Is there a way to better hang onto DIY sales as Australia slowly pulls its way out from under the duress caused by the COVID-19 pandemic?

It's no secret that one reason why hardware retailers have seen their revenues increase over the past 14 months is due to an increase in DIY sales. That hasn't just helped with revenue, it has also, of course, boosted earnings as well, as most DIY sales come with higher margins than typical trade sales.

While shorter lockdowns might give sales something of a boost, it's unlikely that the DIY boost will continue to grow, or even persist at the levels seen in 2020. To paraphrase the inimitable words of Bunnings' managing director Mike Schneider, while giving investment analysts a dose of reality, homeowners might continue to invest more in their gardens, but they certainly are not going to paint their houses two years in a row.

Hardware retailers are thus seeking out ways and means of holding on to some of the inrush of DIY customers they have enjoyed. This brings to the forefront some of the reasons (besides ongoing and increasing competition from Bunnings) that smaller independents have seen DIY sales steadily decline over the past couple of decades.

While some have put this decline down to a gradual diminution in the skill sets of average homeowners, with the essential parent to child link breaking down somewhat, a better understanding might just be that "traditional" DIY projects have simply lost much of their appeal to more recent generations. The most common "basic" project was, 30 years ago or so, building a bookcase. Today, there is not only reduced demand for bookcases (because of eBooks, for example), but you can also pick up three two-metre tall Billy bookcases from IKEA for $240, take them home in your hatchback, and have them assembled in about an hour.

The new DIY

If we want to define something like a "new" DIY, we need to start by looking at how people make use of their houses and apartments these days. One outcome of the COVID-19 pandemic is that the era when most dwellings had single-function rooms has come to an end. It turns out that, you can convert just about any room into a workspace - to accommodate the work needs of two adults, and the study/online learning needs of two or three children as well.

We could say, in fact, that people have moved away from the fixed idea of "rooms", and more towards considering their dwellings as composed of "spaces" - discrete areas that can be turned to a number of different purposes. When you start down that pathway, that question becomes most important is how do you go about making spaces that can be transformed from one purpose to the next?

Sadly, most of the "solutions" to this problem we've seen from the past tend to suffer from a range of problems. Take, for example, the "study in a closet", where a closet is transformed from storing clothing to housing a desk. For temporary, short-term use, this no doubt is a good solution, but who really wants to spend 30 hours a week staring into a closet? Plus there is always the interesting question as to where clothes are supposed to be stored, as the statement "this apartment has way too many closets!" is something that your hear, well, just about never.

Designed solutions

This kind of problem is one which, however, has received some attention in the past, though not directly for homeowners. One company that has been working on solutions is the Japanese firm NOSIGNER. You might think of NOSIGNER as being very committed to DIY as well, but coming at the problem from a different, less traditional and more modern perspective. As the company states on its website:

In this modern age, when we want to acquire something of value to us, we just buy it. This is our standard behaviour. However, this consumer behaviour became common only from the 18th century when the market economy was established. Before this, people made the things they needed themselves. It thus added value to these things.

Now that buying has become common, we humans are forgetting our natural, creative processes and actions to make things. Even so, it is a fact that digital fabrication equipment such as 3D printers and laser cutters provide the means for more creative handiwork.

Meanwhile, the intellectual property system, which is a precondition of modern manufacturing, has a history of only about 500 years since the world's first patent was issued in Venice in the 15th century. In human history, this is a relatively recent development. The negative aspects of the modern intellectual property system are often cited such as being an economic wall and impeding creative innovations. We cannot deny that this could be one factor inhibiting the "creativity" that only humans possess on Earth.

Under such conditions, we have proceeded with open-source design projects to promote people's creativity and the value and joy of making things with your own hands. Our initiative has resulted in diverse examples such as Open Source Furniture and OLIVE. Although open-source design has gained some traction, it is still far from being a widespread alternative for consumers to pursue DIY.

Basically, NOSIGNER works on furniture designs for new environments, then releases the plans to these as open source projects (under the Mozilla license terms). One set of its designs are based on helping people to transform unused warehouses into effective office spaces. As with many other countries, Japan has seen its economy shift over the past couple of decades from being more manufacturing-based to more intellectual property based. Thus there has been an increasing demand for office space, and decreasing utilisation of former warehouse spaces.

However, many of these designs can now also work well for homeowners looking for ways to make their own space more multifunctional. One very good example of this is NOSIGNER's Re-SOHKO Transform Box. The Transform Box, when closed, is 1.1m square on the sides, and 1.7m tall. It is on castor wheels, which means it can be pushed to a corner when not in use, then brought out into the room when in use.

The box folds open via two wheeled cabinet doors, creating two work areas separated by a divider. It provides commodious storage for tools and other work elements, and it is "wired" via a spooled extension cord. While designed primarily for being used as creative workstation in a "maker" type of environment, it can obviously be easily repurposed for knowledge work or study.

NOSIGNER has, in line with its open source promises, released seven pages of building and assembly instructions, which present the Transform Box components in exploded view. Construction consists of building four boxes, which are then mounted into each other. The main material used for the original is thick plywood, but there are unstressed elements that could be made with MDF as well.

Analysis

Much of the thought that has gone into making DIY more relevant to homeowners has concentrated on elements such as skill sets, easy of construction, availability of materials, and time required to complete a build. However, the most important element of any DIY project, HNN would suggest, is how much value the builder will get from the project after is has been completed.

Projects such as the Transform Box might seem more fringe than mainstream to many retailers, but the reality is many homeowners would extract a great deal of value from a concealed workstations such as this one. While this might not be "the" project of this type, it is a great example of what could be more possible in the future.

The Australian Bureau of Statistics (ABS) has released its data on building approvals to May 2021. The results show a confirmed shift from multi-unit dwellings towards detached houses. However, they also show complexities around a correction in the market, as it weighs more towards multi-unit than it has in the past.

Chart 1 shows the numbers for the three main categories of houses, apartments and semi-detached, on a 12-month trailing basis to May.

This chart shows the patterns we've come to expect. Poor performance during 2019 tilts the number of houses down for 2020, but this is followed by a sharp upswing, setting a new high for the past 10 years. Apartments, meanwhile, after reaching a peak in 2016, decline steeply to 2019, then continue to decline at a more shallow rate. Semi-detached houses reached a soft peak in 2018, declined to 2020, then show a mild uplift for 2021.

Chart 2 illustrates the changes in the previous numbers more clearly.

Both 2018 and 2020 show a sharp convergence of growth rates during periods of market consolidation, while 2019 shows broad differences, as a falling market affected each sector individually. 2021, as might be expected, shows a very different response from each sector to the pandemic. Houses show strong growth in numbers of around 38%, while the total for all semi-detached houses is around 9% in growth. Three-storey apartments manage to come close to 0% change after two years of declines, while other apartments continue to decline in numbers.

Chart 3 shows the month-on-corresponding-month percentage change for the number of approvals for houses and semi-detached houses.

Houses have continued to outperform semi-detached, with one-storey townhouses doing better than taller townhouses. The pattern for the houses shows some interesting aspects. Their performance really took off in September 2020, reaching a high in December 2020, falling in January 2021, falling in February 2021, then hitting a new high in March 2021, before drifting down for April and May 2021. Out of the six months to May 2021, the growth rate was above 50% for five months.

Chart 4 is perhaps the most interesting of the four charts, showing the month-on-corresponding-month percentage change for the number of approvals for apartments.

Except for a surprising growth surge for three-storey apartments in April 2020, performance has been mostly negative or close to zero, with the exception of apartments in a one- or two-storey block, with three-storey apartments trailing close behind.

However, past February 2021 there has been some volatility in the numbers, slanted towards the upside. The number of building approvals for apartments up to three-storey surged abruptly during that month, with three-storey apartments retaining some growth in March, but one and two-storey apartments falling steeply, yet recovering growth in April and May 2021. The surprise for May 2021, however, was a resurgence in approvals for apartments of four or more storeys.

Analysis

Building approvals certainly indicate that the industry is predicting ongoing health in the house building sector of the construction industry. There is evidently a great deal of predicted demand. Equally, though, the numbers indicate that some builders do see an emerging opportunity in the apartment market, should the lockdown measures aimed at limiting the spread of the pandemic ease. Overwhelmingly, house prices have risen to a level where many families and individuals simply cannot afford them, making apartments a more attractive option.

That said, the inability of the current federal government to secure an adequate supply of appropriate vaccines against COVID-19 has increased concerns that the Australian economy could go into a slump during the second calendar half of 2021. While that may be relatively temporary, it could see the housing market go into a dip, before slowly recovering in the first half of calendar 2022.

Mitre 10 in Narooma (NSW) continues to trade after a fire destroyed two adjacent businesses in September 2020. The Mitre 10 building was damaged, and the store has temporarily relocated to a different location close by.

Now after almost a year, the burned mess of a building in the middle of Narooma is finally getting cleaned up.

Mitre 10 owner Phil Constable initially thought they could clean up themselves but the damage was more than they thought. Asbestos was discovered in the building next door where the fire started, and he had to wait until it was cleared up to gain access.

After juggling between locations, Mr Constable is looking forward to moving back into his original building. He told Narooma News:

It has been frustrating, we couldn't do anything until the demolition. I have an understanding of the problems, but it has been particularly frustrating to have the place next door demolished before they (insurance company) can establish the actual extent of damage to our building and assess the scope of works for reconstruction and rehabilitation.

Business was booming for the Mitre 10 store before the fire. Mr Constable said it was tough taking a step backwards.

We have suffered a significant loss of trade during this [with] not having the floor space in order to give the level of offer we have had.

We were trading very well coming out of the bushfires, and during COVID, there was a lot of DIY activity associated with the lockdown. The hardware industry and garden centres were beneficiaries of people looking at work to be done to their homes.

Mr Constable thanked customers for their ongoing support.

We have been grateful of customer loyalty and people have been patient when ordering. Delays have been most onerous.

At the time of the fire, Narooma Fire and Rescue Captain Scott Dawson said it was the first fire of its kind in about 20 years in Narooma.

The owner of the destroyed building, Heather Blessington, said it took a long time to get quotes for the job, due to companies' backlog of bushfire rebuilds.

Profits almost tripled for WD-40's Australian subsidiary, reports The Australian. In its latest 2020 financial accounts, directors for WD-40 Australia said:

At this stage, the impact on our business and results has been positive...we have found increased demand for our products and expect this to continue.

COVID-19 lockdowns and restrictions have boosted sales of WD-40 products sold through hardware retail stores. WD-40 president and chief operating officer, Steve Brass highlighted Australia to US investors and analysts in the company's recent third-quarter earnings update. He mentioned over 100% sales growth for one of its key products as the pandemic hit the country and consumers took up repair and renovation projects. Mr Brass said in the earnings briefing to the US-based analysts:

In Australia, net sales were USD6 million in the third quarter, up 22% compared to last year.

In local currency sales of maintenance products were up 9% in Australia, driven primarily by strong sales of 3-IN-ONE and WD-40 Specialist, which were up 114% and 24%, respectively, due to the isolation renovation phenomenon.

But there was a reversal in last year's sales boom of WD-40's range of home cleaning and sanitising products. Australians seemed to have stocked up on enough home cleaning and disinfectant supplies from last year when store shelves were stripped of soaps and sanitisers at the beginning of the pandemic.

WD-40 revealed its range of home cleaning products reported a sales decline for the third quarter in Australia compared to double-digit sales growth for its Solvol soaps and No Vac carpet sanitiser in early 2020 when the COVID-19 pandemic emerged in Australia and the first lockdowns began. The company said:

Partially offsetting these sales increases were lower sales of our homecare and cleaning products, which were down 9% in the quarter, as we have seen demand for these products return to more levels due to improvements in public health and safety restrictions related to the pandemic.

In its overall results for its third fiscal quarter, chairman and chief executive officer Garry Ridge, said in a statement:

The post-pandemic era is coming. We do not expect to see sales growth of this magnitude over the long-term, however, we believe that the new end users who have interacted with our products during the pandemic will become permanent users of our maintenance products."

Related: WD-40 rebranded its Specialist range for easier identification in late 2020.

Houzz has long been popular with renovators and home builders looking for inspiration. A lesser-known part of Houzz is its "Pro" services, which help to connect people with projects they need done to the people who can make that happen. This includes architects, interior designers and tradespeople.

The flow of information going through Houzz, from people posting pictures of their homes and renovations, and the work projects that cycle through its website and mobile apps, means the company is in a unique position to be aware of emerging trends.

Recently Houzz's editor for Australia and New Zealand, Vanessa Walker, produced a short video on YouTube which outlines some of the insights the company has developed about how tastes are developing during this time of pandemics.

You can view that video (it's less than eight minutes) here:

The local trends

Ms Walker described six major trends specific to Australia and New Zealand, as well as a range of additional trends that were becoming prominent globally.

The six Australian and New Zealand trends she spotted were:

"Feel good" furnishings

Ms Walker sees this as largely being a revival of some trends not really seen since the 1970s, with shapes such as arches and rounded surfaces.

This is a trend that did see a resurgence just prior to the COVID-19 pandemic, but it has likely been accelerated by a desire for comforting luxury, and perhaps a return to childhood memories by older Australians. At its best, it's fun, with a touch of Austin Powers-like irony.

Square tiles

In past years we've seen the subway elongated rectangle become prominent, but Ms Walker thinks the time has now come for the humble square tile to regain past popularity. As she puts it:

While organic shapes are perennially popular, we anticipate more square tiles appearing in fashion forward kitchens and bathrooms with their linear conformity, offset by the lead style characteristics such as natural colour variations, crazed glazes and rippled surfaces. Of course, one of the benefits of using square tiles is their relative affordability. And the way they lend a streamlined graphic edge to an interior as seen on the image on the right.

It is perhaps worth noting that this is also a style of tile that is easier to DIY on walls and similar surfaces. Ms Walker sees tiles in general becoming more popular, including for bench surfaces and even on furniture, such as the tops of coffee tables.

Slim Shaker cabinets

While the definition of what can be called "Shaker" seems to have shifted rapidly over the past decade, these are distinctive kitchen cabinets. As Ms Walker describes them:

The slim Shaker is perfect for bridging the gap in heritage homes that require modern interventions. We're talking about the new slim Shaker cabinet profile, which is like the old Shaker, but with finer, narrower features, and with recessed handles or subtle finger pulls.

It's a way around just plonking a modern kitchen down in an older home, with the additional detailing helping the cabinets to "sit into" the surrounding room, instead of seeming jarring.

Wallpaper

Ms Walker points out that this is not the use of wallpaper as a singular element that dominates and defines a room. Instead, as she describes it:

Now it's about layering wallpaper with other highly textural elements. So the eye sees a confusion of colour and movement. And it's just worth noting here of course, the confusion is carefully created with either restricted colour palette, or with materials that work well and complement each other. So it's a look that, as you know, only an interior designer can really pull off very well.

Creative brickwork

The increase in interest for non-standard bricks owes its origins in part, according to Ms Walker, on the stresses in the current building trades. With something of an increase in new home builds, and an ongoing shortage of timber for houses, more home builders are turning to brick as an option, she suggests. These new bricks include a wide range of shapes, including tiled and curved patterns, as well as combinations of new colours, such as chocolate fudge and flame red.

Eco-product subscriptions

While we think that Ms Walker has helped identify some coming trends, we're not entirely sure if this is a general trend we will see so much of during 2021. It is sensible and a good idea, with Ms Walker giving the example of liquid soap being distributed as a tablet you combine with water in a custom dispenser, it's just difficult to see Australians (at least) changing their admittedly wasteful supermarket habits.

International trends

The key trends that Ms Walker sees migrating in from overseas include:

Different sets of chairs, where similar types of chairs in a range of colours are combined into sets, often through a house.

Little living rooms. Rather than having just one main gathering space, a proliferation of small spaces to chat and relax in.

Creative storage. More and more furniture is being designed to have some form of in-built storage, as an aid to decluttering open spaces.

A return to black. Black furniture and fittings are enjoying a comeback.

Mid-century modern. This is becoming the new "classic" look, replacing the 1920s and 1930s in many houses. It's the "serious" furniture, for serious, impactful rooms.

Folding screens. Perennially popular, screens provide a way to better divide up spaces.

Minimus lighting. This is the virtual deconstruction of light fixtures and fittings, removing the clutter of cords and switches, and leaving very little beside the LED source.

The forest effect. As confinement to the house becomes more of a concern, consumers are seeking out delicate shades of green in forest patterns.

Analysis

The overwhelming change that is taking place in homes is that they are becoming increasingly the central locus not only for family activity but also (when permitted) of social activity. It's not a surprise that shapes and styles from the 1950s and 1970s are popular again, as these were periods when home entertaining was at its peak.

Alongside that is the strong move to make homes feel more like refuges from an increasingly stressful outside world, while at the same time working to make them more convenient and functional.

Homebase CEO Damian McGloughlin recently told Retail Gazette the COVID-19 pandemic meant that the team had to learn and adapt quickly. He said:

With more customers shopping online, the weighting of sales towards digital changed overnight. Over the last year, we've invested even more in this area through our 10-year partnership with The Hut Group.

Mr McGloughlin also found that visits and dwell time on Homebase's online "how to" pages shot up significantly over the last year since customers were finding it hard to get a tradesperson.

Almost as if in response, Homebase launched a refreshed website earlier this year after undergoing an overhaul to improve the customer experience online. New features include "before and after" makeovers to provide inspiration and "shop the look" content so customers can buy everything they need to recreate the latest trends in their homes. Mr McGloughlin said:

Digital has significantly grown and is an important part of retail. Customers are generally inspired by what they see online first and will continue to do more research online about the kind of product they are looking for.

The decision then comes down to whether they want to buy the product in-store or online.

Some customers want to touch and feel a product before they buy it or speak to someone face to face about their project, so will come into store. On the other hand, some customers know exactly what they want and will just complete the transaction online.

Because many people get their initial ideas for home and garden updates or transformation projects from social media, we've adapted the shopping experience in-store.

The home and garden retailer also partnered with Checkout.com, a payments service provider so that it can accept all the usual payment tools as well as PayPal, Apple Pay and Google Pay.

Homebase has also been using different methods to "understand customers better". Mr McGloughlin said:

A lot of the work early in our turnaround focused on simplifying how we operated so we could get closer to our customers. We now understand them better, which has meant we've been able to deliver more of what our customers want when they want it.

Homebase runs live customer listening groups where it receives "in the moment" feedback on new ranges or store layouts. Mr McGloughlin explains:

We have an amazing tool called 'Feels Good To Be Heard' that allows us to constantly collect customer feedback on a store-by-store basis. It helps us continuously improve, and we often take things customers love and share them with other stores to introduce.

We also use social media to inspire customers with the latest trends and must-have new products. It's an important tool for us to get their feedback - and even to inform what products we sell.

However, feedback isn't useful unless you are doing something with it, so we also have systems to ensure that the right customer insight is getting to the right teams, from our commercial and buying teams to our marketing and store operations teams.

Mr McGloughlin also told Retail Gazette that he was one of the longest-serving board directors at B&Q. He served as the retail director at B&Q before he stepped into the role of chief executive at Homebase three years ago. He described Homebase as "a very different business" since making the change from a publicly listed company to one that is private.

While there were problems to fix in the beginning, the passion of the teams across Homebase is clear to everyone who works here...The role at Homebase is much broader with wider responsibilities and requires me to wrap my arms around the entire business. The thing I love most is that I have the total accountability to make a quantum difference. There is much more demanded of me as a leader.

When you run a business such as Homebase, you have so much more ownership of the entire business, from strategy to operations and from the small day-to-day details to longer-term vision and plans...One of the main things I've learnt is the importance of agility, both as a leader and for the business.

I'm a true believer in laying out a long-term plan, but you have to have the courage and agility to move away from it, adapt to the market and your customers when you need to.

Since he started at Homebase, Mr McGloughlin said he was most proud of "keeping the brand alive". This means needing to make some bold decisions - from changing ranges to changing the layout of stores.

Homebase is a family business, and throughout my time here, I have prioritised the team.

While we do bring in new talent where we need it, we focus on growing and developing the team we have. If people have the right attitude but don't have the skills yet, we'll do what we can to train them to where they need to be. We always look at stretching our internal teams, making sure we're giving people opportunities.

I've established myself as a chief executive and taken Homebase through a complete lifecycle, from selling the business, delivering a successful turnaround business, and now to the exciting next chapter of growth.

The main thing I've learnt is that you've got to lead by paradox. One minute you're in the detail - and at the other, you're in the helicopter, thinking five, 10 years ahead. Because I've always been in the detail, I find it easy to zoom in and out.

Mr McGloughlin said that moving forward, Homebase would continue to "cement" itself as home and garden experts.

We've put a clear full stop to our turnaround and have now entered our next chapter of growth. We are very clear on who we are and therefore, what we offer our customers. Our plan now is to continue to accelerate that plan and deliver it through working closely with our suppliers and teams and offering the best products and service to our customers.

Expansion across digital and fulfilment will continue to be a focus, as well as opening new stores in more communities, making it even easier to shop, whether it's online or in our stores. We'll continue to focus on newness and innovation, offering customers the right ranges and projects in partnership with brands and our suppliers.

Related: Homebase and Bathstore showrooms offer a digital experience.

The Australian Bureau of Statistics (ABS) has released its quarterly statistics for building work done, covering the period up to the March 2021 quarter. These stats are rather intense, with no fewer than 80 datasets, many of them complex. HNN has gone through these and extracted around 24 that we think will help to answer some basic questions about what is going on in house and multi-unit dwelling construction at the moment.

In general, the housing market has cyontinued to see strong price rises for houses, and lower price rises for flats and apartments. There has also been considerable stimulus applied to the building and construction industry, both through historically low interest rates, making borrowing less expensive, and federal government subsidies such as HomeBuilder, along with longer-running boosts to help first-home buyers access the market.

In light of this it is a little surprising to see that the value of private residential building work done remains considerably below its peak. This is illustrated in Chart 1.

The peak was reached in the June and September quarters of 2018, lifting to around $21 billion in both those quarters. Currently, for the December 2020 and March 2021 quarters, it is below $18 billion. That said, there is evidently a stronger increase in building work done for houses in the March 2021 quarter, which came in at $9.25 billion, up by 12.4% on the March 2020 quarter.

Stats for work commenced shows a similar pattern. The value for the December 2020 quarter showed a local peak, reaching $11.374 billion, up 30.1% on the previous corresponding period (pcp), while the March 2021 quarter was $10.358 billion, up 28.95% on the pcp. Yet these numbers were still below the highs for the March, June and September quarters of 2018, which peaked at over $21 billion. This is shown in Chart 2.

Looking at the number of dwelling units commenced across Australia, the trend that can be discerned in the previous two charts is made more clear: there has been a significant drop in construction of multi-unit dwellings, and a sharp rise in the number of houses, as indicated by Chart 3.

The number of house dwelling units commenced hit a five-year high in December 2020, at 34,565, up 36.0% on the pcp. In terms of growth, the March quarter was even better, growing 40.5% to reach 32,812. By contrast, multi-unit dwelling commencement numbers decreased by 2.75% in the December 2020 quarter, and slid steeply down 24.0% in the March 2021 quarter.

When it comes to the number of dwelling unit completions, however, a slightly different picture emerges. As Chart 4 shows, the March 2021 quarter shows a slowing.

In fact, housing unit completions in the December 2020 quarter were 27,542, just 0.3% up on the pcp, while multi-unit completions slumped by 26.5% to 19,673 in that quarter. For the March 2021 quarter, this reversed, with house completions down 3.7%, and multi-unit completions up 6.6%. Once again, 2018 had more activity, with house completions over 33,800 for that year's September quarter, and multi-dwelling units over 26,000 in the June quarter.

For the number of dwellings under construction, once again it is house units that started growing from the June 2020 quarter, while multi-unit construction declined overall. This is clearly indicated in Chart 5.

These stats are further explored in Chart 6, which breaks out the trailing 12-months numbers and the quarter-on-corresponding-quarter changes.

These charts show not only the decline for multi-unit dwellings and the sharp uptick for house units, but also the decline that had taken place beginning in 2019.

Potential work

Chart 7 shows the value of work yet to be done, which encompasses work on already commenced but not completed projects.

Again, this shows an increase in project activity to come that is generated mainly by house dwelling units. In the December 2020 quarter this grew by 23.28% for houses over the pcp, and by 37.8% in the March 2021 quarter over the pcp. Meanwhile, multi-dwelling units dropped by 9.1% over the pcp for the March 2021 quarter.

Similarly, looking at the value of work not yet commenced, this also showed a strong uptick for house units in the March 2021 quarter, as shown in Chart 8.

For the March 2021 quarter, this increased for house units by 33.8% over the pcp, while it fell by 7.2% for multi-unit in the same quarter. That has resulted in an increase of 4.77% for overall residential in the March 2021 quarter.

In looking at the chart for the value of work in the pipeline, it's notable that this is the first increase in this number for some years that has been driven by house dwellings, as Chart 9 shows.

In past years, the multi-unit dwelling category has been responsible for most of the growth. The house category grew by 21.3% for the December 2020 quarter over the pcp, and by 36.9% for the March 2021 quarter.

Finally, we come to the number of dwellings that have been approved but not yet commenced. Overall, this is a declining number, though this is largely driven by a steep fall in multi-unit dwellings, while house dwellings have staged an increase, as shown in Chart 10.

For house dwellings, this increased by 21.7% for the March 2021 quarter over the pcp, while for multi-unit dwellings it fell by 17.24% in the same quarter.

Analysis

It is not unexpected that a dire event such as the COVID-19 pandemic would result in industries such as building and construction being altered, at least for a time. What these charts all represent is a sharp departure from the trends of the past, which have seen growth in apartment construction, to the extent that both Victoria and Queensland (which is really to say Melbourne and Brisbane) were coming close to echoing the situation in New South Wales (Sydney), where the housing market and the multi-dwelling market were clearly conjoined.

There is no doubt that this movement has been interrupted. It is not, then, simply about different levels of demand, but a restructuring of demand. For independent hardware retailers, this has probably added to the strong sales they've experienced over the past 14 months. They contribute relatively little to apartment buildings (for example) that are taller than three or four storeys, but they can contribute a lot to the building of individual houses.

The difficulty with these changes, however, is that they are highly likely to be quite temporary. What has happened in the housing market over the past year or so is that demand for houses - and subsequently their prices as well - has increased sharply, because for families facing the possibility of "lockdowns" they offer considerable advantages over flats and apartments. Yet, in two years' time, it is likely that will have become reversed. That reversal could come from better control of COVID-19 through widespread inoculation, and/or families finding better ways to adapt to lockdowns, as well as - above all - house prices reaching such a peak that multi-unit dwellings are the only pathway to home ownership for many.

The fear is that, come 2024 or so, with interest rates likely set to rise sharply to at least the 3% level, families perhaps wanting to spend more on overseas holidays, and the possibility of a lively return to the popularity of multi-unit dwellings, that there could be considerable disruption in the construction industry.

It is understandable that governments come to rely on housing markets as a crutch to get out of periods of economic uncertainty. What often goes missing from both economic and policy discussions, however, is that these moves only - to use the common colloquial expression - "kick the can" down the road.

That is to say that demand has increased for what has been a cosseted asset class for a particular cultural, economic and social stratum of Australian society. That asset class has certainly been a repository for value, but it is not actually a value-producing asset. Houses can provide many benefits, but they do not contribute to research and development, technological adoption, or even productivity in any general way.

There is nothing wrong with that, of course. Where the difficulty emerges is when funds are redirected from activities that do contribute to the economy towards investments that are really a matter of pure consumption instead.

If we know, with some surety, that this is the economic pathway that Australia - and the hardware industry in particular - is walking down, then what can be done to prepare for that future? What the governor of the Reserve Bank of Australia, Philip Lowe, along with many others have suggested is that the excess profits made from this period need to be reinvested in businesses, and in particular in technology.

Unfortunately, HNN does not really see that happening. If you wanted a neat phrase to describe the potential for the extreme difficulty Australia is likely to face in the near future, from both a government policy and business strategy perspective, it is simply this: at the moment Australia is happy to invest heavily in its past, but not at all in its future.

A proposal to build a Bunnings outlet along the Mid North Highway at Port Augusta is under assessment by Port Augusta City Council.

This Bunnings store would have a total 5132sqm of retail area and 142 carparks. A portion of the land has already been granted planning consent for a petrol station, which is being appealed.

The development application has been submitted by Augusta Collective Pty Ltd, and the proposed site for the hardware store sits adjacent to the junction of Stuart and Eyre highways, next to the iconic Standpipe Motel. The report said:

We are advised that the owner of the Standpipe Motel has signed off on the overarching concept plans which form a part of the sales contract and are unable to object to the plans.

Public consultation for this development closes on August 3.

Coates rental opportunity

Seven Group's Coates Hire subsidiary could have a AUD150 million revenue opportunity from distribution through Bunnings' hardware stores, according to Macquarie Group.

The investment bank is looking to Home Depot's rental business in the US for a clue on the size of the opportunity, and believes it can be somewhere between AUD60 million and AUD150 million. The upper estimate is based on 50% of Bunnings stores stocking the equipment.

Macquarie said it will revise its forecasts on the conclusion of Seven's bid for shares in building supplies company Boral.

Most recent reports indicate that Seven Group has picked up more than half of the takeover target's shares.

Seven Group's $7.40 a share offer, originally due to expire at 7pm on 15 July, has found favour with Boral's shareholders and has triggered an automatic two-week extension. The extension is aimed at giving minority shareholders the chance to accept the bid now control has passed.

Seven Group's stake in the building products group is now 52.65% - including a 3.33% equity swap with Macquarie. While that doesn't currently give Seven voting rights with these shares, the company can easily bypass that technicality. This has placed Seven very close to taking full control of Boral.

Boral's management has maintained that it would keep an independent chair and have a majority of independent directors on its board, even after Seven Group takes a majority stake in the company.

In response, Seven Group's Ryan Stokes has promised to maintain a board with a majority of independent directors.

Related: In the US, The Home Depot has been developing its rental business for some time.

Builders and timber producers around Australia have warned that rising wood prices have not ended despite a cooling international market, based on a report in The Age,

International prices for timber hit unprecedented heights this year due to a combination of COVID-related shipping delays and high demand for new home builds across the United States and Europe.

Prices increased nearly 250% to highs of USD1711 (AUD2305) per 1000 board feet in May. They have since dropped to USD774 as demand eased and supply improved.

Jim Bindon, managing director of timber products company Big River Industries, said while prices had not gone up as high in Australia - rising only 30 or 40% - a decline was still a few months off with costs unlikely to settle until at least September. He told The Age:

Here in Australia, we didn't see those huge percentage increases. Locally, there are still some further price increases to come through.

Major timber suppliers in Australia have notified Mr Bindon they expect further price rises in August and September, though he doesn't expect an increase of more than 50% from the pre-COVID norm. However, the increase is likely to hit new home builds around Australia, with framing timbers being an essential and difficult-to-replace part of house construction.

Issues around timber supply led financial analyst JP Morgan to warn that growth of major building supplies company CSR would probably be curtailed by a lack of available wood. JP Morgan timber industry analyst Brook Campbell-Crawford said in a note to investors:

We believe shortages could significantly influence ... housing construction in Australia over 2021-23.

The note follows warnings last month in Victoria - both by homeowners renovating or building, and the construction industry - that the shortage of materials including timber and bricks was leading to costly delays.

Master Builders Victoria (MBV) believes the situation is set to get worse. MBV chief executive, Rebecca Casson told The Age:

While there is a limited amount of timber at present, demand is still not expected to peak for another few months.

She said builders, tradies and suppliers were "withstanding the worst of the price increases and delays", and hold-ups were unavoidable and needed to be factored into construction timelines.

US market for timber

The price of timber in the US has slid about 60% from its peak in early May. In that month, prices for two-by-fours surged to more than twice their previous record, set three years ago when there were about 15% fewer homes being built. But wood prices have since plunged back to levels resembling those before lockdowns cut supplies short and boosted demand.

July futures ended recently at USD521.40 per thousand board feet, down nearly 70% from the high of USD1,711.20 in May, when wood-product supply lines were still being unknotted after the lockdown and before Americans began to shift spending from home improvement projects to vacations and dining out.

The decline is benefiting builders and DIYers and helping to allay fears of runaway inflation hamstringing the economic recovery. Still, buyers of new homes should not expect discounts.

Home builders in the US say they expect to collect higher profit margins rather than drop asking prices. That is typical following periods of rising commodities costs, when the broad economic growth that normally accompanies higher raw-materials prices enables companies to pass along more expenses.

It is a different story at Home Depot, which Americans in lock down flocked to during the pandemic. The home improvement retailer has lowered its lumber prices in recent weeks. Eight-foot studs that were offered in Ohio stores for USD7.48 on June 21 were priced at USD6.25 on 14 July. In Utah, pressure-treated two-by-four boards for outdoor use fell to USD9.17 for an 8-foot length, down from USD13.37 around 23 July.

Retail prices remain high relative to historical levels, but the cuts show the decline in futures and sawmill prices is trickling down to shoppers.

A number of factors are shaving hundreds of dollars off the wholesale price of softwood lumber. According to Dustin Jalbert, an analyst with Fastmarkets, the US turning the corner in the pandemic has meant that sawmills have been able to ramp up production and some people who had been working from home are returning to offices and other workplaces. He said:

If you're spending less time at home, you're probably spending less money on the home. That remodelling, renovation, DIY boom - that's also softening.

Consumers are also allocating funds to businesses such as those specialising in hospitality and travel as more Americans get vaccinated against COVID-19, according to Bank of America analysts. They wrote in a recent note:

Our recent research ... suggests a combination of high housing and wood product prices and the shift of expenditures to services (from do-it-yourself home projects) in the reopening has negatively impacted new and repair/remodel construction expenditures.

Mr Jalbert added that the demand for lumber is expected to drop as construction slows in the colder months in North America later this year, driving the price down even further.

But even then, he added, "people should know that prices are probably not going to fall to the levels that they were before the pandemic".

Benalla-based Ryan and McNulty Sawmills in regional Victoria received $100,000 in funding from the Victorian Timber Innovation Fund. It will use plantation timber to produce pine beams for construction and housing markets. The business also has plans to assess how it could use pine logs to extend its production line.

State Member for Northern Victoria Jaclyn Symes said in a statement:

Ryan and McNulty have been a long-time major employer in Benalla and by taking up the Victorian Timber Industry Innovation funding they are able to investigate and make changes now so they can be in the best position to grow in years to come.

The funding is part of more than $2.4 million in grants distributed across the state to extend the use of plantation timbers to make new products in different ways.

General manager Greg McNulty said for almost 80 years Ryan and McNulty had been part of the Benalla manufacturing landscape, providing timber jobs for generations.

Established in the early 1940s, the sawmill currently employs about 50 staff, and was known for its quality kiln dried Victorian Ash and River Red Gum. Its timber is used for flooring, decking, skirtings, DAR boards, screening, architraves, lining boards, rough sawn furniture grade timbers, joinery timbers and by-product (woodchip and sawdust) which are supplied to wholesale and retail markets. In a statement, Mr McNulty said:

The Victorian Timber Innovation Fund allows us to explore how we can utilise plantation-based timbers to ensure the longevity of the business and secure local employment opportunities.

Through the Victorian Forestry Plan, Ryan and McNulty has previously received funding to develop a business transition plan to support the move to plantation-sourced timber.

Minister Mary-Anne Thomas said the Victorian Timber Innovation Fund offered the opportunity for the industry to embrace innovation and different ways of working for a future that had plantation timber playing a central role. She said:

The Victorian Timber Innovation Fund is supporting businesses to develop new ways of working with new sources of supply, and retaining local jobs while doing so.

The state government said it is working to transition the native forest industry to a range of opportunities by 2030 through the Victorian Forestry Plan, setting up a strong plantation-based sector.

Related: A number of investments have been made in sawmills and timber production in different states.

KSI Sawmills

A $4.5 million sawmill will be built by KSI Sawmills which operates a small mill at Nuriootpa (SA). It will be strategically located, allowing for expansion and offering improved transportation routes central to both local timber plantations and downstream markets.

The announcement of the new sawmill comes after an emergency summit at South Australian Parliament were informed that Australia's timber shortage was having a domino effect on builders and trades dependent on the construction industry.

Sharp increases in global demand during the COVID-19 crisis and the success of the federal government's HomeBuilder scheme has caused rises in the cost of building materials, including timber.

Minister for Primary Industries and Regional Development David Basham said the mill will help KSI Sawmills more than double their current production to approximately 60,000m3 annually and create nearly 30 jobs. In a statement, Minister Basham said:

The new local log processing program will inject over $12 million in direct value into South Australia's economy each year. I congratulate KSI Sawmills for making this significant investment in South Australia's timber industry which will increase supply and create local jobs. This investment has been made possible thanks to a new 10-year log supply agreement between Forestry SA and KSI Sawmills.

KSI will predominantly consume lower grade log from ForestrySA's plantations in the Adelaide Hills. The majority of timber products will be consumed by the local packaging industry.

Some higher-grade products will meet structural grade and be consumed by the local building and construction industry, while residue materials will support Adelaide Hills based agriculture.

This will lead to improved product utilisation and better environmental outcomes with less waste, and better estate management for ForestrySA."

Minister Basham said a recent tender process for log supply from ForestrySA has resulted in new long-term supply agreements, helping to secure the future of the domestic processing industry including KSI Sawmills. He said:

New arrangements will allow for all log of sawmill quality to be provided to the processing industry for increased value-adding, predominantly in South Australia. ForestrySA's direct contribution to the economy in regional South Australia has increased by more than 50 per cent as a result.

KSI Sawmills Director Victor Kyriakou said the new mill is an exciting development for South Australia.

KSI has been working constructively with ForestrySA for more than 12 years now. We are so lucky to have a forest estate owned by the South Australian Government. We are really looking forward to the next stage of expanding our business and encouraging local manufacturing in South Australia.

The Australian Bureau of Statistics (ABS) has released its stats for retail revenue through to May 2021. For hardware retailers, this set of stats is of particular importance, as they send a strong signal that the "bubble" conditions of the past 15 months or so are now coming to an end. While the revenue numbers remain - for most states - elevated over years prior to 2020, they are also significantly down on the numbers for May 2020.

As the industry exits the bubble, the trailing 12-month numbers have less significance (though they still do point to the overall experience), so HNN has added a fourth graph to its standard series. In Chart 1, we've set out what are essentially the "raw" numbers for the past eight years.

Looking at the numbers for Australia overall, it is evident that from April 2020 through to December 2020, as well as March 2021, the numbers entered what is essentially new territory for national hardware retail revenue. With the numbers for April and May 2021, they are still higher than is seasonally usual, but in line with the peaks reached from 2016 to 2019 during the September to December pre-Christmas period.

It is worth noting that while the Australian hardware retail revenue fell by over 12% from May 2020 to May 2021, that May 2021 revenue number is still 21% up on the May 2019 revenue. It has gone down, but it remains substantially up on the revenues for pre-2020.

One scenario that this does suggest (which we will look at more closely later) is that we could see retail sales gradually "normalising" through the rest of 2021, so that by the time we come to the September to December season for 2021, retail sales will be slightly elevated from the average by 4% to 5%, and then slip back to close to the normal range by February 2022.

Chart 2 links up with Chart 1, showing the month-on-corresponding-month (MoM) percentage change for these retail numbers, adjusting the changes for seasonality.

It is very clear that the decline in comparative revenues we saw in April 2021 has been continued in May 2021. South Australia (SA) in particular has seen sharp falls in both periods, falling 14.8% in April, and a considerable 23.7% in May. Victoria (VIC) and Queensland (QLD) both had falls in May of over 13%, while Western Australia (WA) and the Australian Capital Territory (ACT) had falls a touch under 12%. New South Wales (NSW) had the least falls in both April and May, just 1.3% and 7.6% respectively.

For perspective, though, Chart 3 shows how strong the performance remains to date for hardware retail revenues.

Comparing the trailing 12 months to May for 2021 and 2020 for Australia overall, there has been an increase of 13.8%, which amounts to a gain of $2896 million. NSW leads in gains, showing up 17.7% or $1077 million. The ACT had a higher percentage gain of 22.8%, up $94 million. QLD gained 15.8%, or $681 million. VIC had the least percentage gain, of 9.1% or $554 million, putting it well behind QLD. SA gained 11.2% and WA gained 12.4%.

Chart 4 shows the historical percentage change in trailing 12-month revenues through to May.

The standout statistic for this chart is for VIC. While it has certainly benefitted from a revenue boost, it has done less well than the other states and territories, though this did follow several years where it generally outperformed the other regions. To some extent that might reflect the stronger battering the state - and especially Melbourne - has taken from lockdowns, which has resulted in a higher level of household savings.

Analysis

A sufficiently wide date range for retail revenue numbers from the ABS are now available that we can clearly define how long the boom for hardware retailers lasted. It is almost precisely one year, from March 2020 through to February 2021, though one month either side of that range shows increased activity as well.

For the corporate entities in hardware retail, mainly the Wesfarmers-owned Bunnings, and the Metcash-owned Independent Hardware Group (IHG), this "bump" in retail revenue now creates the problem of explaining a consequent decline in revenue through 2022 and possibly 2023 as well. That could be one factor helping to boost their investments in "inorganic" growth through acquisitions, Metcash with Total Tools Holdings, and Bunnings with Beaumont Tiles.

For independent hardware retailers, the story is much simpler. There has been a considerable burst in retail sales, much of it in DIY with consequent higher margins, and now it looks like that is starting to coast to an end. Next there is the very tricky management task of ensuring that no business gets lost through a lack of key supplies, while still ensuring that retailers do not end up with excess stock sitting in the storeroom in June 2022.

This is a particular problem when it comes to the "high" sales season of September through to December. It is possible that, with Australia still nationally in lockdown in terms of international travel, and likely some lingering interstate travel restrictions in place, this season could still run considerably above its historical averages. However, it seems more likely that Australians will count on something more towards pre-COVID-19 normalcy returning. If they are not actually going on vacations at the end of 2021, they could end up counting on going somewhere by mid-2022 at the latest.

The other factor at work, of course, is the housing market. Some analysts have predicted that, with low interest rates, house prices could grow between 20% and 30% before interest rates finally increase in 2024. A more likely scenario, though, is that at some stage house prices will stabilise or go into decline. One source of that would be seeing widespread vaccination make the possibility of harsh lockdowns less likely by the end of 2022, which could see an acceleration in the take-up of multi-dwelling sales. There are a lot of bargains in that area currently, and for many this is the only option for buying a home, given the increase in house prices.

The really key numbers that will likely reveal what is going to happen over next spring and summer will likely be those for August 2021. June and July 2021 we would expect to follow a similar pattern as for April and May 2021.

Adelaide could be the next location to have one of the biggest Bunnings stores in the country, with a proposed build for Glynde. Applications for the store have been submitted as the big box retailer works with developers to obtain planning and building consent.

The store would have two levels of retail and include a main warehouse, an outdoor nursery, a timberyard and underground parking for nearly 300 cars. If approved, it would represent an investment by Bunnings of more than $48 million.

Director of property and store development, Andrew Marks said Bunnings welcomes the recent planning system reform which has given the retailer confidence to pursue the project. He told the Adelaide Advertiser:

We hope it will simplify the development application process for projects such our proposed Glynde Warehouse. We believe the Glynde site is well positioned for a Bunnings store that will provide residents living in the area with a much wider range of home and lifestyle products.

We will continue to work with the relevant authorities throughout the development application process.

Pictured is the proposed multi-level Bunnings store for Brunswick East (VIC).

A development application for a Sydney Tools store was recently approved for a Kensington location in Bundaberg (QLD). The outlet will be situated at 20 Johanna Boulevard, filling the vacant lot between Bunnings Warehouse and the Boulevard Lodge. It will be open from 7.30 am to 5 pm seven days a week and 51 car spaces have been included in the design.

Bundaberg Regional Council approved a material change of use application for a hardware and trade supplies business on Johanna Boulevard. The applicant, Bayswater Holding, intends to develop part of the site for a "building to facilitate the expansion of Sydney Tools", according to submitted documents.

This approval comes after Total Tools was approved for the former Chipmunks Playland and Cafe Bundaberg site in the same area.

Sydney Tools also recently opened its Morayfield (QLD), pictured.

Related: A development application was lodged for a Sydney Tools store on Johanna Boulevard in Kensington, a suburb in Bundaberg (QLD).

Terang Co-op

In its most recent annual report, Terang Co-op chief executive officer Kevin Ford said the turnover of $31.3 million it achieved was $6 million or 28% higher than the previous financial year.

The before tax $1.05 million profit for the financial year ending on February 28 more than doubles the previous record of $440,101 set in 2013.

Mr Ford said the result was boosted by COVID-19 lockdowns in 2020 and reinforced by changes in business practices. He said the Co-op struggled to keep some essential stocks on the shelves as panic buying set in during the initial lockdowns, while online deliveries hit new highs. There was a huge 38% jump in hardware and timber revenue, a 49% increase in the rural division, and 16% in the supermarket, which remains the biggest part of the business.

Mr Ford said the COVID-19 lockdowns had "taught us the size of the potential market". He told The Warrnambool Standard:

It meant people were forced to shop locally which particularly drove the March to June quarter results, but from then the changes and improvements we made gave customers reasons to continue shopping with us.

Mr Ford said the Co-op was placing more emphasis of encouraging locals to shop locally and stop the substantial retail leakage out of Terang. He said:

The Co-op's commitment to a quality customer service ethos, competitive pricing, and an increased range of quality products will deliver to our members' needs, encouraging more in our community to shop in our town.

It is extremely important for a small town, such as Terang, to have a great supermarket, a great trade and retail home improvement store and community Co-op.

The Co-op also reinvested more than $1.2 million worth of capital back into the business and will look to continue growth into the future. Its investments over the year included $850,000 redevelopment of the IGA supermarket, upgrades and rebranding of Mitre 10 and The Rural Store, new capital equipment in 360 Dairy Solutions and replacing the Co-op's fleet of vehicles.

It employs more than 120 staff and has more than 3000 members.

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

The deal by Protective Industrial Products (PIP) to acquire Perth-based Paramount Safety Products closed recently but financial terms were not disclosed. It marks the first acquisition for PIP since it was taken over by private equity firm Odyssey Investment Partners in late 2020. Joe Milot, PIP president and CEO, said:

The addition of Paramount is key to PIP's objective of servicing customers around the globe and to provide them with more opportunities for growth. We saw great similarities in our business models and synergies with Paramount's products and brands and are very proud to have a company with such a rich legacy join us.

Paramount with merge with PIP Australia to serve customers across Australia, New Zealand and Oceania. Tim and Will Bird will continue leading the Paramount team in the Oceania region. Tim Bird, Paramount's CEO, said:

We are equally excited to join the PIP Global family. We had been looking for the right partner to continue the dream of our father, the late Rob Bird.

Will Bird, director of operations at Paramount, added:

We found that Joe Milot built PIP on similar principles and values that our father outlined when he started Paramount.

Founded in Perth (WA) in 1992, Paramount has over 100 employees across Australia, New Zealand, Latin America, the Middle East (Dubai) and Africa. It has developed safety products for use across a wide range of industries and applications including mining, oil and gas, construction, infrastructure, manufacturing, logistics and agriculture as well as home improvement and maintenance. Paramount's portfolio of brands includes Pro Choice Safety Gear, Linq Height Safety, Pratt Environmental & Site Safety Systems, Thorzt Hydration Products, MEDIQ First Aid, BISON Safety and Footwear and WORKIT Workwear.

PIP has over 20 locations around the world. Established in 1984, the company offers a broad suite of PPE products and brands including hand & arm protection, protective clothing, head protection, eye & hearing protection, and other safety protection.

It is headquartered in Latham, New York (USA), and the business has a diversified channel presence across distributors, retailers, and e-commerce platforms, and an end-to-end logistics platform.

In 2020, Home Depot and Lowe's reported huge sales gains on the backs of people spending more time - and subsequently more of their money - at home. Now, the question is whether or not these gains can continue well into 2021.

The pandemic fuelled a hot real estate market and a penchant for "nesting", creating tailwinds for Home Depot and Lowe's. As COVID-19 cases fall in the US and homeowners spend more time on planes or at parties, the biggest business opportunity is sales growth from home professionals.

In recent months, executives at both companies have said they are seeing pent-up demand for professional projects as people feel comfortable inviting contractors (tradies) back into their homes and dine out and travel more instead of ticking off a list of DIY projects.

During their first quarter earnings calls, Home Depot and Lowe's laid out their strategies for retaining customers this year. So far, shoppers' enthusiasm for home improvement projects isn't waning - Home Depot's sales were up 32.7% year-over-year during its first quarter, while Lowe's sales were up 24.1% year-over-year.

Home Depot executives said that a big area of focus for the retailer is to grow its professional business by adding more products for contractors, as well as expanding services like tool rental. It is also betting on its online businesses to drive growth.

Meanwhile, Lowe's is trying to capitalise on the sales growth it saw last year by marketing itself as more of a home decor destination, while also trying to take more business from contractors away from Home Depot.

Over the past year, Lowe's has been adding more products on its website in categories like fitness equipment and bedding. Home Depot and Lowe's are betting that these respective strategies will help drive up average order values and keep customers coming back to their stores.

Sales growth

Both Home Depot and Lowe's reported that sales were growing more quickly compared to the same period last year.

Home Depot's key stats: Home Depot reported net sales of USD37.5 billion during its first quarter, up 32.7% year-over-year. Online sales were up 27%. Home Depot's net income for the quarter was USD4.15 billion

Lowe's key stats: Lowe's reported net sales of USD24.4 billion during its first quarter, up 24.1% year-over-year. Online sales were up 36.5%. Lowe's net income for the quarter was USD3.2 billion.

Though Home Depot and Lowe's are the two biggest players in the home improvement space, their customer base differs slightly. Bryan Gildenberg, senior vice-president of commerce at Omnicom Consulting Group told Modern Retail:

Home Depot has leaned in more [to focus on] contractors while Lowe's is a little more focused on the end consumer and decor.

Historically about 45% of Home Depot's revenue has come from contractors - which both chains refer to as their "Pro" business. At Lowe's, it accounts for 20-25% of sales. Neil Saunders, managing director of GlobalData Retail, said:

The biggest advantage for Home Depot is that it has been in the professionals' space for longer and so has built up a solid customer base.

The Home Depot's chief operating officer Ted Decker said that for the company's Pro customers, "we know that brands matter," so a large focus for Home Depot has been trying to land exclusive products and tools for its Pro customers. For example, the company said it now carries 200 exclusive products from the electric tool brand Milwaukee.

Another focus for Home Depot is adding more e-commerce features - the company is rolling out the ability to rent tools online and pick them up at 1,300 stores. Home Depot has also said it plans to increase its fulfillment square footage by over 70% this year, in order to serve more e-commerce orders.

Mr Decker said Home Depot anticipates the biggest year-over-year growth numbers will come from Pros in the coming quarters, particularly after a year when construction sites shut down, consumers postponed remodels, and DIY projects soared.

For Lowe's, revving up the pro business has been a piece of CEO Marvin Ellison's turnaround plan. He has said Lowe's sweet spot is "the pick-up truck Pro" rather than large companies.

Though its Pro business has historically been smaller than Home Depot's, growing it has remained a focus at Lowe's for the past several years. Mr Ellison said during the company's first quarter earnings call that Pro sales growth outpaced sales growth from DIY customers during the first quarter. And, that the company is hoping to grow the size of its Pro business to eventually account for 30-35% of its sales. Lowe's did not give an exact timeline for when it hoped to hit this metric.

Like Home Depot, Lowe's has tried to grow its Pro business by acquiring more exclusive brands and products. In April, Lowe's announced that it was acquiring carpeting company Stainmaster.

Lowe's has also been trying to market itself as more of a home decor destination, by carrying more products like fitness equipment, cookware, bedding and towels mostly on its website. Since the end of 2018, Lowe's has more than tripled the amount of SKUs it carries on its website, chief merchandising officer Bill Boltz told Modern Retail.

Mr Boltz said during Lowe's first quarter earnings that sales in decor, kitchens, and bath increased during the first quarter, but declined to give specifics.

Like Home Depot, Lowe's has also been focused on building out its e-commerce fulfillment options, though it has lagged behind Home Depot in that regard. Lowe's said that it now has in-store lockers for buy online, pickup in-store orders rolled out to all of its US stores, something that Home Depot started doing in 2018.

Despite all of these investments, Lowe's sales growth still lagged behind that of Home Depot in the first quarter - which in Mr Saunders' eyes, bodes well for Home Depot for the rest of the year. He said:

At some point, consumers will curb spending on home improvement and the growth of individual players will become much more dependent on their ability to compete with each other rather than relying on organic growth. Given the evidence we have seen, Home Depot appears to be in a much more favourable position.

While opinions about many Bosch tools vary, one tool that is almost universally acclaimed as the best in its class is the Dremel multi-tool. Bosch has now launched the next evolution of that product line, the Dremel 8260, a cordless multi-tool which features Dremel's first brushless motor.

Bosch states that this tool is so powerful, it has 20% more power than the top-of-the-line Dremel 4250 corded tool. On top of that, Bosch claims the 8260 is the "world's first" connected cordless multi-tool.

DIYers can pair the tool via Bluetooth with the Dremel app, which provides them with detailed information about expected battery life on a particular task, and predictive warning about problems such as overheating. The app also enables adjusting the speed of the Dremel's rotation to one of six possible settings. Just signing up to a free online Dremel account grants users and extra year onto the standard warranty.

Bosch has also upgraded the Dremel website. This now includes inspirational features on how to use the Dremel to achieve a range of tasks, such as engraving on leather or glass.

More accessories

Along with the upgrade to its cordless line, Dremel has also brought out its "Dremel Max" range of accessories. These upgrade the previous accessories for longer life and better performance. For example, the Max EZ SpeedClic Premium cutting wheel has a lifetime 20 times longer than the standard accessory, and can be used to cut tougher materials, such as alloyed steel.

Australian retail conglomerate Metcash announced its results for its FY2021, ending 30 April 2021, on 28 June 2021. While the results were, overall, very positive, the results presentation was somewhat more contentious than usual.

In top-line terms, statutory revenue came in at $14.3 billion, up by 9.9% on the previous corresponding period (pcp), which was FY2020, ending on 30 April 2020. According to Metcash, if "charge through" sales are included, revenue grew by 10.1% on the pcp. Overall earnings before interest and taxation (EBIT) came in at $401.4 billion, an increase of 19.9%. Net profit after taxation (NPAT) was $239.0 million; NPAT for FY2020 recorded a loss of $56.8 million, occasioned by a write-down of $237.4 million to compensate for the loss of a contract with 7-Eleven by Metcash's food business.

Metcash's hardware business also reported strong numbers. Sales including charge throughs came in at $2.6 billion, an increase of 24.7% over the pcp. EBIT for hardware came in at $136.0 million up by 61.5% (though this includes earnings from acquisitions, which we delve more into below). Like-for-like (comp) sales rose by 11.4% in what Metcash defines as the "the retail banner group", while in the pcp this number fell by -0.7%.

In its other segments, Metcash's food business saw sales grow by 3.1% to $9.4 billion. In its liquor segment, sales came in at $4.4 billion, an increase of 19.2%.

In the face of what would seem to be good news, it was, perhaps, a little surprising to find the analysts virtually attending the results presentation had some pressing questions for management about its internal investment plans, and exactly what the results meant. The initial presentation of the result numbers took around 30 minutes, and the Q&A session took over 40 minutes.

At the heart of this contention was what many analysts saw as a surprising move by Metcash: a share buyback scheme. In announcing this buyback, Metcash stated:

On 28 June 2021, Metcash announced that it is undertaking an Off-Market Buy-Back of up to approximately $175m. This follows the Board's assessment of Metcash's ability to distribute excess capital to shareholders having regard to: an improvement in the level of economic certainty; its near-term capital expenditure and working capital requirements; opportunities to grow and create shareholder value; while also maintaining a strong balance sheet with low gearing. When combined with $179m of ordinary dividends in respect of FY21, Metcash will have returned over $354m to shareholders since payment of the FY20 final dividend.

The Board considered various alternatives for returning excess capital and determined that the Off-Market Buy-Back is the most tax effective and value enhancing strategy for distributing the excess capital. All shareholders who continue to hold shares following the Buy-Back, irrespective of whether they participate or not in the Buy-Back will benefit through earnings per share and return on equity accretive outcomes.

The buyback would account for something over 5% of the shares currently issued by the company.

HNN can make a good guess at what was actually disturbing to the analysts about this move (though it was never overtly mentioned). However, it is best to delay that until our end analysis.

We need first to take the questions of the analysts at their (very valid) face value. For the most part, these related to the wisdom (or lack thereof) in returning capital to shareholders via a buyback, when those funds might have been better reinvested in Metcash.

There were some really excellent questions asked of Metcash, in particular by Grant Saligari of Credit Suisse, Michael Simotas of Jefferies, Andrew McLennan of Goldman Sachs, and Craig Woolford of MST - as well as a seemingly simple, but very revealing question by Morana McGarrigle of Macquarie.

However, as has often been the case, it was David Errington of Bank of America Merrill Lynch who really got to the heart of the matter with Metcash CEO Jeffrey Adams. What makes Mr Errington's questions so distinctive, is that, while they deal overtly with numbers, forecasts and decisions, they somehow also penetrate down to the character of the executives - and of the business itself - involved in making choices.

Mr Errington's question begins by pointing out an interesting fact not at first clearly evident in the numbers supplied by Metcash:

In the second half, your key [food] business in EBIT was down second half [FY2021] on second half [FY2020]. Now, I know that you've lost Drakes and that, but at the end of the day, that's what it is, it is what it is, you lost a couple of major customers here and you have to cycle it. [Also] you're not going to have tobacco excise benefits this year.

So you're down from $94.3 [million] to $89 [million]. And you're going to give up another ten [million dollars] in not having excise from tobacco in food. So my question is in the main food area, is my concern in the industry is that there seems to be a step up in capital intensity going on at the moment, where we have got Woolworths, and we've got Coles both stepping up sizeably their investments.

Is it wise to, you know, because your maintenance capex, I think you're basically highlighting that your capex is not much above maintenance. So I think capex is about $80 [million], and maintenance depreciation is about $60 [million]. So you're a little over that. Now, I know you're doing MFuture and all the rest of it. But giving money back to shareholders at this point, I know there's been a desire to give it back because he did raise $330 million last year, so [you've] got to give some back. I get that. But giving it back like this, when the others are stepping up sizeably their capital intensity... You know, Woolworths has announced last week, $400 million in another automated DC. Coles are stepping up, they're investing in projects. Do you think that you might need to step up to remain competitive? Because I know that you're saying that you've got to look at sales, excluding Drakes and all the rest of it. But at the end of the day, they are major customers that you lost. Are you at the position now that you can actually grow sales, once we do go through the normalisation period, given what's happening in the industry right now?

Mr Adams responded:

Yeah, well, look, Dave [sic], I wouldn't want to try to predict any further than what we've, what we've reported here on the first eight weeks. But again ... we're quite confident that, you know, we are still seeing again, if you go back to that, FY20 being a more normalised sales period, the growth that we're seeing against that is encouraging.

As far as our plans, and you know, do we have the capital that we need for those plans? We're absolutely sure that everything that we spoke about at the investor day, I don't want to comment on what other people are doing, because I'm not, you know, familiar enough with their strategy, and why they're spending that kind of money. But we feel quite comfortable that we're spending the right level that we need to spend to deliver the plans that we've outlined.

Mr Errington took up those points:

Is it fair, Jeff, to compare it to FY20? Do you reckon right now, we're in a normal period, that you're comparing a normal period to a normal period? Because I don't know about you, but living in Melbourne in the last two months hasn't been normal. I've had to wear face masks in supermarkets. I wasn't allowed to go more than five kilometres for about two or three weeks. So do you really think it's fair comparing the numbers today? Do you think we've normalised today, do you? Do you think we've normalised that you can safely say and talk to us as, as the investment community, "compare yourself to FY20, because right now, it's normal versus normal"? Do you think that's right? Do you think we're in normal conditions right now, so that your trading is normalised?

Mr Adams confirmed that this was, indeed, his basic approach:

Compared to FY21 at that time, I think we probably are closer to normal. Maybe this is the new, new normal. The only reason we provided both of those, Dave, was so you can make that comparison to see, versus FY21, which was very volatile, we know, particularly at the start of the year. And then as we got more toward the end of the year, it was sort of what people are calling the new norm.

Mr Errington asked for a final clarification:

But do you think it's the new norm now? Does it seem like we're still in that new normal period now?

Mr Adams agreed that this was his approach:

Yes, I do! And until things change, as far as borders opening up, and people getting further into the vaccination, I think we probably will be living the way we are now for some time to come.

One reason why this exchange matters so much is that it touches on one of the key strategic matters for the hardware industry, as well. In terms of capital intensity (to borrow Mr Errington's phrase), we're seeing something similar in hardware, with Bunnings not only investing in ramping up Adelaide Tools to a nationwide chain of tool retailers, but also buying Beaumont Tiles as well. And behind that, there is the ongoing, very large investment in data analytics that Wesfarmers managing director Rob Scott has instigated. While TTH (Total Tools Holdings) certainly is an investment in hardware, it's also a new business, rather than an ongoing investment in, for example, IHG.

This is happening against an economic background that many would agree is highly uncertain - as Mr Errington points out. Mr Adams, in contrast, seems to suggest there is a predictable pattern to it, a pattern which will, it would appear, continue to benefit the businesses that make up Metcash.

More concerning, however, is that there is a sense in all of this that Metcash may be, at least in part, willing to return funds to shareholders based not only on present performance, but also on future performance. Yet if we look at a venture such as TTH, much of the predicted growth has an element of risk to it. That's part of the point that Mr Saligari was trying to make when he asked some pressing questions about TTH:

Just on the total financial commitment into Total Tools, at the moment, and maybe we just stick with the balance sheet amounts at the close, before talking about the additional 15%. So when you acquired this 70%, it was $57 million for Total Tools Holdings, and you recorded a liability of $122 million, and then there was $42 million dollars, I think, for the JV stores and a liability of $69 million for put options that the JV owners have back to Total Tools. And there was debt $40 million at acquisition. Is that ... sorry, can you maybe just confirm whether they're the right numbers?

Metcash's chief financial officer, Alistair Bell, did respond to that question, but it was not quite on-topic, so Mr Saligari pursued clarification:

All right, to just to, say, double confirm whichever way we cut it, whether we halve the liability or not, we're looking at about $180 million, approximately Total Tools Holdings, about $120 million for the JV stores, including the put options, so we're up to $300 million there plus the debt. So it is sort of $340 [million] or $360 [million], whichever way you look at it, should we then get in? So we should compare that amount with the $24 million? Is that approximately right?

Mr Bell responded:

I'm trying to follow your maths, Grant. So I'll have to, it may be easier to take it off and come back to you afterwards.

Finally, as the last question to the event, Ms McGarrigle asked:

Maybe just one other quick one on hardware, just given your positioning in the trade market and given the fact that the market is very fragmented. Should we be seeing more consolidation? Or should we expect to see more consolidation in the industry in the near term?

Mr Adams replied:

So, you know, we've said before, and we said again at the investor day in March that it does tend to still be quite a fragmented market, in hardware. Obviously, we've had a great opportunity to pick up Total Tools, and in the past picked up HTH. There's still lots of people out there, you know, it would depend now on what valuations they would be looking for, because a lot of people have benefited significantly during the COVID times. So unless people are willing to talk about normalised earnings, we wouldn't be interested. But it is still one of the markets for us and in businesses where it's still very, very fragmented and lots of opportunity.

That's a revealing answer, in that it indicates the drive to acquire more corporate stores is likely to be muted for some time. It's also interesting that when it comes to investing in new stores, the prediction for future growth would seem to be less than completely optimistic.

Assessing hardware at Metcash

At this point, having spent considerable time looking through the financials presented by Metcash for its FY2021, HNN has to confess that we have, quite frankly, been defeated. We cannot, based on the numbers provided, derive an analysis from the perspective of the industry itself.

That isn't to necessarily criticise Metcash. Corporations produce accounting numbers for three purposes: to substantiate their tax payments; to inform investors about past performance and future prospects; and to help with the management of a company by monitoring its performance. The first two are public and the third is private. HNN's purpose is frequently to somehow derive a sense of the third from the numbers contained in the other two.

This year, however genuine performance figures seemed a little hard to come by.

Revenues including charge throughs

To give some idea of the difficulties involved this year, take, for example, the numbers provided by Metcash for revenues that include what the company describes as "charge throughs". On the Metcash website these are defined as follows:

Charge through is a process that allows suppliers to deliver their non warehoused goods directly to our customers, with all accounts for those deliveries payable by Metcash. Metcash, in turn, on charges the receiving customer of those deliveries.

In the most recent, full-year FY2021 results, this is the description of revenues for the hardware segment at Metcash:

Hardware sales (including charge-through) increased 24.7% to $2.6bn (FY20: $2.1bn) with significant growth in DIY sales and a return to growth in Trade.

In the statements for the first half of FY2021, this is the statement for the same category of revenues:

Hardware sales (including charge-through) increased 20.6% to $1.3bn (1H20: $1.0bn) with significant growth in higher margin DIY sales. Excluding acquisitions, hardware sales (including charge-through) increased 16.2%.

So, interestingly, the retail sales including charge through were split exactly evenly (at least when rounded to the nearest $100,000,000) between the two halves.

For the previous year, FY2020, this is how the same category of sales is described in the results announcement:

Hardware sales (including charge through sales) decreased 1.3% to $2.08bn (FY19: $2.10bn) reflecting the impact of the slowdown in construction activity on Trade sales and the loss of a large HTH customer in 1H19.

Going back to the first half of FY2020, this is the description for that category of sales:

Hardware sales (including charge-through sales) declined 4.2% to $1.04bn (1H19: $1.09bn) mainly reflecting the impact of the slowdown in construction activity on Trade sales.

Once again, the amount of sales in the first and second halves were exactly the same, rounded to the nearest $10,000,000.

For FY2019, there was some variance between the two halves.

HNN has no further comment to offer on this.

Organic versus inorganic growth

In providing an overview of Metcash's Independent Hardware Group (IHG) from an industry perspective, it's crucial to be able to separate organic growth, which relates to growth in assets owned for more than a year, from inorganic growth, which relates to recently acquired assets.

The reason that is so crucial is because we're more interested how individual retail premises operate, and less interested in who specifically owns them or benefits from their wholesale business. From an investor perspective, both are interesting, but who benefits from the revenues is somewhat more important.

Crucially, when the market expands, as it has recently, we want to know which sectors are capturing more marketshare. Is it IHG, other independent groups, or is Bunnings the main beneficiary?

In the current results, as provided, there is simply no way to work out, or even back into those numbers. We do get one hint, in the FY2021 first half results, which state:

Excluding acquisitions, Hardware sales (including charge-through) increased 16.2%.

Though, in the same document, when it comes to EBIT, we're back to no differentiation:

Hardware EBIT increased $25.6m (+ 65.8%) to $64.5m, reflecting a significant increase in sales volumes, the increased weighting of higher margin DIY in the sales mix, an increase in the contribution from joint ventures / company-owned stores, and the earnings from acquisitions which included $4.8m from two months of trading in Total Tools Holdings.

The same holds true for the full year FY2021 results. Regarding sales, these state:

Total IHG sales (excluding Total Tools) increased 17.9% (FY20: -1.3%).

When it comes to EBIT there is even less clarity:

Hardware EBIT increased $51.8m (+ 61.5%) to $136.0m, reflecting a significant increase in sales volumes, an increase in the contribution from company-owned / joint venture stores, and the earnings from acquisitions which included $24.0m from the Total Tools Group.

The difficulty in both cases is that the list of acquisitions is quite extensive. It's also not clear that notations such as "excluding Total Tools" means that everything related to Total Tools is excluded, including Metcash's 36% to 42% share in Total Tools franchise stores, or just the main companies that make up TTH.

The only other recourse that we have to measuring organic growth are the "like-for-like" sales mentioned in the FY2021 results:

Retail LfL sales in the IHG banner group increased 11.4% (FY20: -0.7%), with DIY sales up 25.1% and Trade sales 4.9% higher.

However, LfL (comp) sales tend to understate growth, so using these as a proxy for overall organic sales growth would not be fair to IHG.

About the only statement we have to offer is that the 17.9% growth figure - which does include acquisitions - is close to the overall figure from Australian Bureau of Statistics (ABS) for growth through that period of 18.3%.

Other comparisons

A curious addition to the results for FY2021 was an extended comparison to not only the previous year, but also two years in the past:

This includes a 19.4% increase for the ten months ended February 2021 and a 12.3% increase in March/April 2021 sales. Compared with FY19, March/April sales increased 25.4%.

HNN's chart for sales over this period illustrates why such comparisons might be tempting:

After a strong peak in activity from April to June in 2020, stats since February 2021 show signs of decline in hardware retail revenues. Nonetheless, as these stats show a 21.5% increase from April and May 2019 to April and May 2021, the IHG sales figures show a stronger result - though they are described as being ex-Total Tools, but inclusive of other acquisition revenue, and thus do not describe purely organic growth.

This multiple year comparison is carried over into the Outlook section of the results dealing with hardware:

In Hardware, sales for the first eight weeks of FY22 increased 29.1% compared with the same period in FY20, and 15.5% compared with the same period in FY21. Total IHG sales for the first eight weeks of FY22 are up 15.1% compared with the same period in FY20, and 3.1% compared with the same period in FY21.

Again, the sales numbers are footnoted as excluding TTH sales, but not other acquisitions.

Analysis

An announcement that Metcash made in February 2021 to the Australian Stock Exchange regarding the employment of its CEO, Mr Adams, states in part:

Metcash Limited (ASX:MTS) today announces that the employment agreement of its Group CEO, Jeff Adams has been extended subject to the renewal of his visa, which is due to expire in August this year.

The existing terms of his employment agreement are unchanged and include a maximum period equivalent to his visa (four years), and a notice period of 12 months for both Mr Adams and Metcash.

Mr Adams has held the position of Group CEO since December 2017.

As Mr Adams has been a very effective CEO, it will be interesting to see how his ongoing engagement with Metcash develops.

The Remuneration section of the results for FY2021 provides this useful graph which describes the various performance reward schemes provided to key management personnel (KMP).

The long term incentive (LTI) scheme relies on two main performance measures, returns on funds employed (ROFE), and total shareholder returns (TSR). Payments are, according to the document:

Delivered in Performance Rights. Each Performance Right is a right to acquire Metcash shares at no cost, subject to the satisfaction of performance and service conditions.

As expected, the announcement of the share buyback by Metcash has helped to boost its price.

Conclusions

What resonates most with HNN in looking at these results are the comments made by Mr Errington. There is a link, really, between what happens in some sports, and what happens in the relationship with share markets as mediated by corporate executives and investment analysts. The written rules of the game are important, but it's knowledge of the unwritten rules that leads most players to a better understanding of themselves and their team members, and helps some to achieve some small moments of actual greatness.

If it was Metcash's intent to avoid a certain kind of scrutiny, a clear benchmarking of performance against industry statistics (though we can't know if that is the case), then congratulations are due, as from HNN's perspective at least that is what has happened. But constrained results are unlikely to serve Metcash's better purpose in the years ahead. Which is, in the end, the message the investment analysts at the results presentation might have wished to convey - in HNN's opinion.

Related: Metcash held its Investor Day earlier this year.

Sunshine Mitre 10 general manager Neil Hutchins said the defibrillators are an investment in emergency health care not just for their staff, but also for the communities in which they operate. He told The Chronicle:

We have over 400 staff across our locations, and we take our duty of care very seriously so we have first aid officers at each location, and now we also have defibrillators which can help save lives for anyone experiencing a sudden cardiac arrest.

But it's not only that, many of our stores are in regional and remote locations so by having a defibrillator on site, it also makes these lifesaving devices more accessible to the local communities.

And while it's a very big investment, if we can save just one life, it will be money very well spent.

The defibrillators were sourced from iHeart80, a company founded by former Australian ironman surf lifesaving champion Guy Leech after he experienced personal tragedy when he lost his close friend "Chucky" to a fatal heart attack. Quick access to a defibrillator could have been the difference between life and death for Mr Leech's mate. He explains:

More than 500 people a week have heart attacks or strokes. Unless a defibrillator is put on you within about three minutes, you've got a 10% chance of survival. The average time for an ambulance to arrive is 12 or 13 minutes.

Mr Leech said the defibrillators were easy to use, with the machine giving instructions during use.

The defibrillators are with first aid equipment in all Sunshine Mitre 10 sites including Darling Downs and southwest Queensland stores in St George, Roma and Roma Steelyard, Dalby, and Kingaroy.

Bunnings is set to open its trade centre in Invercargill located on New Zealand's South Island by the end of the year.

Bunnings New Zealand general manager Ben Camire said construction of the store was progressing as planned at the site. He told the Otago Daily Times:

We believe the site is well positioned for a Bunnings trade centre in the growing area of Invercargill, and we're really looking forward to opening the doors and getting to know tradies in the area.

Spanning about 4000sqm, the new trade centre will have a fully covered trade drive-through and more than 20 on-site car parks. It will be able to bulk deliver trade quality and quantity orders to site, and will offer products relevant to local trade customers such as Clever Living Co. homes, AEG tools and a farm building range.

This trade centre represents an investment of NZD7 million by Bunnings and will be located at 22 Bill Richardson Drive, Invercargill West.

With seven other locations around New Zealand, Bunnings' trade centres are dedicated stores designed to help trade customers from the building and construction industry, specialised trades such as electricians, landscapers and plumbers as well as farmers and the rural community.

Related: The big box retailer announced plans to build a trade centre in New Zealand in late 2020.

New Zealand living wage

First Union secretary for retail, finance and commerce Tali Williams said Bunnings New Zealand has inked a new national collective agreement that would put long-term staff on levels at least equal to the living wage from September 2021. The living wage jumps at that point to NZD22.75 an hour. The rate applies to staff on the payroll for 12 months or more. Ms Williams told the Waikato Times:

Bunnings staff have been busier than ever since the first wave of the pandemic and we have heard that their workloads have never quite returned to 'normal' again.

Only about a fifth of Bunnings' staff are unionised and New Zealand general manager Ben Camire said most permanent staff were on pay bands above the current living wage. Other staff benefits included share options and bonuses. He also disputed the union's claim that his staff were busier than ever, saying the company took care to roster the right number of staff.

The union also called out a group within the Mitre 10 co-operative (no affiliation with Metcash-owned Independent Hardware Group) which owns four stores in New Lynn, Albany, Warkworth and Whangaparaoa, where union members had unsuccessfully been trying to get beyond the NZD20 an hour minimum wage. Senior staff were paid a little higher, at NZD21.30, but the process of becoming a senior there appeared arbitrary, Ms Williams said.

Riviera Hardware Holdings, which owns the four Mitre 10 stores, said it had been "meeting with the union in good faith", and had worked through and resolved a range of claims already. It also said:

Some we are yet to reach agreement on. We are willing to attend another bargaining round and continue negotiations but we are not able to promise outcomes at this point.

The first major New Zealand retailer to sign up to a living wage component in its agreement was Kmart in April, putting established staff on at least NZD22.10 an hour.

Trade-focused retailer, Screwfix is set to launch a trial which will see it deliver products to customers in as little as 30 minutes. To provide this service, Screwfix is partnering with Gophr, a delivery courier business.

While the trial is limited to the area, parent company Kingfisher has been looking to boost its last-mile delivery options, according to The Times.

Sister company B&Q has been leveraging its store estate, operating dark stores out of its "digital hubs" to offer next-day delivery. B&Q also offers click-and-collect within an hour, while Screwfix offers the same service within one minute.

Thierry Garnier, Kingfisher's chief executive, is an advocate of rapid deliveries because of his stint in China as boss of Carrefour's Asian divisions where shoppers expected goods to be delivered within 15 minutes. There he oversaw an operation where hundreds of motorbikes would deliver groceries from supermarkets at three-minute intervals every day.

During the pandemic, Kingfisher grew online sales by 158% as the business switched to picking internet orders from shop shelves to speed up delivery times. As a result of Mr Garnier prioritising digital growth during the crisis, online sales account for almost a fifth of revenues.

However, it is understood that Mr Garnier is keen to offer faster deliveries particularly to tradespeople who are working in homes.

Mr Garnier is using Kingfisher's existing store network as a profitable route to growing its ecommerce business.

In the UK, Gophr is a last-mile service that recently raised GBP4 million to accelerate its expansion and counts meal kit company HelloFresh, pharmacy retailer Boots, luxury fashion e-tailer Net-a-Porter and British consumer co-operative, Co-op as clients. Department store Marks and Spencer had previously chosen Gophr for its trial of online food deliveries, before striking a joint venture deal with retail software company Ocado.

Amazon had originally disrupted the UK market with its offer of same-day deliveries but more frequently offers next day deliveries as its Prime Now service migrates to its main website.

Related: During the pandemic, Kingfisher focused on speeding up its delivery times.

The Home Depot has implemented its new "rent online, pick up in-store" technology at its 1,300 rental locations. From demolition tools such as breakers and concrete saws to landscaping tools like tillers and sod cutters to trailers and moving vehicles, customers can now reserve and rent equipment online up to 30 days in advance. Richard Porter, vice president of Home Depot Rental, said:

This new online technology saves Pro and DIY customers time and trips to the store because they can conveniently check equipment availability and reserve what they need in advance to get in and out of our rental centres more quickly than ever.

For urgent needs at the jobsite or in the midst of that weekend project, customers can also check availability at multiple locations and make reservations on their phone or other mobile device.

After piloting online reservations in the Atlanta, Charlotte and Houston markets, The Home Depot has made the system available to rental customers across North America.

The Home Depot has opened eight new rental centres since January. It has positioned its rental business as a business partner for its Pro (tradie) customers with a flexible rental process.

It said it is a "single source for large equipment, general tools, trucks and trailers all in one location", and offers transportation solutions with truck and van rentals. Customers buying materials and supplies at Home Depot stores can also rent the equipment, tools, trucks and trailers needed to complete the job.

For added reliability, its rentals are backed by the retailer's preventative maintenance program, which uses technology to ensure the machines consistently perform at a high level.

Related: In January, Home Depot discussed its "Three Stages of Rental Evolution" which involved getting into larger equipment.

The governor of the Reserve Bank of Australia (RBA), Philip Lowe, made a very interesting speech on 17 June 2021 to the Australian Farm Institute Conference. As Mr Lowe is often-times wont to do, he chose a slightly obscure locale to release some penetrating insights into Australia's current economic conditions.

In his introduction, he suggested the apparent topic of his address:

This morning, I would like to talk about how the economy is now transitioning from recovery mode to expansion mode, and highlight some of the issues that this raises, including for regional Australia. I will then conclude with some comments about the outlook for monetary policy.

He went on to report the many positives of the current economy, with employment levels high, and both national and farm gross domestic product (GDP) returning to pre-pandemic levels. He pointed out that household savings are very high. He also pointed to an increase in housing prices and rents, and noted that these factors would all play a part in how rapidly recovery got underway.

How households respond to these changes in their balance sheets will help shape the next stage of the recovery. If households were to run down their additional savings quickly or if higher housing prices spurred more spending than usual, a stronger economic path than the one we have envisaged could eventuate. On the other hand, it is possible that households sit on these extra savings for a long time and restrain their spending because of uncertainty about the future. If so, this would slow the recovery. So this is an issue we are watching carefully.

Mr Lowe pointed out that there were some concerns that, given higher house prices and increased demand, the economy would be able to deliver the required supply. One positive he noted was that as there was relatively increased demand in regional areas, where there could be fewer constraints on construction. He did note, however, that a tight labour market was nonetheless imposing limitations on growth in construction. This was borne out by a graph he did not present, released later by the Australian Bureau of Statistics. This indicates that nearly a third of construction business are having trouble finding staff.

He then turned to some of the less fortunate aspects of the current economy. Despite staff shortages, wages are still not gaining.

Notwithstanding these signs of a tightening labour market, wages growth and inflation remain subdued and there have not been upside surprises. The Wage Price Index increased by just 0.5 per cent over the past year, with wages growth slow in the private and public sectors. And it is noteworthy that even in those pockets where firms are finding it hardest to hire workers, wage increases are mostly modest. There are some exceptions to this, but they are fairly isolated.

It is at this point that Mr Lowe makes some very interesting observations.

Most businesses feel they are operating in a very competitive marketplace and that they have little ability to raise prices. As a result, there is understandably a laser-like focus on costs: if profits can't be increased by expanding or by raising prices, then it has to be achieved by lowering costs. This has become the predominant mindset of many businesses. This mindset can be helpful in making businesses more efficient, but it also has the effect of making wages and prices less responsive to economic conditions.

He goes on to explain what he sees as the potential origin of this condition:

This mindset became entrenched during the resources boom when the exchange rate appreciated very significantly. When one Australian dollar was worth more than one US dollar, many Australian businesses felt that their Australian dollar cost structure was simply too high. You might recall that through this period many businesses were saying that Australian costs, including labour costs, were leaving them uncompetitive. This experience has left a lasting imprint on many businesses and it has reinforced the narrative about the importance of cost control.

How is that playing out in the current conditions, which we might define as "semi-stable pandemic"?

Against this background, the economy is now recovering from the pandemic and some firms are finding themselves facing labour shortages. At least some of these business face a choice: do they increase wages in an effort to attract new employees and put up their prices or do they pursue another strategy?

Many firms are choosing this second option, relying on non-wage strategies to retain and attract staff. Some are also adopting a "wait and ration" approach: wait until labour market conditions ease, perhaps when the borders reopen, and until then, ration output. For some, this is a better option than paying higher wages and driving up their own cost base. This is especially so if: increases in the cost base are difficult to reverse later on; there is a reluctance to increase prices; and the business expects labour market conditions to ease before too long. By waiting and rationing, firms can avoid entrenching a higher cost structure in response to a problem that might be only temporary.

Generally speaking, economies that find themselves in this kind of fix tend to get out of it (if they do get out of it) by means of increasing the productivity of businesses and potentially of workers as well. That isn't happening in Australia - in fact, in some cases productivity is declining, notably in construction.

One reason for that might be the very low level of business investment. Though Mr Lowe is willing to suggest that there are some encouraging signs, most noticeably in tractor sales.

He is, however, not made giddily joyous by this surge in rural machinery acquisition:

This pick-up in business investment is welcome, but we have a fair way to go to reverse the decline in investment over the past decade. If we are to build the capital stock that is needed for a more productive economy and a durable expansion, a further lift in business investment is required.

This should be possible, as there are investment needs and opportunities in many areas of our country. The government has rightly identified the digital economy as one of these areas. The farm sector knows this, with some exciting opportunities in the area of agtech. Ongoing investment in infrastructure and human capital is also needed. Further investment is also required in the energy sector, where technology is evolving quickly, as are the attitudes of investors. The changes in the global energy system are opening up new sources of comparative advantage for Australia. We will need more investment to capitalise on this advantage, with much of this investment being in regional Australia. How well we do this will have a bearing on our future national income and the shape of the ongoing expansion.

Analysis

Referring to Mr Lowe's speech, and the subsequent questions he was asked, Katherine Murphy, political editor for The Guardian, quoted Mr Lowe as saying:

Many international investors are very focused on this issue and it's particularly important for the agricultural sector because up to 70% of agricultural output in Australia gets exported - so you are relying on overseas markets, and increasingly overseas investors are asking about the carbon content of production, and that is a trend that is only going to continue.

So agriculture has tremendous opportunities here, but we need to find ways to disclose to global investors and global customers the decarbonisation strategy and how successfully we are doing that.

It is a really important issue and it's going to become more important.

Ms Murphy commented on what Mr Lowe said:

Lowe inhabits a universe where climate change is real, the science is settled, and global capital has already made its choice.

If you inhabit that world, there's very little grey area. You can see that transformation is coming. You can see countries are now in a race to prosper in what Scott Morrison now likes to call the "new energy economy".

That race is only intensifying.

We could make, really, pretty much the same comments about digital technology in general. Mr Lowe is without doubt quite correct, and he has been pointing out over the past three years at the very least that Australia needs to invest more in digital.

But just as some people continue to resist making changes which are no longer even as much about climate change, as simply moving to better and more effective technologies for producing electricity, there is a stubbornness in Australian business when it comes to adopting digital technologies.

The startling fact is that even as Australia continues to dawdle on the path to the digital, countries like the US are emerging from the pandemic through investing vast sums in digital technologies. That's being duplicated - though to a lesser extent - in the European Union and the UK.

HNN suspects that there are a number of causes behind this lag. One of the major ones is simply that, absent a functioning venture capital sector, the only way to finance developments is through government funding. Yet that funding would seem to follow the dictates of what is known as the "Frascati definition of R&D", which more or less confines development to laboratories and scientists. That ignores areas such as software, which has perhaps contributed something to R&D, like, for instance, the internet.

Beyond that, though, there is a major reluctance to change the long-established power structures in Australia. Businesses are willing to continue to pursue declining productivity growth and poor future prospects, rather than risk flourishing under a structure that rewards change and innovation.

Mr Lowe goes to some lengths to describe the pandemic recovery as being one that is distinctly "V" shaped - though he is quick to remind us that we are still in the midst of the pandemic. The difficulty is that such a V is not going to be enough. Australia will emerge from what will likely be two full years of partial isolation from the world to find it has slipped still further behind in technological terms.

Australia, in other words, needs to compare its performance in recovery not to whether it makes it back to 2019 conditions, but with where the rest of the world gets to in 2022. On that basis, it is highly likely a real recovery is a long way off.

Back in mid-May 2021, US big-box retailer The Home Depot (HD) released results for its first quarter of 2021 (February to April) which would once have seemed extraordinary. Sales increased by USD9.2 billion to hit USD37.5 billion for the quarter, an increase of 32.7%. Operating income was up 77%, and net earnings rose by 85%. The number of customer transactions grew by 19%, and the average ticket was USD82.37, up 10%. US store-on-store (comp) sales rose by 30%.

Those results followed on from the 2020 results (to January 2021) which showed a 20% increase in annual sales to USD132 billion, a 15% boost in operating income, and net earnings of USD12.9 billion, up by 14%. This was a substantial rise from HD's results for 2019, where sales rose by 1.8% for the year, with a forecast of 4.0% growth for fiscal 2020. The result is also much stronger than that forecasted in 2018, which called for 2020 revenue of USD120.4 billion.

In the months since the results came out, the company has attended a couple of investor conferences, and outlined how it achieved those results, what the consequences were, and how it sees the market in the US continuing to develop.

Project-based DIY

In the transcript of HD's fourth quarter and annual results announcement for 2019, DIY projects were mentioned only twice, while for the most recent 2020 transcript they rated nine mentions. It is certainly true that HD has long held a focus on seeing itself as the best solution for more serious DIY projects, but the COVID-19 pandemic both boosted that part of the business, and affirmed for HD that this focus is a key to its future growth through the rest of the current decade.

The focus on projects is determined by a number of market factors that HD faces. From abroad it can sometimes seem that hardware retail in the US is dominated by three or four major brands - HD, Lowe's, Menards, and Ace Hardware. However, there are many other large to mid-level brands as well, including True Value, Harbor Freight, Tractor Supply and Pacific Sales (a subsidiary of Best Buy), as well as many small local chains and individual stores. To give some idea of comparative scale, Tractor Supply, which does not even make the top 10, had revenues in 2020 of AUD14 billion, more than the Wesfarmers-owned Bunnings earned for its FY2019/20. The US home improvement market is estimated to be around USD690 billion (AUD910 billion) annually.

In competing outside of big-box, HD's major benefit is that it can provide customers with everything they need for a major project, such as a kitchen or bathroom refit. Additionally, HD has become more focused on aspects of productivity in its operations. Where other home improvement retailers look at costs as a "basket" of factors that are subject to reduction, HD is aware that costs are best regarded as the operational leverage that results in different amounts of sales. The expenditure on costs such as staff time for the sale of complete projects is far more effective than the same expenditure split across several less intense but minor sales. HD staff are trained to spot "project behaviours", and to more deeply engage those customers.

Appearing at the RBA Capital Markets conference (RBACMC) on 2 June 2021, the HD team of chief operating officer Ted Decker, Jeff Kinnaird, executive vice president merchandising and Isabel Janci, vice president - investor relations, answered questions posed by Scot Ciccarelli, a well-known retail analyst specialising in hardlines (hardware). Mr Ciccarelli asked:

Then something you guys had referenced before is, the ability to sell projects rather than products, rather than single SKUs. I guess the question is, is there a way for us to kind of think about the revenue opportunity with that? Like how people are starting to shop across the store, is there any way to kind of quantify that, number one? And then number two, is that just a behavioural change that people have to kind of take on themselves? Or is there a way that Home Depot can help influence that project mentality?

Mr Decker replied:

At the highest level, it's been something we've been working on for 42 years. We always think of ourselves as a project business where while we sell a lot of items and happy to sell an item, we always think of ourselves as a project retailer, not an item retailer. And whether it's a painting project, or a gardening project, or putting in new hard scape patio, any trip to a Home Depot entails a project and we'd love to build that basket.

Mr Kinnaird followed up that answer:

I'll start with portable power and power tools. You look at the capabilities that ... we're developing in terms of our tools, and how that's empowering consumers. I mean, it's just incredible.

And then, if you ... think about [it], we always relied on paint as the simplest project in our stores. That's really shifted. I mean, you look at luxury vinyl tiles, one of our large categories today that is now probably one of the simplest floor surfaces to install. You can do it over the weekend. You can buy them in-store and online. We've got all kinds of fulfilment options in terms of getting that project to the customer and it's an easy-install.

You look at a faucet install today versus yesterday, it's a simpler install. A couple of examples. So, our goal is to really make it easier for the Pro to do their install, but also for the consumer. There's a real opportunity for us to continue to teach consumers how to take on projects across the store. We're seeing more and more of that.

Mr Decker took up some of those points:

On big-ticket for example, we call it our big-ticket, which are, say, transactions over USD1,000, comped 50-odd percent in the first quarter. What's interesting about our big-tickets, I often have to stop and refresh my understanding of the data, you would think that is driven by appliances, by the cordless outdoor power equipment or tools that Jeff referenced, because we have seen people trading up to innovation for years now. And we're on ... a very steep innovation curve with cordless technology.

But when you look at our large tickets, this isn't [about] a very expensive appliance or a combo kit, these are still tickets with, 50, 60, 70 plus units in the basket. So, our large transaction while they benefit from a USD2,000 or USD3,000 refrigerator, they are still very much driven by the project business. That's where our big-ticket comes from, 50, 60 items in cart which speaks out the profit.

There is a lot to unpack in those statements. The first thing to note, in the comments of Mr Kinnaird, is the idea of what we might call "project creep". In the US market, at least, homeowners are finding it possible to take on larger and more ambitious projects, because those projects are becoming easier for the average DIYer to complete.

Partly that is because, as Mr Kinnaird points out, there has been an ongoing project in the industry to make the work of "pro's" - tradies - easier and faster. As tasks have been simplified and end-quality improved, more DIYers have been able to achieve results similar to installation and repair specialists.

Additionally, however, as is implied in these comments, there have been considerable advances in the tools used to perform these tasks. It's difficult to imagine now, but even as recent as the early 1980s, corded electric drills were not really that common a household tool (as those of us who remember using a brace and broad bit to get through a bit of Jarrah can attest). DIYers today may not have tools as sturdy as those of a tradie, but they are nearly as capable.

As Mr Kinnaird points out, there is likely nowhere this applies more clearly than in flooring. Laying a timber floor remains a difficult and quite technical task - you need not only a decent foundation in carpentry, but also in coating wood surfaces with a durable finish. Putting down laminate floors is much easier, while vinyl "plank" floors relies on even fewer tools.

From an Australian perspective, HNN would argue that many hardware retailers are not comfortable with that approach. Certainly there are some tasks - tiling floors with tiles over 30cm a side, for example - where you really benefit from the talents of a skilled and experienced craft worker. But for hardware stores that are over 70% focused on trade sales, there is a sense that boosting more advanced DIY is antithetical to their main source of revenue.

The final point from these comments, made by Mr Decker, is that the core of customer engagement and profitability doesn't necessarily come down to large item purchases - it's really the number of items, adding up to a decent total that counts. If we're looking at the costs of customer engagement through staff time and attention, it's vital that project purchases are pushed to completion. The staff needs to work out everything the customer might need for the project, and offer convenient, immediate solutions to those needs.

The other point that emerges from this is that the path to DIY competency has also changed. There was, eight or nine years ago, quite a bit of lamenting about how the Millennial generation would never graduate to DIY because they were not taught the basics by their Gen X parents. The fact is, though, that power tools and other changes have altered the kinds of information and experience that are needed. It takes some practice to be able to cut a straight line through a 250mm plank with a handsaw. Doing the same with a decent sliding mitre saw needs a bit of practice, but it is a much simpler skill. Mr Decker commented on this in response to a question about the ongoing future of DIY:

Clearly, there's a lot of do-it for me and pro activity on projects. But Millennials themselves are behaving much like the DIY phenomenon of the baby boomers, where you start with that first project. It might be a gardening project, or it might be a paint project. Paint remains the number one DIY project.

And as you do your first project, you gain confidence, you take on the second one, you gain confidence and you just start doing larger projects and bigger projects with as your confidence level and the interest in the category grows.

We are seeing that with the Millennials. So, super excited about medium and long term.

What's not mentioned here, though it has an increasingly significant effect, is the availability of DIY instruction videos through channels such as YouTube and Vimeo. It's amazing how the quality of these has increased sharply over the past five years, to the point where even "amateur" attempts feature graphics along with good sound, camera work and editing. In fact, most of these "amateur" videos are better than the supposedly "professional" efforts of most hardware retail chains.

Logistics

The focus of logistics for hardware retailers has changed sharply over the past two years in Australia. Prior to that, the focus was mainly on how to get goods delivered to stores in the most efficient manner possible. Operations such as Mitre 10 and Home Timber & Hardware - now part of Metcash's Independent Hardware Group (IHG) - relied on a central warehouse to dispatch goods to stores (supermarket style).

Bunnings has instead relied on (for the most part, excluding some of its captive brand products) direct transfer from the supplier to stores, effectively outsourcing much of those logistics. That's beginning to shift somewhat, brought on by the major change, which is a focus on store to consumer deliveries.

Benedict Evans, a well-known commentator on ecommerce, has suggested that the final kilometre logistics are so important they should be used to categorise goods sold.

For Amazon, makeup, books and shoes are all just interchangeable SKUs with the same buying journey that can all be stored in the same fulfilment pod and all go into the same brown cardboard box, but a cucumber, a stove, a bag of cement or a bowl of soup do not fit this model at all - they might need a different buying journey, but they definitely need a different logistics model. So, as well as thinking in terms of hardline versus softline, or high touch versus low touch, we should also think of parcels versus collection or delivery versus bikes.

...

[T]he base model for a weekly grocery shop, a fridge, or a garden project is that you go to the store, or the store brings it to you, and it doesn't go through the mail, but that doesn't mean it can't be 'ecommerce' and doesn't mean you can't buy it online. You can - you just need an entirely different supply chain and delivery model, with different unit economics.

It's no coincidence that Mr Evans mentions "a bag of cement". The issue of what is and is not directly deliverable has become a pressing concern for home improvement retailers. What has really happened, arguably, is that ecommerce has highlighted the total cost of goods sold for homeowners, in a manner that is more familiar to businesses. Ten years ago, people would have questioned your mental stability if you were to draw up a spreadsheet listing all the expenses incurred through transporting shopping home - the petrol, time on the road, car maintenance, having to buy a station wagon or SUV, etc.

Yet today, effectively, that is just what many consumers are doing. The COVID-19 pandemic has, most agree, simply accelerated a trend that was already taking hold. It's not just down to the "convenience" factor of online shopping itself, it's also that many of Australia's major cities - certainly both Sydney and Melbourne - have become so congested that what was once a quick trip to the shops on a Saturday morning is now a major undertaking.

This is actually a quite complex set of considerations. Take, for example, garage shelving. This is provided today, in Bunnings and elsewhere, as a system of components that can be transported by the customer in their car, and assembled in their garage at home. If delivery becomes more common, will we see fully assembled systems become available? What effect does that have on the overall supply chain, not only store to customer, but also supplier to store?

That need for convenience and ease of access is taken seriously by HD. Following on from the comments about growing project-based sales, Ms Janci pointed out that access was an important part of this.

One thing to add, to facilitate the project business we have made significant investments to remove friction regardless of how you shop with us. In the store, online through fulfilment options, and so that also helps promote that and facilitate that project business.

Mr Decker took Ms Janci's comment as an opportunity to pivot to the importance of a new development at HD, the "flatbed distribution centre".

When you think about our supply chain build-out ... one of the platforms we're building [is] the flatbed distribution centre. That is really about two things.

One, it's about relieving the store - the pressure from the stores. We're now USD550-odd a square foot in sales, USD55-odd million on average a store, staging all those deliveries in the store, those project big-ticket [items].

Again, think, 40, 50, 60 items per transaction. That staging and loading in the store is a heavy burden on our store. So, job critical, number one, for the flatbed distribution centres is to relieve the stores of that activity.

The second thing is customer experience, whether it's Pro, or DIY, those flatbed distribution centres offers speed, certainty of delivery, on-time and complete orders and broader assortment that we're able to stock in the facilities that we wouldn't have the room to stock in the store. So that again, is all about supporting that project business, both DIY and Pro.

The flatbed distribution centres refer to what are essentially very large scale facilities designed to handle semi-trailer flatbed trucks. While HD has many of these planned for the future, the facility that is currently completed is based in Dallas. The Dallas News reported on the opening of the facility in late January 2020:

Flatbed trucks roll through the middle of the massive building as heavy products such as lumber, ladders, pipes and roofing materials are added from either side.

Flatbeds can hold multiple deliveries, and the facility can handle up to 65 to 75 trucks going out per day. That's thousands of deliveries per week to customers within a 75-mile (120km) radius of Dallas, [Stephanie Smith, Home Depot's senior vice president of supply chain] said.

That compares with smaller trucks loading a couple of orders from each store and then returning and doing it again and again, she said.

Stores try to make next-day deliveries, she said, "but now we can guarantee it."

...

The flatbed fulfilment centre at 9222 W. Jefferson Blvd in Dallas is on a rail line that's been extended into the building and can hold 10 railcars. An outside yard can handle 20 more railcars.

The system allows Home Depot to take control of that entire supply chain, from the lumber mill all the way to the customer, Smith said.

That need for convenience has also seen HD combine online and in-store purchases, as was pointed out by Mr Decker in his comments on 2021 Q1 sales:

We continue to rollout new capabilities, such as mixed cart selling from store that remove friction for both our customers and associates. The mix cart feature enables associates to more efficiently and effectively serve the total project needs for a customer, as products from both the website and store can be added to a single transaction.

The CEO of HD, Craig Menear, also spoke at Alliance Bernstein 37th Annual Strategic Decisions Conference on 3 June 2021, and added what we might think of as the strategic layer to the practical work of getting goods to the HD customers.

We are building out a network of capabilities to better serve, not only the Pro customer, but the DIY customer as well. And these capabilities are really important when you think about growing with a planned purchase with our Pro customers, which is a larger opportunity for Home Depot. We're investing, and we called this out at the beginning of our incremental investment cycle in 2018, we're investing about USD1.2 billion in a supply chain that will give us the capability to serve roughly 90% of the population with same day next day capability or delivery on every type of product we sell, whether that's something that's going parcel to a customer, or whether that is a pallet of goods that need to go on a flatbed ... to a job site.

I'd say we're in the kind of the early middle innings of that. We're following a very similar pattern to what we did when we built out our RDC network, our Rapid Deployment Centre network. In the first year, we actually - you create the concept, you open a facility, you work through the operational aspects of that and fine tune.

...

So we have - we've opened every type of building that we intend to open. We are at different stages in that. We have full direct fulfilment centres. We have a number of those open and have for a few years. And those are all going well. We have our market delivery operations facilities, which are smaller facilities that are kind of cross docks that were product comes in and they move on to a delivery truck direct to a customer's home or job site. We have a number of those that are open. We are running about 38% of our deliveries through those facilities at the end of 2020 that will accelerate in 2021.

Future market

As with most home improvement retailers, the executives of HD have been reluctant to make firm forecasts for even the medium-term. While there is some certainty that current high spending in the sector does have some elements of structural change, there is debate over how much is also pull-forward spending, with investments made today meaning there will be less spent in the future. However, in his remarks at RBACMC Mr Decker did sound a note of hope for the future:

I think that the big news for us in our industry in Home Depot, as an individual company, the really big exciting news is that the Millennial is engaged in housing. There has been a question mark, was this now largest generation in America going to engage in housing the same way the baby boomers did? And that is baby boomers retire, and maybe downsize and not engage as much where you are going to have in participation to drive the demand at that same level. And the great news for medium long-term is, yes, the Millennial while a bit delayed because of the great housing recession in job market et cetera, they're forming households, they're forming families, they're engaging in single-family housing, and as exciting, they're actually engaging in home improvement. Clearly, there's a lot of do-it for me and proactivity on projects. But Millennials themselves are behaving much like the DIY phenomenon of the baby boomers.

Analysis

It's interesting to note that the report on the Dallas flatbed distribution centre from January 2020 included this note about HD's investment in logistics infrastructure:

Last month [December 2019], Home Depot lowered its sales targets for the year, saying some of its investments are taking time to pay off. It has missed sales targets in recent quarters but said the housing market remains healthy.

Things changed rather rapidly on that issue.

One of the major factors that is starting to play out across all forms of retail is that we're beginning to see a big difference in response between companies that have what we might term "extreme scale", and those that "merely" have very large scale operations. Extreme scale companies such as HD, Lowe's, Amazon and Wal-Mart are able to incorporate supply chains and operations that enhance digital commerce in a way that can bring medium-term gains.

Effectively what they are doing is changing the actual markets themselves. Despite its large size relative to the available market, Bunnings in Australia does not have that capacity, at least not in this area. The real question to ask about Bunnings at the current moment is, if you were building it from scratch in 2022, how would it differ from its current form? The delta between that vision of the company and its current status amounts to the negative effect of its legacy systems.

It's possible that what we could see develop in Australia is competition not only to Bunnings but to hardware retailers in general from the equivalent of so-called "dark" restaurants. These are restaurants outfitted in (less expensive) industrial areas that are geared to home delivery of meals, without any actual restaurant location open to the public. The next successful hardware chain might consist of a series of anonymous warehouses and timber yards ringed around a capital city, where ordering is done entirely online, and all goods sold are delivered.

Which is a way of outlining that digital is not merely an "add-on" for retailers. It is a structural change. Within the next five years, even smaller retailers will be faced with the choice of either adapting to that change, or becoming smaller businesses.

The recently opened Bunnings Warehouse built by De Luca Corporation in Plainland (QLD) has been sold for $22.2 million at a portfolio auction. The 9421sqm Bunnings store located on a 2.17-hectare site sold 11% above the reserve following a bidding war between two Melbourne-based families, according to the Australian Financial Review (AFR).

The winning buyer acquired the property with a 10-year lease locked into Bunnings. Managing director, Nic De Luca told the AFR:

We focus on developing properties for trophy companies that offer good covenants. Investors are buying those rather than the properties. That's my view.

Mr De Luca said his company focused on developing Bunnings priced below $30 million, where there was a large demand but limited buying opportunities. He said:

We had 13 registered bidders for the Bunnings in Plainland...

Burgess Rawson selling agent Billy Holderhead said all 13 were first-time Bunnings investors, including eight from Melbourne who all bid sight unseen due to interstate COVID-19 border closures.

The Bunnings in Plainland sold on a new yield benchmark of 4.2%.

Related: Plainland Bunnings opened in early June 2021.

Related: De Luca Corporation had plans to sell the Bunnings Plainland store at auction earlier this year.

Free trees

From June to October this year, the NSW Department of Planning, Industry and Environment is partnering with Bunnings to give away trees to Sydney households. These trees have been supplied by Bunnings Warehouse and IndigiGrow Nursery.

Planning and Public Spaces Minister Rob Stokes visited the Bunnings Narellan store recently to launch the initiative. He said:

Our Free Tree Giveaway with Bunnings is open to all 33 local government areas across Greater Sydney, giving 10,500 eligible households a tree to plant in their yard.

Trees make a huge difference to our lives ... and are the best way to manage the urban heat island effect which we know is a particular problem in western Sydney.

The free trees are open to people living in the 33 specified council areas (which include Campbelltown, Camden, Fairfield, Liverpool, Wollondilly, Bayside and Georges River) who haven't previously applied for a free tree this year.

Trees can be collected from Bunnings once an online application is submitted, and applicants receive a notification of collection. There are more than 40 participating stores, including at Bonnyrigg, Campbelltown, Caringbah, Crossroads, Gregory Hills, Hoxton Park, Kingsgrove, Kirrawee, Narellan, Rockdale, Smithfield and Villawood.

Different trees are on offer each month via the NSW Planning Portal. The program has proved so popular that stock for June (the bottlebrush - Callistemon Endeavour and Callistemon Hanna Ray), Lilly Pilly and Lilly Pilly Winter Lights) has already been exhausted. The Department of Planning, Industry and Environment said more trees would be available by early July.

More than 29,000 trees have already been given away and planted in backyards across the Greater Sydney region.

Mr Stokes also announced $9.9 million in grants as part of the Greening Our City program, which will see 20,000 trees planted in 23 council areas. The program was first launched in 2018 and has since delivered more than $15 million to local councils for planting 66,000 trees, he said.

The Lara-based horticultural nursery in regional Victoria is investing $4.25 million in a 10,300sqm glasshouse and associated production facilities in response to increased demand for its range of indoor and potted plants, according to a report in the Geelong Advertiser. The glasshouse will provide approximately an additional 25% growing area.

Second-generation company director Nick Jacometti said that, at times last year, sales of greenlife products, which include fern, foliage, succulent, edible and perennial flowering lines, surged as much as 25%. He told the Geelong Advertiser:

The long periods spent at home have encouraged people to be more active gardeners, whether it be starting a home vegie patch, improvements to newly established home offices or more indoor house plants to generally beautify the home.

The new growing facilities will incorporate high-performance glazing, cutting-edge environmental controls, grow-lights and stormwater harvesting, which should further enhance plant quality and consistency as well as improve production efficiency.

Mr Jacometti said investing in higher performance glazing and a variety of different shade screen types would facilitate the growing of Boomaroo's indoor plant range all year round, as well as introduce new product lines to its retail offering to nurseries and garden centres.

Depending on the growing profiles of each product, based on average numbers, we will be able grow up to a million additional units per year.

The co-located new production facilities will have four automated potting lines as well as a streamlined dispatch area, paving the way for increased product throughput.

The additional growing space will also free existing growing areas to pursue other opportunities within Boomaroo's wholesale vegetable seedling business, which involves growing up to 300 million seedlings annually for the fresh produce industry. Such opportunities include the recently launched Boomaroo Organics range of vegetable seedlings that commenced production last year.

Mr Jacometti said Boomaroo had collaborated closely with manufacturing innovators, including projects with Deakin University, facilitated by the Geelong Manufacturing Council's Regional Industry Collaboration Program.

We've been investigating ways to capture and visualise data to more closely monitor our growing environments and plant performance, so that we can use our inputs more efficiently.

Boomaroo is currently working with Deakin start-up Strut using sensors to measure a variety of environmental controls at plant level with a view to further improve plant health and growing efficiency. Mr Jacometti said he hoped the sensor pilot project would continue to be developed to ultimately integrate with all of Boomaroo's growing areas in the future.

Founded by the Jacometti brothers over 30 years ago, Boomaroo has been committed to investment in technology and innovation, reflected in its seedling operation in Southbrook (QLD) which utilises next generation, no-touch automation.

Related: In a recent survey commissioned by Bunnings, almost a third of respondents placed gardening at the top of their home "to do" lists.

Stanley Black & Decker's US-based chief financial officer Donald Allan Jr. recently gave an interview to the Wall Street Journal and said the company is spending more time and money trying to strike partnerships with battery and chip manufacturers to help ease the pressure on the tool maker's supply chain.

Stanley Black & Decker (SBD) is seeking electric battery and computer chip makers that would agree to supply components in return for an investment.

SBD already has small-scale partnerships with companies that build specific tooling and production lines for the company. It has a tentative partnership with a South Korean battery maker for a production line that would start manufacturing batteries in Malaysia next year, Mr Allan said.

The company is also talking to other businesses in Asia and the US about potential partnerships. Negotiating with suppliers has become "a more important part of my job" since the coronavirus pandemic disrupted international supply chains, Mr. Allan said. He has served as CFO of SBD since 2008 and was given the additional role of president earlier this year.

SBD, which has budgeted for roughly USD500 million in capital expenditures this year, plans to dedicate about 10% to 15% of that to supply-chain partnerships and other related initiatives. Before the pandemic, such spending would have made up less than 5% of the budget for capital expenditures, Mr. Allan explains.

We will co-invest. If it costs USD100 million to set up a line, we will put in USD50 million.

SBD, which needs batteries for its cordless power tools and uses computer chips across its portfolio, manufactures a significant portion of its products in the US and Europe. The company's preference would be to set up new production lines in those regions, Mr. Allan said, pointing to the challenges associated with sourcing from Asia, which results in longer wait times until components arrive at the factory. The company expects its demand for components such as batteries and chips will remain elevated for years to come.

Many of SBD's competitors, such as Japan-headquartered Makita and Hong Kong-based Techtronic Industries, manufacture a larger chunk of their products in Asia, potentially providing them with easier access to batteries and chips, according to Nigel Coe, a managing director at research company Wolfe Research. SBD has a longer and more complex supply chain than some of its rivals, Mr. Coe said.

The company, which sources from over 10,000 suppliers globally but spends 80% of its budget on fewer than 1,000 of them, has sought to deepen its relationship with core manufacturers since September 2020, Mr. Allan said.

SBD identified around 30 suppliers it considers critical and extended and prolonged contracts with many of them. It is now looking for contract lengths of about five years, up from one or two years prior to last year, he said.

Before the pandemic, many US companies, including SBD, would have put in a bid and "chosen the lowest price" whereas now, there has to be a broader relationship [with suppliers], Mr. Allan said.

Components make up the largest proportion of goods sold at SBD, which is why any increase in prices for batteries and chips can have a sizable impact on its finances, said Timothy Wojs, a senior research analyst at investment bank Robert W. Baird & Co. Higher costs for raw materials such as steel and resin, which is used to make plastic, also add to the bill, he said.

In late April, SBD said it expects cost increases of about USD235 million this year due to inflation, up USD160 million from its forecast at the beginning of the year, according to an earnings transcript. SBD aims to pass two-thirds of the increase on to customers and offset the rest by increasing efficiency and cost savings - what it calls its margin resiliency program - Mr. Allan said.

SBD began raising prices for some of its products this quarter and has more increases coming. It aims to execute "hundreds of millions of dollars of price increases this year," according to Mr. Allan.

The company expects to free up between USD100 million and USD150 million a year with its margin resiliency program, said Justin Bergner, a senior research analyst at G.research, a research and brokerage firm.

The company over time will likely need more batteries, as it looks to acquire the remaining 80% of MTD Products that it doesn't own yet. MTD makes mowers and other outdoor equipment and expects to move toward using more electric motors in the coming years. Mr. Allan said about the planned acquisition:

We see this as a big opportunity.

The Australian Bureau of Statistics (ABS) has released its figures for the national accounts. This includes a survey-based set of household consumption stats, including expenditure on alterations and additions, also known as renovations.

Chart one shows the quarterly numbers for chain volume smoothed to the year ending in the March quarter for the past four years. This shows clearly that the two states that have done the best over the most recent period are New South Wales (NSW) and Queensland (QLD). QLD has continued an established trend, albeit with an extra boost, while NSW has reversed an ongoing decline.

The two states that show a trend decline are Victoria (VIC) and Western Australia (WA). South Australia (SA) has managed a slight increase, following a mild trend upwards, as has Tasmania (TAS). The Northern Territory (NT) is the most volatile region, but it has been strongly positive for the most recent period.

Chart 2 shows a more nuanced view of these shifts, giving the percent change for the year ending in the March quarter. Contrasting NSW with VIC, it's interesting to see that while VIC has grown more from 2016 to 2020 than NSW, it has continued its decline for the most recent period, while NSW has shown strong growth of around 14%.

Similarly with QLD, where its growth spurt for the year ending March quarter 2021 has reached a high growth mark similar to that reached in 2019 and 2016. It is evident that there are characteristics unique to the NSW market that have encouraged strong growth through the COVID-19 pandemic year.

Chart 3 shows the quarter-on-corresponding-quarter growth for spending on renovations. This illustrates that VIC, throughout the pandemic period has recorded flat to negative growth. For the December 2020 and March 2021 quarters it shows the strongest decline, while all the other regions - with the exception of a slight decline for WA in December 2020 - have shown growth that is reasonably strong.

Analysis

It is worthwhile referencing quickly two charts from the Reserve Bank of Australia (RBA) statistical chart pack. These show that business investment has continued its long-term decline, and is back to the level of the mid-1990s recession.

Similarly, the wage index is still slumping further down, reaching territory not seen since 1950s, though there has been a very slight recent bump upwards.

As one of the primary forces on the construction market remains the high price of houses, we could be seeing some very complex effects on the renovations market. Prices have reached such a peak in NSW, that this may be driving people to prefer renovation to finding a new home. VIC has, of course, been more directly affected by COVID-19, and undergone lengthy lockdowns which precluded home renovations by outside contractors. QLD, meanwhile, was less affected by COVID-19, and has not reached the high house prices of NSW and VIC.

One big question that troubles many Australian hardware retailers is what comes next, once the pandemic plays less of a role in private and commercial life. It's worthwhile going back to some of what was covered earlier this year, when UK and EU retailer Kingfisher - owner of B&Q, Screwfix, Castorama and Brico Depot among other brands - reported on its results for 2020.

As with many well-positioned home improvement brands, Kingfisher experienced a good year in terms of its financials. Total sales came in at GBP12.34 billion, up by 6.8% on the previous corresponding period, with like-for-like (comp) sales up 7.1%. Retail profit grew by over 27% to reach GBP 1.00 billion, with the retail profit margin lifting from 6.8% to 8.1%. Much of that growth took place in the UK and Ireland, with regional retail profit reaching GBP681 million, up by over 36%. That growth continued into the first quarter of the company's 2021 sales as well.

Retail channels

While the focus for many hardware retailers has been on how the boost to ecommerce sales has altered the balance between offline and online, Kingfisher is looking beyond this to ask how it will change store formats as well. The company is betting heavily on speed and convenience as being the main drivers in the future.

That means boosting the capability to deliver direct to customer from store, but also having more but smaller stores within easy reach of the customer base. That not only means it is easier to drop by a store to pick up the necessities, but also provides a big boost to click-and-collect convenience - offering more cost-effective ecommerce for both customer and retailer.

Ecommerce

More so than with any Australian retailer, Kingfisher found its ecommerce operations boosted, and assuming a new importance. In his prepared remarks at the results briefing for analysts, the company's CEO, Thierry Garnier, described what happened:

Starting with B&Q and TradePoint ... the team did an excellent job managing unprecedented levels of demand in 2020 while moving all their key priorities forward at pace. E-commerce sales grew by 117% and penetration doubled to 10%. This was supported by rapid changes to [B&Q] operations and a focus on picking from our stores for click and collect. We successfully launched next day delivery from store and have started several innovative trials for last-mile delivery. The group next-gen digital stack was fully implemented without disruption and now supporting enhanced mobile and web capabilities.

At Screwfix, operations were altered even further:

The [Screwfix] team adjusted its operating model overnight during the first lockdown, shifting to nearly 100% online and mobile is now the biggest channel in the business accounting for 62% of online transactions.

This has changed much of the company's operations, Mr Garnier explained:

This has been completely transformed over the course of 2020 with penetration now at 18%. Group e-commerce sales grew by 158% and by 144% excluding Screwfix. Click and collect sales has become the largest and fastest growing fulfilment channel at group level with 226% growth. Supported by our newly implemented group digital stack, our platform has scaled rapidly and is now supporting 500,000 click and collect orders per week across B&Q and Casto France. Stores now sit firmly at the centre of our e-commerce proposition providing support for a very significant proportion of retail online orders.

We have now rolled out digitally enabled picking for all fulfilment routes for B&Q and Castorama France and introduced a digital hub model at B&Q where 56 stores service the vast majority of our home delivery orders. We expanded our last-mile delivery options. Our partnership with DPD has enabled next day delivery by B&Q with 98% of the UK population. B&Q, Castorama France and Poland are trialling click and collect lockers and we have implemented drive-through and car park collections in France.

Looking ahead, we remain committed to delivering strong growth in e-commerce sales through providing speed, convenience and choice to our customers. Our key focus this year will be implementing a new IT and digital operating model, to increase our agility and lower costs. Overall, we are moving towards home delivery for full store ranges with faster last-mile options. In Poland, we are rolling out the new group digital stack enabling stronger digital capabilities. In Castorama France we are implementing the same digital hub model used at B&Q. And finally, we are continuing to explore the merits of building a marketplace model which could further support our e-commerce ambitions.

In response to an analyst's question, Mr Garnier went into detail about one of the changes Kingfisher is making to its B&Q UK brand, transforming it into an operation more geared towards delivering goods ordered online direct from store to customers:

Your question on hubs and dark stores is very interesting, very, very important for us. The 56 [B&Q] hubs are stores that have been chosen for two reasons: because of their location, because we wanted to cover a large part of the UK and we today cover 98% of the UK population; and that some [have] surface space available to run a kind of "dark store" without reducing the [current] store area.

So today, [a hub is] really a store where we have large warehouses and we build small dark stores, small warehouses inside their existing operation, and therefore, being able to cater probably regularly over 1,000 [online] orders, or 1,500 [online] orders a day, which is pretty good for a store operation.

Asked by an analyst whether Kingfisher had specific ranges available only for online orders, he indicated that, while Screwfix was an exception, the goal was primarily to deliver orders related to in-store stock:

Online today the range is firstly focused on store. I would put Screwfix aside. I mean, if I look at B&Q, it's really to deliver the full store range on click and collect and home delivery from store.

We have a few exclusive ranges online, that are delivered directly by vendors, but they are a relatively small number of SKUs. At Screwfix the model is slightly different because we have a very large central warehouse in Trentham, where we have about 25,000 to 30,000 SKUs that are not in stores. In Screwfix you have 11,000 SKUs, and in addition to that, you have 25,000 to 30,000 SKUs in this central warehouse in order to deliver to all of our customers, that's for the online range and again, our first focus is around speed.

Store formats

While the ecommerce side of the business is making better use of large warehouse sites, Kingfisher is also moving to open more small format stores. As Mr Garnier explained in his remarks:

Smaller and more localised store formats are also becoming vital to serving the increased customer demands for speed and convenience. While Screwfix is already addressing this shift, there is a huge opportunity for our other banners to widen their reach.

These smaller stores include what he described as "an innovative new compact format in central London". This is an element of the plan which Kingfisher will roll out over several years, as part of an ongoing expansion plan which already saw the company open 38 new stores in the UK and Ireland during 2020.

We plan to increase our overall store count while in parallel reducing their average size. We will achieve this by a combination of opening more compact stores, rebalancing towards medium box stores and rightsizing some of our larger format big box stores. On this slide you will see all the tests we have completed in 2020, including compact stores at B&Q and Casto France, store in store concessions within Asda and one new Screwfix compact format.

Mr Garnier stated that early results from this shift were "encouraging". One recent example of "rightsizing" existing stores has been the transformation of B&Q in Canterbury. Some 33% of the store has been taken over by the Aldi supermarket chain.

Customer changes

While ecommerce might have been accelerated by the COVID-19 pandemic, more fundamental changes have also taken place. As Mr Garnier describes it, our sense of "home" is also evolving:

During lockdown our homes have effectively been transformed into hubs where we work, exercise, entertain and rest. Longer term, we believe that more working from home is here to stay. There is no doubt that the trend of flexible working arrangements has accelerated forward many years. Over time these factors will lead to material changes such as more wear and tear on the home and the need to organise living space differently, thereby creating a structurally supportive shift for home improvement.

In answer to an analyst's question, he went into further detail about these expected changes:

We see clearly, in the future people working a bit more from home. I don't know if it's 10, 5, 15 or 20%, but this will have a material impact on many businesses and including on our business. It will be more wear and tear, people reorganising their space.

I think the second big trend is the new DIYer we saw during the lockdown. We all see people doing more cooking at home and, we saw a lot of people doing more DIY, and when we try to learn new skills usually, part of it is staying and we believe part of it will stay with us. So, we could have ups and downs in the short term, but in the medium term we feel there are new supportive trends.

Changing markets

Kingfisher is very clearly in the camp of those who see the change wrought by the COVID-19 pandemic as being largely positive for home improvement retail. In his prepared remarks, Mr Garnier stated:

With a total addressable spend of GBP130bn, the home improvement markets in which we operate are attractive, growing and have many structural drivers supporting long term growth. It is a relatively high margin industry, resilient against e-commerce pure play competitors, and has proven robust through previous economic downturns. The key point on this slide [slide 7], however, is that over the course of the COVID crisis we have seen the development of new longer-term trends that are clearly supportive of our industry

While a good deal of these changes are positive, there are also some concerns for areas of the market, such as do-it-for-me:

On your ... question on project, trade and DIYers, I would say we have been still impacted by the lockdown, so meaning you have people that are afraid to have trade people inside their home, so the 'do it for me' part of the business has still been impacted especially during H1 and at Screwfix.

Yet, on balance, Kingfisher is clearly coming out ahead, according to Mr Garnier:

Our customer net promoter scores show a sharp increase in the awareness and reputation of our banners and along with a reconnection with DIY I mentioned earlier, we also saw a step-change in digital adoption across our banners with ten million new customers shopping with us online.

Move to DIY

Kingfisher clearly sees the market shift to DIY as being strongly positive, and makes a case for this shift possibly lasting beyond 2022. As Mr Garnier describes it:

One of the most interesting things we have seen in the last year is also the emergence of new cohorts of young DIYers with a big increase in motivation, new skills and enthusiasm for DIY. Recent surveys we undertook across our markets highlight that 18 to 34 year olds have done more home improvement than any other age group with 20% doing DIY for the first time, 55% doing more than they have previously done and 65% more confident to take on home improvement and learn new DIY skills. All of this is very encouraging for the future of our industry.

In response to an analyst's question, the Kingfisher CEO unpacked some more details about the company's surveys:

We ran a comprehensive two sets of surveys, one last year, September/October and we did it again earlier this year in February ... A very significant proportion [of the new DIYers] explained they are learning new skills and are enjoying it. In our surveys asking on 2021, overall we have as well a much higher proportion of people saying they will do more home improvement in 2021 than in 2020, still back in February [2021].

He went on to characterise the type of DIYer Kingfisher is seeing more often in its stores:

Clearly the boom and the largest trend is around new DIYers - I would say beginner DIYer. I know people that do painting, decoration, flooring, but not necessarily very large projects. And because the showrooms have been closed in the past weeks in the UK, as well the big projects are still growing, but a bit more impacted, that is your projects. So clearly what we saw in the past months is the demand around new DIYers starting a new project.

Exclusive brands

With smaller, more convenient but also arguably less efficient (in cost terms) stores, and the move to channels with higher "last mile" fulfilment costs, the question could be asked, where does Kingfisher expect further profit growth to come from? One of the key answers to that would seem to be what the company calls "own exclusive brands" or OEB.

The shift towards OEB predates Mr Garnier's term at Kingfisher, and was originated by Veronique Laury when she was CEO. Mr Garnier describes the need for OEB by placing it in a European context:

Across Europe discounter format stores have been growing in line with a rising focus on value for money. Our own exclusive brands or OEB products, now 44% of group sales, enable us to capture this trend. In addition, we are well placed in this area of the market with our Brico Depot discounter banner as well as our overall focus on attractive price positioning.

He went on to describe the OEB category in more detail:

Kingfisher's OEB product sales are now GBP5.3 billion, up 7.5% last year and represent 44% of our total sales. OEB provides a strong point of differentiation for our retail banners, and here I mean affordability, functionality and innovation and sustainability as well as supporting our gross margin.

In 2020 we saw a strong increase in the awareness of our brands and our five leading OEB brands alone contributed around a quarter of our total group sales. The rollout of Kingfisher's new OEB kitchen range completed in B&Q in H1 2020 and will complete in France and Poland this month.

Mr Garnier described his vision for the future development of OEB:

Looking ahead, the move to our new commercial operating model is driving focus on innovative OEB product development, on sourcing and engineering, as well as enabling faster speed to market. We plan to extend our ranges and tailor them to the specificities of our different banners' customers.

The question that needed to be asked, and was asked by an analyst, was just how far OEB would go in Kingfisher? The CEO responded:

Today, we have reached 44% of the group sales [from] OEB, and that's pretty impressive. I must admit that [is] not only the job done in 2020, but all the past years by building, you know, sourcing offices, designers, engineers across the group, and that's really a group, - well, we call it "Group Power" to be able to produce OEB.

We have clearly an ambitious plan. I would not give you a precise target today, but we consider we can continue to grow from 44%. We will not grow to 100%, you know, they are very strong brands, very strong vendors, and we need as well to have choice and open our ranges to many vendors, but we consider we can still grow from 44%.

As you mentioned, the margin of OEB category by category, is above the average of our business, so we have a clear margin contribution from OEB that's why our plan by growing OEB is as well, not only to push ourselves to provide differentiation, but as well to provide more margin ...

Analysis

The history of big box retail - and therefore much of retail in general - in the 20th Century is largely all about the rise of logistics as an economic force. We need only look at the Wesfarmers-owned Bunnings in Australia to see how well that worked. Bunnings not only moved rapidly to adopt a global supply chain, but it also implemented some innovations in store delivery and warehousing, reducing its need for any kind of distribution centre to the bare minimum possible.

Under former Bunnings managing director John Gillam's management, its stores ceased to be so much the "main event" and became instead functional endpoints to a highly efficient supply chain, where the primary instigation to buy came from often surprisingly low prices on goods favoured by home DIYers.

In the case of Kingfisher, when Ms Laury assumed the role of CEO in 2015, the company was somewhat "Balkanised", with multiple redundancies in product lines across its many brands and geographic locations, managed by an inefficient internal organisation. When she was forced out of her position in 2019, and replaced by Mr Garnier, the foundations of what she developed were retained, but the brand-by-brand implementation was changed, with more flexibility.

At the current point in the post 2020 era, there is an increased focus on logistics from the warehouse/store to customer perspective. The simple fact is that for retailers formerly focused on stores as the main location of sales and goods delivery, adapting to the logistics needed for online ecommerce has been both messy and expensive.

With the possible exception of The Home Depot in the US (which made major investments in these logistics since 2014), none of the big-box retailers have really come to terms with the complexities of "last mile" delivery.

The reason why final delivery is so expensive is that all retailers are now in clear competition with more "pure play" online retailers, the most prominent of these being Amazon. The standard that Amazon has set is for very rapid home delivery of goods at a very low cost. That has been picked up by all pure-play online retailers, and has become a cost and logistics burden that most retailers have had to shoulder.

Warehouses as conceived by Amazon bear little resemblance to traditional warehouses, which rely on batch dispatch of bulk goods to selling/distribution points. To match Amazon in logistics would require a parallel set of warehouses built to pick and send small quantities of unique goods.

As that does not (yet) seem possible, traditional retailers have instead often opted to adapt their larger stores to function as fulfilment centres for online orders. This is still very inefficient as compared to Amazon warehouses, as store warehouses are designed for small batch/restocking dispatch. Store warehouses are organised by categories of goods, where Amazon stock is organised in terms of frequently picked and complementary picked items. It's about speed, accuracy, and keeping the workforce as small as possible.

With those kinds of complexities, the next truly effective shift in logistics could still take place at the other end. There is a real possibility for demand models built through data analytics to mate up with lean manufacturing practices and deliver significant supply cost savings.

Lean manufacturing is frequently misunderstood. The insight behind it is that the cost efficiencies brought about by high volume, batch manufacturing process are frequently illusory when factors such as quality, on-time delivery and stocking costs are taken into account. Lean manufacturing, as pioneered at Japanese car manufacturer Toyota, relies on small batch processing, where, theoretically, every part that is made is "pulled" through the build process by received demand.

Data analytics has the capacity to determine levels of demand on a container-by-container basis, which would mean that supply could be finely tuned. The ultimate end-goal of those processes would be some distribution that goes directly from container to customer.

Today, of course, that doesn't seem possible, but as analytics continues to improve, and much of the supply chain moves from ownership by wholesalers and retailers to systems of services "hired" by retailers, it's a likely evolution.

Bunnings has been named Hardware Store of the Year for the fourth year in a row, in the annual Roy Morgan Customer Satisfaction Awards.

It was among the seven repeat winners led by Myer as Department Store of the Year for a sixth straight year, Rebel as Sports Store of the Year for the sixth consecutive year and The Reject Shop as the Discount Variety Store of the Year for the ninth year running (2012-2020).

The new sponsor of the V8 Supercars Series Autobarn has now won four Auto Store of the Year Awards in 2013, 2014, 2018 and 2020 and been matched by ALDI's fourth victory as the Supermarket of the Year following wins in 2012, 2014, 2016 and now 2020.

Other returning winners include Jeanswest as the Clothing Store of the Year for the third time (2016, 2017 & 2020), Muffin Break with a third victory as the Coffee Shop of the Year (2016, 2017 & 2020) and both Costco (Department Store of the Year) and JB Hi-Fi (Furniture/Electrical Store of the Year) both winning for a second time. JB Hi-Fi also won the relatively new category of the Major Furniture/Electrical Store of the Year for a first time. Michele Levine, CEO, Roy Morgan, said:

There has never been a period like the last 18 months for the retail industry with some businesses booming on the back of record spending and others, more reliant on bricks-and-mortar stores, facing the most challenging market circumstances imaginable.

The onset of the COVID-19 pandemic in mid-March 2020 seemed set to lead to a tremendous level of disruption to Australian retailers, however there have been 'winners' and 'losers' in the industry just like in any other with those able to respond quickly to the changing landscape able to deliver higher levels of customer satisfaction and prove their adaptability.

The 15 retailers presented with Annual Roy Morgan Customer Satisfaction Awards ... have topped their competitors in providing a high level of customer satisfaction to consumers and proven their 'mettle' in dealing with the extreme challenge of the pandemic.

There were several retailers to win all 12 months in 2020 including Department Store of the Year Myer, Discount Department Store of the Year Costco, Discount Variety Store of the Year The Reject Shop, Hardware Store of the Year Bunnings and Sports Store of the Year Rebel...

The first-time winners Schnitz (Quick Service Restaurant of the Year) and Chemist Warehouse (Chemist/Pharmacy of the Year) are two very different businesses but both have benefited from the pandemic with the rapid growth of food delivery services in 2020 ... while the desire to keep safe and protected from COVID-19 drove many to buy disinfectants, gloves and other medical supplies from Chemist Warehouse.

We are now half-way through 2021, and well into the second year of the COVID-19 pandemic, but the same skills and commitment to providing high levels of customer satisfaction to customers during 2020 is set to prove valuable again this year as international borders remain closed, and Australians are 'forced' to spend their 'discretionary leisure dollars' here at home...

Congratulations to all 15 winners for not losing sight of the importance of the consumer despite the myriad of distractions, disruption and widespread uncertainty faced by all in 2020.

In addition to its Customer Satisfaction Awards, Roy Morgan tracks customer satisfaction, engagement, loyalty, advocacy and NPS (Net Promoter Score) across a wide range of industries and brands. NPS is a customer loyalty and satisfaction measurement taken from asking customers how likely they are to recommend a product or service to others on a scale of 0-10.

Discrimination

A regular Bunnings customer, Gail Suttor, who uses a wheelchair, was left embarrassed and humiliated after an encounter with staff while shopping for plants at an ACT store, according to findings from a tribunal.

The Canberra Times reported that Ms Suttor complained to the ACT Human Rights Commission after her Sunday morning shopping trip went awry and she alleged she was discriminated against because of her disability.

At the time, because of new COVID-19 requirements, this particular Bunnings store had new rules in place about entering and exiting the store. Ms Suttor did what she normally did and after her daughter parked the car near the garden centre and picking up some plants, they went to enter though the centre.

However Ms Suttor was stopped and told she could only come in through the main entrance. In her complaint, she said she was assertive but not aggressive when telling staff about her difficulties with access.

Ms Suttor, who is partially blind and deaf, said she was shouted at when she didn't immediately leave. Feeling overwhelmed and frightened, Ms Suttor moved further inside to try to turn the unwieldy electric wheelchair around, fearing it tipping over. She said another employee stationed there also yelled at her, saying: "I don't care, I don't care." Ms Suttor paid for her plants and left.

Bunnings denied it was a case of discrimination and said instead it was poor customer service. But Ms Suttor felt it was discrimination and the service lacked the usual kindness, understanding, compassion and empathy she was used to from the Bunnings staff.

In May 2020 Bunnings was in the beginnings of introducing its COVID-19 safety plan. Witness statements from staff said the woman and her daughter responded aggressively to being told they couldn't enter through the garden centre.

The employee who said "I don't care" told his supervisor he said he didn't care if the shopper called his manager, not that he didn't care about her disability.

The case was referred to the ACT Civil and Administrative Tribunal. In a decision published recently, the tribunal found Bunnings had illegally indirectly discriminated against the shopper because of her disability.

Senior member of the tribunal, Professor Tony Foley, said the staff had the discretion to allow certain customers in through the garden centre but only exercised it when Ms Suttor asserted herself. Mr Foley said this escalated to a "nasty exchange".

The tribunal found Ms Suttor was treated unfavourably because of a lack of understanding about how a person with a disability might enter the store. Mr Foley said:

As a consequence, the applicant could only access the goods and services being provided by the respondent in the face of certain conduct. This conduct had the effect of disadvantaging her by the distress, embarrassment and upset it caused her, and I find this disadvantage was because of her disability.

Mr Foley said there was a mitigating factor, being the COVID-19 pandemic was in its early stages and the store's focus was on new public health measures. He awarded the shopper $500, saying while nominal it recognised the genuine distress and humiliation she suffered.

Toowoomba location

Bunnings has submitted an extension request with the Toowoomba Regional Council, asking for an extra two years until 2024 to finish the final stage of its store on the corner of Ruthven and Bridge streets near the CBD.

The development, which is located behind the old Toowoomba Foundry, was approved in 2015. The extension relates to an as-yet uncompleted food and drink outlet with 25 carparks on the southeast corner of the site facing Ruthven Street.

According to RPS Group town planner Harry Connolly, the delivery of the eatery is based on tenant selection. In a letter to council, he wrote:

Completion is dependent upon tenant demand, noting also that careful selection of the right tenants is important to the building design and requirements. The extension is sought in order to provide time for the tenant identification and selection process and for the building works.

The council has yet to respond to the application.

IKEA small format strategy

The home improvement giant is adjusting its business model and switching from its familiar large-format warehouse-destination store, IKEA Australia CEO Jan Gardberg recently revealed to the Australian Financial Review's BOSS magazine.

Although IKEA has 10 super stores across Australia, there will soon be smaller shopfronts, and the first four or five are expected to open across Melbourne in the next 12 months. Mr Gardberg told BOSS:

In the beginning, the strategy was to create our destination stores, which meant very large and instant gratification, cash and carry for the whole range. That proposition has worked very well for more than 60 years. But that value proposition has been challenged.

Today, to get a full-fledged kitchen or a big wardrobe solution, of course it consists of many different components. We are finding more people don't want to spend that extra half hour running around in a self-serve warehouse to pick up 50 different items, so we want to offer more services for the future.

It is a big change for a business that has traditionally owned most of its stores outright, securing an almost billion-dollar property portfolio, according to financial records with the regulator, ASIC (Australian Securities and Investments Commission). But Mr Gardberg says the data is clear - consumers want IKEA's products to be more conveniently accessible. He said:

We need to find a way where we can get smaller footprints, either extra small stores or, as we are going to do, introduce plan and order studios.

IKEA already launched its first pilot studio store on a "micro scale" in 2019 in the Warringah Mall in Sydney's northern beaches - a pilot that will now go mainstream. The studios will be staffed by highly trained IKEA experts, who can help plan someone's kitchen, wardrobe and bathroom needs, and then have the orders fulfilled and delivered. He said:

We have tested this plan of order point studios across many different markets. We have tested in Sweden, Denmark, Spain and France, so now it is conceptualised and we can see what is working and really scale it up.

We are looking at metros, so that means Melbourne, Brisbane, Adelaide, Perth and Sydney. Melbourne is a $5 billion home furnishing market, it has close to 5 million people and growing.

The density of living is about 450 people per square kilometre, we also know the average income is just above $100,000.

We know the average house size is 132 square metres and about 68% of the people in Melbourne own their own home; 45% are living with children.

Mr Gardberg said that although Melbourne will be the first cab off the rank, each state and city will be treated uniquely. Travelling anywhere over 30 minutes is now considered far, he said.

Solutions will come in different ways. Perth is expanding along the coast, it is very narrow but extremely long, so it needs a different approach. Then Brisbane, with the river dividing between north and south, and also the demographics and expectations are very different."

Another key aspect of IKEA's changing strategy will be more options for the affordable end of the home-maker market, putting it against Kmart and Target, as well as Bunnings. Mr Gardberg said:

We all can see that affordable homes are not coming forward, prices are just continuing to go up ... we believe people will continue to want a home but will demand more value out of every dollar spent. That means for the future we will see much more competition into the affordable and smart home solutions.

Also on the agenda for IKEA is a major push into New Zealand, in another sign of the retailer's ambitious growth strategy for the region.

Related: IKEA's first, small format pilot store is in a Sydney shopping centre.

The pandemic has created many supply chain challenges for hardware retailers in Australia. For customers, retailers' logistical woes are playing out in the form of out-of-stocks, long delays before a purchase's arrival and higher prices.

In the US, Home Depot has reserved its own ship as it deals with its supply chain problems.

The home improvement big box retailer is one of the largest importers in that country. Yet with congested ports, container shortages and COVID-19 outbreaks slowing shipments, the company made a decision to get its own boat. It is the first time the company has taken such a step. President and chief operating officer Ted Decker told CNBC:

We have a ship that's solely going to be ours and it's just going to go back and forth with 100% dedicated to Home Depot.

Mr Decker said the contracted ship, which will begin running in July, is just one example of the unusual measures that the company is taking as it copes with the ongoing challenges across the global supply chain.

On rare occasions, Home Depot has also flown in power tools, faucets, electrical components, fasteners and other "smaller, higher value items" by air freight, he said. In other cases, it has opted to buy items on the spot market - even though it can cost as much as four times more than contracted rates.

US retailers are heading into peak season for shipping holiday merchandise, which usually begins in August. Jonathan Gold, vice president of supply chain and customs policy for the National Retail Federation, told CNBC:

Right now, they are all trying to figure out, 'How do we mitigate that risk to make sure that we've got the product here in time for when those holiday season sales start?' That could mean moving up timing for when you bring your product in, which could further lead to additional congestion and delays.

More than a year into the pandemic, Mr Gold said retailers continue to deal with a revolving set of problems. Soaring demand has also contributed to the problem, as people have spent money on goods rather than services like dining out and traveling while stuck at home for months.

Home Depot was caught by surprise, Mr Decker said, when consumers' extreme appetite for home improvement took off during the pandemic. With same-store sales rising over 30% in the first quarter of 2021, Home Depot has a massive appetite for merchandise to keep its stores and warehouses full. Each store stocks approximately 35,000 products, the company has reported, with a total of more than one million items listed in its online store.

A recent COVID-19 outbreak in southern China is a new concern. As Chinese authorities try to stop the spread, they have restricted the number of vessels that can access ports in the major exporting hub. That's forcing some ships to skip over the ports or anchor offshore as the boats wait to dock. Large shipping companies, such as Maersk, have warned clients about delays. It has caused the biggest backlog since at least 2019, according to a Reuters report.

Costs have risen due to the issues, too. Nathan Resnick, CEO of Sourcify, a company that connects companies to manufacturers, said freight rates have "spiked significantly". He estimated that companies may have to raise prices between 5% and 20% to offset that increase.

A lot of that cost may be passed down to consumers where there may be higher prices this holiday season.

Mr Gold said since the pandemic, coming up with quicker and more efficient ways to move goods across the world has become an urgent priority.

Among the strategies retail executives are exploring are diversifying supply chains by importing materials and merchandise from other countries outside of Asia or closer to the US, adding air freight to the mix and placing orders even earlier, said Mr Gold.

For companies like Home Depot, Mr Decker said size has been a competitive advantage. It is the third largest US importer by volume of ocean containers, according to the most recent annual ranking by the Journal of Commerce, a magazine and website that covers global trade. Home Depot rival, Lowe's, is fourth largest.

We have a solid, contracted amount of capacity that our suppliers have largely honoured. [It's] long-term thinking, 'Covid doesn't last forever so keep your best customers happy'.

Related: In its first quarter results, Home Depot's same-store sales soared 31% year-over-year.

New competitor

Sam's Club, a members-only retail warehouse club owned and operated by multi-national, Walmart is getting into home improvement business and competing with Home Depot and Lowe's.

The Home Depot, and Lowe's only account for 30% of the US home improvement market, according to Liz Suzuki, senior hardlines (hardware) retail analyst at Bank of America Securities.

To try and catch up, Sam's Club, in collaboration with Service Finance Company, announced plans to launch Sam's Club Home Install Experts by Service Finance. The service is said to connect members with local home improvement contractors who offer a range of services from HVAC, roofing, siding, window and door installation to bathroom and kitchen renovations and flooring products.

To lure in more consumers, Sam's Club is offering members an additional discount on everyday dealer pricing as well as a financing option through Service Finance Dealers.

Ms Suzuki estimated that US home improvement sales and services hit approximately USD767 billion throughout 2020, which is "equivalent to about the 20th largest economy in the world".

Home Depot and Lowe's pulled in USD132 billion and USD90 billion, respectively, according to Ms Suzuki, in a research note:

As a result of a combination of more time at home, favourable household formation trends, and strong household balance sheets, demand for a wide range of home improvement projects has remained at elevated levels over the last year.

Sam's Club is now trying to take a bite out of the trend and executives say its "relationship with Service Finance will be a gamechanger". Kevin O'Connor, Sam's Club senior vice president and general merchandising manager, said:

With access to Service Finance's network of reputable dealers, our members can have confidence knowing they're not only getting additional value from their membership, but they're also getting the reassurance of a trusted provider.

Sam's Club members across the US will be able to select a product and service and schedule a free consultation with a Service Finance Dealer.

Homebase is creating a new hybrid model, which integrates both a physical and virtual showroom following the roll-out of its new generation kitchen and bathroom showrooms launched earlier this year.

Customers will be able to browse the Homebase and Bathstore ranges independently or be guided by a design consultant with free design consultations available both in-store and virtually.

Homebase currently has 152 stores and 15 stand-alone Bathstore outlets. Ian Penney, business unit director for room solutions at Homebase, said:

So many people start their projects by looking for inspiration online, and our new 360-degree virtual tours of two of our kitchen and bathroom showrooms make it even easier for customers to see how they can turn their ideas into a reality. Our free design consultations are available in-store or virtually, so customers really can browse and plan everything from the comfort of their own home.

As the KBB (kitchens, bedrooms and bathrooms) sector in the UK begins to recover post-lockdown, retailers that are able to provide an online experience in support of a bricks-and-mortar space is an effective way to build consumer confidence, especially among those who are shielding or feeling anxious about shopping in-store. Scott Currie, managing director at Virtual 360-degree Tours Glos adds:

Safety still remains a huge concern for many consumers, so offering an online tour package can help attract and retain business opportunities without risk. We are very pleased that we can facilitate Homebase's many customers so that they can see even more of their fantastic ranges - whether that's from their own home or visiting a local showroom.

Peter Jones, managing director at Jones Digital is pleased that UK retail brands like Homebase and Bathstore, are now able to reap the benefits of working with its multimedia solution that simulates an existing retail space. He said:

We all need to move with the times and raise engagement with our potential customer base, especially at a time when clients are often building relationships online first, rather than by popping into to visit a showroom to get a feel for it...

"Every showroom tour can be seamlessly embedded into the architecture of your website with tags, links and videos containing further product information, as required. This in combination with chat bots and online enquiry forms, which all help customers to interact with your business in real-time with messages instantly delivered to members of your team," explains Mr Currie.

The Australian Bureau of Statistics (ABS) has released stats for hardware retail sales in Australia to April 2021. These statistics show the first change for 2021 that could be seen as indicating the end of the COVID-19 "bubble" in hardware retail revenues.

When bubbles come to their end, we can speak of this as a "soft" close or a "hard" close. In the soft version, the established level of sales continues but growth ceases, or goes slightly backwards. In the hard close, sales tend to revert back to where they were prior to the bubble.

As Chart 1 shows, the bubble has been very good to most hardware retailers. As the trailing 12-month stats move through the pandemic year, the statistical gain will diminish for the most recent 12 months. At its peak, the number for stats taken from March 2020 to the end of February 2021, the increase is more than $4 billion, and represents growth of over 22%. In these stats, just off that peak, the gain is down to $3.4 billion and 19%.

New South Wales (NSW) led the gains with revenues of $7205 million, an increase of 21.85%. Queensland (QLD) was boosted by $869 million to $5053 million, a gain of 20.77%. Both South Australia (SA) and Western Australia (WA) had gains of around 17%, while the Australian Capital Territory (ACT) had the biggest percentage increase of over 28%, with total revenues of $508 million. Victoria (VIC) had the lowest percentage gain, at 13.17%, to $6719 million.

Chart 2 indicates just how strong the gains have been. While VIC's increase for the 12 months to April 2021 is within range of gains for the 12 months to April 2013, the other states and territories exhibit the steepest gains over the past decade.

Chart 3, however shows some clear signs of the end of ongoing growth in hardware retail sales. It portrays month-on-corresponding-month figures, which have, for the first time since January 2020, dipped into negative territory. The largest fall was in SA, which was down -14.81%, followed by QLD at -7.03%, and VIC at -6.50%. Sales in Australia overall fell by 5.05%. The strongest turnaround was in NSW, where sales for March 2021 showed a gain of 12.07%, but fell by -1.31% in April 2021.

In Chart 4, we've smoothed the numbers out over three months, for February, March and April, and compared these over the years. This shows a distinct slowing over the most recent period, with growth going back to that of the better years prior to the 2020 bubble. The exception to that is for Victoria, which shows a stark downwards trend from 2020 to 2021.

Analysis

The statistical question really comes down to whether the result for VIC represents something individual to that state, or if it is an early indicator of what is to come for NSW, QLD, and potentially several other states and territories. Simply that question itself, however, indicates, that after 15 months of Australia-wide forces dominating the hardware retail sector, we are likely facing a period where individual state and territory forces will see results vary more widely.

Victoria has, in many ways, been the state most affected by the COVID-19 pandemic, with the longest and most severe lockdowns. That could mean that it will suffer in unique ways, as JobKeeper and other assistance fades away, or it could mean it presages some effects that will make their way more generally through Australia.

It is still too early to call whether hardware retail is set for a hard or soft correction out of the bubble. One "wildcard" is what happens with the real estate market. To some the soaring prices of dwellings represent a structural revaluing of these assets (despite slowing population growth and increased decentralisation brought about by work-from-home and other changes in the commercial environment). Others see a situation more akin to the Global Financial Crisis (GFC) of 2007/08.

One aspect that continues to see only limited attention is that, for some reason, market analysts have decided Australians will essentially "never" return to multi-unit dwellings. A reluctance to live in apartment blocks has certainly contributed to the surge in house prices, but that surge has been so extreme that it seems highly likely apartment will see a surge in popularity in the coming financial year. That could trigger the flatlining of house prices for a period, and that flatline could itself trigger a further, widespread decline.

There is also the matter of the political situation. While many have seen the current government as being reluctant to call an election before 2022, it's quite possible that there will be ongoing post-pandemic economic effects that require a choice between continued support, or introducing a measure of austerity. The government will try to have the election over with before those choices become too difficult, which gives even probability to an election in mid-November 2021 or one in March 2022.

In terms of the long view, over the entire FY2021/22, HNN would predict that the market will "split the difference" on a hard or soft correction to the hardware retail bubble. Retail sales are very likely to decline from the level of the pandemic, but they will probably not drop to the level they were at pre-pandemic. The first strong indicators of what will happen will come with the September 2021 hardware retail numbers.

How complex can a tool become, before it becomes too difficult to use?

That's really the question we need to address when we look at Makita's latest "top of the line" impact driver, the Makita Cordless Impact Driver TD001G. This is part of Makita's recently launched 40V XGT line of tools. This range makes use of modern 21700 Lithium-ion battery cells to deliver either 40V (36V nominal) through a single battery or 80V (72V nominal) through a double-battery setup.

As Li-ion tools have developed, and moved to running brushless motors, the electronics which control them have grown more complex. Older tools with brushed motors relied on mechanical parts to make their motors work, but brushless tools use elaborate, very fast switching circuits to alter the flow of current in the electric motor's electromagnets. That switching can be controlled on the nanosecond level, which boosts the range of ways these motors can behave. Today even the more basic circuit boards offer a wide range of features, yet the majority of tools have only just begun to explore their possibilities.

The TD001G from Makita is one of the first of the Japanese company's tools to really dig deeper into what the tools can do. In many ways that is a great idea, yet it would seem to have run into some limitations that Makita has historically imposed on itself. The main limitation is simply that Makita has shied away from the role that software has to play in the modern power tool company. This means that while the number of modes the TD001G can enter into has multiplied considerably, the interface used to control those modes is copied from tools that might have a maximum total of only six or so modes to control.

The solution to these control problems which companies - such as Techtronic Industry's Milwaukee brand - have pursued is to move much of the interface from the tool to the smartphone. If you have thought this was a bit of an "overcooked" solution in the past, then just looking through the instructions for the TD001G might convince you otherwise.

Many of the tool's specifications are impressive, indeed. It has a maximum no load speed of 3700rpm, a maximum impact rate of 4400ipm, and a maximum tightening torque of 220Nm.

Where the problems start to come up is when we begin to look at just the instructions for running the tool. That all begins with this diagram, which sets out the interface panels that are available.

This is what the basic control panel looks like:

Here is Makita's description of how the modes enabled by these panels work:

Here is the diagram explaining how to use the "quick mode-switching button":

That's what you need to know to make one button work.

The impact force is relatively easy to set by comparison, as it is just a four-LED panel, which sets the number of impacts to 1100, 2600, 3600 and 4400 impacts a minute.

The "assist type" is a whole different matter. The following is the chart to help you adjust that.

Just to finish this off, this is the chart of "indication patterns" that communicate the state of the tool to its user.

Alternatives

There is no doubt that the TDG001 will be a great tool, just like all the other Makita impact drivers. But this interface is going to be really daunting for all but the most die-hard Milwaukee supporters.

What would be an alternative? Allowing the tool to interface with a smartphone over Bluetooth opens up a whole new world of configuration options. Here is a screenshot from a video produced by Milwaukee outlining processes for a One-Key drill:

Those are just the basics. It's a simple matter to add more esoteric settings as well, such as the ramp-up duration:

More to the point, to communicate what you need to do to set up a One-Key drill, the entire video is just two and half minutes long. It's that simple.

Analysis

HNN has been predicting for some time that Makita, pursuing its non-software path, would sooner or later run into limitations. This tool may still be a success, but at a guess the company is going to get some feedback about exactly how difficult it is to use. We would also suggest that most users are maybe going to learn how to set and use two or three settings, and let it go at that.

Hopefully, what Makita will learn from this tool is that it really has no choice but to enter the world of Bluetooth connected tools, if it wants to provide this kind of advanced features.

In Mackay (QLD), Porters Mitre 10 joint general manager Greg Porter remains confident the business can keep up with the current demand for timber and other building supplies despite the construction boom around the world.

Amid restrictions on movement to stop the spread of COVID-19, people around the world are looking for bigger homes or embarking on renovation projects, sapping supply and driving up market prices for the most important component, timber.

In Australia, the HomeBuilder grant was tipped to attract 27,000 applications, but so far has received more than 121,000 across the country. A combination of low interest rates, government stimulus payments during the COVID-19 shutdowns and border closures, saw Aussies turn to bricks and mortar either through renovations or new builds.

Master Builders Queensland Townsville regional manager Emma Peters said the issues facing builders and trade contractors are "substantial". She told the Townsville Bulletin:

The resulting demand has created the first-world problem of builders being extremely busy with the work they won while the grant was running - as well as dealing with the growing problem of trade and materials shortages, and price hikes.

At Porters, the business is using all available supply lines to meet the "unprecedented" level of building approvals. Mr Porter told the Daily Mercury:

I'm supplying more product than I've ever had to supply in a very long time.

He said the pressure on building materials was amplified by an "excessive amount" of construction activity around the country.

In the past, we've never had these challenges. We've never seen every state in Australia in a very strong position construction-activity wise. There's always been one or two states that aren't in a growth period.

Queensland-based timber and hardware business, Bretts said it has been fielding desperate pleas for material from local builders and other states. Bretts managing director Bill Nutting said the firm would normally produce frames and trusses for 1000 homes a year. But in a recent week alone, they turned away requests for 600. He said suppliers were doing what they could, but labour shortages were impacting too. He had heard several stories of builders receiving calls from roofing contractors due to start work the next day demanding an increase of $5000 to do the job or they wouldn't turn up. He told The Courier-Mail:

The market is so hot they could walk next door and get the money. This is going to go for 12 or 18 months. The prices are going to keep going north and there's going to be delays. It's inevitable.

It's very unhealthy. We'd much rather see this play out over two years, not over 12 months.

Building products group Williams Group Australia relies on softwood produced at Tumut (NSW) to help supply its needs. Sales manager Mark Pickett said the current climate was proving "very challenging" in light of the fact Australia can't produce enough timber to meet demand. He told The Land newspaper:

This is across the board in NSW, Queensland, Victoria - demand for timber in all the states is very strong.

Yes the [2019] fires had an impact and they have lost a shift at Tumut - the mill used to run two shifts - which means that we are dragging logs from further away and that raises the cost. The impact has been severe. In the US, the lumber price index is off the Richter scale and sawmills can't catch up, so they have gone to Europe for logs. In Australia we pay northern hemisphere prices for lumber and that equates to a significantly dearer price.

Mr Pickett said prices were forecast to remain strong through 2024.

Timber production is an investment, not just something that you can grow in a few years. It will be 25-27 years before we get a harvest from new plantings.

Mitre 10 Goulburn operations manager Matthew Lawler put the timber shortage down to Covid-19, international tariffs and the ongoing impact of the 2019/20 bushfires. He told the Goulburn Post:

The bushfires totally stripped supplies.

Mr Lawler explained that burnt material meant suppliers went through blades faster which made manufacturing difficult. He said that while Mitre 10 had a good relationship with current suppliers and was "one of the priorities", they were searching for alternative solutions.

He said alternatives included a laminated veneer lumber product (LVL) that could be used for frames and trusses. However, this product is also in short supply and manufactured in Europe and Russia.

Steel was another option, but Mr Lawler said supply was "drained" due to current demand. He said builders were also finding it difficult to get hold of metal reinforcing mesh for concrete.

In Orange (NSW), the timber shortage will cause delays in housebuilding for years to come. Brendan Kent from Kents H Hardware explains that pine framing is used for 90% of new houses. He told the Central Western Daily:

What I've been told by suppliers is that it's going to be an issue that will take years to improve, it won't be fixed overnight. I've been told by a few of our customers that they're being delayed by two to three months. I hope I'm wrong but as far as I can gather this will be the new norm. There's no light at the end of the tunnel.

Normally Mr Kent would import the timber from New Zealand or South America. But the global demand for the wood has seen prices skyrocket. He said:

Now the US and Europe are buying it off them for 30-40% more than what we pay. Unfortunately most places are now limiting how much people can buy, so full packs of timber we unfortunately can't sell to anyone.

The way we see it, instead of selling it all to one customer we're better off sharing it around so everyone can stay in work.

Philip MacGregor, executive chairman at Sydney's Hardware & General, said the worsening shortage of timber, steel and other supplies hitting the industry is simply "overwhelming". Over the past 35 years, Mr MacGregor has experienced the "bust and boom" cycle of the construction industry. He told AFR (Australian Financial Review) Weekend:

This is bigger than all of those because it's widespread.

The huge increase in demand for new homes and renovations is colliding with a severely stressed global supply chain for basic materials. Shipping and transport bottlenecks caused by the ongoing pandemic have left consumers and businesses struggling to get their hands on everything from cars to mattresses and pianos, according to AFR Weekend.

Hardware & General's biggest customers are builders that typically construct between two and five houses a year. Mr MacGregor said:

Everything is going full steam ahead to the point where supply can't keep up, whether it be labour or raw materials.

The result is a steep leap in prices and wait times. Canny builders are stockpiling more than they immediately need. Others, Mr MacGregor said, are turning customers away or absorbing hits to profitability.

Bruce Parker, group manager at Hardware & General said locally produced timber costs have gone up by 20% to 25% this year alone, with more increases to come. Imported timber has increased by as much as 90% and more. Part of the reason is that Australian timber buyers are now competing for supply from Asian mills with American builders, who are in the grip of their own construction boom. He told AFR Weekend:

All the costs in the supply chain have just gone crazy. This isn't going to ease off until global demand eases off.

Pricing pressure

Everything from steel reinforcing for concrete slabs to timber for framing and cladding, flooring, roofing, doors and fittings have soared in price, according to the Housing Industry Association (HIA), and are sometimes taking months longer to arrive.

Stephen Havas, housing chairman at Master Builders Queensland old The Courier-Mail:

[The costs] are not currently priced into building contracts or they are being gradually fed into building contracts. Builders have little or no margin left at the end of projects to pay wages or fix building costs.

Builders have to increase their prices to match both what they are paying now and what they might have to pay in the future. The cost of construction from a consumer perspective is going to rise.

Bunnings has also experienced "unprecedented demand" for timber products and expects elevated timber prices to squeeze its margins for up to another year. Managing director Michael Schneider said at its recent Strategy Day presentation:

We think about timber (and) we've probably got another six to 12 months of some challenge.

"Feedstock is in a reasonably good space, but getting it through the mills and, clearly, the strong demand is putting pressure on," added Mr Schneider, using the term for raw timber that is processed into usable wood products.

Mr Schneider said Bunnings was reluctant to put up shelf prices and hoped to tackle the margin pressure by cutting costs.

We do a lot of work with our suppliers to look at ways that we can offset costs through improved efficiencies in supply chain or volume purchases.

HIA chief economist, Tim Reardon, believes the shortage was likely to last for another six months. He told the Herald Sun it was expected the housing construction surge would continue until the middle of next year, and then return to a "more normal market level".

Mr Reardon said timber supply would also improve as domestic manufacturers to ramp up their output, which would come as they trained new staff, and open or commission new mills.

Related: Hardware retailers have been experiencing supply challenges in building supplies for some time.

The Bunnings store located in the Toombul Shopping Centre in Brisbane (QLD) is set to close after five years.

The small-format Bunnings outlet is accessible from within the shopping centre and opened in August 2016. However regional operations manager Margaret Walford said reviews of the company's place in the local community revealed the Toombul site was no longer needed. She told the Northside Chronicle:

As our store portfolio evolves and new investments are made, we continually review our network and our needs in the local areas in which we operate and our stores play an important role as part of that.

Because our lease expiry was nearing, we've made the decision to cease operations at our Toombul smaller format store and service the local community from our nearby stores in Virginia, Newstead and Stafford. Both our Virginia and Newstead Bunnings Warehouses opened in 2019 and offer customers a newer, wider and improved offer.

Staff at the Toombul store had "done an incredible job serving customers and the local community... and we thank the team for their commitment", said Ms Walford. She confirmed all staff would be offered transfers to nearby Bunnings stores.

She also said the closure did not affect plans for opening stores in other locations and said news of the closure followed development plans for an expansion of the retailer's Stafford store.

The significant expansion of the Stafford Road site was put before Brisbane City Council last year and would include an additional 6000sqm of additional retail space and 180 new car parks.

Modbury

The site where the Bunnings store is situated in Modbury (SA) has been sold to Inheritance Capital Asset Management (ICAM). It is leased to Bunnings until at least 2025 with four, five-year renewal options thereafter. The vendor was Adelaide Property Management.

Located in close proximity to the Modbury Triangle Shopping Centre and Westfield Tea Tree Plaza, the Bunnings-tenanted asset is viewed as "Covid-proof" because of its stable, long-term income stream.

Freestanding Bunnings-leased freehold properties are highly sought after by investors due to the certainty of income. Only 22 warehouses were brought to market between 2016 and 2019 ahead of Charter Hall's acquisition of a portfolio of six Bunnings assets in late 2020 for $353 million.

ICAM, which has $395 million in assets under management, said the site also had strong prospects for population growth.

The transaction was negotiated by Jamie Guerra and Ben Parkinson from JLL. Mr Guerra said Bunnings assets continue to attract core capital. He told The Australian:

Investors are particularly attracted to secure, well-leased retail opportunities in South Australia providing attractive yields and no stamp duty on commercial transactions.

ICAM recognised the value of the Bunnings lease and with their existing retail expertise were attracted to the tightly held Modbury precinct.

Related: Charter Hall Group and two Australian superannuation funds have acquired a portfolio of six Bunnings hardware stores.