fully automated warehouses, like Amazon. The following three extracts describe this evolving attitude to supply hain.

    Bunnings directly controls its supply chain for globally sourced product via our distribution centre network. But most of our products come direct from local suppliers who source product on our behalf. These suppliers replenish our store network largely through third party logistics providers. The strength of this model was clear during the pandemic, where along with our supplier partners, we were able to handle unprecedented volumes of stock and maintain industry leading in stock availability of around 90% for our customers.
    I think about cross-stock there's opportunities there. And we should be thinking about these as low capital investments, you know, our products set the way stock moves through our supply chain, you know, there's not much we're seeing globally... We've been running cross stocks for a long time, particularly in our GreenLife. area. Some of our suppliers, we'll take Dulux, for example, world class supply chain, very sophisticated manufacturing process. Us doing anything with that supply chain would bring no value to anyone.
    There's lots of little suppliers in Bunnings, who are probably not as efficient with their supply chains as they could [be], could we bring value through some cross docking of those low hanging smaller suppliers, where we could consolidate products in a cross dock facility shipper to store in a more efficient manner. Make it more efficient in store from a backdrop to shelf logistics point of view, take some cost pressure off supply. That's how we're thinking about it.

    What makes this so interesting is that over the past 20 years Bunnings has been very adamant that its low level of involvement in supply chain was a real strength. The logic to that went something along the lines that time, effort and expenditure spent managing supply chain would be better spent on other activities which had a higher potential for growth.

    There have certainly been some environmental changes. With Bunnings stocking 80,000 SKUs, where once it managed 34,000 SKUs, the need for delivery consolidation is very real. Then there are also some Bunnings stores - most noticeably the one under development in the Sydney suburb of Rozelle - where planning agreements limit the number of truck deliveries per day, making cross-stocking a necessity.

    The additional possibility to consider, however, is whether growth opportunities have reduced, and the growth that can be extracted from logistics management is now worth the expenditure of effort.

    Analysis

    No analysis of this situation would be complete without mentioning the external environment. That environment is highly uncertain, and continues to pull in opposite directions.

    Displacement of expenditure

    The chart below shows the recent pickup in international departures from Australia:

    Note that the figures for April 2022 from the Australian Bureau of Statistics (ABS) are estimates. However, they do give a good indication of both how fast they could grow, and also of how they still remain at historically low levels. What would happen to the home improvement market if they not only return to previously high levels, let alone go into overdrive as people rush to take overseas vacations?

    COVID-19 continues

    On the other side of that are the grim statistics that Australia is currently sixth in the world for the rate of COVID-19 infections per 100,000 people during a week, at 94. It is also ranked at tenth for deaths in a week per 100,000 people, with a daily average of 39.5. At this point, only two-thirds of the population has received the third booster vaccine injection.

    While the current COVID-19 variant has a relatively low morbidity rate, the danger is from some new variant developing a morbidity rate closer to that of the Delta variant. The pandemic, in other words, is very far from being over in Australia.

    The economy

    Outside of that, there is, of course, rising inflation in the Australian economy, and the subsequent increase in interest rates. As this was a situation that was evidently going to happen, HNN's conclusion about the housing market during 2022 was that Australian homebuyers knew what would happen, and had decided to purchase houses and go through the down cycle anyway. That said, it is one thing to plan for something, and quite another to actually live through it.

    Other measures aren't looking all that great either. For example (via the Reserve Bank of Australia) consumer sentiment:

    Business investment as share of nominal GDP has done the seemingly impossible, and actually dropped lower over the past year, to a 29-year historical low.

    And, of course, the wage price index growth has managed to make it only back up to where it was in 2018, despite inflation.

    Is Bunnings in the right markets?

    While all that matters, perhaps the most important question is more fundamental. Is the Bunnings basic store format really what the current market needs? Or, to put that in a different way, will the store formats Bunnings uses today be basically unchanged by 2030?

    That seems unlikely, which means that what needs to be considered is mostly a matter of timing, and what the change would be. The Bunnings store format is what might be called a "narrative" style. The bare floors and general low amenity worked 20 years ago, as it was taken as a signal of "inexpensive", "good value", and even "cheap". It backed up the idea that low overheads meant that the goods on sale could have a lower profit margin.

    Today, however, that narrative barely registers with younger customers from Gen Z, and it just seems a bit odd to many from Gen Y. It's clear that Bunnings could, if it wanted to, boost amenity without having to so much raise prices as sacrifice 0.2% of its profit. Yet that would be incredibly risky, as it puts in doubt the big-boxes entire identity.

    Probably that dilemma is best illustrated by the Bunnings website itself. There is something almost institutional in feel about the website, like something built by a keen but not very versatile government department. One big factor that one senses is missing, present on the websites of The Home Depot, Lowe's Companies, Castorama, and even Homebase, is simply people. Not staff members in green aprons, but people who represent the customers. For example:

    What a great idea. But could you see Bunnings doing that? Or is it simply too friendly?

    There is nothing so difficult as taking an established, successful, popular brand, and changing it to better suit both the moment and the emerging markets. Yet if finding new sources of growth is really the problem confronting Bunnings, then it may have no choice other than to contemplate such a transition over the next three years.

    The rise of the independent?

    There is much in this Strategy Day for independent hardware retailers to have some concern about. Bunnings is about to increase its pressure on the trade market, and it is difficult to predict what the outcome of that may be.

    Yet it is difficult, for HNN at least, to shake off the sense that somehow the overall hardware retail market is moving in a direction that does favour independents - if they can rise to some of the new challenges. That's largely because, gradually, the market is seeing its intangibles increase in value.

    Where we've been through a couple of decades where tangible investments, such as stores and stock, have dominated business, now intellectual capital is becoming more important.

    It's still very important to work out how to leverage those intangible values, but it could be that independent retailers discover a path out of what has been a tough two decades.

    bigbox

    Supplier update

    Changing of the guard at Boral

    A number of buyers for West Australia's BGC Group are expected to make their indicative bids including Queensland-based Wagners: report

    Building materials company Boral is set to have new chief executive by December 2022 following two recent profit downgrades.

    Incoming Boral CEO Vik Bansal comes to Boral via Cleanaway and for the past year, he has been running steel group InfraBuild which is part of the global GFG Alliance owned by British billionaire Sanjeev Gupta.

    Mr Bansal takes over from Zlatko Todorcevski, who has been chief executive of Boral since July 2020, in a change triggered by Boral chairman Ryan Stokes. (Boral is 70% owned by billionaire Kerry Stokes and his family through Seven Group Holdings (SGH) after a takeover completed in 2021.)

    According to the Australian Financial Review (AFR), Mr Bansal said he misses the pressure and accountability of leading a large publicly listed company. Mr Stokes also told the AFR:

    The environment's changing very quickly. In the last 12 months we dealt with COVID, extreme weather and now this dynamic of rapidly increasing input pricing. That requires businesses to be far more nimble and dynamic, and that takes really strong operational leadership, and that's something we're confident he can bring.

    In the AFR, Mr Stokes said the plan for Boral is very clear - it needs to shore up its market position in Australia such that it can appropriately price its products to get a return on capital that can ensure its sustainability. Boral is now a domestically focused business in Australia after selling out of North America in a string of $4 billion-plus asset sales.

    Mr Stokes does not see energy costs suddenly coming down in Australia, and believes the broader economy needs to be ready for that reality - as well as the impact it will ultimately have on prices. He said:

    It's a challenge to the economy as to how we adjust to that, but I don't think it's a short-term factor. This is going to be a medium-term dynamic as to how we have to cope with increased energy costs, both gas and electricity.
    At the end of the day, the era of cost-led profit growth is over. The issue we're all going to have collectively is to ensure that we're making a return on capital above a benchmark level to allow reinvestment. Because if we're not that, sectors aren't going to be viable long term.
    We're confident we can do that [at Boral]. But that means prices go up.

    :Background

    The AFR reports that Mr Bansal was highly regarded by investors for the turnaround he engineered at Australian waste management company Cleanaway - until serious questions about his leadership style effectively ended his time in charge of the group.

    Mr Bansal was chief executive of waste group Cleanaway for six years before he resigned in January 2021 in a "mutually agreed" decision with the board, following a string of allegations about a "culture of bullying and harassment" under his leadership.

    Mr Stokes acknowledges the cultural fit, but said the appointment should not be seen as a sudden change in direction at Boral. He remains undaunted by the circumstances of Mr Bansal's departure from Cleanaway. At the same time SGH has done its homework. As Mr Stokes told the AFR:

    I am a strong believer that leaders evolve, change and grow. That's a fundamental premise and I think Vik is someone who can really grow through his journey. But what he accomplished at Cleanaway ... is a very significant transformation of a really complex industrials business into a leading waste and recycling business.
    I'd say that his core leadership style is really focused on getting the most out of people and business assets and really results orientated.
    Ultimately, we did quite a lot of research into his background experience and we had a lot of very prominent people advocate his capability as a leader, which gave us confidence.

    Mr Bansal has also said he has learnt from that experience, but did not step back from how he built a high-performance culture at Cleanaway.

    You learn, and then you become a better leader...You can't turn around a company without a positive culture.

    Mr Stokes said Boral needed a new style of leader by the end of the year for the company's next phase as it looked to improve its operational performance.

    We're not satisfied with the profit results. I don't think anyone is.

    Mr Stokes said Mr Bansal's track record in lifting investment returns and profits at Cleanaway and InfraBuild was impressive.

    Future

    Mr Stokes told The Australian that he plans to use Mr Bansal's experience in decarbonisation with Greensteel at Infrabuild and in recycling at both Infrabuild and Cleanaway to drive Boral's green credentials. He said:

    Zlatko put a very clear focus on a net zero plan. Boral has the leading low carbon concrete in the market. That is something we will do more to promote.

    He also sees Boral playing in the recycling space with construction materials. Mr Bansal's work at Cleanaway enabled the business to dramatically reposition itself through recycling. Mr Bansal told The Australian:

    Recycling and reuse of the product is critical and construction material is perfect for that.
    Boral creates the hole and what does the waste management company do? Fill that hole with material. And in between is the reuse. So there is a real opportunity here to do something.

    Related

    Floods on the east coast and soaring energy and fuel costs triggered the latest $45 million downgrade in May.

    Boral prepares for another round of cost-cutting - HNN Flash #95, May 2022

    Mr Stokes said Boral, under new leadership, would be looking hard at the prices it was charging customers.

    Boral has introduced "out of cycle" national price increases - HNN Flash #82, February 2022

    BGC Group sale

    Denis Wagner, non-executive chairman and one of the co-founders of construction materials and services company Wagners, is understood to be considering a bid for BGC Group, according to the AFR's Street Talk column.

    It is believed that Wagners could make a bid through its ASX-listed Wagners Holding Company. However Street Talk speculates it would be a big step for the small cap company with a recent market capitalisation worth $242 million. It could also be seen as a surprising move, particularly given that BGC's shareholders want to sell out completely, and have instructed their bankers to find a single buyer for the entire business.

    Other main contenders are believed to be large scale businesses such as AdBri, CSR, Boral and CRH. Adbri has already declared its interest to shareholders, and listed CSR, which at $2.2 billion market capitalisation is bigger than Adbri. Topping the list of potential overseas buyers is Irish building materials supplier CRH.

    The main prize is seen as BGC Group's cement business, which has 47% market share in WA. But over its 60-year existence, the company's built other businesses ranging from bulk haulage services in Perth's metro area to asphalt production.

    Related

    Building products and housing group BGC is back on the market - HNN Flash #89, April 2022
  • Sources: Australian Financial Review and The Australian
  • companies

    New product: Garden shed

    Darley 20 Garden Shed

    Made by Urban Caves, the Darley 20 Garden Shed is the company's only product

    The Darley 20 Garden Shed is a fully insulated 20sqm cabin with double glazed stacker door, window, fly screens, cantilevered awning and optional deck and cedar feature wall. Externally clad in Colorbond, the sheds require zero maintenance and are internally lined and trimmed ready for painting.

    Katoomba-based business Urban Caves is the creator and maker of the Darley 20 Garden Shed. It carries out site preparation, including excavation and retaining walls, and installs the cabin as a "non-habitable" garden shed. This means there is no need for council approval thanks to the NSW Exempt Development legislation.

    Urban Caves managing director Guy Brown said access is "never a problem" and installation takes only five days. He told the Blue Mountains Gazette:

    We have a display cabin in Katoomba viewable by appointment and carry out free site assessments throughout the Blue Mountains.

    Mr Brown is a civil engineer and there is a team leader and three installers, as well as someone to look after the administration and accounts. He said their "urban caves" tapped into the need for a dedicated space for those who choose to work from home and needed room to focus.

    For those working from home since the COVID-19 pandemic, it can create a dedicated work area outside of the main living areas. Mr Brown said:

    These days owner occupiers are renovating and developing rather than moving house. People are travelling less and remortgaging to tap into the equity in their homes.

    Mr Brown said the future looked bright for Urban Caves with plans to launch a 50sqm version of the garden shed for use on rural zoned land, initially focusing on the Megalong Valley and Lithgow areas.

    Due to the global shortage in building materials causing builders and carpenters to have a long backlog of work and the stress of the last few years, more people will be looking for quick and easy solutions to their lifestyle needs.
    People want to move forward, get on with their lives and focus on what they're passionate about and this will result in an increase in sales of 'one stop shop' services and prefabricated kit solutions.

    The company has been established for six years and lists Bunnings and Mitre 10 as partners on its website:

    Urban Caves
  • Sources: Blue Mountains Gazette and Urban Caves
  • products

    Supplier update: Timber

    NSW state government subsidy

    The $10 million Hardwood Timber Haulage Subsidy Program has been designed to ease costs for local mills amidst soaring fuel prices

    The NSW state government recently announced a $10 million subsidy to help the flood-ravaged timber industry in northern NSW stay afloat.

    The Hardwood Timber Haulage Subsidy Program aims to address soaring timber transporting costs in wake of natural disasters such as floods. The subsidy, $30 per tonne of timber, is designed to ease the cost of transporting timber - a task that has become more difficult this year due to fast-increasing petrol prices and the wet.

    Timber producers throughout Northern NSW have been severely impacted by recent bushfires, destructive floods and months of persistent wet weather to source supplies from outside the region. The subsidy program should help enable them to efficiently transport materials from outside their existing supply areas to their processing facilities. It is available in 18 NSW Local Government Areas (LGAs) declared disaster zones.

    Andrew Hurford, chairman of Hurford Hardwood, said his mill in northern NSW had been hauling timber from as far as central Queensland. He told ABC News:

    Our company has been bringing some timber down from another operation we have up in the Burnett region in Queensland. That's a long haul, 700 kilometres. It's not really economically viable for us, but we have to do that to keep our staff working.

    Mr Hurford said the industry was feeling the pinch of rising cost of living pressures.

    We're all running on the smell of an oily rag. We're just minimising our costs, just keeping our staff going ... you can only do that for so long.

    The industry has also been dealing with increasing demand for timber to be used to repair and reconstruct homes lost in this year's floods. Donna Layton, general manager of the Notaras Sawmill in South Grafton, said her mill was struggling to meet demand. She told ABC News:

    We're probably 60, 70% down on what we would normally supply. It just hasn't stopped. The rain hasn't stopped - we're just scratching.

    Ms Layton said the announcement will allow the sawmill to remain operational. She told the Clarence Valley Independent:

    It's all about maintaining jobs. If we close, all of the people we employ will lose their jobs, or if we have to reduce our operating hours they might have to go elsewhere, so the whole idea is to help the mills and help local people stay employed.

    J Notaras and Sons Sawmill has been manufacturing hardwood products for over 70 years and employs a large number of Clarence Valley residents. Ms Layton said:

    ...While the sawmill is not as productive as it usually is, we're still sawing timber and we're keeping everyone employed. This [announcement] is a wonderful supplement to what we can do, and it will make life a lot easier for most of the mills.
    We really want to keep operating and now we can confidently source timber from elsewhere. This has given us freedom to go further afield which is really wonderful.

    Mr Hurford said he hoped the subsidy would be enough to hold on until spring, a time of year when forests usually dried out.

    We're coming into winter now and the ground is wet. We just need to try to get through the next few months to spring, when the weather warms up and the cycle generally dries out.

    The NSW Agriculture Minister Dugald Saunders said much of the machinery used to harvest timber cannot be operated in the wet. He told ABC News:

    Access roads to forests in NSW may take many months to repair, resulting in low or no harvesting activity and a critical lack of supply of hardwood resources that timber processing facilities would normally rely on.

    Minister Saunders said the subsidy program is aimed at providing more certainty around timber supply.

    Mills like [J Notaras and Sons Sawmill] rely on a regular timber supply. The idea of the subsidy is it gets timber from wherever it is harvested to the mill, and we are supporting those in the industry who have been doing it tough...

    State Member for Clarence, National Chris Gulaptis, said timber will play a vital role in the region's rebuilding.

    In the Northern Rivers, people have to rebuild and they've got to find a resource that's reliable, good to work with and affordable.

    The Hardwood Timber Haulage Subsidy Program is co-funded by the NSW and Australian Governments under the Disaster Recovery Funding Arrangements.

  • Sources: ABC News (Coffs Coast) and Clarence Valley Independent
  • companies

    New products: Workwear

    Blundstone announces arrival of RotoFlex

    A tradie believes he has made Australia's "comfiest performance workwear brand" for other tradies

    RotoFlex by Blundstone is a design-driven range of composite toe cap safety boots, developed using the latest biomechanical technology.

    Created on new tooling and hardware, the RotoFlex range has safety and comfort features that provides protection for the worker who wants strong yet flexible footwear. Adrian Blandford, Blundstone's global work & safety range manager, said:

    The RotoFlex boot system is unmatched in its combination of stability with the freedom to move. This is achieved through biomechanic expertise, using the science of human structure and function and applying it to the requirements of a modern Australian work boot. The result is each component working together to create a new boot system that is safer, more comfortable, better performing and longer lasting...

    The biomechanics system central to the design of each boot can be broken down into four key elements: GripTek HD, Fortalite, Aircell and Softcell.

    GripTek HD is Blundstone's new sole design can provide all-day stability and comfort. The sole (with its unique tread pattern) is lightweight, durable and specifically crafted to make the RotoFlex boot suitable for hard surfaces and graded ground. Developed for the worker who wants the feeling of stability and comfort as they work, GripTek HD provides a strong foundation from the ground up, through the polyurethane (PU) tread patterns and super-cushioned midsole, with zoned support carefully designed to provide comfort for the entire day.

    The Fortalite toe cap is for the worker who wants a boot that meets leading safety standards without compromising comfort, ease or unnecessary weight. It provides compression-proof safety by using a patented Polymer composite material that holds strong under immense pressure. The Fortalite toe cap retains its shape without restricting toe movement or all-day comfort.

    An AirCell footbed provides ultimate air flow and full-body comfort with every step. This is achieved with a specialised zoning design, where the footbed is constructed to activate ventilation, moisture control, and cushioning comfort. The material breathes, pumps air, and is soft - but at the same time robust - ensuring workers get better air circulation and cushioning from their boots.

    Blundstone's fit system, SoftCell creates more room to move within a stable foothold. This is achieved through expert understanding of the connection between a moving foot and the inside of a boot, providing a form-fitting and comfortably snug boot with space to move.

    The RotoFlex range brings six new safety boots into the Australian market and includes four unisex styles: the six-inch #8560 and #8561, the five-inch #8553 and #8550, and two women's boot styles; the #8863 and #8860.

    The RotoFlex range is available in September 2022.

    Related

    Blundstone has released the #243 "crew boot" - HNN Flash #85, March 2022

    Form Workwear

    Form Workwear founder Liam McKay said he had grown frustrated over the low-quality, overpriced workwear that he and his colleagues bought year after year. So he created his own performance workwear brand.

    Form Workwear claims to offer the most comfortable performance workwear for Australian tradies. At its core, the brand has been focused on listening to and being inspired by the real needs of Australian tradies to reflect its main message of "by tradies, for tradies".

    It believes it has created high-performance workwear products for men that are comfortable, durable, and perform on a jobsite. The range of products include shirts, pants, shorts, hoodies, T-shirts and jackets. Mr McKay said:

    I heard from my mates on site that they felt like there isn't an apparel or workwear brand that really delivers on the promises their marketing makes. As a tradesman myself, I feel a responsibility to create products that you can purchase with confidence, knowing that it's comfortable and going to last. We engineered some things differently with our products, and it's those innovations which make all the difference.

    One such innovation is the Form Workwear pants that have "reversed fabric" so the softer side of the fabric is on the skin. The pants are available in navy, khaki or black. Mr McKay's hands-on experience has ensured that all Form Workwear garments are thoroughly tested for quality and comply with Australian and New Zealand hi-vis standards

    The day-to-day workload of a tradie is hard enough without having to wear uncomfortable, stifling workwear. I know what I want out of my gear. So I went ahead and made my own.

    Check here for more information on Form Workwear:

    Form Workwear
  • Sources: Blundstone and Digital Journal
  • products

    UK update

    Wickes launched its own store on eBay

    The home improvement retailer has curated a range of over 4,000 products to target eBay's visitors

    Wickes has launched its own store on eBay as it takes its first step into the online marketplace. Its eBay range includes its best selling flooring, internal doors, tiles, paint, ready to fit kitchen and garden products.

    Wickes said the marketplace is the "ideal platform" to acquire and retain new customers and is the start of a six-month trial. Chief marketing and digital officer, Gary Kibble, said in a statement:

    We're customer curious at Wickes and do a great deal of work to understand why and how our customers shop. We know that home improvers are always on the hunt for inspiration in creating a beautiful home and will source products from a wide variety of sellers to create their perfect space.
    By launching with eBay we can introduce even more home improvers to the Wickes brand and help them feel house proud. We believe partnering with eBay underpins our strategy of being a digitally-led, service enabled business. And with DIY products selling every 12 seconds on the site, this is a massive moment for Wickes to attract new customers and delight existing ones.
    The collaboration will help us understand the home improvement customer further and inform more channel opportunities in the future.

    Wickes also recently said it expects to avoid the slump in post-pandemic home improvement trading with customers still returning to stores and trade customer order books at record levels.

    However group sales were down 0.6% for the first 20 weeks of its financial year compared with last year. Like-for-like sales were also down 7.2% for the period.

    DIY sales increased by 30.9% over last year. On a three-year basis, which compares with the pre-COVID period, total group sales were 22.4% ahead. The firm said sales were "significantly ahead of pre-lockdown levels".

    Wickes added it was "mindful" of customers facing huge rises in the cost of living due to inflation. CEO David Wood said:

    Looking ahead, while we remain mindful of the uncertain macroeconomic environment, we continue to be confident of the opportunities for Wickes within the large and growing home improvement market.
  • Sources: Retail Gazette and Evening Standard
  • retailers

    RBA dwelling construction forecasts

    The pipeline is expanding, but is it sustainable?

    RBA assistant governor Dr Luci Ellis addressed the Urban Developers Institute of Australia with a speech outlining the state of the housing market. She suggests the pipeline of residential construction projects will supply ongoing work through to 2024.

    The Reserve Bank of Australia's (RBA) assistant governor (Economic) Luci Ellis provided the keynote speech of the Urban Development Institute of Australia (UDIA) held in Sydney on 25 May 2022.

    It's a short, detailed speech that provides a broad but statistically supported view on the primary sources of the rise in demand for detached houses, as well as a well-reasoned view of how demand for housing and construction will develop through to 2024.

    The PDF of the speech can be accessed via this link:

    Housing in the Endemic Phase

    (Be aware that the RBA website has ongoing technical difficulties, and is sometimes not available, so it may take several attempts to access this information.)

    Growth in demand

    Dr Ellis follows conventional wisdom in agreeing that one major driver of the housing market during the two pandemic years was the desire for more household space, and particularly space with some kind of garden/outdoor area.

    Yet while there has been much attention focused on increased demand through households "trading up" to these bigger and better spaces, Dr Ellis points out that there has also been a significant increase in new household formation - the same number of people are now occupying more houses. She provides the following chart to detail where this has occurred.

    As Dr Ellis states in her speech:

    Across the whole Australian population of more than 25 million people, a decline in average household size of the extent shown in Graph 1 would add about 140,000 households.

    She mentions that this acted as an offset to reduced immigration to Australia:

    Roughly speaking, the decline in population growth meant that there were up to 200,000 households that didn't arrive in Australia over the past two years, who would have done so if population growth had stayed where it was before the pandemic. But the decline in the average size of households that were already here broadly offset this.

    It's worth noting that while this shift might apply to the rental market, it applies far less to demand for house purchases. As has been noted by the Australian Construction Industry Forum (ACIF), it typically takes about two years after arrival in Australia for an immigrant to consider buying a house. That means that in terms of house-buying, the pandemic probably only accelerated recent immigrants buying houses, but also that as of mid-2022 there is likely to be a data "hole" in this source of demand. That demand will likely reappear in early 2025.

    One strong source of new household formation, as indicated on the chart, is the decline of people living in shared housing. The number of people moving in with a partner also increased. It is unclear how this would affect household formation in terms of impact on number of dwellings. Two people living independently could merge households, which would decrease demand. Alternatively, two people, both living in shared households, could leave to establish a new household, increasing demand. Certainly, though, more people living with partners would tend to increase demand on detached houses over multi-unit dwellings, as it is common practice to see two individually rented smaller apartments combined in the purchase or rental of a single larger detached dwelling.

    As Dr Ellis states, the results from the 2021 census, due to be released in June 2022, will help to further clarify some of these matters.

    Place-related change in demand

    The desire for more space coincided with a second feature of the pandemic years, which was the move to work-from-home (WFH). This has recently transitioned into "hybrid" work, where employees split home/office time. With a reduction in the total time spent commuting, households found themselves willing to move further from major urban centres. Others, particularly in the state of Victoria (VIC), chose to move outside of urban boundaries so as to be subject to fewer COVID-19 lockdown restrictions.

    As Dr Ellis points out, this showed up in terms of pricing changes to houses, based on distance from the nearest urban centre. Chart 2 outlines some of these pricing shifts.

    It's not made especially clear in the graph, but it is necessary to reference the "Inner" and "Middle" labels on the x-axis to make sense of the information. The longer the vertical lines, the more the price differential between the outer ring of suburbs and the nominated rings was reduced during the pandemic.

    She describes the price changes indicated by the graph:

    The relative premium paid to be closer to the city centre, both in rents and purchase prices, narrowed during the pandemic. Housing prices increased over the two years to April this year across almost all neighbourhoods in the major cities; however, in general, price increases were stronger in the outer suburbs than in inner-urban regions. The premium for being close to the centre remains, but it is much smaller now and is closer to the premium for being in a middle-ring suburb.

    Dr Ellis does give some detailed information about the demographics she sees as being most influenced by the shift to WFH. She notes that the ability to WFH previously varied by geography. She invents a category she terms the "laptop class", which are those people able to WFH nearly all of the time.

    The "laptop class" of people who can mostly work from home on an ongoing basis are in fact a small minority - a minority, who, prior to the pandemic, were not evenly distributed across geography. Rather, they were concentrated in inner-urban, higher-priced areas. Data from the 2020 HILDA [Household, Income and Labour Dynamics in Australia] survey suggests that around 60% of people who lived within five kilometres of a city centre could work from home, but less than 40% of those who lived more than 20 kilometres out could do so. As a result, a shift in the location of some of the laptop class will be more noticeable than if they had initially been more evenly spread.

    While Dr Ellis did not present this data, it is worth referencing this HILDA survey from 2020 which asked people if they were currently WFH, and if they would like to continue WFH after the pandemic ends.

    There have been a number of surveys published over the past two years, with wildly varying interpretations of intent to WFH as a career choice. The reality is that for at least 50% of "white collar" jobs in Australia, WFH will become both a feature and benefit over the next decade, even if that means that WFH is only one day a week.

    Future rates of construction activity

    For hardware retailers, perhaps the most significant part of the speech by Dr Ellis dealt with forecasts for construction activity. This chart for the "Residential Pipeline" provides an overview of the work approved, but still to be completed.

    In referring to the chart, Dr Ellis states:

    All the signs point to the fact that the residential construction industry is at capacity and cannot work down this pipeline any faster. To be clear, this has nothing to do with land availability or governments approving enough homes. The land has been made available and the building project is already approved... Currently, [liaison contacts] are telling us that it is averaging around nine months.

    Looking to the future, Dr Ellis presents the following chart on new dwelling inflation and costs:

    She sees the rising costs as being a function of demand and supply, with high demand currently driving high costs, but with a short- to medium-term reduction in demand providing future cost relief.

    Prices of existing homes have been easing in some cities, so the relative attractiveness of building a new one is reduced. In this environment, it is likely that buyer interest in new homes will ease as well. The current pipeline will sustain activity for quite a while, but the backlogs and strained capacity will ultimately work themselves out. Exactly when that will happen is hard to know.

    Analysis

    If we look at the current housing market in Australia, especially for New South Wales (NSW) and VIC, one aspect that is outstandingly evident is that there is nothing rational about it. While it's tempting to apply market equilibrium theory (demand creates increased prices, drives supply, excess supply decreases prices), Nobel Prize winning economists such as Robert Shiller have spent much effort suggesting this is only a partial explanation of anything to do with house prices. The more important explanation is always psychological, and sometimes sociological as well.

    The reality of the current Australian housing market is that it is largely driven by a somewhat panicked reaction to the crises created by the COVID-19 pandemic. There are many families in Victoria - which had by far the most severe and lengthy lockdowns - living in small apartments who made it through the pandemic in good shape. A big house does not - obviously - protect a family from disease. But big houses have become a symbol of security.

    In other words, moving from an apartment to a house, buying a larger house, or expanding an existing residence in 2022 is largely an anxiety response. It's right up there with people who, without being able (often) to really articulate a reason, refuse to get vaccinated, or have not had that vital booster shot required to keep immunity at a high enough level to matter.

    It's a difficult statement to make, but it has turned out that while, societally, Australia might overall be a pretty tough nation, there was something about the pandemic that has revealed an underlying vulnerability. The trivial matter of wearing a mask indoors, for example, achieved a kind of symbolism of its own, that lingers today, even as Australia how has the highest infection rate per 100,000 people in the world.

    The biggest expression of that vulnerability can be seen in the increased demand for detached dwellings. Yet it's also true that Australians tend to recover very rapidly. Droughts, floods and bushfires certainly do have some lingering effects, but generally everyone reaches a point where they just want to "get on with it".

    If you are forecasting future demand for detached dwellings, the major factor is how long that anxiety is going to persist. For example, if January 2023 comes around and people discover that it is simple and safe once again to hop on an airplane and go to Paris, New York or Disney World in California, will they feel different about buying a bigger house?

    Housing approvals, even commencements are not a guaranty of completions. It is quite possible that when people are looking at interest rates over 2.1% in 2023, with ongoing construction delays and high prices, they decide it's better to stop than continue.

    It's not a risk the RBA seems equipped to contemplate, but it is certainly something hardware retailers should take into consideration.

    statistics

    Retail update

    Mitre 10 advertising campaign

    The retailer is repositioning its brand as "The Other Hardware Store" in the latest series of ads

    The most recent Mitre 10 campaign emphasises and promotes its role as "the other hardware store". Karen Fahey, Mitre 10 general manager of marketing said the brand had a significant following of small to medium builders who recognise the value of their relationship with their local Mitre 10. However, many people interested in DIY didn't always think of Mitre 10 when they think about hardware. In Mumbrella, she said:

    The data showed that more than 90% of Australians are on autopilot on where they shop for their DIY needs, and while Mitre 10 is known for service and quality of range amongst existing customers, we are often not considered in the moment of hardware store choice by people not familiar with Mitre 10. They're missing out on the benefits of the knowledge that sits within our network, we can give them solutions to their home improvement challenges on their first trip.

    The campaign includes four 15-second ads that use humour to remind Australians of the care and customer service offered by Mitre 10. It indirectly pokes fun at market leader Bunnings by demonstrating there are other hardware stores that people can go to. Ms Fahey said:

    It's a cheeky reminder that there is an 'other' choice for hardware in Australia while also telling the Mitre 10 brand story of service and expertise, and the unique connection our stores have to their local community.
    We are different, and proud of it. This is an invitation to learn more about the personal experience you get with Mitre 10. Because, for us, the grass isn't just greener on the other side ... it's blue.

    Peter Cerny, chief creative officer at Dig - the creative agency that developed the campaign - said it knew that developing a distinctive and relatable tone was an opportunity for Mitre 10 to stand out in a category that tended to be "bland and impersonal". He said:

    This idea challenges the category by embracing Australians' love of the underdog. The campaign cleverly plays off the salience of the bigger brand, whilst not poking at it.

    In one spot, an older couple sit naked on camp chairs outside of a campaign renovation site, as naked elderly people go about the work behind them. The couple explain that the people at "the other hardware store" suggested some coveralls to help stop the paint getting "everywhere".

    A young boy with his head stuck in staircase spindles features in another ad as his dad casually watches TV. Thankfully his mum pops to the other hardware store "where they really care about your DIY challenges".


    In the third ad, a tradie's unfortunate portaloo experience after a somewhat funky colleague. As he holds his breath upon entry he explains, "If you're like me you'll want to be in and out as quick as possible" - which is exactly why he uses the other hardware store as they "have a dedicated trade team so he's back on site in no time".


    The final of the four ads features an older "cougar" woman with her young "stud" boyfriend who can be seen trying to hang a picture in the background. She soon explains how finding a stud at her age is one thing, but finding one in a wall is something else entirely. The failed hanging attempts result in her having to send him to the other hardware store "where the staff are really helpful".


    In The Australian, Ms Fahey said the hardware retail group prided itself on offering that little extra personalised service and expertise to help customers get the job done right the first time. She said Mitre 10 saw an opportunity to engage with those less familiar with the brand, to stop them in their tracks and let them know what was so special about the "other" store.

    It's disruptive, fun and memorable. We don't take ourselves seriously but we take our customers very seriously and we take immense pride in the particular care and attention we give to our trade and DIY customers - whether that's in-store, online or on site.

    The campaign is being released across TV, outdoor, radio, print and digital channels. The new-look identity and "The Other Hardware Store" tagline will also be seen at store level.

  • Sources: Mumbrella and The Australian
  • retailers

    Bosch FY2021 results

    Strong growth in revenues

    Bosch managed to grow overall revenues by 16%, with growth of 14% in the Asia-Pacific. The company credited its innovative products, open battery platform and online store development for much of the growth.

    German-based Bosch Power Tools has reported sales revenue of EUR5.8 billion for its 2021 financial year. The company states that this is an increase of 14% over the previous corresponding period (pcp), which is the 2020 financial year. Allowing for the currency exchange rates, this is a 16% increase.

    One of the core drivers of sales was Bosch's direct online business, which accounted for 30% of all sales. The result has been a significant increase in revenue across a broad geographic range. In constant currency terms, the increases were:

  • Europe overall: 19%
  • Germany: 13%
  • North America: 10%
  • Africa: 34%
  • Latin America: 37%
  • There was an increase of 14% for the Asia-Pacific, which is Australia's region.

    The company said that it had benefitted from elevated levels of demand during 2021, but that:

    The market environment remains challenging for the current year. In view of the high level of uncertainty, at present, it is not possible to make a reliable business forecast.

    Open platforms

    Bosch said that a major contributor to the company's growth has been its move to open its battery platform for both DIY and professional trade tools. According to Henk Becker, president of Bosch Power Tools:

    The opening of our 18V battery platforms was an important strategic milestone. We established two cross-brand systems that are highly regarded and well accepted by our DIY and professional users.

    For professional tools, the partnership includes: Brennenstuhl, Cox Sulzer, Fein, Heraeus, Klauke, Ledlenser, Lena Lighting, Sonlux and Wagner. Fein and Heraeus are the two most recent additions. For DIY tools the list includes: Steinel, Flymo, Gardena, Gloria, Wagner and Rapid.

    Bosch says that revenues from these open platforms increased by 150% for 2021 compared to the pcp. While Bosch emphasises the convenience and cost savings for users of the open platform, as well as the ecological credentials of cutting down on polluting Lithium-ion batteries, many of the advantages are really at the manufacturer level. Maintaining individual battery platforms during a time when battery technology is constantly developing would have become increasingly expensive for the partner companies.

    Bosch tools

    While Bosch has opened its battery platform, it has also worked to expand its own-brand range of tools. Over the past two years, Bosch has launched some 60 new cordless tools, with 25 of those developed during 2021, and plans to launch a further 40 during the 2022 financial year.

    In DIY tools, Bosch continues to innovate for convenience, ease-of-use and unique versatility. For example, its Keo garden saw is designed to make cutting branches easier, but the saw can also be used to cut lumber efficiently. Bosch has finally made its famous green jigsaws cordless, and also introduced a consumer cordless trim router.

    Analysis

    Bosch is one of the few power tool companies that has truly grasped that the needs of customers in its professional and DIY lines are broadly very different. It has continued to develop tough, very powerful tools for use by professionals, with innovations centred on safety (such as dust extraction) and raw power.

    Much of its interesting work, however, has been at the consumer end of the market. Bosch's insight has been that DIYers do not want to buy cheaper, less powerful versions of professional tools, but tools that help to guarantee they will complete DIY tasks successfully.

    A good example of this is the Atino line laser with integrated tape measure. The Atino is purpose built to make installing decorative wall elements as easy as possible. It attaches to the wall with a gel pad or pins, then automatically provides a level reading. The built-in tape measure can then be extended alone the level laser line to mark the wall, enabling accurate installations.

    products

    Indie store update

    Ingram's Home Hardware uses Tesla Powerwalls

    Bowens Timber and Hardware is taking over the former Bunnings site located on June Court in Warragul (VIC)

    Peter Ingram from Ingram's Home Hardware in Kingscote (SA) said the business has just installed two Tesla Powerwall battery systems on both its Home Hardware and Bi-Rite Home Appliances stores. He told The Islander:

    We are now energy neutral.

    The Tesla Powerwall is a rechargeable lithium-ion battery stationary energy storage product manufactured by Tesla Energy. The Powerwall stores electricity for solar self-consumption, time of use load shifting, and backup power.

    This means a business like Ingram's can operate five separate uninterruptible power systems or UPSs in its stores, allowing them to trade during a power outage. Any access power is fed back into the system thanks to a long-term leasing arrangement with the Allstate Solar company, a specialist in battery storage systems.

    Ingram's is also building a large shed for building supplies at the entrance to the town. Mr ingram said construction was going well but one issue still being sorted with the council was drainage and paving of Karatta Terrace, which will be the main access road to the location. The new shed will also eventually be fitted out with a solar and battery system.

    The plan is to move the building supply products into the new shed, which would then free up the existing shed at the back of the store on main street for hardware, he said. This would in turn, free up more space in the front of the shop on Dauncey Street for homewares, fishing, and outdoor products.

    This year, Ingram's Home Hardware will also celebrate its 70th anniversary, after Peter's parents opened its doors for the first time in 1952. This makes Ingram's one of the oldest family-operated hardware stores in South Australia.

    Bowens

    The new Bowens regional outpost in Warrugul (VIC) is expected to open in August. It is part of a $50 million investment in six new stores and refurbishments across Australia by the group this year.

    Bowens director and chief investment officer Andy Bowen said the company has been looking to set up shop in the area for some time. He told the Warragul & Drouin Gazette:

    This is a decision that has been made over four or five years. We've been watching the area grow and we think we've found the perfect site to set ourselves up in."

    Mr Bowen said there was still some work to be done on the site - where the previous Bunnings outlet was located - but believes it is the ideal fit for a Bowens store.

    It is perfect for what we do, we are absolutely focused on professional builders, professional trades. That's what we do.
    The site is fantastic from a logistics perspective. We can move product in and out really quickly.

    Mr Bowen said most of the company's customers are medium to small sized building companies, many of which operate in Warragul and surrounding areas. But anyone can purchase their products.

    We have a really diverse range of timber and building supplies ... we will service whatever needs the market requires. Bowens is more focused now more than ever on other building supplies - not just timber.

    Some staff already living in the local community will be moving down from the established Pakenham store, and the new store will create additional full-time work opportunities. Mr Bowen said:

    Our hope is that within a couple of years we'd have 35 full-time employees there. We are not just there to sell building supplies, we are there to be a fabric of the community and support the community.
    Part of that is hiring local talent and local residents, and that is exactly what we intend to do in that area.

    Related

    Bowens' new site.

    Bowens buys site in outer Melbourne - HNN Flash #93, May 2022

    Expansion plans for Bowens.

    Bowens in expansion mode - HNN Flash #92, April 2022
  • Sources: The Islander and Warragul & Drouin Gazette
  • retailers

    UK update

    Kingfisher said demand for DIY remains resilient

    The home improvement retail group also reported that product availability improved following recent supply pressures

    Kingfisher - owner of B&Q and Screwfix in the UK and Castorama and Brico Depot in France and other markets - said it is managing inflationary pressures amid "resilient demand" for DIY despite cost of living pressures.

    Consumer spending is expected to drop as household budgets are squeezed by inflation, particularly in energy prices which have soared in part because of Russia's war on Ukraine

    It said sales had remained at elevated levels seen during the coronavirus pandemic, and that it was confident enough about its outlook to launch a GBP300 million share buyback.

    In a recent trading update, Kingfisher's chief executive Thierry Garnier said the company had retained a "significant proportion of the increased sales during the pandemic".

    Like-for-like sales in the February to April quarter were 16% above the same period in 2019 at GBP3.2 billion, although they dropped back by 5.8% overall compared with the boom in 2021. UK and Ireland sales were down by 14% compared with the year before, but were up nearly 17% on 2019, with kitchen, bathroom and storage products among the bestsellers at B&Q.

    Kingfisher said it was "mindful of the heightened macroeconomic and geopolitical uncertainty that has emerged since the start of the year" but added that it will look to increase its market share. It left profit guidance unchanged at GBP770 million for the full financial year. Mr Garnier said:

    Looking forward, we are reiterating our profit guidance for full year 2022-23. We are focused on delivering on our strategic objectives and growth initiatives, including the growth of our scalable ecommerce marketplace, the expansion of Screwfix in the UK and France, new store openings in Poland, and further increasing our trade customer base.

    One of the big challenges across B&Q and Screwfix since the pandemic has been managing the disruption to supply chains and related increases in costs. The company argues that its scale means it has a strong negotiating position with suppliers, and it also allows it to offer lower prices in its own-brand ranges. Mr Garnier said:

    We continue to effectively manage inflationary and supply chain pressures. As a result, our product availability is now very close to 'normal' levels across all our banners, and we continue to deliver value for our customers through our own exclusive brands and competitive prices.

    Kingfisher also raised the wages of its lowest-paid staff at B&Q and Screwfix by 6.5% and 5.4% respectively.

    In City A.M., AJ Bell Investment director Russ Mould said of the results:

    Sales are proving more resilient than some might have feared. This suggests there is still some pent-up demand for home improvement despite the pressures on household budgets.

    This was echoed by senior investment and markets analyst at Hargreaves Lansdown Susannah Streeter, who said:

    This [sales] shows that a sizeable chunk of customers that picked up a hammer for the first time have kept coming back, thanks to their new skills and a shortage of labour in the building trade.

    Screwfix

    Trade-focused Screwfix announced it will open 80 new shops across the UK and Ireland by January 2023.

    The expansion will create retail vacancies in locations across the UK and Ireland in places such as Swanley and Brackley. Screwfix chief executive John Mewett said its expansion plans are responding to sustained demand from tradespeople who need tools.

    We know how busy tradespeople are and how important it is to be able to find a Screwfix store close to site. In opening more stores across the UK and Ireland, we're making Screwfix even more accessible to tradespeople, ensuring they can get their job done quickly, affordably and right first time.
    We're also delighted to be having a positive impact on local communities, creating more than 800 jobs for local people.

    Screwfix opened 70 new shops in 2021, and the additions this year will take its total stores to 870.

  • Sources: The Guardian Australia, Yahoo Finance (UK), City A.M. and Press Association Limited
  • bigbox

    ABS stats: building approvals and work done

    More growth, or a slowdown?

    While new houses continue to be a vibrant market, the non-house market has continued its slump. Renovations continue to be at healthy levels of investment, but the March 2022 stats may mark initial signs of a decline.

    With the recent federal election now behind us - itself a negative influence on the economy - the hardware retail industry now needs to turn its attention to a changed environment in the housing market. As we all know, it's very likely that the base interest rate will increase to over 2.0% during the coming financial year. That will have consequences for all retailers, but especially for hardware retailers, who have been direct beneficiaries of the historically low interest rates, and the stimulus this has given to the housing market.

    Finding the combination of statistics that will help to monitor what will happen in the economy is always difficult, as you need to predict both where change may take place, and where that change will be measurable.

    In these stats, HNN has chosen to look at the value of building approvals for houses, non-houses and renovations. In addition, we're also looking at the value of building work done in those categories.

    Once again, we would like to thank the Australian Bureau of Statistics (ABS) for providing these statistics so rapidly and comprehensively, despite the budget constraints that have been imposed on this vital function.

    These stats follow the conventions we've established at HNN. Each period represents the 12 months ending in the final month/quarter for which the ABS has supplied data, and is designated as a period by the letter "p". Thus p2021 for the building applications represents the 12 months in the period from April 2020 through to March 2021.

    Similarly for the building work done stats, which are quarterly, the designation p2021 would represent the four quarters for the months ending in June 2020, September 2020, December 2020 and March 2021.

    Houses

    Figure 1 shows the charts for houses Australia-wide. The top chart is for building approvals by value, the middle chart is the percentage change, month on corresponding month, for these approvals.

    The bottom chart represents the value of building work done. Note that we've presented the building work done data in a slightly different format. Each line represents one of the four quarters of the year, and these are charted across the years. It's our sense that this best conveys how this data changes.

    The characteristics of the top chart follow a familiar pattern. September 2020 (the blue line for p2021) shows the start of a four-month arc, followed by the seasonal fall for January, and a very steep rise to March 2021. The approval values remain elevated through to November 2021, fall steeply to January 2021, then climb again in 2022, but at a level that is below that of p2021.

    In the middle chart, this is seen in percentage change terms. There is some of the negative "mirroring" effect HNN noted in the retail stats for Flash 94, but it is not statistically stable enough to mark as a trend. What is statistically significant is that growth has been under -10.0% from December 2021 through to March 2022.

    The bottom chart for building work done illustrates some of the problems that the construction industry has experienced. Looking at the lines for p2022, the June, September and December quarters all show substantial growth over p2021 - though p2021, shows a decrease in value for the June and September quarters as compared to p2020.

    Historically, of course, the March quarter has underperformed the other quarters in value terms, from p2016 to p2020, though for 2021 it hit a historical high of $9.18 billion. Yet it is puzzling that it recorded only a very slight increase for p2022, despite ongoing high levels of demand. That could indicate the difficulties of supply constraints, especially in timber, but it might also hint at further underlying problems.

    Not houses

    For the ABS category of "Other Residential", a very different picture emerges. The best periods for this category were from p2016 to p2018, with total period approvals of over $30 billion. By contrast, the total value for p2021 was $22 billion and for p2022 it was $27 billion. Nonetheless, of course, the growth from p2021 to p2022 of over 20% is interesting.

    As the top chart indicates, p2021 was a particularly rough time for non-houses, with the six of the months under the previous poorest year (in the sample) of p2020. However, beginning with March of 2021, the category staged something of a recovery.

    Those changes are shown in the middle chart, for the percentage change. Where growth for p2021 was negative for seven of the 12 months, for p2022 it was only negative for four months, and hit historical highs in growth for three months. That said, however, it also plunged to a historical low for March 2022.

    It's when it comes to building work done, as shown in the bottom chart of Figure 2, that the real industry picture emerges. Building work on not houses has hit a new low. The value of building work done is at its lowest point for the past seven years.

    Given the higher numbers for approvals, that could indicate cancelled projects, or simply that what resources there are available are being diverted to house building instead.

    Renovations

    More correctly termed "alterations and additions" by the ABS, these statistics show a number of marked trends.

    Looking at the top chart, for building approvals, this indicates that while approval values did start to spike in September 2020, growth became exceptional from February 2021 through to August 2021, then remained broadly positive through to December 2021. That is more clearly illustrated in the middle chart, which shows the percentage change in renovation building approval values.

    February and March 2022 both show negative growth. While this is from a very high level historically, as March 2021 reached a historical high, it could also indicate the beginning of a trend.

    The bottom chart of Figure 3 shows some of the ways in which the renovations market has been altered. It's evident that December 2020 (which is in p2021) was the first big surge in renovations, with the following March quarter equalling the September quarter. Looking to p2022, perhaps the most interesting feature is how building work done for the June quarter surged to a new high, with the following September quarter actually higher than the December quarter.

    Yet, after the initial growth in p2021, the March quarter retreated somewhat. Again, it is difficult to know how much this is due to market expectation and how much simply ongoing restrictions on supply.

    Analysis

    One of the slight "disconnects" that HNN has observed among retailers and suppliers in the hardware industry is that, when they are asked the question regarding why so many builders seem to be in a somewhat parlous financial situation, with several collapsing, they refer to supply constraints, rising prices for materials, and a shortage of workers.

    Those are all forces at work, but ultimately larger builders do not collapse due directly to those causes, but rather because they are unable to obtain further financing. If these shortages and market constraints are all that is at work in the industry, then we would expect financing to be readily available. It would essentially be a bridge over short-term problems.

    Certainly, one aspect of the current market is that unusual stresses are being placed on it. However, what remains remarkable is that there are few, if any, efforts being made to improve productivity, or even to change some of the restricting fundamentals of the industry.

    The banks and other sources of finance may be reacting to expectations that builders may soon face a raft of cancellations as higher interest rates take effect, but equally they must have concluded that this is, simply, not a resilient industry at all.

    The serious economic problem that is looming is that, indirectly, past federal government policies have essentially made housing a special asset class, one which will be protected against significant devaluations. There is a range of social, cultural and economic reasons why that has come about, but history clearly shows that the creation of such an asset class typically ends in disaster.

    It's a somewhat unpopular viewpoint in the current economic conditions, but it must be pointed out that housing construction contributes less to the economy than many think. Good housing is certainly a prerequisite of a functioning social structure, but it has few if any genuine spillover effects (as economists call them) that translate productivity and investment in one sector to increased productivity in an adjacent sector.

    In fact, housing and construction are often used as a means to disseminate wealth that is earned elsewhere in the economy. That is particularly the case in economies that are increasingly driven by technological achievement more than the transformation of raw materials into simple material goods.

    As more and more finance goes to housing, and as it becomes the central asset to the investment plans of many families, the actual productive economy will start to suffer.

    That said, what matters most at the moment isn't the immediate past history of two or three years. It is really what happens next that will mark out the future. There is little doubt, however, that this future must contain a pathway to making housing a far less protected asset class, and shifting investment to the most productive sectors of the economy.

    statistics

    Retail update

    New trade centre at Petrie's Mitre 10 Dubbo branch

    Global paint manufacturer DuluxGroup is expanding its presence in North Queensland with the opening of a large store and facilities in Garbutt

    Petrie's Mitre 10 has had a presence in Dubbo (NSW) since 2020 after taking over Brennan's Mitre 10 which had been serving the area for more than four decades. It plans to open a trade centre in August this year and expects to fill a gap in materials pick-up options for local tradies

    Dubbo branch manager Brad Petrie and his team understand that the pickup function at the store on Macquarie Street is not reflective of what they could achieve because it is a small space. He told Dubbo Photo News:

    We're opening a trade centre to offer a wider range of product and provide more efficiency with easier access for builders to be able to pick up what they need.

    Mr Petrie said it will also have a sales hub for specialised orders and delivery options.

    The main intention is for builders to pull up before they go to work in the mornings, or throughout the day, and pick up the stock they need.
    We know builders need their stocks or products as soon as possible without much preparation or planning, so our role is to be able to supply to multiple builders and get the job done.

    In addition to the Dubbo outlet, the Petrie name is attached to Mitre 10 stores in Orange, Mudgee, Bathurst, Port Macquarie, Young, Coffs Harbour, Taree and Gunnedah.

    Related: The Petrie Group took over Brennan's Mitre 10 store in 2020

    Brennan's rebadged as Petries Mitre 10 Dubbo - HNN Flash #16, July 2020

    DuluxGroup

    The paint company is taking over a over a large showroom in Garbutt (QLD), according to the Townsville Bulletin. It is located next door to Clark Rubber and adjacent to retail premises being established for Nick Scali, on Dalrymple Road.

    DuluxGroup regional sales manager Andrew Pyne said the company would more than double its stocks of paint in Townsville to meet the needs of customers and reduce constraints caused by road closures during natural disasters such as the recent floods in south east Queensland and NSW. He told the Townsville Bulletin:

    We've outgrown our previous site. We needed more space to service our customer needs in Townsville and North Queensland.
    We see the city and region as a growth market. This will be the best paint store in North Queensland.

    Dulux has reconfigured the fully airconditioned property to create a 920sqm showroom and warehouse. A new spray centre will offer sales, hire and service as well as stock a larger range of parts and accessories.

    Mr Pyne said the property had more parking for customers and improved access for deliveries. It will have a business centre for trade customers and be a hub for protective coatings for the industrial and mining sectors.

    Ben Wheeler of Colliers Townsville said the property is located in the retail hub of Garbutt which is attracting large retail businesses.

    Related: DuluxGroup became part of Japan's Nippon Paint Holdings in 2019

    Nippon Paint: The Inside Story - HI News 5.3, August 2019
  • Sources: Dubbo Photo News and Townsville Bulletin
  • retailers

    Supplier update: Building materials

    Timberlink expansion plans for Tarpeena sawmill

    Boral is preparing for another round of cost-cutting following two profit downgrades

    Timberlink has announced a $5.4 million project to open an onsite Light Organic Solvent Preservative (LOSP) timber treatment plant in January 2023 as part of its Tarpeena facilities in South Australia.

    According to the development plan submitted to PlanSA, the mill is reliant on off-site timber treatment. In Mount Gambier News, the plans read:

    Timberlink does not currently treat timber on the Tarpeena site and therefore trucks collect the timber to be taken off-site for treatment, with some treated timber returning to the Tarpeena site.
    The proposed timber treatment facility will replace the off-site treatment with a facility constructed in the north-eastern corner of the site.

    The plans indicate that the treatment plant would initially run on an one shift per day roster, but hoped to "operate 24 hours a day when increased demand is required". The plans read:

    The LOSP timber treatment plant is expected to process 25,000m³ of timber per year and is timber that is currently sawn onsite.

    According to the plans, LOSP treatments are "less hazardous than other forms of timber treatment" with an air quality assessment carried out by independent assessor Jacobs. The assessment concluded the expected works were safe with "majority of the hydrocarbons emitted - determined to be benign".

    Low odour LOSP was first developed at Timberlink Bell Bay, Tasmania in 2015 which the company said is "up to 30 times less odour than traditional LOSP formulations". A spokesperson told Mount Gambier News:

    Timberlink has been working closely with the South Australian EPA to ensure the highest standards are achieved for this state-of-the-art treatment facility.

    The LOSP expansion is happening alongside a $63 million project already underway in Tarpeena. In February, works began on Australia's first combined CLT and GLT manufacturing plant at the site, which is expected to be completed in September 2023. A spokesperson said:

    The co-location of a NeXTimber Cross Laminated Timber (CLT) and Glue Laminated Timber (GLT) Plant on the same site makes this facility unique in Australia.

    The LOSP treatment plant is expected to process 25,000m³ of timber per year. All of it will be sawn in the co-located mill.

    CLT is manufactured into panels and can act as a replacement for concrete, and GLT is produced as beams that can replace steel. At the time of the announcement, Timberlink chief executive Ian Tyson said the products were "tremendously environmentally friendly". He told ABC South East SA:

    It's got all the carbon storing benefits, it's got the renewability of timber. It's a whole new market and a whole new opportunity for timber in a transformed, value-added form to be utilised in construction. The demand is there, the opportunity is there.

    Related

    Timberlink is upgrading its sawmill facilities in Tarpeena, SA - HNN Flash #2, July 2019

    Boral

    Floods on the east coast and soaring energy and fuel costs have triggered the second profit downgrade in as many months for building materials group Boral.

    Chief executive Zlatko Todorcevski said full-year profits would be negatively impacted by $45 million, as disruptions from flooding and persistent heavy rainfall brought a $30 million hit, with rising inflation as coal, electricity and fuel prices jumped, making up the other $15 million.

    Mr Todorcevski said a round of product price rises implemented in January and February did not offset the effect of the floods and inflationary forces. In the Australian Financial Review (AFR), he said:

    Ongoing rainfall in many parts of the east coast, particularly in NSW and Queensland, has continued to significantly impact our sales volumes, while also resulting in additional costs.

    Boral already told the market in March that full-year underlying earnings from continuing operations, excluding property, would be $145 million-$155 million provided there was no more heavy rain and other imposts. This is down slightly from $157 million in the previous financial year.

    Mr Todorcevski said energy price increases, particularly across coal and electricity, were impacting production and logistics costs.

    We are responding to this challenging operating environment by implementing additional measures to mitigate the impact of transport and fuel inflation alongside the already-announced out-of-cycle price increases, and accelerating our focus on costs.

    Boral is now a domestically focused business in Australia after selling out of North America in a string of $4 billion-plus in asset sales. It is 70% owned by billionaire Kerry Stokes and his family through the Seven Group. Ryan Stokes, son of Kerry Stokes, is Boral's chairman.

    The company has been working on plans to "rightsize" the structure, in line with being an Australia-only business that involve slashing hundreds of jobs before June 30, according to the AFR. But the two downgrades have added extra pressure.

    Related

    Boral provided a recent trading update.

    Boral trading update - HNN Flash #87, March 2022

    Boral's bottom line has been hit with extreme wet weather and surging energy prices.

    Boral is raising prices for its building materials products - HNN Flash #82, February 2022
  • Sources: Mount Gambier News, ABC South East SA, Australian Financial Review and The Australian
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