Will Millennials boost DIY spray painting?

Great products, poor information

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

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

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

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

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

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

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

A broader problem

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

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

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

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

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

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

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

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

What is going on there?

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

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

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

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

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

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

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

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


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

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

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

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

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

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

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

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

Marketing spray painting to G2

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


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

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

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

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

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

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

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

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

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

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

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

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

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

In-store merchandising.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Amazon 3M respirator


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

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

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


MYOB invoice integration with Bunnings

Streamlining paperwork for tradies

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

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

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

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

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

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

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

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

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

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

Sources: Accounts Daily and Kochie's Business Builders


Amazon Australia launches online garden store

A challenge to Bunnings?

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

New country manager

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

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

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

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

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

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

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

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

Amazon is coming to town - HI News, page 50

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


Klingspor makes abrasive belts

Manufacturing plant in Sydney

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

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

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

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

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

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

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

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

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

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

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

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

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

Klingspor Australia

Boral's plasterboard JV with Knauf

The company exits its brick business

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

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

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

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

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

Bricks exit

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

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

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

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

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

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

Weaker outlook

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

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

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

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

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

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

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

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


Hedge fund buys into Wagners

FY2019 profit cut by almost 50%

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Sources: Australian Financial Review, The Australian and Toowoomba Chronicle

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

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

Storage for drill and driver bits

Developed by KwicTec

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

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

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

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

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

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


    Bunnings real estate sell off

    Sites sold in NSW and QLD

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

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


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

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

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

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

    Source: Commercial Real Estate


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

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

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

    Source: Commercial Real Estate


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

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

    Source: NewsMail


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

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

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

    Source: Real Estate Source

    Norman Gardens

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

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

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

    Source: Property Observer

    Victor Harbor

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

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

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

    Source: Australian Financial Review

    Kitchen renos spend grows: Houzz

    Data based on over 8,800 Australian respondents

    Renovation activity driven by older generations and homeowners integrate smart technology

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

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

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

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

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

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

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

    Funding renovation projects

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

    Finding the right professionals

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

    Making "smart" decisions

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

    Improving energy efficiency

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

    The final touch

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

    About the Houzz & Home Survey

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

    The full report is available here:

    2019 Australia Houzz and Home Renovation Trends Study


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

    Wesfarmers-backed business expands

    ONTHEGO acquires ZEMS Apparel

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

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

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

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

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

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


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

    Catch Group

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

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

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

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

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

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

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

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

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


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


    Australasian Leisure Management Australian Financial Review

    Eye protection on worksites

    DeWalt safety glasses and goggles

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

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


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

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


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


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


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


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

    POS choice and potential dangers

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

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

    Simply click on the following link to download this edition:

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

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

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

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

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


    Bunnings grows its strategies

    Strategy Day and Investor Day

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

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

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

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

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

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

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

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

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

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

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

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

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

    The paradox of success

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

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

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

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

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

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

    Download hinews-5-03


    Did independents outperform the big guys?

    Results from IHG and Bunnings subdued

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

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

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

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

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

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

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

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

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


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

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

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

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


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

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

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

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

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

    To read more, please download HI News:

    Download hinews-5-03


    The POS choice

    Local server, or SaaS?

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

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

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

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

    A changing market

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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    Overview of the global paint industry

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

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

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

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

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

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

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

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

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

    Local consolidation

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

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

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

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

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

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    Bunnings continues to go beyond DIY

    Deal with Clubs NSW

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

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

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

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

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

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

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

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

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

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

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

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

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    Bretts moves to Natbuild

    Yenckens also leaves Mitre 10

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

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

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

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

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

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

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

    Source: The Australian


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

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

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    Product integration on The Block

    Sponsors for 2019

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

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

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

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

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

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

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

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

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    Homewares, the next retail battleground?

    Bunnings, Kmart, Coles and Aldi compete in the category

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

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

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

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

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

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

    Temple & Webster results

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

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

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

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

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

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

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

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

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


    Big business in pet care - HNN

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    Bathstore bought out by Homebase

    The privately owned chain had 135 stores in the UK

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

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

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

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

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

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

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

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    Ace earns top marks for customer satisfaction

    Online engagement

    It tied with True Value for highest customer satisfaction in the J.D. Power 2019 US Home Improvement Retailer Satisfaction Study

    Ace Hardware and True Value managed to excel against their big box competitors - Lowe's, Menards, The Home Depot - as ranked by the 2,400 customers surveyed in the latest J.D. Power Home Improvement Retailer Satisfaction Study.

    The survey rated the retailers across five key attributes. But in analysing the overall survey results, J.D. Power analyst Christina Cooley identified online engagement as critical to success in serving home improvement customers. In this area, Ace Hardware puts distance ahead of the competition. She said:

    The better a retailer site performs online in meeting the customers' needs, the greater their overall experience. So the two go hand-in-hand.

    Ms Cooley noted that 41% of the customers surveyed either researched or shopped online prior to visiting the store. Consumers who check out potential purchases online also spend more on home improvement products than those who do not conduct web-based research.

    Yet, J.D. Power added, many home improvement retailer websites don't measure up to customer expectations. Overall satisfaction for home improvement retailer websites is 821 on a 1,000-point scale, a bit lower than the rating for manufacturer websites (832), image and video sharing websites (843) or social networking sites (869).

    The Ace Hardware corporate website is filled with how-to information in its tips and advice section. The site also directs visitors to the local store's site which is personalised to the community and the needs that it serves. Ms Cooley said:

    Over the last several years, Ace clearly has put a lot of resources, attention and investment into their website to be engaging for customers, whether they're looking to just purchase online or to find information at the local level.

    A positive online experience researching local destinations where the right products and help can be found is directly correlated to a more positive shopping experience and more money spent. Ms Cooley adds:

    Those that did research online prior to purchasing spent about USD600 more per year on home improvement products, than those who did not shop or research online.

    In her consulting work with independent retailers, Ms Cooley emphasises that the website's primary role is to draw customers into the store where the real retail magic happens. Ace Hardware's corporate structure, as a co-operative of 5,200 locally-owned and operated hardware stores supported by a high performing head office operation, gives it the edge. Andy Enright, vice president retail development at Ace Hardware, told Ms Cooley:

    While we do have significant national scale, our independent owners live in the communities they serve. This local mindset and entrepreneurial spirit, along with a nonstop focus on fulfilling our 'Helpful Place' promise is why Ace continues to be recognised for high customer satisfaction and has seen nine years in a row of same-store sales growth.

    Besides Ace Hardware's support of local member companies' digital presence, the retailer gets the five key attributes in J.D. Power's home improvement index right as well.

    Store facility

    In addition to ranking home improvement retailers by cleanliness, convenient location, store layout and design, the survey found shoppers want to get in fast, find what they need fast and get out fast. Ms Cooley said:

    Local hardware stores like Ace do that much better than the big boxes.

    Ace's smaller size and scale, as well as its community-centric approach to merchandise selection, gives it the edge. Mr Enright said:

    We are a high-touch, convenience hardware store that makes it easy to get in, find the product you are looking for, get help if needed and get out quickly so you can complete your project faster.

    Product selection

    Lowe's and Home Depot may have a lot more product selection, but they also present shoppers with a "paradox of choice" problem where too many choices make for confused and often dissatisfied shoppers. Rather than stocking everything, Ace Hardware aims to stock only the right things that its local customers want.

    Merchandise is customised to each local market with the aim to present the best quality brands. Ace ranked highest in the "Quality of merchandise is above expected" question, and in "Staff thoroughly explained products and features".

    Priced for value

    In retail, price still matters and many consumers will drive a few extra miles to save a few cents. So while Ace Hardware may not be able to match the often lower prices that a big box retailer can offer, it also understands that the real value of choosing Ace hinges on many other factors besides who's got it cheapest. Mr Enright said:

    We pay close attention to our CPI (competitive price index), and recently deployed CPI data down to the store and item level to better ensure we stay competitive in each local market.

    Regarding customers' overall satisfaction, J.D. Power said the retailers that provide assistance to customers within two minutes of arriving in the store get a 67 point boost in overall customer satisfaction. Having the cheapest prices in no way matches the impact of superior service.

    Promotions attract shoppers

    In addition to supporting regular sales promotions, Ace Hardware provides extra incentives and exclusive discounts to its 48 million Ace Rewards members. The data collected about customers' preferences at both the national and local level helps the retailer further personalise product selections and services in the stores.

    In addition, Ace Hardware members are increasing the number of special in-store events.

    Staff and service

    Ace Hardware doubles down on customer service as the key to being its tagline, "Helpful Place." To do that it also doubles down on training. Mr Enright said:

    We put a lot of focus on employee training, development and engagement. Last year we launched a new training program combining both e-learning tools and hands-on training. The curriculum is based on an associate's role and experience level in the store in order to improve their knowledge and confidence. That way they are better prepared to provide exceptional service to our customers.
    To have highly-engaged customers, you need highly-engaged employees.

    Sources: Forbes and Homeworld Business

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    Chinese growth slows, affects paint industry results

    Global paint increases price, accepts volume decline

    Most of the largest global paint companies have had their results affected by a slowing Chinese economy

    It remains a remarkable fact that while debate continues to rage regarding whether globalisation is a good thing or not, we actually are living in a highly globalised world. That is a fact heavily underlined by the results from PPG, AkzoNobel, and Nippon Paint.

    All these companies have suffered to some extent from changes to the Chinese economy, as that nation grapples both with an internal evolution brought about by increased prosperity, and increased external trade pressures.

    It's tempting to regard those external pressures as being somewhat dominant, but most experts in the Chinese economy agree that internal forces far outweigh external forces when it comes to the current slowing in China's gross domestic product (GDP) growth.

    Richard Dasher, director of the US-Asia Technology Management Center at Stanford University has pointed out that currently net exports are only 1% of the total Chinese GDP, and of that 1%, only 5% is reliant on the US, and thus affected by newly imposed sanctions.

    Marshall W. Meyer, emeritus professor of management at the Wharton School of Business, sees three main factors in the Chinese slowdown: an ageing workforce (partially a legacy of the one-child policy); a normal slow-down in an economy after a period of rapid expansion; and an economy that had become very reliant on government investment in infrastructure as a main driver.

    As important as those issues are, however, Prof. Meyer sees the country's lagging productivity as the key issue. Combined with growth funded by high levels of debt, the result of the need to improve productivity will be an economy that seeks to move up the value chain of production.

    Global competition in the future, in other words, is going to be much more about innovation than it is cheap sources of labour. To borrow a pithy sentence from The Economist, "Supply chains are as disaggregated as they are likely to get".

    Nippon Paint is already progressing on this path. It has been busy upgrading its coatings production process in its new Chinese plants. This includes introducing cutting-edge Industry 4.0 processes to the new plant it has built in Xianning, Hubei province. Reports state that as few as 50 workers can run the entire production facility. It's estimated this facility can produce over 180,000 tonnes per year.

    In addition to the need for greater productivity, other factors are also changing the way paint is produced in China, especially when it comes to the environment. Aside from direct manufacturing pollution, the Chinese have also become more sensitive to the issue of volatile organic compounds (VOCs) in paint, which results in "off-gassing" after paint application.

    In an article that appeared in Coatings World, Doug Bohn, a consultant with Orr and Boss, outlined this aspect of the Chinese market post-2018:

    Within the Chinese coatings market, the biggest factor impacting it is the increase in environmental regulations. China has been enforcing stricter environmental standards on its paint makers for both VOC content of its paint, as well as the emissions generated at the paint plants. The large cities like Beijing and Shanghai often have stricter environmental standards than the national ones.

    In terms of how the Chinese economy directly affects paint companies, it's important to note that these companies interact with China both as a source of production, and a rapidly growing market. It's also worth noting that in the ranking of the top 10 paint companies in the Asian Pacific region, two Chinese companies are now listed: Oriental Yuhong, with sales of USD669 million in 2018, and Xiangjiang Coatings with sales of USD608 million.

    In that same list, Nippon Paint is number one, with revenue of USD5480 million, and Australia's DuluxGroup is ranked at number five, with sales slightly less than a quarter of Nippon. Of the top 10, four are Japanese companies, two Indian, two Chinese, one Australian, and one South Korean.

    Chinese importance

    Of the four top global paint companies - Sherwin-Williams, PPG, AkzoNobel and Nippon Paint - all but Sherwin-William are involved heavily enough in China that the recent decline in growth for that market has affected their results for FY2018 and FY2019 H1.

    PPG summarised the risks it faces in its annual report for FY2018:

    Recently, global economic uncertainty has increased due to a number of factors, including slowing global growth, global stock and commodity market volatility, disruption in existing trade agreements, the imposition of tariffs and the threat of additional tariffs, the United Kingdom's exit from the European Union, weaker demand in China and increasing interest rates in the United States.

    The company has faced rising raw material costs, which have forced it to increase prices - and therefore margins - in the face of a slightly declining market, which has hit topline revenues, and therefore overall earnings.

    Sales in the Asia-Pacific for PPG amounted to USD2618 million out of a total of $15.4 billion, around 17%. While that is already a considerable portion of revenue, the point is that the company is relying on that market as one of its main drivers of growth.

    So was AkzoNobel, but for FY2019 it has shifted its strategy from increasing volume through lower prices, to maximising margins through higher prices, even if these drive reduced volume of sales.

    In describing the change of strategy at the company during FY2019 H1, the company's CEO, Thierry Vanlancker, outlined how the Chinese market had changed over the preceding 12 months:

    I think the price for price increases for us were - has been - for Dulux has been relatively modest. The biggest change in seasonal average price is that we exited that low-end business and which would have been at zero margin - or negative margin even by now if we hadn't moved prices on that. So, if you were buying a pot of Dulux paint 18 months ago, the price hasn't gone up that much, but the mix in our business has been significantly different.

    (AkzoNobel's Dulux brand is not the same as DuluxGroup that operates in Australia.)

    For Nippon Paint, the effect of a slower Chinese market has been more drastic. The company's CEO and representative director, Tetsushi Tado, outlined some of the challenges in the company's annual "Integrated Report" for FY2018:

    In fiscal 2018, we were greatly affected by changes in the external environment that exceeded the initial estimates, such as stagnant economic growth due to trade issues between major countries, as well as rising prices of raw materials.
    Particularly, our trade-use paint business, which accounts for the largest portion in our business, was significantly influenced by the slowdown of the housing market in China, which is our core region, as a result of the tightening of regulations on housing investment by the government from the previous year.
    Our activities to procure raw materials were also affected by their continued high prices due to environmental regulations in China as well as increases in the prices of raw materials in Japan, the United States, and other regions.

    Where AkzoNobel has sought to exit the low-cost paint business in China, that forms an important part of the market for Nippon Paint, and falling demand there has caused the company some problems.


    Housing downturn impacts Adelaide Brighton

    Slowdown in residential construction

    The building materials business is downgrading its profit as it takes a hit from the slump in residential construction

    Cement maker Adelaide Brighton is heavily exposed to domestic housing construction with around 32% of its revenue derived from this market, according to JP Morgan. This high exposure to home building, which is experiencing a major downturn, has led the company to issue a profit warning.

    Adelaide Brighton said it expected its underlying profit for its financial year ending December 31, 2019, excluding property, to fall to between AUD120 million and AUD130 million - as much as 37% below 2018's figure of AUD190.1 million.

    About 60% of the challenges faced by the company could be attributed to the state of the housing market, the remainder were internal issues, chief executive Nick Miller told The Age.

    Increased competition from cement imports, higher costs of key raw materials compared to the prior year, and continued competitive pressures in Queensland and South Australia, were other factors hurting its bottom line, the company said.

    Its shipping troubles in Victoria - it had to redeploy a ship filled with cement elsewhere - would cost it between AUD4 million to AUD6 million. It was also struggling to pass on a 10-15% increase in the cost of aggregates through its ready mix cement business.

    The cement manufacturer also scrapped its interim dividend, citing the need to conserve capital. Mr Miller said:

    We are operating in a fairly challenging market at the moment. Whilst the guidance is very concerning, the company remains well within its banking covenants.

    In a statement to the ASX, Adelaide Brighton blamed "further softening of conditions in the residential and civil construction markets" as the main reason for its earnings downgrade.

    The most recent Australian Bureau of Statistics Building Approvals figures show that the total number of dwellings receiving construction approval has fallen 25.6% since the previous year. Within that figure, approvals for houses were down 14.8% over the 12-month period.

    However, the result for apartment approvals was far worse, plunging 39.3% since June 2018. In addition, trend approvals are now at 174,000 over the year, the lowest level in six years.

    This places substantial pressure on the economy. Confidence among Australian home buyers has been showing recent signs of a recovery with prices bottoming out and auction clearance rates rising, but the improvement has not "come through to delivery on the ground," Mr Miller said.

    Optimism and caution

    Macroeconomics and industry forecaster, BIS Oxford Economics remains more upbeat about the prospects of a construction rebound. BIS managing director Robert Mellor said:

    Australia's dwelling stock deficiency will grow once again as rising undersupplies in Victoria, Queensland and Tasmania develop by 2020/21.
    We anticipate this pressure to facilitate growth in house prices and rents, helping create a renewed upswing in residential building starts through the early to mid-2020s.
    The downturn has further to run with an additional 8% decline forecast for 2019/20, with the fall in residential building outweighing the growth expected in the non-residential sector.

    According to a report in The Age, an analyst report from Morgan Stanley suggests the real impact of the housing downturn is yet to be felt. The report's lead writer Andrew Scott said:

    Australian residential exposed building materials stocks have enjoyed a post-election bounce that we believe has come too early and ignores the pain yet to come in the group.

    The worst of the downturn will hit this financial year and activity won't trough until late the following financial year in 2021, he said.


    Adelaide Brighton's downgrade underlines how support from government-driven infrastructure building has failed to offset sliding homebuilding activity, as a slump in building approvals catches up with work underway.

    Tighter lending and a sharp drop in home values this year are expected to hold activity low for a while, with Australia's AIG Construction Index showing a tenth straight month of contracting activity in June.

    The business model has been caught out by not being sufficiently vertically integrated in Queensland, sustaining a price squeeze in aggregates, according to Credit Suisse. This is also the case in Victoria, where it is vital to pick up infrastructure work. Meanwhile, cement prices have been pushed too far above import parity in South Australia, where the company is undermined by a competitor entering the cement import market, attracted by high prices and profitability.

    Adelaide Brighton lacks a strong infrastructure-oriented business which is a real problem in the current market, as infrastructure would help soften the impact of a slowdown in residential construction, said Macquarie in a note to its clients.

    Sources: ABC News, The Age and FNArena


    Klingspor launches new retail packs

    Winner of HBT Supplier award

    The company has more products in development that are designed to help boost retail sales

    Abrasive technology company, Klingspor continues to be focused on storeowners and their merchandising needs, and has released a number retail packs for the Australian market that consist of the following:

  • KM613 flap wheels in the company's most popular sizes, in packs of 40, 60 and 80 grit. (50x30, 40x20, 30x15 and 20x10mm).
  • SMT624 flap discs in 100mm, 115mm and 125mm with a combination of 40, 60 and 80 grit in each pack.
  • Quick Change Discs in 50mm or 75mm with a combination of grits and surface conditioning discs, including accessories to mount discs on drills, air tools and angle grinders.
  • A60TZ cutting wheels in a retail pack of 10 discs in 100mm, 115mm and 125mm.
  • All items are barcoded.
  • Klingspor Australia has developed a strong reputation for innovating display stands for retailers, which can really help lift the profile of the product and drive sales. Many of the displays are designed by Klingspor itself in Australia, and manufactured for them in Sydney.

    The history of Klingspor's famous disks goes all the way back to 1950. That is when Klingspor produced its first high speed, fabric bonded grinding discs. This innovation led to a very large increase in productivity and profitability as well as to an effective change of abrasive cutting technology in the entire industry.

    In May, Hardware & Builders Traders (HBT) awarded Klingspor its prestigious ITT Supplier of the Year 2019 award, recognising the significant contribution that

    Klingspor made throughout 2018 to the growth of HBT.

    Paul Hoye, managing director of Klingspor Australia, is very positive about the future, especially its relationship with HBT. He told HNN at the recent HBT show that sales are continuing to grow, and that members have embraced the new products Klingspor has brought to market. In particular, Klingspor continues to sell high volume of its very popular line of 1mm cutting discs.

    Other innovations include its accessories designed for cordless tools. These are made specially for use on battery-powered angle grinders. The result is a particularly high level of aggressiveness and a long service life with no compromises on mobility.


    Cement Australia wins supplier award

    Building products category winner

    It was singled out in a field of nominees that include CSR Gyprock, Sunstate Cement and James Hardie

    Hardware Australia recently awarded Cement Australia as its Queensland Supplier of the Year for building products. It beat other major players including CSR Gyprock, Sunstate Cement and James Hardie.

    The company said it is honoured to receive the award as recognition of its "customer service, product quality and supply to the hardware industry over the past year". It added:

    This is a reward for achieving the goal of delighting customers and delivering results which required the alignment of all functional teams within the organisation.

    This is the second time Cement Australia has won the award, in consecutive years.

    Cement Australia has been associated with Hardware Australia for over 20 years in its various guises (formerly Hardware Association of Queensland). The company believes Hardware Australia provides insights into the industry that enables it to service their hardware customers as professionally as possible, and ensure that its offer is targeted towards them.

    Officially established in 2003 following a merger between Australian Cement Holdings and Queensland Cement Ltd, Cement Australia has a much longer history that dates back to 1890.

    During this time, its products have been involved in the construction of some of the country's major landmarks including the Sydney Harbour Bridge, the Opera House and Melbourne's Federation Square.


    NAB SME Survey indicates tough trading ahead

    Trading conditions worse, but increase in confidence

    In its quarterly survey of SMEs for the June 2019 quarter, the NAB figures indicate trading conditions deteriorated in every state except Victoria, while confidence generally increased. The report also suggested that tradies were particularly affected by negative conditions.

    Australia's small to medium enterprise (SME) sector seems set for tough conditions through the rest of calendar 2019. That's the indication coming from the National Australia Bank's (NAB) quarterly survey of SMEs, which reported a current deterioration in current business conditions, and a likely indication of some deterioration in future business confidence for this sector. Click here for the report:

    National Australia Bank Quarterly SME Survey


    The NAB survey indicates that in the short term business confidence increased, lifting by three points to a net score of +3, following two quarters of no growth. Across the states and territories, Western Australia shows both the largest decline in business conditions, and the highest increase in business confidence, both exceeding 10 points.

    South Australia and Queensland show a similar trend, though more subdued. New South Wales shows the second highest decline in business conditions, and Victoria is the only state to show a positive increase in both business conditions and business confidence, though the boost in confidence is the smallest of all the regions.

    However in its commentary, NAB warned that the Australia-wide increase in confidence might be short-lived, with June 2019 numbers pointing to a decline in optimism:

    We think this effect is likely to be short-lived with the NAB monthly business survey for June having shown an unwind in confidence.


    In contrast to this confidence, business conditions as reported declined sharply, down by four points. This mainly had to do with smaller firms. Low-tier firms reported a decline of eight points and mid-tier firms were down by seven points. High-tier firms, in contrast, reported an increase of two points.

    (For the NAB, low-tier firms have turnover between $2 million and $3 million, mid-tier have turnover between $3 million to $5 million, and high-tier turnover is $5 million to $10 million.)

    Breaking down business conditions into trading conditions, and prospects for employment growth, there was a similar size effect. Low-tier firms reported a drop of seven points for trading conditions, mid-tier firms a drop of one point, and high-tier firms an increase of six points. For employment growth, low-tier firms indicated a decline of 13 points, mid-tier firms a fall of five points, and high-tier firms were done just one point.

    The third component of business conditions, profitability, showed a different pattern. Mid-tier firms indicated a fall of 14 points, low-tier firms only four points, and high-tier firms were neutral at 0 points. All three components are now at levels not seen since the period 2013 to 2014.

    This could be in part a reflection of forward orders, with high-tier firms experiencing a reported decline, mid-tier firms a significant increase, and low-tier firms generally flat growth. However, capacity utilisation for high-tier firms is close to 82, the highest it has been since 2011. Both low-tier and mid-tier firms are closer to 78, the range they last reached in 2016.


    Australia's national broadcaster, the ABC, in its online news content has appeared to interpret these numbers as having particular reference to tradies. The ABC managed to track down and actually hold conversations with one electrician and one plumber, both from Sydney.

    According to this sample of two, electricians are not doing well due to a decline in multi-dwelling construction, while plumbers are benefitting from an increase in commercial work.

    ABC: Business conditions worsen for small and medium enterprises

    The ABC also reports that:

    The NAB survey found tradies with four or five employees are among the hardest hit.

    The ABC also quoted NAB chief economist Alan Oster as saying:

    The things that worry us are, one, it [business conditions] has come down a lot, and two, it is particularly the small end of town that has come down a lot - and that makes us nervous.
    It's the tradies, and they tend to lead the economy - and that's not a good sign.


    The increase in confidence for Q2, as suggested by Mr Oster and others, might have to do with the May 2019 election that concluded a period of political uncertainty which started in the final quarter of 2018. However, many believe this confidence to be misplaced, as economic stimulus remains a matter of interest rate cuts and decreases in middle-income taxation, rather than actual new government spending.

    In a survey of economic conditions for FY2019/20, of 20 leading Australian economists brought together by "The Conversation" website, gross domestic product growth of 2.1% was forecast, with an unemployment rate of 5.3%, wage growth of 2.2%, inflation at well under 2.0%, and the risk of a recession was set at around 29%.

    A further complication to the economic situation is that campaigning for the 2020 US Presidential election will shift into high gear in November 2019, which could contribute to the likelihood of globally unfavourable shifts in trade policy by the US and its trading partners.


    Elders moves into wholesale

    It is offering a deal to acquire AIRR

    Taking on Australian Independent Rural Retailers allows Elders to have a presence in the wholesale market

    The $187 million takeover bid by agribusiness Elders for Australian Independent Rural Retailers (AIRR) will give it an entry into the wholesale supply of farm products for the first time.

    Elders managing director Mark Allison said wholesaling to independent retailers provided an attractive growth opportunity for the company. He told The Adelaide Advertiser:

    We don't have any wholesale channel and AIRR is very strong in that area. About 100 of their members are in produce and hobby farming areas, so it's quite complementary to our business.
    AIRR is also very strong in the pet supplies area. All the AIRR stores will continue to run independently, as they already are."

    Lachlan Cox, owner of Cox Rural, said the acquisition would enhance his company's purchasing power when negotiating terms with key suppliers. He operates six AIRR member stores in South Australia, and told The Advertiser:

    There's a great opportunity to leverage off both businesses, while still remaining independent.

    Cox Rural has been running since 2002 and is a founding member of AIRR.

    Mr Allison said the acquisition provided the opportunity for Elders to leverage AIRR's distribution and logistics coverage with benefits in improving the Elders supply chain. He told The Australian:

    Helping us backward integrate through our supply chain can deliver a 10-15% margin gain.

    The deal includes a purchase price of $157 million for the group and Elders will also pay out AIRR's existing $30 million in debt. While the Elders deal does not include ownership of the AIRR network of 340 independent rural supplies and pet produce outlets, it does provide a combined network of more than 550 stores.

    Mr Allison said he hoped the deal would be completed by November. It is subject to approval by AIRR shareholders, the Australian Competition and Consumer Commission (ACCC) and the court.

    Access to more independents

    The acquisition should help position Elders to compete more strongly with Canadian fertiliser giant Nutrien as it moves to complete a $469 million takeover of Ruralco.

    Mr Allison believes there is a significant opportunity to add independent retailers in the fallout from Nutrien acquiring Ruralco, which is a leading wholesaler to independents through its CRT (Combined Rural Traders) retail operations. He said:

    Our view is there are another 300 independents out there who may decide to move across to an alternative wholesale network.

    The Nutrien takeover of Ruralco, if it secures regulatory and shareholder approvals, could see a network of 654 Landmark and Ruralco stores across Australia. There would remain about 360 rural stores outside either network.

    Elders, which turns 180 this year, already has more than 17% rural retail market share behind Landmark and Ruralco. Mr Allison said if both deals were approved, "it would make us clear one and two".

    About AIRR

    Established in 2006, AIRR was founded by long-time rural retailer Peter Law to support independent rural stores and pet and produce storeowners through group buying power but without franchise costs or obligations. The business supplies 240 independent stores and 100 Tuckers Pet & Produce stores with more than 6000 animal health, feed and general merchandise products. It is supported by a network of eight warehouses around Australia servicing over 1500 customers.

    The group also owns and operates five retail locations in Victoria and is listed on the Primary Markets Exchange.

    AIRR comes with some major intellectual property assets. It has 190 product registrations with the Australian Pesticides and Veterinary Medicines Authority under its own brands: a number of crop protection chemicals under the Apparent brand, along with other animal health and general merchandise products under the Independents Own label.

    Elders' acquisition would give it much greater exposure to the higher margin pet and animal health market.

    AIRR has annual revenue of about $500 million and forecast earnings of $22 million for the 12 months to September 30, according to a report in The Australian Financial Review.

    As AIRR managing director, Mr Law will remain in his role and replace Mr Allison as Elders' biggest individual shareholder with about 1.8% of the company. Mr Allison will become AIRR chairman.

    ACCC inquiries

    The Elders takeover of rural wholesaler AIRR has attracted the attention of the competition watchdog as it holds a public inquiry into the consolidation of the rural services industry.

    Nutrien's earlier bid for Ruralco in a $470m deal is also being investigated by the ACCC and due to be decided on August 15. Ruralco has about 73 wholly owned stores as well as a host of independents, who are the focus of both ACCC inquiries into the sector.

    The Elders-AIRR deal is expected to be decided on September 12. But Mr Allison said it had been talking to the competition regulator about the AIRR deal and was confident it would have no objections.

    More acquisitions?

    Sources have told the DataRoom column in The Australian that Elders may still be looking at the PGG Wrightson farm supplies business in New Zealand as an acquisition target.

    PGG Wrightson offers Elders another entry into the wholesale rural services market. However the company falls outside the tax umbrella for Elders, resulting in higher payments of tax for the company. This could be seen as an argument against the acquisition.

    PGG Wrightson, which is listed in New Zealand, sold its seeds operations to Danish company DLF Seeds for NZD421 million (AUD401 million) and has a market value of about NZD415 million. Analysts say PGG Wrightson is a good business and would be the right fit for Elders.

    However Mr Allison has publicly rejected suggestions Elders might be looking at another acquisition.

    Sources: The Australian, The Australian Financial Review, Tasmanian Country, and The Adelaide Advertiser.


    TradeTools opens Cairns outlet

    Rival tool firms embark on expansion

    The Cairns store is the Gold Coast company's 19th retail location and the first in Far North Queensland

    Tradies and weekend warriors have a new destination for their tools in Cairns now that TradeTools has opened a retail outlet on Mulgrave Road.

    Managing director Jeremy Stewart said the business had been looking for a suitable site in Cairns since 2017 before settling on the old Cheeky Monkeys Play House site. He told The Cairns Post:

    The showroom alone in our new store is over 1100sqm, so it's big enough to showcase our massive range of the best tools from the best brands. And we have about another 1000sqm of warehouse on top of that.
    We've shipped tools to customers in Cairns for a long time and Cairns tradies, businesses and the public have been asking us for a TradeTools store.

    The new store has opened with six staff including a qualified repair technician.

    Retail competition

    TradeTools has plans to expand its offering to other parts of Queensland and is facing fresh competition from New South Wales-based Sydney Tools which opened its first Queensland store in Archerfield last month. Sydney Tools wants to roll out 15 more stores across the state over the next three years. Director Jason Bey told The Courier Mail:

    Sydney Tools has seen record breaking sales this year which is the rationale for our national expansion strategy.

    While seeing the NSW company as a "direct competitor", TradeTools chairman Greg Ford is sceptical about his rival's plan for expansion in an already saturated market. He also told The Courier Mail:

    I'll believe it when I see it. I don't think the market is big enough to warrant another 15 industrial tool stores. If I thought there was room for another 15 stores I would have opened another 15 stores.

    Mr Ford has been working in the industrial tool trade sector since 1980 and said the new entrant has not "disrupted" sales and believes Sydney Tools is taking away customers from Bunnings. Founded in 1987, TradeTools has remained privately owned and Mr Ford said the business has "expanded when Queensland has expanded".

    A sluggish retail environment and a cooling of the construction market has not caused TradeTools to put the brakes on its expansion plans. After Cairns, it will open stores in Rockhampton and Mackay. The industrial tool company will only acquire new locations when cash flows allow for the company to buy a site in full. Mr Ford said:

    We only expand when we can afford the premise outright. Our aim in the next 10 years is to double our turnover.

    After the company expands north, Mr Ford is looking to open his first NSW store in Lismore.

    Sources: The Cairns Post and The Courier Mail


    Kingfisher's GoodHome report

    Pride is part of a happy home

    Kingfisher has produced a brief report based on a survey that describes what helps to make a "happy home"

    While Veronique Laury may be on her way out as CEO of UK-based European home improvement retailer Kingfisher, her legacy is likely to be a lasting one. The current stage of capitalism judges CEOs more by share performance than company building, and it's the latter where Ms Laury has excelled.

    One part of Ms Laury's legacy is the GoodHome report. This is a comparatively brief document, based on a survey of 13,489 respondents across 10 European nations, backed up by a further 78 in-depth interviews. The report seeks to determine what role "home" plays in the lives of Europeans, and what elements of home are most important to families. Click here for the report:

    Kingfisher's Good Home report

    To summarise some of the key results:

  • Respondents indicated that their homes accounted for 15% of their overall happiness - far more than, for example, income contributed.
  • Five emotions contributed to the feeling of a "happy home": pride, comfort, identity, safety and control.
  • Pride was the most important of these, responsible for 44% of the happy feeling.
  • In terms of the emotions people felt about their homes, safety and comfort were the two main ones.
  • Home ownership was less important to people than having some kind of control over their environment.
  • Bigger homes seem not to solve many problems, with the need for more space seemingly constant across many different sizes of homes.
  • Rather than "bigger", the most important attribute was "spaciousness".
  • Homes that could be adapted to new circumstances were more important than other forms of fixed design.
  • Location mattered less than access to some kind of "green space", whether private or shared.
  • Policy suggestions

    The GoodHome report ends with four suggestions for how local and national governments might formulate better policy to promote happy homes.

    Stable tenure

    Being in control of where you live is more important than simple home ownership. The report states in part:

    This sense of control is harder to achieve in rental markets that are relatively unregulated, where tenancies tend to be shorter and tenants are less able to make improvements to the property. Encouraging longer, more stable rental tenures, such as those common in Germany, where a high proportion of renters also score highly for home happiness, could be one way forward.


    Where most houses are built to a fixed form, the report suggests they should be build so that they can more easily be adapted to change circumstances.

    Green access

    Homes need some kind of private or shared green space in order to satisfy the needs of families.

    Skills and training

    Because being able to make a place your own is so important, the report suggests that more attention be paid to this process in schools. This might not mean "traditional" woodworking and metalworking skills, but it should include familiarity with the basics of maintenance and assembly.


    Stable house prices create best reno markets

    Renovations respond to price stability

    While it has been commonly thought that when house prices and hence house building declines, renovations increase, this doesn't appear to be true

    Television shows and other sources have tended to buoy Australians' view of themselves as a nation of renovators. Yet as we look at the data provided by the Australian Bureau of Statistics (ABS), it is becoming clearer that, while renovations continue to play a key role in the housing/building economy, it is not as strong a source of growth as in the past.

    Relying on the data for alterations and additions for the past 30 years, produced as part of the gross domestic product estimates, through household surveys, HNN believes that there is some evidence to suggest periods of related renovation activity.

    These periods would be 1989 to 1996, 1997 to 2006, 2007 to 2012, and 2013 to 2019. The most pronounced break in spending trends on renovations, however, comes around 2004 to 2005. Prior to that period, renovation trends upwards in all states and territories. Afterwards, there is a pronounced lack of further growth, a trend that is, strong for New South Wales (NSW), much milder in Victoria (VIC), while the other states and territories are between the two, with most closer to NSW.

    It has become fairly commonplace to directly relate renovation activity to house prices. The general rubric is that as house prices rise, renovation activity declines, and as house prices fall, renovation activity increases.

    Looking at the charts and statistical analysis, however, it seems clear that relationship no longer strictly applies. Rather the relationship we see developing is this: a) When house prices rise, renovation activity falls; b) when house prices fall, renovation activity also falls; and c) when house prices are stable, or increase in a mildly positive range, renovation activity increases.

    We've concluded that there are three main features of the overall housing industry that affect renovation activity: lifestyle aspiration (how a family sees itself living in a house); asset management; and forecast expectations for employment and wages.

    The change in renovation patterns is, we believe, down to the second feature - asset management - becoming more dominant since 2015. This dominance is partly down to the third factor, lower expectations for promotion at employment and a continuing stagnation in wage growth. As economic prospects decline, asset management concerns increase as external earnings are forecast to range from stable to a slight fall.

    In asset management terms, it's fairly evident that if house prices are increasing, there is an active market available where owners of high value properties in stabilising suburbs can sell these and purchase properties in undervalued suburbs with higher potential for asset value, so investment in renovation is likely to be subdued. In a declining market, however, it makes little sense to invest further in assets which are losing their value, thus - again - investment in renovations falls.

    If, however, there is a relatively stable market in house prices, or firm prospects of a continual, gradual increase in house prices, investing in renovations makes good sense in terms of asset management. Simply adding one additional child's bedroom to a house, for example, can increase the house's value by more than the renovation costs, if it lifts the house into a new category of consideration.

    While there were likely signs of this in the period from 2007 through to 2012, it became the main pattern from 2013 to 2019, as economic uncertainty increased. The wage price increase shows growth of under 2.5% for this period, and while the unemployment rate declined, the underemployment rate reached a new, sustained high.

    The stats

    Chart 1 shows the chain-value figures for alterations and additions from ABS 5206.0 - Australian National Accounts: National Income, Expenditure and Product, State final demand, detailed components. The quarterly figures have been converter to figures comprised of the June, September, December and March figures, giving a trailing 12-month number which eliminates seasonal variations. The blue curved line is the five-order polynomial trend line. The coloured backgrounds indicate apparent periods, and the yellow line shows the division that occurred in the market.

    Chart 2 is taken from Core Logic's report for Aussie Home Loans "25 years of housing trends", which can be downloaded at:

    25 years of housing trends - Core Logic

    This shows the median national house price for 25 years, dating back to 1993.

    If you put these two graphs together, it is evident that some of the strongest growth in renovations occurred during a period when house prices were growing at a slow but steady rate. That growth did continue into the period when house prices began to accelerate, but declined after 2004.

    What this means for retailers

    The most important signal for retailers is to pay attention not to the level of house prices, but to their volatility. In volatile uncertain periods, expenditure on renovations is likely to fall. When prices stabilise, regardless of whether this is at the top or bottom of a curve, spending on renovations will likely increase, but only after that stability has been established for more than 18 months.

    Renovation behaviour is likely not to disappear during period of house price decrease and increase, but rather to become somewhat reduced. Chart 3 is taken from a Roy Morgan survey for 2016, details of which can be downloaded from:

    Roy Morgan: Renovation Nation Home Improvement in Australia

    What this chart indicates is that renovations are, in fact, continuing, but they are at a very reduced level: less than 30% of those who did some renovations spent more than $5000 on a renovation project, while nearly 45% did some painting.

    So, as prices go strongly up or down, retailers should consider pushing more for business that falls into the DIY category, and is relatively inexpensive, both in dollar terms and time required.


    Ruralco attracts more takeover attention

    More industry consolidation

    Nutrien's offer to purchase Ruralco follows Saputo buying Murray Goulburn for $1 billion, and GrainCorp receiving a $2.38 billion bid from a privately held asset manager

    There is continued interest in Australia's agricultural merchandise sector with rural services provider, Delta Agribusiness possibly looking at acquiring Ruralco's assets according to a report in The Australian. This follows its recent purchase of North West Ag Services.

    The proposed $469 million takeover bid of Ruralco by Canadian fertiliser giant Nutrien has been flagged by the Australian Competition and Consumer Commission (ACCC) about their combined market dominance in some areas.

    Nutrien is already the biggest player in the Australian farm services sector through its wholly owned subsidiary, Landmark. Ruralco is the third biggest. Elders is the only other big national chain.

    The ACCC is concerned about areas that include Broome (WA), Alice Springs (NT), Cooma (NSW) and Hughenden (QLD), where Landmark's rural merchandise stores compete with Ruralco stores and there would be few remaining competitors. The competition watchdog is considering whether delivery from outside these regions would provide sufficient competition to the Ruralco-Landmark retail stores.

    ACCC deputy commissioner Mick Keogh said a key concern was that Landmark-Ruralco could arrange deals with suppliers on substantially better terms than others in the market and use that advantage to reduce competition or increase margins. It believes reduced wholesale competition could lead to discrimination against some independent rural retail stores.

    The ACCC is currently seeking more information and public submissions. However the issues it has flagged are not expected to significantly affect the deal. Mr Keogh said it would make a final decision by mid-August and it was likely that, in the meantime, Nutrien would put forward remedies to the ACCC concerns. He said:

    For example, they might offer a divestment of some stores or a non-discrimination undertaking in relation to the wholesale businesses, but that is up to the companies, not us.

    A company spokesperson for Nutrien said the combination of Landmark and Ruralco would enhance service, expertise and product delivery to farmers.

    Ruralco assets

    According to the Data Room column in The Australian, Nutrien might be forced to divest some assets as one of the conditions for it to gain approval for its takeover of the Ruralco business.

    The Landmark-Ruralco entity would supply about 650 rural merchandise stores, 45% of the national market. Not all of Ruralco's stores are wholly owned, with some controlled as joint-venture investments, which could create opportunities for Delta Ag. Now that Delta Ag has taken over North West Ag Services, it will operate at 44 locations across regional NSW, Victoria and Southern Queensland and is believed to be eager to gain additional products and market share in rural Australia.

    Delta Ag, chaired by former Nufarm boss Doug Rathbone, will hire 300 people. It has a network of more than 9000 clients and already offers rural merchandise, agricultural chemicals, cotton and summer crop services, seed and fertiliser. It also offers services in grain marketing, livestock marketing, real estate, insurance, finance, horticulture, viticulture and packaging.

    Australia-based Odyssey Private Equity has a 20% stake in the business which should help in any financial bid for Ruralco.

    Nutrien-Ruralco support

    Nutrien has received support from some of its biggest rivals in its takeover bid for Ruralco. Farm chemicals maker Nufarm said it saw nothing to fear in the takeover. Greg Hunt, managing director of Nufarm, said he didn't think the takeover would lessen competition overall. He told The Financial Review:

    At the retail level, the industry will continue to have two corporate brands in Nutrien and Elders as well as a strong independent structure that will continue to service the market.

    On a supplier level, Mr Hunt said he wasn't concerned about the impact on Nufarm.

    Australia needs a strong and sustainable domestic manufacturing base to adequately support our farmers. Nufarm plays a very important role to ensure the market is supplied with quality products in an efficient manner. It would be difficult for our farmers to be supplied with products produced offshore, particularly in times of peak demand.

    Elders managing director Mark Allison said it was up to Elders and independent retailers to rise to the challenge and continue to focus on service to clients. He also told The Financial Review:

    I think it would be an extraordinary situation for Nutrien to use its power to the detriment of producers around Australia. And I can't imagine any circumstance where that would be the case.

    Landmark and Ruralco both supply rural merchandise such as fertiliser, fencing and animal health products and other services through their branded retail store networks. Both companies also have wholesale businesses supplying rural merchandise to independent stores.

    The origins of Ruralco date back 150 years but the listed­vehicle was formed in 2006 when CRT and Tasmanian agribusiness Roberts merged. The company, which employs about 2000 people, has four key operating divisions including water services, live exports, financial services and rural services.

    The ACCC said it did not consider the proposed acquisition was likely to substantially lessen competition in the supply of wool broking, livestock agency, live export services, real estate agency, agricultural insurance broking or water broking services.

    Sources: The Australian, The Financial Review and The Townsville Bulletin


    Sunshine Mitre 10 Gympie wins QLD Store of Year

    Award for independent stores over 2500sqm

    The Sunshine Mitre 10 group in Queensland has picked up yet another award, this time from Hardware Australia

    Hardware Australia has awarded the Sunshine Mitre 10 store located in Gympie, QLD, the prize for Queensland's Store of the Year, in the category for independent stores over 2500sqm.

    The prize was handed out at the 2019 Hardware Australia awards in Brisbane recently. According to a company spokesperson:

    Sunshine Mitre 10 Gympie Superstore is the largest supplier of timber in the Sunshine & Cooloola Coasts, Darling Downs, South Burnett and Wide Bay regions. We take pride in the fact that we can provide all the building supplies our customers need, under the one roof, whether they are a builder, renovator or dedicated DIYer.

    The Gympie store is no stranger to prizes - in 2016 it also was voted as having the best cafe in town via a Facebook survey of locals.

    HNN is traveling to Queensland to visit a number of Sunshine Mitre 10 stores in July, and we'll be providing a full report in the near future.

    Other awards

    Aside from the top retailer awards, Hardware Australia also offered the following at its 2019 prize giving ceremony:

  • Store of the Year under 2500sqm - CNW Electrical Gladstone
  • Trade Store of the Year - BMS Mitre 10
  • Garden Department of the Year - Porters Mitre 10 Mackay
  • Employee of the Year - Katy Draper from Sunshine Mitre 10 Roma
  • Sales Representative of the Year - Nick Sommerfelt from Makita
  • Industry Rising Star - Katy Nicholls-Hurley from Jeays Hardware Mitre 10
  • Brian Lee Hardware Industry Legend - Clint Spence from Beaudesert Mitre 10
  • Overall Supplier of the Year - Makita
  • Queensland Building Products Supplier of the Year - Cement Australia
  • Queensland Hardware Supplier of the Year - Bremick
  • Queensland Timber Supplier of the Year - ITI
  • Queensland Paint & Paint Products Supplier of the Year - Dulux
  • Queensland Tool Supplier of the Year - Makita
  • Queensland Electrical & Lighting Supplier of the Year - HPM Legrand
  • Queensland Bathroom & Bathroom Products Supplier of the Year - FIX-A-TAP Australia
  • Queensland Garden & Outdoor Products Supplier of the Year - Searles
  • retailers

    ABS hardware retail stats May 2019

    Victoria jumps ahead

    While most states and territories had average to poor increases in hardware retail sales for May 2019, Victoria returned a strong result

    The Australian Bureau of Statistics (ABS) has released stats for retail sales in Australia for May 2019. Compared with May 2018, the figures show a rise of around 1.95% for Australia overall, reaching $1648 million. On a trailing 12-month basis, overall Australian sales to May 2019 increased by 2.24%.

    On a state and territory basis, Victoria (VIC) showed the strongest lift in month-on-month figures, increasing by 9.34% over May 2018. This sharply contrasted with all the other regions, with the next highest figure just 1.33% for the Australian Capital Territory (ACT). New South Wales managed only a 0.48% lift, while Queensland increased by 2.26%, with only Tasmania performing worse, with a loss of 2.28%.

    Looking at the states and territories on a 12-month trailing basis, the numbers look better for most regions - indicating that May 2019 had particularly poor results. VIC is still significant ahead, with growth of 8.32%, but the ACT shows growth of 4.97%, and South Australia (SA) lifted by 3.37%.

    Chart 2, which shows the percentage change for trailing 12-month numbers, shows some interesting developments. Both VIC and Western Australia (WA) are breaking away from the rest of the pack, with VIC outperforming, and WA underperforming the average.


    At the moment, it's difficult to really work out exactly why VIC is outperforming the other states to such an extent. It is certainly the state with the largest population gains in recent times, which is a natural driver of construction spending.

    Anecdotally, it does seem there has been an increase in spending on renovations, especially the upgrading of established housing in the inner suburbs of Melbourne which have higher-priced housing. However it will be another three or four months until enough supporting statistics have emerged to indicate where the growth is coming from.


    Big business in pet care

    Pet care and services is a growth market

    Spending on pets is rising as the "humanisation" of dogs and cats increases, and hardware retailers can capitalise on it

    Australia has one of the largest proportions of pet owners in the world, with dogs the number one four-legged friend, closely followed by cats. More than 60% of Australian households own pets, according to the Pet Industry Association, driving over $12 billion in annual spending on pet products and services in 2016. That figure increased by 42% between 2013 and 2016, according to Animal Medicines Australia, and has continued to grow since then.

    Consumers are increasingly humanising their pets by regarding them as family members - and spending on them accordingly. University of Tasmania retail expert Louise Grimmer told SmartCompany the pet care and services industry is mirroring what's already available for humans. This includes everything from DOGTV to pet cremation services. She said:

    The sky is the limit, but it's really using technology and applying it to the pet supplies industry ... just thinking about what we like as humans and applying it to our pets as well.

    Ms Grimmer also said businesses targeting a higher price point are also finding success as owners increasingly look for better quality accessories, food and services for their animals.

    Elyssia Nelson launched her pet accessory business Wolf & I Co. last year, expanding a selection of high-quality dog leashes and collars. She told SmartCompany:

    People are willing to spend as much on pets as they would on themselves. They want them to be looking good and have the new treats.

    The dogs of the previous generation was generally relegated to the backyard kennel. The latest breed of pooches are in the house and having much more money lavished on them, with better nutrition and a focus on wellbeing. This has translated into a trend towards higher-quality pet food that has been particularly disruptive for the major supermarkets, who are facing challenger brands selling homemade and organic dog and cat food options.

    Corporate consolidation

    When Petbarn and Greencross Vets merged in 2013, the deal was worth an estimated AUD338 million and created the largest integrated, consumer-facing pet care company in Australia and New Zealand.

    More recently, US private equity firm TPG Capital gained shareholder support for the purchase of the combined group. Vet chain and retail network Greencross operates the City Farmers, Pet Barn, Animates (in New Zealand) and Greencross Vets brands. It has more than 230 retail outlets and 130 veterinary clinics, and was listed in June 2007.

    However, it has had a bumpy ride in recent years, following the arrival of Amazon and other online retailers such as Chewy. Although sales are growing, margins are under pressure, limiting earnings.

    Chairman Stuart James said in 2017 that 87% of sales in its Greencross stores were made by shoppers using loyalty cards. He said a lot had been made about the "potential impact of Amazon on the Australian retail landscape" but Greencross had unique aspects to differentiate it from both online and shopfront competitors. The army of on-site vets meant Greencross provided a genuine "one-stop shop" for pet owners seeking professional advice.

    TPG closed its USD4.5 billion-plus (AUD6.4 billion) Greencross deal earlier this year, and has ambitious growth plans. Sources close the California-based private equity firm told The Australian Financial Review:

    Pet consumers are very resilient and have shown to spend through all cycle. While some customers will be price driven and looking for commodity style products, others are looking for premium solutions.

    Despite the discretionary spend of many consumers being affected by falling house prices and higher electricity costs, the pet category is considered resilient, with owners willing to spend on products like treats, special foods and preventive medicine.

    Pet ownership is also growing in Australia, due in part, to more people choosing to live by themselves with their animals.