ABS Building Work Done

Clear signs of trouble ahead

ABS stats that predict work in the pipeline show a clear hit for the June 2020 quarter

The Australian Bureau of Statistics (ABS) includes in its finalised Building Work Done statistics for the June quarter of 2020 more fine-grained stats on the pipeline of work that is available to be done. This includes stats on building work commenced, alterations and additions commenced, work yet to be done, work not yet commenced, and work in the pipeline.

At the current point of time, as the construction industry - and therefore the hardware retail trade - are trying to work out how the market will respond to the ongoing pandemic, these are key stats, as any disruption is likely to show up in them first.

It is, of course, quite tempting to regard the construction market as being in something of a state of chaos. HNN doesn't think that construction is in chaos, nor do we think it will become chaotic - at least in the near term.

What we do have, however, is a market that is subject to a number of competing influences. What makes it seem chaotic is that none of these consistently dominate. Instead they interact with each other in ways that are not always easy to predict or even analyse.

The first of these influences is the pandemic itself. For the most part, construction has been less affected than many other business categories - except in Victoria (VIC), and even there it has had a significant but not overbearing impact.

The second influence is purely on the market itself. There have been some positive outcomes for the dwelling market, in terms of families stuck in lockdown and various forms of isolation have developed a greater appreciation of their homes than ever before. However, the economic influence of the pandemic has been broadly negative. At the moment - and through to the end of 2020 - much of the immediate impact has been directly cushioned by broader and more generous support for the unemployed, as well as programs such as JobKeeper, which help businesses continue to employ workers.

Thirdly, there has been some direct support for residential construction through the HomeBuilder program, which has provided grants for new home builds and renovations that fit within fairly narrow constraints. Whether that will be continued in its current form into 2021 is still unknown. It's quite possible a different fiscal policy will emerge.

Fourthly and finally, there has been considerable support provided through the Reserve Bank of Australia (RBA), both with quantitative easing, and a monetary policy that has seen it sharply reduce interest rates. With rates already low, from June 2019 to March 2020 the RBA dropped rates from 1.25% to a historic low of 0.25%, with half that drop occurring in March 2020.

Basically, the outcome of all this considerable stimulus has been that the economy (and this applies to residential construction) has declined only slightly. The hope is that, if Australia manages to find ways to keep the economy going while restraining COVID-19 infection rates in all states and territories, and if a vaccine is found that at least promises some community immunity by mid-2021, these current settings will be enough for the economy to lift itself out of recession.

While there is a fair chance that this will prove true of the economy in general, it remains - at least in HNN's opinion - far less certain it will apply to residential construction. The main reason for this is that, while the industry has self-promoted as a dynamic, driven business sector, that is not the reality. From November 2010, when the RBA last raised interest rates by 25 basis points to 4.75%, up until October 2019, there has been a long chain of gradual rate reductions, with most of these at least partly driven by declines in the housing market.

Eight months before the pandemic first struck, in June and July 2019, the RBA had already dropped interest rates by a total of 50 basis points, followed by another rate drop of 25 basis points in October 2019. So, just boosting housing in 2019 burnt through 75 basis points, leaving only a 50 basis points margin to help deal with the economy.

With the potential of, at best, an interest rate reduction of 15 basis points left in the future, support for the housing industry would have to come through fiscal (policy) measures. If the government attempts to drive the housing market through measures such as an expanded HomeBuilder program it will encounter resistance, as that stimulus is heavily weighted to benefit wealthier Australians, who do have jobs. It is far more likely that the government will choose to stimulate the housing industry indirectly, by investing in those areas that do represent better growth opportunities than the construction industry. In other words, housing will be treated as a secondary demand market.

HNN will leave the discussion of why attempting economic stimulus through boosting the housing market is generally a bad idea for a later, more in-depth article. Briefly, the reasons are ably summed up by the economist Claudio Borio, who is head of the monetary and economic department at the Bank of International Settlements. The main problem is that, he has explained, the construction market continues to be a sector with very low gains in productivity - about the lowest of any sector. Money that is spent in housing may distribute wealth to some extent, but it will not lead to a high level of economic growth.

What the numbers show

Building work commenced

Charts 1 through 3 show the stats for residential building work commenced. Chart 1 compares one set of four quarters against the preceding four quarters - though in this case that actually means comparing financial years. This shows that the most recently completed financial year saw a depletion in work commenced.

That's not a surprising result. The RBA had predicted it, after all, which is one reason why it delivered a 0.75% cut in rates to stimulate the market prior to the pandemic.

Chart 2 shows that, with the exception of South Australia (SA), every state and territory is in negative growth for the most recent year, though some, such as Victoria, have managed to decline at a slower rate than they did in FY2018/19.

Chart 3 is perhaps the most interesting of these charts, as it shows an unusually tight clustering of negative growth for June 2020 as compared to June 2019. While the result for June 2019 as compared to June 2018 is even worse, that older result came after over two and a half years without a reduction in interest rates.

In pandemic terms, the June 2020 growth rates might not be too bad, but if a combined drop of 1.25% only produces this result, it could indicate the limits all stimulus will have in the future as well

Additions and alterations commenced

Charts 4 through 6 show the stats for alterations and additions (renovations) commenced. At first glance, both charts 4 and 5 appear to show a reasonably good rate of growth. However, on closer inspection, it looks like Queensland is the only state with a good news story (the Northern Territory is so volatile that it's difficult to see trends). That is confirmed in chart 6. Contrary to expectations that homeowners were investing in renovations, June 2020 has seen a sharp decline in that final quarter.

It's likely that the reduction in interest rates during 2019 helped to buoy renovation commencements in the first half of the financial year, but the pandemic has had a direct and negative effect in late FY2019/20.

Work yet to be done

Charts 7 to 9 show the pool of work yet to be done. If we do see a general fall in building stats over the next year, it's likely that these charts will be the ones pointed to as identifying that trend at its earliest point. In chart 7, it's clear that there is a sustained decline in all the major states. Chart 8 shows a strong clustering of a decline in growth below -5%.

Again, it is the month-on-month comparison that reveals most directly the likely impact of the pandemic, in chart 9. Only the Northern Territory shows a positive gain, and the average decline is -13% for Australia overall.

Work not yet commenced

Charts 10 to 12 show the stats for work not yet commenced. This is perhaps one of the trickiest stats to really understand, as it relies heavily on the outside context. A sharp increase in work not commenced typically means that there has been a rush in approvals, but builders are holding back from construction for some reason. These numbers are very sensitive to regional variations, which actually makes them quite valuable.

As Chart 10 shows, New South Wales has seen a sharp increase on work not commenced since 2014, with a reduction after 2018, while Victoria shows a gradual increase, and QLD an overall reduction.

That is more clearly outlined in Chart 11. Chart 12, however, shows an understandable increase in non-commencement for July 2020, as this period would have been very directly affected by the pandemic.

Work in the pipeline

If you are looking for some kind of "good news story" for the construction industry that comes out of these numbers, you would find it in Charts 13 to 15, the stats for work in the pipeline. Again, these stats do need some contextual interpretation. Too much work in the pipeline can indicate that the industry is stalling before a downturn, but also too little work in the pipeline can indicate the start of a long and difficult recession.

The view that HNN prefers to take about these stats is that they represent a vote for the longer-term health of the construction industry. Charts 13 and 14 each show a general decline of work in the pipeline for both the 2018/19 and the 2019/20 financial years. But the third chart, Chart 15, shows that the decline has begun to turn around beginning with the end of 2019 and continuing through June 2020. This could be a sign that the lower interest rates are actually having an effect in terms of longer-term planning for construction.

In other words, while the immediate vote is for a difficult FY2021/22, there may be more industry optimism for what might come in FY2022/23. Not the best news possible, but it's certainly a lot better than the alternative.

Conclusions

The current difficult circumstances could lead to permanent, fundamental changes in the longer term for the housing industry. The lack of room for the RBA to cut interest rates could see the market confront its boom/bust cycle, and realise that the pricing models it has tried to follow are simply not sustainable without that extra boost from monetary policy.

One factor that could help it out in that way would be a possible trend that sees more people telecommuting rather than driving into cities every day. Not only would we see more distant (and affordable) suburbs become prime real estate, but also ex-urban regions increase in population, bringing with that better schools and other services for communities that are currently struggling.

Housing in Australia has, quite simply, just been too expensive for its economy. That's not only about people purchasing or renting individual dwellings, it is also about the general level of support the industry has grown used to receiving. Getting to something more sustainable might mean some businesses and families take something of a hit initially, but in the long run, the economy and society would really benefit.

statistics

Bosch IXO VI screwdriver

Small, and very popular

Bosch continues to make tools that people actually use

The IXO might, in fact, win the award for being just about the most copied design of any power tool. There are some, umm, surprisingly similar shaped offerings from companies like Ryobi out there.

HNN has to admit that, in the past, we have had a bit of fun in describing both the IXO and some of its fans. In our defence, it's just hard to put power tools and sequins together mentally.

However, whatever reservations we might once have had about the humble IXO, they have been firmly laid to rest by its most recent iteration, the IXO VI.

It must have been quite a design meeting when the Bosch engineers came forward with the idea of radically changing the shape of the ultra-popular screwdriver. But, as it turns out, the new design is really a vast improvement on the more familiar IXO III to V design.

Gone is the bulgy handle, and in its place is a design that is simple, clean and elegant. It's not going to put off your favourite aunt who needs an IXO for craft work, but it also looks at home in any handyman's toolbox.

Two outstanding features are that it now has a squeeze-for-speed trigger, which makes it much easier to deal with tiny metal screws in assemblies such as PC cases, as well as starting self-tapping screws in some woods.

Secondly, the IXO now has a top-mounted switch to control forward and reverse settings. We are very "into" switches here at HNN, and we have to tell you: this is one fantastic switch. It has a light, positive action, and that solid mechanical feel that gives you confidence it's going to be one of the last elements to wear out on the IXO - which has a fantastic reputation for reliability.

The IXO recharges via a USB cable, though a dock is also available. It has also retained the twist off cover over the drive shaft, which enables it to accept many of the attachments previously made for the IXO V. These range from spice mills, to a higher speed drill fitting, a fabric cutter, and even a blower to help fan the flames of a barbecue grill.

The one reservation that HNN would have about the overall IXO design has to do with the box in which the screwdriver is sold. Bosch is well-known for its high quality tool cases, but it does tend to make these a little bit larger than they really need to be, and this is also true for the IXO. It's a good case if you keep it in your garage, but too large for, say, a kitchen drawer.

As a tool that is close to being a right-angle, it does present some challenges. HNN thinks that Bosch should have considered making the box taller but narrower, with the IXO held at about 60 degrees to the horizontal to conserve width.

Additionally, it would be great to see some kind of arrangement where at least one extra screwdriver bit could be carried on the tool itself. A simple magnetic place in the right place, for example, could be a really useful addition.

But these are, in the end really quibbles. HNN does think that Bosch has made a great transition for a DIY favourite.

A growing market

In fact, we are so in favour of the IXO that we will be basing a series of articles in the future around the screwdriver. HNN has long held the opinion that one reason why modern power tool makers and many hardware retailers have not done as well out of home DIY as they could have, is because they are really not making and selling the tools modern people need.

The IXO, which can be found for around $80, might be compared with some cordless drill/battery/charger kits that can be bought for $99 (such as Ozito's basic PXC 18-volt kit). To people who come from a more "serious" DIY/woodworking background there is simply no comparison, and they would argue that the IXO does not represent good value.

However, the real measure of the value of any tool is how often it gets used, and how important that usage is to the tool's owner. What needs to be understood about the potential of the IXO is that it isn't just a screwdriver that can be used as a drill in a pinch, it's really a highly portable, compact, electric motor platform, that can be used for a wide range of convenience uses. It's a question of providing just enough power in an accessible package.

To name just one area where the IXO really shines, consider the act of assembling the very popular IKEA furniture. HNN has observed even competent DIYers with quite a few tools reduced to endless turning Allen Keys to tighten fasteners on furniture. The IXO makes a point of coming with a range of small hex bits - bits which, we would add, are sometimes just hard to find on their own in many hardware stores.

But we've been taking the IXO considerably further than that. Wait until you see the IXO used as a drilling head on computer numerically controlled (CNC) unit!

products

Big box update

Bunnings responds to restrictions in Victoria

Large retailers like Bunnings must remain closed until November 2 - or until further announcements by the state government

Victorian Premier Daniel Andrews recently announced that retailers could open their doors with COVID-19 precautions in place from November 2, though this date might be brought forward - to October 26 - if case numbers remained low.

Some small businesses are allowed to reopen, including hairdressers, allied health centres, in-person real estate auctions and those offering home maintenance and renovation.

But retail and hospitality venues such as restaurants, bars and hotels in Melbourne, have to wait until November 2 to reopen. Even after that, restrictions will remain on indoor and outdoor gatherings and on movement in the city, including retaining the 25-kilometre rule and travel to regional Victoria.

Bunnings managing director Michael Schneider said he appreciated the clarity but remains disappointed the government had not considered its proposal for a staggered reopening and that larger format stores were unable to open.

We do still have genuine concerns for both our team members and the community that the reopening of retail on a single day will see large numbers due to built-up demand...
We're disappointed that the different risk profiles in the retail sector have not been recognised, particularly standalone large format retail with outdoor adjacencies and stringent COVID-safe measures.

Wesfarmers-owned Bunnings and Officeworks have been lobbying the state government to be able to reopen for weeks, pointing to supermarkets as an example of the low risk in bigger retail spaces.

Wesfarmers managing director Rob Scott welcomed the removal of some restrictions but said it was difficult to understand the rationale for some changes and the ongoing business restrictions. He said:

You can go to the hairdresser or a skate park and have more freedom to travel, but you can't go to your local Bunnings warehouse.

He said there was significant "pent-up" demand for the return of retail stores and while Wesfarmers had been able to keep paying its Melbourne staff through the shutdowns, smaller businesses had been hit hard. He told The Australian:

Reopening will be an important step towards rebuilding a very damaged Victorian economy, and providing some hope and relief for people in the lead-up to Christmas.

Business Council of Australia CEO Jennifer Westacott said there was "an inexplicable and unacceptable delay for Victorians and small businesses who are hanging on by a day, not a week. Adopting a wait-and-see approach to easing restrictions is not an answer for people who face a bleak Christmas and businesses that are trying to get back up and running."

Ms Westacott is also a non-executive director at Wesfarmers after joining the board in 2013. She said:

For businesses, it is now a day-to-day proposition, not a week-to-week one, whether they remain viable or close their doors forever. There is no sound reason to continue the restrictions on business, especially with case numbers clearly on a downward trajectory.

However, Australian Retailers Association chief Paul Zahra said the reopening before the Christmas rush was an "enormous relief".

While this date is many weeks later than we would have hoped, it is just in time for the official start of the Christmas shopping period and very welcome news for retailers who have been desperately seeking clarity for months. The ARA has been calling for store staff to have the ability to return earlier to begin the arduous task of store preparations in time for the busiest and most important trading period of the year.

Yeppoon store

In other news, the construction of the Bunnings store in Yeppoon (QLD) is currently underway. A number of local dignitaries recently gathered at the Capricorn Coast Homemaker's Centre to watch the first soil being turned as building begins, according to The Courier Mail.

The new Bunnings is expected to open in the second quarter of 2021 and will span 8900sqm.

Angus Holloway, senior development manager for property development company Gibb Group, believes the Bunnings Warehouse development represents a significant investment in the local community, boosting job opportunities and economic activity.

Queensland builder De Luca Corporation was awarded the tender in August, from a shortlist of five prequalified tenderers.

  • Sources: The Australian Financial Review, The Australian, The Age and The Courier Mail
  • bigbox

    Indie store update

    Budget gets positive response

    Total Tools is set to open an outlet in regional Victoria and Narromine Hardware keeps it local

    General manager, Andrew Pitman from Geelong based Belmont Timber and Fagg's Mitre 10 said the business believes the federal budget will help revitalise the wider economy and provide a confidence boost for the local community. He said he is pleased the government will borrow to fund personal tax relief and new incentive programs for business, infrastructure and job creation. He told The Geelong Advertiser:

    A trillion-dollar national debt is breathtaking in scale but it's what the country, and regional Australia, needs to support future investment and growth.

    In particular, Mr Pitman welcomed the extension of the first home loan deposit scheme, the ability to write off new assets, job creation incentives and the tax cuts. He said:

    The payment of up to $200 per week to hire young Australians is very appealing and will help reverse some of the high youth unemployment we have in Geelong. This aligns with our participation in the GROW G21 program that helps disadvantaged youth secure new work opportunities.

    Mr Pitman said the hardware retailer would also take advantage of the ability to write off assets through the purchase of vehicles and equipment with that investment to be shared among Geelong suppliers.

    He believes personal income tax cuts will also ultimately see more money flow back into the economy and build consumer confidence. He said:

    In the lead-up to Christmas, the additional money will be spent in the retail space and help resuscitate retailers that have suffocated under the weight of COVID-19...
    Small business, tourism and the hospitality industry have been haemorrhaging under lockdown and the additional federal government stimulus will help bring back the customers as Australians seek to holiday domestically.
    We also believe that 2021 will see a strengthening trend of Melburnians migrating to regional Victoria and in particular Geelong.
    COVID-19 has been an enabler for the development of the home office workplace. The new work from home ethos will see Geelong's population continue to grow as Melburnians seek the appeal of an affordable regional lifestyle.

    Total Tools in Warrnambool

    Total Tools Warrnambool franchise director Kyall Wragge has been placing the final touches on a 1534sqm store in East Warrnambool's Harvey Norman Complex. It is expected to open in mid-November.

    The business owner went ahead with plans to open despite this year's disruptions, using a vacant shopfront and a site occupied previously by floorcare and cleaning retailer Goodfreys. Mr Wragge told The Warrnambool Standard:

    We weren't going to let the challenge of COVID hold us back.

    A former Melbourne resident, Mr Wragge moved to Warrnambool to start the store because of the city's growing trade-based industries. He explains:

    Data shows there's a lot of qualified tradies around the area. It's a growing area, you can see it through the roads and the housing ... It was voted the most liveable city in Australia; it's a beautiful place and it's growing.

    Mr Wragge said he is gearing the new store at both DIY and trades markets to "complement" existing hardware stores in the region.

    Narromine Hardware

    Narromine Hardware located about 40 kilometres west of Dubbo (NSW) is benefitting from an air of optimism with local shopkeepers enjoying increased foot traffic and farmers excited by the prospect of a long-awaited, decent harvest.

    After experiencing the devastating impacts of a prolonged, unprecedented dry spell, closely followed by the global pandemic blow, the general vibe among locals is finally looking up, according to Dubbo Photo News.

    The hardware store will soon celebrate its second year under new ownership in November. In its first year, the team made much-needed changes to the space which was home to previous hardware shop fronts for over 65 years. In an earlier interview, manager Tracy Brennan said:

    We've remodelled the layout to serve our customers better, expanded the range of stock and refurbished both the interior and exterior of the shop and trade desk. We also cemented our back shed and turned it into a trade centre.

    It also modified the range in store to better suit the current water restrictions, and ordered grey water hoses and a range of gardening products so residents can reuse their water elsewhere.

    More recently, it brought the newsagency into the hardware store, making it a one-stop-shop for locals.

    Capitalising on the buoyant atmosphere, retailers have teamed up with the Narromine Shire Council for a major Shop Local campaign which will run from November 1 to December 18.

    The marketing strategy aims to promote the Narromine region as a leading shopping destination in the lead up to Christmas and continue to encourage people to shop locally. Narromine Shire Council communications manager, Kelly McCutcheon, told Dubbo Photo News:

    Come December, our shops will turn into overall weekend trading so they will be open on Saturday and Sunday. A lot of our cafes are going to complement that and open for that time as well.

    A late-night shopping event in Narromine is also planned for December 10, where most retailers will keep their doors open for a few extra hours.

  • Sources: Geelong Advertiser, The Warrnambool Standard and Dubbo Photo News
  • retailers

    Pandemic drives sales at Beacon Lighting

    Effective online channel

    The company said first-quarter underlying net profit after tax (excluding Beacon Energy Solutions) had increased to $8.4 million from $2.2 million

    A trading update for the first quarter of 2021 showed Beacon Lighting's like-for-like store sales was up by 26.6% driven by an increase in home renovations and home offices during COVID-19 lockdowns. Consumers have been sprucing up their homes with new lighting products, as well as desk lamps or ceiling fans for home offices.

    The online channel proved successful for Beacon Lighting, as it has for many retailers during home isolation. Its online sales rose by 156% in the period.

    Retail trading conditions have been supportive of the lighting and fan product categories, with strong growth being exhibited across all Australian markets except for the Melbourne region.

    Due to lockdowns, the company's Melbourne stores have been closed to retail customers since 6 August 2020. However, it has made use of these stores to process online orders, click & collect contact-free pickups, and service trade customers.

    Beacon Lighting chief executive Glen Robinson said during the difficult times around the coronavirus pandemic the retailer had been able to provide its customers with a safe and rewarding shopping experience in stores and online.

    We are seeing many customers investing in their home as they spend more time at home working and studying. Thanks to the support of our customers and the commitment of our team members, the group has been able to achieve these strong results.

    FY results

    Beacon Lighting has been benefitting from the trend to work from home driven by the COVID-19 restrictions, as stuck-at-home Aussies spruce up their fixtures and fittings with the spare cash they have that would have otherwise been spent on a holiday, travel or hospitality. In August, it unveiled a bumper full-year profit, up 38.5% to $22.2 million after sales grew to $252.2 million for the 12 months through June.

    On an underlying basis, which strips out the impact of Beacon's exit from its solar business as well as the sale of a distribution centre, net profit after tax lifted 16.8% to $19.1 million.

    Beacon Lighting's online sales surged 78% in the June half, lifting online sales for the year by 50.6%.

    In an earlier trading update back in June, Mr Robinson told The Australian:

    Much of it (rising sales) is coming from the fact people are not spending in cafes and restaurants, they are not going on overseas holidays, so they are investing in their house.
    Some of it might be coming out of superannuation money, and they see it as a good opportunity to improve the value of their home and change their spending habits from where they would usually go...
    [Sales increase] is across the board so there has been an uplift. Probably the strongest growth categories were light globes, desk lamps that sort of stuff ... even things like ceiling fans, garden lighting was very popular.

    More recently, the lighting retailer took out a seven-year lease on prominent retail space located on 1860 Sandgate Road, Virginia (QLD). A Bunnings store is being built next door. CBRE's Adam Brimson told The Courier Mail that an estimated 63,000 vehicles passed the location each day.

    In Melbourne, Beacon Lighting's purpose-built distribution facility at the Gilbertson Industrial Estate in Derrimut (VIC), encompasses a 11,469sqm warehouse and office on a two-hectare site.

  • Sources: Weekend Australian, Motley Fool Australia, The Australian, The Australian Financial Review, The Courier Mail, and Sydney Morning Herald
  • retailers

    ABS Retail Stats: August 2020

    Growth is reduced, but still exuberant

    While growth in hardware retail revenue has slowed from 35% in June/July to 25% in August, the market remains robust

    The Australian Bureau of Statistics (ABS) has released its statistics for Retail Trade, Australia to August 2020. Overall, the revenue numbers for hardware stores have continued to show a sharp increase over previous periods. The results for hardware retail revenue largely continue the strong growth year-on-year seen since March 2020.

    As the August numbers cover the period when Victoria (VIC) entered into a lockdown that excluded DIYers from shopping in-store, there is - as expected - that state experienced slowing growth, though in overall terms it continued.

    Chart 1 shows the cumulative totals for the trailing 12 months to August over the past 10 years. The most remarkable characteristic is the increase in overall sales for the most recent 12-month period.

    Comparing the figures for the trailing 12 months to August, the Australian Capital Territory (ACT) showed the strongest percentage growth at 19.1%, while VIC grew by the highest dollar amount, showing an increase of $816 million for the most recent period against the previous corresponding period (pcp), which was the trailing 12 months to August 2019. This gave VIC a growth rate of 14.6%.

    New South Wales (NSW) grew by 12.2%, Queensland (QLD) grew by 12.6%, South Australia (SA) by 15.4%, and Western Australia (WA) by 14.2%. (Figures for Tasmania and the Northern Territory are not included in the ABS numbers.)

    Overall, Australian hardware retail revenue come in at $22,187 million, up from $19,554 in the pcp, an increase of 13.5%.

    Chart 2 shows the historical growth rate for the trailing 12-month periods to August. The effect of the pandemic is clearly seen in the sharp upwards trend for the most recent period.

    Chart 3 is perhaps a more revealing graph. It shows the growth rate comparison between a month and the same month in the previous year. The pandemic effect clearly shows in March 2020, and this peaks in June and July. August shows some retreat from the high growth rates, though, at over 25%, this still remains remarkable. It's interesting to note that the decline for VIC in August, though evident is less overall than that for other states.

    Chart 4 provides an overview for how the growth has been distributed through the states as a percentage of overall revenue for each month of the pandemic. This shows clearly that in August 2020, Victoria's overall share of revenue has declined, while NSW and QLD show increases.

    Analysis

    The major concern for hardware retailers is how much of this surge is spending in genuinely "new business", and how much relates to projects being brought forward. It is evidently a mix of these, and the high rates of growth are unlikely to be sustained post December 2020.

    The problem is, of course, how to anticipate demand, and adjust forward ordering so as to have adequate supply, while not risking over-ordering, and being left to remainder stock during a downturn. The retail trade figures for September 2020 will be crucial in providing some guidance to this. A decline to growth below 10% - while still representing a substantial gain - could signal a forthcoming weakness in the market.

    The risk factors currently active vary by state as well as by metropolitan versus rural regions, but essentially come down to whether a vaccine will be developed by the end of 2020, as well as how effective and available that vaccine would be.

    There is also the real potential that there will be a "third wave" of pandemic contagion, in which case we could see these growth numbers invert, as Australians become extremely cautious in their purchases.

    statistics

    Tools of the Week: Bosch + Ryobi

    Ryobi electrostatic sprayers and Bosch EasyCurvSander

    Ryobi has just released a range of electrostatic sprayers, ideal for COVID-19 disinfection, and Bosch's EasyCurvSander smooths curves

    This week's Tools of the Week looks at two innovative products. Ryobi's electrostatic sprayers could be a big help in coping with COVID-19, and Bosch's cordless sander could be aimed at the 3D maker market, as well as DIY woodworking.

    Ryobi electrostatic sprayers

    Industrial tools have made use of electrostatics for some time, most notably by applying a positive charge to paint and other coatings. That positive charge makes the fine droplets of the coating attractive to the negatively charged surfaces they interact with.

    The result is a better coating that can, to some extent "wrap around" the edges of the target object, as well as providing more coverage on the sides of nooks and crannies. The coating gets applied more evenly, and in most cases, this means that less of the coating material is wasted so less of it is needed to treat surfaces.

    The newest use for electrostatics is in applying cleaners and disinfectants to surfaces. With the Sars-CoV-2 pandemic, one approach to limiting contagion has been to disinfect public spaces such as trains and buses. This has increased attention regarding getting disinfectant to reach into holes and crevices - something that electrostatics are good at boosting.

    Victory Innovations, based in Minnesota, USA, was one of the first companies to make electrostatic sprayers suitable for maintenance and facility use. Their units typically cost over USD850, and demand has been high enough for there to typically be a waiting list of a month or more.

    The Hong Kong and US-based Techtronic Industries (TTI) has now entered the field, with its mid-range Ryobi brand. Ryobi has recently released a range of three electrostatic sprayers, with capacities of 1.0 litre, 1.9 litres and 3.8 litres. The smallest unit has a range of up to 1.5m, and features nozzles that can provide 50, 70 and 100 micron droplet sizes. It can spray 60 litres for one charge of a 2.0 amp-hour Ryobi ONE+ Lithium-ion battery.

    The 1.9 litre and 3.8 litre models appear to use the same base unit, with the smaller one using an attached container, and the second a backpack container. These can spray at 65 microns to a distance of 0.6m, 85 microns at 1.5m, and 160 microns at up to 3.1m. They can spray over 100 litres from a single charge of the same 2.0 amp-hour battery used by the handheld units.

    These sprayers are currently being sold through Home Depot Pro in the US. The 1.0 litre sprayer is priced at USD399 and the backpack spray is priced at USD429. The mid-range sprayer has yet to be fully released. Prices are for a full kit of battery and charger.

    As these are very new products, and likely to find high market demand in the US, there are no details as to whether they will be distributed by Bunnings in Australia.

    Bosch EasyCurvSander 12

    At first glance, it might be just a little bit difficult to understand the EasyCurvSander (ECS). Looking somewhat like a Philips electric shaver, it features three rotating pads mounted on flexible joints which enables them to independently adjust to a wide range of angles. To use it, a mesh-type sanding material is attached to each of the pads, or, alternatively, a polishing pad can be fitted.

    The end result is a sander that can easily cope with bowl-shaped surfaces and a wide range of variable curves. It's powered by Bosch's well-known 12-volt (really 10.8-volt) in-handle Lithium-ion battery. It retails for under EUR70, and is available in many countries of the EU, as well as the UK. At the moment it is not distributed in Australia.

    For the average DIYer this might seem a handy gizmo for sanding the fiddly bits of, say, garden furniture, but its prospects of being a truly popular and profitable tool might seem a bit dim.

    However, HNN would suggest that this tool is really not aimed only at the average DIYer. Its target market is likely to include the "Maker" area as well, as it is an ideal tool for finishing products produced through 3D printing. Objects made with 3D printers that have large curved surfaces typically have some degree of striations (or they do if you don't want to spend three days printing them in ultrafine mode).

    Sanding these smooth is a fairly unpleasant task, especially if they've been printed in one of the harder filaments (in particular ABS).

    One reason why this seems like a valid suggestion is that Bosch is already highly regarded in the Maker community through its Dremel brand of rotary tools. These are used for fine work on 3D printed pieces to remove the thin frameworks the printers add to keep the object stable, as well as to smooth out notches and holes.

    companies

    Mental health initiative from Bunnings

    Founding member of Corporate Mental Health Alliance Australia

    Bunnings Group managing director, Michael Schneider also welcomes the idea of a travel bubble with New Zealand

    More than just a response to restrictions as a result of the coronavirus pandemic, Bunnings has emphasised the mental health of its employees. Led by managing director Michael Schneider, the retailer has increased access to counselling for staff and encouraged a culture of openness where management have shared their virus experiences with front-line employees. He told The West Australian:

    It's important from a leadership point of view because when we go through something so unbelievable, particularly in Victoria, the team needs to know we are facing our own issues as it helps them realise they're not doing this on their own.

    Even though mental health had been part of the company's workplace health and safety plan for several years, the virus has put renewed emphasis on the role of employers in caring for the mental health of employees.

    Mr Schneider shows genuine empathy for store staff who have to deal with unreasonable demands by some of its customers. In an exclusive interview with the My Chanticleer column in The Australian Financial Review (AFR), Mr Schneider said:

    The mental health crisis that's running alongside the actual health crisis of COVID is huge. You have just got people who are anxious with stress and they come into stores not in a great way and something goes wrong and you get certain reactions.
    We've sadly had team members abused, spat on, all sorts of things - and we're not alone. This is an industry-wide issue, and something the union is very focused on as well. And it is something I am a little bit worried about coming back into stores being opened in Victoria.
    Not only is there going to be pent-up demand for product, but I think there is pent-up emotion from extended periods of pretty significant isolation.

    Mr Schneider said not only were frontline retail staff dealing with people who were anxious about COVID-19, but support teams in Melbourne had spent eight months working in isolation. He told The AFR:

    They are now watching everyone else get their life back together. I'm now seeing my friends in Brisbane, Perth or Sydney getting on with life that gives a sense of, 'what do I have to look forward to?'
    For us, [this] has led to a consistent higher use of our [employee assistance program] services.

    Non-profit alliance

    Bunnings has joined forces with other corporates across different industries to form an alliance that addresses mental health at work. The Corporate Mental Health Alliance Australia (CMHAA) is part of the global City Mental Health Alliance network, founded in the UK in 2012. The local arm is a business-led, expert-guided member organisation dedicated to improving mental health in the workplace.

    Bunnings is a founding member of CMHAA along with companies such as AIA Australia, Allianz Australia, Clayton Utz, Coles Group, Commonwealth Bank, Deloitte, DLA Piper, Johnson & Johnson Family of Companies, King & Wood Mallesons, KPMG, Microsoft, MinterEllison, Woolworths Group and PwC Australia.

    Steven Worrall is managing director of Microsoft Australia and serves as CMHAA chairman.

    The establishment of the non-profit group comes at a time when mental health issues in the workplace are increasing as a result of the pandemic. The federal budget committed $62.1 million over four years to improve access to mental health services and double the number of rebated psychology sessions to 20 sessions on Medicare.

    Re-opening

    Mr Schneider is well placed to discuss the challenges facing Victorian retailers coming out of lock down. Bunnings has 50 stores in New Zealand that have come out of a Stage 4 lockdown.

    In August, it opened one of its largest NZ stores approximately 20km outside of Auckland in Westgate. This 15,000sqm store is the first in the country to have a Dream Kitchen Design Centre, with more than 10 kitchen displays, along with six bathroom displays and assisted living displays.

    When Bunnings reopened in New Zealand, the stores could not cope with the rush of people. Mr Schneider said he is focused on thinking about the right settings for a successful exit from lockdown in Victoria. He told the My Chanticleer column (AFR):

    We've been having conversations with the Victorian government and have recommended that consideration be given to the deeply fragmented nature of the retail sector and the safety aspects of a staggered re-opening.
    Our experience in New Zealand demonstrated that reopening retail all at once can significantly increase anxiety and risk for customers and retail employees.
    We believe the safest way to reopen is to take a staggered approach, starting with retailers that have strong COVID protocols like ours. We can start to revive the economy and restore a sense of normality while keeping everyone safe.

    During economic summit webinar organised by the Trans-Tasman Business Circle, Mr Schneider said he is a big supporter of opening state borders and creating a travel bubble between Australia and New Zealand. But in order to do so consistent rules need to be applied across Australia and New Zealand.

    What we need to have is not only all the borders open, but if you're going to have all the borders open, a very consistent approach to how COVID outbreaks are managed.
    We want to be clear that if there is a COVID outbreak somewhere it's dealt with the same way, because nothing will kill your holiday more than being told you have to go and isolate for two weeks. I think we've got a long way to go to get consistency.

    Mr Schneider believes a travel bubble with New Zealand would stimulate tourism and commercial activity, and said the pandemic was also opening opportunities for regional markets.

    Mr Schneider also spoke about the impact on the broader economy of the trend to work from home, which he viewed as positive for a retailer like Bunnings as people changed their lifestyles. This would have a direct impact on the housing market, he added. He told the summit, as reported in The Weekend Australian:

    One of the things that is pleasingly emerging is this work-from-home period - whether it is longer term or shorter term, - depending on where you are living - has taught us we can work differently. And I think that has been seen particularly in regional markets.

    He said there had been "some stimulation of the housing markets, because I think people have realised 'I can live somewhere that has a great quality of life, by the coast, in the country, and by comparison to living in the city perhaps my dollar goes further'. Those sorts of things are exciting."

    Mr Schneider said there will be interesting changes in the market.

    People might be more interested in buying a holiday property or a caravan, doing those sorts of things.
  • Sources: The West Australian, The Australian Financial Review, Weekend Australian and Inside Retail New Zealand
  • bigbox

    Sydney Tools setting up shop in Orange

    Tools for tradies

    Earlier this year, it opened a megastore in Darwin as part of its ongoing national expansion

    A fit-out for a new Sydney Tools store in Orange (NSW) has been underway and director Jason Bey told the Central Western Daily that the industrial power tool and accessory retailer is looking to hire upwards of 15 staff.

    As a significant regional centre, Orange has the industries where its customers rely on hand and power tools for their job. Mr Bey said this will be the 44th store for the business but the first in the Central West.

    Orange has been an area of interest for a very long time. Since the inception of Sydney Tools in 2001 we would always have people who would travel to our Sydney store.

    Northern Territory

    The Winnellie (NT) store is the first one outside Sydney Tools' eastern seaboard locations. Mr Bey said the 2500sqm store located on the Stuart Highway was recognition of its belief in Darwin as a growth market. He told The Northern Territory News:

    We see Darwin as offering enormous growth potential for the specialist tools market. Around 11,158 people were employed in the construction industry in the Northern Territory in 2018-19, making it the fourth-largest employing industry in the region.
    While this represented a decline in employment of 23.1% in year-on-year terms, in line with a decrease in building and engineering activity, we believe a number of significant upcoming infrastructure projects are set to underpin the sector.
    The upshot will be the provision of much-needed employment for specialists in a range of key trades, and a fuelling of demand for capital equipment, accessories and hand tools.

    Projects include the Federal Government's $1.6 billion works program at Darwin's RAAF Base Tindal that is expected to create 300 jobs during the construction phase and the $260 million Ship Lift and Marine Industries Project. The marine industries project is designed to expand shipbuilding and repairs capability and expected to create 100 jobs during construction and 400 positions permanently. Mr Bey said:

    Our move into the Northern Territory is a no-brainer. It's a market with enormous potential and growth over future years.
  • Sources: Central Western Daily and The Northern Territory News
  • retailers

    Briggs & Stratton private equity sale completed

    KPS Capital Partners now owns all the assets

    Following the completion of the sale to KPS, the company has successfully exited from its Chapter 11 bankruptcy proceeding

    Outdoor power equipment (OPE) supplier and small engine manufacturer, Briggs & Stratton will now operate as an independent company after it was sold to private equity firm, KPS Capital Partners. According to a company press release:

    KPS Capital Partners, through a newly formed affiliate, has acquired all of the assets of Briggs & Stratton Corporation.

    In July, Briggs & Stratton filed for protection from creditors in US Bankruptcy Court and a judge recently approved the sale. Under Chapter 11 bankruptcy protection, a company and its creditors work out a reorganisation plan that enables the business to continue operating.

    As part of the bankruptcy, KPS Capital Partners agreed to purchase all of Briggs' assets for approximately USD550 million. Known as a stalking horse bid, the agreement set a minimum price for the sale. The offer was subject to court approval and also depended on whether any higher bids were received for the company. There were no other bids, according to court documents, so the court approval provided for a relatively quick closing of the sale.

    Performance

    Briggs & Stratton was losing money and burdened by large debts when the economic downturn caused by coronavirus hit. Its sales fell by USD107 million, or 18%, to USD474 million in its third quarter ended March 29, compared with the same period a year earlier.

    The company lost USD54.1 million in its 2019 fiscal year and USD11.3 million in its 2018 fiscal year.

    The company warned that its losses, the pandemic and pending debt payments raised substantial doubt about its ability to continue as a going concern. Yet in June, while it skipped a USD6.7 million interest payment, the company's board voted to give executives and other key employees more than USD5 million in cash retention awards.

    The awards were in lieu of annual bonus and long-term incentive compensation for the 2020 fiscal year, the company said in a filing with the US Securities and Exchange Commission. Such awards are often given before a company files for bankruptcy.

    In March, Briggs & Stratton announced plans to sell its commercial turf products business, sold under brand names such as Ferris, Billy Goat, Simplicity and Snapper, and its pressure washer and portable generator product lines.

    The company has more than half of the engine market for residential outdoor power equipment and established brands. It has large distribution network and profitable business in selling parts.

    But the company has faced a flat market for residential outdoor power equipment, excess manufacturing capacity, pressure from large retailers to limit price increases and a growing preference for battery-powered outdoor equipment.

    New team

    Briggs & Stratton also announced that Steve Andrews has been named president and chief executive officer of Briggs & Stratton. KPS and Mr. Andrews have a history of successfully working together and they partnered in 2011 to form International Equipment Solutions, LLC (IES). It became a leading independent manufacturer of attachment tools, operator cabs and other complex fabrications for off-highway applications.

    Michael Psaros, co-founder and co-managing partner of KPS, said:

    This is the beginning of a new era for Briggs & Stratton...The company has a new owner, a new CEO, a new Board of Directors and a renewed focus. Briggs & Stratton launches with a portfolio of industry-leading products sold under iconic brand names, a rock solid capital structure and access to KPS' financial resources and expertise.
    We look forward to accelerating the company's growth by increasing its already substantial investment in R &D, technology and new product development. KPS will also provide the capital for Briggs & Stratton to pursue strategic acquisitions.

    Manufacturer

    Briggs & Stratton products are sold in more than 100 countries under such brands as Briggs & Stratton, Victa, Simplicity, Vanguard, Branco and Allmand. It also sells engines to other manufacturers, including John Deere, Toro and Viking.

    Briggs has plants in Wisconsin, Alabama, Georgia, Missouri and New York as well as Australia and China.

    The company was founded in 1908 by Stephen Briggs, an inventor, and Harold Stratton, an investor, and incorporated in 1910. It initially grew by making parts for the booming automobile industry - starter switches were an early core product - small engines for washing machines as well as garden tractors, cultivators and generators.

    In 1953, it introduced the first lightweight aluminium engine that found a ready market in lawn mowers just as Americans were flocking to the suburbs. The company produced more than 2 million engines a year on average throughout the 1950s.

  • Sources: Green Bay Press Gazette, Milwaukee Journal Sentinel and For Construction Pros
  • companies

    Hipages prepares for IPO: report

    Online tradie booking service

    The tech-based company is looking to expand its offering, amid rising demand for home improvements and related services

    Web-based tradie platform, hipages plans to raise about $100 million for its Initial Public Offering (IPO) scheduled for November, according to the Data Room column in The Australian. Expectations are that hipages will have a market value of about $400 million.

    Co-founder and chief executive Roby Sharon-Zipser has said hipages is "all about home improvements and home services". He created hipages with David Vitek in a garage in 2004 after the former and his wife bought an apartment, which needed renovating, and they struggled with the enormous job.

    Today, the business has 36,000 paying trade services around the country on its platform. More than 100,000 jobs are posted by customers each month, with over 1.5 million monthly visitors to the website. It will focus on gaining additional scale in the domestic market for about two years before expanding offshore. In an exclusive interview, Mr Sharon-Zipser told The Australian:

    The domestic market in Australia is really significant, it's about 6 to 8% of the GDP in Australia. About $83 billion a year is spent on trade services and that includes anything from home renovations, home improvements to getting your garden done.
    The opportunity in Australia is still so large. There's still an enormous way to go in terms of bringing on more tradies onto the platform and increasing the number of customers using hipages to post jobs.

    Mr Sharon-Zipser said business is booming after "some initial wobbles and shocks" at the start of the coronavirus crisis.

    Within three or four weeks we actually saw it turnaround and recover. What we're seeing now is an acceleration to above the already high growth that we were enjoying this time last year.

    Mr Sharon-Zipser attributed a few factors behind the growth including brand investment on Channel Nine's renovation competition reality television show "The Block" as well as improving its digital traffic and marketing.

    With people spending more time at home during the coronavirus crisis, they are investing more into their home whether it's an extension or painting and decorating, he said.

    Hipages helps tradespeople generate business leads through an online marketplace but wants to expand into tradie invoicing and payments solutions next year. Management are looking to supercharge the platform with more technology that will help tradies better run their businesses. Mr Sharon-Zipser said:

    We're looking at giving them more technology to help manage and run their business, not just leads from consumers but tools to help them quote, schedule and invoice to improve their overall professionalism and highlight and amplify their reputations as craftsmen.

    Mr Sharon-Zipser said it had been a "milestone year" for the company. It is understood hipages booked revenue of about $50 million and underlying earnings of close to $4 million in the 2020 financial year.

    He likens hipages to digital platforms such as Carsales, REA Group and Seek. He explains:

    If you think about the traditional advertising products that were available to the classifieds and things like that, the trades were a major category. That product is now transitioning and at the tipping point where trades are now ready to adopt the technology.

    Following a successful IPO, investors are likely to compare hipages to US-based and Nasdaq-listed ANGI Homeservices, regarded as the world's largest digital marketplace for home services, connecting millions of homeowners with home service professionals.

    Hipages recently signed a deal with the NSW Department of Education to allow tradies to bid for maintenance jobs at the more than 2200 public schools around the state. It secured a three-year contract with an option to extend a further two years. He said:

    If that is successful, there are opportunities to work with other government departments, which is being monitored.

    International expansion is something the group would "explore" further down the track, he said.

    Valuation

    Institutional fund managers are said to be showing a keen interest to invest in hipages mainly because 90% of its revenue is recurring.

    Hipages bases its revenue on ongoing subscriptions from its tradie customers rather than lead-generation charges. Tradies now mostly pay a subscription fee to get leads via the site rather than paying per lead, after a change of strategy overseen by Mr Sharon-Zipser in the past two years.

    The company said its hipages app has now become the largest source of incoming jobs, followed by search engine optimisation. Search engine marketing is a distant third.

    Analysts from investment bank Goldman Sachs believe key growth drivers for hipages include $83 billion of annual spending on home improvements forecast for this year, as indicated by Mr Sharon-Zipser.

    Goldman Sachs' investor education report to fund managers said there are 1.1 million individual tradies and 257,000 trade businesses in Australia, while household formation is expected to grow at an annual average rate of 1.5%. Of the $976 million tradies are expected to spend on advertising this year, 12% goes to lead sourcing.

    Online trade advertising growth is forecast to be 11.2% per annum to 2024, which implies the lead sourcing market will grow to $179 million over the period. Other growth factors include the general shift to online commerce by consumers, brand investment through strategic advertising and a deepening and broadening addressable market.

    Goldman Sachs has valued hipages between $280 million to $370 million.

    Funds raised would help Hipages pay off $12 million in venture debt and help the company invest in its brand and products, based on a report in The Australian Financial Review. The IPO funds will be used for expansion amid rising demand for home improvements and related services.

    Investors

    Hipages is 30% owned by News Corp, publisher of The Australian. It bought a 25% stake at the end of 2015, and less than two years later bought an additional 5%.

    Mr Sharon-Zipser and Mr Vitek, who was co-CEO until last year, each hold a more than 10% in the business. Other backers include Ellerston Capital and Cadence Capital. Another major investor is venture capital firm Right Click Capital, which is expected to sell down its interest.

    News Corp holds a majority stake in Australia's largest digital property classifieds business, REA Group, and is expected to retain its stake in hipages following the mooted listing.

  • Sources: The Australian and The Australian Financial Review
  • companies

    Lowe's lockers for contactless deliveries

    Growing popularity of BOPIS services

    The lockers will be installed at more than 1,700 stores by the end of March 2021

    US home improvement retailer Lowe's recently announced plans to install Buy Online Pickup in Store (BOPIS) self-service lockers across all its US stores, aiming to improve contactless delivery for online shoppers amid a worsening COVID-19 spread.

    Lowe's frictionless shopping experience through its pickup lockers is ideal for time-pressed customers especially during the upcoming Christmas holiday period. It provides consumers with a fast fulfillment solution, while also potentially serving as a more cost-efficient option for Lowe's over delivery.

    The addition of lockers leverages innovative technology to provide a safe and easier way for customers to collect same-day online orders at their convenience.

    Electronic technology embedded in the lockers generates a scannable barcode as soon as an order is ready for pickup. Once store staff stages an online order, the customer receives an automated email notification that contains a one-time user barcode.

    The customer then completes the pickup by scanning the barcode at the locker using their smartphone without having to wait in line, receive assistance from a store associate or contact a touchscreen or keypad. It eliminates checkout time and allows fast movement in and out of the store.

    Executives at Lowe's say more than 60% of orders customers place online are being retrieved at its big-box stores. Joe McFarland, Lowe's executive vice president of stores, said in a statement:

    With more than 60% of online orders picked up in our stores, this gives our customers one more option and the added flexibility to control how and when they get that order.

    According to a study conducted by McKinsey & Company, as many as 60% of US consumers stated that they are currently using BOPIS services and will continue using it when the pandemic subsides. So the popularity and widespread usage of contactless retail services are likely to continue in the future.

    Lowe's expects to install the lockers in most metropolitan cities by Thanksgiving in late November. For providing the retail locker solution, it is working with Parcel Pending by Quadient, a major package solutions provider in the US.

    Lowe's investment in pickup lockers builds on improvements the company has made to its Lowes.com website, in-store technology and its delivery network over the past 18 months.

    As the coronavirus took hold, many consumers began turning to e-commerce more than ever before. And though Lowe's was deemed an essential business during mass lockdowns, the retailer still saw online sales skyrocket in recent months.

    As shopping preferences shifted during the pandemic, Lowe's moved up the migration of Lowes.com to the cloud and rolled out curbside pickup to support sustained online growth.

    Moreover, the company is focusing on accelerating front-end work and drive customer-facing capabilities. These capabilities include online-delivery scheduling and order tracking, a customised homepage, simplified search and navigation as well as enhanced online product offering to boost customer experience.

    Related: Competitor, Home Depot already offers such lockers at a number of its stores.

    Home Depot results FY2018/19 H1 - page 43
  • Sources: Zacks Investment Research, RTT News, Retail Dive and PR Newswire
  • retailers

    Victa's first robotic lawn mower

    Designed for easy maintenance

    The product is being offered as "affordable backyard luxury" for gardening enthusiasts

    The Victa Robot Mower RM100 has an LCD touch screen display to navigate a host of programmable features, including mowing frequency and time of day. It also has an adjustable cutting height for desired grass length.

    The robot mower boasts bump sensors to steer around unexpected obstacles and a rain sensor. If it starts to rain, the mower will simply return to the docking station and wait until the rain has passed before it heads back out to complete the task.

    The docking station, which also doubles as a recharge station, is the start and end point for the mower. The mower will release from the docking station when it is time to mow and find its way back when the job is done. Additionally, it will recognise when the battery is running low and take itself back to the docking station to charge. The lithium powered battery enables up to an hour battery life.

    The RM100 is designed to tackle terrain up to a 21-degree slope and cover areas up to 600sqm. Setting the lawn area for mowing is simply a case of outlining the area with the included boundary wires. It will then cut in a random pattern until the whole area has been covered.

    It comes complete with a PIN to operate and anti-theft alarm.

    products

    US retailer lessons from the pandemic

    Lowe's and Home Depot

    The top two US retailers have done very well in their second quarter, but will they retain the new customers?

    What lessons can Australian home improvement retailers glean from the recent experiences of the US home improvement industry?

    There have been both strong contrasts and strong resonances between the two national industries during this pandemic year of 2020. What is different is that many areas in the US have been directly affected by the pandemic, with more than 210,000 dying nationwide. In Australia the main effect has come from severe restrictions, aimed at preventing a similar ratio of deaths.

    What is very similar, however, is the strong performance of the DIY retail segment, though the US retailers also report a surge in "pro" (tradie) sales as well.

    That increase has given rise to the key question the industry faces in both nations: will this surge in sales prove to be a pull-forward of regular annual sales? Or does it represent real, incremental growth, as the pandemic makes customers reconsider the role of their dwellings in their lives?

    Speaking to Australian retailers, from Bunnings all the way down to smaller independents, the overall sense is that what we're experiencing is more of a pull-forward than an incremental change. They expect some increase in sales, but they also expect to see a moderation in some of the seasonal summer activities. When Bunnings managing director, Michael Schneider was pressed on this issue during the company's recent full-year results announcement, he noted that paint had been selling well in May, but that people tend not to paint their houses twice in rapid succession.

    The view from the US is, however, notably different. The top executives at both the Home Depot and Lowe's Companies see signs of what is almost a generational shift. It's as though the pandemic has kickstarted the Millennial generation's interest in home DIY projects, as well as motivated a broad range of homeowners to make significant changes to their houses.

    The results

    In looking at the US experience, we have the benefit of both the results for the second quarter (roughly from May to July) for both Lowe's Companies and the Home Depot, as well as a conversation each company recorded at a Goldman Sachs Retail Conference in early September 2020.

    Looked at in overview, the two companies are in quite different situations. Lowe's is in a turnaround situation with Marvin Ellison brought in as CEO in May 2018. The situation he inherited included some fraught personnel problems (including the disastrous investment in Woolworths' Masters Home Improvement), and a company that tended to publicly pursue far-fetched technologies (store robots, etc) while not getting the basics of near-field technologies to work, including its ecommerce website which failed under high demand loads.

    But, certainly, Mr Ellison is viewed as being motivated. A long-time executive at rival Home Depot, he left after being passed over for the top job there, moving to JC Penney, the struggling US mid-low range department store.

    The Home Depot, on the other hand, has made all the right investments in ecommerce and technology, but somehow has not always managed to take best advantage of them. It has performed better than Lowe's overall, but has yet to establish a significant lead. Alongside the well-established CEO Craig Menear, Home Depot has recently moved Ted Decker up to the position of chief operating officer (COO).

    Lowe's Companies

    Lowe's had a truly outstanding Q2. The company reported USD27.3 billion in sales, an increase of 30.1% over the previous corresponding period (pcp) which was Q2 of 2019. US comp (store-on-store) sales were up 35.1%. In terms of ticket (basket) sales, the USD50 to USD500 range grew by 43.5%, while sales over USD500 and under USD50 both grew by over 20%. Growth in online sales was particularly strong, at 135%, reaching 8% of total revenues.

    According to the company's executive vice president for merchandising, Bill Boltz:

    We delivered strong growth across all merchandising departments. In fact, all 15 merchandising departments generated positive comps exceeding 20%. As customers continue to spend more time at home this quarter, we saw an acceleration in both indoor and outdoor project activity, including core repair and maintenance, along with projects to repurpose home space for work and study, as well as discretionary indoor and outdoor projects to increase customers' enjoyment of their homes.

    Two new services that Lowe's has rolled are JobSIGHT and program to rent tools. JobSIGHT is a video streaming service that enables pro's to conduct virtual onsite visits with customers, enabling them to develop a quote without having to arrange a visit. The company sees tool rental as not only useful to pro's, but also offering the potential of a higher return on capital.

    The Home Depot

    While Home Depot did not reach quite the percentage growth of Lowe's, it did report some outstanding numbers. Sales reached USD38.1 billion, with comps up by 23.4%, and US-only comps up 25%. Digital sales grew by around 100%, with 60% of orders picked up in store by customers.

    According to Mr Decker, speaking at the results announcement:

    During the quarter, comp average ticket increased 10.1 percent, and comp transactions increased 12.3 percent. The growth in our comp average ticket was driven by both an increase in basket size, as well as customers trading up to new and innovative items.
    During the second quarter, big-ticket comp transactions, or those over USD1,000, were up approximately 16 percent. We saw very strong performance across a number of big-ticket categories like appliances, riding lawn mowers, and patio furniture; however, this strength was partially offset by softer performance in certain indoor, installation-heavy categories like special-order kitchens and countertops.
    We saw strong sales growth with both our Pro and DIY customers, with DIY sales growing faster than Pro sales. Sales to our Pro customers accelerated meaningfully compared to the first quarter, and grew double-digits compared to the second quarter of last year. Looking deeper into our Pro sales, we saw notable strength with our smaller Pro customer. As markets continue to reopen, we see increasing demand from all our Pro customer cohorts.

    Company commentary

    The well-known Goldman Sachs hardlines retail analyst Kate McShane played host to the executives from both US companies during a virtual retail conference on 10 September 2020.

    Lowe's Companies

    Describing the situation when he first came to Lowe's, Mr Ellison said:

    When we arrived [in 2018], Dave Denton [chief financial officer] and I, along with other members of management, it was very obvious that fundamental things that really world class retailers do very well were absent here. You know, things like an efficient supply chain, a robust and dynamic e-commerce platform, having good operational mechanisms to manage labour effectively based on a rate of sale, having efficiency around how we operate to drive productivity.

    One of the key changes Mr Ellison brought in was to modernise Lowe's online platform, and that proved to be strong growth driver during the first half of 2020. This has encouraged the company to invest more in omni-channel sooner than initially planned, according to Mr Denton:

    So as we think about the next several years, we're pulling forward some of those investments, getting them done more rapidly so that we can come out of this pandemic [with] a better company having better service levels and actually working to capture additional market share in the future.

    Asked about the key question, whether DIY spending would prove "sticky" for 2021, or if it was more circumstantial to the pandemic, Mr Ellison responded:

    Well, [that spending] remains high. And you don't have to take an overly sophisticated analysis to understand why. I mean, most of us are spending more time in our homes than we probably ever have. And so as you spend more time at home, as a do it yourself customer, you're going to find projects that you are going to invest in to make your home more functional. If you just take a snapshot of the normal American household right now, you have individuals finding ways to repurpose their home. They have to create a workspace because many people are fortunate enough to work from home. They have to create space for their kids in many cases to go to school from home. So they're repurposing space for that.

    One pointer towards the spending being maintained, Mr Denton suggested, was the change in the overall pattern of expenditure:

    The only other thing I'd add to this is it's not so much the home environment, but if you look at discretionary spending and you look at what's happened, there's been a reallocation of the discretionary spending [that] used to go to restaurants, entertainment, maybe travel. Now for households, the opportunity to do that is limited. So you're seeing a pivot, if you will, to moving discretionary spending more into the home.

    One area where Lowe's sees continued growth is in gardening, and particularly cordless outdoor power equipment (OPE). Mr Ellison made much of the exclusive deal that Lowe's has closed with cordless OPE company EGO:

    We just announced that we're going to have the number one brand in outdoor power equipment in battery operated. EGO will be exclusive to Lowe's starting in December. We're extremely excited about that because it's going to give us the ability to have in our assortment the number one brand in battery operated push-mowers, riding lawnmowers and all outdoor power equipment exclusive to us.

    One of the very interesting outcomes for Lowe's has been that the pandemic has reduced both the desire and the need for promotional activities, helping it to change up its pricing model, as Mr Denton explains:

    The environment has enabled us to pull back a little bit from a promotional cadence perspective. Our plan historically was always to move more to an EDLP [everyday low price] platform. The current environment has allowed us to accelerate that movement. So I think we're never going to get back to this high-low environment again. We clearly want to be relevant and be promotional in certain holidays and events. So we're not going to back off completely. But I do think the level of promotions and the quantity of promotions will be modest compared to what it was last year.

    The Home Depot

    One of the points that Mr Menear made was just how difficult it was to gear up a supply chain to account for an additional USD9 billion of growth over the first half of 2020. That was particularly the case with the company's online business, causing it to repurpose some of its distribution assets, he told Ms McShane:

    I think when you think about the tremendous growth in the digital space, having the flexibility to be able to adjust to handle that kind of volume, particularly the volume that we've seeing not only through the stores with BOPIS (buy online, pickup in store), but direct to customer, having the flexibility to adjust and deal with that volume was pretty important as well.
    We did that by shifting a fulfilment centre that we had opened in the Chicago area that was going to be a market delivery centre and in a matter a couple of weeks, we converted that temporarily to a direct fulfilment centre shipping product direct to customers from our dotcom business so that we could support the triple digit growth.

    Asked about the growth in DIY, and if this is sustainable, Mr Menear's answer was similar to that of Mr Ellison:

    I think I'd start with the pro customer is always an important customer at the Home Depot, but we never lose sight of the fact that we have a USD60 billion DIY business that has been pretty important to the company for its 41 year existence. And so we're excited about seeing the engagement of the DIY customer in our space. And, you know, over the years I've been asked a lot about what this ... looks like long term at the Home Depot with all this focus on the pro customer. And my answer to that always is that, today we have kind of a 55/45 DIY mix. And at the end of the day, if we end up with an 80/20 pro, we haven't really done our job because we want to grow the DIY business at the same time we're growing the pro business...
    So we're super excited to see the engagement from the DIY customer. I think that customer has spent a lot of time around their home. They see a lot of things that they want to do. And at the same time, there's more wear and tear in the home. Our customers tell us from surveys that home is never more important than it is today.

    Mr Decker followed up that answer by outlining how digital is changing the way the company sees the DIY customer:

    There's so many good things going on in our segment with the DIY customer engaging. You've heard us talk a lot about pro over the years and the things we're doing with pro customers. Craig just said DIY is the hallmark of the company and still [represents] the majority of sales. We need to keep that business growing. And the engagement we're seeing with DIY customers and with the engagement with interconnected and digital, it's allowing us to know that customer better than we have in the past.
    The DIY customer, had traditionally been sort of a "mass anonymous". But with the advent of interconnected and digital, we have a lot more signals now that we can start to know the consumer customer to a much greater extent ... As we build out abilities to track engagement, we like to see new customers, we like to see what customers talk about, are they shopping one aisle over, are they shopping two aisles over? Are they engaged in projects? How many items per basket per transaction are they purchasing with Home Depot?

    The information Home Depot is able to track has convinced Mr Decker about one thing: the Millennial generation is on track to follow a similar pattern the Baby-Boomers when it comes to DIY - albeit at a comparatively older age.

    As you can imagine, as people start to engage with more capabilities, as they start to shop one and two aisles over, as they start to gain the same confidence of the newer DIYer, [we see] the millennials launched on their journey. We're starting to see that same behaviour as the baby boomer back 30 and 40 years ago. And as they engage their spend and share of wallet goes up with the Home Depot.

    Later, when asked whether the changing demographic patterns in the US, particularly urban vs suburban was having a material effect on Home Depot's strategy, Mr Menear picked up this theme related to the Millennials.

    You know, it's interesting because there's a lot of talk and a lot of dynamics, and it takes me back to 2015 and earlier when there was a lot of conversation around the fact that, you know, the whole Millennial generation, everybody is going to move to inner cities and the Millennials are never going to own anything, they were only going to rent. They would never have a car. They would never have a tool. You know, that's what we heard through all of this. And our deep research in 2015, indicated that that none of that was actually factual based on the research that we had with the millennial generation, and that they would, in fact, act the same way other generations had. It was just a delayed cycle.
    And we're actually seeing that play out, by the way. So as the Millennial generation got married, kids come along, you need more space, they moved from the city centre to a more suburban environment.

    Home Depot has long been known for its approach to innovation, and both Mr Menear and Mr Decker helped to spell out what that means in the current era. Mr Menear boiled down what the core purpose of innovation needed to be for the retailer:

    So when you think about innovation and what the merchants are focused on at Home Depot, it is: how do you bring product to market that makes it easier for the consumer to be able to do a project? And/or how do you bring product to market that allows the pro to be more efficient and gives them confidence and no call backs? And that innovation is hugely important in the business.

    Following on from Mr Menear, the statement that Mr Decker made about innovation was seeming simple, but very interesting:

    So in product, authority is what we stand for in merchandising at Home Depot. Innovation is the hallmark of that.

    Mr Decker went on to describe the new innovations coming in areas such as cordless OPE, and then - in that half-embarrassed way familiar to everyone in hardware - described one of the exciting innovations that had come to Home Depot in grout.

    We just - I mean, something you might not get that excited about, but we do at Home Depot. We just reset our entire grout bay, and we have an exclusive relationship with Custom Building Products, which has by far the largest share in the category. And they've just come up with an incredible array of floor levellers, large format tile, quick adhesion, grouts that are ANCI approved for dust emissions, which is required for nursing homes and hospitals, premixed grout for either a quick job for a DIYer or making a job easier for a pro. We have colour consistency, all the great values. So we just finished resetting our entire grout in the tile set material bay over the last several weeks. The performance is incredible.

    One of the most interesting comments that Mr Menear had to make, however, was about the independent hardware retailers in the US.

    We've shared in the past that when you aggregate up independents in pretty much any category that we play in, they own the lion's share of the market. And so that's always an opportunity and part of what we're investing in to create this interconnected experience, hopefully will give us an edge to be able to gain share and grow faster than the market.
    Second comment that I'd have is, look, when you when you look at independents and independents that came through in the 2008, 2009, 2010. Right. Those are really good business operators, people that survive that environment, people that will survive this Covid environment are really good operators that have to gain a lot of respect for. And so there's always going to be independents and competition. But we're investing to position the Home Depot to grow faster than the market in any environment that we get thrown into, whether it's good or whether it's bad. And that's really what we're trying to get done.

    Asked about promotional events, the Home Depot executives agreed with what the Lowe's executives had said in terms of promotions. But Mr Decker added a further comment, about the responsibilities of the retailer during the pandemic:

    The other thing we're doing is we're expanding the timeframe. So you think of a Black Friday, while we're not as big a Black Friday player as some other retailers, we've built up quite an amount of business and foot traffic and excitement around Black Friday. We'll try to limit that single day focus, and you'll see us having that product in those values over a much longer period of time.
    There'll be a few things that we do on Black Friday, but things like you having to come to the store during this specific period of time, with very short quantities. We just think today that that might not be as responsible from a safety perspective as it could be.
    So we'll still have events. We'll still have great innovative product. We'll still have great values. They'll just be shown over a longer period of time. And be an opportunity to really leverage our interconnected experience. So all these are available online as well for ship to home or buy online and pick up in store. So we'll have events just slightly different going forward.

    Another very interesting bit of real retail wisdom was offered by Mr Menear when he was asked about the retailer's plans for the holiday (Christmas and Hanukkah) season.

    One of the learnings we've had over the years from storm situations - in the earlier days, we used to think about a storm hitting a particular area that we would go in and extract holiday decor from those markets, thinking that for those customers that's not where their mindset was going to be. And what we learned over the years is actually where they're headed is they want some form of normalcy in their life. And so they actually focus in that area.
    So we didn't really pull back our thought process around the events in Q4 as it relates to holiday, because we suspected that the customer would react in the same way that they do in a storm situation and that they'd want that kind of normalcy overall.

    Asked about how Home Depot continued to improve its offer for the pro market, Mr Decker mentioned the move the company is making into deliveries from flatbed trucks.

    We're really excited about the capabilities that we are building out around delivery for our pro customer and particularly in the flatbed network that will allow us to deliver big and bulky type products for them.
    That will also take pressure off of our stores. If you walked our stores any morning at six o'clock, you'd see lots of deliveries lined up in the aisles of the store, which isn't great for the pros that are actually shopping in those aisles during that morning. The flatbed delivery network that we're building out will give us the capability to remove that pressure from the stores to be much more efficient and be able to open up capacity for delivery and begin to narrow down windows to get to specific time slots for our pros. That's the work that we're doing over time. So we're super excited about that. We've got a couple of these facilities up and running and there will be more coming towards the latter part of this year. Plus expansion in the next year.

    Analysis

    Overall, the attitude of the two biggest home improvement retailers in the US is broadly similar: they remain hopeful that the upsurge in DIY sales will prove to be something of a structural change, and they see their pro businesses hopefully continuing to thrive.

    However, neither retailer is counting on DIY sales as their sole source of growth. Both realise that they need to improve certain fundamentals, and both see opportunities in introducing new products and services, and, most importantly, better embracing digital opportunities.

    Yet, as good as their plans are, one has to wonder if they are good enough. Looming in the background of these results are those for Amazon in the same quarter: A sales increase of nearly 50%, and revenue of USD90 billion for the quarter, more than the two companies combined.

    While it is tempting to see this in terms of digital versus physical stores, it's possible there is a more serious pattern at work here. The level of innovation in home improvement, by current standards, is good, but it's really not great. To get where it is today, Amazon had to do more than just make the best use of available innovations on the market, it had to go out and innovate itself.

    Take, for example, the Kindle book reader. Amazon couldn't wait for another company to develop that reader for two, interconnected reasons. The first was that the problem with book readers wasn't really the hardware that reads books, it was the software, the actual books themselves, which Amazon was uniquely positioned to provide.

    The second was that no one was going to innovate a book reader for Amazon. That is because its business model called for the reader, at least the most basic model, to be as cheap as possible, with next to no margin.

    The same thing held true - only more so - for Amazon's range of Echo personal assistant devices. The real value of those to Amazon wasn't the device itself, but the way in which it further integrated the user into Amazon's shopping systems.

    In a different form we've seen the same thing take place at Microsoft. Pretty much the last thing Microsoft wanted to do was to get into making actual laptops, tablets and desktop computers. Yet it had to, because, for a time, laptop manufacturers had ceased to be competitive with Apple.

    What has happened in each of these cases is that one part of the manufacturer-to-consumer supply chain begins to capture way more of the real value of a product than any of the other participants.

    There is a real danger that hardware-home improvement retail, especially where larger retailers are dominant, is heading in that direction. This applies especially to the DIY part of the business. There has been some innovation at the trade end of the business, but innovation in DIY has slowed dramatically over the past decade. Retailers have become more powerful than manufacturers in that area and they always demand the same things: low prices, good margins, and familiar tools that are easy to sell to familiar customers.

    The truth likely is that the burst of DIY activity is, for the moment, neither a temporary phenomenon or a structural change. It's really going to depend on what retailers offer DIYers, and if it is not really innovative and engaging, then this opportunity well end up being squandered - until Amazon or another tech company gets serious about the category.

    bigbox

    Bunnings Wagga store plans on show

    A $55m Bunnings outlet for Pialba

    The retailer has also placed its Panorama (SA) site on the market almost three years after scrapping plans for a hardware store at the location

    Public feedback is being sought for a proposed Bunnings store in Wagga Wagga (NSW); the Bunnings branch in Hervey Bay (QLD) could expand in a new location; and the big box retailer is selling a site in South Australia.

    Wagga Wagga

    Plans for a new, relocated $24.8 million Bunnings store include the main warehouse, outdoor nursery, a dedicated bulk trade sales area with pick up facilities for trucks, a cafe, click and collect services, a playground, as well as 449 parking spaces.

    A report lodged to Wagga council 10 months ago highlighted that one of the biggest challenges to the proposed store would be balancing the boost in traffic flow in the area, and the changes to a highly visible site at the city's entrance.

    Wagga councillor Dan Hayes told The Daily Advertiser that relocating the business will help "relieve the infamous Bunnings roundabout", but the plan's impact on traffic will need to "meet a standard" that is not only suitable for the business, but its customers and boarder community.

    Any development, especially one of that size, has to factor in all the elements such as being on the highway, traffic control and the entry and exit, he said.

    Despite this, Cr Hayes said it was positive to see businesses choosing to "stay and invest" in Wagga and hoped the existing building could attract interest from a new business rather than staying empty.

    The development application outlines the benefits the project will bring to the city, including a boost to hardware and home improvement services, supporting future growth and retaining a major retailer in the Dobney Avenue, Pearson Street precinct. The report also stated:

    Once operational, the store is anticipated to employ over 230 team members ... all existing team members from the Wagga store would transfer to the new store and an additional 50 local positions would be created.

    The proposed development involves the Bunnings store moving from its current address on the corner of Dobney and Pearson Streets to 64 Pearson Street in Wagga.

    Pialba

    Bunnings Hervey Bay will move to a different address if the development application is approved by Fraser Coast Regional Council. The hardware store is situated on Boat Harbour Drive in Pialba (QLD) but it could have a new home built on the vacant lot next door, on the corner of Main and McLiver Streets. The move and expansion would create a $55 million store, Bunnings area manager Andy Stewart told The Courier Mail. He said:

    Building on the things customers like about our current store, it would feature an even wider range of home improvement and lifestyle products.

    Mr Stewart said the project was expected to be finished by 2022, if the application was successful. The planned store would have a total retail area of 17,421sqm, 5000sqm larger than the current outlet.

    A new footpath is proposed as part of the development, and the site would also include a 463-space carpark.

    Bunnings now runs a separate trade centre on nearby Islander Road due to limited space at its Boat Harbour Drive site, but the proposed relocation seeks to combine the warehouse store and trade facilities in a single location.

    Panorama

    The site that was to have a $42 million Bunnings store on Goodwood Road, Panorama (SA) is up for sale.

    Bunnings paid $7.81 million for the property in 2014 where the former TAFE campus was located after the government moved classes to a new campus at Tonsley, according to a report in The Adelaide Advertiser.

    Plans for the hardware store were scrapped in 2017 after the council's development panel rejected Bunnings' proposal. The company later built a new store on South Road at Edwardstown.

    Colliers International director Justin Hazell, who has been appointed to sell the property, said he expected to field offers "either side of $450 per square metre", which equates to around $15 million. He said the site, which includes close to 182m of frontage to Goodwood Road, offered developers a "myriad of future development options".

  • Sources: The Daily Advertiser, The Courier Mail and The Adelaide Advertiser
  • bigbox

    Indie store update

    New Home Hardware store in Berry Springs, NT

    Terang and District Co-operative ended its 2019-20 financial year with an increased surplus after a solid year of trading

    A Home Hardware store has opened in Berry Springs, a mostly rural locality in the Northern Territory and Terang Co-op in regional Victoria delivers strong financial year results.

    Berry Springs

    The newly opened Home Hardware store is part of the Berry Springs shopping precinct, replacing Berry Springs Hardware.

    Owners Russell and Lindy Willing plan to have the business's drive-through ready by November so customers can stock up on bulky items such as feed and cement. Mr Willing said the store would also offer services including pool testing and key cutting, as well as barbecues, paint and power tools. He told the Northern Territory News:

    We've invested in a good range of garden and power tools we believe will be appreciated by locals. We are really confident the store's range will meet the needs of our rural folk. And if we don't have exactly what they need, we encourage feedback so we can genuinely meet people's needs wherever possible.

    The store is located on 10 Doris Road, Berry Springs (NT).

    Warrnambool

    In his annual report presentation, Brendan Kenna, chairman of Terang and District Co-operative, said trading had been steady and the co-op had achieved a before-tax profit of $76,255. The net operating profit after tax was $44,709, up from $17,079 the previous year, which was also an improvement on 2018.

    The $24.4 million turnover was the second highest on record. The co-op's financial year finished on 29 February, but the AGM was pushed back due to the coronavirus pandemic.

    Over the past 12 months, the co-op has continued its positive progression, introducing significant improvements such as a $900,000 redevelopment of the

    Supa-IGA supermarket, becoming part of Mitre 10, joining the National Rural Independent (NRI) group and introducing clothing lines for the first time in the 25-year history of the rural store.

    Mr Kenna told The Standard that changes implemented over previous years were starting to take effect, describing the past year as one of consolidation and implementation of the co-op's strategic plan.

    He said the financial year had been impacted by the St Patrick's Day fires as people and businesses dealt with the aftermath of that disaster. But he said there was a more promising outlook with better profits in the latter half of the financial year bolstered by improved confidence and prices in the dairy industry.

    During the 2019-20 financial year 129 new members were welcomed, bringing the total to 2844 and the figure has since grown to 2954.

  • Sources: The Northern Territory News and The Warrnambool Standard
  • retailers

    Midland Brick comes under BGC ownership

    It comes after Boral sold the business

    The acquisition reinforces BGC's commitment to reinvest in its core businesses despite part of the group possibly being offered for sale

    The West Australian-based Buckeridge Group of Companies (BGC) has purchased Midland Brick, around 13 months after it was sold by Boral to a property consortium. The deal includes the 75-year-old Midland Brick brand and its manufacturing operations, putting it together with BGC's Brikmakers brand. The company will trade under the existing name.

    The group is betting on a recovery in the local home construction market through its acquisition of Midland Brick. BGC is also buying the business at a time when COVID-19 stimulus is driving demand in WA.

    BGC chief executive Danny Cooper said the group believes the combination of Midland Brick and Brikmakers would generate operational savings as they rode an expected recovery in demand, helped by state and federal government incentives for homebuyers. He told The West Australian:

    There's a lot of synergies for us, and we see the continuation of the two brands as being incredibly important. With the stimulus lift in housing starts over the next 6-12 months, we are certainly very confident that there's a very good pipeline of work, at least in the short term, for both businesses.

    Midland Brick, along with its rivals, has suffered from a protracted downturn in WA's home construction market since the last mining boom. It was founded by Ric New shortly after World War II, and sold to Boral after his death in 1989 for $200 million. Ironically, Brikmakers was set up only 15 years ago to meet a shortfall in local supply.

    BGC is considered among Australia's top 10 largest privately-owned companies, with 3500 employees, an annual turnover of up to $3 billion and is one of WA's largest home builders.

    It was put on the market more than two years ago by the heirs of founder Len Buckeridge, who died in 2014. Since the sell-off decision, BGC has offloaded more than $400m of property, including the Westin Perth and Aloft hotels.

    However, the sale of its building products and home and commercial construction businesses was deferred last year to await better market conditions.

    Background

    BGC purchased Midland Brick from WA property consortium that includes Hesperia - which was formed when Linc Property and Fini Group merged - and CFC group. Midland's manufacturing operations that were sold off include the northern section of the 800ha site at the Perth suburb of Middle Swan where the business has been located for many years.

    However, the southern part of the landholding will be retained by the property consortium and redeveloped into a residential subdivision.

    The consortium paid Boral $86 million for Midland Brick in August last year, saying at the time that while it was focused on a redevelopment of the Middle Swan site, it was interested in running the brick business for the long term. However it said "substantial changes in future economic conditions" had made it "too commercially difficult to operate a brick and masonry business over the longer term".

    It hopes to gain Australian Competition & Consumer Commission approval to sell the operating business to BGC by the end of the year.

    The Hesperia-CFC subdivision proposal area of the site was recently approved by the WA Planning Commission.

    Related:

    BGC offers property assets for sale - HNN BGC building materials draws interest - HNN BGC Group potential sale - HI News, page 29
  • Sources: The Australian and The West Australian
  • companies

    RWC sells more plumbing fittings in US

    Sales triggered by COVID-19 lockdowns

    CEO Heath Sharp warns the increased sales volumes are unlikely to become a permanent fixture of the business

    In a recent sales update, Reliance Worldwide Corporation (RWC), said it had an average 22% increase in US sales over the three months to September due to more repairs and renovations as North Americans stay home during the pandemic.

    Plumbers headed to hardware stores to stock up on items they were having trouble sourcing from wholesalers, while DIY enthusiasts spent up as they had a go at plumbing jobs themselves.

    RWC is a manufacturer of plumbing and water control systems marketed and sold under the SharkBite Plumbing Solutions, JG Speedfit, HoldRite and Reliance Valve brands. It started out as a small Brisbane tool shop in 1949, and now has regional headquarters in Europe, North America as well as Australia.

    The US makes up about 50% of the plumbing supplier's overall business. In the 2020 financial year, sales in North America were worth $1.16 billion. Reliance said the growth was driven by a strong increase in retail and hardware sales. It is aware that the professional user has relied on retail more often during the lockdowns, where its products are more highly represented. CEO Heath Sharp said:

    The first quarter of the 2021 financial year has been particularly strong from a sales perspective. Looking ahead, we remain cautious. The US has been boosted by the surge in DIY activity and the return of construction activity to pre-COVID levels, but without further government stimulus measures this growth is likely to slow...
    Given the continuing uncertainties in all our markets as a result of COVID-19, we would caution against extrapolating the first quarter's sales performance for the full year.

    The company recently announced it would expand its North American operations and build a 300,000-square-foot distribution hub in Cullman, Alabama.

    As sales were being driven by DIY in the US, RWC said there has also been a recovering demand in the UK and Europe despite slower dwelling approvals in Australia.

    Australian sales

    Sales in the Asia-Pacific region were comparatively flat, growing by only 2.3% over the three months to September.

    Mr Sharp said he expected further softening in the Australian market because of a drop in new housing construction approvals, with half of all business in Australia related to new builds.

    We expect some softening in the Australian market as the reduction in new housing construction approvals leads to lower building activity.

    It has forecast a 10% sales drop in 2021 for the Asia-Pacific division depending on the extent of the COVID-19 bounce back.

    In the long term, RWC said the fundamentals of the Australian market are strong and believes there could be rebound in Asian manufacturing in fiscal 2021.

    Europe

    Sales in Europe saw a complete reversal of fortunes, growing by 5% in August and 24% in September after contracting 4% in July. Europe comprises about 35% of the company's revenues.

    Mr Sharp said the jump in sales over September was attributable to "pent-up" demand and channel partners being able to restock inventory that was depleted earlier in the pandemic. However, he said it would remain to be seen how long the sales growth lasted given the possibility of a second wave of coronavirus in Britain.

    In the UK we are uncertain as to where underlying demand levels will settle once the pent-up demand for products and plumbing services has been satisfied. We are also watchful as to the impact the recent rise in COVID-19 case numbers may have on demand and plumbing activities there.

    RWC made a big bet on the UK market in May 2018 when it paid $1.2 billion to buy the John Guest business. It makes plastic push-to-connect plumbing fittings, similar to the Sharkbite brass fittings range as a younger generation of plumbers emphasise time savings and steer away from welding and soldering of traditional fittings.

    The sales update from RWC comes just over a month after it reported full-year profit of $89.4 million, down 32.7% on the prior year.

    Related:

    Reliance Worldwide expands into Europe - HI News, page 24
  • Sources: The Australian and The Australian Financial Review and Area Development News Desk
  • companies

    Green shopping aisle at UK's Homebase

    The shelves promote environmentally friendly products

    It showcases energy efficient and eco-friendly home improvement products and offers information on how to get a smart meter installed, all in one place

    UK-based home improvement retailer, Homebase has just launched a "green shopping aisle" in five stores located in London, Edinburgh, Bridgend, Birmingham and Leeds with more stores to follow.

    Designed for the environmentally conscious, the store aisle is a picturesque grass walkway and canopy infused with foliage and butterflies. It is also decorated with evergreen climbers and vegetation, to help customers find the section of the hardware store that will make their home more sustainable. Chris O'Boyle, trading director at Homebase, told the Daily Star:

    We know that more and more of our customers are looking to make environmentally friendly decisions as they embark on home and garden improvement projects.
    'The Green Aisle' not only puts some of our most sustainable and eco-friendly products all in one place for those who know what they're looking for, but will also provide advice and inspiration, supported by our expert teams, for people who need a hand turning their green ambitions into reality.
    Whether it's something as simple as a draught excluder to sit at the bottom of a door, getting a smart meter installed or a bigger project such as installing new insulation, there are hundreds of ways - both big and small - that can help people make a positive difference to their home.

    Homebase's Green Aisle has launched at the same time as the British government's "Green Homes Grant" scheme, with a number of items selected based on their energy efficiency credentials. Items range from white goods and electricals through to insulation and smart appliances.

    The Green Aisle is also available online at the following link:

    The Green Aisle at Homebase

    The concept was developed in partnership with Smart Energy GB, an organisation that is tasked to help people in Great Britain to understand smart meters during the national rollout and how to use their new meters to be cleaner and greener with their energy use.

    It was also created after research found 74% of Britons want to make their homes greener, but half have no idea where to start. The poll of 4,000 Brits, commissioned by Smart Energy GB, also found 71% hope going green will save them money.

    Meanwhile, seven in 10 said they want to help the environment. Four in 10 of those polled via OnePoll are keen to use environmentally friendly paint when redecorating. Others are looking to install energy efficient home appliances 38%, smart home tech 34%, a water-saving showerhead 31% or a smart meter 29%.

  • Sources: Daily Star (online) and Birmingham Mail
  • retailers

    Will digital change Bunnings?

    To succeed the retailer will need to evolve

    Bunnings was a little late to the ecommerce party but has made up for lost time. Yet it still has a number of challenges it needs to solve to be successful.

    One of the revelations at the recent full-year results announcement by Wesfarmers was that Bunnings sees its digital offering as currently accounting for around 2.0% of its overall revenue. While that might not seem that much, and the hardware retailer's fellow retailers at Wesfarmers had higher online percentages, it's worth noting that this would be the equivalent of close to $300 million when annualised.

    Or, if you want a comparison, that's around 14% of Metcash's Independent Hardware Group's revenue for FY2019/20. (Though this is an end-of-year figure, so for FY2019/20, HNN would guess the actual amount was closer to $220 million.)

    There is little doubt that Wesfarmers is very determined to expand in digital as rapidly and effectively as possible. If you did have any doubts, then this statement in the company's annual report from chairman of the board Michael Chaney (AO) should clarify the intent:

    The Board is currently in the process of identifying potential new directors - one to replace [outgoing director Diane Smith-Gander AO] and a second to fill a skills gap in the digital space which we identified in our latest board evaluation process; and we hope to be in a position to conclude that over the next few months.

    This was further backed up by Bunnings managing director Michael Schneider in the same report:

    Bunnings will continue to accelerate the development of its digital offer, working hard to make sure our customers continue to have a great experience both in-store and online. With a fully-transactional offer now available across Australia and New Zealand, more digital initiatives will be rolled out to engage both retail consumers and commercial customers.

    The Amazon-shaped gap

    One reason why Wesfarmers and Bunnings will likely move rapidly is that digital actually represents a considerable vulnerability for the company. While its successful defence against the effort by Woolworths to enter home improvement retail with Masters Home Improvement has somewhat guaranteed Bunnings a period of relief from competitive pressure, this will not seal out pure digital competition.

    If we think that a "natural" level of digital commerce for the markets where Bunnings competes would be between 5% and 6%, that means an opportunity of 3% to 4%, and therefore something like $500 million in revenue that Wesfarmers is not adequately protecting at the moment.

    (In the US, home improvement retailer Lowe's is thought to generate 5% of total sales online, and its main competitor, The Home Depot, is thought to generate 7% to 8%.)

    The Australian operations of Amazon are moving into that area currently. However, while Amazon has enjoyed considerable success selling home improvement goods in some markets, with some commentators seeing it as having 80% of the pure online market for home improvement in the US, it has yet to make the same impression in Australia. Some of the advantages that Amazon does have include a close relationship with the Black & Decker brand from Stanley Black & Decker, and the fact that it simply "owns" a big chunk of the smarthome sector through its ground breaking Echo devices.

    Among Amazon Australia's top products in the home improvement category are many that relate directly to the pandemic. This includes a range of face masks, as well as a couple of "bidet sprayers" - a response to the panic buying and hoarding of toilet paper. Then at number 26 there is the Bosch's cordless NanoBlade saw - a product which, as far as we can tell, Bunnings no longer even stocks.

    Amazon Australia also has Prime, its membership program that includes free delivery on a range of products. This also includes access to streaming original and standard video content and access to a subset of Amazon Music. So, for example, while Bunnings does sell replacement blades for NanoBlade saws, it retails the 65mm model for $44, but with Prime, the same blade costs just $35 delivered.

    The NanoBlade saw is a very good example of ways in which the online market for home improvement is likely to differ from the traditional market that shops in physical Bunnings stores. If you do select the cordless NanoBlade saw (pro tip: the corded AdvancedCut NanoBlade is the best value, if you don't really need cordless), Amazon also displays (as it always does) the goods most commonly purchased in the same basket as the main product. For this saw, the two additional purchases are both OBD II to Bluetooth connectors.

    "OBD" stands for on board diagnostics, and all modern cars have this connector. It's used for accessing engine diagnostics codes, and can also be used to constantly monitor engine performance characteristics. Connectors such as these hook this up to a smartphone or tablet computer via Bluetooth, and provide both a graphical display of the data, as well as a means of interpreting obscure codes.

    In other words, these saws are not being bought on Amazon by the typical tradie, handyman or DIYer. They're likely going to people who would self-identify as being a part of the "Maker" community. This is a community with which Amazon is very familiar.

    The fragility of online

    While Bunnings has done a good job in "booting up" a transactional website that has to cope with high traffic volume, it's also true that it has had to "bolt on" this capability to its existing retail structure. This is particularly difficult for Bunnings as the store network was devised since the early 2000s to operate with almost no warehouse facilities (outside of captive brands and some trans-shipping).

    As a result, the entire order placing and order fulfilment of online is done through a store-to-customer model. HNN has placed a series of orders, using different users, locations and payment methods through this system, and that testing has turned up a number of fragilities in the way it all works.

    HNN contacted the director digital for Bunnings, Leah Balter. Ms Balter has a background that includes Incitec Pivot Ltd, McKinsey and ANZ Bank. She outlined some of the developments that have been underway at Bunnings:

    Over the last six months we've made significant advances with our online ordering services Click & Deliver and Drive & Collect and they've been well received by customers. Over this time we've fine-tuned our processes and we've worked to optimise how we handle orders to ensure we can get items to customers as quickly as possible.
    This has included introducing dynamic routing of Click & Deliver orders to stores in Melbourne that have the greatest capacity to prepare and dispatch them to customers quickly.

    According to other industry sources, Bunnings has been fast tracking many of its digital efforts for the Melbourne market, due to the restrictions on trade, but is currently rolling these out in locations such as New South Wales as well.

    The difficulty for online customers, of course, is that having to deal with individual stores introduces barriers to simply getting the goods they want, at least when they are ordering products for delivery. One of the main areas that HNN tested was the very popular Rack It garage shelving line - which Bunnings lists as one of its current best sellers. This consists of a series of components that can be joined together to create sturdy, durable shelving.

    However, actually finding a single store that stocks all the components you need proves very difficult - and very frustrating. Product searches have to be conducted store-by-store, and you can end up needing to place more than one order, from different stores, to receive all the components you need.

    The only way around this, at the moment, seems to be to open two or three separate accounts, then have each open in its own browser window, to compare stock as you go. Not exactly an ideal situation.

    On top of that, it is actually possible, according to HNN's sources, to place a confirmed order, only to have it later cancelled, due to a lack of stock. This would indicate there is no stock reservation system in place.

    Again, though, we are dealing with a system that has been created from scratch in a very short space of time. The shortage of components is probably also driven both by high demand, and the additional difficulties of logistics during a pandemic.

    Digital Bunnings

    While there are reasons why things are a bit rough at the moment, there are also serious, long-standing lessons to be seen in all of this.

    If we contrast what Bunnings is doing with, say, The Home Depot in the US, there are vast differences in terms of previous commitment and logistical planning. Home Depot is much more warehouse-based than Bunnings (though not entirely so), and set about creating a series of distribution centres dedicated entirely to ecommerce fulfilment about five years ago. While some 60% of orders are currently fulfilled direct from store to customer, the DCs play in a key role in making sure that ecommerce runs smoothly.

    It seems unlikely that Bunnings would, at least over the next few years, go down the route of using DCs, as this would be contrary to the way its network works. What we could see, however, might be the establishment of the equivalent of "dark stores" - specialised Bunnings warehouses that do not cater directly to customers, but instead serve as picking centres for online orders. HNN would not be surprised to see Bunnings change up its plans in 2021, and at least build a couple of test facilities along these lines in the early part of the year, with the intent of having them operational by Christmas 2021.

    The search

    While that might seem like quite a step-up in terms of commitment, it is evident from statements such as those by Mr Chaney and also the managing director of Wesfarmers, Rob Scott, that Bunnings will be increasing its focus on digital.

    One of the areas that it will really need to fix in order to effectively compete is product search. At the moment there is very little customisation for users, but there are clear signs the company is working on this. In August 2019 a team from Bunnings went to Israel to find innovations. According to an article in Australian Jewish News:

    Leah Balter, the Bunnings executive spearheading the online platform, said their meetings with a wide range of technology innovators have thrown up "almost too many good opportunities".
    She is especially excited about a company that can help her to personalise every customer's website visit, down to remembering what areas of their house they are improving or renovating and what kinds of products they like. "There's just so much customisation that is possible which goes far beyond what we have at the moment," she said.

    Analysis

    It has been evident to many commentators looking at Wesfarmers as a whole, and especially its retail operations, that if the company is going to succeed in online ecommerce, it may have to rethink some of the core values that have made it so successful in the past.

    In particular, Wesfarmers has always been very good at being focused, and developing clear, delineated boundaries around its activities. It's that kind of competence that, for example, meant it could sell off its mammoth, long-term investment in the Coles business with relative ease, when the optimum moment arrived.

    Digital, however, tends to blur these kinds of lines, and doesn't so much encourage spread, as requires it. Competitors such as Amazon do well precisely because they have adopted a very comprehensive approach to problems. It's a retailer, a grocery store, a developer of leading edge technology products, and a cloud services provider.

    The trap that so many retail companies get into is to dismiss digital as always being in second place to physical store sales. While it is important to remember this is true, the reality is that most of the best growth opportunities in the future are digitally based.

    bigbox

    Renovation stats

    ABS stats indicate slowdown

    Even after a 50 basis point reduction in interest rates, renovation growth declines

    The Australian Bureau of Statistics (ABS) has released its statistics for the June 2020 quarter of the national accounts. This includes statistics relating to alterations and additions (Alts), which are the equivalent of renovations. These are contained in what used to be known as the 5206 series, and is now known as "Australian National Accounts: National Income, Expenditure and Product".

    Unlike the numbers used in other ABS statistics, these are not drawn from building permit issuance, but derived from household expenditure estimates. This means they account for most expenditures, including those under the building permit level of $5000.

    These statistics have increased importance this year. Not only do they help us to map out some of the potential effects of the pandemic recession, but it is quite likely that Alts will be one of the main areas the government seeks to use to help cushion a likely fall in housing markets during 2021.

    The charts

    Chart 1 shows the numbers for Alts consolidated into the four quarters that make up the financial year, which ends with the June quarter. While spending in New South Wales (NSW) remains elevated over the other states, it has been in decline over the past two years, while Victoria (VIC) has had a small increase followed by a small decline. The big gainer has been Queensland (QLD), which has had a continuous pattern of growth since 2014, though 2017 saw that growth slow. Western Australia (WA) showed modest growth during 2018 and 2019 but declined for 2020. South Australia has shown very slow growth since 2014.

    The consolidated results for the Australian Capital Territory (ACT), Tasmania (TAS) and the Northern Territory (NT) show a recent slight increase.

    (It's very difficult to represent individual results for this group as they are significantly smaller than the other regions. To view the chart for those regions, follow the link below.)

    Additional regions in Australia

    Chart 2 shows these same numbers, but divided by the residential population of each region, for both the most recent results, and for 2011. This is the average per person spend on Alts. NSW has been the biggest loser, though this is partly because 2011 was an exceptional year for Alts in that state. Both TAS and WA have also seen per person expenditure decline. QLD is the biggest gainer, while VIC has shown a sold increase, along with NT and SA.

    Chart 3 shows the percentage share of overall Alts costs for each region over a five year period. The main story is that NSW has declined in share, VIC has stayed pretty much the same, and QLD has gained strongly. WA has shown a slight but constant decline, while the other regions have been relatively stable.

    Chart 4 shows the percentage change between the years shown in Chart 1. Of the nine sets of data, seven show a downwards trend in 2020. Of the two that trend upwards, only one, for the ACT, is in positive growth territory. The regions that continued to show some growth in 2020 are QLD, SA, ACT and NT.

    Chart 5 shows a quarter-on-quarter comparison, with each quarter's results compared to the same quarter's results in the previous year. The NT is the "wild man" of these results, as it has a relatively low amount of spending, which means small alterations lead to spikes in percentage gains and losses; the same is also true for the ACT. Outside of that, there is a very clear clustering in the June 2020 quarter from 0% to -4% change, including NSW, VIC, QLD and - at 0% - SA. WA shows a pattern of ongoing losses for this quarter.

    Chart 6, for context, shows the ABS House Price Index. This chart maps out the quarter-on-quarter changes, and also indicates where interest rate changes have been made. This shows a sharp tick downwards in growth rates for six of the nine data sets, and only one city shows an upwards tick into positive growth, which is Canberra.

    House prices

    Before considering the Alts charts, it is worthwhile taking a closer look at the house price movements shown in chart 6. There has been a persistent theme in the some areas of analysis that the housing market in Australia - and hence the building and construction market it helps drive - has been a strong and vigorous industry, with active drivers in the market brought about by increases in population in key states such as NSW and VIC, and increasing urbanisation in most states.

    Looking at the evidence, this does not seem to be true. For example, the Reserve Bank of Australia (RBA) made three interest rate cuts from June to October 2019, each of 25 basis points, cutting rates in half from 1.5% to 0.75%. The following three quotes are the commentary offered in the RBA's formal statement on the housing market at the time of each cut.

    From the statement for 5 June 2019:

    The adjustment in established housing markets is continuing, after the earlier large run-up in prices in some cities. Conditions remain soft, although in some markets the rate of price decline has slowed and auction clearance rates have increased. Growth in housing credit has also stabilised recently. Credit conditions have been tightened and the demand for credit by investors has been subdued for some time. Mortgage rates remain low and there is strong competition for borrowers of high credit quality.

    From the statement for 3 July 2019:

    Conditions in most housing markets remain soft, although there are some tentative signs that prices are now stabilising in Sydney and Melbourne. Growth in housing credit has also stabilised recently. Demand for credit by investors continues to be subdued and credit conditions, especially for small and medium-sized businesses, remain tight. Mortgage rates are at record lows and there is strong competition for borrowers of high credit quality.

    From the statement for 5 October 2018:

    There are further signs of a turnaround in established housing markets, especially in Sydney and Melbourne. In contrast, new dwelling activity has weakened and growth in housing credit remains low. Demand for credit by investors is subdued and credit conditions, especially for small and medium-sized businesses, remain tight. Mortgage rates are at record lows and there is strong competition for borrowers of high credit quality.

    These paragraphs are not the portrait of a strong and vibrant industry, but of one in a state of decline that requires boosting through a reduction in interest rates.

    Underlying these weaknesses is a fall in consumer demand and a drop in household spending. One cause of this is a reduction in wage increases. Growth in the wage price index (WPI) in the private sector for 12 of the 13 financial years from 2001 to 2013 was above 3.2% (the exception being 2010), with an average for those 13 years of 3.60%. The average for the subsequent seven years was 2.14%.

    According to Australia's Productivity Commission (PC), the current level of wage increases is actually "correct", in that it is in line with productivity increases, which have been low and deteriorating for some time. This contrasts with regions such as the US state of California, which saw productivity growth during 2018-2019 of 3.4%, and overall wage increases above 4.0%. (California's economy is twice the size of Australia's, so it's a reasonable comparison.)

    The PC suggests that previous wage increases were inflated by the strong terms of trade that Australia enjoyed with overseas markets through the export of natural resources. It's worth referring to the RBA's statement made when it last raised interest rates, from 4.50% to 4.75% in November 2010:

    While there has been a degree of caution in private spending behaviour thus far, the rise in the terms of trade, which is now boosting national income very substantially, is likely to lead to stronger private spending over the next couple of years, especially in business investment.

    In the end, the housing market exists in a kind of "bubble" that harks back to a pre-2013 economy of wage growth and higher household expenditure. That bubble has been maintained by periodical stimulus through interest rate cuts, and largely contained from running out of control through interventions by the Australian Prudential Regulatory Authority (APRA) introducing tougher lending standards when needed.

    Which brings us to the most recent interest rate cut, in March 2020, by 50 basis points to an all-time low of 0.25%. What has now happened, as Chart 6 shows, is that even with that stimulus, growth in the house price index still slowed. Yet there is now almost no room for further stimulus. The RBA has signalled it is ready to cut rates by a further 10 or 15 basis points, but it has also indicated that it views "negative" interest rates as a bad idea, as the outcome would not be predictable. So the resources for continuing to prop up the housing market are minimal, at best.

    There is little doubt that an awareness of this is part of what resulted in the government's housing industry stimulus package, dubbed "HomeBuilder", which poured an additional $668 million into the housing market, adding $25,000 to projects spending over $150,000.

    Alterations and additions

    How are these market forces playing out when it comes to Alts? The strongest trend shown in charts 1 to 3 is the increase in expenditure for QLD, and the decrease in expenditure for NSW. While NSW still dominates overall spending, QLD is catching up with VIC, and leads overall in terms of spending per resident.

    In charts 4 and 5, what is clear is that there is, in most regions, falling expenditure on Alts. That is a little curious, when we reflect that at the same time, we've seen a sharp surge upwards in DIY spending at hardware stores. Of course, though, part of what we are likely seeing here is a degree of displacement. As homeowners buy more at hardware stores to do their own painting, guttering and lawncare, there is a subsequent drop-off in spending on tradies to perform the same tasks. An interior painting job, for example, might cost $2500 when hiring a professional, but the DIY cost is likely to be under $500.

    Another factor at work, of course, is the degree to which pandemic restrictions have limited homeowners from hiring tradies. This has continued with some force in VIC since August 2020, and will show up in the statistics for the September 2020 quarter.

    Analysis

    Looking at statistics these days there are four things that need to be borne in mind and developed. The first is to get a clear picture of what was going on in home building and home improvement markets prior to the pandemic, the second is to determine the nature of the effect of the pandemic on that situation. The third is to derive some view of how the economy is going to function during what has been termed "COVID-19 normal", as we come to terms with providing a higher level of economic activity while maintaining strict safeguards against the Sars-CoV-2 virus. Finally, the fourth element is to work out from these inputs what the future markets will look like post-pandemic.

    To begin with, we need to point to what is, with hindsight, a somewhat unfortunate policy pursued by the federal government during 2019 to deliver a budget surplus. In order to do that, the government held back on stimulus spending, and instead relied on what is technically referred to as "quantitative easing", which translates to lowering interest rates.

    To give a clear example of how stimulus and quantitative easing work together, the government could have chosen back in July 2019 to introduce a boost similar to that provided by its current HomeBuilder package. That might have meant that the RBA did not need to lower interest rates in July and October of that year (though the reduction by 25 basis points in June would likely have been necessary in any case). This would have left the RBA with an extra 50 basis points to utilise in mitigating the effects of the pandemic recession.

    One reason why that kind of balance towards stimulus is a good idea is that stimulus spending works best during the early stages of a downturn. That's because, introduced early, it will tend to have structural effects, boosting revenues so that businesses can reinvest in themselves. Introduced in a late stage downturn, stimulus often simply takes the place of income that has already been lost.

    So what we can say is that while the interest rate reductions of 0.75% during 2019 by the RBA were effective in boosting the housing market, they also created new vulnerabilities. Those vulnerabilities have now been exposed by the pandemic recession.

    Looking through the RBA statements in the second half of 2019, it is evident the central bank was hopeful the economy was undergoing what it termed a "gentle" recovery. It's likely that what the central bank hoped for was an improving economy that would match up with the need for the housing market to break out of the bubble created by previous expectations. There would be some pricing and other consequences, but this would be compensated by improving levels of wages and employment.

    What the RBA and the government are reaching for now is some way of breaking the housing market bubble but mitigating the effects to the extent that the damage is defined and limited. This was actually the intent behind the ill-fated home insulation scheme which commenced in February of 2009 as a response to the global financial crisis. In policy terms it was a very good idea. The government rebated the cost of insulating homes (in 2008 only 61% of Australian homes had insulation), subsequently giving small businesses a boost, reducing energy consumption, and subsidising an increase in the value of houses.

    While the legacy of that scheme as a failed (and politically costly) stimulus is discouraging, it might still point the way to the kind of economic cushioning the government could introduce. The HomeBuilder scheme itself was careful to include as much stimulus for Alts as it was for new home builds, and we could expect that would continue with any future housing market stimulus packages. Future packages are also likely to have a co-investment of less than the $150,000 required for HomeBuilder.

    For example, we could see rebates for such Alts projects as converting kitchens from gas cookers to the more energy efficient and environmentally friendly magnetic induction cooktops. Or even rebates for the installation of smarthome systems that can help improve energy management, such as programmable communicating thermostats (PCTs), which enable homeowners to sign up for energy plans where the providers can alter the thermostat settings in exchange for lower energy rates. This might allow energy suppliers to, for example, increase the air-conditioned temperature of a home from 24C to 27C during a peak demand period, creating better overall energy management.

    What is important to bear in mind for the post-pandemic future is that it is unlikely the housing market will continue as it has been. Far too much of Australia's economic resources have been piled into propping this market up, when it in fact does not generate much in terms of development and productivity gains. While it may continue to prosper in the future, it will likely lose much of its current speculative glamour and return to a more reasonable role as a solid, long-term investment.

    statistics

    Big box update

    Proposal for new Subiaco store

    Some locals say “no” to Bunnings in Brunswick and progress is being made for a branch in Seymour

    Plans for a redesigned Bunnings store have been submitted for Subiaco (WA); a proposal to build a store in the inner Melbourne suburb of Brunswick has attracted criticism; and the smaller format store in Seymour (VIC) is expected to open early next year.

    Subiaco

    Bunnings recently lodged plans with the local Development Assessment Panel (DAP) for a $28 million building. It purchased the site where the building is located on Hay Street, Jolimont (WA) three years ago for $13million.

    The retailer withdrew plans for the Jolimont site after it received strong objections from the council and the community over traffic and design issues. Regional operations manager Hayley Coulson said there had been extensive community consultation for the new store, which will replace the Bunnings at Homebase in Salvado Road, Subiaco. She told POST Newspapers:

    Bunnings has substantially modified the design from the original DA lodged in 2017 to address the feedback on our previous planning application. These modifications include the addition of a customer vehicle entry and exit point in Hay Street and the installation of gates at the rear laneway...
    The rear building facade is proposed to be heavily landscaped with greenery, and building levels have also been adjusted along Hay Street to allow direct pedestrian access to the front of the store.

    If approved, Ms Coulson said the store would represent an investment of more than $55million, create 120 jobs during construction and employ 30 extra people when completed.

    All team members from the existing Homebase Subiaco store would transfer to the new store once complete.

    Brunswick

    Under a $21 million plan to build a warehouse store with 250 underground parking spaces in Brunswick (VIC), the Chamton building on Glenlyon Road would be demolished and replaced with a two-storey shop that backs onto nearby Pitt Street for truck access.

    Bunnings currently leases a store on Sydney Road in Brunswick and it is up for sale. Toby Lawrance, Victorian regional operations manager at Bunnings, said moving sites would employ an extra 50 staff. He told The Age:

    Bunnings has been part of the Brunswick community for five years and it's become clear that our existing store is too small to cater for demand from local residents. We're looking to move to a new store with space to offer a wider range of products that would also create around 50 further jobs for locals, in addition to the 50 team members currently employed at the Brunswick store.

    Mr Lawrance also said the design was tailored to fit with the local area.

    The design would not be a typical warehouse, but would have features such as a shopfront with window glazing, a cafe at the front of the store and a dedicated pedestrian entrance that fits in with local surrounds. While the site has a long-established industrial use, we value the views of the community and look forward to working with council to review and respond to community concerns as we progress the application.

    He said traffic management had been carefully considered, and that an independent noise assessment had been commissioned.

    A report by developers Metropol Planning said the existing Chamton building was underutilised by employing only 30 people.

    However, Moreland Council has received more than 350 objections to the proposal, which would have a maximum height of 15.4 metres and taper down to 14.2 metres. It would include a cafe on the ground floor and an outdoor nursery on the first level.

    A number of locals led by resident Andrea Bunting have organised to fight the development, which she said is almost completely surrounded by homes and would overshadow them in winter. She told The Age:

    It's a huge, visually bulky development. We can't find any other Bunnings that's almost completely surrounded by homes. This is just unprecedented.

    She said immediate residents were mostly concerned about the loss of sunlight, and that traffic was a broader concern for locals.

    Ms Bunting, whose flat backs onto the site, argued the proposal would strip business from the nearby Lygon Street Nursery. She said a Bunnings store belonged in an industrial area where there were fewer pedestrians and cyclists.

    The proposed underground car park would be accessed via Glenlyon Road. Trucks and heavy vehicles would use Pitt Street, a small residential street. Metropol Planning said there would be no impact on the safe and efficient functioning of Glenlyon Road or Pitt Street.

    The plans also account for 14 bike spaces. Local planning rules would normally require 45 bike spaces but Metropol argues that most customers would buy bulky items and need to drive.

    Moreland Council officers will consult affected neighbours and prepare a report, to be presented to councillors in November or December this year.

    Seymour

    The central wall of the new Bunnings store located on Anzac Ave, Seymour (VIC) has recently been completed, with building work progressing the on the steel framing and roof. This store will sit across 4500sqm and have car parking for more than 70 cars.

    Bunnings area manager Mary Corso told the Seymour Telegraph the new development represented a significant direct investment in the local community and would create a number of new team member positions. She said:

    The new Bunnings Seymour will create up to 45 jobs for local residents and we're excited to bring a wide range of home improvement and lifestyle products to the Seymour community.
  • Sourced from POST Newspapers, The Age and Seymour Telegraph
  • bigbox

    CRH seeking opportunities in Australia: report

    Ireland based, London listed building materials company

    Reports have linked CRH with a number of Australian construction and building groups, particularly Boral

    Ireland's biggest company, building materials giant CRH has reportedly been examining opportunities in the local building materials industry, according to the Street Talk column in The Australian Financial Review (AFR). It is understood CRH staff have spent the past 12 months or more making sense of Australia's building materials sector, at a time when companies such as Boral, Fletcher Building, ADBRI and BGC Group are potentially being considered for sale.

    CRH already has a presence in the market with Ancon Building Products, Cubis Systems Australia and CR Laurence.

    Ancon designs and manufactures a wide range of high integrity steel fixings for masonry and concrete construction, for large residential developments and infrastructure projects including major bridges, tunnels and highways. Cubis Systems is a manufacturer and supplier of a range of precast concrete and modular cable pits, manholes, plinths and access covers. CR Laurence is a supplier to the glass and glazing industry.

    The report in Street Talk speculates that CRH could be targeting Boral's Australian assets. CRH has been linked to a buyout of the building products company after it was reported in the Data Room column in The Australian earlier this year. David O'Brien, analyst at Goodbody, told the Irish Independent:

    Management indicated that a move into Australia would make strategic sense given it's a developed market and it would not provide any competition issues.

    Analysis by investment bank and financial services company Morgan Stanley in June found that Boral is an industry leader or top three player in Australia's construction materials, roofing, timber and plasterboard markets.

    It is likely Boral would be at the centre of any action, particularly if the government pushes ahead with infrastructure spending packages later this year as tipped by some analysts and investors. If CRH did make a move in the local market, it could create a bidding war and/or round of industry consolidation, according to the AFR report.

    CRH became the third-largest building materials supplier by market value internationally when it acquired the USD6.5 billion of assets from Lafarge in 2015 following the merger between Lafarge and Holcim.

    In August, CRH said it would be more cautious with mergers and acquisitions going forward, as it suspended its share buyback program. Albert Manifold, chief executive of CRH, said while the company is always looking at mergers and acquisitions (M&A), the issue at the moment is the lack of visibility about the future. He told the Irish Independent:

    In times like [these] you tend to be more cautious. A lack of certainty about the future performance of a business makes you want to pause your actual process. We have not hit the pause button yet, but we will be cautious.

    The company spent EUR727 million last year, on just over 60 acquisitions and investments.

    While CRH is focused on building capacity to go and do future M&A, it "feels like 2011-2013", Mr Manifold said.

    We could see there would be growth again, and when that happens we would like to be able to go out and execute deals with more certainty than we would have at this moment in time.
  • Sources: Australian Financial Review and Irish Independent
  • companies

    DeWalt and Powers under one brand

    DeWalt(r) Engineered by Powers[tm]

    It aims to deliver a complete anchoring and installation system for the construction industry, emphasising performance and productivity

    New brand, DeWalt(r) Engineered by Powers[tm] is prepared to meet the growing demands of the estimated $240 billion construction of work in 2021, based on data from the Australian Bureau of Statistics, Australian Construction Industry Forum and Construction Forecasting Council. It said it will offer complete solutions that improve efficiencies, are code compliant and provide safer practice solutions with a focus on performance.

    Both DeWalt and Powers products have been used in the design and construction of many iconic structures around the world. DeWalt said it now brings anchors, power tools and accessories to the forefront of structural engineers, specifiers, builders, contractors and on-site trades, with an understanding of tools and fastening systems that can deliver cost effective and exceptional results for construction projects. Adrian Davis, managing director, Stanley Black&Decker, said:

    DeWalt is the trusted brand of choice for professional tradespeople, and Powers is a leader in the concrete and masonry fastening industry, so it makes a lot of sense to combine the expertise of these organisations to drive future innovation.
    The merger of the two brands positions us at the forefront of the construction and engineering industries in Australia and New Zealand. It also means that we can continue to support our products with expert solution and technical advice for all anchoring requirements, through our dedicated Enterprise Solutions Team. The team has been selected for their proven ability to respond to the demands of ever-changing industry requirements. The team is committed to adding value to our customers and projects, throughout the construction process.

    Professor Emad Gad, chairman of AEFAC (Australian Engineered Fasteners and Anchor Council) said:

    From an industry body perspective, AEFAC is pleased that DeWalt Engineered by Powers, which is one of the founding members of AEFAC, will continue to enhance safety and efficiency associated with the use of structural anchors and fasteners through its products, and further elevate the technical knowledge and data for design engineers and specifiers. Implementing international best practice and offering products and systems with ETAs [European Technical Assessment] provide confidence to all stakeholders by meeting deemed to satisfy provisions of the National Construction Code.

    The first product to be launched by DeWalt Engineered by Powers is the Blue-Tip 2 Screw-Bolt[tm].

    The mechanical anchoring range has state-of-the-art, one-piece design, heavy-duty screw bolt anchors. These anchors hold a number of technical approvals which allows it to comply with various building codes and regulations. It can be used in numerous applications across a number of trades including mechanical, electrical, HVAC, scaffolding, plumbing, interior finishing, civil construction and formwork. Mr Davis said:

    As part of our ongoing research and development, we continue to design products that meet today's requirements. The Blue-Tip 2 anchor is currently being used in a variety of applications by end users where a seismic rated anchor is required from a compliance stand point. Some of these projects include multi-residential units such as Quay Towers at Darling Harbour and St Lucia's Student Accommodation in Queensland, government projects including the Gold Coast Airport, Star Casino, Logan Motorway M1 Upgrade as well as tunnelling projects, M5 Tunnels and Metro Tunnel in Sydney.

    Along with compliance and ETA approved products, DeWalt Engineered by Powers said it will always push the boundaries to create innovative tools for the construction professional with an emphasis on cordless tools for installation of anchoring systems. The one-piece design of Blue-Tip 2 makes it is easy to install with a powered impact wrench and is the preferred choice for fast but reliable anchoring which is also fully removable. The Blue-Tip 2 anchors are also designed with a tough cutting thread that allows for low installation torque, ease of installation and increased productivity.

    companies

    Instagram influenced gardening trends

    Garden "inspo" on the social media channel

    The list of gardening trends was put together using desk research and social listening data. Those with over 100,000 Instagram posts were then omitted to show just the new, emerging trends.

    To compile the list of top gardening trends based on the most popular posts on Instagram, the research team from Love the Garden (formerly Scotts Australia, home to brands such as Osmocote, Lawn Builder, Debco and more) analysed over 100 different gardening related hashtags. Where duplication arose due to singular and plurals, as well as spelling variations, the hashtag with the highest number of posts was included in the study, and the others were omitted to avoid duplication.

    To uncover the emerging trends, the team set the metric of 100,000 posts as the limit before a trend becomes established, anything under 100,000 posts was classed as emerging. (All figures were correct as of 1st August 2020.)

    Here's what the Love the Garden team discovered. The top 10 up and coming gardening trends include the following:

    1. #balconygardening - 96,817 Posts

    One in 10 households in Australia have no access to a private or shared garden, but what many people living in urban areas do have is a small outdoor area on an apartment balcony or patio. Balconies can make an ideal space for a garden, and balcony gardening is the top up and coming gardening trend right now.

    Pictured is a balcony garden from @home.decorationstyle on Instagram

    2. #wildgarden - 91,777 Posts

    The second biggest trend in the up and coming list is the wild garden. Days spent pruning, mowing and meticulous garden maintenance are on the outs - there's so much else to enjoy outdoors and there are garden alternatives that don't require the effort.

    3. #insideoutside - 83,731 Posts

    This trend has been gaining traction in Australia for years, so it's no surprise to see it at number three on the list of up and coming garden trends. People living in Australia spend so much time outdoors that many have already adapted their home decor and styling to flow from one space to another.

    4. #tinygarden - 80,752 Posts

    Many people don't have a private garden or outside area or have to make the best use of a very small space. Just like those innovators making the most of small spaces indoors, the tiny garden trend is blooming at number four in the list.

    5. #raisedbedgarden - 78,910 Posts

    This trend is simple and straight forward and can look great too. It's no surprise that the raised garden bed is a real up-and-comer on Instagram.

    What the Instagrammers say: "The obvious benefit of raised garden beds is the height, preventing aches and pains from bending down and tending to a traditional garden. Additionally, keeping crops up and away from pests like slugs and snails, cats and dogs will assist in preventing them from being attacked or damaged."

    Pictured is a raised garden from @old.man.sara on Instagram

    6. #permaculturegarden - 76,576 Posts

    A holistic approach to gardening, permaculture gardening means "permanent agriculture" and it's defined as working with natural forces - wind, sun, and water - to provide food, shelter, water and whatever else a garden needs.

    7. #whitegarden - 51,750 Posts

    The clue really is in the name with this one. With just a quick scroll through Instagram, users can see that against a backdrop of dark green, white flowers are really eye-catching. There's something so pure and classic about them.

    8. #windowsillgarden - 48,432 Posts

    This really is one for those of us who don't have much space at all. Lack of space encourages real creativity. This isn't a huge trend in Australia but it's developing - our housing style generally doesn't suit windowsill gardening, except perhaps an herb box outside the kitchen window.

    What the Instagrammers say: "With more time at home than usual, we've all started to realise the importance of home and the space around us. With outdoor space in cities at a premium, a windowsill garden is the perfect way to utilise what room you do have to bring that much needed element of 'green' to our city lives."

    Pictured is a window sill garden from @windowfleur on Instagram

    9. #greygarden - 45,124 Posts

    Not satisfied with being one of the biggest interior design trends of the moment, grey is really beginning to make an impact in garden design too. It's not that surprising that this trend has made its way into the list of up-and-comers.

    10. #cottagegarden - 37,021 Posts

    Who doesn't dream of a quaint country cottage to escape to every night or maybe just on the weekends? A cottage vibe can be created in any garden. Judging by the number of posts on Instagram, plenty of people are doing just that with this growing trend.

    Current trends

    Sustainability a key word on many people's lips at the moment so it was no surprise to see #growyourown on top of the list as the biggest, overall trend. The same goes with #organicgardening at number 3.

    With so many of us living in urban areas, #urbangardening is number 2 and #indoorgardening at number 5. Both #verticalgarden and #containergardening are in for green fingered space savers, while some classic styles including #japanesegardening and #countrygarden also make the list.

    What the Instagrammers say on #verticalgardening: "If you live close to the city, you know how rare it is to stumble upon rentals that offer any outdoor space. If you're lucky, you have a modest balcony or a communal outdoor space. So how do we best make use of our small urban spaces? Look up! The best thing is, thinking up doesn't require any fancy trellis structures (which tend to be expensive if it is not a DIY project). Most spaces already come with what is required, equipped with fencing, brick, railing, stairs, an overhang deck, or an awning. Utilising all wall space and existing structures can dramatically change the landscape from a concrete box to a vertical garden oasis."

    Pictured is an image from @fauxfarmfixer on Instagram, part of the #sustainability garden trend on Instagram

    What makes the top of the list? It's all about the colours with #greengarden in at number one and #bluegarden in at number three; #colourfulgarden makes it in at number six with #redgarden also sneaking into the top 10.

    The users of Instagram have spoken. We know it's all about colour when it comes to the top hashtags. We can see that plenty of the up and coming trends focus on space saving, a dash of colour and getting back to nature in a genuine way.

    And in the all-time stakes? Sustainability is really coming to the fore once again, along with some of the classic styles that endure for a lot of people.

    reports

    Bondi Junction Timber & Hardware

    Small store, great strategies

    Smaller hardware stores all too often become jumbles of different products that require a map and a compass to find just what you want. Bondi Junction is instead a thoroughly modern, neat, organised and clean store, that features great merchandising.

    The Bondi Junction Timber & Hardware Store (Bondi Junction Hardware) has been operating in one form or another at its Oxford Street location for well over 60 years. Its modern, most recent incarnation really dates back to 2009, when one of its employees, Neil Houlton, decided he would take over the store, as something he could do through his "retirement" years. As part of that deal, he took on his daughter, Kerry Renshaw, as a silent partner.

    Most unfortunately, Mr Houlton passed away in April 2015. That left Kerry as the sole director of the business - which was a little difficult, as she was living in the US at that time with her young family. For the next two years, the business continued with some of the established managers, such as Ken Dunlop, at the store helping to make it work. Kerry eventually found her way back to Sydney, and started being more hands-on in managing the store as well.

    In mid-2017, with the current managers looking to move on, Bondi Hardware found itself looking for a new manager. And that is where Adrian Blythe entered the picture. As Adrian tells it:

    I knew one of the guys that was retiring. I knew both [managers] from my wholesaling days as well, so I've had a relationship with both of them for a while. And it just came up in a general conversation. Because when I left the last retail store, I went back into wholesaling for a while.
    So I was coming into the store to sell product and that. And then I got talking and Ken was saying, "Oh I'm retiring." And then the next time I came in he said, "I know now I'm going to retire soon." So I'm saying, "What are they doing, who are they going to replace you with?" He says, "I don't know." And then the last time I came in he says, "I'm now retiring in a month."
    I said, "Well, I might be interested, maybe." I was like, you know what? It's a nice small shop, I've got a bit of an intimate knowledge, after being a wholesaler for six years servicing this store. Dealing with them for six years as another of my retailers, so always kept in touch.
    And it just sort of went from there.

    While Adrian is responsible for much of what goes on inside the hardware store side of the business, Alan Grinham handles the very active timber yard. He's been in hardware since the late 1990s, and has worked at Mitre 10 and what he terms "the other one" (Bunnings). Alan claims that working at "the other one" was just an accident, during a transition.

    As Adrian describes their comfortable working arrangement:

    Alan focuses on the outside, the lengths of timber, the sheet material, the cement that I'm cutting, that sort of stuff. And then we help each other out when it comes to special orders, customer orders, various things like that.

    One change for both of them was working at a store that was part of the Hardware & Building Traders (HBT) buying group. Bondi Junction Hardware has been a member for well over 10 years. For a small, very active store, what HBT has to offer has proved ideal. As Adrian explains it:

    This is the first HBT store that I've worked for, but I have noticed that they do put a big emphasis on not trying to tell you how to run your store. With HBT they mainly help you out with rebates. So you get to a certain spend you get rebates, or just whether there's certain deals going and stuff like that.
    But they will let you run your business how you want to run your business. As opposed to [Independent Hardware Group (IHG)], who want more of a say. You have to have the products, you have to be in catalogues, and so forth.
    We use predominately HBT suppliers. Because they look after us, so we tend to help out by sticking to those ones.

    Store strategy

    What's really interesting about Bondi Junction Hardware is that Adrian has built the small store to work as a well-stocked, orderly and effective retail experience.

    Since I've come on board, I've re-laid the whole shop. And not just in terms of moving stuff around. Before the idea was that "our tradies don't care, they just want stock".

    In some ways, that's part of a generational shift. But it's a particular generational shift, and Adrian outlines the root causes.

    You need to have a layout. You need to have a proper format. Maybe once upon a time, let's say pre-Bunnings, they were probably like that, it didn't really matter to tradies much. But Bunnings has forced a lot of the smaller shops like this I suppose, to run a proper, actual format. If you can make it easier for the guys to find what they want, that increases overall sales.

    That statement is important because it remains difficult for many hardware retailers to admit just how much influence Bunnings has had on the market. That influence really grew during the time the big-box retailer was competing with Woolworths' failed Masters Home Improvement. And there is also the background influence of IHG's Sapphire store program.

    While it is possible to go to extremes that are really not all that useful to the tradie market, expectations have shifted. In particular tradies are very time-conscious. As Adrian says, it is simply vital to have a store that presents as clean, well-organised and consistent.

    A good example of the kinds of changes that Adrian made were with drill bits, which saw him move to stock more from Sutton Tools.

    One of the first areas was all our drill bits. We had all these really old, beaten up racks that were all different sizes, and they were all bent, and stock was just anywhere. It cost us nothing, it cost nothing from the suppliers, they'll supply the racks. So I got the company to come in, put some new racks in. We looked at the range, they were able to expand on the range of what we sold.
    A lot of the times you've just got to use your suppliers. So people like Sutton, they came out and brought out the new racks. And the rep spent a day here pulling all the stock down, re-laying it.

    Packaging

    Adrian also benefitted from some suppliers finding alternative ways to handle packaging changes, especially when it comes to changing packaging over.

    One particular paintbrush we had never sold. There was almost no sales history on it whatsoever. Then the company rep came in one day and said, "Oh look, we're actually rebranding, doing new labels." So he offered to send out all the new labelling. So we had to pull off all the old cards and repackage. And the new packaging was much better, a nice green. Just like that, all of a sudden, those brushes started selling. Purely due to the packaging change.

    There is a lot to that brief story. First of all the recognition that the problem wasn't the product, but the packaging. Secondly, getting a really good package redesign. Then, in a way that preserved costs for the supplier, was very environmentally friendly, and resulted in rapid change, simply shipping out the new display cards for the retailer. The retailer, of course, is highly motivated to sell the stock, and this process is actually easier than, say, destocking then restocking the product.

    Expansion points

    Adrian is also alert to some of the high-margin incidentals that can help make a store both more amenable to customers, and polish up its numbers a bit. One change Bondi Junction Hardware made was to go from a vending machine selling soft drinks, to an in-store fridge.

    We bought a fridge, and you get those really hot days, a couple days we've been cleaned out of Gatorades or Powerades. Because they've got all the guys onsite and it's a 40-plus degree day.
    That replaced a drinks machine, but no one really thought it was ours. It was costing lots in terms of electricity. When we moved to having the in-store fridge, we started selling lots more.

    Timber

    While Adrian has been hard at work making the store itself into a well-functioning retail system, Alan has also been working hard on the timber yard of the store - which is a big driver of revenue and profit. Of course, many of the problems that Adrian faces inside the store, Alan faces outside the store, only magnified a couple of times across a more narrow range. The store's space, given its location, has to be compact, and timber, of course, is anything but compact.

    There is a really defined market for timber from Bondi Junction Hardware. First of all, given the high level of traffic congestion in Sydney from 7am to 7pm, being able to get timber without leaving the city is a big advantage. As Alan describes the situation:

    So I suppose you could say in the heart of eastern suburbs where we are, we're the only timber supplier. The nearest one to here, you'd have to go over the East Gardens [a 20 to 40 minute drive]. So if someone asks for something we haven't got, and we say "Look, I haven't got any, but they'll probably have it over there near East Gardens, "they'll almost always say "I'm not going that far."

    Results

    One very good metric to judge the success of a smaller store in an active environment is ticket size. With limited, niche trade traffic, how much is spent on each transaction is a vital measure of success.

    According to Adrian, the average transaction size is a healthy $100-plus. That compares favourably to the smaller average transaction size of $30 to $40 many stores have. Of course, equally, given its position and the predominance of trade customers, there are fewer transaction. Around 500 a day may be a comparable average for stores elsewhere, while Bondi Junction Hardware typically does fewer than 200. That said, for a smaller store, the combination of high ticket sales and fewer transactions is much better than mid-range tickets and mid-range transactions numbers.

    That is in a store where the total area is 750 square metres, and of that only 105 square metres are for the store area itself (the rest is the timber yard).

    Working for an owner who is an accountant, it is also important to make sure that the gross profit numbers are heading in the right direction. As Adrian tells us, he and Alan have managed to make that happen. Like most good retailers, this has not been as simple as just bumping up the prices.

    The owner keeps a close eye on the figures. Since I've come on board I've been able to reduce the spending, I've been able to increase the sales. Which has meant we're making about 10 points more, on the gross profit.
    It's not through raising prices. A lot of it was through decreasing some of the prices. But when you decrease, you start to sell more, unit price drops. So you might directly seem to lose a bit of gross profit, but then with the volume you sell, it tends to make up for it. It was a matter of looking at stuff like that.

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    ABS Stats: Where next?

    Retail revenue, building proposals and work done

    The pandemic has boosted hardware revenue from April to July 2020 by $1.9 million over the corresponding period. That's welcome, but how long will it last?

    At the moment, what every business owner - and especially every retailer - wants to know in Australia is: what happens next? What does Stage II (and Stage III) of the pandemic look like?

    A series of emergency measures - JobSeeker, JobKeeper, interest rates below 1%, mortgage repayment "holidays" - have kept Australia away from the kind of financial panic which, combined with the pandemic, could have been catastrophic. But, as Australians wait for the delayed Federal Budget to be delivered in October, the signs that are coming from the government seem to be more about uncertainty than anything else.

    The fact is that while there are nations that have handled the pandemic better than Australia - though Australia has, by global standards, done pretty well - the number that have successfully reopened their economies after the pandemic shutdown in March and April is very low. In early May we heard the Australian Prime Minister, Scott Morrison, harangue Australians to "get out from under the doona". Since infections ballooned in Victoria, very little more has been said on the subject.

    For retailers, as we learn more about the Sars-CoV-2 virus, it has become increasingly evident that the classic retail shop (as well as bars and restaurants) represents an almost perfect venue for transmission to occur. Most retail is indoors, crowded, with poor external ventilation, people constantly touching surfaces, and so forth.

    The difficulty, as we've seen in Victoria, is that even if numbers have been brought to a very low level, if they start to grow quickly, the available resources, such as testing and contact tracing, are quickly overwhelmed. What that means in practical terms is that until there is an actual vaccine available, the fight is not about bringing a booming economy back, but creating essentially a subsistence economy, based on very controlled risks, with the likelihood that there will be some three to four week periods when harsher restrictions come back into play.

    Hardware retail

    The Australian Bureau of Statistics (ABS) has released retail statistics for July 2020, though these do not include the most recent numbers for the Northern Territory and Tasmania, so we (unfortunately) have to exclude these. Looking at the first chart for the 12 months to July 2020, we can see an expected pattern.

    Sales during 2020 have been accelerated, resulting in considerable overall gains. The Australian Capital Territory (ACT) is the winner in terms of percentage gain, at 17.28%, but Victoria (VIC) gained 14.42%, increasing revenue by $805 million. New South Wales (NSW) saw a gain of 10.22% and $586 million, while Queensland gained $448 million, an increase of 11.09%. Western Australia and South Australia had growth of 13% and 14% respectively. Australia overall saw hardware retail revenue increase by 12.25% to $21.9 billion.

    The second chart shows the percentage increase for comparative 12 months to July. As you would expect there is a sharp clustering of growth, as the pandemic and the subsequent increase in hardware sales is a nationally defining factor.

    Chart 3 shows a month-on-month comparison between August 2019 to July 2020, and August 2018 to July 2019. While the other two graphs are good for getting an overall context, this graph is perhaps the most interesting in terms of seeing what the pandemic is doing monthly. The peak month for every state except VIC is May. VIC peaks in June, and then declines less than the others moving into July.

    We can predict a high likelihood that we'll see VIC decline fairly sharply for August and September, when those numbers come out, as DIY consumer retail will be shut down. What will be really interesting is to see how much states such as NSW, QLD and WA decline. Will the trendline go down steeply, or will some of the home improvement spending prove to be more "sticky"?

    Building industry

    In terms of looking further into the future, with most independents relying heavily on trade sales, the stats from the building industry are of particular importance. It is always difficult to forecast accurately based on building proposals. Chart 5 shows the number of building proposals for the trailing 12 months to July, and Chart 6 shows the percentage change when comparing those 12-month periods.

    The major feature of these is to outline that the fall for the prior year was much more significant than the fall in the most recent year. It's likely that is a function of lowered interest rates as much as anything else. Builders likely expect there will be lag between when the economy recovers and interest rates rise again, especially as the RBA had indicated it is willing to tolerate a higher rate of interest (we would guess up to 3%) than it has in the past.

    Chart 6 compiles the value of work done for the year ending in the June quarter. As it shows, after rapid growth through to 2016, driven primarily by work on multi-unit dwellings, growth slowed in 2018 and 2019, before showing decline in 2020.

    Alteration & additions (in this case, those that required permits) showed slight but steady growth.

    Chart 7 shows the comparative growth rates for these periods. 2019 shows a consolidation around slightly negative to slightly positive growth rates, followed by a slide down to decreased activity, with alterations & additions falling the least, and multi-unit dwellings falling the most.

    Chart 8 shows a quarter-on-quarter comparison from the September 2016 quarter through to the June 2020 quarter. Alterations & additions show slowing decline in the December 2019 quarter, followed by a lift into actual growth in the March 2020 quarter, and then a return to slight decline in the June 2020 quarter. New houses also saw a reduced decline in the March 2020 quarter, before returning to its December 2019 quarter rate of decline in the June 2020 quarter.

    From this we can determine that while the June 2020 quarter has not been good for the work done numbers, there was already a pattern of decline present. Alterations and additions did get a boost in the March 2020 quarter, but this was surprisingly short-lived.

    Analysis

    Putting this all together, what is the picture that is revealed? First of all, most people would agree that the current recession is likely to be finite, in that it has not been caused by anything structural in Australia or internationally. Longer term effects will include both a reduction in overseas immigration to Australia, as well as reduced birth rates (which affects, for example, people upsizing their dwellings). However, both of those are, to some extent, reversible. We could see increased migration in 2023, for example, and birth rates might catch up as well.

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    Retail as audience

    How the pandemic will accelerate change in retail

    While the pandemic has created problems of its own, it has also more clearly outlined tensions between past and possible future ways of doing retail

    Sars-CoV-2 and the disease it causes, COVID-19, has had a very direct and immediate effect on retail, causing stores to close and customers to stay away. But could it also have a longer-lasting and more fundamental effect, as science and new technical capabilities assume a prominent place in social and economic life?

    The whole catastrophe

    It's worth considering, for a moment, exactly what a catastrophe, such as the pandemic, really is. "Catastrophe" has two main meanings: the result of a disaster, and - curiously - the denouement, the final, climatic development of a classical tragedy (such as Macduff killing Macbeth in Shakespeare's play). The latter was its original meaning, and it began to be used for the former in the mid-18th Century.

    So there is a commingled sense that catastrophes are at once surprising and yet often seem to have been predictable after the event: the volcano that erupts, the earthquake along a known faultline - or, indeed, a pandemic taking a shape foreshadowed by both scientists and science fiction writers for decades.

    Given those warnings, it's not really possible to put these events down to "bad luck". What they really are, typically, is what Americans would term "a wake-up call". What catastrophes really do is to point out the significant gap that has developed between the accepted and expected view of things, and the actual, underlying reality.

    The problem, of course, arises in determining where that gap really exists. After the sinking of the Titanic, for example, it might have been tempting to undertake an extensive study of icebergs. The reality, though, was that the shipwreck revealed Edwardian England did not know as much as it thought it did about both metallurgy and ship design.

    It is just so with the pandemic, as well. For example, there has been a persistent desire to see its lesson as being, in one way or another, that "China is bad" (because it was the origin point of the Sars-CoV-2 virus). China, in this case, is just the iceberg. Of course it has all the attractions of the "blame the iceberg" approach: no one is really to blame (except China), and the world can be said to have been behaving perfectly (except China).

    But blaming China is not, self-evidently, going to stop the next pandemic - nor will it help nations of the world recover from this one. Which raises the question: what will help stop another pandemic, and possibly hasten recovery from this one?

    One clue might be to look at the practices of those nations that have been successful in stemming the effects of the pandemic, often securing better economic outcomes as well. The approach to the pandemic in nations such as Australia, the US, and the UK, as well as much of the EU (except Germany) has been to see it as a matter of people interacting with a virus. This has resulted in an emphasis on moving people with some probability of having contracted the virus into some form of medical detention. (HNN notes that the word"quarantine" is frequently used incorrectly. You cannot, technically, quarantine someone who is known to have a target disease. It's purely a preventative measure - and originally lasted 40 days, which is the origin of the word.)

    Other countries such as South Korea, Taiwan and Germany, have taken an information approach instead. Their emphasis has been on contact tracing combined with extensive, early testing. One reason why all three have adopted that approach is due to the legacy of their prior experience with other diseases in recent times. Mistakes they made then taught them the benefits of contact tracing. South Korea fought off Middle Eastern respiratory syndrome (MERS) in 2015, and Taiwan was hard-hit by severe acute respiratory syndrome (SARS) in 2003. Germany suffered a major outbreak of e. coli in 2011 - 3,950 people were affected, 53 died, and 800 suffered hemolytic uremic syndrome, which can lead to kidney failure.

    It is also the case that many of these early, successful approaches have run into trouble at a later stage. The record for countries being able to control the pandemic when restrictions are lifted, no matter how good their contact tracing may be, is poor. Most have attempted to balance economic activity against pandemic spread, and most have, unfortunately, not found that balance.

    Post-manufacturing

    Restated, the problem of Sars-CoV-2 virus and the pandemic it has caused really has to do with the way in which linked global societies have managed only a partial transition to an information-driven environment. Manufacturing, finance and product development have been globalised, but not disease detection, prevention, and treatment.

    It's helpful to look at this situation in terms of a historical change that is underway. The best label we can come up with for this change is "post-manufacturing".

    Post-manufacturing does not, of course, refer to an an economy which has stopped making objects, such as cars. What it does refer to is an economy where the growth in value has shifted from the manufacturing processes themselves, to the ability of the products produced to successfully interact with software.

    Of course, this is not the first time that the economy has taken this kind of turn. From around 1890 to 1930, the same thing could have been said about electricity, where engagement with this technology became central to economic growth. Electricity was joined by the internal combustion engine from 1910 to 1940, plastics from 1920 to 1970, and, post-war, from the mid-1950s to the early 1980s, transistors.

    That said, software is emphatically different from all these other economy-boosters. It is not produced by industrial means, but rather results from the practical application and distillation of knowledge itself. It responds to issues of scale, economically, but does not require scale to be produced, opening up the potential for different methods of development, production and distribution, such as open source.

    Those characteristics means its capacity to add value is both astonishing, and yet uncertain. A prime example is provided by Tesla, the most successful global maker of electric cars. Founded in 2003, the company completed its initial funding round in 2006, and launched its first vehicle in 2008. The Roadster was a Lotus sportscar powered by electric batteries. When Tesla launched its Model S four years later, the automobile as software was finally achieved.

    The Model S isn't just about electric motors, it's also about near-autonomous driving, which has the capacity, when developed into fully-autonomous driving, to help change national economies. What we're talking about, basically, is a single-purpose robot as car.

    Despite the evident success of early post-manufacturing businesses, it's easy to understand why making the necessary shift is so hard. Manufacturing, in its more modern sense, has been with us now for over 200 years, dating back to the late 18th Century. Mass production took off, firstly in the US, in the 1850s, and was, indirectly, a contributing cause to the American Civil War. In the early 20th Century, it came to reshape the US and other economies, helped by electrification of factories and better techniques in steel production.

    During World War II manufacturing developed further techniques of scale, and this helped to fuel the post-war boom of the 1950s and 1960s. It hit historic highs as the chemical industry developed new materials, in particular polymer-based plastics.

    Beside boosting economies, manufacturing also influenced the way things were done everywhere in society, along with a responsiveness to the organisational principles of the military, to which most working people had been exposed during the war years. Schools, hospitals, restaurants, police and even governments all shaped themselves around manufacturing principles. It has become, especially for the past 75 years, simply the way things get done.

    Yet while many decry the shift of manufacturing to China and other low labour cost countries as an economic problem, a more accurate view is that what has been transferred are those activities that have the lowest future growth potential. The problem comes down to localities which have lived through three successive generations where most families were supported by a vibrant manufacturing base, and who now find themselves struggling to adapt to change.

    So it is not an economic problem. It's a social problem. One indicator of this is that, while countries such as the US, the UK and Australia worry about the shift of manufacturing jobs to China, countries in Latin America are also confronting what they overtly refer to as post-manufacturing. Their problem isn't China, however, it's the increasing automation in developed countries, which means those countries are now shifting less manufacturing to places such as Mexico and Brazil.

    Post-manufacturing retail

    What does this mean for retail, and specifically home improvement retail?

    Most of the debate about how retail might change concentrates on how much revenue comes in through online sources, and how much originates from physical stores. That narrative cites some changing numbers for online purchases during the pandemic which could prove "sticky" into the future.

    It is no surprise, of course, for retailers to discover that online retail has jumped significantly. In the UK, this has seen online sales climb from a 20% share to a 30% share, while in the USA online has lifted from 17% of overall retail sales to 22%. (These figures are net of car and car part sales, as well as restaurant and bar/pub sales.) In Australia, the growth in online sales has surged by 49%, to reach close to 12% of overall retail.

    Some individual stores did well out of online. The department store Myer, for example, sold $422.5 million online for its FY2019/20. This amounted to 17% of overall sales, and represented a 61.1% increase on the previous financial year.

    But if we are thinking in terms of post-manufacturing, it is debatable whether the split between physical and online sales/distribution matters as much as the industry currently believes. If the metric of post-manufacturing is all about how much engagement with software it enables, online offers itself as a ready place for that. Yet most customers today, and for some substantial time, are unlikely to shift from physical stores. Evidently, then, the real move for retail over the next five years is to increase software engagement in physical stores, while boosting engagement online as well.

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    retailers

    Store buildout in Australia and New Zealand

    Wollongong gets new Bunnings Warehouse

    Different merchandising in recently opened branches at Kembla Grange and Palmerston

    Construction has begun on a Bunnings warehouse in the Lockyer Valley (QLD); the Bunnings Kembla Grange store has replaced the Warrawong warehouse in NSW; Palmerston's $58 million Bunnings store in NT is three times the size of its previous site; Bunnings said it has outgrown its current location in Inverell (NSW) and there are plans to build a new store; there has been a lot of activity on the site in Wangaratta (VIC) where the Bunnings store is being built; the Bunnings development at Plainland (QLD) is going ahead; and site clearance work has begun for a store in Queenstown, New Zealand; and a five-level Bunnings Warehouse is tipped for Frenchs Forest (NSW) after a development application was submitted to Northern Beaches Council in June.

    Wollongong

    Bunnings Kembla Grange is a $62 million development that measures 17,000sqm, approximately 5000sqm larger than the old Warrawong store it replaced. There is a seven-lane timber drive-through which is more than double the size of the previous store, and there is under-cover parking for 400 cars.

    Complex manager Liz Politis told the Illawarra Mercury there were many new merchandising concepts in the store including different wardrobe and bathroom, as well as a kitchen design centre. There is also an extended artificial plant range, and garage storage displays.

    Palmerston

    After more than a year of construction, Bunnings Palmerston has welcomed customers. As part of the opening, the store has donated equipment, materials and PPE to several local and greater Northern Territory organisations such as the Jabiru Men's Shed, Helping People Achieve, and the Arnhem Land Progress Aboriginal Corporation.

    Complex manager Clayton Leeder told The Northern Territory News the store has an additional 20,000 lines, a seven-line drive-through and a bigger nursery offering with undercover landscape. There are 450 car spaces underneath and 19 at the front of the store. Inside the store, there are 12 brand new kitchen concepts alongside a wide range of bathroom displays.

    Well-known local landmark, dinosaur Big Kev is next to the nursery.

    Inverell

    Bunnings has indicated that it is looking to build a new store on a different site from its current premises in Inverell (NSW).

    The preferred site on Jardine Road would require rezoning by the Inverell Shire Council for a large format store development. Although Bunnings has made no formal re-zoning application yet, Inverell Shire councillors requested an information report be put together regarding the Inverell Local Environmental Plan 2012, according to a report in The Inverell Times.

    This was presented and discussed by councillors during a Civil and Environmental Services Committee meeting.

    The committee's resolution was to request additional information regarding the number of vacant residential blocks and approved residential subdivisions within one kilometre of the B5 Business Development Land Using Zoning on the corner of Jardine Road and Gwydir Highway.

    However, the proposed rezoning has received support from the Inverell Chamber of Commerce. Chamber president, Nicky Lavender said:

    This development would secure approximately 45 new jobs and go close to doubling the size of [the current] Bunnings store. In a period of time where large national companies are pulling out of smaller regional communities, we have one that wants to invest in Inverell.

    Wangaratta

    Bunnings is expected to open its doors to the new Wangaratta store in mid-November. This outlet will have a 4300sqm retail warehouse, a drive through timber sales area and an outdoor nursery.

    Bunnings regional property development manager, Andrew O'Neil, said the project was running on schedule. He told the Wangaratta Chronicle in July:

    The site will undergo a transformation over the next month. This is because the structural steel for the store is scheduled to be erected.

    Plainland

    The $19 million Bunnings store that is being be built at Plainland in the Lockyer Valley is expected to open next year. It is being developed by De Luca Corporation. Founder and managing director Nic De Luca said the Plainland site was a strategic acquisition for the business, following its Kingaroy and Lawnton Bunnings developments. He told The Courier Mail:

    We're extremely excited and proud to be delivering new Bunnings stores in Queensland, particularly, during these challenging economic times. It is testament to our longstanding relationship with Bunnings.

    De Luca is also building other Bunnings Queensland stores in Pimpama and Yeppoon. The store in Plainland is part of a master planned community. Plainland Crossing Estate manager Joe Gorman said:

    With businesses such as Bunnings, ALDI, Bridgestone, Woolworths and McDonalds complementing the local businesses at Plainland, Plainland is now firmly established as an important hub for business and community activity in the Lockyer Valley.

    The Bunnings facility will be built at Plainland Crossing, on 5.123ha of vacant land bordering Endeavour Way, Burdekin Street, Gehrke Road and the Warrego Highway. The development plans detail 182 parking spaces, 80 of which are for staff, 10 motorbike spaces and four spaces designed for vehicles with trailers.

    Queenstown (NZ)

    Bunnings New Zealand is proceeding with work on a new hardware store in Frankton, a suburb of Queenstown. A spokeswoman told the Otago Daily Times the new store was expected to be opened in mid-2021.

    The Frankton store, which will provide competition for nearby Mitre 10 Mega and Placemakers stores, will consist of an 8100sqm warehouse and outdoor areas for a garden centre, timber and building materials yard, and parking for 134 vehicles.

    The company applied for resource consent for the Frankton site three years ago. Independent commissioners rejected the application in 2018, with a major bone of contention being that the use of the site would contribute to a future shortage of industrial land in the area.

    Bunnings appealed the decision to the Environment Court, which ruled in its favour 13 months ago. It responded to Queenstown Lakes District Council concerns by making changes to the design of the building's exterior, site layout and landscaping.

    Related:

    Bunnings NZ rejected for Queenstown store - HI News, page 18
  • Sources: Herald Sun, The Courier-Mail, Illawarra Mercury, The Northern Territory News, The Inverell Times, Wangaratta Chronicle, The Chronicle and Otago Daily Times
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    TradeTools positioned for current growth

    Hiring spree during COVID-19 restrictions

    Owner Greg Ford is all about sharing wealth with employees and not interested in selling out

    Founder of Queensland-based retailer TradeTools, Greg Ford is not afraid to share the wealth. He has over 50 shareholders and most of them are his employees.

    Mr Ford started TradeTools in 1987 to create jobs for himself and his father. In 2020, there is a workforce of 240 people across 18 stores located across the state from Tweed Heads to Cairns. There is also an outlet in Vanuatu and another Queensland store in Browns Plains due to open later this year.

    The global pandemic has accelerated growth for the retailer and has employed almost 30 new staff to cater for the unprecedented increase. About 10-12% of sales came from online. Mr Ford told the The Courier Mail:

    We're a little bit reluctant to admit it but we have had a massive increase in turnover ... We had one quiet week when COVID hit and then it went whoosh and it has never stopped. It's nuts.
    Every store has gone up and our figures are currently 60% above what they were this time last year ... I think we just drained all the money out of tourism ... because no one is going anywhere.
    If we manage to average our current turnover through the rest of the year, we are going to be looking at $160 million, $170 million turnover.

    Mr Ford said sales could have been even higher if there was more stock to sell. The company was expecting 76 containers to be delivered at its head office in Stapylton on the Gold Coast in July.

    Profit sharing

    Having enough trained workers and keeping stock on the shelves have been the two biggest challenges the company has faced in recent months.

    It will take a couple of years to fully train new workers but Mr Ford does not anticipate any problem retaining them. TradeTools paid a weekly commission based on turnover and provides the opportunity for staff to become shareholders after 10 years of service.

    Mr Ford credits this profit-sharing initiative with helping the business to thrive before and during the coronavirus crisis. With an average staff retention rate of eight years, TradeTools staff are experts in their craft - a point of difference that he believes any competitor would be hard-pressed to replicate.

    While the remuneration of workers across the country has come under pressure amid the COVID-19 pandemic, many of Mr Ford's staff are benefitting from the surge in demand. He told SmartCompany in a separate interview:

    I don't pay myself a multimillion-dollar salary, I don't need it. The big corporates have never been able to get into the specialised end of the tool industry [due to a] lack of expertise.

    (HNN readers are already aware that Bunnings and Metcash have acquired once-independent brands Adelaide Tools and Total Tools.)

    The business owner said anyone asking to buy his company gets the same answer: "Not on your life."

    Mr Ford is British born, grew up in Europe and has lived in the United States. He has seen what happens when independent companies fold in the face of large businesses en masse and believes it's not pretty. He said:

    I've seen what happens when you basically let corporations run the country. That's what we see in the States and Europe.
    Companies like TradeTools can be privately owned and have a strong, engaged workforce. I want to see that philosophy continue to expand.
    I don't want Bunnings to be the only hardware company in Australia ... it's the whole point of TradeTools.

    But beyond this, Mr Ford wants more independent business owners to adopt profit-sharing initiatives with their workers, saying there is a range of benefits to sharing, whether that's aligning incentives to promote success or just being able to sleep soundly at night. He said:

    We spread the wealth around and everyone benefits. I cannot understand why others, especially in the higher echelons of business in Australia, just can't see that.
    It allows you to sleep at night knowing your employees aren't continually looking for a new job, and it allows you to be more trusting of the people who work for you because they're taking part in the profitability of the business.

    Mr Ford also sees a need to expand local manufacturing. TradeTools stocks its own range of locally made private-label tools called Renegade Industrial. He said:

    I've always thought we should produce more of our own products here. When I came to Australia 47 years ago many things were made in Australia, I've been sorry to see that so many things are now made overseas.
  • Sourced from SmartCompany and The Courier Mail
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    Ozito leases new warehouse

    Located in south-east Melbourne

    Ozito, whose biggest client is Bunnings, will be part of the Rubix Connect warehouse, factory and industrial estate

    Power tools and gardening equipment supplier Ozito is the first tenant in the 41.3-hectare Rubix Connect estate in Dandenong South (VIC). It will lease an 18,000sqm warehouse and 1815sqm two-level office at the site developed by Frasers Property Industrial (FPI).

    Situated at 875 Taylors Road, it is one of the last undeveloped tracts in the suburb, considered Melbourne's most valuable for industrial property outside of the inner city.

    FPI general manager - southern region, Anthony Maugeri, said the company is witnessing a strong flow of enquiry from e-commerce related businesses requiring more warehouse space. He told Real Estate Source:

    The DIY home market is also very active which is reflected in Ozito expanding and consolidating its warehouse footprint in Melbourne to meet customer demand. The south east region is Melbourne's most established core industrial market.
    It is close to a very large population base and has a limited supply of prime rezoned industrial land. This diminished land supply combined with strong tenant demand is leading to increasing land values and rents and decreasing vacancy rates.

    The Ozito factory will be developed at Rubix Connect's entrance, specifically a site at the north west corner of Taylors Road and Fox Drive. It will have two crossovers from each street.

  • Sourced from The Australian Financial Review and Real Estate Source
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    Reece signs up with LatitudePay

    Access to more home improvement customers

    It has recently taken out warehouse space at an industrial park that is part of Melbourne Airport

    Latitude Financial has confirmed it has added ASX-listed plumbing and bathroom supplier Reece to its interest-free "buy now, pay later" (BNPL) platform, LatitudePay, for people who are completing home renovations in a COVID-19 economy.

    Reece has benefited from the increased spending in the home, which is set to be bolstered further as the federal government starts paying its $25,000 homebuilder grants.

    LatitidePay is also used by retailers such as Harvey Norman and Forty Winks as well as tech giants Apple and Samsung. The company said LatitudePay was close to signing up 350,000 customers across Australia and New Zealand since its launch in September 2019.

    Latitude CEO Ahmed Fahour said the company was focusing on the home improvement space to capitalise on people spending more money on their homes during lockdowns as a result of the coronavirus. He told The Australian:

    Reece is an example of a business doing incredibly well with the growth of the home economy. Everything is geared towards the home economy for our business.

    The plumbing and bathroom group recently announced that its net profit increased 13.3% to $229 million The result was driven by a 10% increase in sales to $6 billion during in its 100th year of operations. In Australia and New Zealand, sales revenue grew by 0.8% to $2.88 billion.

    Reece managing director, Peter Wilson said the company's ventures arm, Superseed, has also launched an online job management platform for its customers in Australia and America. He said there were other innovations to come in new fields. He told The Australian:

    Our vision is to be a digital leader for the trades. We know we are a really important part of the way the trades operate. Increasingly as we pivot to a much more digital world, we want to be connected into their digital ecosystems.

    Reece followed its $1.9 billion acquisition of US-based MORSCO in 2018 with a $221 million purchase for Californian plumbing wholesaler Todd Pipe in 2019.

    More recently, the company has taken out a 10-year lease on a new warehouse it will move into next year, located at Melbourne Airport. Reece will consolidate a number of brands in the one site and service suppliers and customers from the purpose-built 11,670sqm facility in August next year. This follows Amazon's commitment to take space in the same industrial business park for its gig-economy Amazon Flex drivers to service its the city's northern and western suburbs. (See "Amazon's first robotic warehouse in Australia" story in this issue.)

    Capital raising

    In April, Reece raised $647 million to boost its balance sheet so it could capitalise on greater investment on plumbing and sanitation by customers arising from the pandemic.

    The company also said the funds would be used to support the business during the period of global economic uncertainty, increase liquidity, reduce net debt and potentially position it for acquisitions.

    Related:

    Reece sees future beyond ANZ market - HI News, page 31

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    Kingfisher online: the need for speed

    Focus on the customer, not group structure

    The home improvement group has hastened its ecommerce plans since the onset of COVID-19 but stores will be at the centre of this digitised strategy

    Just as chief executive Thierry Garnier was getting ready to reveal his strategy for European DIY group Kingfisher, he was interrupted by a global pandemic. The crisis hit when he was only six months into his job. He gave an interview to The Times where he said:

    They were classed as essential retail, but we needed to make them safe. We had to do it, but it was still very painful to have 85% of our stores closed for four weeks.

    Yet in hindsight the coronavirus outbreak may be seen as having helped his cause, giving Mr Garnier licence to be bolder than he might have been and stepping up his plans to revamp the business by focusing on online shoppers.

    To cater for the acceleration in online sales, managers dedicated excess space at the back of its stores to fulfilling online orders.

    The sprawling nature of Kingfisher's operations was an extra advantage. The home improvement chain has 982 stores in the UK, split between its B&Q and Screwfix brands, 221 French Castorama and Brico Depot shops and a further 165 stores in Romania, Spain, Poland and Russia. Mr Garnier explains:

    France was initially quite relaxed about customers using cash, but we saw that Spanish and British consumers were worried about the virus being on notes and coins, so we pushed them to bring in contactless payments.

    As stores started to shut in Britain, Kingfisher launched a new system of picking online orders straight from B&Q shop shelves and rolled out hundreds of click & collect sites. As a result, online sales have jumped fourfold since the start of the pandemic. According to its figures, online sales across Kingfisher grew by 202.1% in May and 225.2% in June, driven by a massive up-tick in click & collect.

    Even when stores began to reopen, online sales continued to soar, helping Kingfisher to deliver group like-for-like sales rose 19.5% in its second quarter to July 31, and are up 16.6% in the third quarter so far. E-commerce sales soared 164% in the first half and now represent 19% of total sales versus 7% in the same period last year.

    China experience

    Mr Garnier's strategy to drive online growth at Kingfisher relies heavily on his stint in China, where he spent eight years running Asian operations at supermarket chain Carrefour. In this role, he became used to seeing shoppers using messaging apps to make purchases, and to organising hundreds of motorbikes to deliver groceries from supermarkets at three-minute intervals.

    He believes that speed is the key to achieving success in online retailing in future. He said:

    I think fast home deliveries will be the way forward. You already have thirty minutes in China or one hour in the United States. There is a way for us to compete in this and if you believe that speed is the trend, using our store network is a very big advantage.

    Critics of Mr Garnier's strategy argue that most DIY customers know well in advance if they are taking on a home improvement project and therefore are more relaxed about waiting a few days for deliveries. However, anyone who has had the hassle of being halfway up a ladder before realising that there isn't much paint left in a tin might appreciate a faster service.

    Reacting quickly to customers' needs is an issue that has been a challenge for Kingfisher for some time. Mr Garnier's predecessor, Veronique Laury, attempted to unify Kingfisher's international operations into one group structure. However in the new CEO's view, Ms Laury's "One Kingfisher" determination to simplify sourcing meant that B&Q's managers had no freedom to add a single product to the chain's ranges without bureaucratic, sluggish approval from head office.

    As a result, this strategy is no longer being pursued and has attracted a lot of criticism. Mr Garnier said, "...it is more a question of how we can do things together versus us all being the same."

    He is also nonplussed about Kingfisher's boast that 63% of its product ranges are the same across the group. He said:

    I am not interested in that figure at all. I do not care, because it is of no interest to the consumer. Our strategy should be focused on the customer, not the group structure.

    The French chief executive said that his "Powered by Kingfisher" strategy, to prioritise online growth and individual own brands, would encourage a more agile culture.

    He said that there were different customer tastes and shopping habits between the group's regions, so "being under one banner is not the right direction for the company". Analysts at Investec called the shift a "U-turn".

    Screwfix openings

    Kingfisher also enjoyed a return to the FTSE 100 as the country's fervour for DIY helped sales soar. The retail group was relegated from the blue-chip index in March but returned in June.

    The boom in demand for home renovations during the lockdown has encouraged Kingfisher to open 40 new Screwfix stores this year, mainly in Ireland. There are 680 Screwfix outlets in the UK and it has a long-term target of 800.

    The trade-focused retailer kept its stores open throughout lockdown, offering a contactless service. Online sales also have been higher at Screwfix than in the rest of Kingfisher's businesses.

    Digital strategy

    JJ Van Oosten, who joined Kingfisher at the start of the year as chief customer & digital officer, has set about building his team and growing ecommerce as a percentage of total sales, said DIY projects "will always be more than just a financial transaction on a website or mobile phone".

    In a statement on the group's website, he said the coronavirus crisis prompted a shift in thinking for the retail chain.

    Whilst our ecommerce activity grew exponentially, far from rendering physical stores obsolete, we have seen first-hand how our stores have become more integral to our business, not less.
    As the seriousness of the pandemic grew and moved swiftly towards Europe, I remember having conversations at Kingfisher about our future ecommerce plans and whether our stores were going to be assets or liabilities to them.
    For me, they are 100% assets: located close to our customers, they are in the right places to serve them either physically, or digitally - as picking, collecting and delivery hubs - no matter where the financial transaction takes place.

    Mr Van Oosten added that the COVID-19 landscape became an "unexpected testbed" for future plans, enabling the business to roll out initiatives before they were "perfect".

    Its shops became micro-fulfilment centres or "dark stores" from which online orders were picked for click & collect and home deliveries. The company sold bedding plants online for the first time, too.

  • Sources: Reuters, The Times, Internet Retailing, Evening Standard and Essential Retail
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    Home Depot in the delivery economy

    Three new distribution centres

    The pandemic has underscored the importance of a flexible supply chain as customers gravitate more to online shopping and curb side pickup, according to the retailer

    The Home Depot will open three distribution centres over the next 18 months to keep up with customers' demands for speed and convenience. Since 2018, Home Depot has been investing USD1.2 billion to open about 150 supply chain facilities over five years. It is building different kinds of distribution centres to handle its wide range of products, from small drill bits to bulky items like pallets of timber. Stephanie Smith, senior vice president of supply chain development and delivery, told CNBC:

    We like to say that retail has changed more in the past four years than in our 40-year history. Covid has even brought this more to light. Customers expect to shop whenever, wherever, however they want whether they're buying a hammer or a pallet of pavers,
    We're investing to meet the changing delivery needs of our DIY and pro customers, whether they're at home, at their job sites or picking up in the store.

    Home Depot wants to offer same-day and next-day delivery to 90% of the U.S. population. At the company's analyst conference in December, it said about 50% of the US population had one-day delivery options.

    Nearly half of its sales - about 45% - comes from professionals, even though they make up less than 5% of its customer base. Those electricians, contractors, plumbers and other pros are one of the reasons why Home Depot is focused on working out ways to quickly move unwieldy or heavy items like cabinet doors or concrete. Ms Smith said:

    It's a very strategic, important customer where we see a lot of growth coming from. And generally, in our history as a company, if we develop something for our contractor or pro customers and get it right, then it works really well for our DIY customer as well.

    One of Home Depot's new facilities will be a 657,600-square-foot distribution centre that will open by end of year. It will help with rapid replenishment of stores in the south east of the country, so the products that customers want are more likely to be in stock.

    Another new facility is geared toward products carried by box trucks, such as local deliveries of vanities, cabinets and appliances.

    The third is a flatbed delivery centre, which will open next year. It will help fulfill same-day and next-day delivery for oversized building materials like roofing, fencing or drywall. Some deliveries will go to stores and others will go directly to the job sites of home professionals or DIY customers.

    Home Depot opened the first flatbed delivery centre in Dallas earlier this year. It has since opened another in Baltimore and has plans for about 30 to 35 in major US markets, Ms Smith said. The large buildings can fit flatbed trucks or rail cars.

    All three new distribution centres will be built in Georgia, the state where Home Depot is headquartered.

    The distribution centres were in the works long before the pandemic caused a surge in online commerce. Ms Smith said:

    I don't think [the pandemic] has changed our strategy very much - we want to go where our customers are telling us to go. I would say it's been amplified during Covid.

    Home Depot's online sales doubled in the quarter ended August 2, representing more than 14% of the approximately USD38.1 billion of net sales, a spokesman for the company said. That proportion was up from about 9% in the same period last year. Total sales growth in the quarter - 23% - was the company's strongest in nearly 20 years, it said.

  • Sources: Wall Street Journal, CNBC, Atlanta Journal Constitution and HomeWorld Business
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    Imex laser series updated

    Webinar series

    The leading construction laser now comes with a spare lithium battery as standard and first web-based laser level training

    The 2020 model iSeries rotary lasers from Imex have improved their serviceability and efficiency. A spare lithium battery now comes with every model, which increases productivity and adds extra value to the kit.

    A new battery cover clip makes it easier to open and close the battery compartment and the USB charging port in the front of the laser has been removed to provide better moisture protection.

    The lighthouse cover has also been given a makeover with slightly more height and ribbing for extra shock proofing integrity.

    This range features five models and has become a favourite with Australia's tradies, with the standard mm reading detector, lithium long run power sourcing, high accuracy and 5-year warranty.

    Online training

    With COVID-19 restrictions currently enforced in major areas of the country, the Imex team has developed new ways of conducting sales and product training for its customers. Its webinars are designed to help store staff and their customers know which laser to use for which task, and the functions and features of Imex products.

    The series of six weekly webinars conducted in June have now been made available on the Imex website and via its YouTube channel. They feature general laser level tips, informative answers to frequently asked questions as well as more in-depth information on individual models.

    Each webinar averages 15 minutes, is easy to listen to and conducted by Imex laser level experts who have years of industry experience.

    For more information, go to:

    Imex laser training webinars

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